By Bill Tarrant
KUALA LUMPUR (Reuters) - Opposition parties were gettingready to take power in five of Malaysia's 13 states on Tuesday,putting the country in uncharted waters with the governmentfacing real competition for the first time.
A government led by the Democratic Action Party (DAP),backed mainly be the ethnic Chinese minority, was sworn intooffice on Tuesday in the industrial hub state of Penang in aquiet ceremony witnessed by sombre-looking civil servants whohave only ever worked for the long-ruling National Frontcoalition.
The strongly Islamist Parti Islam se-Malaysia (PAS) willlead or share power in four states, including three -- Kedah,Perak and Kelantan -- that share borders with Thailand, whichhas been battling an Islamic insurgency with historical linksto Malaysia.
PAS and the DAP have vowed to review federal projects onthe drawing board in their areas, but said would not stand inthe way of projects that were already approved and werebeneficial to the people, and have warned they would nottolerate cronyism.
Malaysia's politics of patronage, whereby state contractsare given to businesses aligned with ruling-party interests,has nurtured a powerful political-business establishmentwhereby contracts are often awarded without open, competitivetenders.
The Edge Financial Daily said in an editorial on Tuesdaythat was a major factor in Saturday's election, which handedthe ruling National Front its worst electoral setback inhistory.
"Indeed, one can say that one reason why the people votedso strongly for the opposition in the elections is to send amessage that they have had enough of political cronyism andawards of contracts and deals to politically connectedcompanies.
DEAD CAT BOUNCE
The prospect that this nexus could be cut, and thepossibility of policy gridlock now that the National Front haslost its iron-clad two-thirds majority in parliament and facesstrong opposition in heartland states, has spooked the markets.
Malaysian shares plunged 9.5 percent on Monday, wiping outsome $30 billion in market capitalisation, probably the biggestsingle-day loss in the market's history.
Stocks had rebounded nearly 3 percent by 0300 GMT, butanalysts saw it as a short-lived reprieve. "It's a dead cat'sbounce," said Kenny Yee, research head at OSK Investment Bank."Certainly our market will be undergoing lengthyconsolidation."
Prime Minister Abdullah Ahmad Badawi's National Front willbe undergoing consolidation as well in the days to come.
He has a tricky task ahead in fending off leadershipchallenges, especially with his UMNO party -- the dominantcoalition partner -- set to hold leadership elections in June.
He will also need to fill gaping holes in his Cabinet --four ministers lost seats in the weekend election, includingWorks Minister S. Samy Vellu, the head of the main Indian partyin the coalition, who lost his seat in the weekend debacle.
The winning opposition parties have a delicate task aheadas well. The Chinese-dominated DAP has long harboured deepsuspicions about the Islamist agenda of PAS, which advocatesIslamic law for Muslims, including punishments such as stoningand amputations.
The DAP, PAS and the People's Justice party of formerDeputy Prime Minister Anwar Ibrahim were still hammering outtheir power-sharing arrangements on Tuesday in Kedah, Perak andcentral Selangor state in the first test of how well they willgovern.
PAS kept power in Kelantan state and its government was dueto be sworn-in on Tuesday evening.
A protest vote from ethnic Chinese and Indians, upset overwhat they saw as racial inequality in terms of business, joband education opportunities, had been expected in Saturday'spoll.
But Malays, who are all Muslims and traditionally supportthe National Front, completed a perfect storm for thegovernment, giving PAS a record vote to protest against risingprices.
Without a two-thirds majority, Abdullah's Front can nolonger change the constitution or make some key appointments.
(Additional reporting Y-Sing Liau, Niluksi Koswanage;Editing by Alex Richardson)
