MALAYSIA'S NEW GENERATION OF POLITICAL LEADERS: IS CHANGE AHEAD?

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP04T00794R000200920001-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 20
• Document Creation Date: December 22, 2016
• Document Release Date: May 13, 2011
• Sequence Number: 1
• Publication Date: November 1, 1986
• Content Type: REPORT

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Directorate of
Intelligence
Malaysia's New Generation
of Political Leaders:
Is Change Ahead?
Seeret
EA 86-10044
November 1986
Copy 2 0 1
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Directorate of Secret
Intelligence
Is Change Ahead?
Malaysia's New Generation
of Political Leaders:
This paper was prepared by
Office of Leadership Analysis.F-7
Comments and queries are welcome and may be
directed to the Chief, Southeast Asia Division, OEA,
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Reverse Blank Secret
EA 86-10044
November 1986
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Malaysia's New Generation
of Political Leaders:
Is Change Ahead?
Key Judgments Since Dr. Mahathir bin Mohamad became Prime Minister in 1981, a new
Information available breed of young, middle-class Malays has been gradually replacing the
as of 15 October 1986 preindependence old guard in political and other leadership positions. We
was used in this report.
believe this new leadership will dominate the government and the major
party in the ruling coalition-the United Malays National Organization
(UMNO)-in the next decade; they already form approximately a third of
the Cabinet and UMNO's Supreme Council. As they rise through the
ranks of the party and government, the new leaders will probably make the
economy a top priority, and the United States, as the ultimate guarantor of
Malaysian security and an important trade partner, will be a major focus
of their concern. Although trade frictions and the government's inevitable
endorsement of Islamic causes-Islam is the country's official religion and
over half the population is Muslim-will be irritants in bilateral relations,
we believe the solid US relationship with Malaysia will continue.[ 25X1
Many of these young politicians have a strong background in business, and
we believe governments they dominate will follow policies based primarily
on pragmatic economic considerations:
? The new generation of leaders believes that economic progress depends
on following a moderate form of Islam, rather than the stricter Islamic
principles espoused by such countries as Pakistan or Saudi Arabia.
? Malaysian governments probably will retain the New Economic Policy-
an affirmative action program for Malays-in some form; however,
future leaders will almost certainly accelerate the Mahathir administra-
tion's recent deemphasis of the policy and increase reliance on the private
sector for economic development.
? The new breed's more balanced economic policies will help ease discon-
tent among the Chinese, who make up a third of the Malaysian
population and are dominant players in the nation's economy.F____1 25X1
We expect that governments dominated by the new generation of leaders
will evaluate diplomatic relationships on their material benefits. For
security and economic concerns, they will continue to prize Malaysia's
close relations with the countries in ASEAN. Given Vietnam's presumed
utility as a buffer to China, they may soften the current administration's
Secret
EA 86-10044
November 1986
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hardline position on Cambodia and urge ASEAN to accept a compromise
that recognizes Vietnam's de facto control of Indochina. We think it likely
the new breed, while remaining wary of China and the USSR, will
aggressively seek profitable relations with them. These leaders will also
continue to pay lipservice to Third World causes to boost Malaysia's
reputation as an emerging leader in the developing world.
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limited, our judgments are more speculative.
Scope Note This Intelligence Assessment addresses generational change in leadership
in Malaysia, a transition many countries in Southeast Asia are or will be
experiencing within the next decade. In Malaysia, old-guard politicians
who emerged before independence in 1957 are being succeeded by younger
leaders who were not directly affected by British colonial rule. Although it
will be several years before the full effects of the transition are known-the
leadership changes are evolutionary rather than sweeping-to provide
early warning to US policymakers, we examine what the changes might
mean in Malaysia and for that country's relations with the United States.
In some cases, we base our judgments of future policy direction on the
young leaders' backgrounds and their performances in public service and
the business world. In other cases, where Prime Minister Mahathir's heavy
influence precludes any real knowledge of the young politicians' policy
positions, and their performance record in and out of government is
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Key Judgments
The Emergence of a Middle Class
Looking Toward the 1990s
Dealing With Minorities
Starting Off on the Right Foot
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Malaysia's New Generation
of Political Leaders:
Is Change Ahead?
The Emergence of a Middle Class
In the last several years, a politically active middle
class of young Malay professionals and entrepreneurs
has emerged and is, in our judgment, already making
a substantial impact on Malaysia's political, econom-
ic, and foreign policies. The new group is the offspring
of the New Economic Policy (NEP), an affirmative
action program begun in 1971 to give native Malays a
greater role in the country's economy. The NEP's
ambitious objectives of social restructuring promoted
the transfer of Malays from agriculture, where they
were concentrated, to employment and ownership in
other sectors of the economy, particularly business.
The government has had considerable success, accord-
ing to economic observers, in this essential aspect of
the NEP.
In 1981, Dr. Mahathir bin Mohamad, a member of
the new middle class trained as a physician, became
prime minister and president of the United Malays
National Organization (UMNO), the dominant politi-
cal party in the ruling 13-party coalition. According
to the Embassy, UMNO is effectively the government
of Malaysia since its leaders assume the top govern-
ment positions and major policy initiatives are decided
in UMNO's Supreme Council. In 1982, Mahathir
and Deputy Prime Minister Musa bin Hitam
launched a successful drive to gain control of UMNO
through the systematic promotion of a "new breed" of
well-educated young professionals. Since then, ac-
cording to the US Embassy, urbanized Malay profes-
sionals have gradually replaced rural schoolteachers
as the dominant force in UMNO.
The growing influence of the young middle class was
most apparent at the May 1984 General Assembly of
UMNO, where, according to the Embassy, 40 percent
of the delegates were professionals and businessmen-
three times the number in previous years. The average
age of UMNO's newly elected Supreme Council then
was just over 40. In all, young, middle-class Malays
now form approximately a third of both Mahathir's
Cabinet and UMNO's Supreme Council, leadership
circles formerly dominated by wealthy aristocrats and
British-educated lawyers.
The continuing increase in political representation
and influence of young middle-class Malays is, in our
judgment, inevitable. Mahathir's Cabinet shuffles fol-
lowing the party election in 1984 and the national
election in August 1986 propelled several members of
the younger generation to top ranks of the govern-
ment. The new Cabinet, for example, includes Anwar
Ibrahim (39), Minister of Education; Najib Abdul
Razak (32), Minister of Culture, Youth, and Sports;
Rais bin Yatim (44), Minister of Foreign Affairs;
Sanusi bin Junid (43), Minister of Agriculture; and
Abdullah bin Ahmad Badawi (46), Minister of De-
fense. Although political observers consider their port-
folios-with the exception of the education ministry-
to be relatively minor or heavily controlled by the
Prime Minister, we believe these and other similar
young Malay politicians will dominate the govern-
ment in five to 10 years (see the appendix).
Looking Toward the 1990s
UMNO and its leadership will remain at the center of
Malaysian politics at least into the 1990s, in our
judgment. The ruling coalition has captured a parlia-
mentary majority in every election since 1959, and the
coalition, in turn, has always been controlled by
UMNO. In our view, the opposition has no reasonable
expectation of coming to power any time soon; it
failed in August 1986, when many political observers
gave it a reasonably good chance of making strong
gains. The opposition's aim probably will continue to
be to deny the government the two-thirds majority
needed to amend the Constitution, and to use elec-
tions as opportunities to air grievances.
For its part, UMNO, according to the Embassy, is
remarkably flexible, internally democratic, and re-
sponsive to broader sociopolitical trends. We expect it
will adjust its policies enough to ensure that its
monopoly of the political high ground will continue.
Although the leadership style and values of the new
breed are dramatically different from those of the old
guard (see the table), changes have occurred gradually
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Advancement criteria
Attitude toward:
Aristocrats and bureaucrats from a hierarchi- Professionals, entrepreneurs, technocrats.
cal, rural society, who led the country to Young (most under 40), well-educated, mainly
independence in 1957. Retained power urban, ambitious, self-confident, impatient.
through feudal authority. Members of the new Malay middle class.
Deference to elders, waiting one's turn, ethnic Efficiency, hard work, discipline.
unity in public, support for the status quo.
Believed politically weak Malays had to hang Take Malay political dominance for granted.
together to maintain political influence.
positions of power; however, no longer depen-
dent on Chinese for financial support.
Valued royalty as the protectors of Malay Refuse to defer to royalty. Have claimed the
interests and articulators of Islamic ortho- traditional roles of royalty for themselves.
doxy.
Followed a version of Islam that was modified Stress a purer version of Islam all but devoid
and softened by Malay adat (pre-Islamic cus- of Malay adat, but molded to be compatible
tom and culture). Did not dwell on their with the imperative of modernization. Similar
religious beliefs. to the "Protestant ethic" of the West.
Passive, essentially pro-Western. Pro-Western, but more stridently nonaligned.
Espouse firmer, more forceful policy positions.
a "Old guard" refers to politicians who were dominant before
Mahathir became prime minister in 1981.
enough to prevent cleavages from weakening the
party. One reason is a strong preference within
UMNO to settle disputes by compromise, as it did
when Musa resigned in March. Although some mem-
bers of UMNO resented Musa's abrupt resignation
over "irreconcilable differences" with the Prime Min-
ister, the event did not split the party as some
outsiders predicted. We expect power struggles will
continue between the factions in UMNO loosely
formed around Musa and Mahathir, but the party's
leaders will probably also continue to hammer out
working compromises behind closed doors. This inter-
nal filtering process, we believe, will go a long way
toward ensuring a smooth transition as the new
generation increasingly takes hold of the government.
Policy Positions of the New Generation
Because many of the new generation of Malay leaders
have a solid professional and business education, we
believe their primary policy focus will be rapid eco-
nomic development. Unlike the traditional Malay
elite, who supported the status quo to ensure their
privileged position (see the inset on Malaysia's leader-
ship since independence), young Malay leaders value
hard work and efficiency, according to the Embassy,
and, in our judgment, will work aggressively and
effectively to implement government policies. When
Minister of Culture, Youth, and Sports Najib Razak
was chief minister of Pahang state, for example, he
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fought for a balanced state budget and strict manage-
ment of Pahang's natural resources and revenue,
according to Malaysian press reports; we expect him
to maintain those values as he rises in national
government. Sanusi Junid-a graduate of the London
School of Economics-while Minister for National
and Rural Development from 1981 until 1986 worked
to remove inefficiency in community development
programs and cooperatives, earning the reputation of
being a forceful troubleshooter, according to Asian
journalists.
The new generation of UMNO leaders is not a
homogeneous group, however. According to the
Embassy, some young Malay politicians, particularly
those in rural areas, have not prospered significantly
from the NEP. Many, uneasy with the Malays' rush
to materialism, have been profoundly influenced by
the resurgence of Islam that flowered in Malaysia in
the mid-1970s, according to the Embassy. Although
these emerging UMNO leaders are not as politically
influential at a national level as their modern, busi-
ness-oriented peers, we believe they exert a consider-
able amount of influence on voters at the grassroots.
For the most part, because of their professional
training and business experience, we expect leaders
who rise to power at the national level to take
pragmatic views on the key social, economic, and
foreign policy issues that confront Malaysia. They
will be somewhat less strident than the Mahathir
administration is on Islamic issues, in our judgment,
as well as more flexible in economic policy, and less
ideological on foreign policy. Nevertheless, like their
predecessors, future leaders will endorse only those
policies that ensure the maintenance of Malay politi-
cal dominance and will probably support Third World
and Islamic causes whenever useful (see the inset on
Musa's policy preferences as a model for the new
breed).
Islam. The next generation of leadership will proba-
bly devote much of its energy to convincing the nation
that economic progress depends on following a moder-
ate form of Islam, according to the Embassy. Their
challenge will be to meld the resurgence of Islamic
piety in Malaysia with national policies that foster
Malaysia's Leadership Since Independence
Malaysia's .first Prime Minister, Tunku Abdul
Rahman, took control of the country from the British
in 1957, but during his 13 year leadership an essen-
tially colonial social and economic structure and
outlook persisted. Malay aristocrats, like the Tunku,
who dominated the government, and Chinese business
tycoons, who supported them, shared Western values
and were often educated in the West.
Although racial riots in 1969 led to policies favoring
ethnic Malays, the Anglicized, aristocratic nature of
the leadership continued during the 1970s. The
Tunku's successors, Tun Abdul Razak and Datuk
Hussein Onn, were British-educated lawyers who
pursued moderate, essentially pro-Western domestic
and foreign policies. They formulated policies unilat-
erally and with little consultation among their politi-
cal associates. As aristocrats, they were all but
invulnerable to attack because of traditional Malay
deference to royalty.
Prime Minister Mahathir, we believe, brought a clear
end to the colonial era when he assumed office in
1981, and we view him as a transitional leader
between the old guard and the new generation of
Malaysian political leaders. Unlike his predecessors,
he was educated in Southeast Asia rather than
abroad, and he is of modest origins-the son of a
schoolteacher. He vehemently condemned Britain's
exploitative colonial policies and immediately im-
posed a boycott of British goods that remained in
effect for 18 months. He publicly challenged the
authority of the Malay royalty in 1983. Where his
predecessors were conservative, Mahathir believes
traditional, deference-laden Malay cultural values
are the causes of Malay poverty and backwardness.
Instead, Mahathir has sought to promote values such
as hard work, discipline, and efficiency, and he has
tried to introduce a more nationalistic, Eastward-
looking foreign policy that holds up Japan and South
Korea as models for Malaysian development.
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Musa's Approach -A Model for the New Breed?
An Embassy report states that the next echelon of
ambitious young leaders are mostly proteges of
Deputy President of UMNO and former Deputy
Prime Minister Musa. Musa's and Mahathir s policy
orientations and political styles differ, and we believe
the tendency reported by the US Embassy and the
press of many new-breed politicians to prefer Musa to
Mahathir is a clue to the values and beliefs of
UMNO's new breed.
Musa more closely represents the secular element of
the new middle class, according to the Embassy. He
shares Mahathir's belief that the New Economic
Policy is essential to raise the educational and
economic level of Malays; however, he believes that
the tendency toward open-ended accommodation to
Islam is potentially destabilizing, given Malaysia's
ethnic cleavages.
Musa was first elected to Parliament by a Chinese
majority constituency and is more sensitive to the
concerns of minorities than Mahathir, according to
the Embassy. Musa has consistently worried about
trends toward segregation and communal polariza-
tion. Before he resigned, he squashed a scheme to
negate the results of the Sabah state election in 1985
where a non-Muslim was appointed the state's chief
minister, for example.
Though a dedicated Malaysian nationalist, Musa-
unlike Mahathir-is clearly pro-Western, according
to the Embassy. He was influential in restoring
Malaysia's relations with the United Kingdom, which
hit rock bottom during Mahathir's "Buy British
Last" campaign in 1981-82. He also reportedly ques-
tions the premises of Mahathir s "Look East" policy,
which favors Japan and South Korea over the West.
Although Musa has stated that Malaysia does not
want to be used as a pawn in an international power
game, according to the Embassy he shies away from
Mahathir's efforts to promote solidarity with Islamic
Third World countries.
modernization and economic development, while
guarding against alienation of the large Chinese and
Indian minorities, who no doubt believe that govern-
ment endorsement of Islam in any form undermines
their already second-class position in society. When
the NEP was instituted following racial riots in 1969,
for example, the policy promoted the economic ad-
vancement of Malay Muslims, while limiting the
economic freedom of Chinese and Indian non-Mus-
lims. The new breed will, for the most part, probably
handle religious policies cautiously and pragmatically,
retaining Islamic measures implemented by previous
governments and introducing additional measures
gradually while trying to confine their impact to the
Malay community. For example, new leaders may
impose an intensified Islamic curriculum on Malay
schools, without affecting those schools for non-
Malays.
There are those within the new breed who have been
deeply affected by dakwah (meaning to call), an
Islamic missionary movement led by intellectuals with
their roots in student politics. The Malaysian League
of Muslim Youth (ABIM), according to the Embassy
the most influential of dakwah organizations with
about 35,000 members, seeks changes in government
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furthering its cause through the administration of
schools, cooperatives, and its own magazine. Anwar
Ibrahim-founder, former president, and member of
ABIM until 1982 when he entered the government-
is touted by many political observers to be Mahathir's
protege and, we believe, represents the more religious,
less materialistic Malays. Because of Anwar's charis-
matic appeal and his emphasis on moderation in
pursuit of Islamic goals, we believe he and his sup-
porters are likely to gain a sizable degree of control in
future governments. As a result, we expect they will
continually try to pull the country toward a purer
form of Islam; Anwar has stated publicly, however,
that Islam in its purest form dictates communal and
religious tolerance. Press reports indicate Anwar has
actively fought for increased liberalization of the press
and academic institutions and against corruption and
poverty, and we believe, on balance, he is sensitive to
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the problems of a multiracial society and sympathetic Malaysia: Real GDP Growth Rate
The question of how to handle Islamic extremists is
controversial among leading members of the younger
generation, but most agree that radicals must be
contained,
Malaysia has not been immune to Islamic extremism,
dramatically illustrated by the bloody clash in Kedah
state between Muslims and police in November 1985,
which left 18 people dead. Government officials often
accuse the Pan-Malayan Islamic Party (PAS)-
UMNO's only competitor for Islamic votes-of being
a radical party that must be constrained. Minister of
Agriculture Sanusi Junid has publicly stated that
PAS supports criminal activities and should be treat-
ed as a security threat. Minister of Defense Abdullah
Badawi has said that the government would use the
Internal Security Act impartially against anyone
found trying to divide the Malay community, a clear
allusion to PAS, in our view. Favoring a softer
approach, Anwar Ibrahim prefers to challenge and
presumably defeat PAS in open debate of Islamic
principles, Embassy sources say.
Economic Policy. The strong business background of
the new breed leads us to believe it will be more
realistic and less ideological in its economic initiatives
than the older generation of political leaders, trained
primarily in law. On the basis of this premise, we
believe the younger generation will further relax
constraints on foreign direct investment, especially
encouraging investment where Malaysia holds a com-
parative advantage, such as in estate agriculture. In
addition, the new breed will probably prefer more
stable-even if lower-long-term economic growth to
the roller coaster growth of the Mahathir administra-
tion (see the graph).
In our judgment, a government under the new breed
will almost certainly moderate the NEP and pursue a
greater role for the private sector. Since it was the
NEP that was responsible for their national promi-
nence, future leaders will no doubt subscribe to its
pro-Malay goals. Nonetheless, their public statements
thus far indicate they believe that economic policy
making under the NEP has been woefully inefficient
and a cause of falling growth rates. For example, the
I I I I I I I I 1 I
-2 1976 77 78 79 80 81 82 83 84 85
NEP's requirement that 30 percent of any new com-
pany be owned by Malays discouraged private enter-
prise as well as foreign investment,' according to
economic observers. Created to accomplish social and
political goals more than economic objectives, the
NEP also spawned a proliferation of special authori-
ties and agencies with overlapping functi: -, and
responsibilities. The powerful public sector lacks par-
liamentary oversight or public accountability, which
has shown up in financial scandals including the Bank
Bumiputra scandal that resulted in a loss of $1 billion
for the government-owned bank,
So far, none of the new breed of leaders has been
implicated in the Bank Bumiputra scandal--or the
number of other government financial irregularities
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exposed since then. We view this as further circum-
stantial evidence that the generation of leaders that is
emerging will be less blatantly political in its econom-
ic policy making than its predecessors.
Dealing With Minorities. We believe that future
leaders will be slightly more conciliatory toward
Chinese and Indian minorities than the Mahathir
administration, which has emphasized Islamic mea-
sures over concessions to minorities. (For example, in
1982 the Mahathir administration quashed a proposal
to form a Chinese-language university, although ad-
mission to the country's other universities is governed
by quotas favoring Malays.) Abdullah Badawi, while
Minister of Education, often called for racial harmo-
ny in the public schools and encouraged increased
contact between students of different ethnic groups in
order to promote mutual understanding and respect,
the Embassy reports. In addition, Anwar Ibrahim,
UMNO's Youth wing leader, has worked closely with
the youth wings of the Malaysian Chinese Association
and other parties in the national coalition, and
he is more popular with
the minority youth leaders than any previous UMNO
Youth leader. Any future leaders of UMNO would
have to champion the interests of their Malay constit-
uents, but we believe the Chinese would view almost
anyone as an improvement over Mahathir. In the
August 1986 election, for the first time in Malaysian
electoral history, more Chinese supported opposition
parties than the government's coalition parties, high-
lighting the increased alienation of Chinese under the
Mahathir government.
The Chinese almost certainly will welcome the realis-
tic attitude we believe the new generation of leaders
will bring to economic policy management. Chinese
dissatisfaction of recent years has been caused mainly
by the slowdown in economic growth and the NEP's
restriction of their economic freedom, according to
the Embassy, both of which we believe the new
breed's emphasis on economic growth and sound
economic policy will ameliorate (see the inset on the
NEP and minorities).
Foreign Policy. For the sake of economic and security
concerns, we believe governments led by the new
The New Economic Policy Versus the Minorities
Kuala Lumpur adopted the New Economic Policy
(NEP) in 1971, following violent racial rioting be-
tween Malays and Chinese-Muslim Malays consti-
tute approximately half of the population, Chinese
form another third. The policy was devised to redress
the continuing economic backwardness of the Malays
that the government perceived had been at the root of
the unrest. Set for 20 years, it was instituted with the
dual objectives of eradicating poverty and restructur-
ing employment and corporate equity in favor of the
economically backward Malays.
To minimize non-Malay resistance to the NEP, the
goals of this pro-Malay policy are not pursued
through outright redistribution but as an outgrowth
of what is presumed to be an expanding economy. On
paper at least, Malay economic advancement occurs
as the Malays are granted the majority of new
opportunities in employment and ownership that are
generated by economic growth. This policy lowers the
proportion of non-Malay holdings relative to Malays,
but, as long as the economy continues to expand, does
not necessarily reduce the absolute wealth of minor-
ities.
Since 1985, however, the assumption that continuous
economic growth will both be of advantage to Malays
and also protect minority interests has become ques-
tionable. In 1985, Malaysia experienced its first
economic contraction in a decade, when the real gross
domestic product declined by 1 percent, and we
believe there will be little, if any, growth this year. In
addition, in 1985 the stock market collapsed and the
prices of most of Malaysia's commodity exports fell,
leading economic observers to predict two more years
of stagnation. As a result of the economic slowdown,
Mahathir cut back on the NEP early in 1986 by
suspending the goal of increased Malay ownership, a
move that will restore some of the economic leverage
the policy took from minorities.
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breed will work to preserve and build solid relation-
ships with other ASEAN countries. For example:
? The new leaders will probably continue to cooperate
with Thailand to combat drug trafficking and lin-
gering Communist insurgents on their shared bor-
der, a mutually beneficial arrangement.
? Although the Embassy reports that members of the
new breed view Indonesia's Suharto regime as old,
corrupt, and insufficiently Islamic, they will work
particularly hard to preserve relations with
Indonesia-with whom they have their closest mili-
tary relationship-to ensure that security ties re-
main effective.
claim.
? The way will be cleared for closer ties to the
Philippines once Manila relinquishes the claim to
Sabah that former Philippines President Macapagal
staked in 1962. The issue might be settled in the
next few years-President Aquino has declared her
intention to settle it, apparently by giving up the
for a compromise recognizing Vietnam's de facto
The new breed of leaders may, however, make signifi-
cant changes in Malaysia's policy on Cambodia. The
Mahathir administration's approach is to give
Thailand strong diplomatic support, work behind the
scenes to build the non-Communist Khmer resistance,
and dodge real negotiations with Vietnam. According
to the Embassy, some members of the younger, second
echelon of UMNO-including Abdullah Badawi-
challenge the government's position. This group be-
lieves that the prospects of attaining a truly indepen-
dent and non-Communist Cambodia are doubtful and
not necessarily in Malaysia's best interest, given
Vietnam's presumed utility as a buffer to China.
Although we believe a future Malaysian government
will not break openly with Thailand for security
reasons, members of the new breed may push harder
Following the Mahathir administration's example, the
new breed will probably be politically wary of Com-
munist countries but will aggressively seek economi-
cally profitable relationships with them.' Malaysian
governments have distrusted China because of
Beijing's past support for Communist rebels, mainly
ethnic Chinese, during the Malayan insurgency in the
1950s and doubts about the loyalties of Malaysia's
Chinese minority, who make up approximately one-
third of the population. Malaysians are also wary of
the Soviets-especially after a 1981 espionage scan-
dal that resulted in the expulsion of two Soviet
diplomats from the country-but they tend to view
the USSR as a balance to a resurgent China and,
thus, are less concerned about a rising Soviet presence
in the region, according to the Embassy. Malaysia's
concerns, however, have not dampened economic rela-
tions. For example, trade with the Soviet Union and
China amounts to, respectively, $300 million and
$400 million a year, levels that have stayed roughly
the same for at least the past six years.
Implications for Relations
With the United States
Starting Off on the Right Foot. In our judgment,
Malaysia's new leaders will strive for good economic
and political relations with the United States. We
believe the new generation of leaders will follow
Mahathir's lead and base Malaysia's continued eco-
nomic expansion on close trade and investment link-
ages to the United States and Japan (see the inset on
US-Malaysian economic and security relations). From
their perspective, US and Japanese businessmen are
wary of continued Malaysian Government interfer-
ence in the economy and affirmative action programs
under the NEP, according to economic observers. The
image of economic rationalism and Islamic modera-
tion that the new leaders represent will, in our
judgment, alter this view.
'There is at least one possible exception. According to political
observers, Anwar Ibrahim is violently anti-Soviet and, we believe,
may not advocate expanding Malaysia's economic relations with
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US-Malaysian Economic and Security Relations
Economic relations between Malaysia and the United
States, troubled over disagreements on commodities
issues until mid-1983, were reinvigorated when the
United States agreed that year to Kuala Lumpur's
demand for consultations on the disposal of surplus
tin. Since then, potentially troublesome economic
issues, such as renegotiations of the rubber and
textile agreements, have been handled pragmatically
by both sides, according to the Embassy. US firms
have invested $3 billion in Malaysia and benefit from
access to its abundant resources, including tin, tim-
ber, and natural rubber. US semiconductor producers
have invested in important production facilities in
Malaysia, the world's third-largest producer of inte-
grated circuits. In the past few years, Malaysia has
actively sought American technology and manage-
ment skills by committing a large proportion of its
future leadership to training in the United States-at
least 24,000 Malaysian students are currently in the
United States, over 80 percent of them studying
business administration, computer science, and engi-
neering.
Prime Minister Mahathir has based his security
policies on the judgment that a secure regional
environment depends on strong US engagement not
only in Southeast Asia but also directly with
Malaysia, according to the Embassy. Adamantly
nonaligned, Malaysia has nonetheless maintained
defense agreements with Western countries since in-
dependence in 1957 and, since 1982, has had unpubli-
cized military ties to the United States. In 1984,
Malaysia and the United States established the
Bilateral Training and Consultative Group (BITACJ,
which provides for joint military exercises, training,
and other defense cooperation. The BITAC arrange-
ment permits Kuala Lumpur to limit expenditures on
its own military establishment and to focus on its
priority of rapid economic development, while allow-
ing the United States limited access to Malaysia's
airfields and ports on the strategically important
Strait of Malacca.
As for security, the new breed will probably not
change the close but quiet security relationship that
has developed between the United States and
Malaysia since the early 1980s, when Mahathir came
to power. Malaysians consider the United States to be
the ultimate guarantor of the country's security,
according to the Embassy. On the basis of their
expressed pragmatic views toward both foreign and
domestic policies, we believe the new breed will
continue to play down the security relationship pub-
licly to avoid an Islamic backlash or the tainting of
Malaysia's professed nonaligned image in the Third
World.
But Irritants Will Remain ... Some frictions in
bilateral relations are bound to occur regardless of
who constitutes Malaysia's leadership. As a commod-
ity exporter, Malaysia has trade objectives that inev-
itably conflict with some of those of the United
States. In addition, we see little prospect for change in
long-held Malaysian views that technology transfer
from the United States is inadequate and that the
United States does not consider the effects its eco-
nomic policies, such as import quotas, have on smaller
countries.
In addition to differences over economic issues, we
expect the new breed of leaders will pay lipservice to
Islamic causes worldwide and identify with the Third
World on international issues. This will lead to occa-
sional friction with the United States in international
certainly continue to hold closely to moderate Arab
positions on issues such as Palestine. Nevertheless,
shared political and security interests, such as narcot-
ics suppression and concern over the Soviet occupa-
tion of Afghanistan, will help alleviate some of the
diplomatic strains.
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