KEY POINTS:
Malaysia, like its giant Muslim-majority neighbour Indonesia, has often been described as a beacon of multi-ethnic democracy, stability and economic growth. A country that should be held up as an example for autocratic states in the Islamic world to follow.
But the Malaysian model is under challenge following the weekend's general election in which the long-established National Front coalition suffered its heaviest setback at the polls since the country gained independence from Britain in 1957.
The coalition - which claims to represent the interests of the Muslim Malay majority as well as the two main ethnic minorities, Chinese and Indians - lost far more seats than expected in Parliament to a resurgent Opposition.
The Government of Prime Minister Abdullah Badawi lost its two-thirds parliamentary majority for the first time in nearly two decades, gaining 138 seats in the expanded 222-member legislature, with some results still to be declared. The Opposition now controls around a third of the seats in Parliament and the National Front has very few Chinese or Indian MPs left.
The last time the ruling coalition suffered such a setback, in 1969, there were race riots as embittered Malays turned on Chinese who voted for the Opposition. There is no sign so far that such a backlash is brewing, although recent protests by Indians claiming to suffer discrimination have been suppressed by police on the orders of a government wary of allowing inflammatory protests.
Since 1969, Malaysia has attracted widespread foreign investment that has helped it grow and become a more prosperous nation with a middle class that stretches across ethnic and religious lines.
But amid increasing competition from the rise of China and India in recent years, the Malaysian economy has slowed, throwing the political spotlight back on the issues that dominated campaigning for the weekend polls - corruption, rising inflation and crime rates, and simmering tensions between the main ethnic communities.
The political knives are out for Mr Badawi, who is blamed by critics for squandering opportunities since becoming Malaysia's leader and winning 90 per cent of the seats in Parliament on a reform programme in 2004. His predecessor as Prime Minister, Dr Mahathir bin Mohamad, has called on Mr Badawi to take responsibility for the losses and resign.
Dr Mahathir appointed him as deputy and heir apparent but has since turned against his protege and become his most outspoken critic.
Although Mr Badawi's position may be secure for the time being, he is expected to face a leadership challenge when the United Malaysia National Organisation, the dominant party in the governing National Front, meets later this year and holds its own elections.
Meanwhile, the political uncertainty is likely to take its toll on the economy just when firm government is needed to buttress growth by cutting ballooning state subsidies. A coalition of the three main opposition parties captured an unprecedented five of the 13 Malaysian state governments, including Kuala Lumpur, the capital territory, while keeping control of Kelantan. Among the five states that fell to the Opposition was the resort island and manufacturing centre of Penang, Mr Badawi's home state. The Opposition coalition was engineered by Anwar Ibrahim, a former government minister sacked by Dr Mahathir and subsequently convicted of corruption and sodomy in trials widely considered to have been politically motivated.
The Opposition, drawing mainly on disgruntled Chinese and Malay voters, won 82 seats, far ahead of analysts' predictions. Mr Anwar, eligible to run for Parliament again any time after next month, heads the People's Justice party.
It has emerged as the biggest opposition group in the new Parliament, with 31 seats. The results represent a triumphant political comeback for Mr Anwar, who describes it as a defining moment in Malaysian history.
His party drew strong support from among the urban middle class that resents the Government's policy of giving preferential treatment to the Malay majority in university places and state jobs. Instead, it wants advancement based on merit and a programme to reduce poverty among all racial groups.
Mr Anwar's immediate challenge will be to hold his disparate coalition together and try to strengthen it as a base for making future inroads into the Government's hold on power without upsetting the country's stability and economic growth. Malaysia's next general elections are not due until 2013.
* The writer, a former Asia editor of the International Herald Tribune, is a visiting senior research fellow at the Institute of South East Asian Studies in Singapore.
