VZCZCXRO2042
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHKL #0855/01 2700544
ZNR UUUUU ZZH
P 260544Z SEP 08
FM AMEMBASSY KUALA LUMPUR
TO RUEHC/SECSTATE WASHDC PRIORITY 1700
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 0146
RUEHBY/AMEMBASSY CANBERRA 2634
RUEHLO/AMEMBASSY LONDON 0482
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC
RHHMUNA/CDR USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 02 KUALA LUMPUR 000855 
 
SENSITIVE 
SIPDIS 
 
FOR EAP/MTS AND INR 
 
E.O. 12958: N/A 
TAGS: PGOV PINR ECON EINV KDEM MY
SUBJECT: OPPOSITION-HELD SELANGOR GETS ON WITH BUSINESS OF 
GOVERNANCE 
 
Summary and Comment 
------------------- 
 
¶1.  (SBU) The Ambassador's call on Selangor Chief Minister 
Khalid Ibrahim and other embassy meetings in September with 
state executives provided insights into issues of governance 
facing the first-ever opposition administration of Malaysia's 
richest state that surrounds the national capital.  The Chief 
Minister, who is a close associate of Opposition leader Anwar 
Ibrahim, appeared highly focused on economic issues and 
attracting foreign capital, and valued U.S. firms' 
multi-billion dollar investment in the state.  State cabinet 
minister Xavier Jayakumar described difficulties in dealing 
with recalcitrant state employees tied to Prime Minister 
Abdullah's National Front (BN) government, and BN efforts to 
set up parallel government structures to divert funding away 
from state channels.  State assembly speaker Teng Chang Khim, 
the first non-Malay to hold the position, highlighted efforts 
to maintain and improve race relations, and noted intended 
institutional reforms to strengthen accountability. 
 
¶2.  (SBU) Comment:  What happens under the People's Alliance 
(Pakatan) administration in Selangor, Malaysia's most 
developed state located in the country's economic and 
political center, will have more national resonance than 
developments in other opposition-held states.  The opposition 
coalition's success or failure in Selangor could send 
important signals to the rest of Malaysia as to the viability 
of a national Pakatan-led government that Anwar Ibrahim has 
vowed to bring about.  To some extent, simply by not failing 
Khalid Ibrahim and his team may reduce apprehensions over 
Pakatan as a realistic alternative to continued UMNO rule. 
If state authorities are able to carry out reforms to improve 
accountability and transparency, such needed good governance 
measures could be picked up in other states.  End Summary and 
Comment. 
 
Chief Minister Focuses on Economic Governance 
--------------------------------------------- 
 
¶3.  (SBU) During the Ambassador's September 9 courtesy call, 
Selangor Chief Minister Khalid Ibrahim described his focus on 
economic governance:  "They've thrown me into the political 
world, but I still wear my corporate hat."  Khalid, who has 
long experience as a state enterprise and public sector 
economic manager, said he highly valued the U.S. economic 
relationship with Selangor, which received some $2.8 billion 
in U.S. capital investment in manufacturing projects over the 
past ten years per GOM figures.  Khalid recognized that 
foreign investment is primarily a matter for federal 
authorities.  The state government, however, can facilitate 
by providing certain infrastructure, support and 
problem-solving at the local level.  With land use at a 
premium, the Chief Minister identified urban redevelopment as 
a key issue for Selangor, and the Ambassador offered to share 
related information from the Commerce Department and other 
sources.  To promote both investment and education in 
Selangor, the state government was prepared to provide 
training sites for private sector skills development 
initiatives. 
 
¶4.  (SBU) Commenting in the wake of recent flooding in 
Selangor, the Chief Minister noted the need for state 
authorities to respond quickly and with concrete aid to 
assist victims of natural disasters.  Federal authorities 
controlled most of the resources, but the state could play a 
role by mobilizing NGOs, local community groups and the 
business sector.  The Ambassador suggested including the 
American Chamber of Commerce in discussions of local disaster 
relief.  The Ambassador noted that the availability of high 
quality schooling for children was a key factor in attracting 
international business to locate in a country like Malaysia, 
and asked for the Chief Minister's future support for the 
International School of Kuala Lumpur, which is located in 
Selangor.  Khalid Ibrahim pledged to help with future school 
requests. 
 
State Executive: Irritation with Federal Government 
--------------------------------------------- ------ 
 
¶5.  (SBU) In a September 11 meeting with Dr. Xavier 
Jayakumar, the state cabinet minister in charge of health, 
 
KUALA LUMP 00000855  002 OF 002 
 
 
plantation workers, poverty and "caring" government (and 
Deputy Secretary General for Anwar Ibrahim's Peoples Justice 
Party), Polchief explored the political challenges of an 
opposition state administration dealing with the National 
Front (BN) federal government.  Jayakumar admitted the newly 
elected Peoples Alliance (Pakatan) state government faced 
several problems.  First, the state government is staffed by 
employees, many of whom had developed deep allegiances to the 
successive UMNO-led BN governments that have held state power 
since independence.   He cited cases in which senior state 
employees defied the new state administration's orders not to 
demolish any places of worship or erect new advertisement 
billboards (as there have been numerous complaints of money 
from these billboards channeled to private accounts).  He 
noted that many state-level employees are in fact paid and 
administered by the federal government, limiting the state's 
authority over these workers. 
 
¶6.  (SBU) Xavier described a second and more serious concern, 
namely federal government efforts to set up a "parallel 
government" in the state by appointing pro-BN village heads 
at the grassroots and creating federal agencies that will be 
the conduit for federal funded government projects.  Xavier 
pointed out that being the richest state in the country with 
nearly 30 percent of the country's GDP, the BN federal 
government cannot "ignore or neglect" Selangor, which also 
surrounds the federal Territories of Kuala Lumpur and Putra 
Jaya, the federal administrative capital.  Xavier saw no 
signs that federal authorities were cutting off funding to 
the state; instead, the BN strategy appeared to be to divert 
projects and contracts away from state agencies and into the 
hands of federal agencies, some newly created for this 
purpose.  Nevertheless, Xavier offered that the state 
government is flush with cash and can carry on even if the 
federal government cuts funding to the state.  He also 
described the relations between the Sultan and the state 
government as "excellent." 
 
Assembly Speaker on Race Relations, Accountability 
--------------------------------------------- ----- 
 
¶7.  (SBU) Teng Chang Khim, a three term Democratic Action 
Party (DAP) Assemblyman and the first non-Malay speaker in 
the Selangor state legislature, focused many of his comments 
on race relations in Selangor during a September 22 meeting 
with Polchief.  Echoing Xavier's view, Teng said that the 
Sultan (the traditional Malay ruler) and the Pakatan state 
government enjoyed excellent relations.  He attributed this 
to close consultations between the state and the Sultan on 
major policy issues.  The state speaker said that the 
presence of Malaysian Islamic Party (PAS) in the Pakatan 
coalition served to help manage relations between Pakatan's 
many non-Malay officials and the majority Malay population in 
the state.  He cited the general Malay acceptance of a 
controversial integrated pig farm project as an example. 
Teng also noted that the non-Malay Pakatan leaders and 
assemblymen have made it a point to go to mosques and 
distribute donations during the fasting month, gestures well 
received by the mosques and unheard of under the previous BN 
administrations. 
 
¶8.  (SBU) The state speaker told polchief of his plans to 
pursue several institutional reforms that will strengthen the 
role of the state legislative assembly and make it more 
independent from the executive, and improve accountability. 
For instance, he has directed the state legal advisor to 
draft an act and amend the state legislative assembly's 
standing orders to give the assembly the ability to compel 
witnesses to testify in cases of corruption and abuse of 
power. In this context he said he was studying relevant UK 
and U.S. models for conducting public inquiries.  Teng said 
he also would explore the introduction of term limits for the 
Chief Minister and others.  Teng described Chief Minister 
Khalid Ibrahim as very supportive of transparency and 
accountability measures.  Regarding problems with 
recalcitrant state employees, Teng anticipated transfers of 
some senior staff to allow the Pakatan government to "take 
control" of the state government machinery. 
KEITH