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DE RUEHKL #0771/03 2601018
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FM AMEMBASSY KUALA LUMPUR
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3209
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 2633
RUEHUL/AMEMBASSY SEOUL PRIORITY 1776
RUEHKO/AMEMBASSY TOKYO PRIORITY 2674

S E C R E T SECTION 03 OF 04 KUALA LUMPUR 000771 
 
SIPDIS 
 
E.O. 12958: DECL: 09/09/2019 
TAGS: MY PGOV ECON PREL PMIL
SUBJECT: SCENESETTER FOR DEPUTY SECRETARY STEINBERG'S VISIT 
TO MALAYSIA 
 
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KUALA LUMP 00000771  003.2 OF 004 
 
 
Malaysian law enforcement, which is overly reliant on an 
intelligence approach to CT, so that Malaysia has yet to 
properly prosecute, convict, and sentence any individual; 
rather, they are all detained under the ISA.  That said, 
while the Government has committed to a review of the ISA, 
there are no immediate plans to weaken or eliminate it. 
Malaysia has cooperated with Thailand regarding the 
insurgency in southern Thailand, but sees the problem mainly 
as an internal Thai political challenge.  Malaysia previously 
supported the peace process between the Philippine Government 
and the MILF in the southern islands, but withdrew its 
contingent for the International Monitoring Team in Mindanao 
in late 2008.  The Ministry of Foreign Affairs has indicated 
that Malaysia is considering a return to Mindanao, but has 
not specified a time frame. 
 
Global Financial Crisis and Economic Reforms 
-------------------------------------------- 
 
¶8. (SBU)  Malaysia,s economy is expected to contract around 
five percent in 2009 and recover slowly in 2010.  The global 
recession led to dramatic declines in exports and investment 
this year in Malaysia, resulting in a recession since the 
first quarter of 2009.  Malaysian policy makers responded 
with monetary easing and two fiscal stimulus packages worth a 
total of USD 19 billion, but the Central Bank does not expect 
a rebound until the fourth quarter of 2009 because Malaysia 
remains dependent on the resumption of growth in its key 
export markets, including the U.S., the EU, and Japan. 
Hence, the political stakes are high for Najib, who must 
ensure that the economy continues to provide growth and 
prosperity to a large middle class.  Najib has used the 
recession to push forward economic reforms needed to keep 
Malaysia competitive. He announced reforms in the services 
sector to some race-based equity requirements and some 
liberalization in the financial services sector.  Though of 
limited immediate economic impact, these reforms send a 
powerful message that ethnic Malays increasingly will have to 
compete on a level playing field with other races in 
Malaysia, and, perhaps over time, with foreign competitors. 
Najib,s recognition that reforms are needed also presents 
opportunities for our trade and investment agenda 
specifically with regard to government procurement and 
competition policy, among others.  Malaysia continues to 
signal its desire to resume negotiating a bilateral Free 
Trade Agreement with us even though Najib has yet to deliver 
on a cabinet decision to negotiate sensitive chapters on 
government procurement and competition policy.  He has 
authorized informal discussions on these topics.  AUSTR 
Weisel proposed informal discussions on these and other 
elements of the agreement during her September visit to KL to 
ensure both sides continue to make progress, even as USTR,s 
trade policy review continues.  The Malaysian side is 
considering that proposal. 
 
Political Discord at Home 
------------------------- 
 
¶9. (C) Najib came to power in the midst of domestic political 
discord that raises long-term questions regarding the 
continued dominance of his ruling UMNO party, in power since 
independence in 1957.  He replaced former PM Abdullah Badawi, 
who was eased out after the ruling National Front (BN) 
coalition lost its perpetual two-thirds majority control of 
Parliament--and five out of 13 states--in the March 2008 
general elections.  Najib is determined to restore BN's 
dominance, but he must contend with rising public 
expectations for better governance and a resurgent political 
opposition, led by charismatic former Deputy Prime Minister 
Anwar Ibrahim.  Najib will find it difficult to identify and 
implement popular political reform measures while still 
maintaining UMNO's tight control over state levers of power 
and patronage.  With a weakened ruling coalition, a maturing 
opposition, and a more sophisticated electorate with access 
to more information, Malaysia's polity is struggling to 
adjust to a new and more competitive political environment. 
The ongoing proceedings against Anwar (adjourned until 
November 3), accused of sodomy in a politically-motivated 
prosecution, continue to generate political friction 
domestically and internationally. 
 
¶10. (SBU) On September 14, Najib told members of the 
diplomatic community that he was committed to promoting 
Malaysia as a model Islamic country with multicultural 
tolerance.  It is notable that he felt the need to assure the 
assembled diplomats.  His comments came amid increased 
concerns over religious intolerance.  Two recent incidents 
highlight this concern and have sparked a public outcry.  A 
Muslim woman convicted of drinking a beer in a hotel lobby of 
 
KUALA LUMP 00000771  004.2 OF 004 
 
 
a religiously conservative state was set to receive a 
punishment, now suspended, that included 6 lashes with a 
bamboo cane.  International media attention embarrassed the 
GOM, which is trying to quietly drop the case, but the effort 
is complicated because Shari'a law is administered at the 
state level.  Religious discord was also fomented on August 
28 when a group, claiming to be local Muslim residents, 
protested the placement of a Hindu temple into their 
neighborhood by dragging a severed cow-head on which they 
stomped and spat in front of riot police.  Although the 
police took little action against the Muslim perpetrators, 
they reacted swiftly to disperse and arrest Hindu 
participants of the peaceful candlelight protest organized in 
response.  Some of the "cow-head incident" demonstrators were 
later arrested after much protest in the blogosphere. 
 
Trafficking in Persons 
---------------------- 
 
¶11. (SBU) On June 16, the U.S. released the 2009 Trafficking 
in Persons (TIP) report, which classified Malaysia as a Tier 
3 country, for lack of significant efforts to combat human 
trafficking.  In the months following Malaysia's 
classification as Tier 3, the Government took constructive 
measures on a number of fronts to address the trafficking 
issue.  Post has recognized a significant shift in the GOM 
approach to TIP and and an improved level of discourse with 
the USG on this sensitive issue.  The GOM has arrested five 
immigration officials in connection with the trafficking of 
Burmese refugees at the Thai border, and such trafficking 
apparently has ceased; announced that the TIP Council would 
be releasing a TIP Action Plan in the coming months; issued 
prosecutorial directives on the handling of TIP cases under 
the guidance of the Attorney General's Chambers; and has 
negotiated a new MOU with Indonesia (to be announced shortly) 
that would drop any provisions for employers to hold migrant 
workers' passports.  TIP Ambassador CdeBaca visited Kuala 
Lumpur August 25-27, and met with several senior government 
officials, including Foreign Minister Anifah Aman.  The 
Embassy is coordinating a follow-on action plan for engaging 
the GOM on measures needed in the coming months to address 
human trafficking. 
 
 
KEITH