Malaysia’s ruling coalition lost a key parliament by-election on Saturday, underscoring the dangers faced by incumbent governments in Southeast Asia as their export-dependent economies begin to absorb the full impact of the global slowdown.

The vote in Kuala Terengganu dealt a setback to Deputy Prime Minister Najib Abdul Razak, who is expected to take over as the country’s leader in March.

Najib had orchestrated a high-profile campaign on behalf the government’s candidate, hoping to demonstrate his political clout with a victory.

Instead, the opposition coalition showed it still commands considerable voter support after racking up unexpectedly strong gains in a national parliamentary election last March.

Pas – part of the country’s strengthening opposition alliance – took 51 per cent of the votes cast, as ethnic Malay and ethnic Chinese voters switched support from the National Front to the Muslim party to signal their frustration with the government.

Pas politician Mohammed Abdul Wahid Endut won by 2,631 votes in a battle which saw a turnout of almost 80 per cent.

Incumbent governments elsewhere in the region are also under pressure. In Thailand, where a prolonged political crisis last year paralysed policy-making, Prime Minister Abhisit Vejjajiva’s shaky new coalition government, which was formed in December, must now struggle with an economy on the brink of recession as opposition parties loyal to former prime minister Thaksin Shinawatra try to destabilise it.

In the Philippines, where elections are due in 2010, prospective presidential candidates are already distancing themselves from President Gloria Macapagal Arroyo. Political analysts there say her deputy, Vice-President Noli De Castro, is likely to run as an independent rather than representing Arroyo’s party.

The Malaysian economy is also in trouble. The government says gross domestic product could grow 3 per cent this year, but many private sector economists are less optimistic. Citigroup Global Markets says GDP is likely to expand just 0.5 per cent in 2009. Demand for Malaysia’s biggest manufactured export, electronics components, is slumping and prices have fallen sharply for oil, natural gas and palm oil, the country’s biggest commodity exports.

At the same time, race-based politics continue to play a pivotal role in this country of 27 million people. Since independence from Britain in 1957, many of Malaysia’s ethnic Chinese and Indians – who collectively make up more than 30 per cent of the population – have mostly lent their support to the Barisan Nasional (National Front) coalition led by the United Malays National Organisation, the dominant party of the country’s Muslim ethnic Malays.

But as the economy slows, many non-Malay voters are tiring of a decades-old affirmative action policy designed to help the majority ethnic Malay population catch up economically with the generally wealthier ethnic Chinese community.

“Chinese voters are now giving up on the government. They’ve had enough,” says James Chin, a political science professor at the Malaysia campus of Australia’s Monash University.

In last March’s national elections, many minority voters as well as a significant number of ethnic Malays switched their support to an opposition alliance led by former deputy prime minister Anwar Ibrahim.

The coalition’s main components are Anwar’s PKR (People’s Justice Party), the Chinese-dominated Democratic Action Party and Pas, the Islamic party.

As a result, the National Front lost its long-held two-thirds majority in Malaysia’s parliament, effectively forcing Prime Minister Abdullah Ahmad Badawi to accelerate a handover of power to his deputy, Najib.

Najib, 55, is expected to take over as premier in March after he formally wins election as Umno party president, a post for which he is running unopposed.

The British-educated son of Malaysia’s second prime minister, Najib campaigned hard in the Kuala Terengganu by-election to fill a parliamentary seat held by a Barisan member of parliament who died last year.

After Saturday’s defeat, Najib tried to play down the importance of the election loss for the government.

“Of course, this is a setback for us,” he told reporters, but added that “We will not be disheartened by the result.”

Independent analysts predicted that the Barisan’s recent decline could continue. Although Najib doesn’t have to call another national election until 2013, his rival, Anwar, is working on convincing at least 30 government lawmakers to defect to the opposition in order to take control of Malaysia’s 222-seat parliament.

“The slide continues,” said Khoo Kay Peng, an independent political analyst and consultant. “The Barisan should count its blessings for not losing by a bigger majority.” – Asian Wall Street Journal