Home 2008: 4 Restructuring federal-state relations

Restructuring federal-state relations

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sabahAs the posturings over federal-state relations intensify, BN Members of Parliament from Sabah and Sarawak have seized the opportunity to flex their electoral muscles. Despite their differences with one another, it is significant that the various BN Sabah component parties are speaking with a single voice on their set of demands. Francis Loh observes that Malaysia’s federalism is undergoing restructuring from a centralised system to a more decentralised model that could consolidate our democracy.

In the 12th general election of 8 March 2008, the Barisan Nasional (BN) did not only lose its two-thirds majority in parliament; it also lost control of five of the 13 states. There have been various follow-on developments since then, among them, former prime minister Dr Mahathir Mohamad’s assault on Abdullah Badawi’s leadership; soul-searching reviews by the BN component parties on why they fared so badly; and a more lively parliament what with a record number of 82 opposition MPs. Perhaps the most significant developments that will have a medium-term as well as a long-term impact on the structure and process of Malaysian politics are the formation of the Pakatan Rakyat (PR) opposition coalition (which augurs well for the formation of a two-party system) and the restructuring of federal-state relations.

This article focuses on Malaysian federalism, which is one of the most centralised federal systems in the world [see accompanying story on why this is so], and discusses the on-going restructuring of federal-state relations. Restructuring will create some controversy principally because the BN federal government refuses to make a distinction between government-to-government ties and party-to-party ties. Put another way, the BN federal government is reluctant to share power, revenue and resources with the PR-led states, except on its own terms.

This is why the federal government has moved so quickly to consolidate its control over development funds, to review whether or not to implement major projects in the PR-led states, and to insist on bypassing the state governments by re-channelling those funds to federal agencies at the state level, should it decide to provide development funds to those states. This modus operandi takes its cue from how the BN government had dealt with the opposition-led states of Kelantan and Sabah during the 1980s and early 1990s.

But due to the formation of the PR opposition coalition and its coming to power in five states (including three of the richest states in the peninsula), the bullying tactics of old will not work anymore. One reason for this is that the three rich states are tied into the global economy and are not as dependent on the federal government as Kelantan and Sabah were some 15 years ago. Recent developments, I argue, augur well for a fairer and more just distribution of power and development benefits. As in the rest of the world, the march towards democratisation, decentralisation and good governance in Malaysia is on.

The BN’s attempt to restore the old Umno-led system of political dominance cannot succeed. It can only stall this march momentarily. Alas, the fallout between the BN and PR-led states is another season of silly episodes, some of which will cause political controversy, though hopefully they will not jeopardise development and stability.

A list of silly episodes

Consider the following

• Deputy Chief Minister II of Penang cum State Executive Councillor in charge of Education and related matters, Dr P Ramasamy, was disallowed from distributing spectacles to 223 needy children in Tamil primary schools during school hours, although this had been the practice of his BN predecessor. Consequently, Ramasamy was forced to distribute the spectacles on a Saturday, outside of school hours. Apparently, the federal-controlled Education Department had recently advised school heads ‘to take a neutral stand’ and not invite MPs or state assembly members for their school functions. Teachers in Penang have also been told that attendance at official functions organised by the new PR-led state government is not compulsory: ‘explanation letters for failing to attend such functions’ are no longer necessary (The Star, 16 May 2008).
· Kedah Menteri Besar Azizan Abdul Razak has teasingly suggested that he might have to erect billboards of himself in front of schools because his photograph will not to be displayed in schools in Kedah state, apparently (The Star, 11 May 2008).

• Minister of Tourism Azalina Othman Said unilaterally cancelled all memorandums of understanding (MOUs) between her ministry’s Malaysian Tourism Action Council (TAC) and the newly elected governments of the five PR-led states. The existing State Tourist Action Councils (TACs) for Selangor, Perak, Penang and Kedah, traditionally headed by the Executive Councillor in charge of Tourism affairs in those states, were dissolved and then reconstituted under the direct control of the Tourism Minister in Putrajaya.. From now on, all federal funds spent in the promotion of tourism will be channelled directly to the newly created TACs under the control of BN in these four PR-led states, rather than to the state governments.

Hence the Penang state government cried foul when it was left in the dark about the ministry-organised World Music Festival held in Penang from 4-6 May. There is now concern that the federal government, contrary to past practice, might not cooperate with the Penang and other PR-led state governments in funding ‘signal events’ such as the International Dragon Boat World Championship (involving 4,400 participants from 22 countries) scheduled for July 2008 in Penang. Only half a million ringgit of the total promised funds had been forwarded to the Penang state government by the ministry, prompting the executive councillor in charge to look for new funding from the private sector.

• Entreprenuer and Cooperative Development Minister Noh Mohamed has similarly announced that all funds for federal projects under his ministry would now be distributed through Mara rather than by the State Economic Development Corporations (SEDCs) in the PR-led states (The Star, 27 April 2008).

• Minister of Rural and Regional Development Muhammad Muhammed Taib has promised that all village chiefs and village development and security committee (JKKK) members in PR-led states who resign from their posts would, nonetheless, ‘continue to get their allowances from the federal government’! ‘Once the 2,000 chiefs in Selangor, Perak, Kedah and Penang have resigned, they will be absorbed into a new committee’ under his ministry and will continue to get their allowance of RM400 and other miscellaneous allowances. ‘Their duties will be the same as usual and they will take care of the same villages, but they will now be working under the federal government,’ he revealed. Apparently, these JKKKs will be renamed JKKKP (Jawatankuasa Kemajuan dan Keselamatan Kampung Persekutuan), placed under a Federal Development Coordinating Committee, under whose auspices, all federal projects would be coordinated.

Meanwhile, the PR-led state governments have announced plans to elect new village chiefs to head the existing JKKKs. These new chiefs would be required to undergo training so that they would understand the PR governments’ policies and community programmes better. Invariably, two different sets of village heads and committees would result, having overlapping duties and incurring unnecessary expenditure and wastage of funds. Some of the pro-BN chiefs were accused of removing furniture and equipment from the community halls in Penang and Kedah (The Star, 9 April, 25 April and 16 May 2008).

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• Minister of Housing and Local Government Ong Ka Chuan has called for the revival of the JKKKs in Chinese New Villages (CNVs) which fall under the purview of his ministry. Once revived, they would be known as JKK Kampong Baru. His ministry would disburse federal funds for roads and drains, etc, to the CNVs via the JKK Kampong Barus, no longer via the state governments. Oddly, the minister also opposed the initiative of the Perak state government to give out freehold titles to the CNVs and kampong tersusun without prior approval of federal authorities (The Star, 29 March 2008 and New Straits Times, 27 April 2008).

• During question time in parliament, Selangor Executive Councillor in charge of industrial affairs Teresa Kok complained that she had not been able to meet with Malaysian Industrial Development Authority (Mida) officers. She wanted to know whether and how the Ministry of International Trade and Industry was planning to work with Selangor and other PR-led states to attract foreign investments.

• The Kelantan Community Development Department (Kemas) under the charge of the federal Rural and Regional Development Ministry complained that the Pas government was not cooperating with them. Kemas’s plans to implement a RM24 million complex (training hall, hostel, playground and recreational area) and run 682 kindergartens in Kelantan were being stalled because no state land was being allocated for the proposed projects. The Pas-led government retorted that federal agencies had not paid their past rentals of state properties and that there was still a decade-old shortfall in disbursing funds to the local authorities in Kelantan (The Star, 8 May 2008).

• There have also been the shenanigans involving the Selangor State Wives of Assemblymen and MPs Welfare and Charity Organisation (Balkis), Persatuan Bunga Tanjung (the Penang counterpart of Balkis), and Bidara (the Kedah counterpart of Balkis). In the first instance, some RM9.9 million was transferred from Balkis to its federal-level big sister, the Association of Wives of Ministers and Deputy Ministers(Bakti). In the case of Bunga Tanjung, a transfer of some RM350,000 was involved. These transfers, took place immediately after the BN parties in those states lost the elections, raising queries about the legality of those transfers, as well as the extent to which these organisations were political in nature, rather than charitable organisations as claimed.

Government-to-government ties versus party-to-party ties

What these silly episodes highlight is an attempt by the BN federal government to prevent political power and financial resources from being transferred from the centre to the states, despite the rakyat’s electoral preference for the opposition in the five states in the 2008 polls.

In effect, the BN federal government refuses to acknowledge the necessary distinction in federal systems between government-to-government ties from party-to- party ties. The norm in federal systems all over the world is to anticipate and expect a mix of different parties coming to power at the different levels of government, to recognise the rights of both the central as well as the state governments and to share power and funds accordingly – regardless of party affiliations.

For instance, in Australia, the federal government can be Labour-led, while particular states might be in the hands of the Liberals. Or, as in India, Congress might rule in New Delhi, but particular states such as West Bengal might be in the hands of the Communists or, in the case of Maharashtra, in the hands of the BJP. The federal and the state governments in these places learn to share power and revenue with one another and to cooperate too. Why, in many situations, the state governments of different political hues might gang-up together against the federal government to fight for greater state rights, regardless of party backgrounds. This is especially common in mature democracies such as Canada, Switzerland, Germany and Austria.

Not so in Malaysia. Used to dominating the entire political system at all levels for some 50-odd years, it is no surprise that the BN federal government refuses to accept this distinction and is resorting to various machinations to by-pass the PR-led state governments.

Moreover, it is generally acknowledged nowadays that the federal system, by definition a system of government that shares power between central and state authorities, is the preferred way to promote and to institutionalise democracy. In this regard, the attempts by the BN to centralise power and to control development funds and their disbursement to local areas through federal agencies are retrogressive moves indeed. These moves clearly highlight the undemocratic character of the BN, which apparently refuses to accept the rakyat’s choice of the PR governments at the state level.

Unjust and undemocratic past practices

This is not the first time that the opposition has taken control of the state governments. Kelantan has been under the rule of the opposition Parti Islam SeMalaysia (Pas, previously the Pan Malaysian Islamic Party or PMIP) for an extended period, except when Pas was part of the BN coalition during the early 1970s. Terengganu has also been governed by Pas in 1959-1964, and again in 1999-2004, while Sabah was under PBS (Parti Bersatu Sabah) rule from 1985 to 1994. (The Parti Gerakan Rakyat Malaysia or Gerakan also emerged victorious in Penang in 1969. But in the aftermath of the May 13 racial riots, Gerakan re-emerged as a BN component party).

The machinations used today to bypass the five PR-led governments appear to take their cue from the BN’s past dealings with the opposition-led states, especially during the 1990s.

In 1991, the federal government had redirected development allocations under the Sixth Malaysia Plan 1991-95 away from the PBS-controlled Sabah and Pas-controlled Kelantan state governments to the BN-controlled Federal Development Offices newly established in Kota Kinabalu and Kota Bahru respectively. Only grants duly specified in the Constitution were provided directly to the state governments. In fact, development allocations for the two states were cut in the Mid-term Review of the Sixth Malaysia Plan, apparently because of ‘constraints in the implementation capacity in these states’. But other BN-controlled states which had lower rates of project implementation had their allocations increased instead.

During this period, the chief minister of Sabah and his Kelantan counterpart were no longer automatically invited to meetings on development matters involving executives of the state governments either. In the case of Sabah, the federal government also imposed a ban on the export of timber logs, ostensibly to promote the development of the local wood-based industries. Sabah, which derived almost 50 per cent of state revenue from forestry earnings, was severely affected. Earnings fell from RM884 million in 1992 to RM685 million in 1993, and about the same in 1994.

In part because of such financial constraints, Sabah’s economic performance turned sluggish when the PBS was in power. Whereas the rest of the country experienced an average 8-9 percent growth over 1990-93, Sabah’s average growth rate was only four per cent. Lagging development was keenly felt by Sabahans. Consequently, they were attracted by the BN Sabah’s promise to rejuvenate the economy through a variety of projects – rural development programmes, low cost housing schemes, improved facilities for schools and the setting up of a university, industrialisation through the establishment of free trade zones, together, packaged as ‘New Sabah’.

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In the run up to polling day in 1994, seed grants for these projects, as well as funds for myriad other purposes – independent Chinese schools, rural co-operatives, roads, clinics, and mosques – were distributed. Put another way, the BN argued that it was only through BN-rule that Sabah would experience development. And it successfully starved the PBS state government of development funds, which it distributed through the Federal Development Office with the cooperation of the BN parties in the state.

Towards more decentralised and democratic federalism?

That said, it is not possible and probably counter-productive for the federal government, to try to bully the five PR-led states in the same manner it bullied Sabah and Kelantan in the 1990s. Not withstanding the BN’s stalling tactics, it is likely that federal-state relations will be restructured in more decentralised and democratic ways. There are three reasons for this optimism.

First, it is the first time that five states have fallen into opposition hands simultaneously. More than that, these five states belong to a common opposition coalition. Apparently, they have formed secretariats to coordinate and streamline their administration policies, including on how to manage their relations with the federal government. Regular meetings among the five mentris besar and chief minister are also in the pipeline.

Second, unlike in the 1990s, the opposition now controls Selangor, Penang and Perak, all located in the industrial belt and among the richest states. (The PR-coalition also governs Kelantan and Kedah, among the poorest states). Unlike Sabah and Kelantan, which were much poorer, and therefore more dependent on development funds from the federal government, Selangor and Penang in particular are linked to the new global economy.

No doubt, the five states would benefit from federal funds for major infrastructural projects. For this reason, they have held meetings with federal leaders to confirm that projects identified in the Ninth Malaysia Plan will proceed. The Penang and Perak governments have also called upon the federal government to distribute funds allocated to the Northern Corridor Economic Region plan, now that their governments had officially adopted the Northern Corridor Implementation Act 2008. They also expressed the hope that they would be represented in the NCER board of directors.

However, there is concern that the federal authorities might be conducting a review of these plans and that a delay of some of these projects is in the offing. Hence, the numerous press reports on these matters recently.

That said, the Selangor, Penang and Perak governments in particular, are also quite capable of sustaining themselves even if there is a cutback in federal funds. After all, the Kelantan government has been able to maintain itself these past years despite being denied its fair share of development funds. More than that, the Penang state government, for instance, has boasted that it is confident of bringing into the state at least RM3.8 billion worth of foreign and local investments by May, easily exceeding the original target for 2008.

In the case of Selangor, the state can also boast ownership of several listed companies including Kumpulan Perangsang Selangor Berhad (KPS) and its 56.47 per cent-owned Kumpulan Hartanah Selangor Bhd (KHSB). Both are controlled by Kumpulan Darul Ehsan Bhd (KDEB), also listed, which is the state’s ‘special purpose agency to undertake investments’. At any rate, it would be foolhardy to jeopardise the economy of Selangor, which accounts for almost 17 per cent of national GDP, according to the Selangor government.

Third, with the increased number of PR Members of Parliament, there would be much hue and cry in Parliament, quite apart from loud protests from the PR-led state governments and the rakyat in those states, should the federal government attempt to deny the five states development funds. Besides, as the critical industrial hubs of the national economy, the federal government, if it so attempted, would simply trigger a slowdown in the country’s overall rate of growth.

For these three reasons, there is hope that recent developments will favour a restructuring of the balance of power between the federal government and the states. In fact, recent developments since the establishment of the PR-led governments suggest that this restructuring could also act as a check upon excesses and abuses on the part of the federal government, promoting better governance too.

More transparent and accountable government

Perhaps the most publicised of the recent controversies surrounding federal-state relations concerns the Penang Global City Centre (PGCC) project, which had been announced as part of the NCER, with much fanfare by the prime minister himself in 2007. Just days after his new Penang Government had been elected, Lim Guan Eng, the new chief minister, commented that ‘a review of the PGCC project did not arise’ because ‘no plans had yet to be submitted’ to the local authorities or to the previous Penang government for their approval.

In a subsequent announcement on May 11, Lim criticised the former chief minister, Koh Tsu Koon, for having misled the prime minister on the status of the PGCC project. This project was supposed to have been undertaken by Abad Naluri, which had in turn entered into an agreement in 2004 with the Penang Turf Club to purchase their land in exchange for building a new race track and clubhouse on the mainland. Following Lim’s announcement, a police report was lodged by certain members of the Penang Turf Club alleging that members had not been consulted on the 3-year extension granted to Abad Naluri to honour the deal.

Meanwhile, the new Selangor government under Abdul Khalid Ibrahim reviewed the agreement signed between the state and Puncak Niaga Holdings Bhd that allows the company to operate, manage and maintain the Sungai Sireh water treatment plant in Tanjung Karang. The agreement signed on 7 March, just one day before polling, seemed ‘lopsided and would profit Puncak Niaga more than it would the state or the people of Selangor’, Khalid opined.

Apart from addressing the apparent shortcomings contained in the agreement, achieved via negotiated rather than open tender, the actions taken by the PR-led state governments further highlight how, over time, the federal government has centralised control of certain utilities and services which previously fell under the purview or joint-purview of the federal and state governments. Apart from water services, they include sewerage treatment, public transport, and most recently solid waste collection and treatment.

In the case of the privatisation of solid waste management, three concessionaires – Alam Flora Sdn Bhd, Southern Waste Management, and E-Idaman – were appointed to manage the service respectively, in the central, southern and northern parts of the country. The newly appointed deputy Federal Territories minister revealed that he had received numerous complaints of clogged drains, dirty roads with uncollected rubbish and uncut grass in various parts of Kuala Lumpur. He ventured into the possibility of his ministry taking over ‘clean-up responsibilities’ from Alam Flora (which he was forced to retract the next day by clarifying that he did not mean that the concession would be cancelled).

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Lastly, the Selangor government is looking into the plight of some 37,000 residents in Bandar Mahkota Cheras who have been protesting the closure of a road which allows them a shorter and toll-free route into their housing areas. This road was closed by the concessionaire of the Cheras-Kajang Highway, following the signing of its agreement with the federal government’s agency, the Malaysian Highway Authority, in 2007 (The Star, 13 May 2008). A related problem has also arisen with the setting-up of the Sungai Nyior toll plaza, one of three toll booths set up along the Butterworth Outer Ring Road, in Seberang Jaya. In this case the PR-led Penang government has been lobbying the federal government, which had appointed the concessionaire, for the toll collection to be stopped, in support of the protests by nearby residents, NGOs and opposition party members.

Spillover effects in Sabah

As these posturings over federal-state relations are occurring, BN Members of Parliament from Sabah and Sarawak have seized the opportunity to flex their electoral muscles too.

In the 2008 polls, the Sarawak BN won 30 of 31 parliamentary seats while the Sabah BN won 24 of 25 seats. Without their contribution of 54 seats, the BN would not have been able to claim victory in the 2008 election. Recognising their importance, the Sabah BN has made several demands on behalf of the poorest state in the country.

First, they have pressured for more cabinet representation. In this regard, they are disappointed that the important ministries of works, and of rural and regional development, which are portfolios directly related to their need for more development, had been given to peninsula-based ministers. The prime minister has tried to appease them by appointing a Sabahan, Pandikar Amin, as the Speaker and two others, one each from Sabah and Sarawak, as his deputies.

Second, the Sabah BN has also called for the closure of the Federal Development Office in Kota Kinabalu, which was first established when PBS ruled the state. For the Sabah BN, the continued presence of the department not only results in duplication of functions but ‘is an insult to the Sabahans’.

Finally, there are the related demands for the employment of more Sabahans in the federal civil service; the boosting of rural development in the state; the resolution of the serious problem of illegal immigration; and the establishment of a special ministry for Sabah and Sarawak affairs (The Star, 8 April 2008).

Despite their differences with one another, it is significant that the various BN Sabah component parties are speaking with a single voice on this set of demands. Some parties have also called for a higher percentage of oil royalties, which is now set at 5 per cent. At a time when there is much speculation about Sabah MPs crossing over from the BN to join the opposition, they have resorted to various innuendos to warn the BN federal government ‘not to take them for granted’.

For instance, an Umno leader has likened the BN Sabah as the coalition’s ‘fixed deposit’ warning that if the interest rate offered was not good enough, ‘we can put the deposit elsewhere’. Former Sabah chief minister Yong Teik Lee has unequivocally called for ‘greater autonomy’ for Sabah especially with regards to the selection of its own chief minister, who is now nominated by Umno’s federal leaders. Serving federal minister Bernard Dompok has opined that he would ‘leave it to the party to decide its future in the BN’. Finally, another Sabah Umno leader, the brother of the current chief minister, has warned of the ‘consequences’ of any failure by the federal government to make good its promises by declaring that it ‘was not wrong to vacate a bungalow [in reference to the BN] to move into a terrace house [in reference to the PR] if we are not given sufficient room in the bungalow’ or ‘if one has to sleep beside the toilet’.


These are exciting times for Malaysia. Following the political tsunami of 8 March, various follow-on developments have occurred. Media headlines have highlighted Dr Mahathir’s challenge of prime minister Abdullah Badawi and the unfolding of the intra-Umno power struggle. There is much hype over the possibility of some 20-30 MPs crossing over to the opposition and the political resurrection of Anwar Ibrahim. Then there is the Lingam video hullabaloo and so on. Not enough serious attention has been given to the unravelling of federal-state relations in Malaysia.

Yet Malaysia’s federalism is undergoing restructuring from a very centralised system to a more decentralised model that could provide the necessary ballast for consolidating our democracy. The formation of the Pakatan Rakyat opposition coalition does not simply signify the potential emergence of a two-coalition system. The increasing cooperation among the five PR-led states can also facilitate a shift in the balance-of- power between the federal government and the state governments. Although the BN government has been attempting to stall this process through a series of silly measures, it cannot succeed in preventing this restructuring. For the bullying machinations it is resorting to cannot work today like it did vis-à-vis Kelantan and Sabah in the early 1990s. As well, we can learn from the numerous examples of how this process of sharing power in federal systems is being consolidated throughout the world.

In order to consolidate this restructuring in Malaysia, there is a need to push for constitutional reform. The PR MPs, the dissatisfied Sabah and Sarawak MPs, and all the rakyat who desire democracy must push for the necessary amendments to the Constitution and related laws. It is not enough to depend on the courageous efforts of the PR-led state governments to negotiate with the federal authorities for more funds and power in decision-making. In this regard, there is not enough appreciation among the rakyat of the importance of their state governments who actually impact on their daily lives in more significant ways than do those MPs in parliament or those in the corridors of power in Putrajaya. From the discussion above, opposition-led state governments can further promote more transparent and accountable government by acting as checks on the excesses and abuses of a centralised federal government.

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