Najib, who headed BN’s election campaign for the election in 2008, is aware of the challenges. BN lost four states on the more prosperous west coast of the Peninsula – Kedah, Penang, Perak and Selangor – and failed to retake poverty-ridden Kelantan on the east coast, which has been under opposition control since 1990. BN only obtained 49 per cent of popular votes on the Peninsula. Sabah and Sarawak saved BN.

Although BN won 140 of the 222 Parliamentary seats, 54 of them came from these two states on the island of Borneo, confirming that island politics are not linked to the Peninsula. Most importantly, the popular vote obtained by UMNO in the Peninsula was 35.5 per cent, which was matched closely by the combined votes of Anwar’s Justice Party (Parti Keadilan Rakyat) and the Islamist party (PAS).

This trend is also evident in BN’s loss of all four by-elections in Peninsular Malaysia with a face-saving win in Sarawak – the only by-election to date on the Borneo Island. The three most recent by-elections were held simultaneously to weaken the opposition campaign (two in the Peninsula, one in Sarawak), on April 7th 2009, four days after Najib was sworn in as Prime Minister. BN lost two. BN and UMNO campaigned on the platform of giving the new Prime Minister and his policy of ‘One Malaysia, People First, Performance Now’ a chance; a platform that did not resonate with the electorate.

Even more worrying is that in all these by-elections, the opposition’s winning margin increased over that of the General Election despite BN training all its and the state’s resources and machinery against the opposition.

Najib also understands that Malaysia’s economic fortunes are trending downwards. Economic growth over the past 18 years has averaged just a little over 6 per cent while the average growth since the East Asian financial crisis of 1997/98 has been only 4 per cent. This is worrying as the performance has undershot all BN government targets.

In the Vision 2020 Policy, economic growth was targeted at 7 per cent per annum from 1991 to 2020 and in the Industrial Master Plan III, the target was 6.3 per cent for the plan period from 2006 to 2020, while the 9th Malaysia Plan (2006-2010) set the target for 6 per cent. While the reasons for Malaysia’s lacklustre economic performance are varied, the electorate and Opposition have laid the blame squarely at the feet of BN’s incompetence and corrupt practices.

This, of course, has raised serious questions about the credibility of the BN government’s ability to deliver on economic growth. While Federal government debt from 2000 to 2008 averaged 42.6 per cent of GDP, a manageable rate, that figure is steadily increasing as revenues progressively fall due to limited new growth areas, higher tax thresholds, increased exemptions from taxable incomes, depleting natural resources and the mismanagement of public funds.

Ever since affirmative action was introduced through the New Economic Policy (NEP) in 1970, the government has never had a balanced budget or surplus except for the period from 1992 to 1997, when Anwar was Finance Minister. Budget deficits have been the norm despite economic cycles and, since 1999, budget deficits have consistently exceeded forecast outcomes. The slowdown in the global economy has also made Najib’s task more difficult as Malaysia, the third most open economy in Asia, relies heavily on international trade.

Najib realises that he comes with a great deal of baggage. He is the ultimate UMNO insider. He was ushered into politics on the death of his father at the age of 23, taking over his father’s seat. The son of the highly respected second Prime Minister, Tun Abdul Razak, and the nephew of the third Prime Minister, Tun Hussein On, meant that his path up the ladder in UMNO was secured. His tenure as Defence Minister was scandal ridden, with allegations of various shady defence deals, a National Service program which has resulted in the deaths of 17 young Malaysians participating in the program, and ultimately with the allegation of being complicit in a murder.

With all these setbacks, Najib realises that he must convince UMNO and BN that the critical challenge to his and their survival is to end or at least temper patronage politics, improve government efficiency, deliver on economic growth and improve race relations which had been the hallmark of the successful BN machinery of yesteryear. Najib’s policy slogan of ‘One Malaysia, People First, Performance Now’ may demonstrate that both he and UMNO are beginning to understand that although Malaysia remains a country with deep-rooted racism, Malaysians of all races and creeds are increasingly doubtful about BN’s continuing rule. The BN/UMNO’s strategy of racial division has not worked in the same way as in years gone by. Voting patterns, especially among the younger generation (below 35), reveal the willingness of voters irrespective of race and social class to vote for opposition.

Najib may also realise that only substantive reforms will give him and UMNO a serious shot at redemption. Immediately after becoming the Prime Minister, he released 13 individuals, including three Hindu Rights Action Force (HINRAF) leaders – a people’s movement advocating fair treatment for the minority Malaysians of Indian heritage. They were being held under the Internal Securities Act (ISA), an Act that provides for detention without trial for unlimited period.

Najib also revoked the suspension on the biweekly internal newspapers of PAS and PKR, hoping to influence the by-election, but this had no effect. Najib correctly pointed out after the by-elections that BN had to ‘shape-up or ship out.’ Although 80 per cent of Najib’s Cabinet is comprised of Ministers from the previous Badawi administration, it is unclear how his administration will proceed in addressing the work that is needed, given all the challenges UMNO, BN and Malaysia are facing. But it seems highly unlikely that Malaysians will tolerate business as usual.

Gregore Lopez is currently pursuing a PhD in Economics at Australian National University and blogs at greglopez.wordpress.com. He also volunteers as the Editor of the Malaysia section of New Mandala. This post first appeared here on New Mandala.