By Niluksi Koswanage
KUALA LUMPUR (Reuters) - Boasting a fast-growing economy and riding a $2.6 billion deluge of government handouts to poorer voters, Malaysian Prime Minister Najib Razak would seem to have the recipe for electoral success on Sunday.
Instead he faces what some say is a class war between aspiring young Malays and ethnic Chinese and Indian minorities against the rich, powerful and long-ruling Malay elite.
The paradox of Malaysia's election is how Najib's coalition is struggling to turn growth and cash into votes, giving the opposition real hope for the first time as it taps into concerns that an elite few have gained at the expense of the masses.
Najib came to power in 2009 promising reforms to promote more inclusive growth, a year after millions of formerly loyal voters handed his National Front its worst electoral result.
Malaysia's already wide income gap has grown since then, despite progress Najib's government has made towards its goal of doubling incomes by 2020.
"I don't feel this big economic growth," said Wan Mohamad Yusof, a 49-year-old office clerk in Kuala Lumpur, a beneficiary of Najib's two rounds of handouts of 500 ringgit ($166) to Malaysia's 4.3 million poorest families.
"This 500 ringgit bribe from the government seems a bit insincere to me," said the long-time supporter of the National Front as he smoked a cigarette outside his small house.
Rising living costs and concern over inequality risk being particular problems for the government among ethnic Malays like Wan Mohamad, despite robust economic growth of 5.6 percent last year.
They make up 62 percent of the population and are the bedrock of Najib's United Malays National Organisation (UMNO) that heads the National Front. Ethnic Chinese make up about 25 percent of the 28 million population, with ethnic Indians accounting for about 8 percent.
In the past, Malays could be counted on to vote for UMNO and the National Front, seen as the guardian of an "affirmative action" policy that gives them privileges in government contracts, housing and education.
Yet in recent years poorer Malays have come to share a common grievance with the ethnic Chinese and Indian minorities over the perception that the policies have fostered corruption and favoritism, benefiting a well-connected few.
In 2008, about 10 percent of the ethnic Malay vote swung to the opposition, with the National Front losing its two-thirds parliamentary majority for the first time and the opposition making record gains.
"It is no longer about ethnicity. It is a class war in Malaysia," said Terence Gomez, professor of administrative studies and politics at Universiti Malaya in Kuala Lumpur.
"We are seeing conflict within the Malays and within other races that is class based."
DUAL RISK FOR NAJIB
The National Front is widely expected to win the election, but could end up with a smaller parliamentary majority that would weaken the next government and put Najib's job at risk.
There are mixed signs on Malay support for Najib.
An April survey by University Malaya's Centre for Democracy showed 54 percent of the Malay respondents favored opposition leader and former finance minister Anwar Ibrahim as prime minister, compared with 28 percent for Najib. Other surveys have shown a rebound in Malay support for the government.
The National Front needs just a 2 percent swing in the overall Malay vote to win 153 out of 222 parliament seats, regaining the two-thirds majority that allows it to change the constitution, according to a poll simulator program by online news portal Malaysiakini.
The opposition has a tougher task, needing a 10 percent swing in the overall Malay vote to win more than 112 parliament seats and form its first government, the simulator showed.
Najib pledged to reform the affirmative action policy to make it more needs-based and inclusive. He unveiled an Economic Transformation Programme (ETP) to draw in $444 billion in investment and create millions of jobs that helped drive last year's strong growth.
The government says gross national income per capita rose nearly 50 percent from 2009 to just under $10,000 last year, but critics say that figure is misleading because it does not take into account inflation and the uneven distribution of wealth.
MIND THE GAP
Malaysia has the third-highest level of income inequality in Southeast Asia after Thailand and Singapore. Data from the government's statistics department shows the mean household income gap widened between the top 20 percent of the households and the bottom 40 percent from 2009 to 2012.
Among ethnic Malays, who are referred to as bumiputra, or "sons of the soil", the gap has widened the most - by nearly 17 percent to 8,980 ringgit.
Idris Jala, the government minister spearheading the ETP, acknowledged in a commentary in the Star newspaper that the gap between the rich and poor was too high.
"We are taking measures to deal with this," he said, referring to cash handouts and the imposition of a national minimum wage last year. "Sometimes, the best way to help the poor, especially the very poor, is to simply give them money to alleviate their suffering."
The first 500 ringgit handout in 2012 added 2.4 percent to the annual household income of a Malay family in the bottom 40 percent. That just outpaced inflation of 1.7 percent last year but followed 5.4 percent inflation in 2008.
Critics of the government say that favored businessmen get far juicier handouts. The opposition has singled out ethnic Malay tycoon Syed Mokhtar Al-Bukhary as benefiting from a government program to divest stakes in state-linked firms.
Revenue in the nine months to December 2012 for Syed Mokhtar's DRB-Hicom conglomerate doubled to 9.7 billion ringgit ($3.2 billion) from the previous year after it bought national carmaker Proton for $411.9 million in early 2012 in a closed bidding process.
Syed Mokhtar, who holds a monopoly on sugar and rice in Malaysia and remains close to Najib and former prime minister Mahathir Mohamad, denies he is favored by the government.
Smaller ethnic Malay businessmen also fear being left out.
The influential Malay Chamber of Commerce has criticized developers of a 36 billion ringgit Kuala Lumpur rail project for favoring a few firms, including MMC Corp, owned by Syed Mokhtar, and Gamuda.
The chamber, which has 10,000 professional members, said none of its members won the smaller contracts on offer. MRT Corp, the developer under the Ministry of Finance, said it awarded more than 40 percent of the jobs to Malay firms.
A Reuters survey of 16 Malay companies shortlisted for the civil works portion of the rail job shows a majority with strong links to UMNO, with half listed on the Kuala Lumpur exchange.
Najib told Reuters in March he had made progress in improving transparency, but said there were certain federal government tenders carved out for "deserving" Malay companies.
But Hanafee Yusoff, secretary general of the Malay Chamber of Commerce, said: "We need a government that helps all Malay entrepreneurs. The current government has the intention, but the problem is with the delivery."
UMNO is relying on the feel-good effect of its cash gifts to extend the National Front's 56-year rule, especially in rural areas where living costs are lower. Its confidence stems from a heavy weighting of parliamentary seat allocations in favor of rural constituencies that tend to favor UMNO.
But election results from 1995 to 2008 show support for UMNO and the National Front see-sawing in the ethnic Malay rural heartlands. In 2008, there was a swing of 5.8 percent among rural Malays in favor of the opposition.
"We are seeing some return in support from the rural Malays because of the cash handouts, but we are not taking it easy," said a senior UMNO politician.
The opposition concedes it is difficult to make inroads in the Malay heartland and is counting on younger Malays, especially urban dwellers who go back to their villages to vote.
"Our best campaigners are the young, working-class Malays in the city," said Rafizi Ramli, strategic director for Anwar's People's Justice Party. "They are going through the difficulties of living in a city. They can tell their parents about the unfairness and the growing class divide."
(Editing by Stuart Grudgings, Paul Tait and Ron Popeski)