Proton a make or break test

Malaysia is not in a strong negotiating position as it enters the final phase of talks with Volkswagen on the sale of Proton, the national carmaker. Not only is Proton losing money, but Abdullah Badawi, the Malaysian prime minister, is under pressure to convince foreign investors that the country welcomes their money. Mr Abdullah is a strong advocate of foreign direct investment to revitalise the economy and improve its competitiveness, but he has suffered setbacks. Malaysia failed to conclude a free trade pact with the US in time to take advantage of the fast-track authority to gain congressional approval without amendments.
The sticking point was Malaysia’s refusal to relax affirmative action rules benefiting the ethnic Malay majority when it comes to government procurement. The prime minister has sought to ease the rules in Malaysia’s biggest planned special economic zone, but is coming under fire from political rivals for doing so. The Proton sale is a make-or-break test of whether Mr Abdullah can face down entrenched nationalists who oppose his economic reforms. The failure to find a foreign strategic partner for Proton, which it desperately needs, would be seen as further proof that the prime minister is losing momentum in trying to restructure Malaysia. So he is likely to push for a deal with VW in spite of the political risks.