(Bloomberg) -- Mahathir Mohamad appeared set to become Malaysia’s prime minister once again after dealing Najib Razak’s ruling coalition a stunning defeat, cementing the country’s first transfer of power in six decades.
Mahathir, Malaysia’s longest-serving premier, saw his four-party opposition bloc win a parliamentary majority in an election on Wednesday that rattled investors, many of whom bet on a Najib victory. The 92-year-old politician has pledged to step aside after opposition leader Anwar Ibrahim is released from prison in June.
In his first remarks to reporters after the vote, Mahathir expressed concern that Malaysia’s constitutional monarch might not pick him to run the country. Later on, the king granted Mahathir an audience and accepted his victory in the election, state news agency Bernama reported, citing a statement from the palace.
“There is a lot of work to be done,” Mahathir told reporters. “We need to attend to this mess as soon as possible.”
Najib had faced increased public anger over a goods-and-services tax that boosted prices and a money laundering scandal involving hundreds of millions of dollars siphoned from state investment firm 1MDB. While Najib denied wrongdoing, Mahathir lambasted him as a “thief” on the campaign trail.
On Thursday, Mahathir said that the “rule of law” would prevail when it comes to 1MDB, and if Najib did anything wrong “then he will have to face the consequences.”
“This has been a Malaysian tsunami, across the board and the country,” said Bridget Welsh, a political scientist at John Cabot University in Rome who specializes in Southeast Asia. “Mahathir was a game changer. But it also took Najib. They wanted Najib gone.”
Financial markets are closed in Malaysia this week after the government declared public holidays. Fund managers are bracing for a rise in volatility in Malaysian stocks after the vote even though they remain positive over the longer term due to the nation’s economic fundamentals. As results signaled a win for Mahathir, iShares MSCI Malaysia ETF based on the nation’s stocks dropped as much as 9.5 percent to the lowest since April 2017.
“People are loudly and clearly frustrated with the government,” CIMB Group Chairman Nazir Razak, Najib’s brother, said in a Bloomberg TV interview. “The will of the people win today and I’m fully expecting a smooth transition in political leadership.”
On the campaign trail, Najib’s opponents mainly focused on bread-and-butter issues. The GST helped inflation accelerate last year at nearly the fastest pace in a decade.
Mahathir’s coalition has pledged to scrap the GST within his first 100 days in office, and reintroduce fuel subsidies. If implemented with no other changes, those moves could narrow the government’s revenue base and be credit negative for Malaysia’s sovereign, according to Anushka Shah, a senior analyst at Moody’s Investor Service.
The vote showed that Mahathir still knows how to win elections. The victory was dominant: He swept traditional government strongholds like Johor, Kedah and Negeri Sembilan and neutralized Najib’s advantage in the Borneo states of Sabah and Sarawak.
For Mahathir, the fight against his former protege was particularly ugly. The two fell out over a myriad policy issues, including Najib’s decision to abolish the Internal Security Act, his performance in the 2013 general election and 1MDB.
Ahead of Wednesday’s vote, Mahathir repeatedly blasted Najib, saying he “lives in fear even of my photos.” Najib countered by saying Mahathir is “obsessive about control, calling the shots.”
What comes next is unclear. Mahathir helms an unwieldy four-party coalition that includes Malaysia’s largest ethnic Chinese party. And then it’s uncertain how long he’ll stay in power before the return of Anwar, his one-time deputy to Mahathir who was fired after a dispute over economic policies in 1998.
Mahathir said he would seek a pardon for Anwar, who is scheduled to be released June 8. He also faces a five-year ban from politics.
“I have to manage four presidents of four different parties,” Mahathir said. “It’s going to be a headache.”
It’s uncertain whether the outcome will fundamentally reshape race relations in Malaysia. Najib’s party had long staked its legitimacy on providing preferential treatment for the bumiputera, or “sons of the soil,” which include ethnic Malays and indigenous groups.
While voters were in the mood for change, the irony that an aging former prime minister who led the country for 22 years represented a fresh start wasn’t lost on some voters.
"I hope we can have a change -- I want to see something different, though it was strange to see Mahathir speaking," Avinash Naidu, 24, who works for a local phone company, said after leaving a polling station Wednesday. "It’s going to be tough with so many different parties. But it will be good knowing a chance for change is possible."
©2018 Bloomberg L.P.