Malaysia has long been a role model for Southeast Asia, acclaimed for its multiparty politics, moderate Islam and impressive economic performance. But over several years now, the country's shine has been fading. 

One party -- Barisan Nasional -- has been in control for six decades and presided over a gradual centralization of power, growing corruption, and divisive economic policies that now threaten the very fabric of governance vital to the country's growth and prosperity. Events in the last few months have underscored these concerns and further tarnished Barisan's appeal at home and Malaysia's reputation abroad.

Kangaroo courts?

The most conspicuous of these events occurred Feb. 10, when Malaysia's highest court rejected an appeal by Anwar Ibrahim to overturn his conviction on sodomy charges. The charismatic leader of Malaysia's three-party opposition coalition, Pakatan Rakyat, was sentenced to five years in prison and barred from politics for five years after that.  

Vikram Nehru
Nehru was a nonresident senior fellow in the Carnegie Asia Program. An expert on development economics, growth, poverty reduction, debt sustainability, governance, and the performance and prospects of East Asia, his research focuses on the economic, political, and strategic issues confronting Asia, particularly Southeast Asia.
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The charge against Anwar was widely seen as politically motivated and was brought under a rarely-used law introduced by the British in the 19th century. Of the seven times the law has been wielded, twice Anwar was the target. He was acquitted in the earlier case.

Anwar's conviction raises serious questions about the independence of Malaysia's judiciary, the application of an outdated law, and the severity of the penalty. The prosecution shows the lengths to which Barisan's leadership will go to silence an opposition that has steadily gained ground in recent elections and even won the popular vote in the 2013 general election. Without Anwar, the opposition coalition -- fissiparous at the best of times -- will struggle to hold together.

Nasty rumors

A weak opposition suits Malaysia's embattled prime minister, Najib Razak, just fine. Not only is his political position precarious within his own party, he is mired in several scandals. One of these relates to Najib's position as chairman of the advisory board of 1Malaysia Development Berhad, or 1MDB, a sovereign wealth fund. His responses to accusations of impropriety appear to vindicate earlier reports on an anti-corruption website -- the Sarawak Report -- that 1MDB had a hand in murky transactions involving hundreds of millions of dollars, in which a close family friend of Najib's played a key role. 

The allegations coincided with news that the company could not meet payments on its $11.6 billion debt and had to be bailed out at the last minute by Malaysian tycoon Ananda Krishnan, who in February helped the company repay a 2 billion ringgit ($541 million) loan. The barrage of media criticism over 1MDB's parlous state prompted the prime minister to order Malaysia's auditor general to verify 1MDB's accounts.

Najib's imbroglio with 1MDB comes at a time when questions are being raised about the prime minister's personal wealth and how he acquired it. His wife, Rosmah Mansor, has been called the "the first lady of shopping" for her overseas buying and taste for designer clothes and accessories. She was quoted not long ago as lamenting the rising cost of house calls by hair stylists and seamstresses. Najib's office recently stated the prime minister's wealth came from "legacy assets." But when this was disputed by Najib's two brothers, who said their father died in modest circumstances, Najib shifted his defense, saying his wealth was "not unusual for a person of the prime minister's position." These changing explanations have sparked calls for an investigation into Najib's personal finances.

His travails do not end there. When Najib was defense minister, his former bodyguard, Sirul Azhar Umar, was accused of murdering a Mongolian translator and model, Altantuya Shaariibuu. Found guilty and sentenced to hang by a Malaysian court, Sirul fled to Australia. Now in an Australian immigration detention center, he has repeatedly claimed he was following orders but has not said where those orders came from. Under Australian law, Sirul cannot be extradited to Malaysia until Canberra receives assurances he will not be executed.

These allegations and rumors come just as Najib has come under fire at home. He has gone back on his promise to abolish the Sedition Act, which many say stifles free speech. Instead, he is vowing to strengthen it with new provisions that would criminalize calls for the secession of Sabah and Sarawak states, protect the sanctity of Islam and ensure other religions are not insulted.  

The Malaysian police have used the act with increasing frequency of late. After Anwar's conviction, four prominent individuals associated with the opposition were either arrested or called in for questioning for denouncing the verdict. One, a popular cartoonist, was arrested for tweeting an illustration depicting Najib as the judge in Anwar's sodomy case.

Grumbling masses

Malaysians are also unhappy on the economic front. Najib's approval rating fell to 44% last month -- from 48% in October 2014 and 62% over a year ago -- largely due to dissatisfaction with rising living costs and a soon-to-be introduced goods and services tax. Inequality, though declining according to official statistics, is still considered to be a "big problem" by over three quarters of Malaysian respondents in the Pew Research Center's 2014 Global Attitudes Survey. 

Though economic inequality is no longer primarily an ethnic phenomenon, the government maintains its bumiputera affirmative action policies favoring ethnic Malays who make up more than two-thirds of the population.

That has not prevented politicians from employing ethnically charged rhetoric. A Malaysian minister recently blamed Chinese traders for rising prices and urged Malays to boycott Chinese businesses. He has since apologized, but the damage was done. Malaysian Chinese, who account for nearly a quarter of the population and whose support for Najib and Barisan has declined over the years, now seem even less likely to give them their votes.

Holier than thou

Unfortunately, these divisive policies now extend to religious issues, reflecting a gradual trend within Malaysia toward Islamic fundamentalism. Earlier this year, Malaysia's highest court ruled that non-Muslims cannot use the word "Allah" in reference to God. Bibles using the word "Allah" have been banned in some states. 

Similarly, fatwas -- rulings that are issued by appointed Islamic clergy, enforced by the government and apply to all Muslims -- have become so ubiquitous in Malaysia that a government website now helpfully lists them. Some verge on the ridiculous, such as banning Botox, yoga, and Valentine's Day. But the trend is serious. 

The government of Kelantan State, for example, has announced plans to introduce hudud law, which requires punishments such as amputation of limbs, whipping and death by stoning for various crimes. Less dire, but just as worrying, is the recently announced intention of the Islamic Information and Services Foundation, under its patron ex-Prime Minister Mahathir Mohamad, to distribute a million copies of the Koran to Malaysian non-Muslims. It is hardly surprising that according to the Pew Research Center, Malaysia's index for government curbs on religion has climbed steadily since 2007 and now ranks eighth-worst in the world, just one spot below Saudi Arabia. 

 Part of the reason underlying Malaysia's trend toward Islamic fundamentalism could be the battle for Malay votes between the dominant party in the ruling coalition -- United Malays National Organization (UMNO), headed by Najib -- and the Pan-Malaysian Islamic Party (PAS) in the opposition coalition. PAS has followed a more puritanical form of Islam since the 1980s. Now UMNO is trying to establish its Islamic credentials in a bid to woo PAS followers. But by playing the religious card, UMNO is taking the country down a slippery slope that it -- and the nation -- may rue later.

Keep calm

Taken together, these recent developments raise serious questions about the country's direction, though it is too soon to panic. Malaysia remains a stable and prosperous country with many strengths. It still has time to repair the frayed fabric of governance and rebuild its reputation as a multiethnic secular state that protects the rights of all its citizens. Najib does not have to face a general election until 2018, but he does have to face critics within his own party, especially the still-influential 89-year-old Mahathir. He has openly criticized Najib and complained recently that "there was something rotten in the state of Malaysia."  

If he does not wish to be ousted as leader of his own party, Najib will have to show strong leadership to deal with his critics, unite his party, restore the confidence of his two ruling coalition partners and repair his image abroad, which took a beating following Anwar's conviction. To do this, he will need laserlike focus on governance and political reforms. A high priority is to make government more transparent and accountable through a more independent judiciary, along with stronger policies and institutions to fight corruption. Another is to make the country's politics and economics more inclusive and less racially divisive. 

These are formidable challenges, especially given Malaysia's combustible politics today. Najib's actions in the coming months will be critical, not just for his own survival as prime minister and party leader, but for healing his country's wounds and repairing its international reputation. 

As chair of the Association of Southeast Asian Nations this year, Malaysia will find the eyes of the region and the world scrutinizing its every action. One can only hope it will not disappoint. Otherwise, rising discontent and political friction could fuel the incipient but growing strain of Islamic fundamentalism within the country and further undermine social unity and economic performance. This is not a future one hopes and expects for a remarkable country at the heart of a remarkable region.

Yun Tang is a junior fellow with Carnegie's Asia Program.

This article was originally published in the Nikkei Asian Review.