Veteran leader Mahathir Mohamad, who ruled for two decades before handing over to his chosen successor Abdullah in 2003, accused the prime minister of 'destroying' the coalition and suggested he should quit. -- PHOTO: AFP

Prime Minister Abdullah Ahmad Badawi was sworn into office after his Barisan Nasional (National Front) coalition lost the two-thirds majority in parliament it had held for nearly four decades at the weekend's elections.

After getting a welcome vote of support from his United Malays National Organisation (UMNO) to stay on as both party president and prime minister, Mr Abdullah sought to allay investor concerns about policy change.

'We will ensure these policies will contribute to growth and confidence in our economy.'

But the prime minister has an enormous task ahead in holding together his battered coalition and filling holes in his Cabinet - four ministers lost seats in the weekend election, including Works Minister S. Samy Vellu, the head of the main Indian party in the coalition.

A key partner in the multi-racial coalition, the Malaysian Chinese Association (MCA), dismissed speculation the party might pull out of the coalition that has ruled Malaysia uninterrupted since independence from Britain in 1957, and the Malaysian Indian Congress (MIC) followed suit after the UMNO meeting.

The poll carnage was spectacular and wreaked havoc on the markets. Trading in Malaysian stocks was suspended for an hour - the first time that's ever happened - after they fell to the daily 10 per cent limit.

But credit rating agencies Fitch and Moody's on Monday maintained their sovereign ratings on Malaysia, saying the economy was on a sound footing.

'The element of uncertainty has gone up but the fundamentals of the economy are quite strong to withstand a sharper-than-expected heightening of uncertainty,' Moody's senior analyst Aninda Mitra told Reuters.

Reviewing mega-projects
Race riots erupted the last time the ruling coalition lost its two-thirds majority in 1969, but the streets have been calm since Saturday's vote, perhaps because members of all three ethnicities voted against the status quo.

Opposition parties took control of five of Malaysia's 13 state assemblies in Saturday's elections, giving them a range of powers over issues such as land and water, both crucial to the successful implementation of billions of dollars in projects.

The Democratic Action Party (DAP), which now controls the country's industrial heartland of Penang, and Islamist opposition party PAS, which will take part in government in three northern states, said they would review federal projects in their areas.

The first indication of that came on Monday when the incoming government in Penang said it would review plans for an $8-billion real estate project, whose major backer is a firm partly owned by businessman Patrick Lim, a friend of the prime minister's son.

Government-linked infrastructure companies took a beating on the bourse. Malaysian Resources Corp tumbled a whopping 39 per cent, UEM World 24 per cent, and Sime Darby 17 per cent, over fears the opposition would scrap projects on the drawing board.

Opposition parties were trying to parcel out cabinet posts and power sharing arrangements in the first test of how well they will govern before being sworn into office on Tuesday.

Former Prime Minister Mahathir Mohamad, who anointed Mr Abdullah his successor but now has waning influence in the party, advised him on Sunday to take responsibility and quit and let deputy premier Najib Razak take over.

But Mr Najib said after the UMNO meeting that the 'UMNO Supreme Council hopes there will be no doubts regarding the UMNO leadership and there will be no speculation on the leadership change'.

Dr Mahathir's son Mukhriz Mahathir, who has some support in the party, fell into line. 'I would support any action that would regain the confidence towards the PM,' he told a news conference.

Barisan Nasional won just half the popular vote and 62 per cent - down from 90 per cent - of the seats in the 222-member national parliament. The MCA saw their strength in parliament halved from 31 to 15, while MIC lost two-thirds of their seats.

A protest vote from ethnic Chinese and Indians, upset over what they saw as racial inequality in terms of business, job and education opportunities, had been expected.

But Malays, who are all Muslims and traditionally support Barisan, completed a perfect storm for the government, giving the opposition Islamists a record vote to protest rising prices.

Without a two-thirds parliamentary majority, Barisan can no longer change the constitution or make some key appointments. -- REUTERS