By Phuong Nguyen & Rui Hao Puah

Prime Minister Najib Razak is facing serious challenges to his power. He faces criminal charges over allegations of his involvement in the mismanagement and corruption at state investment fund 1Malaysia Development Bhd (1MDB), which has accrued over $12 billion in debt on his watch, and dissent from within his own party. But beneath this media-grabbing power struggle, Malaysian politics have been undergoing a process of fundamental changes, the outcomes of which will shape Malaysia for years to come.

Q1: What is all the political brouhaha going on in Malaysia?

A1: Malaysia’s political landscape is undergoing fundamental changes. Prime Minister Najib Razak, who rose through the ranks of the ruling United Malays National Organization (UMNO), came to office in 2009 with strong popular support and a mandate for reform. But his influence within UMNO diminished following the 2013 general elections in which the ruling Barisan Nasional coalition managed to hang on to power but lost the popular vote to the opposition. Barisan Nasional has ruled Malaysia since 1957.

Najib may be convicted over allegations that state investment fund 1MDB, whose advisory council he chairs, may have illegally transferred nearly $700 million into his personal bank accounts. Najib’s opponents for months have sought to use the mismanagement of 1MDB to attack and bring him down.

The conviction of former opposition leader Anwar Ibrahim on sodomy charges in early 2015 and the government’s recent crackdown on its critics have attracted criticisms inside and outside Malaysia. These have added to Najib’s political challenges.

Meanwhile, Malaysia’s opposition coalition, which consists of the People’s Justice Party (PKR), the Democratic Action Party (DAP), and the Pan-Malaysian Islamic Party (PAS), was thrown into a state of uncertainty after PAS and DAP last month decided to severe ties, effectively dissolving the coalition.

PAS’s plan to introduce hudud, an Islamic penal code, in the northern state of Kelantan has strained its ties with the secular, Chinese-majority DAP. The current opposition leader, Wan Azizah Wan Ismail, who is Anwar’s wife, was not able to hold the bickering partners together.

However, the government has not benefitted from the opposition’s breakup. Najib’s approval rating has sunk to around 40 percent, according to a poll by the Malaysia-based Merdeka Center, down 20 percentage points compared to previous years. Malaysians are increasingly dissatisfied with the government’s handling of the economy – falling oil prices have dented the economy and shrunk the government’s budget revenue – a newly launched goods and services tax, and the growing political dysfunction in Kuala Lumpur. The Merdeka Center poll showed that 47 percent of Malaysians surveyed felt that their country was “headed in the wrong direction.”

Q2: How could the current power struggle play out?

A2: Mahathir was a driving force behind efforts to bring 1MDB’s debt and questionable management practices into the public eye. The former prime minister also repeatedly warned that UMNO will not win the next general elections, which are due to take place in 2018, with Najib at its helm.

A personal feud between Najib and former prime minister Mahathir Mohamad has been playing out since last August when the latter publicly rescinded his support for Najib. Mahathir, who led Malaysia for over two decades, still retains significant influence within the party. He has kept up his attacks against Najib over the past year to weaken the prime minister’s position, and earlier this year called on Najib to resign. Mahathir played a key role in the ouster of Najib’s predecessor, Abdullah Badawi.

Najib, who has survived previous accusations by Mahathir, still retains strong support within his party. UMNO’s division chiefs declared their support for Najib earlier this year. When Najib issued an ultimatum to his cabinet members last month asking them to resign if they did not support him over the 1MDB issue, none did. Other prominent UMNO members have also urged the public to refrain from drawing conclusions before the auditor-general’s office releases an official investigation into 1MDB by the end of the year.

The jury is still out on whether Najib’s credibility will be compromised in the coming months. A report by the Wall Street Journal on July 4 that the attorney-general has received documents purporting to show transfers of funds into Najib’s personal bank accounts has dealt serious blows to his credibility. If serious evidence of corruption emerges from several ongoing investigations into 1MDB in the coming months, Najib may face increasing difficulty deflecting calls for him to step down.

Najib recently announced the postponement of UMNO’s party elections for 18 months. Party elections were previously slated to take place in early 2016. By delaying the party summit, Najib hopes that party unity will improve when elections come around. He would also deny his opponents an opportunity to put pressure on his leadership of the party.

The prime minister’s political future is far from secure. A moderate and advocate for reform, Najib has long ruffled the feathers of conservative elements within UMNO, who argued that Najib’s policies amounted to turning away from the party’s traditional Malay Muslim constituents. Najib’s brother, Nazir Razak, has reportedly been working to set up a new nongovernmental organization that would bring together Malaysians of different political, ethnic, and religious affiliations. This suggests that Najib may be hedging his political future beyond UMNO if necessary.

Q3: What does the ongoing dispute mean for Malaysia?

A3: The infighting within UMNO has weakened the party, which is increasingly seen as losing touch with the people. The party is torn both between patronage networks and diverging visions for Malaysia.

Meanwhile, racial and religious relations in Malaysia, a multi-ethnic and multi-religious society but one in which Malays have long been granted special privileges over Chinese and Indians, have become more fraught after the 2013 elections. The narrative on the need to further protect Malay rights has become more pronounced within some quarters of UMNO.

Some leaders within the opposition coalition still want to challenge the government at the next poll. The opposition coalition won 3 of 13 Malaysian states in 2013. PAS, which is at the center of the controversy over hudud, is headed toward an open split as some of its more moderate leaders look to form a new political movement. Progressive elements within PAS have reportedly met with DAP and PKR members to discuss a way forward for the opposition. It remains to be seen if their shared desire to unseat the ruling government will result in increased cooperation.

With alignments in the opposition camp still unsettled, it is too early to tell how the political landscape will shape up ahead of general elections due in 2018.

Q4: Why does this matter to the United States?

A4: U.S.-Malaysia relations have improved significantly under Najib’s leadership; the prime minister has been an advocate of closer U.S.-Malaysia cooperation in economic integration, regional security, and counter-terrorism efforts. Washington and Kuala Lumpur in April 2014 upgraded ties to a comprehensive partnership, and Malaysia is one of 12 participating countries in the ongoing Trans-Pacific Partnership (TPP) trade talks.

As Najib battles to hang on and consolidate power, he will have little room on the domestic front to push for reforms that will be needed in such areas as government procurement and state-owned enterprises to complete the TPP negotiations. While Malaysia is seen as an important U.S. partner in Southeast Asia, only 23 percent of Malaysians surveyed support a greater U.S. presence in the Asia Pacific, while only 38 percent think the TPP will be a good thing for Malaysia, according to the latest Pew Global Attitudes study. If Najib does not survive the current power struggle, it is not clear whether his successors will continue to actively support U.S. policies in the Asia-Pacific.

Ms. Phuong Nguyen is a Research Associate with the Sumitro Chair for Southeast Asia Studies at CSIS. Follow her on twitter @PNguyen_DC. Mr. Rui Hao Puah is a researcher with the Sumitro Chair.