Malaysia PM failing to win back voters - Reuters

* Malaysia PM to set voting reforms in main ruling party * Concerns over corruption in UMNO remain * Political risk to remain elevated beyond next election * Malaysia struggles to win investment despite PM's reforms By David Chance KUALA LUMPUR, Oct 8 (Reuters) - Malaysian Prime Minister Najib Razak heads into his party's annual meeting next week promising reforms to stem corruption in a bid to reignite the waning appeal of a government that has ruled for 52 years.

Najib is also hoping for victory on Sunday in a safe state seat to stem a series of by-election losses his governing coalition has suffered since last year's poll debacle, in which it stumbled to record losses in national and state polls. The United Malays National Organisation (UMNO) will applaud Najib if a former Cabinet minister, sacked in 2004 for buying votes, wins the seat -- before they turn their attention to party reforms aimed at eliminating the kind of "money politics" and corruption that has long tainted UMNO's image.

Corruption has seen a generation of young Malays desert UMNO, the party of their parents, in favour of the Pan Malaysian Islamic Party (PAS), which promotes both an Islamic state and a strong anti-graft stance in this ethnically mixed Southeast Asian nation of 27 million people. Although Najib, who has enacted economic reforms to boost foreign investment, initially saw a spike in his approval ratings to 65 percent in July from 42 percent before he took office in April, those numbers haven't held up.

A poll by the independent Merdeka Center published on Friday showed Najib's rating had fallen to 56 percent in September and there are few signs younger voters are now embracing UMNO. "Now that another Malay party (PAS) is in power, they (UMNO) seem to be sabotaging them, creating all sort of problems," said Yusuff Ismail, a 35-year old sales clerk in northwestern Kedah state, one of the four states to fall to the opposition in 2008. "This divides the Malays more," Yusuff said. "More people will vote for PAS because at least we know they are cleaner." While Najib's economic reforms have chipped away at a three-decade old affirmative action programme that gives Malays, 55 percent of the population, preferences in company ownership, government contracts, education and housing, tough areas have not yet been touched. The government has recently been hit by a multi-billion dollar corruption scandal over the construction of a free trade zone in the country's biggest port. Critics have charged it has been covered up. "What worries me is that Najib worries there could be more (corruption) incidents in UMNO. Then it will be a problem he can't control," said a senior UMNO official who leads one of the party's 191 divisions, the frontline units of Malaysia's biggest mass political party. WEAKENED COALITION PARTNERS Najib also faces huge problems rebuilding UMNO's coalition allies who also lost heavily in the 2008 elections. The Malaysian Chinese Association, the second biggest government party, is mired in a leadership battle that will climax at a special party meeting this weekend. The Malaysian Indian Congress has just been through a leadership fight and shows few signs it is reconnecting with its voters after being annihilated in the 2008 elections. Ethnic Chinese account for around 25 percent of the population and ethnic Indians around 8 percent. Najib has sought to defuse racial tensions by launching a racially inclusive campaign called "1Malaysia", dismissed by critics as little more than a branding exercise. "The strategy is to pledge a yet unsubstantiated programme of '1Malaysia' while on the ground running campaigns based on the outdated model of race and money," Welsh said. The UMNO division leader does not see much chance the National Front will fare any better at the 2013 general election than it did in 2008, raising the prospect of a prolonged period of political uncertainty that will further unnerve investors. "I foresee there will not be a change of government, but it will not be a strong vote for both sides and that is bad for the country," he said. (Additional reporting by Razak Ahmad and Niluksi Koswanage; Editing by Bill Tarrant) ((david.chance@thomsonreuters.com; +603 2333 8033; Reuters messaging david.chance.reuters.com@reuters.net; bureau email areuters@gmail.com)) Keywords: MALAYSIA POLITICS/