KUALA LUMPUR (Reuters) - When Malaysia's ruling party gathered for a tub-thumping pre-election rally last week, Prime Minister Najib Razak delivered a stern behind-the-scenes warning: don't repeat the mistake of Mitt Romney.
Just as the U.S. Republican presidential candidate's over-reliance on older, white voters lost him last month's election, so could the dependence of the United Malays National Organisation (UMNO) on rural, ethnic Malay voters, Najib told delegates at the assembly, according to a senior party insider.
It was Najib's latest effort to nudge his reluctant party towards embracing the country's growing middle class and youth, who are increasingly turned off by the race-based politics that have dominated UMNO's half-century rule. Najib has until April to call the election, which is expected to be the closest in the former British colony's history.
Conservative, Malay supremacist voices were muted at the UMNO general assembly in Kuala Lumpur, which ended on Saturday, as the party put on a show of unity four years after the ruling coalition it leads suffered its worst setback at the polls.
But warnings by some party leaders of street violence if the opposition loses and social chaos if it wins were a reminder of tensions between moderate and conservative forces within UMNO that could cost Najib at the polls.
"I think he (Najib) is learning from the mistakes of Mitt Romney," said Saifuddin Abdullah, a member of parliament and leading UMNO reformist.
"He was saying that our long record of service is not enough. We must look at the demographics," he added, referring to a surge in the number of young voters who have no memory of race riots in 1969 that traumatised the multi-ethnic nation.
A majority in the ethnic Malay party still don't understand or accept the new reality that has led Najib to push reforms, said Saifuddin.
The ruling Barisan Nasional (BN) coalition, anchored by UMNO, suffered the worst setback in its 55-year rule in 2008 when it lost its two-thirds parliamentary majority along with five state governments. Many urban voters and minority ethnic Chinese have deserted the BN, giving the opposition hope, albeit slim, of winning power.
Najib, who took power in 2009, has responded by appealing to Malaysia's growing middle class, rolling back colonial-era security laws, loosening media rules, and taking limited steps to end pro-Malay policies that have been a bedrock of UMNO rule.
In an interview with Reuters on Thursday, former prime minister Mahathir Mohamad, still an influential figure within UMNO and a leading conservative voice, reaffirmed his opposition to Najib's replacement of the draconian Internal Security Act.
"I think where the party has failed is in explaining why in the first place there were such laws and why we need such laws in this country," the 87-year-old, who ruled from 1981 to 2003, said at his office high in Kuala Lumpur's Petronas Towers.
ECONOMY - UMNO'S BEST HOPE
Mahathir said the current government was weak and "subject to pressure" because of its poor 2008 performance.
"Now of course the Malays have come back partly (to UMNO) but the Chinese have discovered that they could actually be a very strong factor in the election," he said. "With the Malays divided, their votes will be the decisive votes."
Najib has made efforts to attract Chinese voters, who make up more than a quarter of Malaysians and dominate the economy, but polls show them still drifting away from the coalition.
The coalition's best hopes of winning the election may be Malaysia's robust economy and the relatively high approval rating of Najib, the 59-year-old son of a former prime minister.
In his opening assembly speech, Najib told cheering delegates that opposition leader Anwar Ibrahim had a "forked tongue" and would jeopardize the economy by running up debt and turning it into an Asian version of Greece within three years.
"At such a time, the economic management of our country will no longer be in the hands of the elected government but passed on to the hands of international institutions. Is this what we want?" he said.
But he faced appeals to sharply increase the share of wealth held by Malays, who form about 55 percent of the population.
Shahrizat Abdul Jalil, the head of UMNO's womens' wing, called on the government to "ensure that Malays control half of the country's wealth," compared to about 23 percent equity ownership now. She also drew controversy for saying that UMNO losing power could cause a repeat of the bloody 1969 riots.
Despite a hefty financial advantage over the opposition and the power of incumbency, the BN has been unable to erode support for the opposition alliance, said Ooi Kee Beng, deputy director at Singapore's Institute of Southeast Asian Studies. Najib's apparent indecisiveness over the election date has now lost the element of surprise for his coalition.
"It's a huge advantage and he hasn't been able to play it; now it's so late the advantage has gone," said Ooi.
Mahathir was widely seen as helping to push out Najib's predecessor after the 2008 election, and could again play a crucial behind-the-scenes role if the prime minister fails to improve on that result. He told Reuters that an improvement on the BN's 2008 seat tally was a minimum requirement for Najib.
"Of course he has to perform better than the previous government, and I think he will do," said Mahathir.
(Additional reporting by Siva Sithraputhran; editing by Jonathan Thatcher)