Stepping into a bright day outside of the High Court in Kuala Lumpur on January 9, Anwar Ibrahim could scarcely believe his luck. For the second time, the leader of Malaysia's long-suffering opposition had faced embarrassing, drawn-out criminal charges of sodomy - accusations, he says, that were concocted by a government intent on crushing him.

Almost everyone expected Anwar to end the day behind bars. Instead, he was acquitted, to jubilation from supporters, and a dramatic sense that Malaysian politics had, in an instant, been upended.

"It was a pleasant surprise," he tells The Global Mail, with evident understatement. "I'm vindicated, and now I can focus on the elections."

And what elections they'll be. Prime Minister Najib Razak is widely expected to call this year parliamentary polls that hold the possibility of his ruling coalition losing its grip on power for the first time in the country's history.

It's a momentous prospect. For nearly five decades since independence, the same broad right-wing coalition (in its latest guise called Barisan Nasional, or National Front) has ruled Malaysia through an authoritarian mix of coercion and co-option.

The complaints from frustrated Malaysians are legion: Barisan Nasional, under the leadership of its largest member, the United Malays National Organisation, or UMNO, has kept the forms of parliamentary democracy while gerrymandering elections and muzzling the media. It has pursued breakneck development while overlooking massive corruption and entrenched cronyism. And, crucially, it has put itself as the force standing in the way of chaos among the country's mix of Malays, Chinese and Indians - while at the same time promoting Malay majority supremacy and stoking ethnic tensions.

All signs point towards a close poll.

Despite being a deputy prime minister before his spectacular falling out with former Prime Minister Mahathir Mohamad, Anwar has long put himself forward as the man to smash the old order. Even Prime Minister Najib, despite a deep pedigree in Barisan Nasional and has spent his nearly three years in power, is pushing an image as a liberalizing reformer and a counterbalance to the ugly race-baiting by Malay right-wingers in his own party.

Both men have claimed the mantle of change. But does this mean Malaysia is about to become a normal democracy - and shed it's long legacy of religious intolerance, racism and corruption?

The picture is a little more complex.

Even a victory by Anwar's three party coalition, Pakatan Rakyat, or People's Alliance, won't be as liberal as the opposition leader makes out, especially when he's speaking English to foreigners, says Azmi Sharom, a public intellectual and Associate Professor of Law at the University of Malaya.

"I know, I know Anwar says all the right things to all the right people, depending on who he talks to. He's good like that. That is true," Azmi says. "I don't think we can imagine for the briefest of moments that if they win Malaysia is suddenly going to be this wonderful liberal democratic country in the mold of Australia or New Zealand or whatever. It's not going to happen.

"But … there could be significant changes which lay the foundations to move forward in that direction," Azmi says. A triumphant opposition would quickly take steps to free up the press, relax laws restricting public assembly, he says, and change laws allowing detention without charge.

Photo by Rahman Roslan/Getty Images

Anwar Ibrahim arrives at the Kuala Lumpur High Court, January 9, 2012.

Yet it is not clear that Pakatan Rakyat can win, Azmi says. The last election, in 2008, saw the alliance gain dramatic ground, stripping the ruling coalition of its two-thirds majority in the national parliament for the first time since 1969. The opposition also has managed over the years to grab control of a number of state governments, which has given it a key opportunity to show it can govern.

But Malaysia's electoral districts are brazenly drawn to over-represent voters in areas that are home to Barisan Nasional's key constituencies, such as rural Malays. The print and broadcast media, on which the heartland still relies for news, remains heavily influenced by the government. The opposition has support in the uncensored online media, but this is an advantage only among more urban, educated voters. Anwar himself is a charismatic force and great campaigner, but it's debatable whether he is more useful out on the stump, or as a martyr in prison.

Anwar himself is predictably optimistic, despite the fact that prosecutors have appealed his acquittal on the latest sodomy charge. He says this is going to be a dirty fight.

"The media has become so blatantly biased and racist," he says, in a telephone interview. "We are all called stooges of the Chinese in Malaysia. Now I am called an agent of Israel. And there is no chance whatsoever that we explain our case in the media."

The government, for its part, says the election will be fair and transparent.

For Anwar, just holding the opposition together is another challenge - and it's a problem that reflects the deep fissures in Malaysia itself. For five decades, Malaysia's system has mixed its democratic pretentions with a muddled conflation of Malay supremacy and official Islam.

Barisan Nasional's rule has been marked by affirmative action policies intended to reduce the economic marginalisation of Malays. Meanwhile, Malaysia recognises Islam as the state religion and treats all Malays automatically as Muslims. Intrusive judgments by the country's parallel system of sharia courts periodically embarrass a country that tries hard to market itself as a model of diversity and tolerance.

Blasphemy is also a crime. Malaysia's government has been heavily criticized for sending a Saudi journalist, Hamza Kashgari, back to his home country this month to face a possible death sentence on blasphemy charges. Kashgari had fled Saudi Arabia after receiving death threats for posting a message on Twitter seen as insulting the Prophet Muhammad, and was passing through Malaysia when he was arrested and deported back to the Kingdom, despite there being no extradition treaty between the two countries.

However liberal Anwar positions himself to be, Muslim-majority Malaysia is a conservative place. He cannot govern without the Islamist Pan-Malaysian Islamic Party, or PAS, one of the three members of Pakatan Rakyat, which advocates elements of Islamic law.

Ask Anwar about racial discrimination, which all of Pakatan Rakyat's parties oppose, and he is direct. He will "dismantle" the New Economic Policy - the system of economic affirmative action for Malays - which he says is "enriching the family members and the cronies of the ruling clique". More than anything else it's this issue - the nexus of racial discrimination and corruption - that riles many in Malaysia.

But on issues of religion and morality, Anwar is more equivocal.

Will an Anwar government decriminalise sodomy, a charge that his been used against him twice? On the one hand, Anwar says, "we cannot continue to support archaic laws that demonise people, criminalise people even to the extent of using political machinations against the opposition."

Photo by Saeed Khan/AFP/Getty Images

Anwar Ibrahim shakes hands with other worshippers inside a mosque.

But then he adds: "I'm still clarifying the fact that I believe in the sanctity of marriage. They [the government] continue to hammer me for weeks that Anwar will legalise same-sex marriage and sodomy. Even Mahathir went on the stage against me on that. So that's why I'm very guarded in my answer."

On PAS's advocacy of hudud, or Islamic punishment for Muslims for crimes from theft to drinking alcohol, Anwar says it's open for discussion, but is unlikely to get through: "The issue of hudud to be articulated by anyone to me is acceptable. But we have agreed in the Pakatan coalition that whatever amendment changes that take place must be agreed in a consensus, number one. Number two, it must be consistent with the spirit and positions of the Constitution."

In the case of Kashgari, the arrested Saudi who could possibly go to his death over a tweet, Anwar says laws against blasphemy should stay. "To me some blasphemy laws are acceptable, in any society, [they exist also] in the West.

"The issue is if the due process and the courts are deemed to be independent and fair," he says. "I would have advised the government not to swiftly send him back, but also to see the circumstances and what was actually said was the intention."

Najib's government rather thinks it's getting an unfair rap. The Prime Minister's people say Najib is the one capable of reforming Malaysia's sclerotic system while providing the strong government the country needs.

Najib has pledged to make Malaysia a high-income country by 2020 and improve government services, regardless of race.

Ku Kok Peng is the director of investments at PEMANDU, a special delivery unit set up by Najib in 2009 to monitor and oversee these reforms. He reels off the government's recent achievements in technocratic detail: Crime reduced by 15 per cent in 2010 and 11 per cent in 2011, more than 77,000 new children in preschools, a slew of new corruption cases. "The results will speak for themselves in terms of the improvements that have gone to the people," he says.

Malaysians may indeed decide they like the reformist Najib, but James Chin, a professor of political science at Monash University Malaysia says of the government's reforms: "So far, it's all smoke and mirrors."

Substantial reform would attack abuses in the name of Malay affirmative action, such as the awarding of major no-bid contracts to government-connected firms. But Chin says he sees no evidence of root-and-branch reform by Najib. Whether this is because Najib really believes in the system as it stands, or if he's being blocked by the racist right of his own party, is an open question.

In Malaysia, racism is part of the social landscape and can manifest itself at the most surprising times. When Danny Ng, a Malaysian Chinese man, complained about a delayed order of fried chicken in a KFC outlet recently, the situation quickly degenerated into a fistfight with Malay staff. Videos of the altercation went viral, with hundreds of thousands of views on YouTube.

The clip prompted parodies, such as Kentucky Fight Club, as well as vicious online comments where Chinese denounced Malays as babi, or pigs, Malays retorted by calling Chinese budak, or children. Ng later fronted the media to deny claims he started the fight with a racial slur.

Whoever wins this year's election will be left with the challenge of untangling Malaysia's poisonous ethnic tensions. Chin warns not to expect either side to deliver as expect as much change as the leaders promises on the issue.

Even Anwar, despite his rhetoric, "is not going to dismantle the system," Chin says. "Race and religion are a permanent feature of Malaysian politics, and they're not going anywhere. Anwar will not dismantle preferential treatment for Malays, but what we will see is a more moderate policy."