The Malays are not ready for PM Najib’s liberalisation policies

At the recent Invest Asia 2009, Prime Minister Dato’ Seri Mohd. Najib Tun Razak announced the liberalisation of the Malayisa economy.  The 30% Bumiputra control on new issue IPO and Foreign Investment Committee (FIC) mandatory requirements have been lifted.

The New York Times has the story:

Malaysia Dilutes Its System of Ethnic Preferences

By THOMAS FULLER

Published: June 30, 2009

BANGKOK — Najib Razak, Malaysia’s prime minister, announced Tuesday a major rollback in the system of ethnic preferences that has defined the country’s political system for almost four decades.

The new policy would severely weaken a requirement that companies reserve 30 percent of their shares for ethnic Malays, the country’s dominant ethnic group.

The 30-percent rule was once considered politically untouchable, and Mr. Najib described the change in policy as a “tricky balancing act.”

Malaysia has long given ethnic Malays and members of other indigenous ethnic groups — known as bumiputra, or sons of the soil — political and economic privileges. But that system has come under strain amid growing resentment by minority groups and poorer Malays.

The government offers bumiputra discounts on houses, scholarships and other perks. But some benefits, like government contracts and stock-market allocations, have been beyond the reach of working-class Malays.

Anger among Chinese and Indians, the country’s main minority groups, over the ethnic preferences was perhaps the main reason that the opposition made large gains in elections last year that nearly dismantled the governing coalition led by Mr. Najib’s party, the United Malays National Organization.

“We want to be fair to all communities,” Mr. Najib said in a speech in Kuala Lumpur, the Malaysian capital. “No one must feel marginalized.”

Mr. Najib’s success in rolling back the ethnic preferences will depend in large part on his ability to hold together his coalition and fend off a resurgent opposition led by Anwar Ibrahim, a former finance minister.

Mr. Anwar, who leads a diverse group of opposition parties, has promised to undo the system of ethnic preferences.

By positioning himself as a reformer, Mr. Najib, who came to power in April, appears to be calculating that he can stave off opposition advances and be seen as an agent of change.

“The world is changing quickly, and we must be ready to change with it or risk being left behind,” he said Tuesday.

The change would leave some ethnic preferences intact and come with caveats. But it would dilute one of the most important components of what is known as the New Economic Policy, introduced in 1971: the requirement that companies listing on the stock exchange sell 30 percent of their shares to ethnic Malays.

That requirement was scrapped for companies already listed on the stock exchange and reduced to 12.5 percent for initial public offerings. The requirement will remain in place for “strategic industries” like telecommunications, water, ports and energy.

Mr. Najib also said he would lower barriers for foreign investors. The government would eliminate a special vetting process for foreign companies wanting to invest in, merge or take over a Malaysian company, he said.

“The global economic crisis is amplifying the need to be a preferred investment destination,” he added.

Malaysia’s trade-dependent economy is expected to contract by 5 percent this year.

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The excuse is that this will pave way for greater particpation in the Malaysian economy, being the 17th most important trading nation. It came as a subsequent announcement of the liberalisation of 27 subsectors in the financial and capital markets, as PM Dato’ Seri Najib’s maiden policy shift from previous Prime Ministers.

Many thought that ultra-Malay eyes will roll for this untimely announcement. Some even regard the announcement made is not well thought through proposition, that will actually throw spanner-to-the-works. This bold move is regarded by ’siesmic’ by Malaysian-born Straits Times bureau Chief Carolynn Hong. She is ensure how UMNO, the custodian of the Malay struggle will react to this:

Will Umno buy Najib’s vision? — Carolyn Hong

JULY 3 — Prime Minister Datuk Seri Najib Razak took office on April 3 saddled with the image of a tired Umno politician. But that look may well be changing.

On Tuesday, just days before his 100th day in office, he dropped a bombshell of an announcement on the Malaysian economic landscape. Given how politicised the economy is, it proved to be a major whammy on the political front as well.

A key part of the Malaysian psyche was shattered when Najib announced the removal of a decades-old quota on Malay ownership of public-listed companies.

Companies will no longer need to sell 30 per cent of their shares to Malays. Instead, they will reserve at least 25 per cent of shares for sale to the public, of which half must be sold to Malays. That works out to 12.5 per cent, and if there are not enough Malay takers, the requirement will be waived.

Close watchers of Malaysian politics will recognise that it is a seismic shift.

The pro-Malay economic policy was never meant to be that narrow but Malaysia’s politicised economy meant that the 30 per cent quota had become a sacrosanct right a Malay leader ought never to question, much less quash.

In reality, it was a source of patronage and bred cronyism. Many politically connected businessmen became rich on the quota, evoking resentment among the Malay masses and minority races.

Najib disclosed that of the RM54 billion worth of shares sold to Malays from 1985 to 2004, only RM2 billion remain in Malay hands. The rest had been sold. So much for the original intent of building Malay equity.

The move breaks one major link of the patronage chain.

It comes on top of other measures like the scrapping of the Foreign Investment Committee which oversees Bumiputera participation in businesses. Earlier this year, he liberalised 27 sub-sectors of the services sector, and the financial sector.

Last week, he announced the creation of a merit-based National Scholarship.

What prompted these moves? Has Malaysia made a clean break from affirmative action?

Rita Sim of Insap, the think-tank of the MCA, says he was forced to act by circumstances.

“He has no choice. Malaysia needs to be more competitive and of course, he needs to win back support for the Barisan Nasional,” said the Insap deputy chairman.

The ruling BN was hit badly in last year’s general election when voters deserted it in droves.

An aide to the Prime Minister said Najib was concerned over Malaysia’s declining competitiveness.

“He’s made it clear that he wants to tackle the structural problems. His overarching theme is 1 Malaysia, and this can be seen from the measures,” he said.

The aide acknowledged that there was a lot more to be done for the rural masses — who account for the bulk of Umno’s support — but said Najib was starting with the big structural issues.

1 Malaysia is Najib’s slogan of sorts. It appears to mean a policy that takes into account the interests of all races. Put another way, he is attempting to shift the balance towards injecting more meritocracy without completely abandoning pro-Malay policies.

Hence, along with the liberalisation, a RM500 million private equity fund was set up to develop Bumiputera businesses.

Even the scholarship scheme is merely a new category. There will still be a racial quota in some categories.

Critics like Universiti Malaya law professor Azmi Shahrom see such changes as merely papering over the cracks, rather than any serious dismantling of policy.

He pointed out that the system is still a lopsided one.

To him, Najib’s aims are purely political — to weaken the opposition rather than to deliver real reforms.

“He needed to cut the legs off the opposition, and what better way than to hijack their platform,” he said.

But Najib supporters see it as keeping a delicate balance. There is already some dissatisfaction within Umno about these changes, though a fairly silent one so far as the government had taken pains to prepare the ground.

Over the last month, it met Malay editors and opinion-leaders to explain its policies, and the top Umno leadership was also briefed.

There is bound to be unhappiness. Years of prickly race relations have heightened sensitivities, and to some, the moves appear to be a capitulation to the minorities’ persistent demands.

Umno Youth chief Khairy Jamaluddin admitted that there are rumblings on the ground.

Well-known blogger Zakhir Mohamad wrote that the new scholarship scheme challenges the notion that scholarships are part of the affirmative action policy.

Opposition PAS president Datuk Seri Hadi Awang has also raised objections.

“We want equality for all races but at the same time, the Bumiputeras must be given the strength,” he said.

Umno chieftains fear that Najib’s new approach would be used in a fear-mongering campaign among the rural Malays, especially in a by-election in Kelantan in a PAS stronghold on July 14.

Umno has decided on its message: the Malay agenda is still there but new ways are being designed to uplift the community and distribute wealth to the masses.

Some Malays agree. A Malay political analyst, for instance, says Malay self-confidence can grow organically only through genuine competition in an arena like the National Scholarship.

But it is harder to convince the masses. While surveys by the independent Merdeka Centre do show a more nuanced Malay sentiment, the overall sense of insecurity remains.

“He’ll find it very hard to keep a balance,” said Sim of Insap.

Najib, a strong party leader with widespread grassroots support, will thus have his work cut out for him to persuade his party to follow his new path.

Meanwhile, his critics remain sceptical about his ability to implement the changes.

All things considered, his image may be changing but the transformation is far from complete. — The Straits Times

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True enough, Fourth Prime Minister Tun Dr. Mahathir Mohamad was one of the first to reacxt adversely to this.

Bernama.com has the story:

Dr Mahathir Not Happy With Liberalisation Policy

By: Ramjit

PUTRAJAYA, July 6 (Bernama) — Former prime minister Tun Dr Mahathir Mohamad has admitted he is not too happy with the liberalisation policy introduced by Prime Minister Datuk Seri Najib Razak as he feels it will erode bumiputera interests.

He said while the New Economic Policy would not in any way hamper Malaysia’s development vis-a-vis other developing countries, the liberalisation process would stifle the progress of bumiputeras in the country.

“The fact is that the bumiputera quota has not been met, while that of non-bumiputeras has been increasing, and the new policy introduced will only worsen the situation,” he said when asked to comment on Najib’s administration which will reach 100 days on July 11.

Dr Mahathir, however, admitted that there were some good policies under Najib’s administration, for instance, the Key Performance Index aimed at improving the performance of government leaders.

“This (current administration) is better than the previous administration,” he further said.

Dr Mahathir had earlier received a visit from a delegation of the Malaysia and Singapore Vintage Car Register (MSVCR) at the Perdana Leadership Foundation office, here, Monday.

The MSCVR was formed in 1955 by a group of vintage car buffs in Melaka and is still active throughout the country.

– BERNAMA

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Already, many is talking about PM Dato’ Seri Najib is compromising what is close to the Malays for the Chinese support, which significantly eroded the 8 March 2008 12th General Elections. This politically motivated economic policy change will definitely affect the tricky manouvering of the nation busilding process with already too many variable for consideration and inadvertently redraw and allign the socio-political landscape of this nation.

Are the Malays and Bumiputras ready for the policy changes which tantamount of the dismnatling the New Economic Policy (NEP), with all the mitigating variables such as the global financial crisis, the political tsunami and the erosion of Malay support for UMNO (the lead and managing partner of BN controlled Federal Government), at this point of time?

The fact is that, NEP was introduced as an affirmative action plan to narrow the socio-economic gap between the Malays and Bumiputras, who are 65%  of the population and the Non Malays, which also include foreign owned equity back in 1971. It was crafted after the bloody racial riots of 13 May 1969, where the Malays, who were already developing a deep dissatisfaction of being under developed and felt ‘ignored’ from mainstream development, resulted to violence after being insulted with anti Malay racial tones by KL constituencies election victors DAP and Gerakan. PM Dato’ Seri Najib’s father, Second Prime Minister Tun Abdul Razak Hussein managed to get almost all the representatives of the stakeholders in Malaysia to sit down and agree on an ambitious affirmative action plan that would strengthen the position of the Malays and Bumiputras, without taking into other peoples’ existing wealth and opportunities. New wealth and economic opportunities would be created for this social transformation agenda.

NEP was a in philosophy, spirit and implementation a holistic socio-economic transformation agenda which focused on rural development and poverty eradication programs. Education, infrastructure and economic development plans were the core of the bold affirmative action plan. All political parties, which include Gerakan and PAS (who were then Oppositions) agreed collectively with the plan. Chinese chauvinist DAP is the only party who was vehemently opposing to the NEP.

NEP was supposed to developed the Malays and Bumiputras from extension of the on going economic activities and not taking what is owned by others. NEP was designed to give the Malays and Bumiputras 30% share of the economic cake, which is a reduction from the foreign owned equity then. The Non Malays, primarily the Chinese would expect to get 40% of this economic cake. The remaining, would be left in the hands of the foreigners, especially the British and Europeans, who were the plantation and industrial owners during independence time.

The Malays and Bumiputras only managed to achieve 67% of what NEP started out. However, post NEP saw the Non Malays, particularly the Chinese actually owning 60% of the nation’s economic cake. This was actually more than what the NEP was set to achieve for the Non Malays.

Many felt the NEP was implemented by the Government and without willing active participation of the Non Malays. Despite being a Government policy, the nation has a whole as a moral obligation to ensure NEP is successful and comprehensively met all its objectives. The success of the NEP is pertinent to socio-political stability of a multi-ethnic/faith Malaysia. This instability has proven to be very prickly for a nation to progress, such as in Indonesia and Fiji, where indigenous people revolted against the more well placed and economically superior immigrants.

The Malays and Bumiputras still need the comprehensive programs under the NEP. In some ways, the specific programs under the NEP may have placed the Malays and Bumiputras as professionals, business onwers and even as world class corporate players. However, holistically it has not achieved what it was set to be. The NEP has a pivottal role in building a united Malaysia in diversity.  The nation building process must be made with significant and active participation of the Malays and Bumiputras, in the economy.

In actual fact, NEP is a translation of what is enshrined in the Federal Consitution. Any attempts to change the primary components of the NEP such as scholarships and the quota system must be enacted through the Parliament and with the expressed consent of HRHs Rulers.

If the Federal Government under PM Dato’ Seri Najib is approaching to revive the economy from the liberalisation of the capital markets and inducing FDIs, then the method is at least 20 years old and obsolete. The realiance on foreign funds, who is suffering from their home base and now seen to be scuttling is really not the best way to generate the economy. The country has already enough capital to sustain and generate economic growth. The more pertinent approach to weather this economic storm  is to holistically induce:

1. Create higher aggregate demand

2. Create higher value exports, in terms of products and services

3. Improve to competency, skillsets and productivity of the Malaysian work force (to cater for 1 and 2)

4. Bring back Malaysian investments and talents abroad, particularly from places like Singapore, where both is experiencing a migration to a ‘third host’

5. Further develop niche markets, such as Syariah-compliant financial and capital markets (something that Malaysia started as early as 1983 with the formation of Bank Islam and Syarikat Takaful)

The liberalisation means that foreign funds, especially in the financial and capital markets which failed in the West are now lurking for a new host. Despite suffering heavy losses in Wall Street or The City, the reminisence of these funds will easily mop up still healthy equity of the Malaysian financial and capital markets. The loss of the control of this here will have a far reaching Jewish Neo Con re-colonialisation agenda.

The thinning of the wedge started during PM ‘Flip-Flop’ Dato’ Seri Abdullah Ahmad Badawi’s tenure, where previously announced mega projects that were supposed to generate growth and sustain the road map for realising the industrial status of Vision 2020 such as the double tracking railway project, the Scenic-Bridge-replacing-the-Johor-Causeway and Bakun dam and aluminium smelting plant in Sarawak were abruptly cancelled. Even successful Malaysian industries such as Proton was left to rot in favour of foreign cars importation and the potentially-knowledge-based-economic-catalyst MSC were never acticely developed. The Federal Government non-challant attitude towards projects such as the Sepang International Circuit much envied Formula One allowed rivals like Singapore to get a footing. Instead, academically-non-implementable-and-exhorbitantly-expensive economic corridors were put in place and oil royalties meant for economic development were used in worthless projects such as Moonsoon Cup were enacted. The Terengganu people got an useable mosque in the middle of the river and recently the roof of the brand new stadium collapse.

PM ‘Flip-Flop’ Abdullah adopted Western style economic policies and plans, such as making Khazanah controlled GLCs focused on ‘return on investment’ instead a tool to effectively help the nation building process, abrupt increase of retail petrol price by RM 78 sen to a whopping RM 2.70 per litre, which had a spiral effect on the economy and cost of production and living (still unable to be rectified till present!) and emphasis of trade relations with the capital-intensive-West instead of emerging economies within Asia and the under-developed-human-resource-rich nations. In pegging against the worthless but much traded US Dollar was also lifted instead of developing a strong gold-backed medium of exchange. In hindsight, all these were proven to be futile.

PM Dato’ Seri Najib should stop taking Western prescription to solve our problems. The Malay/Bumiputra element is the key of  deciding the best approach to solve our own issues. The unilateral and hasty decision dismantling of the tools to derealise what has been enshrined in spirit and letters-of-the-law will have far reaching damning effect to the nation.

The Malays and Bumiputras are 65% of Malaysians. If they are not ready for this liberalisation, then Malaysia is not ready for the liberalisation. PM Dato’ Seri Najib should realise Malaysia should objectively realise its own existing talents and capital, to revive the economy. PM Dato’ Seri Najib owes it to the Malays and Bumiputras first, who are the power base behind UMNO/BN’s all these years. It is the Malays who made these sacrifices, then its wrong to sacrifice the NEP for the people who did not ensure BN got voted in the last 12 GEs.