JUNE 30, 2009
Malaysia Eases Race Rules
By JAMES HOOKWAY
Malaysian Prime Minister Najib Razak's move to relax race-based investment restrictions is his latest effort to roll back a decades-old affirmative action program criticized for benefiting the country's majority ethnic Malay population at the expense of the broader economy's competitiveness.
Some political analysts say the latest measures don't spell the end for Malaysia's New Economic Policy, as the affirmative action policies are known. Instead, Mr. Najib is attempting to balance the needs of Malaysia's shrinking economy with a social policy that many Malaysian politicians say they believe has helped stabilize the country's racial mix, which includes large ethnic-Chinese and Indian minorities.
"The world is changing quickly and we must be ready to change with it or risk being left behind," Mr. Najib told an investment conference Tuesday in Kuala Lumpur.
In his address, he outlined a package of measures to spur foreign investment in the Malaysian economy, which private economists say could contract as much as 5% this year amid the global downturn. Among the new policies, companies listing on the Kuala Lumpur Stock Exchange will be required to allocate just 12.5% of their equity to ethnic Malays, compared with 30% before.
Foreign investors will be able to own as much as 70% of stock-brokerage companies -- up from the current 49% cap -- while foreign fund managers will be allowed to establish 100%-foreign-owned fund-management companies in Malaysia, which has one of the largest stock markets in Southeast Asia.
Citigroup economist Kit Wei Zheng said the moves were consistent with earlier measures and would likely enhance Malaysia's competitive edge in attracting foreign investment. Earlier this year, Malaysia allowed foreign companies to enter certain service sectors without allocating 30% of their equity to ethnic Malays.
The main index at the Kuala Lumpur Stock Exchange fell 0.1% to close at 1075.24 Tuesday, but the ringgit strengthened to 3.5170 ringgit against the U.S. dollar at the close of trade compared with 3.5730 ringgit on Monday.
Mr. Najib, 55 years old, emphasized that Malaysia wasn't giving up its affirmative action policies, which were introduced in 1971 following bloody race riots, to help ethnic Malays catch up economically with ethnic Chinese Malaysians. The target of putting 30% of the economy in Malay hands, Mr. Najib said, remains intact. "But this 30% figure is now a macro target, not a micro target," he told reporters.
Significantly, the 30% Malay-ownership rules remain in force for "strategic industries" such as telecommunications, ports, energy and transport. In many cases, state investment funds have large controlling interests in these businesses.
"We will help the best and the good in business. We want to be fair to all communities," Mr. Najib said. "It is a tricky balancing act, but it is doable."
Some activists in the ethnic Malay community, which comprises 60% of Malaysia's 28 million people, have warned there could be protests if Mr. Najib moves too quickly to remove affirmative action policies. Last week, Mr. Najib took other steps to placate the country's ethnic Chinese and Indian minorities by announcing plans for merit-based university scholarships for which Malay, Chinese and Indian students can compete on an equal basis.
Some economists were surprised at the number of policy changes that Mr. Najib announced. "I didn't expect that," said Tim Condon, chief Asia economist with ING Group in Singapore. "But Mr. Najib appears to be responding to what people want and as pro-market measures go, these can only be seen as positive."
—K.P. Lee contributed to this article.
Write to James Hookway at james.hookway@wsj.com
http://online.wsj.com/article/SB124633190411371761.html
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