Malaysia Will Adjust Its Racial Policies

ASIA NEWSMARCH 23, 2010, 8:47 P.M. ET
Malaysia Will Adjust Its Racial Policies
By PETER STEIN

HONG KONG—Malaysian Prime Minister Najib Razak said his government is planning to adopt new affirmative-action policies that are "more market friendly" but said the pace of reforms will depend in part on "people's buy-in to the changes."

In an interview Tuesday, Mr. Najib also addressed concerns about religious unrest in Malaysia, the trial of opposition leader Anwar Ibrahim and the use of oil revenue to subsidize domestic fuel prices.

After taking power in April last year, Mr. Najib announced a relaxation of restrictions in the country's services sector, including moves to encourage foreign investment in tourism and legal and financial services.

"The market, I must say, has not appreciated the significance of those changes," the 56-year-old Mr. Najib said in Hong Kong, where he spoke at a Credit Suisse investor conference. Also underappreciated, he said, were "the political risks we have to take to examine some of these policies and reform these policies."

Malaysia retains longstanding policies aimed at promoting the role of ethnic Malays, who make up 60% of Malaysia's 27 million population, and which leave many ethnic Chinese and Indians feeling disadvantaged.

However, his government plans to announce new overhauls in coming weeks. "And the new approach towards affirmative-action will be more market friendly, more transparent and more merit-based," Mr. Najib said, without disclosing any details.

The British-educated Mr. Najib, the son of Malaysia's second prime minister, took power last April after big losses at the polls for the governing National Front coalition precipitated the resignation of his predecessor, Abdullah Ahmad Badawi. The opposition, led by former deputy prime minister Anwar Ibrahim, has gained ground in part by drawing on support from disaffected ethnic groups.

Mr. Anwar is currently on trial for allegedly sodomizing a young male aide in 2008, the second time such charges have been brought against him in little more than a decade. Mr. Anwar, 62, says the charges are a fabrication aimed at destroying his reputation and political career. He was jailed on similar charges from 1998 to 2004, when his conviction was overturned on appeal.

Asked how he responds to criticism that Mr. Anwar is being tried for political reasons, Mr. Najib said that it "has nothing to do with the government. It's an individual matter. It just so happens the person concerned is the head of the opposition." He added: "Let us allow the process to take place and the international community can judge for itself."

This year, Malaysia has been hit by religious unrest. Tensions between Muslims and non-Muslims escalated after the country's High Court ruled on Dec. 31 that Roman Catholics could use "Allah" as a translation for "God" in a Malay-language church publication. That sparked protests among Muslims demanding that Islam be protected, and led to attacks on a number of churches and the desecration of two mosques. Mr. Najib's government has appealed the court decision, arguing that the Arabic word should be reserved for use by Muslims.

Mr. Najib blamed the violence on extremists. "In any society, there will be the whole spectrum of views," he said. "You will get the extremists on the far right and also the far left." He noted that "to change people's attitudes and values, it does take time."

Weaning Malaysia off dependence on royalties earned from its oil reserves is one of the nation's longer-term challenges, Mr. Najib acknowledged. Currently, the government uses that income to subsidize public fuel prices but "we've realized it's not sustainable." However, he noted that "there's a political cost to taking away subsidies," which will make it difficult to remove them quickly. He also stressed the need to strengthen Malaysia's social safety net to help poor people most impacted by any changes.

The prime minister confirmed that Malaysia is "quite keen" on joining an Australian-backed proposal for a trans-Pacific free trade zone. Last week, representatives of the U.S., Australia, China, Brunei, New Zealand, Peru, Singapore and Vietnam held preliminary talks on the idea of such a grouping in Melbourne.

Malaysia's policy is pro-free trade, he said, "so any kind of arrangement that helps to promote trade is something that we would be very supportive of."

Write to Peter Stein at peter.stein@wsj.com

http://online.wsj.com/article/SB10001424052748704211704575139492616954952.html?KEYWORDS=PETER+STEIN

Malaysia Dilemma

Only political change can bring economic reforms, says Ku Li

By Debra Chong

PETALING JAYA, March 23 — Saying that only political change can bring economic reforms to Malaysia, Tengku Razaleigh Hamzah (picture) last night blamed the Najib administration for crippling the national economy by putting politics ahead of policy reforms.

In his sharpest barb yet directed at  Datuk Seri Najib Razak, the Umno veteran urged the prime minister to end race-based affirmative programmes in the New Economic Policy (NEP) drawn up 40 years ago which he said was a cover for “corruption, crony capitalism and money politics”.

“To make that leap we need a government capable of promoting radical reform. That is not going to happen without political change,” the Kelantan prince and former finance minister said when launching the second edition of  “No Cowardly Past” by lawyer James Puthucheary here last night. Puthucheary, who was once a politician and economist, died 10 years ago.

The Gua Musang MP mocked Najib for delaying announcing his proposed New Economic Model (NEM) and suggested that the new policy may only be a rehash of the “old” NEP, drawing chuckles from the audience.

The chuckles stopped when the 73-year-old reminded his audience how deeply race-based policies had scored themselves in the minds of the powerful few, noting that the NEP was dragged back to life by Umno Youth six years ago because “it was and remains the most low-cost way to portray oneself as a Malay champion.”

“The NEP is over. I ask the government to have the courage to face up to this,” he added.

He called on the Najib administration to restore independence in public institutions and to overhaul the education system and repeal “repressive laws” such as the Printing Presses Act, the Universities and Colleges Act, the Internal Security Act and the Official Secrets Act.

“Confidence in the rule of law is a basic condition of economic growth,” said the politician popularly known as Ku Li.

Tengku Razaleigh added that “radical reform” and not “piecemeal measures” was needed to move the economy forward but strongly suggested that it may not be possible under the present leadership.

Asked to clarify his meaning, Ku Li explained that Najib needs to move fast and translate his proposed policies into action to plug the swift drain of talent out of the country.

Najib is now in Hong Kong to promote Malaysia to fund managers and investors at the Credit Suisse’s 13th Asian Investment Conference which starts today.

The Prime Minister is due to receive a report on the NEM which he announced when taking office last April. The report and policies will be fully announced in June when Najib tables the 10th Malaysia Plan as the government wants public feedback to shape the NEM.

Malay right-wing groups have said the NEM must be guided by the NEP which was officially abandoned in 1990 and subsumed into the National Development Policy which ran from 1991 to 2000.

Tengku Razaleigh, who was unsuccessful in challenging Najib for the Umno presidency last year, remains a harsh critic of the ruling Barisan Nasional government policies particularly its refusal to give 5 per cent oil royalty to his home state Kelantan.

However, he has pledged loyalty to Umno despite calls to quit his Gua Musang seat and his division leadership. The opposition Pakatan Rakyat has privately urged him to join them but he has declined the offer.

http://www.themalaysianinsider.com/index.php/malaysia/57168-only-political-change-can-bring-economic-reforms-says-ku-li


Read the full speech here:

The leap we need to make — Tengku Razaleigh Hamzah

MARCH 23 — James Puthucheary lived what is by any measure an extraordinary and eventful life. He was, among  other things, a scholar, anti-colonial activist, poet, political economist and lawyer.

The thread running through these roles was his struggle for progressive politics in a multiracial society. His actions were informed by an acute sense of history and by a commitment to a more equitable and just Malaysia.

James was concerned about economic development in a way that was Malaysian in the best sense. His thinking was motivated by a concerned for socioeconomic equity and for the banishment of communalism and ethnic chauvinism from our politics.

The launch of the Second Edition of this collection of James Puthucheary’s writings, “No Cowardly Past”, invites us to think and speak about our country with intellectual honesty and courage.

Let me put down some propositions, as plainly as I can, about where I think we stand.

1. Our political system has broken down in a way that cannot be salvaged by piecemeal reform.

2. Our public institutions are compromised by politics (most disturbingly by racial politics) and by money. This is to say they have become biased, inefficient and corrupt.

3. Our economy has stagnated. Our growth is based on the export of natural resources.  Productivity remains low. We now lag our regional competitors in the quality of our people, when we were once leaders in the developing world.

4. Points 1) -3), regardless of official denials and mainstream media spin, is common knowledge. As a result, confidence is at an all time low. We are suffering debilitating levels of brain and capital drain.

Today I wanted to share some suggestions on how we might move the economy forward, but our economic stagnation is clearly not something we can tackle or even discuss in isolation from the problem of a broken political system and a compromised set of public institutions.

This country is enormously blessed with talent and natural resources. We are shielded from natural calamities and enjoy warm weather all year round. We are blessed to be located at the crossroads of India and China and the Indonesian archipelago.

We are blessed to have cultural kinship with China, India, the Middle East and Indonesia. We attained independence with an enviable institutional framework.

We were a federation with a Constitution that is the supreme law of the land, a parliamentary democracy, an independent judiciary, a common law system and an independent civil service. We had political parties with a strong base of support that produced talented political leadership.

We have no excuse for our present state of economic and social stagnation. It is because we have allowed that last set of features, our institutional and political framework, to be eroded, that all our advantages are not better realized.

So it makes little sense to talk glibly about selecting growth drivers, fine-tuning our industrial or trade policy, and so on, without acknowledging that our economy is in bad shape because our political system is in bad shape.

A case in point is the so called New Economic Model.  The government promised the world it would be announced by the end of last year. It was put off to the end of this month. Now we are told we will be getting just the first part of it,  and that we will be getting merely a proposal for the New Economic Model from the NEAC.  Clearly, politics has intruded. The NEM has been opposed by groups that are concerned that the NEM might replace the NEP.  The New Economic Model might not turn out to be so new after all.

The NEP

The irony in all this is that there is nothing to replace.  The NEP is the opposite of New. It is defunct and is no longer an official government policy because it was replaced by the New Development Policy (another old New policy) in 1991. The “NEP” was brought back in its afterlife as a slogan by the leadership of UMNO Youth in 2004. It was and remains the most low-cost way to portray oneself as a Malay champion.

Thus, at a time when we are genuinely need of bold new economic measures, we are hamstrung by by the ghost of dead policies with the word New in them.  What happens when good policy outlives its time and survives as a slogan?

The NEP was a twenty year programme. It has become, in the imaginations of some, the centre of a permanently racialized socio-economic framework.

Tun Ismail and Tun Razak, in the age of the fixed telephone (you even needed to go through an operator), thought twenty years would be enough. Its champions in the age of instant messaging talk about 100 or 450 years of Malay dependency.

It had a national agenda to eradicate poverty and address structural inequalities between the races for the sake of equity and unity. The Malays were unfairly concentrated in low income sectors such as agriculture. The aim was to remove colonial era silos of economic roles in our economy. It has been trivialized into a concern with obtaining equity and contracts by racial quotas. The NEP was to diversify the Malay economy beyond certain stereotyped occupations.   It is now about feeding a class of party- linked people whose main economic function is to obtain and re-sell government contracts and concessions.

The NEP saw poverty as a national, Malaysian problem that engaged the interest and idealism of all Malaysians. People like James Puthucheary were at the forefront of articulating this concern.  Its present-day proponents portray poverty as a communal problem.

The NEP was a unity policy.  Nowhere in its terms was any race specified. It has been reinvented as an inalienable platform of a Malay Agenda that at one and the same time asserts Malay supremacy and perpetuates the myth of Malay dependency.

It was meant to unite our citizens by making economic arrangements fairer, and de-racializing our economy. In its implementation it became a project to enrich a selection of Malay capitalists. James Puthucheary had warned, back in 1959, that this was bound to fail. “The presence of Chinese capitalists has not noticeably helped solve the poverty of Chinese households.. Those who think that the economic position of the Malays can be improved by creating a few Malay capitalists, thus making a few Malays well-to-do, will have to think again. “

The NEP’s aim to restructure society and to ensure a more equitable distribution of economic growth was justified on principles of social justice, not claims of racial privilege. This is an important point. The NEP was acceptable to all Malaysians because its justification was universal rather than racial, ethical rather than opportunistic. It appealed to Malaysians’ sense of social justice and not to any notion of racial supremacy.

We were a policy with a 20 year horizon, in pursuit of a set of measurable outcomes. We were not devising a doctrine for a permanent socio-economic arrangement. We did not make the damaging assumption of the permanently dependent Malay.

Today we are in a foundational crisis both of our politics and of our economy. Politically and economically, we have come to the end of the road for an old way of managing things. It is said you can fool some of the people some of the time, but not all of the people all the time. Well these days the time you have in which to fool people is measured in minutes, not years.

The world is greatly changed. The next move we must make is not a step but a leap that changes the very ground we play on.

The NEP is over. I ask the government to have the courage to face up to this. The people already know. The real issue is not whether the NEP is to be continued or not, but whether we have the imagination and courage to come up with something which better addresses the real challenges of growth, equity and unity of our time.

At its working best the NEP secured national unity and provided a stable foundation for economic growth. Taken out of its policy context (a context that James helped frame) and turned into a political programme for the extension of special privilege, it has been distorted into something that its formulators, people such as the late Tun Razak and Tun Ismail, would have absolutely abhorred: it is now the primary justification and cover for corruption, crony capitalism and money politics, and it is corruption, cronyism and money politics that rob us and destroy our future.

No one who really cares about our country can approve of the role the NEP now plays in distorting the way we think about the economy, of our people, of our future, and retarded our ability to formulate forward-looking economic strategy.

The need for a wholistic approach to development based on the restoration and building of confidence.

We need a wholistic approach to development that takes account of the full potential of our society and of our people as individuals. We need an approach to development that begins with the nurturing and empowerment of the human spirit. Both personally and as a society, this means we look for the restoration of confidence in ourselves, who we are, what we are capable of, and the future before us.

I return to the question of the Middle Income Trap that I alluded to some time ago. I am glad that notion has since been taken up by the Government.

The middle income trap is a condition determined by the quality of our people and of the institutions that bind them. It is not something overcome simply by growing more oil palm or extracting more oil and gas.  Our economic challenge is to improve the quality of our people and institutions. Making the break from the middle-income trap is in the first place a social, cultural, educational and institutional challenge. Let me just list what needs to be done. Before we can pursue meaningful economic strategy we need to get our house in order. We need to:

1. undertake bold reforms to restore the independence of the police, the anti-corruption commission and the judiciary. Confidence in the rule of law is a basic condition of economic growth.

2. reform the civil service

3. wage all out war on corruption

4. thoroughly revamp our education system

5. repeal  the Printing Presses Act, the Universities and Colleges Act, the ISA and the OSA. These repressive laws only serve to create a climate of timidity and fear which is the opposite of the flourishing of talent and ideas that we say we want.

6. Replace the NEP with an equity and unity policy (a kind of “New Deal”) to bring everyone, regardless of race, gender, or what state they live in and who they voted for, into the economic mainstream.

These reforms are the necessary foundation for any particular economic strategies. Many of these reforms will take time.  Educational reform is the work of many years. But that is no excuse not to start, confidence will return immediately if that start is bold. As for particular economic strategies, there are many we can pursue:

* We need to tap our advantage in having a  high savings rate.  Thanks to a lot of forced savings, our savings rate is about 38%. We need more productive uses for the massive funds held in EPF. LTH, LTAT and PNB than investment in an already over-capitalized stock market.  One suggestion is to make strategic investments internationally in broad growth sectors such as minerals. Another is that we should use these funds to enable every Malaysian to own their own home. This would stimulate the construction sector with its large multiplier of activities and bring about a stakeholder society. A fine example of how this is done is Singapore’s use of savings in CPF to fund property purchases.

* The Government  could make sure that the the land office and local government, developers and house-buyers are coordinated through a one-stop agency under the Ministry of Housing and and Local Government. This would get everyone active, right down to the level of local authorities. The keys to unleashing this activity are financing and a radical streamlining of local government approvals.

* We have been living off a drip of oil and cheap foreign labour. Dependence on these easy sources of revenue has dulled our competitiveness and prevented the growth of high income jobs.  We need a moratorium on the hiring of low skilled foreign labour that is paired with a very aggressive effort to increase the productivity and wages of Malaysian labour. Higher wages would mean we could retain more of our skilled labour and other talent.

* Five years ago I called for a project to make Malaysia an oil and gas services and trading hub for East Asia. Oil and gas activities will bring jobs to some of our poorest states. We should not discriminate against those states on the basis of their political affiliations. No one is better placed by natural advantage to develop this hub. Meanwhile Singapore, with not a drop of oil, has moved ahead on this front.

* We should ready ourselves to tap the wealth of the emerging middle class of China, India and Indonesia in providing services such as tourism, medical care and education. That readiness can come in the form of streamlined procedures, language preparation, and targeted infrastructure development.

These are just some ideas for some of the many things we could do to ensure our prosperity. Others may have better ideas.

Conclusion

We are in a foundational crisis of our political system. People can no longer see what lies ahead of us, and all around us they see signs of decaying institutions. Wealth and talent will continue to leave the country in droves.

To reverse that exodus we need to restore confidence in the country. We do not get confidence back  with piecemeal economic measures but with bold reforms to restore transparency, accountability and legitimacy to our institutions. Confidence will return if people see decisive leadership motivated by a sincere for the welfare of the country.  The opposite occurs if they see decisions motivated by short term politics. Nevermind FDI, if Malaysians started investing in Malaysia, and stopped leaving, or started coming back, we would see a surge in growth.

In the same measure we also need to break the stranglehold of communal politics and racial policy if we want to be a place where an economy driven by ideas and skills can flourish. This must be done, and it must be done now. We have a small window of time left before we fall into a spiral of political, social and economic decline from which we will not emerge for decades.

This is the leap we need to make, but to make that leap we need a government capable of promoting radical reform. That is not going to happen without political change. We should not underestimate the ability of our citizens to transcend lies, distortions and myths and get behind the best interest of the country. In this they are far ahead of our present leadership, and our leadership should listen to them.

* Speech by Gua Musang MP Tengku Razaleigh Hamzah at the launch of the Second Edition of “No Cowardly Past: James Puthucheary, Writings, Poems, Commentaries” at the PJ Civic Centre on March 22, 2010.

* This is the personal opinion of the writer or publication. The Malaysian Insider does not endorse the view unless specified.

http://www.themalaysianinsider.com/index.php/opinion/breaking-views/57204-the-leap-we-need-to-make--tengku-razaleigh-hamzah

Comment:  Analogous to the story of Nero and Rome!

Malaysia's Affirmative Action

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

Affirmative action, meet economic reality.

Malaysia's Affirmative Action

By MOHAMMED HADI
Affirmative action, meet economic reality.

Facing declining interest from foreign investors and finding itself in an increasingly liberalized neighborhood, Malaysia on Tuesday unveiled some big changes in stock ownership and acquisition rules.

The boldest of these chip away at the country's nearly forty-year-old affirmative action policies -- in this case, rules over corporate ownership. Specifically, the requirement that ethnic Malays own 30% of any listed company will be watered down, effectively, to 12.5%.

Hurdles to acquisitions by foreign buyers too will be lowered, as will ownership restrictions for foreigners on fund management companies and brokerages.

Aimed at improving the lot of the country's ethnic majority Malay population, the affirmative action rules -- which govern everything from university enrollment to work force quotas -- have more recently become an anchor around the economy.

The symptoms of this -- a decline in competitiveness of non-commodity exports and foreign interest in the country -- is evident, Morgan Stanley says. Net foreign direct investment, for example, has been trending lower since the early 1990's -- contrary to the flood of inflows into the much of the region.

Malaysia trails Singapore, Thailand, and Indonesia when it comes to the volume of funds raised on its domestic stock market and value of acquisitions by foreign companies in recent years, according to Dealogic.

Tuesday's changes are unarguably a step toward fostering much needed innovation and risk-taking by Malaysian business, but relaxing rules to encourage foreign investment is surely the easy part.

Malaysia's Byzantine politics may keep any further changes -- particularly to labor laws -- off the table.

Write to Mohammed Hadi at mohammed.hadi@dowjones.com

http://online.wsj.com/article/SB124635723363472461.html?mod=googlenews_wsj