Malaysia plans major economic overhaul
Malaysia Tuesday unveiled plans for bold economic reforms including an overhaul of racial preferences for majority Malays, in a roadmap to achieve developed-nation status by 2020.
Prime Minister Najib Razak, who came to office last year, said the "New Economic Model" was designed to boost growth, create a high-quality workforce, and attract badly needed foreign investment.
He acknowledged he faced obstacles in targeting a decades-old affirmative action policy for Muslim Malays and indigenous groups -- collectively known as "bumiputra" -- which has been criticised as uncompetitive.
"We need a new way of doing things. While the recovery has begun, we must act now to position Malaysia for the future," Najib said in a speech.
"And this is the choice we now face: To rise out of the 'middle-income' trap that will be a precarious position for any nation in the new global economy, or to stick to what we know, and what is comfortable."
Analysts said Najib had outlined some ambitious plans, but that there was no detail on how the goals were to be realised by a government that has already backed away from unpopular initiatives like a value-added tax.
"There will be huge scepticism amongst potential investors whether the reforms will actually be implemented and enforced effectively," said Robert Prior-Wandesforde, a senior economist with HSBC in Singapore.
Malaysia's economy shrank 1.7 percent last year as its crucial export markets dried up during the global downturn.
The central bank has forecast 5.5 percent expansion this year but as the region powers back to health, competition for investment has become fierce, with Thailand, Indonesia and Vietnam eroding Malaysia's attractiveness.
"We want to see a Malaysia that makes a quantum leap from the current 7,000 dollar per capita annual income to 15,000 dollars in 10 years," Najib said. That would meet a developed-nation yardstick of income of 15-20,000 dollars.
"Bold reform measures will unlock investment, drive labour productivity and boost efficiency, lifting real growth rate to an average of 6.5 percent per annum over the 2011-2020 period," he said.
The model also aims to stem Malaysia's "brain drain" with measures to retain skilled professionals, and make markets more competitive by phasing out price controls and subsidies.
James Chin, an analyst from Monash University's campus in Kuala Lumpur said that Najib would have trouble winding back the affirmative-action policy which hands bumiputras privileges in housing, education and business.
"How do you take away free lunches and free dinners that you have been providing for the past 35 years?" he said.
The policy, introduced in the 1970s to close the wealth gap between bumiputras and the minority ethnic Chinese community, is accused of breeding over-reliance on the state among Malays and improperly benefiting the elites.
Najib said in his speech that "past practices that gave rise to unhealthy and pervasive rent-seeking and patronage activities will be discontinued", but did not give details on how far the bumiputra policy would be reformed.
The ruling coalition was deserted by ethnic Chinese and Indian minorities in 2008 elections and now risks losing the support of Malays, who have long been its bedrock, to the resurgent opposition.
Any measures that could further alienate voters are now highly unpalatable for the Barisan Nasional coalition, which has ruled since independence in 1957, and which must call the next polls by 2013.
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