Malaysia to Shift from Race-Based System to Focus on Poverty: Najib

Jakarta Globe, March 30, 2010

Malaysian Prime Minister Najib Razak speaking at an investment conference in Kuala Lumpur on Tuesday. (AFP Photo)

Malaysia will revise its affirmative action policies to target the nation’s poorest across all ethnic groups, moving away from 39-year-old race- based measures that the government now says may impede growth.

The new policies will be fair and transparent yet continue to benefit the Malay majority, Prime Minister Najib Razak said in a speech at a financial-markets conference in Kuala Lumpur today. The strategies will focus on the bottom 40 percent of households by income, as the country must reduce income gaps in all races, he said.

“We must recognize that some policies, which served a purpose in a previous era, may now be impediments to success, distorting the market and putting us at a competitive disadvantage,” Najib said. “Our first priority must be to eradicate poverty, irrespective of race. We cannot have the high income, sustainable and inclusive economy we seek when disparities in income are not addressed.”

Najib’s father, Malaysia’s second prime minister, in 1971 introduced a system called the New Economic Policy that aimed to boost the social and economic standing of the ethnic-Malay majority through preferential treatment in education, housing and business. The plan has been criticized by opposition leaders including Anwar Ibrahim as hindering the country’s economic development.

Malaysia’s ringgit strengthened to a 20-month high against the dollar yesterday on speculation faster economic growth will attract overseas funds to the nation’s assets, and after Citigroup Inc. and Barclays Capital Plc said in research notes last week Najib may unveil initiatives to attract foreign investment.

Economic reforms can boost average annual growth to 6.5 percent in the 2011-2020 period, the National Economic Advisory Council said in a report in Kuala Lumpur today. Malaysia’s affirmative action should be based on need rather than ethnicity, as the ethnic-based affirmative action policies are raising business costs, it said.

Malaysia’s economic engine is slowing and the country needs an “urgent transformation,” the council said. Doing business in Malaysia is still too difficult and productivity is growing “far too slowly,” it said. The nation should also remove restrictions on skilled workers, the council said.

Southeast Asia’s third-largest economy may expand 4.5 percent to 5.5 percent this year after shrinking 1.7 percent in 2009, the central bank said in a March 24 report. That compares with a government estimate in October that gross domestic product would expand 2 percent to 3 percent in 2010.

Since taking office last April, Najib has vowed to roll back policies favoring the country’s biggest ethnic group to lure investment. The country will consider carefully whether it will “do away completely with affirmative action,” he said in a March 23 interview.

The preferences provide the Bumiputera, or ethnic Malays and the indigenous people of two states, with cheaper housing, give them priority in college admissions and government contracts and require publically traded companies to set aside shares to the group.

Nazir Razak, Najib’s brother and chief executive officer of Bumiputra-Commerce Holdings Bhd., said last year the policies are a “serious” impediment to competitiveness and undermine investment.

Before today, Najib had already scrapped a requirement that foreign companies investing in Malaysia and locally listed businesses set aside 30 percent of their equity for indigenous investors. Instead, Malaysian companies must offer half of the 25 percent stake required to be sold to the public to Bumiputera investors at the initial public offering, and publicly traded companies will no longer have to meet any Bumiputera equity requirement.

Opposition leader Anwar said earlier this month that Najib isn’t serious about doing away with the preferences. The new model will be “just a revision of what he has done in the past,” Anwar said.

Race relations are a politically charged issue in Malaysia, where rioting between Malays, who make up more than half of the population, and ethnic Chinese following elections in 1969 left hundreds dead.

Acts of violence were reported against at least 11 Christian institutions, one Sikh temple and two Muslim prayer rooms in January following a High Court judge’s decision to allow a Catholic newspaper to refer to God as “Allah” in its Malay-language section.

Bloomberg

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