Published November 3, 2008

MALAYSIA INSIGHT
Time to take the bull by the horns on the NEP now

Long-overdue tweaking of the policy vital to solve structural problems

By PAULINE NG
KL CORRESPONDENT
Email this article
Print article
Feedback

MALAYSIANS should have a better idea this week how the government plans to battle the impending economic slowdown.

Deputy Prime Minister and Finance Minister Najib Razak is set to announce more measures to counter the financial contagion that is expected to hit Malaysia once the economies of its major trading partners run into recession, as most predict they will.

Steps taken thus far have followed fairly closely to the usual formula. Bank deposits have been guaranteed by the central bank until the end of 2010, and banking chiefs have been reminded not to squeeze credit lines so that the wheels of commerce and enterprise can continue to turn.

A proposal to inject RM5 billion (S$2.1 billion) into a special- purpose fund to support the stock market by purchasing good but undervalued stocks has been generally derided as throwing good money after bad since many think those funds could be better utilised in areas where the poorer segments of society could benefit.

Taking a cue from the last financial crisis, the government is expected to propose a voluntary reduction in employees' pension contributions to ensure consumers will have more disposable income.



But the current global financial crisis is an extraordinary one, requiring an extraordinary response. To a growing number of Malaysians, the tweaking of the country's controversial New Economic Policy (NEP) should be part of that extraordinary response.

A growing number agree the affirmative action policy ought to be more needs- based rather than race-based, judging from the huge gains made by the opposition coalition which had campaigned along such grounds in the March general election.

Even Mr Najib, who is set to assume the prime ministership next March under a leadership transition plan, has said he is open to the idea of a gradual dismantling of certain elements of the nearly 40-year-old policy. Perhaps he understands that in this current business environment, few foreigners (or locals, for that matter) are prepared to hand over 30 per cent of their firm cheaply to bumiputras just because the policy dictates so.

Indeed, a number of bumiputra corporate bigwigs - two such being Mr Najib's brother Nazir, who heads CIMB Bank, and Azman Yahya, who headed the asset management company Danaharta, established to rehabilitate corporate bad debt during the Asian financial crisis - have alluded to the need to relook the outmoded equity conditions which, for example, mandates companies listing on the local bourse to ensure 30 per cent equity is reserved for bumiputras.

The political brouhaha which invariably follows such a suggestion has predictably been turned into a zero-sum proposition, pitting bumiputras against non-bumiputras as racial politicking overwhelms concerns on how to address this decades-old impasse and move the country forward as a unit.

However, Mr Najib envisions a 'gradual' relaxation. It is hoped he will move in areas where he can. For example, talk about liberalising the services sector has remained just that, with no concrete details fleshed out.

During the 1997-98 Asian financial crisis, equity conditions in the manufacturing sector were liberalised to encourage foreign investments. Similarly for the Multimedia Super Corridor project; there was no backlash then - and, in truth, why should there be if it results in an expanding economic pie?

Although in a relatively better position, Malaysia's moderating economy will not be immune to a global recession. It was already underperforming despite its abundant natural resources which helped bring about a reasonable pace of growth, albeit masking the many structural problems in the economy.

Quick-fix solutions may help in the current financial crisis - but to better secure the future, one cannot shy away from longer-term decisions