Malaysia: can Najib touch ethnic quotas and subsidies?

  By Kevin Brown*
  (From Financial Times of June 09, 2010)

Najib Razak, Malaysia’s prime minister, has talked a lot in recent months about reforming the country’s affirmative action framework which favours the dominant ethnic Malays - to counter widespread beliefs that it is inefficient and unfair and deters investment.
Najib has repeatedly told Malaysians radical economic reform is essential to prevent economic decline and revive efforts to reach the government’s target of developed nation status within a decade.
But is he serious? And is he ready to face down the anger among nationalists in the ethnic Malay community, which makes up about 53 per cent of the population? A big signal will come on Thursday when Najib delivers the tenth Malaysia Plan – an economic strategy document covering the years 2011 to 2015. (Key points of the 10th Malaysia Plan revealed by the PM in this Star newspaper report.)
Najib says the plan will form the basis of the New Economic Model needed to transform the country’s prospects. It is now just over two months since Najib announced the basics of the NEM – a drive to encourage investment and job creation by removing distortions in the economy, including widespread subsidies and positive discrimination.
Not unexpectedly, the proposals have proved deeply controversial among Malays, and to some extent among indigenous peoples who make up a further 12 per cent of the population and also benefit from affirmative action.
Pressure groups such as Perkasa – the Malay word for Warrior – have angrily protested that Malays as a group remain significantly less well off than the Chinese and Indian Malaysians who make up the rest of the population.
These groups seem to have caught the public mood among Malays. An opinion survey released on Tuesday by the Merdeka Centre, an independent polling business, suggested that 69 per cent of Malays disagree with the removal of Malay quotas.
This is hardly surprising, since affirmative action offers huge benefits to ethnic Malays, all of whom are Muslim by law, including preferential access to universities and government jobs. Malays also get a proportion of government contracts, and must have an equity stake in private companies operating in some sectors of the economy.
Najib’s political problem is that Malays form the core of support for his United Malays National Organisation, the main party in the governing National Front coalition. Alienating substantial numbers of Malay voters could well undermine his government’s chances of winning the next election, due by 2013.
In spite of the brave talk, many of the signals from Kuala Lumpur suggest that the prime minister is unwilling to take this risk. He has backed away from subsidy reform, for example, and also appears to have shelved tax reform proposals that would have created a much more stable revenue base for future governments.
Officials insist Najib is serious about reform, and understands that important groups such as the foreign investment community want to see some credible evidence that the government is determined to move ahead.
On the other hand, they say, the political reality is that the government cannot move faster than the bulk of the majority community – which implies that there may have to be an extended period of debate before significant reforms can be implemented.
Thursday’s announcements will give some important clues about Najib’s strategy. If he is serious, there will be detailed proposals for reform, accompanied by time frames. If he is not, there will be a lot more brave talk, but few specifics.
Aides say he is keenly aware of the difference.

*Kevin Brown was appointed Asia regional correspondent for the Financial Times in September 2009, based in Singapore. Prior to this role, he was Asia news editor. Previously, he was the personal finance editor of the Financial Times.