Dismantling a decades-old system

KUALA LUMPUR – Malaysia's dilemma over whether to end some of the world's most entrenched systems of racial-preference laws is coming to a head.

Prime Minister Najib Abdul Razak is expected to outline this month plans to revitalise how the country's export-driven economy is run, with details to follow in June.

The programme might mean a push to change a decades-old system of preferential treatment for the country's bumiputra population, which has often economically lagged behind its ethnic compatriots.

People familiar with his plans say he might move to liberalise some sectors of the economy, giving non-bumis a larger role.

He also is expected to give more non-bumi students access to scholarships.

He already has made it easier for foreign business to invest in areas such as Islamic finance and, last week, warned Malaysians to prepare for an end to state subsidies on various commodities, including sugar.

Boosting economic power

Malaysia's race-based quota system, in place since the early 1970s, gives bumiputras special treatment—from discounted housing to securing university places and government contracts.

The aim is to boost the economic power of the Malay population, which represents 54% of the country's 28 million people.

Many think the affirmative-action system is too rigid for global competition for markets and investment.

Business leaders such as Nazir Razak, Najib's brother and chief executive of banking concern CIMB Group Bhd, have called for the bumiputera rules to be revised.

An opinion poll conducted by the independent Merdeka Center in 2008 found that 71% of Malaysians surveyed—and 65% of Malays—agreed the laws needed to be overhauled.

Trading partners such as the United States and the European Union have singled out government procurement policies that ensure contracts go to Malay-owned business as stalling free-trade pacts.

"I don't think there's any question that we need to commit to reform, although we'll still have to help Malaysians according to their need," says Umno Youth chief Khairy Jamaluddin.

Still, some analysts doubt Najib will be able to take his overhauls far.

In defence of Malay rights

Voluble opponents have emerged, such as Pasir Mas MP Ibrahim Ali, who holds rallies and lobbies government officials through Perkasa, a Malay rights NGO. He counts former prime minister Dr Mahathir Mohamad and the Sultan of Selangor among his 30,000 or so supporters.

Ibrahim argues that the social stability ensured by giving a leg up to the Malay population far outweighs the benefits of opening more of - what was once one of Southeast Asia's most dynamic economies - to the capital-rich non-Malays.

"The playing field can be leveled sometime in the future, but it's only 2010.

"We've got to be honest and say we can't compete."

The roots of the issue go back to the 19th and early 20th centuries, when British colonists encouraged workers from China and India to go to Malaysia to toil in the rubber and tin industries.

In 1969, deadly race riots killed more than 100 in Kuala Lumpur and other cities. Malaysia's rulers then adopted the quota system in the early 1970s to help the bumiputras.

The goal: Build up the economic clout of the community to control at least 30% of Malaysia's economic output.

The Malays now control about 19% of the economy—up from 2.4% since the programme began, according to government figures.

Winning back lost votes

Analysts say Najib is trying to win back Chinese and Indian voters to the ruling Barisan Nasional by adopting some policies of Opposition Leader Anwar Ibrahim.

The risk is that the PM might lose the support of some Malay voters, especially with Ibrahim leading the charge in support of Malay supremacy.

Ibrahim reckons Najib is misreading the depth of anger that many Malays feel towards any change in a policy that has given many of them a leg up and helped to build a large middle class.

"People like Perkasa, they can derail the prime minister's plans. They do resonate with a segment of the Malay community," says Khairy."But this is a time for leadership, not a time to pander to Malay insecurities."

Wall Street Journal
19/03/10

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