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Malaysia’s New Economic Model:
Risks and Rewards
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AseanAffairs Magazine May - June 2010

Prime Minister Najib Razak vows to take Malaysia forward and transform it into a high income nation through economic and social reforms. Initial responses to this ambitious drive are mixed, details are scarce and investors play wait-and-see.Yet, Najib insists he’s got support to push ahead.

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An exclusive interview with Malaysian
Prime Minister Najib Razak


Q: Why is it necessary to reconsider affirmative action?

Affirmative action policies cannot be based on a fixed point in time. They must evolve as the needs and economic conditions of a society change. I believe our affirmative action policies have been important and necessary, as demonstrated by past results. Indeed, the New Economic Policy (NEP), launched about forty years ago, is an affirmative action policy that served the nation well at the time by balancing strategies for economic growth with the need to address structural inequalities.

The NEP has also shown concrete results: it helped to cut poverty drastically in the general population and particularly among the bumiputera, the indigenous Malays who form the majority of our population. Today, poverty stands at around 3.7 per cent, one of the lowest rates in the region.

However, we still have an unacceptably large segment of low-income households and those policies need to be reworked to achieve evolving social goals. My priority is to eradicate poverty irrespective of race, and this is the goal of the recently-announced New Economic Model (NEM). To achieve our vision of a high-income, sustainable and inclusive economy, we must address disparities in ways that matter to all Malaysians, whether Malay, Chinese, Indians, Kadadusuns, Ibans or the Orang Asli.

The changes to the affirmative action policy introduced in the NEM will help us to achieve our goal of eradicating poverty and improving the standard of living for all Malaysians. The NEM’s renewed affirmative-action policy will be built on four principles. It must be market-friendly, it must be merit-based, it must be transparent, and it must be needs-based.

Ultimately, my hope is that the affirmative action policies in the NEM will lead to a more cohesive and socially harmonious society, embodied in our concept of 1Malayisa.

The Four Pillars
• fostering “1 Malaysia” (People First,
Performance Now) launched in April 2009
• the “Government Transformation
Programme” (which has six National
Key Result Areas) launched in Jan 2010
• the “New Economic Model” to be
achieved through an Economic Transformation
Programme comprising eight Strategic
Reform Initiatives (SRIs) announced in Mar ‘10
• the 10th Malaysia Plan earmarked for a Jun
‘10 launch.

      An on-going campaign announced by Malaysian Prime Minister on September 16, 2008, calls for the cabinet, government agencies, and civil servants to more strongly emphasise ethnic harmony, national unity, and efficient governance.
      1Malaysia strongly emphasizes national unity, ethnic tolerance, and government efficiency. The eight values of 1Malaysia as articulated by Najib Razak are perseverance, a culture of excellence, acceptance, loyalty, education, humility, integrity, and meritocracy.
      Improving government efficiency is an important aspect of 1Malaysia. The use of Key Performance Indicators (KPIs), metrics and targets more typically used in private business, and National Key Result Areas (NKRAs) is thus naturally an important part of the 1Malaysia effort. Najib says, “The government is committed to carrying out a transformation programme as its main agenda based on approaches and philosophy of 1Malaysia -- people first, performance now.”

 Q: What essentially is the ‘New Economic Model’ and how is it different from the ‘New Economic Policy’ in 1971? 

The NEM is a natural evolution of the NEP to meet contemporary requirements for greater transparency, accountability and the merit-based, rather than race-based, needs of our poorest citizens. Our ultimate goal is that no Malaysian will live in poverty and every citizen will receive a fair chance to succeed and prosper. This was also the goal of the NEP. Its original objectives are still relevant, but it is time to review the way in which inclusiveness is conceptualised and implemented.

  The NEM differs from the NEP in several important ways, however. First, we have placed a premium on delivering results and there will need to be clear measurements that demonstrate progress in terms of poverty alleviation, income distribution, and other areas.

 Additionally, the NEM’s programmes will be based on needs and merit, and not simply race. The focus will be on the bottom 40 percent of  Malaysia’s income strata. While the purpose of the NEM is to meet the requirements of all Malaysians, our focus must be on structured  and dedicated capacity-building investments that allow the Bumiputera to take advantage of new opportunities in the economy and rise out of poverty.

Finally, fairness and transparency are key components of the new affirmative action policies. Our approach includes fair access and opportunities to quality education, affordable health care, retraining and the ability to gain employment for all Malaysians. We believe the transparency and fair access measures we have built into the NEM will yield better results and reduce the practices that support the behavior of rent-seeking and patronage, which have long tarnished the altruistic aims of the NEP.

Q: There are high expectations among some fund managers and economists that the ‘New Economic Model’ would bring about radical reforms while others say the  reforms would only be incremental. How would you strike a balance between the demand from investors and those from voters?

We must push forward with reforms that make Malaysia’s economy more competitive and create an envir onment that is more conducive to investment and growth. This approach will provide long-term benefits to Malaysian voters; however, we also need to consider the immediate needs of our citizens.

It is important to consult with a wide range of stakeholders to ensure that we are listening to the right voices. We are taking careful steps over the next few months to engage all segments of the Malaysian population before we finalise the specific incentives and measures under the NEM.

Change is always difficult, even when everyone knows that it’s needed. It is always difficult to embrace the unfamiliar. But that is why it is important to engage in dialogue and consultations with all stakeholders when such ambitious and transformational policies such as the NEM are introduced.

I am confident that the NEM will bring about reforms that are both positive and meaningful, not just for investors and fund managers, but for all Malaysians. The people have demanded that we change the way business and government services are conducted in this country. The NEM is a down payment on our promise to the people to undertake that transformation. 

Q: Apart from the objective to transform Malaysia into a developed economy by 2020, there is no implementation time-frame for key reform items such as divestments, subsidy cuts, etc. What are the targets and when will they start? 

We understand that Malaysia must correct certain practices, including subsidies, in order to remain competitive in the future. My government carried out a study and f ound that Ma laysia was one of the most subsidised nations. We know that this is not a sustainable course.

However, we must also be mindful of how an abrupt elimination or reduction in subsidies will impact Malaysians at the bottom of the economic ladder. Therefore, the implementation of subsidy cuts will be conducted in a carefully calibrated manner that involves ongoing consultations with the public and other stakeholders.

With regard to GLC divestiture, I believe the private sector is the engine to Malaysia’s long-term growth. The transformation of GLCs into high-performing entities is critical for the prosperity of Malaysia. Nonetheless, you cannot quickly convert governmentsponsored organisations into private entities. The process for selling down government stakes will be slow and strategic with the intent of encouraging greater competition and openness in our economy.   

Q: How will the ‘New Economic Model’ help promote ‘racial harmony’ in Malaysia? 

The New Economic Model promotes an inclusive and fair approach for meeting the needs of Malaysia’s poorest citizens. I believe this is a fundamental component to achieving racial harmony.

Economic disparities have long been a source of these tensions and the NEM seeks to address this gap by striking a fair balance between the special position of the  bumiputera and the legitimate interests of other communities. An inclusive society will nar- row the inequalities in our nation, help those in need and will utilise the talents of all Malaysians in our effort to build a competi- tive economic workforce.

Q: Will there be a need to drastically restructure the extensive but apparently outdated and uncompetitive system of privileges for Malays and other indigenous peoples that account for 65 percent of the population of 28 million? 

The NEP was a race-based affirmative action policy that helped to cut poverty drastically in the bumiputera. However, as I mentioned previously, we still have an unacceptably large segment of low-income households and those policies need to be reworked to achieve evolving social goals.

For far too long, our implementation of affirmative-action policies did not reach those who needed help the most.

Hence, my priority is to eradicate poverty irrespective of race, and this is what the recently-announced New Economic Model (NEM) intends to achieve. Disparities must be addressed in ways that matter to all Malaysians. They must be based on merit and needs.

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