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NEWS UPDATES 14 August 2010

IMF asks Malaysia for action

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The International Monetary Fund (IMF) asked Malaysia Friday to take "decisive" action on reforms under a model program aimed at revising a controversial four-decade-old affirmative action policy.

Malaysian Prime Minister Najib Razak announced in March a "New Economic Model" or NEM, aimed at reforming elements of the policy favouring the country's majority ethnic Malays to boost economic competitiveness.

Details of the reform program have not been announced.

The Washington-based IMF said Friday it was looking forward to the NEM's rollout.

In a report after annual consultations between the IMF executive board and the Malaysian government, the fund acknowledged the "ambitious vision" of Najib's administration for a far-reaching economic transformation over the long term.

The board directors "agreed that the comprehensive structural reform agenda, at the heart of the New Economic Model, holds out promise of faster and inclusive growth," the report said.

They also called for an "effective communication strategy" to forge "broad public support" for these efforts.

"Further gradual liberalization of product and labor markets will help exploit policy complementarities, encourage private investment and harness the benefits of reform," the report said.

Najib, who came to office last year, said the New Economic Model was designed to boost growth, create a high-quality workforce, and attract badly needed foreign investment.

The model also aims to stem Malaysia's "brain drain" with measures to retain skilled professionals, and make markets more competitive by phasing out price controls and subsidies.

The affirmative action policy which hands Malays privileges in housing, education and business has been criticised as uncompetitive and improperly benefiting the elites.

Under the planned changes to the policy, the government will seek to raise the income levels of all disadvantaged groups, rather than focusing solely on ethnic Malays, the dominant ethnic group in the Southeast Asian nation.

Najib's reforms face opposition from conservative Malay rights groups.

The country has sizeable ethnic Indian and Chinese minorities, who mostly deserted Najib's ruling coalition in 2008 elections.

The IMF also said that Malaysia?s near-term growth prospects were favorable.

The economy was projected to expand by 6.7 percent in 2010 but growth is expected to moderate to 5.3 percent in 2011, the IMF report said.

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