New Economic Model has challenges

Although the New Economic Model (NEM) launched by Prime Minister Datuk Seri Najib Tun Razak is the right step towards achieving Malaysia's high-income nation aspirations, its greatest challenge yet is the political will of the government to see it through, according to a new study by a Malaysian think tank.

The NEM, released in two parts in March and December last year, has the stated goal of transforming Malaysia's economic system into one that is high income, sustainable and inclusive via liberalisation and reduced government intervention in business affairs.

Unlike its predecessor the New Economic Policy, in which the government assumed almost total responsibility for driving the nation's economy the NEM calls on the private sector to lead the way, and for the government to play a facilitative role.

In a paper authored by the Institute of Democracy and Economic Affairs' (IDEAS) chief executive Wan Saiful Wan Jan, it pointed out that while the initial part of the NEM proposed bold and sweeping changes, including a shift from pro-Malay affirmative action to a more inclusive, race-blind system, the final document suffered a watering-down following intense pressure from certain quarters.

The paper cited key differences between the first and subsequent document of the NEM to show that political will in the government may have faltered somewhat in the period between their two releases.

For example, the June tabling of the minimum wage policy through the National Wages Consultative Council Bill in parliament contradicts the first part of the NEM which acknowledged that minimum wage could “exacerbate the situation by reducing competitiveness and employment opportunities.”

“This reversal indicated there was a strong vested interest lobby against the bold elements in the NEM within the government machinery itself, and they can exert influence to win the battle if they choose to,” noted IDEAS.

The highly-controversial bill, which met with vehement protestations from both the Malaysian Trade Union Congress and Malaysian Employers Federation, aims to increase living standards by imposing a minimum wage. However, it cedes absolute power to the Human Resources Minister to appoint personnel for the National Wages Consultative Council.

Another recent move which could be construed as undue government intervention, IDEAS said, was the housing schemes introduced by the government under the “My First Home” and PR1MA banners.

The former allows up to 100 percent financing for first-time house buyers and properties ranging between RM100,000 and RM220,000, and the latter up to 105 percent financing for properties priced up to RM300,000.

IDEAS likens this to the United States' Fannie Mae and Freddie Mac housing bodies that were tasked with making housing more affordable, but in encouraging banks to lend to people who ordinarily would not qualify for mortgages, the schemes led to the subprime crisis and near-meltdown of the world economy in 2008.

Despite the apparent policy back-pedalling, the IDEAS report argued that Najib must be supported in implementing the NEM if Malaysia was to make meaningful economic progress.

“Early signs indicate that the Prime Minister may need as much help as he can get,” the report noted.