RMK9: Old wine in new bottles

Asia Times Online
06 April 2006


Southeast Asia

Malaysia economic plan: Old wine, new bottle
By Anil Netto

PENANG, Malaysia - This country's Ninth Economic Plan would have been
another ho-hum affair if not for one key ingredient that raised
eyebrows. In Malaysia's race-fixated society, it inevitably centered
on another extension of ethnic-based affirmative-action policies that
favor the ethnic Malays and other indigenous Malaysians, known
collectively as the bumiputeras.

Affirmative action was first incorporated into economic policy in
1971, when the New Economy Policy (NEP) was introduced in the wake of
anti-Chinese race riots. To ease racial tensions and promote national
unity, the policy had two main aims: to alleviate poverty and to
restructure society so that occupations were not defined by race.
Among the targets to be achieved - which has since become a larger-
than-life obsession - was for bumiputeras to own 30% of all corporate
equity by 1990.

The NEP was supposed to expire in 1990 but it was extended under a
new guise because, according to official figures, the bumiputeras,
who now make up some 60% of the population, had not yet reached the
30% target. Under the Seventh Malaysia Plan, the NEP was refashioned
as the National Development Policy (NDP) and extended a further 10
years until the year 2000.

In 2004, official figures showed that bumiputera equity ownership,
including through government trust agencies and government-linked
firms, had hardly budged at 18.7% in recent years. So it was extended
yet again. The Ninth Plan's decision to extend the period of
affirmative action further, until 2020, was in a sense a fulfillment
of calls made last year at the assembly of the United Malays National
Organization (UMNO), the dominant party in the ruling coalition. Key
UMNO leaders had called for a "New National Agenda" to advance the
"unfinished Malay agenda" for a further 15 years.

Still, there is some contention over whether the 18.7% achieved so
far is an accurate reflection of actual bumiputera wealth. Some have
pointed out that the figures are calculated based on the par value of
shares and not the market value. A 1990 study carried out by
political economist Edmund Terence Gomez into corporate equity owned
by politicians and political parties, including UMNO, revealed that
many use nominee companies, which now own 8% of total equity, to
conceal their ownership from public scrutiny.

The 30% target might have been met if shares awarded to bumiputeras
during initial public offerings (IPOs) and then quickly sold for a
profit were taken into account. Moreover, most of the top 10 firms by
market capitalization in the country are government-linked
corporations (GLCs). If the equity these GLCs own - regarded as
bumiputera private-sector investments - and the ownership of
privatized firms are taken into account, a different picture emerges.

Undoubtedly, the NEP has raised the living standards of the
bumiputeras through the creation of a new middle class and greater
participation across a wide range of occupations. But the obsession
with share capital ownership as a measure of bumiputera participation
masks a deeper problem: the yawning wealth and income gap within the
bumiputera community itself. The bumiputeras who take up IPO shares
are frequently the middle and upper classes.

"In truth, a tiny minority [of bumiputeras] hold the bulk of the
shares, and they are the ones salivating at the thought of the 30%,"
political analyst Philip Khoo said last year.

The Ninth Plan's answer to broadening the group's participation is to
widen the benchmark to include not just bumiputera equity ownership,
but also to promote their ownership of residential and commercial
urban property, intellectual property rights and small and medium
enterprises (SMEs). New foundations, trust funds and an SME Bank will
be established in the future to achieve this end.

In addition to racial inequality, the urban-rural income gap has
widened, with the poverty rate in Sabah province 30 times that in the
capital, Kuala Lumpur. As one political economist, G Lim, pointed
out, "The disparity between states has been more or less consistently
growing since 1970, while ethnic disparities have been significantly
reduced."

The poorest rural states - Kelantan, Perlis, Sabah, Sarawak and
Terengganu - tend to be dominated by bumiputeras. This has
contributed to Malaysia being one of the most unequal societies in Asia.

While the government says it wants to reduce regional imbalances,
state spending plans in the new economic program do not seem to
reflect this as a priority. Heavily developed Kuala Lumpur alone has
been allocated RM31 billion (US$8.4 billion), while less developed
Sabah and Sarawak in North Borneo - together covering an area much
larger than peninsular Malaysia - have been allocated only RM29 billion.

The Ninth Plan envisages RM200 billion of government spending over
the next five years. Another RM20 billion will be expended through
private finance initiatives (PFIs). The plan also envisages
transforming traditional farming into large-scale commercial farming
ventures. Some RM32 billion will be spent on highways, airports,
railways and urban transport projects, and a further RM22 billion on
energy and public-utility projects. That poses a problem of leakages.
Funds could gush out from the system, as even industry insiders admit
the construction sector is plagued with corruption in all stages from
the awarding of contracts to collection of payment.

In the past, there has been very little transparency in the way
contracts and shares have been awarded. Large privatization projects
have in many cases benefited a small group of well-connected firms -
and many have failed.

"Why has privatization [proved] to be such a dismal failure?" asked
Gomez, a University of Malaya political economist temporarily with
the UN Research Institute for Social Development in Geneva. "For
example, the renationalization of Proton, Malaysia Airlines [MAS] and
[sewage disposal firm] IWK indicates that this policy needs a
thorough review before being continued to be promoted ... Why has no
one been charged for running MAS into the ground?"

The real test will be whether contracts under the Ninth Plan will be
awarded on an open-tender basis or whether a handful of privileged
firms will once again dominate major infrastructure and privatized
projects with little transparency or regulation.

Former deputy premier Anwar Ibrahim is one of the few high-profile
ethnic Malays who have openly called for the NEP to be scrapped.
"We're not going to sacrifice Malay interests, we're going to help
them as we are going to help those deserving irrespective of race,"
he said in November.

Another Malaysia-based political economist, who declined to be
identified, agrees with that assessment: "If they really wanted to
extend the NEP, then it should have been fully non-ethnic and only
favoring the genuinely poor."

Last week, Anwar pointed out that there has not been much
transparency in how the wealth of the national oil corporation,
Petronas, has been used. Anwar, a former finance minister, insisted
that Prime Minister Abdullah Badawi should explain what had happened
to Petronas' Legacy Fund (Tabung Warisan), which he said was set up
to provide for the day when the country turns into a net importer of
oil. "Annually, a sum from Petronas revenue is contributed to the
Tabung Warisan. It has been 20 years, and what is the amount?" he asked.

To its credit, the government recognizes that Malaysia badly needs to
upgrade its human resources to meet the annual 6% gross domestic
product growth target over the next five years. A huge chunk - RM50
billion - is to be set aside for education and training as the Ninth
Plan recognizes the importance of enhancing the national capacity for
knowledge and innovation and nurturing citizens with "first-class
mentality".

But qualitative issues - rather than funding - are likely to prove
crucial: how to promote critical thinking in a climate where dissent
and alternative viewpoints are not encouraged, where meritocracy is
the exception rather than the rule, where stifling laws remain in
place, and where universities and the government are burdened by a
culture of mediocrity. With this restrictive environment likely to
remain unchanged, the Ninth Economic Plan, framed along ethnic lines
that do little to foster national unity, will find it difficult to
unleash the full potential of Malaysians.

Anil Netto is a freelance writer based in Penang, Malaysia.

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