MALAYSIAN Prime Minister Najib Razak has moved swiftly on the economic front by liberalising certain sectors. First, Mr Najib lifted affirmative action requirements embodied in the New Economic Policy, which requires quotas for Malays, on 27 sub-sectors in the services economy. He followed that up with an even more sweeping change by throwing open the financial services sector. Foreign interests may now own up to 70 per cent in investment banks, insurance companies, Islamic banks and Islamic insurance companies.
Between now and 2010, another five commercial banks will be allowed to set up shop and two more Islamic banks will be permitted. That is a lot of new competition but the move is not altogether surprising: although it was vague on the specifics, the 2001 Financial Services Master Plan had predicted the opening up of the sector by 2010. In one sense, Mr Najib is just following a script prepared by the Malaysian central bank. And in the case of the liberalisation of the services’ sub-sectors, Kuala Lumpur was merely marching to the drumbeat of Asean. Indeed, Indonesia and the Philippines are ahead of Malaysia in their commitments to liberalise their services’ sectors. So, it is unfortunate that Mr Najib has come in for some stick. He is being warned that he could be acting too hastily by abandoning the ‘social justice’ aspects of the New Economic Policy (NEP) in order to pacify certain economic pressure groups. And it seems that he may even face a backlash against Umno, the dominant partner in the ruling National Front coalition, in the next election. But there have been liberalisations of the NEP before – during severe economic downturns and by the same man, former Prime Minister Mahathir Mohamad. In 1986, and then again in 1998, Dr Mahathir rolled back the NEP to allow for greater foreign investment without affirmative action equity restrictions. And both times, it worked. The 1986 relaxations set the stage for the biggest investment boom in Malaysian history and paved the way for a ten-year economic boom. And Dr Mahathir’s relaxations during the Asian financial crisis allowed Malaysia to emerge from the downturn faster than it would otherwise have been able to do so.
The present economic crisis is a serious one in the sense that, for the first time since the 1930s, all the great economic powers are in recession. Mr Najib clearly realises the danger posed by this threat and he is trying to do something about it. The services sector is key for a country such as Malaysia that can no longer solely depend on its manufacturing export machine. The answer is not more restriction but more liberalisation in an increasingly globalised world that is wholly indifferent to Malaysia’s motivations for social justice. Mr Najib should be commended, not castigated.
Source : Business Times Singapore