Stories from a Penang guy: May 2009

(The Malaysian Insider) - Despite unease among some Umno warlords over the pace of economic liberalisation, the Najib administration is still considering dismantling the Foreign Investment Committee (FIC), one of the most visible symbols of affirmative action in Malaysia.

The move is aimed at stimulating significant foreign direct investment (FDI) to ensure long-term sustainable economic growth for Malaysia.

The only difference from a few weeks ago is that the brave words and calm demeanour notwithstanding, Datuk Seri Najib Razak knows that the pace of opening up the Malaysian economy is not entirely up to him.

Before he even contemplates any announcement on the FIC, the administration will have to explain to some Malays, especially Umno warloads, that the old economic model of quotas and special allocations cannot be sustained any longer by a country in need of foreign direct investment.

The FIC, comprising senior civil servants and regulators, is the powerful body which approves foreign investments. Foreign investors and local businessmen from all quarters have long campaigned against the FIC, criticizing it as an unnecessary bureaucratic hump against the flow of investments into the country.

Government officials told The Malaysian Insider that overhauling the FIC has been studied by officials from the Ministry of Finance and Economic Planning Unit (EPU).

On a couple of occasions recommendations to tweak or overhaul the FIC (including a proposal to limit the need for FIC approvals to a few key sectors) were discussed by the Cabinet but because of concerns over the adverse reaction from the Malay community, government leaders have decided to put off making any decisions until more detailed studies on the impact of dismantling the FIC were conducted.

Now the proposal to overhaul the FIC is back on the table. But any decision on the matter is likely to be made only after Najib rationalises to some of his party men that he is not abandoning the Malays or bowing to the pressure being exerted by non-Malays.

“We do not expect any decision to be made within the next couple of weeks. There is a need for the administration to explain repeatedly the rationale for opening up the economy,” said a senior government official.

Several Umno ministers including Minister of International Trade and Industry Datuk Mustapa Mohamed have been given the task of going down to the Malay ground and explaining that the Malaysian success story is built on sharing an expanding economic pie. Malays were able to benefit from the New Economic Policy (NEP) and other affirmative action programmes that followed because foreign direct investment was firing up the Malaysian economy.

During the same period of growth, non-Malays also benefited from an expanding economy. But in recent years, Malaysia has faced stiff competition from Vietnam, Indonesia and other emerging economies for FDI.

In an interview with Singapore media, Najib said that the usual process of quotas and equity stakes to close the wealth gap between the races was hampering growth and needs to be adjusted.

He said that Malaysia has no choice but to change its affirmative action programme even if it causes pain to Bumiputeras.

Since taking over as PM on April 3, Najib has liberalised 27 sub-sectors in the services industry and lifted a ruling requiring foreign investors to find Bumiputera business partners to own 30 per cent of the business.

These moves have been welcomed by foreign investors but have caused some disquiet among some Umno warlords and commentators, who worry that the Malay community will be disadvantaged by the liberalisation of the economy. Najib knows that there are rumblings on the ground and has been advised that change in Malaysia must come in small doses.
But he told the Singapore media that everyone has to accept change.

“Every time there’s a change, there will be those who will be affected by change for one reason or another. It could be for personal reasons or could be differences in ideology but the alternative is to (maintain) the status quo, which is worse. I don’t think it is an option for us,” Najib said.

But taking this path, Najib is distancing himself from the approach employed by Tun Abdullah Ahmad Badawi. The former prime minister was a prisoner to the Umno sentiment and did not dare making any structural changes to the economy for fear of alienating his home base.
This strategy failed miserably. The ruling coalition he led in Election 2008 lost the support of non-Malays who were tired of his unfilled promises and failure to be the leader of all Malaysians.

His party also rejected him, blaming him for the reverses suffered at the hands of Pakatan Rakyat on March 8.

Najib does not want to suffer the same fate as Abdullah. A key task for him in the coming weeks and months is to contain the voices of protest emanating from Umno and supporters of the NEP, and hope that the party warlords understand that maintaining the status quo is not an option.

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