Jul 19, 2007

Ethnic Malays Have Frittered Away Opportunities, Mahathir Says

(Bloomberg) -- Ethnic Malays have blown the opportunities given to them under the country's 36-year-old affirmative action policy and still need preferential treatment, former Malaysian Prime Minister Mahathir Mohamad said.

The race-based program gives the group privileges over ethnic Chinese and Indians for government contracts, homes and company shares in a bid to redistribute wealth. Without the policy, ethnic Malays, or Bumiputeras, will slip further behind, risking a return to racial violence in the Southeast Asian nation, Mahathir, 81, said in a July 17 interview.

``The Malays have not responded to the efforts made by the government and because of that, the disparity remains,'' said Mahathir, who stepped down in 2003 after 22 years in power. ``When you're coming up from behind to catch up, you have to run faster, you have to make more effort.''

Mahathir and his successor, Abdullah Ahmad Badawi, scrapped some elements of the 1971 New Economic Policy program to lure investment. The program hindered Malaysia's trade talks with the U.S. this year, while opposition parties and some analysts say the rules crimp competition and should be dropped completely.

``There's more than enough headway given to the Bumiputeras now,'' said Maznah Mohamad, a senior research fellow at the University of Singapore. ``The NEP has been reduced to a kind of charity scheme. That is not good for any economy.''

Bumiputeras, which literally mean ``sons of the soil,'' are given more places in public universities and discounts on home purchases. Hypermarkets and department stores must allocate 30 percent of shelf space for goods made by Bumiputera suppliers, and foreign retailers have to set up local companies that are 30 percent-owned by Bumiputera shareholders.

The program was devised after bloody clashes between ethnic Malays and Chinese on the streets of Kuala Lumpur in 1969.

Selling Contracts

Some ethnic Malays failed to develop their own business expertise, choosing to sell to other races the government contracts set aside for them, or auction specially allocated permits to import cars, Mahathir said.

The poverty rate in 2004 among Bumiputeras was 8.3 percent, compared with 2.9 percent for ethnic Indians and 0.6 percent for Chinese, according to the government. Ethic Malays owned 19 percent of the nation's corporate equity that year, while the Chinese had 39 percent and Indians 1.2 percent.

The greatest failure of Malaysia, which this year marks 50 years of independence from British rule, is not correcting the economic disparity, Mahathir said.

Still, pursuing the policy risks angering local Chinese and Indians, he said. Without it, Malays, who account for about 60 percent of the 27 million population, may struggle, he said.

`Bad Results'


``That is the dilemma,'' Mahathir said from his office on the 86th floor of the Petronas Twin Towers in Kuala Lumpur. ``We can say let's take it away, then I'm quite sure they will regress. One way or the other, we are going to get bad results.''

Policies favoring ethnic Malays led to ``significant protectionism'' in industries including automobiles, agriculture, services and in government contracts, Thierry Rommel, the European Commission's envoy to Malaysia, said last month.

Malaysia must reconsider the program to facilitate a Southeast Asian free-trade accord with the European Union, Rommel said.

The Malaysian government's reluctance to change policies that benefit the Malay majority and yield to demands to increase access to government contracts are among the issues that delayed the signing of a free-trade agreement with the U.S., its largest trade partner, this year.

Missed Deadline


The two nations missed a March 31 deadline to complete the talks and now plan to reach an agreement in the first half of 2008. Malaysia has ruled out discussing policies that favor its Malay majority in the talks.

``The domestic policies will be outside the ambit'' of the free-trade agreement, Deputy Prime Minister Najib Razak told reporters in Kuala Lumpur on July 17. ``We hope that eventually we will find an agreement with the United States.''

Concern about the race-based policy's validity grew last year after a report by the Asian Strategy and Leadership Institute said Malays may own as much as 45 percent of Malaysia's corporate equity, higher than the government's estimate of 19 percent in 2004 and surpassing the New Economic Policy's goal of 30 percent.

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