In Malaysia, Najib’s Reform Dilemma

In Malaysia, Najib’s Reform Dilemma

On March 30, Malaysian Prime Minister Najib Razak unveiled a new growth strategy designed to transform Malaysia into a high-income economy by 2020. But while the New Economic Model (NEM) contains much-needed reforms to boost Malaysia's economy and political image in the face of dwindling foreign investment and rising competition, severe doubts remain about whether Najib can actually implement them.

The NEM pledges to boost Malaysia's per capita annual income from the present $7,000 to $15,000 through a raft of measures, including enhancing the role of the private sector, improving worker skills and productivity, and reducing the dependence on foreign labor. It also promises to make the government's decades-old affirmative action policy, the New Economic Policy, more inclusive and market-friendly. As it now stands, the policy gives preference to ethnic Malays (who make up almost 60 percent of the country's population) over minority Chinese and Indians. Najib's plan will shift the focus to supporting the poorest 40 percent of all families, regardless of race.

The proposed reforms come not a minute too soon for Malaysia. Economic growth rates have declined from 7 percent in the late 1980s to 5.5 percent today, as the country's labor-intensive exports have lost out to growing competition from newly emerging low-wage economies like China and Vietnam. The country's ruling Barisan Nasional (BN) coalition also saw a soaring budget deficit hit an alarming 7.4 percent of GDP, with foreign direct investment reduced to a trickle of just $7 billion last year.

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