Introduction

Malaysia faces formidable economic and social challenges. Both domestic and external. These are greater than those faced in the past. These have been acknowledged by Ministers, the World Bank and other analysts. Some of these challenges can be attributed to changing global economic circumstances whilst others are due to policy failures, an approach to governance founded upon rent-seeking, and abuse of power and processes that deny accountability and transparency. Overwhelmingly, implementation of policies associated with the NEP has contributed to the many distortions and a loss of competitiveness, dismal private sector performance, a virtual collapse in the flows of FDI, and sizable capital flight. Overall growth rates are now far below those needed to lift Malaysia out of the middle income trap that it finds itself in. Vision 2020 has become a fast fading dream.

The political Tsunami of March 2008 sent shockwaves across the political landscape. The BN, after an initial state of shock, embraced the rhetoric of change and indulged in notional reforms but the entrenched warlords and power brokers resisted much needed economic reforms as these were seen hurting the self-centered interests of those in power. The timid attempts by the then Prime Minister were resisted and he was chastised and ridiculed and eventually driven from office.

In the 15 months from the time he assumed the offices of Prime Minister and Ministry of Finance, Datuk Seri Najib has proclaimed on more than one occasion for Malaysia to embrace a New Economic Model to regain competitiveness and strive to attain the status of a developed nation. He has in these statements indicated the need to move away from the constraints of the NEP, to direct assistance to the disadvantaged on a need based approach rather than one that is race based. He has argued that this is central to his vaguely defined 1 Malaysia concept. A second theme that has featured in his pronouncements is related to the need to reduce subsidies and to broaden the revenue base by adoption of a Goods and Services Tax. These measures, he has argued, are essential to eliminating the public sector deficit that has reached an unsustainable level of 7 percent of GDP in 2009.

At the end of March 2010, he launched with great fanfare the NEM proposals. Although the full range of policies and detailed measures were absent from the document, hopes were raised that long awaited economic reforms were on the way and would be incorporated in the 10th Malaysia Five Year Plan. These hopes were rapidly dashed as various Ministers in a divided Cabinet hedged their commitment to the NEM. Indeed, it would appear that the power brokers in UMNO opposed to these reforms outsourced opposition to the NEM to PERKASA. PERKASA then mounted a vociferous campaign opposing the NEM and the reduction of subsidies. It is worthy of note that the Prime Minister retreated and indicated that the NEM was a set of recommendations yet to be adopted and that the Government’s position would be incorporated in the 10th Five Year Plan. A similar ludicrous retreat took place on the issue of subsidies. In passing, it must be noted that the right hand does not know what the left hand is up to. Witness the dispute over the size of the subsidy bill – Datuk Seri Idris Jala claiming it to be of the order of RM 74 billion whilst the Ministry of Finance claims that the total is in the region of RM18 billion.

The much awaited and anticipated 10th Malaysia Five Plan unveiled on June 10 is a gross disappointment as it contains none of the reforms that the Prime Minister had paraded. It represents a retreat from what was momentarily dangled before the public. It shows that he is not a master in his own house and that he leads a divided Cabinet. It further testifies to the fact that powerful extraneous reactionary forces led by PERKASA are in a domineering enough position to set the agenda. These forces are committed to preserving at all costs their privileges and positions even as these conflict with the nation’s interests and it’s very future. It is indeed most sad that the Prime Minister is unable to deliver upon what he led the country to believe. It is also regrettable that he is now presiding over and implementing policies that put the country on a path to economic decline and stagnation. This is not a Plan that will take us on to developed country status but is almost certain to ensure that Malaysia remains trapped as a third world middle income country. It is pertinent to ask if the Prime Minister realizes that the Plan that he has unveiled may well mark the turning point in his political fortunes and shorten his tenure in office.

Professor Datuk Dr Mohamed Ariff, the highly respected former executive director of the Malaysian Institute of Economic Research (MIER) commenting on the Plan said that the NEP which ended in 1990 appears to have mutated into new policy incarnations including the Najib administration’s New Economic Model (NEM) and is distorting the Malaysian economy. He went on to say: “Malaysia’s markets are highly distorted. The distortions are related to the NEP and the NEP remains the backbone of the 10MP document. The NEP looks like it is mutating to the NDP and NEM and stands in the way of bringing about serious reforms.” He further argued that the NEP would have to be rejected wholesale.