Pre-polls reforms unlikely, says Roubini’s RGE

By Yow Hong Chieh
The Malaysian Insider
January 13, 2011

KUALA LUMPUR, Jan 13 — Much-needed reforms to Malaysia’s pro-Bumiputera policies will likely be put on the back burner until Prime Minister Datuk Seri Najib Razak secures a new electoral mandate, a report by star economist Nouriel Roubini’s RGE global economic analysis firm has predicted.

RGE said in its “Wednesday Note — Malaysia’s Middle-Income Malaise” released yesterday that Umno was “unlikely” to revamp such policies “blocking” Malaysia’s rise to high-income nation status before the next general election for fear of antagonising Malay voters.

Najib’s market-friendly reforms under the New Economic Model (NEM) have received lukewarm to hostile response from the Malays, many of whom regard such proposals as a challenge to the special position of Bumiputeras outlined in the Constitution.

“[Given] the governing party’s reliance on Bumiputera support, major changes are unlikely until new elections are held and the government has the political confidence to confront popular resistance to reform,” RGE said.

The Malaysian Insider, quoting sources, reported yesterday that Najib was considering pushing back snap polls, said to have been slated for the first half of this year, to the fourth quarter to give big-ticket projects time to gain traction.

RGE pointed out that the decline of the local electrical and electronics (E&E) sector over the past 10 years was “one of the most noticeable manifestations” of the middle-income trap afflicting Malaysia.

At its height in 2000, the E&E sector accounted for more than one-third of the country’s total value added in manufacturing, over 70 per cent of revenue from manufacturing exports and almost four per cent of world E&E exports, the New York-based company noted.

However, Malaysia’s E&E sector has witnessed a drop in productivity, export stagnation and deteriorating global market share since 2000 due to its inability to maintain a low value-added growth model in the face of higher labour costs and increased competition from low-cost rivals like the Philippines and China, RGE said.

It fingered the “stifling” effects pro-Bumiputera policies had on the development of a robust and indigenous E&E sector as the main culprit behind Malaysia’s failure to transition into higher value-added E&E production from its current “downstream dominated” setup.

RGE stressed that it was this “evolutionary process” to upstream production that allowed Asian Tigers South Korea, Taiwan, Hong Kong and Singapore to successfully transition to higher value-added manufacturing, and later, high-income status, despite facing similar challenges as Malaysia.

“By the time labour cost increases forced downstream production facilities to lower-cost markets, [Singaporean] firms were experienced and competitive enough to continue operating in the E&E supply chain at higher levels of value added. In this way, Singapore has managed to increase its global market share of E&E since 2000,” its note said.
“In contrast, Malaysia’s E&E sector has been unable to adjust to shifts in the country’s comparative advantage.”

RGE said the underperformance of the E&E sector over the last decade should serve as a warning to Malaysia’s policymakers that the continuation of “distortionary” pro-Bumiputera policies may limit the country’s growth prospects.

It also said that affirmative action policies have exacerbated the non-Bumiputera brain drain problem and also created a “strategic disadvantage” for local firms by limiting human and financial capital as well as “perpetuating an unlevel playing field” for entrepreneurs.

The note added that the continued government presence in the economy via procurement policies and some 500 government-linked corporations (GLCs) provided “ample opportunity for rent-seeking by well-connected Bumiputera” able to take advantage of favourable policies.

RGE is chaired by Nouriel Roubini, famous for correctly predicting the US sub-prime crisis three years before it happened.

Roubini, an economics professor at New York University’s Stern School of Business, previously advised the World Bank and International Monetary Fund (IMF) and currently holds research fellowships at London’s Centre for Economic Policy Research (CEPR) and the National Bureau of Economic Research (NBER) in Cambridge, Massachusetts.

  1. #1 by boh-liao on Thursday, 13 January 2011 - 2:01 pm

    NR’s humongous RM67 billion ETP is d last chance 4 him n UmonB n cronies 2 Empty The Pockets of d nation n rakyat b4 they r kicked out of Putrajaya
    Surely 1M’sia on d road 2 bankruptcy
    Even d figure of RM67 billion has a CSL’s connotation, a dark humor indeed

  2. #2 by dagen on Thursday, 13 January 2011 - 2:21 pm

    Roubini is rubbish. He knows nothing about Prinsip2 Ekonomi Pokok Rambutan. So do not be swayed by what he said. He does not even know what is tower-power. And what’s more. Malaysia has angkasawan and suzuki cup. With all of these jib is ready to take malaysia to the top of the world.

    … cintanegara … drooling and smiling in his dream.

  3. #3 by monsterball on Thursday, 13 January 2011 - 2:56 pm

    It looks like it is the end of the road for Najib’s twisting and turning and double talks.
    Now he is getting Muslims unhappy…with such unfavorable reports.

  4. #4 by boh-liao on Thursday, 13 January 2011 - 5:52 pm

    Actually even more lucu fr NR, ETP with 19 developments worth RM67 billion
    A 4D die hard will C 1967, CSL also loves 1967, spot on NR!
    After all d main main, 1M’sia betul bankrupt, what reforms n transformations

  5. #5 by Godfather on Thursday, 13 January 2011 - 10:22 pm

    Najib’s spinmeisters are going round telling people that he needs a fresh mandate to push through “much needed” reforms. Unfortunately a part of the electorate is going to buy this scam.

    Institute reforms first, and then we will consider giving you a fresh mandate. This country cannot afford to take another risk with UMNO as it is.

  6. #6 by tak tahan on Friday, 14 January 2011 - 12:02 am

    What’s fresh mandate means,Godfather?To approve something in kangaroo court?

  7. #7 by tak tahan on Friday, 14 January 2011 - 12:30 am

    Something fishy here,comments rephrased and even decent comments still awaiting moderation.Not sure.Check this out!

  8. #8 by boh-liao on Friday, 14 January 2011 - 1:35 am

    1 objective achieved by UmnoB/BN: PKFZ facing bankruptcy over soft loan, jiak ka liao

  9. #9 by Loh on Friday, 14 January 2011 - 7:40 am

    ///The Malaysian Insider, quoting sources, reported yesterday that Najib was considering pushing back snap polls, said to have been slated for the first half of this year, to the fourth quarter to give big-ticket projects time to gain traction.///

    Those who benefit from the big ticket projects would vote for UMNO now and later. There aren’t too many who would change his mind following the Najib’s mega projects and Najib knows it. But the delay might project the image that the projects are for the general public, and particularly the Malays. Besides Najib simply has no confidence to go for the GE soon, and he needs to have excuses for delaying the GE until that had to be held.

  10. #10 by good coolie on Friday, 14 January 2011 - 10:37 pm

    Poor PM, damned if he does; damned if he doesn’t.

  11. #11 by Winston on Saturday, 15 January 2011 - 11:19 am

    Institute reforms first, and then we will consider giving you a fresh mandate. This country cannot afford to take another risk with UMNO as it is. – #5 Godfather

    Frankly, I’m surprised that anyone can agree to such deals as the above.
    You think that it’s safe that once they implement any reforms that they’ll stick to them?
    What’s there to stop them from scrapping the reforms once your votes are in hand?
    Don’t we know that they’ll do anything to hold on to power, for to lose it will mean facing a lot of very inconvient truths!!
    So, get real!!!

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