Malaysia’s Old Economic Model

The government still offers handouts instead of reforms to woo voters.

Wall Street Journal
12th Oct 2011

Malaysian Prime Minister Najib Razak has unveiled a budget full of freebies designed to win over voters in the next general election, expected in the next six months. In the process, he is dashing expectations of economic reforms needed to promote growth.

This contrasts with the political reforms Mr. Najib announced last month. A promised overhaul of the country’s colonial-era legal code would guarantee political and civil freedoms long denied to Malaysians.

Mr. Najib seems to have thought of a handout for nearly everyone in 2012. The country’s 1.3 million civil servants will see salaries and pensions rise, in many cases by as much as 30%; households earning less than 3,000 ringgit ($960) a month will receive one-off payments of 500 ringgit; parents will find many school fees abolished or reduced. Then there are the taxi drivers who get fat tax exemptions.

Worse, the government has not taken the necessary steps to wean Malaysia off food and fuel subsidies. Mr. Najib earlier pledged to phase them out, since they have skewed consumption patterns and strained public finances for many years. He even likened subsidies to “opium” and made small but noteworthy cuts last year. He could have continued that rehab this year by incrementally raising regulated prices to bring them closer to market levels.

This combination of temporary handouts and tax breaks on one hand and welfare spending on the other doesn’t help Malaysia’s competitiveness. The export-dependent economy is already hurting from weak markets abroad and a rising cost of living at home—GDP growth fell below 5% in year-on-year terms for the last two quarters—and needs long-term incentives to invest and build a stronger domestic consumer market.

Yet Mr. Najib offered no permanent changes to the tax structure and no guide to reducing regulation and spending. The 2012 budget proposes a 9.4% hike in expenditure from the 2011 budget. And considering the government spent 13 billion ringgit ($4.16 billion) more than it budgeted in the past year, it could well prove more profligate.

To its credit, one small of area of reform the government has kept pushing is liberalization of foreign investment in services. In 2009, Mr. Najib dismantled a long-time restriction that benefited “sons of the soil.” Foreigners were earlier forced to jointly venture with Malays, the country’s ethnic majority, but they can now own 100% stakes in businesses in 27 sub-sectors. Friday’s budget extends that reform to 17 more sub-sectors such as medical and education services.

However, these are small industries that don’t hire many Malays. The government needs to tackle bigger reforms in industries like manufacturing, where regulations still give Malays dominance. In the same vein, the labor market suffers from entrenched affirmative-action policies. Mr. Najib has spoken of enacting radical changes when he presented a “New Economic Model” last year, but he keeps disappointing voters by failing to follow through.

  1. #1 by HJ Angus on Thursday, 13 October 2011 - 12:09 am

    New Economic Model is based on creating money out of thin air.
    We should send our economic planners to Greece to spread this wonder theory.
    Does anyone know on what oil price is the government projecting for the next 2 years and what is the expected contribution from PETRONAS, the oil cow?

  2. #2 by trublumsian on Thursday, 13 October 2011 - 3:59 am

    jibby wants to give handouts to the poor while the urbanites are clamoring for maids. why can’t the poor go fill the void? win-win if you ask me. unless the poor are poor because they are not competitive, are lazy, and are told by 50 years of umno rule this is ok.

  3. #3 by chengho on Thursday, 13 October 2011 - 6:09 am

    USA almost bankcrupt now…. listening to wall street journal?

  4. #4 by HJ Angus on Thursday, 13 October 2011 - 6:42 am

    USA is bankrupt because they have been living beyond their means for so many years with excessive credit and easy loans.
    The only thing that keeps the USA “alive” unlike Greece is that they are still the only superpower and that will remain for a few years…..hence the US$ became the world’s currency of last resort…at one time people thought that the EURO would pose a strong challenge but the EURO debt crisis shows that Europe is in a weaker position than the USA.
    I doubt Malaysia will last 10 years without bankruptcy if we continue with such lavish spending….Government has become too big for anyone’s good.

  5. #5 by negarawan on Thursday, 13 October 2011 - 7:29 am

    UMNO is illegally giving blue IC and citizenship to foreigners from Indonesia and Philippines just for the sake of getting votes. UMNO has betrayed the country in doing this and the rakyat must be fully aware of this and take action against UMNO. In the meantime, deserving rakyat can’t even get their blue IC after 50 years. A vote for UMNO is a vote for racism, corruption, mediocrity and human rights abuse to continue in Malaysia. Down with UMNO!


    Without MyKad, couple finds it hard to get jobs or seek treatment

    KUALA LUMPUR: The MCA Public Complaints Department will bring up to the Home Ministry the plight of a couple who has been having difficulty obtaining their MyKad.

    Department chief Datuk Michael Chong said he would write personally to the Home Minister on the case of S. Ramayah and S. Saraswathi.

    The couple, both of whom have red identity cards, said they have Malaysian birth certificates but still failed to obtain their MyKad after several attempts.

    Saraswathi, 56, said they recently received a letter that her application was rejected and was told to wait for a cooling-off period of one year before applying again.

    She is hoping that with a MyKad, both she and her husband can apply for welfare aid.

    Ramayah, 60, who works as a janitor at a secondary school here, is suffering from neck cancer.

    “I was born in Sungai Buloh and my husband in Bidor. We both have Malaysian birth certificates but are not recognised as Malaysian citizens,” she said

    “Finding a job, medical treatment and financial aid for my husband and myself has been very difficult as a result of us not having a MyKad,” she added.

    Saraswathi, who works as a cleaner in the same school, said they earned just enough to cover their living and medical expenses.

    “We barely have enough money to last the entire month,” said Saraswathi, who suffers from diabetes and hypertension, adding that her husband had to visit the hospital often.

    Chong pledged RM2,000 for the couple’s medical expenses and urged the public to donate towards their welfare.

    “Having no MyKad has also made it very difficult for the couple to get steady jobs and proper medical care. I truly hope Malaysians can come forward to assist them,” he added.

  6. #6 by boh-liao on Thursday, 13 October 2011 - 7:57 am

    Aiyoh yoh, NR n his team forgot 2 offer $$$ 2 Wall Street Journal 2 write good thingy abt him n 2 praise his leadership
    Truth hurts – but certainly M’sia is on its way 2 bankruptcy, with no bailout in sight

  7. #7 by rockdaboat on Saturday, 15 October 2011 - 7:47 pm

    #3 “USA almost bankcrupt now…. listening to wall street journal?”

    Ha ha ha, what kind of logic is this? LOL

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