Malaysia's PM Capitulates to the Hardliners

The Sept.14 announcement of an array of new economic benefits for ethnic Malays by Malaysian Prime Minister Najib Tun Razak represents the premier's final post-election capitulation to radical Malay nationalists in the United Malays National Organization.

The new plan signifies a U-turn back to the New Economic Policy of affirmative action for ethnic Malays that was put in place in 1971 following disastrous 1969 race riots. Economists are largely in agreement that the policy has saddled the economy for three decades. Najib, an economist himself, has been attempting to undo the policy for three years through his 1Malaysia economic liberalization program. The new plan will play a major role in UMNO's deliberations at its Oct. 5 annual general assembly and is key to Najib's keeping his job, UMNO insiders say. If nothing else, it is recognition that reform inside the party is dead.

The prime minister has been largely powerless against Malay supremacist forces led by former Prime Minister Mahathir Mohamad since the May elections, in which the opposition shocked the ruling Barisan Nasional by winning the popular vote, 50.27 percent to 47.38 percent, with the remainder going to splinter parties. The Barisan kept its hold on parliament, 133-89, because of extensive gerrymandering and malapportionment of parliamentary districts.

Mahathir and the forces aligned with him blame Najib for the Barisan's poor showing because of his attempt to reach out to multi-ethnic voters instead of putting all of his resources into inciting the Malay base to capture all potential of Malays, who comprise 60.1 percent of the population. The Barisan captured only about 60 percent of the ethnic Malay vote, taking a drubbing from ethnic Chinese and Indians.

The ensuing insistence on revenge has demonstrated the ruling coalition's slippery hold on the concept of democracy, with UMNO cadres demanding that opposition voters be punished for what was regarded as their disloyalty rather than a recognition that corruption, cronyism, rent-seeking, favoritism and growing fear of the Malay supremacists had played a bigger role.

Since the election, the weakened Najib has largely had to bend to the wishes of the Malay supremacists despite the fact that the most virulent of the Melayu Ketuanan (Malays first) candidates, Ibrahim Ali, Zulkifli Noordin and Puad Zarkashi of the NGO Perkasa, were rejected by the voters in constituencies in which there were strong Malay majorities.

The demand to punish opposition voters first resulted in a July decision to cut the allocation of public university seats for Chinese students to 19 percent down from 23 percent last year, in line with their representation in the overall population. Indians, who make up about 8 percent of the population, were awarded only 4 percent of the university seats. The rest went to bumiputeras.

The other shoe dropped Saturday when Najib held his widely anticipated press conference to announce the package of new perks in government and finance for ethnic Malays. Najib, also the country's finance minister, said the focus areas would include enhancing bumi equity ownership in the corporate sector as well as asset ownership, according to the prime minister's website.

"The government heard the cries for help from the bumiputeras regarding their level of participation in socio-economic development programs," he said. Targets will be set for quotas for the chief executive officers of government-linked companies (GLCs), including for projects awarded to vendors. To enhance bumiputera equity ownership in the corporate sector, government investment funds will assist bumi-owned companies to be listed on Bursa Malaysia. Other measures will aid bumis in ownership of homes, industrial premises and commercial complexes.

These policies, or ones very much like them, resulted in unqualified ethnic Malays being handed executive positions in GLCs including the state-owned airline, a state-owned construction company and others only to either run them into the ground or to loot them of hundreds of millions of ringgit.

It has also resulted in so-called Ali-Baba companies, in which Alis -- ethnic Malays -- for decades have been given executive posts in companies run by Babas, the nickname for Straits-born Chinese, creating a relatively wealthy class of ethnic Malays who have lived off their positions without learning the businesses or doing much real work; they are treated with disdain and irritation by the executives who make the real decisions. Most economists feel the NEP hobbled the economy, encouraged rent-seeking and enriched a handful of well-placed cronies at the top of the party.

In all, for foreign and domestic investors, this largely signals a dispiriting return to policies that Najib had sought to erase, but which met the virulent opposition of the ketuanan Melayu crowd. Those policies can be expected to put more roadblocks in the way of a dynamic economy, probably permanently crimping Najib's goal of pulling the country out of the so-called middle income trap in which it has been mired for more than a decade.

It is expected to discourage both foreign and domestic investment and spur both capital flight and immigration by qualified ethnic minorities seeking advancement elsewhere. Already, according to a World Bank study, at least 1 million Malaysians live permanently overseas.

Najib's announcement of the policy takes place against the backdrop of a worsening racial situation, which the respected news portal Malaysia Insider, in an editorial last Friday, said has never before "been this bad, this widespread, this debilitating and potentially irreversible for Malaysia."

Since the election, the drumbeat of racial hatred, fanned by the Malay-language broadsheet Utusan Melayu, which is wholly owned by UMNO and can be considered its mouthpiece, has grown ever more powerful, with ethnic Indians and Chinese, particularly Christians, coming under withering criticism.

It can only be expected to get worse in October when the UMNO annual general assembly gets underway. The conclave has always featured strident calls for emasculating the political and economic power of the Chinese and has always portrayed ethnic Malays as economic and political victims done out of their rightful place in a country where other races are interlopers.

Najib, initially thought to be in danger of losing his job as premier, as Abdullah Ahmad Badawi had done before him, is expected to survive the AGM as both UMNO president and prime minister, sources in UMNO say, partly because there is nobody who is either ready or wants the job, and partly because Najib is now wholly a captive of the Mahathir wing of the party.

The wild card is that this year for the first time, because of party changes engineered by Najib, all 160,000 UMNO rank and file will vote for the top positions in the party. Prior to this year, the voting was confined to top cadres from each of the party's districts, representing the larger numbers. This time, the party will learn for the first time how deep the resentment runs against the losses the party underwent in the 2013 general election.