Rollbacks are threatening reform agenda, say economists

By Yow Hong Chieh
The Malaysian Insider
Jul 28, 2011

KUALA LUMPUR, July 28 – The Najib administration’s reform agenda is in danger of being derailed through decisions to appease the “Bumiputera agenda” and pressure from Malay rights groups intent on preserving the status quo, economists have said.

RAM Holdings Bhd chief economist Dr Yeah Kim Leng said the government must recognise that Malaysia is underperforming economically because the “unfounded fears” of such groups were hindering reforms.

“Their (Malay rights groups) narrow interest may undermine the country’s progress into a high-income nation,” he told The Malaysian Insider.

Dr Yeah said the easing of tender conditions by Syarikat Prasarana Negara Bhd (SPNB) in May and government interference in UDA Holding Bhd’s sale of prime land to Nadayu Properties Bhd would create concern among investors about the prime minister’s willingness to undertake hard reforms.

He said partial rollbacks in public sector projects could be seen as trade-offs to get buy-in from Malay rights groups but warned that the government should not allow such sentiment to “snowball” and impede more critical private sector projects.

Bank of America Merrill Lynch emerging Asia economist Chua Hak Bin said the Najib administration’s failure to stick to its stated reform agenda only served to raise questions marks about the prime minister’s political will.

“It’s a pity. I think the ideas are sound, the concepts are fine. But I think again there are increasing worries about the execution,” he said.

Chua, however, contended that the glass should be seen as “half empty, half full” as “bit and pieces” of reforms were coming through in the form of higher investment numbers, some subsidy cuts and greater privatisation and divestment of state-owned companies.

But he expressed concern that investment recovery was not being pushed through hard enough, noting that most investment was coming from government-linked companies (GLCs) and not the private sector.

“Most expected implementation to be slow but it’s important not to fall behind,” he said.

Jupiter Securities research head Pong Teng Siew said the “backtracking” by government will only place considerable constraints on what can and cannot be done to boost the country’s growth amid a global slowdown.

He pointed out that the prime minister already had a difficult enough task pushing through reforms without having to “design around” demands from rights groups that claim to represent the sentiment on the ground.

“It’s a suboptimal path that they’ve chosen,” he said.

Pong said the Najib administration had to put across more forcefully the need for economic reforms to Malay rights groups who may not see the long-term cost of their demands on the nation and will likely “ratchet up” pressure over time.

“Perhaps the prime minister hasn’t sent the message across forcefully enough that it’s either that or we languish in slow growth, very slow growth,” he said.

The cost of such flip-flops will likely not be known until much later when it will be too late to start anew, Pong said, adding that once the economic pie stopped growing the government will be forced to “rob Peter to pay Paul”.

“The longer term impact will only be seen in the longer term. We don’t know at this point. There’ll probably be a price to pay along the way,” he said.

“Then we’re back to square one.”