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When will Najib and his Ministers wake up and realize that the twin crisis of human talents and investments confronting the country are more than a matter of economics?

The Minister in the Prime Minister’s Department Tan Sri Nor Mohamed is quoted in today’s press as saying that Talent Corporation has been tasked with attracting at least half of the 750,000 Malaysian professionals working overseas to come home as part of its efforts to draw the best brains in the world to Malaysia.

Speaking at the launching of the Public-Private Partnership’s website www.3pu.gov.my, he said seeking out the Malaysian diaspora for the top brains was necessary as the Government aimed to hit the target of RM115 billion per year in local and foreign investments to turn the country into a developed nation by 2020.

It is shocking that Nor Mohamed could come out with such an unrealistic and “tall order” not only because of the dismal failure of previous government “brain gain” policies but in the light of recent events when the unchecked escalation of the rhetoric of race and religion would have the effect of giving a major push to greater brain-drain from the country instead of pulling back talents from the Malaysian diaspora to return to serve the country.

It is time that the Prime Minister, Datuk Seri Najib Razak and his Ministers wake up and realize that the twin crisis of human talents and investments confronting the country are more than a matter of economics.
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The IMF Report Card on Malaysia

Commentary
by Observer

Background
The IMF, under Article IV of its Articles of Agreement, holds bilateral discussions annually with its Member countries. These discussions are in the nature of a review of member country economic policies, recent economic developments, IMF staff assessments of prospects and the presentation of policy recommendations. A report is then prepared for presentation to the Fund’s Executive Board of Directors. At the conclusion of the Board Discussion, a Public Information Notice (PIN) is released together with the full report. The Article IV consultation with Malaysia for 2010 took place in May/June of this year and following Board consideration, the PIN and the Report were released on August 13th 2010.

In its customary approach, these IMF documents are highly nuanced and attempt to convey the Fund’s views in measured and balanced tones in order to minimize possible disagreements with the country in question. They err on the side of caution and down play differences and criticisms of policies. The 2010 Malaysia report needs to be read in that context. It is remarkable that the report questions past policies, takes a somewhat critical and skeptical view of many current government policies and expresses open disagreement in certain instances. The report also exposes the dithering and inability of the Government to take firm measures in pursuit of its own announced policy reforms. This brief analysis attempts to highlight and bring to the fore a number of issues that in the view of the Fund reflect on the Government’s capacity to take on the task of implementing its modest reform agenda.
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Is the New Economic Model (NEM) a myth or a reality – is it still at “trial balloon” stage?

Recently news headlines on the New Economic Model (NEM) have suddenly dominated the media like “IMF asks Malaysia to take ‘decisive‘ action on reforms” and “Najib tells Chinese to lead reforms under NEM, 10MP” in the past 24 hours.

References to NEM appears to have come into vogue again, coming out from the shadows from where it had been banished when the Tenth Malaysia Plan was unveiled in June in Parliament.

These beg the question whether the New Economic Model, announced by the Prime Minister Datuk Seri Najib Razak on 30th March this year is a myth or reality.

The NEM has been described as one of the four critical pillars of Najib’s National Transformation of Malaysia, representing the ambitious Economic Transformation Programme to transform Malaysia by 2020 into a developed, competitive and high income economy with inclusivity and sustainability.

The fourth pillar, the Tenth Malaysia Plan, which was adopted by Parliament in early July, is to operationalise the NEM in the five years from 2011-2015.
Continue reading “Is the New Economic Model (NEM) a myth or a reality – is it still at “trial balloon” stage?”

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IMF wants gov’t to take ‘decisive’ action on NEM

AFP

The International Monetary Fund (IMF) has asked Malaysia to take “decisive” action on reforms under a model programme aimed at revamping a controversial four-decade-old affirmative action policy.

Malaysian Prime Minister Najib Razak announced in March a ‘New Economic Model’ or NEM, aimed at reforming elements of the policy favouring the country’s majority ethnic Malays in a bid to boost economic competitiveness.

Details of the reform programme, including its timing, have not been announced yet.

The Washington-based IMF said yesterday it was looking forward to the NEM’s rollout.

In a report after annual consultations between the IMF executive board and the Malaysian government, the fund acknowledged the “ambitious vision” of Najib’s administration for a far-reaching economic transformation over the longer term.
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Escaping the middle-income trap

by Michael Schuman | Time
August 10, 2010

I returned a few days ago from Kuala Lumpur, the capital of Malaysia, where the talk of the town – well, at least among economists — is the “middle-income trap.” What’s that, you ask? A developing nation gets “trapped” when it reaches a certain, relatively comfortable level of income but can’t seem to take that next big jump into the true big leagues of the world economy, with per capita wealth to match. Every go-go economy in Asia has confronted this “trap,” or is dealing with it now. Breaking out of it, however, is extremely difficult. The reason is that escaping the “trap” requires an entire overhaul of the economic growth model most often used by emerging economies.

Malaysia’s caught in the “trap” right now, and getting out if is going to be tough. Simply put, Malaysia needs to change what it has been doing economically for the past 40 years. How Malaysia got itself into the “trap,” and how it could escape from it, can provide us with some valuable lessons on development and, more specifically, how developing nations can graduate into becoming fully advanced economies.
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The world has spoke “yes to economic freedom, liberal market, no to NEP and corruption”

By Dr Chen Man Hin, DAP life advisor

UNCTAD, a UN body has issued its World Investment Report (WIR) 2010 on Foreign Direct Inflows (FDIs) of world countries.

The report on the 2009 FDIs into the Asean region are as follows

Singapore US$16.1 billion
Malaysia 1.38 billion
Philippines 1.95
Thailand 5.95
Indonesia 4.88
Vietnam 4.56

The FDI for Malaysia in 2008 was US$7.2 billion, which meant that there was a 81% precipitous drop for the year 2009.
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FDI crashing because investors lost faith, says DAP

By Boo Su-Lyn | The Malaysian Insider

KUALA LUMPUR, July 25 — A lack of confidence in Malaysia’s economy has driven foreign direct investment (FDI) to our neighbours, leaving the once-roaring “Asian tiger” to compete with Indochina countries, the DAP said today.

The World Foreign Investment Report (WIR) 2010 released by the United Nations showed that FDI in Malaysia plunged 81 per cent last year, trailing behind countries like the Philippines, Vietnam, Thailand, Indonesia and Singapore.

“For the first time ever in history, Malaysia attracted less investment than the Philippines,” DAP national publicity secretary Tony Pua said in a statement today.

The Philippines attracted US$1.95 billion (RM6.24 billion) in FDI compared to Malaysia’s US$1.38 billion, while Singapore raked in the most — more than US$16 billion.

“Among Southeast Asian nations, we are now only attracting more FDI than Cambodia, Myanmar, Brunei, Laos and Timor-Leste,” added Pua.
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M’sia’s increasing unattractiveness is ‘karma’

By Joe Fernandez | Malaysiakini

Without getting into the kind of superstition and quackery that many Malaysians swear by most times, it’s safe to conclude that the chickens are coming home to roost.

The 10 percent economic growth rate envisaged this year for the country, if it’s not a flash-in-the-pan, reminds us of the phrase that there are lies, damn lies and statistics. Again, this is indeed the unpalatable fact that we have to deal with in the run-up to 2020 and its aftermath.

The federal government needs to start thinking from now how they are going to explain in ten years time why we have failed to reach developed nation status and a high income economy.
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Bad FDI news for Malaysia: Down by 81 percent in 2009

By Aidila Razak | Malaysiakini

A nosedive in foreign direct investments in Malaysia in 2009 follows a continued downward trend in FDI, increasingly overshadowed by regional players, noted a United Nations report.

FDI Malaysia 2009

According to the World Investment Report 2010 unveiled today, FDI plunged 81 percent from US$7.32 billion (RM23.47 billion*) in 2008 to just US$1.38 billion (RM4.43 billion) last year.
(*Calculated based on exchange rate of US$1 = RM3.20650)

The 2009 FDI is less than half of the annual average FDI inflow between 1995 to 2005, which encompasses the long recovery period following the 1997 economic crisis.
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How to scare away investors – the Perkasa Way

By Dr Lim Teck Ghee | CPI

The government’s New Economic Model structural reform agenda is aimed at raising average annual growth to 6% until year 2015. While implementation of the agenda would be positive for Malaysia’s economic fundamentals, even the talk of reform has already provoked considerable political opposition.

When first introduced, the NEM was supposed to be Malaysia’s new selling point to local and foreign investors and the country’s passport to a better future. It now appears to be aborted before birth. Or at best, it appears to be a newly arrived baby in the critically ill ward, and needing an incubator and special attention if it is to survive at all.

Chief amongst its enemies has been Perkasa and Dr Mahathir Mohamad. From them emerged harsh talk about Malays losing power in the country and of Umno allowing the situation of Malay dominance to be so badly eroded that the community is facing a bleak and hopeless future.
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5-in-1 price hike: Fuel, sugar and gas up

Malaysiakini | 15 Jul, 10 6:19pm

Prime Minister Najib Abdul Razak’s administration has taken a politically risky manoeuvre by raising prices of three types of fossil fuels, sugar and cooking gas.

Both RON95 and RON97 grade petrol and diesel prices will be raised by RM0.05 per litre, while liquified petroluem gas (LPG) will be raised by RM0.10 per kilogramme.

Sugar prices will be raised by RM0.25 per kg.

All price increases will take effect from midnight tonight.
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Whole country shocked into eerie silence by Najib’s marriage of NEW and NEP, but we must object strongly

By Dr Chen Man Hin, DAP life advisor

WE ARE SHOCKED BY PM ANNOUNCEMENT THAT THE BUMI 30% QUOTA WOULD CONTINUE, BUT WE MUST OBJECT STRONGLY FOR THE SAKE OF OUR COUNTRY, THE POOR AND OUR CHILDREN

The proposal by Najib that the 30% bumiputra corporate equity would be maintained together with the NEM. Surprisingly the astounding marriage of two conflicting policies has not raised much reaction.

Are the people so shocked that they have lost their power of speech or writing at the amazing reversal of Najib’s crusade for reforms when he became Prime Minister, to become also a promoter of cronyism and rent seeking policies.

There seems to be absolute silence in Parliament from the honourable members, when they should be debating vigorously on the reckless decision of the Prime Minister to discard the recommendations of the NEM commission to dump rent seeking policies promoted by the NEP, which caused the economy to stagnate for 40 years, from the time it was introduced in 1971.
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Can Malaysia escape a trap of its own making?

By Peter Drysdale | East Asia Forum

Malaysia’s recently presented New Economic Model is, on paper, a hugely ambitious strategy for changing the country’s economic and social direction and, hopefully, its economic and political fortunes.

The government of Prime Minister Najib seems inclined to embrace its principles and try to forge a new direction in Malaysian economic and social policy. In the 1980s Malaysia was among the brightest stars in the Southeast Asian economy, with growth around 8 per cent a year and a huge transformation away from its comfortable plantation and minerals past towards a new industrial future, driven by foreign investment and rapidly growing exports of consumer electronics to regional and global markets. Mahathir reigned supreme, dispensing patronage and securing UMNO’s political base under the camouflage of the long-established New Economic Policy, put in place after the racial disturbances of the late 1960s to lift up the bumiputera Malay population and in the process embedding race-based politics into the fabric of political culture.
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Tenth Malaysia Plan: Long Live NEP – RIP NEM

The signature theme of Datuk Seri Najib Razak on his accession as Prime Minister in April last year was the national transformation of Malaysia, which is anchored on four critical pillars:

  • 1st pillar: “1Malaysia, People First, Performance Now” concept to unite Malaysians.

  • 2nd pillar: the Government Transformation Programme (GTP) to deliver the outcomes defined under the National Key Result Areas (NKRAs).

  • 3rd pillar: the New Economic Model (NEM) resulting from the ambitious Economic Transformation Programme (ETP) to transform Malaysia by 2020 into a developed, competitive and high income economy with inclusivity and sustainability.

  • 4th pillar; the 10th Malaysia Plan 2011-2015 as the first policy operationalisation of both the government and economic transformation programme.

The Prime Minister unveiled the New Economic Model on 30th March and the presented the Tenth Malaysia Plan in Parliament on 10th June. A sea-change took place in the intervening two months, with Najib retreating from his national transformation programme when he succumbed to pressures from extremist groups making baseless and incendiary claims such as that the Malays are under siege and that the Chinese would take over the economy and country.
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The 10th Malaysia Five Year Plan : Old Wine in New Bottles – Part 7 (National Agenda for all Malaysians instead of a mutating NEP)

A dispassionate analysis of the forty years of implementation of the NEP-NDP provides many lessons. These include:

  • There is no alternative to pro-growth policies if Malaysia is to attain the original goals of the NEP, namely eradication of poverty irrespective of race and economic restructuring; pro-growth policies are also essential if the Vision 2020 goals are to be achieved.

  • Malaysia has achieved rapid growth and prospered when the policy framework has been pro-market and liberal.

  • On the other hand, pro- distribution policies such as those favored and advocated by Faaland in the early 1970s and again revived now championed by PERKASA, have led to slow overall growth and more specifically low achievement of the restructuring targets.

  • The private sector constitutes the main engine of growth. Over-regulation of the sector under the NEP framework creates impediments to investment, both domestic and foreign, thereby impacting on poverty eradication and opportunities for restructuring.

  • There is a high cost of doing business when there is over-regulation or bureaucratic control. Distortions emerge that create opportunities for rent-seeking and corruption.

    • Continue reading “The 10th Malaysia Five Year Plan : Old Wine in New Bottles – Part 7 (National Agenda for all Malaysians instead of a mutating NEP)”

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The 10th Malaysia Five Year Plan : Old Wine in New Bottles – Part 6 (Equity Restructuring/Ownership)

Equity Restructuring and Ownership

The Plan restates that the target of attaining at least 30% Bumiputra corporate equity ownership at macro level remains. It goes on to indicate that the focus will be on promoting genuine economic participation, consistent with the objective of sustainable high growth, rather than corporate equity allocation.

The Plan proclaims that this will be achieved through more transparent, market-friendly and merit-based instruments, focused on:

• Strengthening Bumiputra entrepreneurship to help create competitive businesses in high impact sectors;

• Increasing wealth ownership beyond corporate equity to include other properties and business assets such as retail space landed properties,
commercial buildings, intellectual properties and other services through pooling of funds and institutional investment; and

• Promoting Bumiputra representation in high paying jobs through enhanced capability building and demand-side incentives.

These statements can be cautiously welcomed as they represent a nuanced shift. However, if the past is any indicator, this shift may be no more than illusionary and a mutation of the NEP. Continue reading “The 10th Malaysia Five Year Plan : Old Wine in New Bottles – Part 6 (Equity Restructuring/Ownership)”

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The 10th Malaysia Five Year Plan : Old Wine in New Bottles – Part 5 (Poverty)

Poverty

Chapter 4 of the Plan document together with several Tables dealing with Thrust 3 in the Appendices present fairly detailed statistics on poverty and income distribution.

In a somewhat self-congratulatory tone, the Plan proclaims that hardcore poverty was reduced from 1.2% in 2004 to 0.7% in 2009 and that the incidence of overall poverty fell from 5.7% in 2004 to 3.8% in 2009. These claims are questionable because of the underlying methodology employed in deriving these estimates.

In the first place there is no indication as to how the Poverty Lines were estimated. Assuming that the methodology used mirrors that used in the 9th Plan, the bar to define poverty is set at far too low a level.

In the second place, the use of “households” rather than “persons” distorts the measurement.

On the flawed basis, 228,400 households were categorized as poor. It is most significant that of these 99,100 were in Sabah with another 27,100 in Sarawak. Thus, there were a disproportionate number of the poor in these two states highlighting gross neglect by the Federal government of Malaysians in these two states. Continue reading “The 10th Malaysia Five Year Plan : Old Wine in New Bottles – Part 5 (Poverty)”

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The 10th Malaysia Five Year Plan : Old Wine in New Bottles – Part 4 (5 Thrusts of TMP)

The Five Thrusts of the 10th Malaysia Plan

The Prime Minister stressed that the 10th Malaysia Plan is oriented around five key strategic thrusts, namely:

* Stimulating Economic Growth – implementing a policy framework that will galvanize the private sector and promote trade and investment;

* Moving towards Inclusive Socio-Economic Development – focusing government support on those most in need and reforming affirmative action policies;

* Developing and Retaining a First-World Talent Base – improving schools, providing skills training to those in the workforce and implementing important labour market reforms;

* Building an Environment that Enhances Quality of Life – investing in housing, transport, healthcare, utilities, crime prevention and the environment to support economic activity and improved living standards; and

* Transforming Government to Transform Malaysia – building on the success of the Government Transformation Program to continue to improve government performance and transparency to best serve the people

The question that arises is: How different are these in comparison with the corresponding thrusts that were outlined in the 9th Five Year Plan? Continue reading “The 10th Malaysia Five Year Plan : Old Wine in New Bottles – Part 4 (5 Thrusts of TMP)”

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The 10th Malaysia Five Year Plan : Old Wine in New Bottles – Part 3 (Unlearnt lessons from the past)

Unlearnt Lessons from the Past: Where have we come from?

A brief review is in order to understand how the nation got to the precarious point best amplified by a Minister sternly warning that Malaysia is heading towards bankruptcy by the end of the decade.

Malaysia is more integrated into the global economy than many other countries of a similar size and at a comparable stage of development. Globalization is a fact of life. It has contributed both positively and negatively to Malaysian development. On the upside, integration with the global economy permitted the nation to prosper through trade and flows of FDI in the years prior to the East Asian Crisis of 1997. There was rapid economic growth, rising income levels, declining poverty and unemployment and a somewhat more egalitarian distribution of wealth. A contributing factor was the fact that Malaysia was blessed with a rich resource base – its forests and oil and gas. It had reasonably well functioning institutions in the form of an established public service, a modestly independent judiciary and institutions that measured well against those in other developing countries. The nation progressed despite creeping corruption, growing race polarization, authoritarianism and a general deterioration in the delivery of public services. The early 1990s saw a degree of deregulation and the privatization that gave momentum to modest reforms. The economic fundamentals were essentially sound with the budget largely balanced, and low inflation and robust growth. These outcomes occurred despite the constraints and distortions imposed by the NEP.

The 1997 East Asia crisis provided a rude awakening. Absence of accountability, lack of transparency and the growing cronyism, nepotism and the megalomaniac obsession with mega projects Continue reading "The 10th Malaysia Five Year Plan : Old Wine in New Bottles – Part 3 (Unlearnt lessons from the past)"

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The 10th Malaysia Five Year Plan : Old Wine in New Bottles – Part 2 (Overview)

An Overview of the Plan

The Plan that has been unveiled, when stripped of the rhetoric and clichés, represents nothing more than a reaffirmation and continuation of past and present policies. To begin with, the Plan is built upon a number of highly questionable assumptions. These include:

  • GDP growth rate of 6 percent as against 4.2 percent between 2006 and 2010

  • Exports are projected to expand by 10.1 percent as against 3.6 percent recorded during the 9th Plan period.

  • Private investment is projected to grow at 16.2 percent during the period of the 10th Plan versus 6.2 percent during the 9th Plan

  • Per capita income in 2015 is estimated at RM 38,845, increasing from RM 23,841 in 2009. This is based on a growth rate of 8.0 percent per annum for the Plan period. No explanation is offered as to why there is a sizable discrepancy between the projected GDP growth rate and the per capita income growth figure. The Plan anticipates that in US dollar terms per capita income will almost double between 2009 level to US$ 12,139.

  • The Plan calls for development expenditure of RM 230 billion. Of this, RM126.5 billion or 55% is allocated for the economic sector,RM69.0 billion or 30% for the social sector,RM23.0 billion or 10% for the security sector and RM11.5 billion or 5% for general administration. This allocation includes a Facilitation Fund of RM20 billion to promote private sector investment in strategic priority areas including infrastructure, education and health.

Continue reading “The 10th Malaysia Five Year Plan : Old Wine in New Bottles – Part 2 (Overview)”