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The 2010 Budget: sound and fury without substance

By S.C.

Introduction

The maiden Budget unveiled by the Prime Minister was anticipated with great expectations of a new direction to move the Malaysian economy on to a new path of growth and revival through the adoption of policy reforms designed to restore competitiveness. These expectations, sadly, were not met.

The 40-odd-page two-hour long Budget speech delivered by the Prime Minister in Parliament was a great disappointment. It contained little by way of a bold policy agenda or a set of much needed measures to begin to restore the Malaysian economy to health.

The speech was long on rhetorical assertions and a litany of expenditure proposals; it contained little in the way of actual innovative thinking despite the Prime Minister’s resolve to adopt a new model for the economy “based on innovation, creativity and value-added activities”.

There were hardly any credible steps outlined as to how the unsustainable record high fiscal deficit of 7.4 percent recorded in 2009 was to be slashed. The broad assertion that the reduction of the deficit to 5.6 percent was to be largely achieved via proposed expenditure cuts in the year ahead. The main spending cuts are to come from reduced “operating expenditure”, lower food and fuel subsidies, and less money for development spending. Yet the expenditure proposals for 2010 allocate 11 per cent more money for the Government wage bill in 2010 for the nearly one million workers on the payroll which account for almost 10 per cent of the work force and constitute a mainstay of the BN government’s support. Continue reading “The 2010 Budget: sound and fury without substance”

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End NEP which has trapped Malaysia in middle-income group instead of becoming a high-income economy

In his first budget, the 2010 budget, presented to Parliament last Friday, the Prime Minister and Finance Minister, Datuk Seri Najib Razak claimed that he is laying the foundation for the development of a new economic model to become a high-income economy.

He stressed that the new economic model must be based on innovation, creativity and high-value added activities so that Malaysian can remain relevant in a competitive global economy.

Najib announced that his government “will transform Malaysia through a comprehensive innovation process, comprising innovation in public and private sector governance, societal innovation, urban innovation, rural innovation, corporate innovation, industrial innovation, education innovation, healthcare innovation, transport innovation, social safety net innovation and branding innovation.”
Continue reading “End NEP which has trapped Malaysia in middle-income group instead of becoming a high-income economy”

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End the 50-year New Economic Policy if Najib wants to lay claim to innovation or shift to a new economic model as the NEP had stunted Malaysia’s economic growth and prevented the nation from becoming a high-income country

In his first budget, the 2010 budget, presented to Parliament on Friday, the Prime Minister and Finance Minister, Datuk Seri Najib Razak claimed that he is laying the foundation for the development of a new economic model to become a high-income economy.

He stressed that the new economic model must be based on innovation, creativity and high-value added activities so that Malaysian can remain relevant in a competitive global economy.

Najib announced that his government “will transform Malaysia through a comprehensive innovation process, comprising innovation in public and private sector governance, societal innovation, urban innovation, rural innovation, corporate innovation, industrial innovation, education innovation, healthcare innovation, transport innovation, social safety net innovation and branding innovation.”

So far, Najib’s most successful innovation in his First Two Hundred Days is “branding innovation”, as never before has a Prime Minister’s slogan, “1Malaysia”, been promoted so blatantly, not only during by-elections but there is even a 1Malaysia Toilet in Terengganu, Continue reading “End the 50-year New Economic Policy if Najib wants to lay claim to innovation or shift to a new economic model as the NEP had stunted Malaysia’s economic growth and prevented the nation from becoming a high-income country”

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Malaysian Economic Democratisation – Extract 6

(Extracts from DAP Alternative Budget 2010 launched on 7th October 2009)

9. Thrust II: Rakyat First – Restructuring and Reallocation

9.3 Unfair Public Contracts
The Malaysian economic landscape is littered with many one-sided contracts and concessions under which private entrepreneurs reap supernormal profits while the government or government-linked companies continue to bear considerable business risk. Major privatisation exercises were conducted and concessions granted in manners that were not open, accountable and transparent through public tenders.

An Unfair Public Contracts Act will be enacted and an independent public commission to be known as the Public Contracts Commission will be formed to review such lopsided concessions that are deemed to be against the public interest.

Constitutional and corporate lawyer Tommy Thomas if of the view that such an act will be constitutional as it will be similar in nature to the Land Acquisition Act 1960 which allows the government to take over any private land for public purpose, provided adequate compensation is paid.

Such legislation is not unique to Malaysia. Eminent domain (United of States of America), compulsory purchase (United Kingdom, New Zealand, Ireland), resumption/compulsory acquisition (Australia) and expropriation (South Africa and Canada’s common law system) are examples of the inherent power of the state to seize or expropriate private property without the owners’s consent provided, of course, Continue reading “Malaysian Economic Democratisation – Extract 6”

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Malaysian Economic Democratisation – Extract 5

(Extracts from DAP Alternative Budget 2010 launched on 7th October 2009)

9. Thrust II: Rakyat First – Restructuring and Reallocation

9.2 Managing Oil Wealth

Over-reliance on Oil and Gas

Malaysia is blessed with abundant natural resources. In particular, we are thankful that the country is rich in oil and gas, which created Malaysia’s sole representative in the Fortune 500, Petroliam Nasional Berhad (PETRONAS). Since the incorporation of PETRONAS Group 35 years ago, the Group has paid RM471 billion to the Government, in addition to bearing a cumulative gas subsidy of RM97 billion.

In the most recent financial year ending March 2009, PETRONAS achieved profit before tax of RM89.1 billion amidst the challenging economic backdrop. Of greatest importance was the fact that PETRONAS contributed RM61.6 billion to our national coffers in taxes, royalties, dividends and export duties last year. Contribution from PETRONAS Group alone was budgeted to make up some 46% of the Federal Government revenue for 2008. This represents a steep increase from approximately 20% in 2004. The heavier reliance on oil and gas industry for Malaysia over the years signals an alarming trend.

Despite the fact that the total Malaysia hydrocarbon reserves has increased marginally from 20.13 billion barrels of oil equivalent (boe) at January 2008 to 20.18 billion boe at January 2009, and the reserves replacement ratio (RRR) has improved from 0.9 times to 1.1 times during the same period, our reserves will inevitably run dry at some point. During an interview with Bernama in June 2008, the president and chief executive officer of PETRONAS Group, Tan Sri Hassan Marican said that “we will continue to produce for another 20 years or so.” In more immediate terms, “Malaysia will become a net importer when its domestic consumption, growing at six percent per annum, is expected to overtake national production in 2011.”
Continue reading “Malaysian Economic Democratisation – Extract 5”

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Malaysian Economic Democratisation – Extract 4

(Extracts from DAP Alternative Budget 2010 launched on 7th October 2009)

8. Thrust I: Economic Democratisation – Fiscal Decentralisation

8.2 Fiscal decentralisation policies

Other countries, such as Canada, Spain, and the UK have been moving in the opposite direction recently compared to Malaysia, by increasing decentralisation. Nearer to home, China and Indonesia have also successfully decentralised much of their financial and economic decision-making process. Even smaller countries such as Switzerland and Belgium have developed forms of fiscal federalism. To ensure that Malaysia is able to tap into the sizeable latent potential benefits arising from the political accountability, economic efficiency and economic growth, DAP proposes that states are granted greater control over their finances.

8.2.1 Tax revenue sharing agreements
It is proposed that the federal government enter into tax revenue sharing agreements with states so that there is a stronger link between a state’s performance and its revenue share. 20% of individual and corporate income taxes collected in a state, as determined by the residence of the taxpayer and location of the establishment, will become the state’s entitlement. Income taxes will continue to be collected by the federal government using the existing infrastructure, but the states’ portion will be distributed back to the states for each financial year. This is the system which has been adopted by Germany.
Continue reading “Malaysian Economic Democratisation – Extract 4”

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Malaysian Economic Democratisation – Extract 3

(Extracts from DAP Alternative Budget 2010 launched on 7th October 2009)

8. Thrust I: Economic Democratisation – Fiscal Decentralisation

8.1 Greater economic efficiency and political accountability

Many countries have pursued fiscal federalism and have devolved or are devolving more power to state and local governments. China and Indonesia’s recent economic success has also been linked with the decentralisation of economic decision-making. In the UK, the Calman Commission has recommended that Scotland be given greater tax-varying powers in order to further improve their devolution process. This is largely because of the economic efficiency and accountability arguments.

Certain areas of expenditure responsibilities should be decentralised because states and local governments are better placed to tailor their programmes to local needs. For example, state governments are more likely than the central government to know their region’s comparative advantage and hence promote investment initiatives accordingly. In order to decentralise expenditure, revenue must also be shared with states. Instead of being dependent on the federal government spending directly in the states, states would be able to implement their own programmes encouraging tourism, SMEs and industry. In this case, when the 13 states are unshackled in their courting of investment projects with their tailored policies, it is very likely that more and better investments will be attracted and made.
Continue reading “Malaysian Economic Democratisation – Extract 3”

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Malaysian Economic Democratisation – Extract 2

(Extracts from DAP Alternative Budget 2010 launched on 7th October 2009)

5. Key Policy Highlights

Based on the 3 key thrusts outlined above to achieve greater economic democratisation via fiscal decentralisation, to place rakyat first with restructuring and reallocation, and to empower Malaysians through economic capacity building, the key policy measures proposed include:

  1. Tax revenue sharing agreements where 20% of individual and corporate income taxes collected in a state will become the state’s entitlement. For Selangor and Penang, this revenue sharing agreement would entitle them to approximately RM 3.2 billion and RM 500 million respectively. An equalisation and development grants formula based on a function of population, poverty, area development, cost, human development and gross revenue per capita indices will also be given to ensure that poorer states do not lose out.

  2. States will be given the rights to borrow up to a maximum of 50% of their annual ownsource revenue, which is revenue raised directly by the state governments.

  3. We will set up a fund of RM 400 million to provide grants to state governments to reinstate local council elections, conduct delineation studies, hold trainings and promote awareness via publicity and education campaigns after amending the Housing & Local Government Act.

    4. Continue reading “Malaysian Economic Democratisation – Extract 2”

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Malaysian Economic Democratisation

(Extracts from DAP Alternative Budget 2010 launched on 7th October 2009)

4. Budget Objectives

To meet the challenges of improving Malaysian global economic competitiveness while addressing the growing rich-poor disparity in Malaysia and being mindful of the fiscal constraints and harnessing our oil resources effectively, the DAP Budget 2010 is themed “Malaysian Economic Democratisation”.

The goals of economic democratisation is to ensure that public funds and expenditure by the government will be more effectively and efficiently spent in accordance to the needs of the people, ensure that public projects are structured in mechanisms which will benefit the rakyat as opposed to politically-connected operators as well as enabling Malaysians to achieve greater economic freedom.

The process of “economic democratisation” will hence focus on 3 key thrusts, that are:

  1. Economic Democratision – Fiscal Decentralisation

  2. Rakyat First – Restructuring & Reallocation

  3. Empowerment & Enablement – Capacity Building

Continue reading “Malaysian Economic Democratisation”

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DAP Alternative Budget 2010

The DAP Alternative National Budget 2010 marks the progress the Party has made in the field of economic policy making, and our readiness to assume the role of a governing party in the Federal Government as and when such opportunities arise in the near future.

Our first Alternative National Budget was launch on the 5th September 2007 for the year 2008, before the last historic general elections where Pakatan Rakyat denied the Barisan Nasional two-third majority in the parliament, and winning government in 5 Malaysian states. This new Alternative National Budget 2010 picks up from where we left off in 2007, enhancing our proposed economic policies with stronger strategies and proposals based on further in depth research and analysis.

As Malaysia face one of the most challenging economic period in times of uncertain global demand, it is critical that the Malaysian government takes decisive actions to spur the economy and ensure that we will not only recover from this recession, but also emerge stronger and more competitive than we were before the onset of the recession. However, a review of the Barisan Nasional (BN) government’s actions to date coupled with its track record over the past 12 years paints a less than optimistic picture.

At a time when the economy is faltering globally, is exactly the time for the government to be pump-priming to boost domestic demand and competitiveness. However, despite the urgent need to boost government expenditure, the BN government is now finding out the hard way that they have in essence, run out of money to spend and are struggling to contain and maintain the high and escalating cost of government. Continue reading “DAP Alternative Budget 2010”

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The cultural logic of Najibo-nomics

By Azly Rahman

Fashionable it may seem to credit this or that “economic miracle” episode to this or that country to the name of its leader, economist, dictator, emperor, etc. – the larger picture of the historical march of “freakonomics” is neglected.

Freakonomics is what the global society was plagued with beginning with the American sub-prime-inspired crisis; a breakdown of the world’s casino-capitalist system.

Fashionable it may seem to cite this or that case-study to a proposed “Harvard” study, just like calling a university “Harvard of the East” or “Princeton of the Peripheries” or “Oxford of the Outbacks” or even “Cambridge of the Caribbean” – it misses the point of what and how casino capitalism works.

It misses the point that the world is undergoing yet another wave of perpetual revolution in the field of economic thinking.

Malaysians are into this fashionable game of assigning this or that terminology to this or that epoch of “economic cultural depression and how these are cured”.
Continue reading “The cultural logic of Najibo-nomics”

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Vision 2020…not bloody likely!

By Hussein Hamid

Mahathir unveiled the Vision of 2020 plan for Malaysia in 1991. Malaysia was to become an industrialized nation and be considered a high-income economy. Najib refined (that is double speak to mean ‘no can do lah’) that vision: “It is clear that our Vision 2020 objective has to be refined to remain viable,” Najib said. “Being richer alone does not define a developed nation. There are important social and quality-of-life measurements that must be factored in when considering our objectives and successes.” Malaysia needs to “redefine and recalibrate” how and when it will achieve Vision 2020, Najib told reporters after the speech. That doesn’t necessarily mean a change in the timeline, he said.

I would have agreed with him in principal had he not put in the “that does not necessarily mean a change in the timeline” proviso. I am no economist but let us just use common sense to look at realities.

Let us look at the differences between salaries earned, the cost of a vehicle and a house between 1973 and 2009.

  YEAR increase
1973 2009
1.3 liter Japanese Car 7,000 60,000 8.5
Double Story House 45,000 300,000 6.6
Engineer Salary 1,000 2,000 2

Continue reading “Vision 2020…not bloody likely!”

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Affirmative Action Spurs Asian Debate

By JAMES HOOKWAY | The Wall Street Journal

KUALA LUMPUR, Malaysia — Tony Fernandes, the chief executive of Malaysia’s upstart AirAsia airline, seldom shies away from a fight.

A former executive at Time Warner Inc.’s music division, Mr. Fernandes bought the debt-laden carrier in 2001 for 27 cents and turned it into Asia’s biggest budget airline with $754 million in annual revenues. It hasn’t been easy. To expand AirAsia Bhd., he’s battled reluctant governments for landing rights and routes and has endured price wars with regional competitors.

Now, as Mr. Fernandes pushes to build a new low-cost global hub and expand into Europe, Australia and the U.S., he is running into a tenet of modern Malaysia: affirmative action. Malaysia’s political leaders prefer to see big business such as airports in the hands of the ethnic-Malay majority, and often that means government control.

“A lot of Malaysians are proud of what AirAsia has achieved,” says Mr. Fernandes, a 45-year-old Malaysian of Indian descent. But successes such as his, he believes, are outnumbered by the economic problems created by the affirmative action system. “It’s a very Jekyll-and-Hyde situation here.”
Continue reading “Affirmative Action Spurs Asian Debate”

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Reforms must be liberal, must promote a competitive and meritocratic society

By Dr Chen Man Hin, DAP Life Advisor

REFORMS BY PRIME MINISTER NAJIB RAZAK ARE NOT LIBERAL OR MODERN ENOUGH TO PROPEL MALAYSIA TO BE COMPETITIVE TO MEET THE CHALLENGES OF A GLOBAL WORLD

PM NAJIB RAZAK have introduced a series of reforms in an attempt to transform Malaysia to a high income country. He has slimmed down the NEP by reducing the 30% bumiputra equity quota to 12.5%. He has also curbed the powers of the Foreign Investment Committee and substituted it with a smaller committee.

To reassure the bumiputras, he has retained the 30% bumiputra equity target, but will use different modes to achieve the objective.

It is a pity that the PM has not understood why the 40 year old NEP has failed to help poor Malaysians, whether Malays, Chinese or Indians. The average poor Malay household only earn about RM3,000 per household or only RM500 per person (in a family of 5). Admittedly, the NEP enriched Umno cronies who became obscenely rich, while the Malays in rural areas are still mired in poverty.

PM NAJIB SHOULD LEARN FROM THE NEP EXPERIENCE

The 40 year old NEP slowed down economic growth since it was implemented in 1971. In 1957 at independence, Malaysia had the second highest per capita income (PCI) in Asia, after Japan. The World Bank has statistics that showed the per capita income slowed down since 1971, and has fallen behind S Korea, Taiwan, Hong Kong and Singapore. In 2008, Malaysia has a PCI of US$6,000, while S Korea has US$19,000, Taiwan US$17,000, Hong Kong US$30,000 and Singapore US$34,000.
Continue reading “Reforms must be liberal, must promote a competitive and meritocratic society”

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Umno must abandon old politics and work together with Singapore to bring about prosperity and progress for Malaysia and Singapore

By Dr Chen Man Hin, DAP Life Advisor

PM Najib wants more development for Johore and Malaysia by improving relationships with Singapore. His proposal to build a third bridge to link South East Johore with Changi of Singapore was meant to bring economic development for South East Johore and Singapore.

Umno insisted that selling land to Singapore was akin to giving up Malaysia’s sovereignty. This is ridiculous.

Umno should be aware that large quantities of sand and quarry stone have been sold to Singapore for many years. Yet we have not lost our sovereignty.

Umno must realise that the rural population of South Johore – in particular both South East and South West Johore are still quite poor Continue reading “Umno must abandon old politics and work together with Singapore to bring about prosperity and progress for Malaysia and Singapore”

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Najib’s two RM67 billion economic stimulus packages are both failures – forecast of 3.5% GDP growth in 2009 ending up in Malaysian economy shrinking by 4-5 per cent

Datuk Seri Najib Razak is nearing his first two-and-a-half months as the new Prime Minister in Malaysia, but he does not seem to be able to do anything right, as he is still dogged by a deepening crisis of credibility, integrity and legitimacy of his premiership.

This is why Najib should be brave enough to cut the Gordian Knot of this crisis of confidence and ask for a vote of confidence as the first item of parliamentary agenda when Parliament reconvenes on Monday.
Whether on the political, economic, educational or nation-building front, Najib has still to deliver his first accomplishment.

Politically, Najib inflicted on himself a deep and grievous wound in orchestrating the unethical, undemocratic, illegal and unconstitutional power grab in Perak.

Economically, Najib’s two RM67 billion economic stimulus packages are both failures as evident by the downward revision of 3.5% GDP growth in 2009 in the first RM7 billion package last November to the current estimate that Malaysian economy will shrink by 4-5 per cent. Continue reading “Najib’s two RM67 billion economic stimulus packages are both failures – forecast of 3.5% GDP growth in 2009 ending up in Malaysian economy shrinking by 4-5 per cent”

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Najib’s indecision to introduce genuine liberalisation major cause of present calamitous economic situation

By Dr. Chen Man Hin

PM NAJIB MUST INTENSIFY HIS EFFORT TO IMPROVE THE ECONOMY QUICKLY OR THE PEOPLE WILL SUFFER MORE WITH INCREASING UNEMPLOYMENT BECAUSE OF POORER BUSINESS ACTIVITY, CLOSURE OF MANUFACTURING INDUSTRIES, UNEMPLOYMENT AND LOWER INCOME TO BUY FOOD AND ESSENTIALS FOR THE FAMILY

The world economic credit crunch and economic downturn has begun to create havoc for the malaysian economy, and this despite the announcement of two stimulus financial packages and liberalisation of services.

On becoming Prime Minister, Datuk Seri Najib Razak proudly announced his 1 Malaysia, People First and Performance Now program. He was quite sure that the economy would not be affected by the global crunch.

However, with the fanfare and the shouting over, the economy has not shown signs of getting better. On the contrary it is getting worse. Continue reading “Najib’s indecision to introduce genuine liberalisation major cause of present calamitous economic situation”

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PM Najib using peashooter measures which are not sufficient to boost Malaysian economy

by Dr Chen Man Hin

The chief reason why PM Najib reform proposals are weak and timid is because he is unsure of getting full support from Umno. This was admitted as much when the PM speaking to Umno leaders recently called on them to change and accept liberalisation and reforms to win the support of the people.

The bulk of Umno is resistant to reforms and this was quite evident at the Umno general assembly last month, when the assemby ignored appeals to change and reform by PM Najib and ex PM Abdullah. The assembly was more interested in the debate on money politics. To have reforms meant they would have to give up cronyism and the wealth from government contracts.

Tunku Aziz, former world Transparency International leader said as much when he observed that Umno was still mired in corruption and cronyism and without their support, the vision of PM Najib’s 1Malaysia was ‘a cruel joke’ – a pipe dream of the Prime Minister, and not shared by Umno.

CAPITAL FINANCE LIBERALISATION MUST BE MEANINGFUL. Continue reading “PM Najib using peashooter measures which are not sufficient to boost Malaysian economy”

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RM8 bil PKFZ scandal? – Cabinet tomorrow should overrule OTK’s “passing-the-buck” game and direct immediate release of PwC Report

The Cabinet tomorrow should overrule Transport Minister, Datuk Seri Ong Tee Keat’s “passing-the-buck” game and direct the immediate and full publication of the PricewaterhouseCoopers (PwC) Report on the Port Klang Free Zone (PKFZ) scandal and to respond to the Edge cover report that the cost of PKFZ had escalated fourfold from the original RM1.8 billion to RM8 billion.

Ong should not try to distract public attention from the real issues about the PKFZ scandal by threatening that he would be “checking with his legal adviser and see if the article carried in the weekly was libellous”. (Star April 27, 2009)

Let him respond fully, frankly and forthrightly to two issues:

Firstly, why as the Transport Minister he had reneged on his promise made in April last year, as reported by Star (April 8, 2008) headlined: ”Ong to tell all on Port Klang Free Zone” quoting him:

“I wish to inform the rakyat about the true situation – whether it was actually squandered, not squandered, and whether it has gone to, as well as the breakdown of the budget.”
Continue reading “RM8 bil PKFZ scandal? – Cabinet tomorrow should overrule OTK’s “passing-the-buck” game and direct immediate release of PwC Report”

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Only A Good Beginning

by M. Bakri Musa

Prime Minister Najib Razak’s liberalizing some segments of the service sector is a good start. However, it is merely good but not excellent, and only a beginning but not the total solution.

Najib must remember that a half-cooked meal is often not only inedible but could also poison you; likewise a half-baked solution.

For Najib to have an excellent and comprehensive solution would require him to address the more difficult underlying issue of what prompted the instituting of quotas in the first place. Unless that is resolved, his new policy will not be politically sustainable – meaning, not sustainable at all –regardless how eminently sensible it is economically. Ameliorate it and Najib would be able to liberalize not only the whole service sector but also the entire economy, if not every facet of Malaysian life. That would bring his “1Malaysia” aspiration that much closer.

On the other hand, if he fails to resolve that fundamental problem, he would have succeeded only in triggering a severe backlash among Malays, the bulk if not his only base of support. Were that to happen he would push back race relations; the half-cooked meal poisoning him! Continue reading “Only A Good Beginning”