The Horrible Price Malaysians Had to Pay for UMNO's Disastrous New Economic Policy (NEP)

Read here full text of Anwar Ibrahim's Keynote Address at the CLSA Corporate Access Forum

Extract from Datuk Seri Anwar Ibrahim's Keynote address on 20th May 2008 at the CLSA Corporate Access Forum in Singapore.
(The Forum is a high-profile gathering of corporate decision makers of the region’s most interesting companies and investment bodies)

"... Let us first of all answer the question:

What is Malaysia’s status today?

We hear for example politicians talking about how rich Malaysia is compared to some of her neighbours and how we have recovered so well since the Asian financial crisis of 1997.

The truth, however, says otherwise:

1. South Korea and Taiwan were much poorer than us in the 1970s but today their per capita income is US$19,200 and US$15,270 respectively.
   
   
2. Our per capita income is only US$6,240.
   
   
3. And we haven’t begun to talk about Singapore, a city-state of four million inhabitants. At US$30,810, it is five times that of Malaysia’s.
   
   The enormous difference becomes all the more glaring if we consider that just 30 years ago, Malaysia was neck-and-neck with Singapore. If we analyse deeper we will realise how even more troubling the numbers are. The per capita income scenario paints only a partial picture. What we don’t see is the gross inequality in income distribution.
   
   
4. In 2005, Malaysia registered the most glaring GINI coefficient in Southeast Asia, worse than Indonesia and Thailand.
   
   
5. As you know, being the most effective measure of income disparity, at 0.47, Malaysia was number two in Asia losing only to Papua New Guinea.

This is a devastating indictment of the failure of the New Economic Policy, crafted almost four decades ago.

In the area of the urban-rural gap, this policy has also been a complete fiasco. In 1999, income in rural homes was 55% that of urban homes with the highest poverty in mostly Bumiputera majority states such as Kelantan, Terengganu, Kedah, Perlis, Sabah and Sarawak.

Of course there has been some development in the country but we do not see anything impressive in the numbers unless we still want to compare ourselves with African countries. Incidentally, Malaysia’s poverty reduction statistics are unreliable because our base rate is unrealistic.

By far the most damning case against the NEP is that it has been hijacked by the ruling elite to satisfy their lust for wealth and power.

No doubt this was a multi-racial rip-off of the most systematic kind: the leaders of the component parties of the ruling coalition working hand in glove with Umno to deprive the deserving Malays, Chinese, Indians, Ibans and Kadazans of the benefits that were to be derived from the NEP.

Tender procedures, transparency and independent evaluation in privatisation issues, equity distribution, all these were swept aside in the name of the NEP on the sacred ground that this was all for the benefit of the Bumiputeras.

But the numbers stack hard against the hype. Just compare the money spent on scholarships with say the tens of billions expropriated by the select few in equity awards, Approved Permits, contracts to companies controlled by families and cronies, and the billions in profit reaped on account of privatisation projects and schemes.

There is also a high economic cost to this gross abuse of the policy.

The people have to pay higher costs for energy, water, highway tolls. The people’s protest falls on deaf ears.

The decline in FDI as well as private domestic investment is serious. This collapse has led to serious underperforming by Malaysia in the region.

India in the last five years saw its investment/GDP ratio rise from 22% to 34% and Brazil’s ratio shot up from 15% to 27%. Malaysia’s ratio, on the other hand, plunged to 9% last year from 30% in 1996.

In terms of FDI over GDP, Malaysia plummeted from 8% to 4% for the same period. This is one of the steepest declines anywhere in the world.

What these numbers signify is the plunge in the level of competitiveness and the degree of profitability of companies and there is no reason to imagine things will improve for the better barring a drastic change in circumstances.

As a matter of fact, for the World Competitiveness Index for 2007/08, Malaysia dropped two notches from last year’s standing.

Yet the authorities are touting Malaysia’s so-called impressive current account surplus which increased from 8% in 2002 to 14% in 2007. But what it means really is that investments have fallen and hence a decline in the import of capital goods.

Even Malaysia’s growth rates for the last five years will show that private consumption is the main driver for the increase. What has not been highlighted, however, is the fact that our economic growth is essentially fuelled by borrowings to such an extent that individual indebtedness is now the highest in the region.

Just last year, I spoke about the lessons of the 1997 Asian financial crisis. Once again, the question is: have the Malaysian authorities learned anything?

Malaysia lags behind other emerging economies in spite of a diversified economy with commodities and manufacturing and a relatively good physical infrastructure.

Our competitiveness suffers because of the failure to develop and keep innovative human capital. Our brain drain problem is legendary. This reflects foundational weaknesses in our educational infrastructure as well as a policy of mismanaging the vast human resources.

The traditional mindset of bolstering the manufacturing sector as a key driver for economic growth must also be changed in an age where information and knowledge provide the bedrock for growth and competitiveness.

We suffer also because of the high cost of doing business, a cost which is reflective of the failure to observe the basic standards of good governance and to fulfill the demands of accountability.

At the end of the day, these principles will continue to be compromised when those who hold the trust of the people succumb to the temptations of power and fall victim to the cancer of corruption.

New Economic Agenda

...We do not intend to do away with the affirmative action principles outlined in the NEP, but we will apply them across the board making them available for all races on a needs basis.

The question is: Should we condone the abuses of a policy which make the rich richer and the poor poorer or should we not support a policy that provides equitable assistance to all needy Malaysians?

Again, to the detractors who will continue to distort the new agenda as an anti-Bumiputera policy, let me reiterate that the interests of the Bumiputeras will never be compromised because we are committed to building a new system that is just and fair.

In this new order, no one will be left behind on account of race or religion.

Unlike the current scheme of things, the New Agenda will put in place mechanisms to ensure that economic aid goes to those who most need it. For example, small traders who form the bulk of the Bumiputera community in business enterprises will therefore be better off than they ever were under the NEP."
-Datuk Seri Anwar Ibrahim