Crisis strikes at heart of Malaysia's race system
Crisis strikes at heart of Malaysia's race system
By Nelson Graves
KUALA LUMPUR (Reuters): By forcing the government to suspend a 28-year-old affirmative action program favoring indigenous Malays over ethnic Chinese, Asia's financial upheaval has struck at the core of Malaysia's economic doctrine.
Amid the economic turmoil, the government last week announced it would shelve a rule prohibiting indigenous Malays, called Bumiputras, from selling equity stakes to members of other races.
The surprise move, aimed at sparing Bumiputras and their firms from bankruptcy, underscored the depth of the economic crisis. But it highlighted the progress Malaysia has made in four decades since independence in lifting the fortunes of the majority Bumiputras.
The action also revealed persistent strains within the political establishment, which is struggling to manage the economic fallout without abandoning decades-old tenets that have underpinned the nation's stunning industrial growth.
Prime Minister Mahathir Mohamad, a reluctant backer of the new policy, summed up the reason for the shift.
"We are facing a problem today. It is better to save something than to let things be destroyed completely," he said.
At issue is a pillar of Mahathir's doctrine, spelled out in his 1970 book "The Malay Dilemma" in which he argued that ethnic Malays needed special treatment to foster the redistribution of the nation's wealth, controlled largely by minority Chinese. Malays make up about half of the country's population, while the ethnic Chinese constitute about one third.
The doctrine gained urgency after communal riots in 1969 between Malays and Chinese in which hundreds were killed, and was enshrined in the New Economic Policy (NEP) launched in 1971.
The NEP aimed to increase the Bumiputras' stake in the corporate sector to 30 percent by 1990 by giving them preferential treatment in the allocation of shares. Restrictions were placed on the resale of such shares.
Individuals obtaining allocations often financed share purchases by pledging as collateral the stock they planned to buy.
The NEP fell short of its target but still led to a far- reaching redistribution of wealth.
Between 1971 and 1990, Bumiputras' share of corporate equity rose to 20.3 percent from 2.4 percent. By 1995, their share had risen to 20.6 percent, while the Chinese share had fallen to 40.9 percent from nearly 50 percent, according to government figures.
Ethnic Indians' share remained largely steady at about one percent, while foreigners were forced to divest in many firms. The NEP was reshaped in 1990 to take account of its shortcomings. It was widely criticized for fostering a hand-out mentality among Bumiputras and for creating an "Ali Baba" industry under which Chinese companies hired Malays to bid for contracts reserved for Malaysian firms.
With the New Development Policy covering the 1990s, the government kept the 30 percent target for Malay equity ownership but dropped any deadline and instead stressed education.
Now many Bumiputras who were allocated large shareholdings face bankruptcy unless they can sell their stakes. To maximize the possibilities for resale, the government has said it will allow Bumiputras to sell to non-Bumiputras.
Chinese hailed the move. "It's sound and it's Malaysian," Malaysian Chinese Association president Ling Liong Sik said.
The main Malay political party, the United Malays National Organization (UMNO), gave begrudging support, but said Malays should have the first chance to take over Malay-owned companies.
The policy change highlighted the problems that many Malay businessmen face, but was also seen as sign of social progress. "It is a test of Malaysia's maturity," Jailani Harun wrote in the Business Times daily.
"Over the past 10 years, with the boom and very significant changes in the social structure, certain aspects of the economic policy had already begun to weaken," Chandra Muzaffar, a political science professor at the University of Malaya, told Reuters.
"Things one could not do 30 years ago can now be done because the dichotomy between races is not what it was," he said, citing closer interaction between the Malay and Chinese elites.
Chandra dismissed the possibility of Malays lashing out at Chinese. "This is totally different from Indonesia. The Malay economic elite is very well entrenched. A substantial number of Malays are middle class," he said.
Diplomats said Mahathir's apparent reluctance to back the change -- the prime minister said the shift would be temporary, while Deputy Prime Minister Anwar Ibrahim said that was yet to be decided -- revealed a debate within the political leadership.
Anwar and Daim Zainuddin, the government's economic adviser who announced the policy shift, were seen as the driving forces behind the change.
"This adds further weight to the argument that Anwar and Daim are forming an axis and are running the financial show," a diplomat said.