Datuk Seri Najib Razak came into office inheriting the weakest economic situation since the Asian financial crisis in the late-'90s. He faced the prospect of foreign direct investment (FDI) being halved and the country going through a severe recession, with the economy contracting by 4% to 5%.
Stimulus packages
As finance minister (prior to becoming prime minister), Najib announced two economic stimulus packages, the first in November totaling RM7 billion, and an additional package in March totaling RM60 billion. Realising that efficient implementation is the key to the success of the stimulus package, Najib said that he would set up a technical committee to monitor implementation, which he would personally oversee.
New economic model
In May, Najib stressed on the necessity of coming up with a new economic model for the country and revealed that the scope of work for this task would be handled by an economic council that he was assembling. The team would comprise economic experts from within and outside the country.
Tan Sri Nor Mohamed Yakcop, a minister in the Prime Minister's Department, said that the government has an ambitious target to sustain economic growth of 7.5% per year and this is only possible if the economy is geared towards a higher income and a higher growth trajectory.
Later that month, Najib announced that Tan Sri Amirsham Abdul Aziz will head the National Economic Advisory Council (NEAC). The council would be Najib’s economic think tank, and would advise him on how to steer the government out of the recession and to develop an innovation-based economy.
In June, Najib revealed that the 2010 Budget would kick-start Malaysia's effort towards a new economic model, powered by the services sector as well as ongoing development of the country's growth corridors. The national budget speech is scheduled be tabled in Parliament in October.
Najib said the services sector from various fields such as medical tourism would play an important role in the new economic model, which breaks away from the MSC initiative that only focused on ICT.
10th Malaysia Plan
The government is considering introducing the 10th Malaysia Plan (10MP) on a two-year rolling basis, as opposed to five, to allow for more frequent adjustments, Nor Mohamed said in June.
Nor Mohamed said work on the 10MP (2011-2015) would start early and be based on the new economic model Najib put forth, which is one based on innovation and creativity to propel the country from middle to high-income status.
Economic liberalisation
Najib announced on April 22 the immediate dismantling of a rule that required companies in 27 service sub-sectors to set aside 30% of their company for Malay investors. Five days later, he announced new measures to boost the country’s financial services sector, allowing greater foreign stakes in investment banks and both Islamic and commercial insurers (from 49% to 70%).
Much to the disappointment of the industry, Najib retained the 30% cap on local commercial banks. However, a single foreign investor can now only own up to 20% in a single stake in a commercial bank, while the overall limit stays at 30% for foreign ownership.
This year, Bank Negara will issue two new licenses to foreign “mega-Islamic” banks (with a paid-up capital of at least US$1 billion) to undertake international business, in a move to bolster the country's position as an international Islamic financial hub. In all, the government will allow up to seven new foreign banks – including two Islamic ones – to open shop here by 2012.
On June 30, Najib announced a slew of changes, most notably the removal of Bumiputera equity requirement for public listings and the effective dismantling of the all-powerful Foreign Investment Committee (FIC), long the bane of the business community and foreign investors.
The new rule removes the 30% requirement but requires that half of the free-float shares be offered to Bumiputeras. This effectively sets the minimum allocation for Bumiputeras at 12.5%. However, even this condition will be waived if there are no Bumiputeras willing or able to take up the allocation.
Najib also cut the powers of the FIC, repealing its guidelines covering the acquisition of equity stakes, mergers and takeovers. He also liberalised ownership in the wholesale segment of the fund management industry, allowing total ownership for qualified and leading fund management companies seeking to set up shop in Malaysia.
To contain a potential Bumiputera backlash, Najib announced the creation of a private equity fund, called Ekuinas, which has an initial capital of RM500 million but would eventually grow to RM10 billion. The initial funds will come from the budget and Ekuinas will report to the prime minister, with the EPU playing a supervisory role.
It will be run by professionals but owned by the government, and it will focus on nurturing Bumiputera businessmen in sectors considered to be high growth such as education, tourism, oil and gas and ICT.
Biting the bullet
As the country’s only prime minister trained as an economist, Najib realizes more than any of his five predecessors about the urgency of restructuring the country’s economy, which does require reforming the New Economic Policy (NEP). Many in the local and international business community consider the NEP an impediment to investment. Amongst those calling for its reform is Datuk Seri Nazir Razak, the prime minister’s younger brother and CEO of CIMB, the country’s second largest bank.
Such moves are not without risk of a political backlash from the Umno grassroots. But so far, it seems he has been able to contain this, which is reflective of how much groundwork he and his team have done to assure the Umno ground that Malay special rights won’t be jeopardised.
Although it’s still early days, judging from his many speeches on the economy and the speed at which he has introduced new measures in his first 100 days, it appears Najib is serious about economic reform. Odds are he will continue to press on with liberalising the economy.
Read Part 1: On leadership
Read Part 3: On foreign affairs