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Kuala Lumpur's pursuit of pro-market reforms jeopardized by Malay Muslims
Reuters - June 23, 2010
Razak Ahmad, Kuala Lumpur – A growing assertiveness by Malaysia's majority Malay Muslim population, which fears its economic privileges are under threat, has added to pressures on a government struggling to deliver pro-market reforms.
Prime Minister Najib Razak pledged to liberalize the economy and has delivered such measures as granting new bank licenses, but his credibility has been dented by his inability to cut subsidies and privileges for Malays to boost competitiveness.
"If Malaysia is seen as becoming radical, then it doesn't help investor confidence. It points to a sense of political instability, which gives rise to policy uncertainty," said Citigroup.
The latest policy flip-flop saw the government approve and then defer the issuance of a sports betting license to a company set to be controlled by Berjaya Corporation under pressure from an increasingly vocal Islamist opposition.
At the same time, a conservative Malay pressure group intervened in a $1.6 billion bank-takeover bid by a group headed by an ethnic-Chinese businessman, saying the bank should be run by owners who can promote economic privileges for Malays.
"Najib needs to show reforms to drive the economy and allow the coalition to retain power, but he's seeing increasing assertiveness by the Malays, which is making his job more difficult," said Ibrahim Suffian, director at the independent polling outfit Mer-deka Center.
Malays are the main support for Najib's United Malays National Organization and opposition Pan-Malaysian Islamic Party.
When news broke of the betting-license approval to a company controlled by ethnic-Chinese billionaire Vincent Tan, the move was denounced in protests after Muslim Friday prayers, with PAS saying it would help organize a 100,000-strong protest in July.
Malaysia is home to Asia's largest publicly traded casino operator, Genting, which recently opened a $4.5 billion resort and casino in Singapore.
Political uncertainties have already begun to weigh on foreign investment, with net portfolio and direct investment outflows reaching $61 billion in 2008 and 2009 according to official data.
While money has flowed into the bond market recently, according to central bank data, little has flowed into equities.
Najib has rolled back parts of the New Economic Policy, a pro-Malay affirmative policy in place for decades, scaling back a 30 percent equity requirement for Malays in companies being listed on the stock exchange.
But proposals to water down preferential economic rights for Malays and other indigenous groups collectively known as bumiputra were attacked by Malay pressure groups such as Perkasa (Strength), whose supporters include many UMNO members.
"The reform agenda is driven by political as well as economic needs. Politically unfriendly measures which make economic sense may not be implemented as easily," said Morgan Stanley.
Perkasa has now started to try to influence corporate policy, criticizing the central bank's rejection of a bid by lender Affin Holdings, part-owned by the Malaysian Armed Forces Pension fund, to enter merger talks with larger rival EON Capital.
The rejection leaves Hong Leong Bank, the country's sixth-largest lender, controlled by ethnic-Chinese billionaire Quek Leng Chan, as sole bidder for EON's banking assets.
"What more do the Chinese want? It's in the national interest that we balance bumiputra participation in the banking sector, and this merger between Affin and EON Capital can be the instrument," said Perkasa head Ibrahim Ali.
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