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Malaysia’s new PM unveils 1st economic reforms

Posted on: April 29, 2009


Reuters – Thursday, April 23

* Some sectors to allow unrestricted foreign investment

* 30 percent Malay equity rule scrapped in places

* Further measures to be unveiled next week

By Razak Ahmad and Soo Ai Peng

PUTRAJAYA, Malaysia April 22 – Malaysia’s new prime minister on Wednesday unveiled a first slice of promised economic reforms, opening up some service sectors to unrestricted foreign investment.

Najib Razak, who took office last month, wants to use the current economic downturn to move Malaysia away from its dependence on electronics exports and commodities, demand for which has been hit hard by the global recession.

“Complementing the growth and development in the manufacturing sector, the government is intensifying its efforts to promote and develop the services sector,” Najib told a news conference in the Malaysian administrative capital.

He said that in some sectors, foreign investors would no longer be required to give a 30 percent equity stake to Malays, the so-called bumiputra policy, a rule that has been criticised for stymying investment.

“It is highly significant,” said Robert Prior-Wandesforde, senior Asian economist at investment bank HSBC.

“It is highly symbolic and could well herald further changes ahead — in particular opening up even more sectors or dropping the bumiputra policy in even more sectors,”

Najib said that health, tourism, transport, business services, social and computer-related businesses would be liberalised, and the government would allow entry for up to five foreign law firms working in the fast-growing area of Islamic finance.

FURTHER REFORMS UNVEILED NEXT WEEK

He said reforms to the financial sector investment would be unveiled next week, but did not elaborate.

Malaysia is the third most export-dependent economy in Asia and it has been hit hard by a global slowdown that has slashed demand for electronics and commodities exports, the mainstay of the Southeast Asian country of 27 million people.

Exports <MYEXP=ECI> fell 15.9 percent in February from a year ago, according to the most recent data, and Najib said he plans to boost services that are less dependent on global trade to 60 percent of the economy from 55 percent at present.

Najib ruled out ending the Malay equity requirement in sensitive areas such as air travel, utilities and retail.

Big retailers such as Britain’s Tesco Plc <TSCO.L> and France’s Carrefour <CARR.PA> have long been pushing for liberalisation, according to Malaysia’s investment promotion authority. [ID:nKLR342896]

It is unclear whether Najib is set on totally dismantling the 30 percent equity rule, one of the measures introduced with the country’s New Economic Policy in the wake of race riots in 1969 to redistribute wealth to the majority ethnic Malays.

While deputy prime minister last year, Najib announced that new stock offerings would not have to meet the 30 percent requirement, although with initial offerings subdued due to the financial crisis there was little impact.

Ethnic Malays and other indigenous people make up some 60 percent of the country’s 27 million population, although business has traditionally been dominated by a substantial ethnic Chinese minority.

Ethnic Malays are the main backers of Najib’s political party, the United Malays National Organisation , which dominates the coalition that has ruled Malaysia for 51 years.

The coalition slumped to its worst ever result in national and state elections last year, losing its two-thirds parliamentary majority.

(Additional reporting by Varsha Tickoo and Niluksi Koswanage; Writing by David Chance; Editing David Fox)

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