Pakatan Rakyat Economic Policy

Wong ChenParti Keadilan Rakyat

Chairman of Investment & Trade Bureau

This talk is in two parts:The New Economic Policy (NEP) up to the New Economic Model (NEM)

Pakatan Rakyat Economic Policy

New Economic Policy - NEPNEP aims to uplift Malay/Bumiputera economic

position after May 13 1969 Race RiotIn 1969, Malays were desperately poorNEP: Bumiputera target of 30% of the economyEducation, University and scholarship quotaBumiputera employment quota in GovernmentGovernment contracts for BumiputeraSpecial Bumiputera Loans, Licenses, APFor a period of 20 years only ....

NEP successful up to 1990sCreated a Malay middle classRural Hardcore Poverty level has

dropped significantly from 70% to 20%Participation of Malays in many sectors,

professionals and businessmenNon-Malays were happy as the pie

expanded with economic growth despite questionable fundamentals

Malaysia The 1990s Asian Tiger 3 major factors for economy growth in

1980s and 1990s Malay majority productivity (and

purchasing power) increased 300%; from farmers to engineers

Oil and Gas wealth: Petronas Production matured

We had an open pro FDI policy when our neighbours (Indonesia, Vietnam, Thailand) have closed economy, corruption at manageable levels

However since the late 1990s…..1997 Financial Crisis shattered our confidenceIncreased corruption and erosion of rule of law

& property rightsAcceleration of brain drain and capital flightFailure of race based education policy to create

a competitive workforce Stuck in middle income trap; strong competition

from Indonesia, Vietnam, Thailand, China, IndiaBut we are still plodding along, kept afloat by

strong petrol and Palm Oil prices

Revealing Snapshots:Businesses are increasingly dependent on

government contracts (65% stock market government owned)

Brain drain and capital flight put serious strains on the govt tax revenue base, 14 years of continuous deficits, RM441 billion govt debt and RM94 b debt guarantee (total debt exposure is 60% of GDP RM890b)

Govt revenue is RM170b a year, Expenditure RM220b; Wastage estimated RM30b to RM60b

40% of Budget relies on Petronas

Institutional Racism by UMNO The NEP failed to evolve away from race based policies;

driving Chinese business community away and creating an elite class of monopolistic tycoons

Now even the tycoons are moving out, crowded out by rise of Syed Mokhtar

Najib introduced the NEM, an attempt to make the economy less race based, retain capital and talents…not working

Because UMNO has no political will to change, the racism and corruption is too deep, the party is paralyzed and held ransom by its warlords and supporters of “Ketuanan Melayu”

Chinese to be blamed too…Chinese failed to take an active social political position, “list and run”, “go overseas and don’t come back” mentality

Lack of belonging saw reactive brain drain and capital flight

Never fully co-opted Malays and failed to invest in R&D

The Malaysian paradox:We are in danger of becoming a low skilled

nation (our skilled workforce have migrated but with no repatriation of money) with impressive but expensive infrastructure, high costs of doing business (corruption included) and low on governance and rule of law

The management of the Malaysian economy is too politicized by race, making it inefficient and open to abuse: cronyism and political patronage

Bottom Line:Political shenanigans tolerated in good times but is now increasingly the main cause of economic sluggishness

Because the Malaysian economy is too politicized, the solution can only come from a complete political change

What is the Pakatan Rakyat position?First, we have to win ….We have broad common policies but the details

need to be ironed out, Malay economic issues need to be addressed, Islamic “economics” is not part of agenda

All Pakatan Rakyat parties are equal in strength We have an army of “anonymous” external

advisorsWe have a core team of 5 persons, 2 from PKR, 2

from DAP and 1 from PAS

Guiding Philosophy:Generally Free Market with Social Considerations regarding

redistributionGuided economy with incentives for strategic sectors, but no

mega projectsGovernment to be fiscally responsible, privatisation to be

transparent and priced fairly Monetary policies by a truly independent Central BankReturn to Federalism with greater decentralization to states

(returning 20% of tax revenue to state governments)Return to a Parliamentarian system, curbing discretionary

“presidential” powers to the Prime Minister, reviving Select Committees to check expenditure of every Ministries

Fundamental Policy:Fundamentally we will separate Growth and

Redistribution and NOT make race the defining and primary issue for both; heal the rift between the Malays and Chinese

Growth is priority and it should be about empowering domestic business to grow

If businesses do well, the economy will grow, we will have more taxes for redistribution

Redistribution is thus secondary and should be based on helping the poor irrespective of race

Primary Economic Focus:As a small nation, our priority is to

maintain focus on manufacturing exports, in particular shifting from FDI focus to domestic SMEs with Oil Palm, Rubber and Forestry sectors leading the way (manufacturing is a great multiplier that creates a robust middle class)

Secondary Economic Focus:We must also expand our focus on trade and services, leveraging our cultural diversity as the main competitive edge to serve China, India and Indonesia (improved services will prepare the foundation towards a higher income economy)

Pakatan Rakyat Growth PolicyGenerally we need to do 4 things:Improve domestic investment not just FDIImprove our R&D, spend 5% of GDP to

catch up, later to normalise to 2.5%Improve workforce productivity by better

educationSpecialise and focus on a few key sectors;

palm oil, forestry and services (not to spread our expertise too widely)

Increase Domestic InvestmentsResolving the race issue and Malaysian

Chinese will return with skills and capitalRestore democracy and Rule of Law

(protection of property rights)Bring cost of business down by reducing

corruption and government wastageRefocus incentives to domestic

companies not just FDIIncome and corporate tax rate to 22%

Increase R&D and TechnologyFocus on domestic R&D and technology

Domestic companies need to invest heavily in R&D; RM20b to 40b a year

R&D is now at 0.6% of GDP, currently RM5b only

Developed nations R&D are at 2% to 3% of GDP levels

Workforce Productivity via better EducationWe need to invest more “on the job

training”We need to spend 70% of higher

education towards technical universities to build our engineering and technical capabilities

We need better paid teachersWe need better examination

standardsWe need critical and creative

workforce (democracy and freedom required)

Specialisation:Prepare for Petronas oil peak 15 years

leftPalm Oil, Forestry provides us a strong

sustainable and competitive edge; managed sustainably we will dominate globally

Trade and Services: providing banking and regional health and education services

Pakatan Rakyat Redistribution PolicyRedistribution must be based on economic

means test, helping the poor, irrespective of race

Will the Malays be left out?Means tests will still serve the majority

Bumiputera If means tested, of the 10 million poor

targeted for help, 73% are Bumiputeras, 19% are Indians and 8% are Chinese

Redistribution policy must not be over protective

If you molly-coddle too much, you create social problems, laziness, low productivity

Redistribution objective is to get the 10 million poor (less than RM20 a day, USD 7 a day), and help them transform into middle class productive tax paying citizens…and it starts from education to ensure social mobility and direct aid to the hardcore poor

Long Term Redistribution: Education60% pure merit, so that the best students will be

supported financially, and encouraged to serve the nation

40% economic means test, to help the poorest irrespective of race

The “bell curve” will ensure scholarships and university places will mirror population; 66% to Bumiputeras, 26% Chinese and 8% Indian.

A primary focus is to channel 70% of Higher Education budget to Technical universities; to generate technicians for industrial growth, following the Swiss German model

Short-term Redistribution: Direct AidPriority to help Sabah and Sarawak rural poor Peninsula rural development will focus on Orang

Asli, Felda, New Settlements Chinese and Estate Indians

Urban poverty to be tackled by minimum wage policy, we are committed to RM1,100 per month (off-set corporate tax to 22%)

Affordable housing at RM100,000 to RM200,000 range (developers’ margins highest in region)

Better public transportation system

Conclusion: We have the knowledge of what needs to be doneWe have the political will to implement what is needed No corruption and racism baggagePenang and Selangor leads the way in implementation

of fiscal discipline and cleaner administrationNew crop of business-minded professional advisors,

not just NGO, cleric backgroundThere is no reason why Malaysia cannot succeed,

extremely rich in natural resources, diverse cultures, small but a growing population

Thank YouWong Chen on behalf of

Parti Keadilan Rakyat