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By Stephanie Phang and Angus Whitley March 13 (Bloomberg) -- Malaysia's opposition parties, fresh from their biggest electoral gains ever, have vowed to dismantle the country's legalized system of preferences for ethnic Malays. Doing so won't be easy.
Opposition leader Anwar Ibrahim said after the March 8 elections that ``major adjustments need to be made'' to the race rules. The parties will be able to accomplish some incremental progress toward that goal in the five states they won. They also will pressure the ruling National Front coalition to move quicker in easing the requirements. For now, that's about all they will be able to achieve, because most of the system is controlled at the federal level by a set of 37-year-old directives known as the New Economic Policy, instituted to help the majority Malays catch up with Chinese business owners. States have little say over the NEP, and some regions controlled by the opposition are dominated by Malays who don't want their advantages undone. ``A lot of the laws are central and federal,'' said Ooi Kee Beng, an analyst at Singapore's Institute of Southeast Asian Studies. The opposition parties ``are in a daze and trying to feel their way around.'' Anwar's People's Justice Party, the Democratic Action Party and the Pan-Malaysian Islamic Party, known as PAS, won enough seats to deny the ruling coalition the two-thirds majority it had enjoyed in parliament for 34 years. Intel, Sony They will stop setting aside projects for Malay businesses in their states, parting ways with National Front policies. These opposition-controlled areas include Penang, a base for Intel Corp., and Selangor, host to Sony Corp. Penang also plans to do away with racial quotas when licensing street vendors. PAS, which has controlled northeastern Kelantan state since 1990, has said it doesn't discriminate based on race, and won't in Kedah, the state it has just won. ``That would resolve a major part of the problem, but only at the state level, where we are in charge,'' Anwar, 60, told reporters on March 11. ``Hopefully, things will change, but not in the very near future.'' Criticism of the rules was taboo after they were introduced in response to race riots in 1969. They were aimed at alleviating poverty and rebalancing national wealth concentrated in Chinese and British hands, a vestige of Malaysia's status as a U.K. colony until 1957. `Creative Destruction' Anwar's opposition to the NEP emerged over time. Early in his career, he was a champion of Malay preferences. Then, in 1998, he was ousted from the government and the ruling coalition's dominant party, the United Malays National Organisation, after calling for ``creative destruction'' of Malaysia's economic system. He later began criticizing the NEP for being used to justify institutionalized corruption. Now he wants to dismantle it. ``The New Economic Policy benefits the few family members of the ruling establishment and their cronies,'' he said. The ruling coalition has eased the rules as it tried to lure global investment capital from China and Vietnam and explored free trade accords with the U.S. and European Union. Malaysia's reluctance to increase access to government contracts by changing pro-Malay policies is among issues that have delayed a deal, U.S. Assistant Trade Representative Barbara Weisel has said. ``The NEP is very subjective,'' said Gan Kim Khoon, head of equity capital markets at OSK Investment Bank Bhd. ``A lot of it is left to interpretation.'' Lower Grades The rules give Malays preferences over Chinese and Indians in education, jobs and investments. The country's 19 public universities admit Malays with lower grades than Chinese and Indians. Companies must sell 30 percent of their shares to Malays and declare how many Malays they employ to be listed on the local stock exchange. ``The country's economic development has been possible despite this expanding web of rules because the government has applied pragmatic exemptions,'' said Song Seng-Wun, an economist at CIMB-GK Research in Singapore. Malaysia's economy has grown an average 6.8 percent a year since 1970. Selected foreign investors have been allowed 100 percent ownership of their local businesses since then under special provisions. In 1995, the government announced the first of a series of regions where the NEP wouldn't apply. Prime Minister Abdullah Ahmad Badawi, 68, launched a second such area in the southern state of Johor in 2006. Suhaimi Ilias, an economist at Aseambankers Malaysia Bhd., a unit of the country's largest banking group, predicted Chinese and Indian parties in the UMNO-led coalition would call for the rules to be eased further. ``Whatever it is, something will happen,'' Suhaimi said. ``The whole point is about reinventing. And that's what this country needed going forward.'' While the opposition likely won't push for low-cost housing and other federal benefits to be dropped, the parties want them to be based on need, not race. ``Affirmative action will continue,'' Anwar said. Helping marginalized Malays ``will not be purely on the basis of race.'' To contact the reporters on this story: Angus Whitley in Kuala Lumpur at
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