1. Wong Chen Parti Keadilan Rakyat Chairman of Investment & Trade Bureau

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

3. New Economic Policy - NEP NEP aims to uplift Malay/Bumiputera economic position after May 13 1969 Race Riot In 1969, Malays were desperately poor NEP: Bumiputera target of 30% of the economy Education, University and scholarship quota Bumiputera employment quota in Government Government contracts for Bumiputera Special Bumiputera Loans, Licenses, AP For a period of 20 years only....

4. NEP successful up to 1990s Created a Malay middle class Rural Hardcore Poverty level has dropped significantly from 70% to 20% Participation of Malays in many sectors, professionals and businessmen Non-Malays were happy as the pie expanded with economic growth despite questionable fundamentals

5. 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

6. However since the late 1990s….. 1997 Financial Crisis shattered our confidence Increased corruption and erosion of rule of law & property rights Acceleration of brain drain and capital flight Failure of race based education policy to create a competitive workforce Stuck in middle income trap; strong competition from Indonesia, Vietnam, Thailand, China, India But we are still plodding along, kept afloat by strong petrol and Palm Oil prices

7. 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

8. 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”

9. 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

10. 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

11. 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

12. 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 advisors We have a core team of 5 persons, 2 from PKR, 2 from DAP and 1 from PAS

13. Guiding Philosophy: Generally Free Market with Social Considerations regarding redistribution Guided economy with incentives for strategic sectors, but no mega projects Government to be fiscally responsible, privatisation to be transparent and priced fairly Monetary policies by a truly independent Central Bank Return 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

14. 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

15. 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)

16. 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)

17. Pakatan Rakyat Growth Policy Generally we need to do 4 things: Improve domestic investment not just FDI Improve our R&D, spend 5% of GDP to catch up, later to normalise to 2.5% Improve workforce productivity by better education Specialise and focus on a few key sectors; palm oil, forestry and services (not to spread our expertise too widely)

18. Increase Domestic Investments Resolving the race issue and Malaysian Chinese will return with skills and capital Restore democracy and Rule of Law (protection of property rights) Bring cost of business down by reducing corruption and government wastage Refocus incentives to domestic companies not just FDI Income and corporate tax rate to 22%

19. Increase R&D and Technology Focus 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

20. Workforce Productivity via better Education We 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 teachers We need better examination standards We need critical and creative workforce (democracy and freedom required)

21. Specialisation: Prepare for Petronas oil peak 15 years left Palm 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

22. Pakatan Rakyat Redistribution Policy Redistribution 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

23. 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

24. Long Term Redistribution: Education 60% 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

25. Short-term Redistribution: Direct Aid Priority 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

26. Conclusion: We have the knowledge of what needs to be done We have the political will to implement what is needed No corruption and racism baggage Penang and Selangor leads the way in implementation of fiscal discipline and cleaner administration New crop of business-minded professional advisors, not just NGO, cleric background There is no reason why Malaysia cannot succeed, extremely rich in natural resources, diverse cultures, small but a growing population

27. Thank You Wong Chen on behalf of Parti Keadilan Rakyat