Sunday, July 20, 2008

Where a Leg Up Has Been a Letdown

KUALA LUMPUR, Malaysia -- At the heart of Malaysia's deepest political crisis in a decade lies affirmative action.

Opposition leader Anwar Ibrahim wants to dismantle the multi-ethnic country's controversial race-based policies to help it compete among Asia's stronger economies. At issue is the clout Malaysian law confers on the country's ethnic-Malay majority at the expense of its Indian and Chinese minorities.

The charismatic opposition politician, who once benefited from the policies he now seeks to end, faces stiff resistance from the National Front coalition government, which has run Malaysia since independence in 1957 and uses a vast web of preferential programs for the country's ethnic-Malay majority to help retain power.

Mr. Anwar's efforts come at a time when he is engulfed by personal scandal. Wednesday, Malaysian police arrested Mr. Anwar over allegations that he sodomized a 23-year-old aide. That's a claim, Mr. Anwar says, designed to destroy his political career, divide this restless nation and halt his campaign against affirmative action.

Lawyers for Mr. Anwar said that police released him from custody on bail. He was not charged, but remains a suspect.

State-backed affirmative action stokes debate across the world. In India, a sweeping program caters to people on the lowest rungs of the country's caste system. In the U.S., Sen. Barack Obama's run for the presidency is reinvigorating a debate over whether race-based preferences for entry to universities or state jobs are still needed to help African-Americans and other minorities.

In Malaysia, Malays have benefited from preferential treatment for almost 40 years to help them catch up with the ethnic Chinese, who make up 25% of the population but own a disproportionately larger share of business and trade. Many, including Mr. Anwar, argue affirmative action could be doing more harm than good by injuring trade with partners who object to the policy, and it could be hindering the development of a merit-based economy in which all Malaysians could compete for government contracts, jobs or university places.

"We have to prepare our economy for more competition and attract more investors, and these issues create a fear in the minds of some of our leaders," Mr. Anwar, a Malay, said in an interview prior to his arrest.

Malaysia's ethnic Chinese and Indian citizens, most of whose families immigrated in the 19th and early 20th centuries when the country was administered by the British, are frustrated, especially over education. Many are unable to send their children to local universities, which reserve most of their slots for Malays, and must send them overseas or to private colleges at their own expense.

Avinash Nair, a 17-year-old from a middle-class ethnic-Indian family, said he was recently refused a government scholarship to study medicine overseas, despite better examination results than many of the ethnic-Malay candidates who got scholarships. "I met all the qualifications, yet I was rejected," he says. "I feel dejected."

Mr. Anwar's push to end affirmative action has provoked a political firestorm. Police are bracing for mass protests following his arrest, which could further destabilize this resource-rich, mostly Muslim nation. Malaysia is the U.S.'s 15th-largest trading partner and an important production hub for multinational companies, including Intel Corp., Motorola Inc. and Nokia Corp.

Few countries have such pervasive affirmative-action programs as Malaysia, where policies enacted in the 1970s after deadly race riots grant Malays preferential treatment in everything from education and employment to borrowing and housing. The original goal of the program, initially known as the New Economic Policy, or NEP, was to help Malays, who make up about 60% of the population of 27 million, compete with the country's economically stronger ethnic-Chinese minority and create future generations of Malay bankers, entrepreneurs and professionals.

At the NEP's inception, Malays controlled 2.4% of the country's economy, according to government calculations. The latest official statistics put the Malay stake at 18.9%.

Malay politicians often attribute the country's rapid economic development since the 1980s to the political stability fostered by the NEP, which lifted millions of Malays into the middle class.

But while the original NEP formally expired 17 years ago, the system of racial quotas has been extended again and again; in some cases, they have been widened. According to the Malaysian government, this system must go on because the NEP's original goal of ensuring Malay ownership of at least 30% of the economy isn't yet achieved.

Critics of affirmative action say it has crimped Malaysia's competitiveness because it has been used to help politically connected businesses while doing little for grass-roots entrepreneurs. Government procurement policies that ensure contracts go to ethnic-Malay-owned companies have been sharply criticized by the European Union and have stalled negotiations for a free-trade pact with the U.S., Malaysia's biggest trading partner.

Barbara Weisel, the U.S.'s chief negotiator, has repeatedly described the procurement dispute as "a sensitive issue" for the Malaysian side, but the U.S. insists on Malaysia dropping preferential treatment for Malays before a deal can be done.

Mr. Anwar, who rose to become the country's deputy prime minister in 1990s, helped expand the reach of Malaysia's affirmative-action policies before being purged by his political rivals. Trying to topple the system that helped bring him to power, he says he wants to create a "meritocratic" Malaysia better equipped to win foreign investors as multinational companies look beyond China and its rising land and labor costs for production bases across Southeast Asia.

Mr. Anwar says affirmative action has cost Malaysia its competitive edge. "I see no possibility of becoming an attractive destination for investors barring a drastic change in policy," he says. "...If we're going to have affirmative action, let it be for disadvantaged people of all races, not just Malays."

Some prominent Malays concede that Malaysia needs to rethink its policies. Nazir Razak, chief executive of financial-services company CIMB Group, said at a business forum this year that the NEP had been "bastardized" to benefit a few politically-connected Malays through government contracts.

The opposition alliance, which Mr. Anwar leads, tapped into this vein of disillusionment in national elections in March, breaking the National Front's two-thirds majority in parliament for the first time since 1969. The alliance now needs 30 more seats to win control of the 222-member parliament.

Some conservative Malays condemn Mr. Anwar as a traitor to his race. Others have taken to the streets to demand the preservation of preferential government procurement policies in states Mr. Anwar's allies control, such as Penang, which is home to much of Malaysia's technology industry.

Yusri Mohamad, president of the influential Malaysian Islamic Youth Movement and a law lecturer at a local university, says Mr. Anwar's bid to remove affirmative action should be resisted because it could provoke a widespread backlash among ethnic-Malays. While affirmative action could be improved to make sure all Malays can benefit, not just the well-connected, the Malays aren't ready to compete on an equal footing, he said. "Malaysia isn't ready for meritocracy."

—Celine Fernandez contributed to this article.
Write to James Hookway at

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