New Economic Policy New Economic Policy

image Prior to 1970, Malaysia's development policy was primarily aimed at promoting growth with a strong emphasis on the export market. Although the economy grew very rapidly during this period at an annual average of 6.0 per cent, there was insufficient emphasis on distributional aspects, resulting in socio-economic imbalances among the ethnic groups with negative social consequences in the form of a racial riot in 1969.

The launching of the New Economic Policy (NEP) in 1971 was a watershed in the Malaysian economic policy history. The NEP underscored the importance of achieving socio-economic goals alongside pursuing economic growth objectives as a way of creating harmony and unity in a nation with many ethnic and religious groups. The overriding goal was national unity. To achieve this goal, two major strategies were adopted:

  • To reduce absolute poverty irrespective of race through raising income levels and increasing employment opportunities for all Malaysians; and
  • To restructure society to correct economic imbalances so as to reduce and eventually eliminate the identification of race with economic function.

An equally critical aspect of the NEP was that it was premised upon a rapidly growing economy. Growth was a necessary condition so as to provide increased economic opportunities for the poor and other disadvantaged groups to enable them to move out of poverty and to participate in the mainstream economic activities. In addition, it ensured that distribution did not take place from the reallocation of existing wealth but from expanding and new sources of wealth. The implementation of the strategies to eradicate poverty and restructure the society resulted in a significant improvement in income distribution by 1990. The proportion of households living below the poverty line income declined from 49.3 per cent in 1970 to 16.5 per cent in 1990 and reduced further to 5.1 per cent in 2002.

In terms of corporate equity restructuring, more than two thirds of corporate equity in Malaysia was owned by foreigners in 1970, while the Bumiputeras, the indigenous people who made up two thirds of the people, owned slightly over 2.0 per cent. The NEP set a restructuring target of 30 : 40 : 30, where by 1990, the holdings of the Bumiputeras should reach 30 per cent, other Malaysians 40 per cent and the foreigners 30 per cent, in the context of an expanding economy. In 1990, the Bumiputera share of equity amounted to 20.4 per cent of total corporate equity share and the holdings of other Malaysians reached 46.8 per cent and 25.1 per cent for foreign holdings. Although the Bumiputeras have not achieved the 30 percent equity ownership target by 1990, the progress made by them has been substantial compared to the position in 1970. By 2002, because the total value of corporate equity expanded rapidly, the holdings of all groups increased further in value in absolute terms. Although the share of foreign ownership fell to almost a third, its value increased by over 30 times compared with the position in 1970. Malaysia’s poverty eradication strategy has always focused on human resource development and quality of life improvements. The relevant programmes emphasize more on income-generating projects and not on welfare handouts, except in exceptional cases where direct assistance is provided.

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