Sunday, August 15, 2010

NEM: It’s getting hot in the kitchen

Reading the tea leaves from the past few days has to lead one to no other possible conclusion but that these are tough days for the prime minister when it comes to the economy.

With our growth rate for the next year expected to barely hover around five percent, which, to be fair in these lean times may not be all that bad, there is nonetheless growing apprehension in the prime minster’s circles that it is going to be increasingly difficult to hold the political dam if such lacklustre economic performance lingers on for the foreseeable short and medium term.   

Indeed, gauging from the prime minister’s tone and message at the recent Chinese Economic Congress, it’s clear that the prime minister is feeling some of the heat building up in the economic kitchen. For one, the prime minister - who could have been forgiven for feeling he was not necessarily addressing a most enthusiastic and sympathetic audience – came with a rather benign and blend message about the imperatives of having a vibrant private sector to ensure the country’s drive toward being a high-income economy.

This is especially striking and telling considering that the backdrop to his address was already cast by the unambiguous position staked out by the MCA president and the prime minister's brother as well, regarding the need to revise the across the board 30% Bumiputera equity requirement, which of course, has become almost sacred to a significant element of the prime minister’s political base.

Whilst we can certainly expect the political dance and gamesmanship around this issue to continue right up until the prime minster lays out the specifics and details of his NEM, there is little doubt that the prime minister is feeling the heat from both sides of the divide on this issue.

You know Chua Soi Lek is politically going for the jugular on this issue when he resorts to quoting Confucius that, “Only the wisest and stupidest of men never change and for one to know what is right and not to do it, is the worst type of cowardice.” Knowing that MCA’s credibility among its base has grown increasingly soft means that Chua himself cannot afford to turn a blind eye to the issue.

Coupled with the pressure from the MCA and the wider populous calling for the dismantling of the NEP, it sure must have felt like poor timing (but could there ever be good timing for such a thing?), when your own blood adds to the heat building up in the kitchen by proclaiming that the very blueprint of the 30 percent Bumiputera equity quota itself has become “bastardised’. Following his own remarks at the Chinese Economic Congress, Nazir Abdul Razak is quoted as saying, "I have strong opinions about how the NEP has been bastardised over the years," and further added that, “it is so embedded in everything that we do - in every part of the government, in every part of businesses - that it has become a problem.

Whilst Nazir’s remarks may potentially serve as a small window into the prime minister’s eventual roadmap for revisiting and reforming that which has apparently become “bastardised,” these developments reveal precisely the delicacy of the situation confronting the prime minister.

Under these circumstances, one could understand the prime minister’s cautious tact at the Chinese Economic Congress. Yet, the optimists calling for a major overhaul of the NEP might be tempted to interpret the prime minister’s remarks as tacitly signalling to investors that the government is willing acknowledge – let along address the dilemma of – the white elephant in the kitchen (that is, the NEP), which remains a palpable hindrance to long-term and sustained private sector investment that the prime minster himself insists is imperative.

Further, those calling for an overhaul of the NEP have a real opportunity now – more than ever – to impress on the prime minister that sustained private sector investment in the economy is unlikely to be realised if we persist with ‘business as usual’ under the current highly problematic model.

Quite frankly, one would be hard-pressed to overestimate the desperation and urgency of the situation before the prime minister. Whilst his brother clearly seems forthcoming and unambiguous about the need to revisit critical elements of the NEP – and in the process ignore the extremists who remain wedded to the NEP - in order to put our economic house order, the fact remains that the extremists are prominently seated at the kitchen table.

So it remains to be seen if Najib does have it within him to deal with the necessary reforms – ones that will be consistent with his desire to sustain a vibrant private sector, or will the extremists run him out of the kitchen.

The proof will be in the pudding.

G. Krishnan