Malaysian economy grew not because of NEP but inspite of NEP

Lee Wei Lian, Malaysian Insider

KUALA LUMPUR, July 11 — The country's premier economic think tank's ex-chief questioned Tun Dr Mahathir Mohamad’s assertion that the country grew rapidly due to the New Economic Policy (NEP), and instead said Malaysia should thank external factors.

Professor Datuk Dr Mohamed Ariff, distinguished fellow at the Malaysian Institute of Economic Research and its former executive director, also suggested that Malaysia could have grown even faster if the NEP restrictions were absent.

“Mahathir’s argument that the country had developed more rapidly under NEP is questionable,” Ariff told The Malaysian Insider.

“Yes, Malaysia under Mahathir’s leadership did post impressive growth rates, but that cannot be attributed to NEP. A counter argument would be that the economy grew rapidly — not because of, but in spite of NEP.

“The high growth rates Malaysia registered during Dr M’s premiership was largely due to very favourable external circumstances, driven mainly by strong external demand for exports.”

He also warned that the external factors are much less favourable now and NEP type policies could not help the nation.

“NEP constraints will impair the country’s competitiveness in an increasingly competitive environment,” said Ariff.

Mahathir said on Thursday that the country has developed more rapidly under the NEP and the country’s performance outpaced other developed nations.

The former prime minister had also said that the controversial NEP, which was introduced in 1971 and gave economic and other privileges to the Malays, was to help them catch up to other communities and prevent racial riots.

Ariff said that affirmative action was relevant but Bumiputeras were shortchanged by the NEP as it benefitted the elite rather than the poor masses.

“The NEP version of affirmative action could not trickle down as the lion’s share of the benefits were arrested at the top by politically well connected people,” said Ariff. “No one would deny that all Bumiputeras have got something out of it one way or another, but what they got was crumbs falling out of the table.”

Malaysia, once counted as among Asia’s most prosperous countries in the 1960’s and even through parts of the 1970’ fell behind in the following decades.

Despite relatively high growth rates it is not kept pace with its Asian counterparts such as Singapore, South Korea, Hong Kong and Taiwan which are now regarded as developed high income countries.

Prime Minister Datuk Seri Najib Razak has said however that affirmative action will be made more transparent and market friendly as part of his new economic reforms to boost the country’s competitiveness.