Malaysia drops economic plan aimed at easing racial tensions. Program is edged out by prolonged recession

A key plank in the Malaysian government's program to defuse racial tensions has been quietly shelved. The plan, which depended on a booming economy, fell victim to a prolonged recession. This highly sensitive issue adds to the long list of problems Prime Minister Mahathir Mohamad faces, as he struggles to restore his waning popularity.

The bad news was dropped somewhat obliquely in an Australian television interview with Dr. Mahathir. By government instruction, it was not reported in any form by the Malaysian news media.

In the interview, Mahathir said he would suspend, at least temporarily, key provisions of the New Economic Policy (NEP), an affirmative-action-type economic program created in the aftermath of the 1969 race riots in Kuala Lumpur. Under protest was the large share of the economic pie held by the nation's Chinese minority -- a not uncommon concern in a number of Asian countries. Mahathir said the Chinese share of the pie had grown from 40 percent when the NEP was started to more than 50 percent today.

The NEP aimed to restructure society to eliminate racial identification with economic roles and to eradicate poverty. It called for a program to upgrade the skills of indigenous Malays, known as bumiputras, and give them an economic stake in the nation more in keeping with their majority status.

Government funds were used to purchase equity in a wide range of companies with the aim of obtaining a majority bumiputra holding by 1990. The goal was for Malays to have at least 30 percent equity ownership in all economic sectors. Another 40 percent would be held by non-bumiputras (primarily Chinese and Indian), and the remaining 30 percent would be in foreign hands.

Although the NEP was not particularly well-received by non-Malays when it was first introduced, Western analysts agree that it has played an important role as an equalizer in Malaysian society and has helped to defuse racial tension based on envy.

From the start, the NEP planners assumed the economy would continue to grow at a relatively fast pace, providing the government with the spare cash needed to finance the plan. But Malaysia recently has been hard hit by falling commodity prices. Among its key exports, crude oil shipments have dropped 45 percent in the past 12 months. Palm oil has declined 60 percent, tin 35 percent, and rubber 7 percent.

From an original growth rate projection of 5.6 percent for this year, the government has now set its sights on a modest 1.6 percent.

``The drop in growth has . . . affected every segment of the community,'' Mahathir told his Australian TV interviewer. ``At the moment, there is no growth, so we will not be able to go ahead with the restructuring [of society] we planned for.''

Malaysia's great need is for a strong infusion of foreign investment, and it was in this context that Mahathir spelled out his decision to suspend the central plans of the NEP. Malaysia, he said, was now telling foreign investors that ``we will not be implementing the wealth distribution aspect of the investment, so they can come and maybe hold a 100 percent share.''

The NEP had had some positive results for the bumiputras, ``but it is not sufficient for them to be on their own with the more aggressive Chinese in the business community. They will still need a little bit more of a push until they obtain sufficient competitive ability to take on all communities.''

But the government had no choice, Mahathir said, but to let ``market forces'' work to a far greater extent than before, while continuing to train Malay professionals.

Was he prepared, then, to see the Chinese take over more of the business, commercial, and professional areas? Mahathir replied that this was bound to happen, because of the great wealth and acumen of the Chinese community.

On the possibility of increased communal tension, the prime minister said that the relationship between the various communities was not ideal and tension had always existed -- but was kept in check by ensuring that the interests of all the different races were represented in the National Front government, where problems could be resolved on the basis of consensus.

But all is not well within the 11-party National Front coalition. Partly, this stems from the current spate of rumors that Mahathir will soon call a general election, a year ahead of schedule.

The main Chinese party in the coalition, the Malaysian Chinese Association (MCA), is facing political challenges from other Chinese parties that don't think the MCA is doing its job of giving Chinese a political voice in proportion to their economic strength.

The Chinese-based Malaysian People's Movement is currently threatening to pull out of the front if it doesn't get what it sees as a fairer allocation of seats in the election share-out.

Inevitably, the suspension of the wealth-distribution program will create some disenchantment among Malays, just when it seemed they were within reach of having some economic muscle to go with their long-held political dominance.

This could prove a handy election weapon for the opposition Muslim fundamentalist Pan-Malaysian Islamic Party (PAS).

It has long belabored Mahathir's United Malays National Organization for backsliding on his commitment to create a nation governed by firm Islamic principles -- an issue the prime minister has downplayed to avoid upsetting the Chinese and other non-Muslim sectors.

Now, PAS could argue, not only is the government neglecting its religious duties, it is falling down on its economic responsibilities, too.