March 30, 2010 / 5:35 AM / 8 years ago

UPDATE 2-Malaysia PM's "bold" economic model light on detail

* Malaysia PM says to re-examine affirmative action

* Announces stock sales to boost market liquidity

* Doubts remain over implementation

* Seen needing new electoral mandate to push change (Recasts throughout, adds analysts, market reaction)

By Razak Ahmad and David Chance

KUALA LUMPUR, March 30 (Reuters) - Malaysia’s prime minister unveiled long-promised economic reforms on Tuesday, with plans to reduce race-based programmes, in what he described as a “bold transformation” but the lack of detail prompted scepticism.

Najib Razak told a business conference his “New Economic Model” would reform a race-based economic system that has favoured the majority Malay population for four decades but which critics say has hurt investment and fostered graft.

The 56-year-old British-trained economist did not spell out details on the measures, designed to transform Malaysia into a developed nation by 2020. The plan could hit his voter base, the 55 percent of the population that is Malay, but he insisted he was brave enough to make changes.

“In the short term, there will be entrenched opposition,” Najib told the conference.

“But for the long-term strength of our nation, we cannot afford to duck these issues any longer,” he said. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For a Q+A on the New Economic Model, click on [ID:nSGE62M068]

For key Asian political risk themes, click on [ID:nSGE62P09X] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Najib took care to praise the the existing race-based policies meant to improve the lot of Malays against the richer ethnic Chinese. They were implemented by his father, Abdul Razak Hussein, in the wake of race riots in 1969.

The new plans will be sent for public consultation, a process that has already derailed fuel price rises and a goods and services tax, casting doubts on Najib’s ability to force political and economic change in this Southeast Asian country that is facing increasing competition for investment.

The full list of plans will be announced formally in June.

A plan to sell a 32 percent stake held by a state investment fund in the country’s postal service, POS Malaysia (PSHL.KL), worth around $107 million based on its current market value, boosted the company’s stock by 10 percent. [ID:nWNAS8384]

However, the ringgit currency MYR= and 5-year government bonds MY5YT=RR were little changed after Najib's announcements.

Najib also said two subsidiaries of state oil giant Petronas [PETR.UL] would be listed and that the Employees Pension Fund, a second state fund, would sell down some of its holdings to boost liquidity on the stock market.

“It is encouraging that the government is moving along in the divestment process, but we were disappointed that there was no concrete timeframe for some of the reforms,” said Standard Chartered economist Alvin Liew.

ECONOMIC GROWTH AND NEW POLLS

As well as boosting economic growth so that Malaysia achieves the income levels of a “rich” nation by 2020, more than double the $7,000 per capita income of today, Najib has to hold together a fractious coalition that was hammered out in elections in 2008.

Some political analysts doubt Najib, backed by an ailing coalition that has ruled Malaysia for 52 years, will be able to carry out his inclusive social policies at a time when the country has become polarised over race and religious issues.

Muslims recently protested over Christians using the word “Allah” for god and more than a dozen places of worship were attacked. The issue became a catalyst for the formation of Malay rights group Perkasa, which met at the weekend with the blessing of influential former premier Mahathir Mohamad.

The caning of three women for adultery under Islamic law has also unsettled ethnic Chinese and Indian minorities, who account for around 35 percent of the population, as well as indigenous people from Borneo Island, many of whom are Christian.

Najib may in any case need to seek early polls, even though the next elections do not have to be held until 2013.

“He will have to do it with the mandate of an election,” said David Kiu, a political analyst at risk consultancy Eurasia Group.

Political uncertainty in Malaysia since the 2008 elections has hit net portfolio and direct investment outflows MYFLO=ECI to the tune of $61 billion in 2008 and 2009, according to official data. Malaysia’s economy shrank 1.7 percent in 2009.

The country once accounted for half of total capital inflows into Southeast Asia’s emerging economies that included Thailand, Malaysia and Indonesia. Increasing competition means it now accounts for about a third.

A strong export-led rebound this year will likely see the economy grow by 4.5-5.5 percent, according to Malaysia’s central bank. Najib’s new economic model is targeting 6.5 percent annual economic growth.

“I would have thought that generally people would continue to take a wait-and-see approach before deciding whether to expand their investments in the country,” said Robert Prior-Wandesforde, an economist at HSBC.

Additional reporting by Royce Cheah, Loh Li Lian, Julie Goh and Soo Ai Peng; Editing by Paul Tait

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