GOM SLIPS ON BANANA PEEL: MORE FIGHTING OVER SHARE

UNCLAS SECTION 01 OF 02 KUALA LUMPUR 002133

SIPDIS

SENSITIVE
SIPDIS

STATE PASS USTR FOR B. WEISEL, J. JENSEN, AND A. MAIN
STATE PASS USDA/FAS FOR ITP/AAD
TREASURY FOR OASIA
COMMERCE FOR 4430/MAC/EAP/BAKER
STATE PASS FEDERAL RESERVE SAN FRANCISCO T. CURRAN
GENEVA FOR USTR

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD PREL MY
SUBJECT: GOM SLIPS ON BANANA PEEL: MORE FIGHTING OVER SHARE
OWNERSHIP

REF: A. KUALA LUMPUR 930


B. KUALA LUMPUR 1942


1. (SBU) Summary: The debate sparked by a think-tank report
claiming that Malaysia had exceeded a key affirmative action
target for the majority Malay population continues to rage,
despite the government's attempts to quell it. By now several
methodologies have been floated for calculating the share of
Malaysia's wealth owned by each of its three races, a number
of different figures have been bandied about, and the
government has embarrassed itself more than once with
hastily-made, easily-rebutted claims. Speaking to the UMNO
general assembly this week, the Prime Minister once again
criticized the think tank's conclusions as "grossly
incorrect" and reaffirmed his commitment to the programs, but
left himself some space by announcing that the "spirit" of
the programs would be continued until 2020, Malaysia's target
date for becoming a fully developed country. Other UMNO
leaders stepped up to the plate with proposals to raise the
30% target for bumiputera (ethnic Malay) ownership and extend
the timeframe for the preferences, while railing against all
who dare question the Malay entitlements. The UMNO assembly,
held by Malays for Malays, is not the place to look for new
ideas about affirmative action, but if nothing else the
debate this week suggests that awareness for a new approach
is growing. End summary.

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BACKGROUND
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2. (U) The fight began in late September when
Malaysiakini.com, a local Internet news service, published a
brief article on a study published by ASLI, a local
think-tank, and drafted by a former World Bank senior
economist, arguing that bumiputera corporate equity had
reached 45%, exceeding the government's target figure of 30%.
The official government figure of 18.9% is used to justify
the continuation of preference policies beyond their original
1990 expiration date (reftels). This cable reports on the
continuing debate over these numbers and the implications for
Malaysia's long-standing preference system for ethnic Malays
and other indigenous peoples (the bumiputera program). Post
will report other issues debated at the UMNO assembly septel.

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HASTY CLAIMS
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3. (U) Despite the government's efforts to quell the debate,
critics of the bumiputera policies have continued to demand
that the GoM's Economic Policy Unit (EPU) disclose the
methodology it used to arrive at the 18.9% figure. However,
when the EPU finally released its general guidelines and
underlying assumptions, it only added fuel to the fire. Press
reports quoted Economic Planning Minister Effendi Norwawi
defending the EPU's methodology by claiming it was
"recognized by international financial bodies such as the
World Bank, the International Monetary Fund, and the Asian
Development Bank." Former World Bank Senior Economist Dr.
Lim, the chief author of the ASLI report, promptly refuted
Effendi's claim of World Bank endorsement. This was followed
by another article on Malaysiakini.com with the author listed
simply as "World Bank Speaks," explaining in some detail why
the EPU methodology was flawed.

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ABOUT-FACE
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4. (U) In a further embarrassment for the government, Deputy
Finance Minister Dr. Awang Adek briefed parliament on the
dispute and offered his Ministry's calculation that
bumiputera equity ownership had reached 36.64%. Effendi
publicly reversed Awang Adek's statement six days later,
reaffirming the EPU's original figure of 18.9%. The EPU
figure is now enshrined as the official government figure.

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RULING PARTY UP IN ARMS
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KUALA LUMP 00002133 002 OF 002




5. (U) As different parties continued to put their spin on
the issue, the UMNO General Assembly took up the debate.
Press reports include speech after speech addressing the
controversy:

-- Prime Minister Abdullah Badawi referred to others' calls
for a "more transparent, effective mechanism" that was
"implemented efficiently, monitored closely, and accompanied
by a detailed and comprehensive impact assessment." Abdullah
argued that not enough time had passed to achieve the
program's goals, called the Asli report "grossly incorrect,"
and claimed that questioning the methodology was "the same as
accusing the government of lying." More reasonably, he
suggested the current debate was about "process rather than
philosophy and objectives." He announced that the government
would "focus on reducing the income gap between the races,"
which he said was "a prerequisite for sustainable
development."

-- UMNO Youth Representative Reezal Merican Naina Merican
called Asli's research "shallow" and, in keeping with Malay
traditions of not questioning leaders, called on the
government to ignore the demands of the Barisan National
component parties who have "joined in the fray in questioning
the government's methodologies," an act which he said "not
only insulted us but assumed that the government lied about
the figures."

-- Dr. Ku Abdul Rahman Ku Ismail, UMNO Kedah Delegate,
declared, "UMNO believes that so long as the NEP (the
bumiputera preference programs and goals) is not fulfilled,
that's how long we will continue."

-- Rizalman Mokhtar, UMNO Federal Territory Delegate,
lamented that Malays had "always fared poorly" on economy and
education compared to other races. He criticized high level
mismanagement in government-owned companies, and condemned
the "abuse of power with bumiputeras taking advantage of the
policies for selfish interests and peronal gains." He called
for investigations into corruption and public disclosure of
the findings.

-- Maulizan Bujang, UMNO Johor Delegate, announced, "UMNO
Johor believes that the Malays must be helped without the
stipulation of an end to its (the bumiputera action
program's) duration. It should also not be limited to just
30 percent but up to any amount."

-- Jamius Aziz, UMNO Negeri Sembilan Delegate, complained,
"What they (Malaysian Chinese) have is more than us. UMNO
must be relentless in pursuing the increase of bumiputera
corporate equity. Sixty percent of the population are Malays
and bumiputera. We don't have to put an end to the duration
or limit the percentage because the Malay civilisation just
began whereas the Chinese and Indian civilisations have been
around for hundreds of years."

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COMMENT
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6. (SBU) COMMENT: By now there has been so much discussion
of various methodologies, and so many numbers have been
bandied about, that even a few UMNO politicians appear to be
in doubt as to whether the original target many have been
reached, as evidenced by their calls to raise the goal to
more than 30% and extend the timeframe indefinitely. Another
alternative some outside analysts are suggesting is to place
upper income limits on bumiputera preference programs so that
the help actually reaches the needy instead of the powerful
bumis who currently are taking the lion's share of the
benefits. Finally, there is the approach laid out in the
Ninth Malaysia Plan (and largely ignored this week) which
seeks to end hard core poverty regardless of race (while
noting that bumiputeras experience higher poverty rates than
other groups). The UMNO assembly, held by Malays for Malays,
is not the place to look for new ideas about affirmative
action, but the debate this week suggests that awareness of
the need for a new approach is growing.
LAFLEUR