By JAMES HOOKWAY
KUALA LUMPUR—Malaysia's dilemma over whether to end some of the world's most entrenched systems of racial-preference laws is coming to a head.
Prime Minister Najib Razak is expected to outline this month plans to revitalize how the country's export-driven economy is run, with details to follow in June. The program might mean a push to change a decades-old system of preferential treatment for the country's majority Muslim-Malay population, which has often economically lagged behind its ethnic compatriots.
People familiar with his plans say he might move to liberalize some sectors of the economy, giving nonethnic Malays a larger role. He also is expected to give more non-Malay students access to scholarships. He already has made it easier for foreign business to invest in areas such as Islamic finance, and last week warned Malaysians to prepare for an end to state subsidies on various commodities, including sugar.
Malaysia's race-based quota system, in place since the early 1970s, gives ethnic Malays special treatment—from cheaper housing and loans, to advantages in securing university places and government jobs and contracts. The aim is to boost the economic power of the Malay population, which represents 54% of the country's 28 million people, but which typically doesn't do as well in business or high-earning jobs as Malaysians who are ethnic-Chinese or, to a lesser extent, ethnic-Indians. Those ethnic groups make up about 35% of the population.
Many think the affirmative-action system is too rigid for global competition for markets and investment. Business leaders such as Nazir Razak, Mr. Najib's brother and chief executive of banking concern CIMB Group Bhd., have called for the so-called bumiputera, or indigenous, rules to be revised. An opinion poll conducted by the independent Merdeka Center in 2008 found that 71% of Malaysians surveyed—and 65% of Malays—agreed the laws needed to be overhauled. Trading partners such as the U.S. and European Union have singled out government procurement policies that ensure contracts go to Malay-owned business as stalling free-trade pacts.
"I don't think there's any question that we need to commit to reform, although we'll still have to help Malaysians according to their need," says Khairy Jamaluddin, a top Malay politician with Mr. Najib's National Front coalition and leader of the United Malays National Organization's youth wing.
Still, some analysts doubt Mr. Najib will be able to take his overhauls far. Voluble opponents have emerged recently, led by a charismatic activist named Ibrahim Ali, who holds rallies and lobbies government officials. Last year, he founded the group Perkasa—the Malay word for warrior. He counts former Prime Minister Mahathir Mohamad and royal rulers such as the sultan of Selangor among his 30,000 or so supporters.
Mr. Ibrahim argues that the social stability ensured by giving a leg up to the Malay population far outweighs the benefits of opening more of what was once one of Southeast Asia's most dynamic economies to the nimble and capital-rich ethnics in Malaysian—particularly the Chinese, but also the ethnic-Indians.
"The playing field can be leveled sometime in the future, but it's only 2010," says the 59-year-old Mr. Ibrahim, in his Kuala Lumpur office amid pictures of Fidel Castro, Che Guevera and Ayatollah Ruhollah Khomeini. "But we've got to be honest and say we can't compete."
Mr. Ibrahim is focusing on what political analysts say is Malaysia's defining quandary: How and when to dismantle one of the world's most comprehensive systems of preferential treatment, in an ethnically and religiously diverse nation.
Malaysian Prime Minister Najib, right, expresses his good wishes to local Chinese people prior to the Chinese Spring Festival in Kuala Lumpur's China Town on Feb. 11, 2010.
The analysts say Mr. Najib is trying to win back ethnic-Chinese and ethnic-Indian voters to the ruling National Front by adopting some of Mr. Anwar's policies. The risk is that Mr. Najib might lose the support of some Malay voters, especially with Mr. Ibrahim leading the charge in support of Malay supremacy. The premier didn't respond to requests for an interview for this article.
The roots of the issue go back to the 19th and early 20th centuries, when British colonists encouraged workers from China and India to go to Malaysia to toil in the rubber and tin industries. In 1969, deadly race riots killed more than 100 in Kuala Lumpur and other cities. Malaysia's rulers then adopted the quota system in the early 1970s to help ethnic-Malays.
The goal: Build up the economic clout of the Malay community to control at least 30% of Malaysia's economic output. Malays now control about 19% of the economy—up from 2.4% since the program began, according to government figures. Some independent analysts say the actual figure is higher.
Mr. Najib may be well-positioned to demand change. He is a son of Malaysia's second prime minister after independence from Britain in 1957 and is perceived as a strong defender of Malay rights.
Mr. Ibrahim reckons Mr. Najib is misreading the depth of anger many Malays feel toward any change in a policy that has given many a leg up and helped to build a large middle class.
"People like Perkasa, they can derail the prime minister's plans. They do resonate with a segment of the Malay community," says Mr. Khairy, the UMNO activist. "But this is a time for leadership, not a time to pander to Malay insecurities."
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