Analysis on Response to Rommel's Statement on NEP.

Grabbed from Reuter:

ANALYSIS - Malaysia's raw nerve: affirmative action
Tue Jul 3, 2007 8:15 AM IST

By Mark Bendeich

KUALA LUMPUR (Reuters) - Diplomats have long grumbled in private about Malaysian protectionism in some important industries, but few dare to speak frankly about it in public.

The reason, as a minor Western diplomat recently demonstrated in spectacular fashion, is because their complaints often touch on Malaysia's rawest political nerve: race relations.

Thierry Rommel, the European Commission's envoy to Malaysia, stabbed a finger into that nerve last month by commenting on the nation's affirmative-action policy in favour of ethnic Malays, bluntly calling it a form of trade protectionism.

Malaysia, a shrill critic of the West on trade issues for many years, flew into a rage, lodged a formal protest in Brussels, carpeted the hapless Belgian and inspired a series of damning commentaries in government-friendly papers.

Rommel is not a newcomer to Malaysia but seemed taken aback by the fierce reaction. Other diplomats, while agreeing with some of his sentiments, said he should not have been surprised.

Affirmative action in favour of Malay businesses, especially in securing state contracts, may be unpopular with some trading partners and with many Malaysians, but it is part of the fabric of Malaysian politics. No one expects it to be unravelled.

Affirmative action began before independence in 1957, under British colonial rule, and has always been an irritant among the more economically successful ethnic Chinese community. But it became an article of faith among Malays after May 13, 1969.

On that day, an outbreak of rioting between poor ethnic Malays and generally wealthier ethnic Chinese turned the capital into a lawless bloodbath in which officially almost 200 people were killed, and unofficially many hundreds more.

People attacked each other with knives, poles, whatever was to hand. The city was ablaze. Malay accounts say Chinese political chauvinists, celebrating a strong showing in general elections held three days earlier, had provoked the violence.

Chinese witnesses say some Malay police turned a blind eye to attacks on their communities and even shot into Chinese shops.

"NEP-OTISM" OR KEEPING THE PEACE?

The only consensus in the aftermath was that the yawning wealth gap between mostly rural Malays and business-oriented Chinese had fuelled racial hatred.

At the time, Malays made up half the population but owned barely 2 percent of the nation's corporate equity.

Since then, Malay ownership has climbed to about 20 percent -- and one unofficial estimate puts it as high as 45 percent.

But the wealth gap between Malays, who now make up about 60 percent of the population, and ethnic Chinese (a quarter), remains big: Chinese corporate equity is double Malay equity and Chinese household income outstrips Malay income by 64 percent.

The New Economic Policy (NEP), the affirmative-action agenda born out of the 1969 riots, is over-ripe for reform, say liberals from all across the racial spectrum, which also includes ethnic Indians who make up about 8 percent of the population.

Former deputy premier Anwar Ibrahim, now the de facto opposition leader and a Malay, says the current policy has only benefited the Malay political establishment and its cronies.

He mockingly calls it "NEPotism".

Malay privileges have been eroded over the years but Malays still get discounted house prices and special share allocations.

Most controversial of all, under the NEP, also known as the Bumiputera ("sons of the soil") policy, contracts to build highways, schools and public buildings are awarded to Malay firms linked to the ruling United Malays National Organisation (UMNO).

The contract system is partly what bothers Thierry Rommel.

It also chafes with the United States, which has pushed Malaysia in free-trade talks to open up state procurement to U.S. firms. But Washington, which also practises affirmative action, is careful not to criticise the Bumiputera policy. It says, more tactfully, that the policy should be "more transparent".

The policy is far from popular, abroad or at home. Even Prime Minister Abdullah Ahmad Badawi has said Malays should throw away their "crutches". But political experts do not think a Malaysian leader can ditch affirmative action and survive long in office.

"I think if one asks for the dismantling of the NEP, there would be a very adverse reaction from the Malay community," said political scientist Chandra Muzaffar, diplomatically.

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