Malaysia Unveils Plan for Handouts

By James Hookway, Wall Street Journal

Malaysia’s Prime Minister Najib Razak unveiled a government spending plan for 2012 that pledged cash handouts and more benefits for ordinary Malaysians, while also shoring up the country’s finances and reining in its budget deficit at a time of global economic uncertainty.

Political analysts said Mr. Najib had at least one eye on the election that must be called within the next 18 months. Over the past month this aristocratic son of the country’s second prime minister has staked out the center ground of Malaysia’s politics, pledging to roll back laws that allow for detention without trial and to allow a greater degree of media freedoms in what is still a very closely controlled country.

For Mr. Najib, who took over the ruling United Malays National Organization party about a year after it lost its customary two-thirds parliamentary majority in a March 2008 election, Friday’s budget speech appeared to mark the next step in a plan to secure a strong mandate in this Muslim-dominated but ethnically diverse nation.

“There was something for all of the key groups in there,” said James Chin, a political-science professor at Monash University in Kuala Lumpur. The right wing of Mr. Najib’s ethnic-Malay party will likely be placated by the two billion ringgit ($631.2 million) of infrastructure contracts reserved for bumiputra-owned (ethnic-Malay-owned) businesses, while ethnic-Chinese voters will likely be relieved by the absence of new taxes.

“International investors got some reassurance on the budget deficit, too,” Mr. Chin said. “Mr. Najib needs to get this right and secure a strong majority whenever the elections come or else he could get kicked out by his own party.”

To help finance the 2012 budget, Mr. Najib, who is also the country’s finance minister, said the government plans to privatize and list state-owned plantation operator Felda Global Ventures Bhd. by the middle of the year. That could create the world’s largest publicly traded palm-oil producer by planted area, as well as draw substantial foreign investment into the country’s stock market.

Other major proposals in the 2012 budget would encourage foreign investment in sectors including financial services, logistics and health care and limit the budget deficit to 4.7% of gross domestic product. It is 5.4% this year.

The budget wouldn’t ramp up government largess as much as many economists had feared. Mr. Najib struck a note of caution by limiting development spending—which analysts say has been used in the past to win political support—to 48.34 billion ringgit, only slightly more than this year’s 48.60 billion ringgit. Mr. Najib said the government expects the economy to expand 5% to 6% next year, compared with 5% to 5.5% growth projected for this year. The bump would be partly thanks to his spending plan, he said.

“Global developments would certainly have a direct impact on the Malaysian economy,” Mr. Najib told Parliament. “With these developments, the government will put in place measures to stimulate domestic economic activities, in particular public and private investments.”

Targeting a relatively low deficit of 4.7% now might leave Mr. Najib better placed to pump more money into the economy later if the global environment deteriorates sharply, economists said. Governments across Asia are growing increasingly concerned that debt crisis in the euro zone may further damp the tepid recovery in key markets—not only European countries, but the U.S. and Japan as well.

In the meantime there will also be several cash handouts, including a one-off payment of 500 ringgit to all households with a monthly income of 3,000 ringgit or less. Civil servants’ wages and pensions will rise, while the compulsory retirement age will increase to 60 years old.

Mr. Najib’s budget also allots 50 billion ringgit for education, an area he has repeatedly singled out as a key to nurturing the long-term development of Malaysia’s economy.