The political economy of the asean free trade area (afta) - səhifə 11
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the country, became vital while IMF reforms made it difficult to translate economic
nationalist ideas to firm policies.
In the case of Malaysia, the political salience of domestic capital is tied up with the
country’s long-standing ethnic politics, as well as with the broader economic nationalism
of Prime Minister Mahathir that emerged in the late 1980s. Between 1970 and 1990, a
state-directed development programme – the New Economic Policy (NEP) – drove the
Malaysian political economy. The NEP was the outcome of ethnic riots following the
May 1969 general elections caused by the majority Malay community’s concerns at their
economic marginalisation and fears that they would lose their political dominance to the
relatively better off minority ethnic Chinese community as a result.
Among the objectives of the NEP was to create a Malay business (and middle)class and to achieve a target of 30 per cent Malay equity in the corporate sector. The NEP
was vital to the legitimacy and security of the UMNO-dominated regime, since it enabled
both a more equitable distribution of wealth for the Malays as well as Malay political
dominance through control of economic resources. The United Malays National
Organisation (UMNO) has long been the leading Malay party in Malaysia, regarded as the
champion of Malay political rights in multiethnic Malaysia. Although the NEP was
replaced by the National Development Policy in 1991 that scaled back ethnic preferences,
the goal of creating a Malay business community continued to be emphasised in the 1990s
(Tori, 1997: 236). Even the privatisation programme undertaken as part of the economic
restructuring package adopted in response to the mid-1980s recession was actively used to
create a Malay business class to fulfil the NEP goal (Crouch, 1996: 39). Privatisation
largely benefited UMNO-linked Malay businesspersons, although a number of ethnic
Chinese and Indian businesses gained as well. This group, in turn, became a valuable
source of political and material support for various UMNO political leaders, including the
Prime Minister (Gomez, 1996). By the late 1990s, therefore, this politically influential
rentier domestic business community had become part of the governing elite (Khoo, 2000:
In any case, it is not clear that developmental regionalism through the AIA would have been feasible as ameans to help develop indigenous Indonesian capital. It was more likely that the larger, more advanced
ethnic Chinese businesses would have been the project’s main beneficiaries.
The new Malaysian conglomerates that emerged out of privatisation and other
preferential policies were also a key component of the wider economic nationalism of the
Prime Minister. Especially after the mid-1980s recession, policy had moved beyond the
NEP’s narrow focus on building a Malay capitalist class to advocate the growth of large, Malaysian firms (which would include ethnic Chinese and Indian firms as well) as a
means of meeting the competitive challenges of the global economy, although NEP goals
remained salient (Khoo, 2000: 216). The policy shift reflected the strategic vision of the
Prime Minister, who had never been content with Malaysia remaining a Third World
producer of industrial commodities. Thus, he stressed the building up of Malaysian
corporations and conglomerates able to compete with foreign TNCs in what was perceived
to be an intensely competitive world economy.
Since foreign firms were dominant in the far more efficient, export-orientedmanufacturing sector, it was in the non-manufacturing sectors that domestic capital,
including ethnic Malay capital found its niche, using market restrictions as well as access
to preferential treatment through political connections as a means to profits (Khoo, 2000:
218). As already noted in a previous section, the expectation among policymakers was
that global rules would eventually allow foreign corporations unrestricted access to the
domestic market. It was clear that Malaysian firms, including the politically privileged
ones, would eventually have to compete with global firms, not only in international
markets but in the domestic market as well. If politically important domestic firms were
not ready for global market competition, their demise would have significant political
repercussions for the NEP goal of advancing a Malay business class, for Mahathir’s
personal authority, and ultimately for the stability of Mahathir’s ruling coalition as well as
the security of the UMNO-dominated political system. The developmental role envisaged
for the AIA by the Malaysian side was, therefore, intimately related to ensuring the
survival of the domestic firms that were key players in the Malaysian political economy.
The Growth Imperative Overwhelms: Reviewing the AIA
In September 2001, the ASEAN governments agreed to remove the disparity in theAIA between foreign and domestic/ASEAN investors in the non-manufacturing sectors,
thus offering foreign investors full market access and national treatment privileges by
2010 rather than in 2020.
How do we explain this policy shift?
Although the AIA had been adopted in October 1998, right in the throes of the
financial crisis, it was at that time not expected to adversely affect manufacturing sector
FDI since its discriminatory effects were largely, though not solely, confined to the non-
manufacturing sectors. It was the flow of FDI to the manufacturing sector that was
considered to be crucial during this period, since it had been the main engine of growth
and exports in ASEAN from the mid-1980s, and was believed by political leaders to be the
main means of recovery from the crisis. Some member country officials as well as the
ASEAN Secretary General believed that the AIA as it was then designed would jeopardise
the inflow of FDI during such difficult times when the liberal reformist credentials of
member governments were at stake.
Nevertheless, the latter continued to maintain theAIA in its ‘original’ form. Instead, member governments accelerated CEPT tariff
liberalisation in 1998 as a means of reassuring foreign investors that they were committed
to realising the single regional market, the main ‘carrot’ used to attract FDI flows to
ASEAN. Member governments also temporarily relaxed investment restrictions for a one
to two year period in selected manufacturing sectors in their respective countries as a way
of maintaining investor interest in the region, as already noted.
Nevertheless, member governments agreed to a one year study on the AIAbeginning in August 2000 in view of the report presented in July 2000 by the ASEAN
Secretary General that revealed a fall in investment into ASEAN from US$28 billion in
1997 to US13 billion in 1999.
Moreover, the report also showed that the ASEANeconomies received only 17 per cent of FDI flows to Asian developing countries in 1999,
compared to about 60 per cent in the early 1990s. China, on the other hand, received
about 60 per cent in 1999, up from 18 per cent during the early years of the decade. The
Joint Press Statement, Thirty-third ASEAN Economic Ministers Meeting, 15 September 2001.35
Business Times, ‘ASEAN set to liberalise investment within region’, 30 September 1999.
International Herald Tribune, ‘Investment in Southeast Asia plunges’, 27 July 2000. Later informationrevealed a higher 1999 figure of US$16 billion. See UNCTAD (2000).
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