Putting finance to work

Tweet

 The financial sector must be transformed and serve the real economy

THINK ASIAN By ANDREW SHENG

FINANCE is a service industry, but in the past three decades it seems to have gone its own way.

The functions of the finance sector are to protect property rights for the real sector, improve resource allocation, reduce transaction costs, help manage risks and help discipline borrowers. Financial intermediaries are agents of the real sector. Bankers were traditionally among the most trusted members of the community because they looked after other peoples' money.

The divide between bankers and their customers (the real sector) is epitomised by a recent report which said that the mantra of a large British bank is about “increasing share of wallet of existing customers”. It recalls Woody Allen's joke that the job of his stockbroker was to manage his money until it was all gone. And despite what bankers say, a lot more would have gone between 2007 and 2009 without massive bailouts from the public purse.

The heart of the problem is the principal-agent relationship, where trust is everything. The real sector (the principal) trusts the finance sector to manage its savings, and the banks, as agents, have a fiduciary duty to their customers. Agency business is a big public utility because the intermediary does not take risks, which are those of his customers. All this changed when the drive for short-term profits pushed banks more and more into proprietary trading for their own profits. All this was in the name of capital efficiency, a misnomer for increasing leverage.

In the past 30 years, with growth in technology and financial innovation, finance morphed from a service agent to a self-serving principal that is larger than the real sector itself. The total size of financial assets (stock market capitalisation, debt market outstanding and bank assets, excluding derivatives) has grown dramatically from 108% of global GDP in 1980 to over 400% by 2009 . If the notional value of all derivative contracts were included, finance would be roughly 16 times the size of the global real sector, as measured by GDP. The agent now dwarfs the real sector in economic and, some say, political power.

Can finance be a perpetual profit machine that makes more money than the real sector? In the US, finance's share of total corporate profits grew from 10% in the early 1980s to 40% in 2006. Since wages and bonuses make up between 30% to 70% of financial sector costs, there are tremendous incentives to generate short-term profits at higher risks, particularly through leverage.



The key thrusts of the post-crisis reforms in the financial sector are - caps on leverage, strengthened capital and liquidity, more transparency in linking remuneration with risks, and a macro-prudential and counter-cyclical approach to systemic risks. What the current reforms have not addressed is the increasing concentration of the finance industry at the global level and increasing political power that may sow the seeds for another Too Big to Fail (TBTF) failure in the next crisis.

In 2008, the 25 largest banks in the world accounted for US$44.7 trillion in assets equivalent to 73% of global GDP and 42.7% of total global banking assets . In 1990, none of the top 25 banks had total assets larger than their “home” GDP. By 2008, there were seven , with more than half of the 25 banks having assets larger than 50% of their “home” GDP.

Post-crisis, the concentration level has increased as there were mergers with failed institutions. With this rate of growth and concentration, the largest global financial institutions simply outgrew the ability of their host nations and the global regulatory structure to underwrite and supervise them. Such concentration of wealth and power is a political issue, not a regulatory one.

Finance is not independent of the real sector, but interdependent upon the real sector. It is a pivotal amplifier of the underlying weaknesses in the real sector that led to the financial crisis over-consumption, over-leverage and bad governance. In the past 30 years, the finance sector has helped print money, encouraging its customers and itself (particularly through shadow banking) to take on more leverage in the search for yield. Instead of exercising discipline over borrowers and investors, it did not exercise discipline over its own leverage and risks.

Unfortunately, there was also supervisory failure. To bail out the financial sector from its own mistakes, advanced countries, already burdened by rising welfare expenses, have doubled their fiscal deficits to over 100% of GDP.

In spite of these trends, we should not demonise finance or blame the regulators, but examine the real structural and systemic issues facing the world and how finance should respond. The greatest opportunity for finance is the rise of the emerging markets.

An additional one billion in the working population and middle class over the next two to three decades will have more to spend and more to invest. At the same time, the world needs to address the massive stress on natural resources arising from new consumption, which is likely to be three times current levels. Ecologically, financially and politically, the present model of over-consumption funded by over-concentrated leverage is unsustainable.

Indeed, to replicate the existing unsustainable financial model in the emerging markets may invite a bigger global crisis.

Sustainable finance hinges on sustainable business and on a more inclusive, greener, sustainable environment.

Financial leaders need to address a world where consumption and investment will fundamentally change.

To arrive at a greener and more inclusive, sustainable world, there will be profound changes in lifestyles, with greener products, supply chains and distribution channels.

Social networking is changing consumer and investor feedback so that industry, including finance, will become more networked and more attuned to demographic and demand changes.

As community leaders, finance should lead that drive for a more inclusive, sustainable future.

The greatest transformation of the financial sector is less likely to be driven by regulation than by the enlightened self-interest of the financial community.

Only when trust is restored, when finance cannot thrive independently of the real sector, will we have sustainable finance.

The incentive issues are very clear. If financial engineers are paid far more than green engineers, will a green economy emerge first or asset bubbles?

■ Andrew Sheng is president of the Fung Global Institute.

Credit Suisse cuts M’sia GDP forecast

Tweet

By JEEVA ARULAMPALAM jeeva@thestar.com.my

It says Asian growth set to slow more sharply

PETALING JAYA: Credit Suisse AG has cut its real gross domestic product (GDP) 2011 growth forecast for Malaysia to 4.6% from 5.3%, as the Western world is teetering on the brink of recession and large parts of Asia remain highly susceptible to growth developments in the United States and Europe.

It also cut its 2011 GDP forecast for other Asian economies such as Thailand, Hong Kong and South Korea.

In an economics research yesterday, Credit Suisse said Asian growth was set to slow more sharply over the coming months.

 “With the fiscal support provided during the global financial crisis removed and the lagged effects of higher interest rates working their way through, we had expected the Asian economies to soften from second quarter of 2011.

“Now that the Western world is teetering on the brink of recession we believe the outlook has dimmed further,” it said.

In addition to cutting its GDP forecast for this year, Credit Suisse trimmed next year's forecast to 4.8% from 5.8% previously. The new 2011 and 2012 GDP forecasts imply annualised sequential growth rates of an average 3.5% in the second half of this year and 5.5% for next year.

“What has kept us from cutting our growth forecasts further is the likely support from domestic demand. We think more investments from the Economic Transformation Programme (ETP) should come onstream, especially in the oil and gas sector which benefited from high oil prices.

“Also, the Government has underspent its budget in the first half and we expect it to increase spending in the second half to meet its target,” it said.

It added that some factors that exacerbated the slowdown in the second quarter were likely to be temporary but Credit Suisse did not expect domestic demand to be shielded from a further weakening in external demand.

“Moreover, Malaysia's growth is vulnerable to a collapse in commodity prices if this were to happen,” it said.

In the report, Credit Suisse said it expected Bank Negara to keep the overnight policy rate unchanged at 3% until the end of next year (it previously expected one 25 basis points hike).

With the global growth outlook highly uncertain and inflation slowing, it suspects that the central bank will be in no hurry to raise the overnight policy rate further. However, a severe global recession could see rates being cut.

“In contrast, we think there is little scope for the Government to stimulate the economy through fiscal policies above and beyond the existing high deficits they projected (5.4% of GDP for 2011).

“Even as things stand now, Malaysia would probably need to undertake significant fiscal adjustments over the next decade if it wants to bring its relatively high debt to GDP ratio down.

“A prolonged weakness in growth would increase the risk that the Government would further delay its plan to cut subsidies and raise the consumption tax,” it said.

Bank Negara is maintaining its GDP forecast of 5% to 6% for the full year as it expects strong domestic demand and ETP projects to fuel economic growth in second half of the year. Malaysia's second-quarter GDP moderated to 4%, compared with 4.9% in first quarter, dampened by a slowdown in the manufacturing sector and weaker external environment.

AmResearch Sdn Bhd, in a report last week, said that while it expected a full-year 5% growth rate to be achieved given the current climate, possible trigger points for a downgrade included an adverse impact of a very large drop in crude oil prices and any further delay in the ETP projects.

“As a net exporter of oil, Malaysia still relies heavily on crude oil in terms of generating income for the country. As long as the full-year average lies between US$85 and US$90 per barrel, all is well and within budget.

“On a positive front, a sharp fall in crude oil may well mean a reduction in total subsidies spent by the Government. The net impact will, however, be detrimental to the Government's coffers and overall growth,” AmResearch director of economic research Manokaran Mottain said in his report.

For latest GDP reports from the Statistics Department click here  

Chinese Moon Probe Reaches New Deep Space Destination

Tweet

SPACE.com Staff

An artist's interpretation of the China's Chang'e 1 lunar orbiter, which launched in October 2007 and ended its mission by crashing into the moon on March 1, 2009.CREDIT: CNSA.

Several months after departing from the moon, a Chinese spacecraft has arrived at a new destination about 930,000 miles (1.5 million kilometers) from Earth, according to news reports in China.

The Chang'e 2 moon probe arrived at Lagrange Point 2 (L2) — a place where the gravity of Earth and the sun roughly balance out — on Aug. 25, the Xinhua news service reported Tuesday (Aug. 30). Chang'e 2 had left lunar orbit in early June to head for deeper space.

China is now the world's third nation or agency to put a probe in L2, one of five spots in near-Earth space that serve as a sort of parking lot for spacecraft to hover without being pulled toward any planetary body. NASA and the European Space Agency have also accomplished the feat.


Officials from China's State Administration of Science, Technology and Industry for National Defence (SASTIND) said that Chang'e 2 will carry out exploration activities around L2 over the coming year, Xinhua reported. SASTIND also plans to launch two "measure and control stations" into outer space by the end of 2012, and Chang'e 2 will be used to test the stations' functionality at that time.

Chang'e 2 launched on Oct. 1, 2010, and arrived in lunar orbit five days later. The probe is the second step in China's three-phase moon exploration program, which includes a series of unmanned missions to explore the lunar surface. [Photos: Our Changing Moon]

This photo, taken by China's Chang'e 2 lunar probe in October 2010, shows a crater in the moon's Bay of Rainbows. The image is one of the first released to the public by China's space agency.
CREDIT: China Lunar Exploration Program [Full Story] View full size image

During its time orbiting the moon, Chang'e 2 took a lot of high-resolution photos to help plan out future missions, which will actually drop hardware onto Earth's nearest neighbor. China is aiming to launch a moon rover around 2012, and another rover will land on the moon and return to Earth with lunar samples around 2017, according to Xinhua.

Chang'e 2 finished up its duties around the moon in April but had enough fuel left over that officials decided to send the probe off into deeper space.

The spacecraft's predecessor, Chang'e 1, launched in October 2007 and conducted a 16-month moon observation mission, after which it crash-landed on the lunar surface by design in March 2009.The Chang'e probes are named after the nation's mythical moon goddess.

Newscribe : get free news in real time 

It's Education, Stupid !

Tweet







It’s that time of year when I spend much of my time reading the books that have been nominated for the FT/Goldman Sachs Business Book of the Year. It’s a judging duty that is both a pleasure and a pain. The pain is the sheer amount of time it takes to wade through thousands of pages.  The pleasure is reading books that would not necessarily cross my path. This year, as with the last, many of these books are written by economists and, understandably, focus on the state of the world economy. It is interesting to read how many agree that education and training are crucial to long-term economic success, for individuals, companies and countries. I made a similar argument in my most recent book The Shift, focusing in particular on the types of education and training that create specialization. Here are the two reasons why it has never been so critical to become educated:

• Rampaging connectivity – will see at least five billion people around the world using some form of mobile device to download information, access knowledge and coach and teach each other. Some will have the intellectual capacity and motivation to really make something of this extraordinary opportunity, wherever they happen to be born. These people will want to join the global talent pool and, if possible, migrate to creative and vibrant cities. By doing so, this vast crowd of talented people will increasingly compete with each other, continuously upping the stakes for what it takes to succeed.

• The technological revolution – brought mobile devices to billions, and is now transforming how work gets done. Robots are taking the place of unskilled and semi-skilled workers, while business analytics, modelling and collaborative technologies are taking away much of what has traditionally been the role of the middle manager. However, while technology may be replacing the mechanical aspects of work, it is not replacing the more complex, skilled work that involves creativity and innovation. That’s the high value piece that remains, and it is once that requires education and training. 

As high quality education becomes more of a premium, we can expect the sector to begin to transform itself even more rapidly. Just what this transformation will look like is difficult to predict with accuracy. But here are two emerging trends that I believe will shape it over the coming decades:

The Gutenberg Project: the race is on to digitalise many of the books and articles of the world, while the professors of academic institutions such as MIT are making their key lectures available on the web. Combined with hyper connectivity and the potentially global reach of the Cloud, this means that knowledge and wisdom will be available to anyone with access to the Internet. This could see the development of new ways of educating that leapfrog those of normal educational institutions, creating more fluid, virtual and vibrant networks of learning. 

Virtual Schools and Universities: there has been a great deal of research over the last decade focusing on how people learn. This has looked at e-learning, face-to-face teaching and over-the-phone coaching. What has become clear is that none of these on their own are the best; it’s the combination of all three that has the greatest impact. This is important for educational strategies since at least two of these processes are virtual, and F2F can largely be substituted by video conferencing. I saw the speed of this transformation recently when I visited UOC (Universitat Oberta de Catalunya) in Barcelona. Its sleek headquarters are the hub of a virtual university that has 60,000 students (and growing) taught by a faculty of over 3,000 virtual educators. Using simulations, games and collaborative environments, the institution is building deep expertise in supporting education across the world.

Some have argued that, of all the institutional forms, education has changed least over the past few decades. It looks as if the need for deeper knowledge and rapid advances in learning technologies may change all that.

 Newscribe : get free news in real time 

Can The U.S. Super Committee Solve The Debt Crisis?

Tweet



America’s relentlessly-escalating national debt seems like a problem that defies resolution. Congress and the Obama administration couldn’t solve it recently when they agreed to raise the U.S. debt ceiling by another $2.1 trillion.

see photosAFP/Getty ImagesClick for full photo gallery: 5 Ways The United States Can Get Out Of Debt

Instead of agreeing on measures to reduce the country’s staggering debt, Congress and the president handed off the problem to a so-called Super Committee. The 12-member, bipartisan committee of national legislators, with an equal number of Democrats and Republicans, will study U.S. finances and recommend $1.2 trillion in budget cuts by November 23. (Read more: “Can The U.S. Regain Its AAA Rating?“)

Reaching an Agreement If the committee reaches an agreement on budget cut proposals, Congress must vote approval on them by December 23. If Congress votes on them accordingly, the $1.2 trillion in cuts will go into effect. As usual, however, the issues will be what gets cut and by how much.

There are many items on the committee’s agenda for discussion, including: raising taxes, revamping the tax code, Social Security, Medicare, Medicaid, healthcare for the elderly and the federal retirement program; these are all major issues that have been long debated in Congress.

Also up for debate and possible reduction is the 35% U.S. corporate tax rate. Many Democrats and Republicans agree that the rate is too high relative to rates imposed in other countries. Democrats, however, have proposed plugging tax loopholes as a means of making up the difference in revenue if the corporate rate is lowered.

So the committee may have a difficult time finding ideas that everyone – including their constituents – can agree on. For example, another particularly controversial tax deduction that some legislators proposed eliminating is the home mortgage interest exemption. A USA Today/Gallup poll conducted this spring asked survey participants if they would approve eliminating that deduction if overall tax rates were also lowered. Sixty-one percent opposed the idea.



What if an Agreement Can’t be reached? In the event that the committee fails to reach an agreement, $1.2 trillion in budget cuts will be automatically imposed in equal amounts on domestic and defense spending.

With committee members divided equally along opposing political lines, many observers believe a stalemate is inevitable.

The 12 appointed members are:

• Rep. Jeb Hensarling of Texas (Republican and committee co-chair):  Chairman of the House Republican Conference.   


• Sen. Patty Murray of Washington (Democrat and committee co-chair):  She is a member of the Budget and Appropriations committees.


• Rep. Chris Van Hollen of Maryland (Democrat): Van Hollen is the ranking Democrat on the Budget Committee.


• Sen. Jon Kyl of Arizona (Republican): The number two ranking Republican in the Senate behind Mitch McConnell and a member of the Finance Committee.


• Sen. John Kerry of Massachusetts (Democrat): A former presidential candidate in 2004 against incumbent George W. Bush, he is a member of the Finance Committee.  


• Sen. Pat Toomey of Pennsylvania (Republican): Elected to the Senate last year. Member of  the Senate Budget and Banking committees.


• Sen. Max Baucus of Montana (Democrat): Chairman of the Senate Finance Committee.  Also served on Obama’s debt commission.


• Sen. Rob Portman of Ohio (Republican): Former White House budget director in the Bush administration, and a member of Budget Committee.


• Rep. Xavier Becerra of California (Democrat): A senior member of the House Ways and Means Committee


• Rep. Dave Camp of Michigan (Republican): Chairman of the House Ways and Means Committee.   


• Rep. James Clyburn of South Carolina (Democrat): The third-ranking Democrat in the House and a member of the Appropriations Committee.


• Rep. Fred Upton of Michigan (Republican): Chairman of the House Energy and Commerce Committee.  

Committee members reportedly will draw upon previously proposed solutions from Republican and Democratic legislators, independent groups, Obama’s 2010 bipartisan deficit commission, among others, as a basis for discussion.

The American public, eager for solutions and an end to partisan bickering, have nevertheless been warned by analysts and former policy makers not to expect too much from the committee.

Reaching an Agreement If the committee reaches agreement, as a political and practical matter, the suggestions are expected to be narrow in focus and likely to win Congressional approval, while the still nagging major issues will remain: long term taxes and entitlements.

Newscribe : get free news in real time

Libya, from ally to devil in six months !

Tweet

 The big question now is which foreign power will dominate Libya. The United States, which has waged this little war from well offstage? Italy, which gets most of its oil from Libya? France, where President Sarkozy has been hinting at a Mediterranean union – bien sure, under French tutelage?

Image via Wikipedia

By Eric S. Margolis

WATCHING rebel gunmen rampage through Col Muammar Gaddafi's Bab al-Aziziya compound – once Tripoli's Forbidden City – was a strange experience for me.

I spent an evening there with Gaddafi in 1987, a year after it was bombed by US warplanes. Libya's "Brother Leader" talked about the Middle East, Palestine, North Africa. He led me by the hand through his ruined private quarters, still reeking of fire and smoke, and showed me the bed in which an American 1,000kg laser-guided bomb killed his two-year-old adopted daughter.

We sat in his gaily coloured Bedouin tent, talking into the night. He opened up to me about his love for fancy dress and beamed happily when I told him, tongue in cheek, how attractive he was to western women.

Call this dictator nostalgia – a feeling not of course shared by a majority of Libyans who are now trying to hunt down their deposed leader of 42 years. Few will miss him. Gaddafi was a blight on Libya and an embarrassment to the Arabs.

Meanwhile, Libya is literally turning into a gold rush as the big western oil firms pile into Libya and pay court to the new government in Tripoli, the National Transitional Council.

Police units and troops from Britain, France and Italy may soon follow – all, naturally, as part of the west's new "humanitarian intervention" strategy that has replaced "counter-terrorism".

Libya is in semi-chaos and its economy devastated by six months of conflict. The food distribution system has broken down. Thousands of heavily armed "rambos" make their own law. There are barely any state institutions aside from the national oil company and central bank. The secret police have evaporated.

As a modest historian, I am delighted when history draws striking parallels. We now see the fascinating spectacle of those old colonial powers, Britain, France, and Italy, starting to move back into their former overseas possessions.

Britain ruled Libya until a young colonel named Muammar Gaddafi overthrew the doddering old British puppet, King Idris. The US lost one of its largest bomber bases at Libya's Wheelus Field. Neither nation was to forgive Gaddafi.



Imperial Britain had seized Libya from Italy's fascist regime in 1943. Italy colonised Libya after tearing it away from the crumbling Ottoman Empire. Italy used concentration camps and poison gas to terrorise Libyans into submission.

France, whose colonial empire included neighbouring Tunisia, Algeria, Morocco, Chad, and Niger, long competed with Italy and Spain for regional domination. Mussolini's Fascist regime pressed claims to Tunisia, Corsica, Nice and Cannes.

An obscure colonial border dispute over Chad's Aouzou Strip dating from the 1920's between France and Italy led to a nasty little Franco-Libyan border war there in 1987.

French Foreign Legionnaires in jeeps, disguised as Chadian nomads, drove the wretched Libyan army from Aouzou in what became known as the "Toyota War". Disguised French special forces and Legionnaires, as well as Britain's SAS, just used the same theatrical tactics in Libya.

The big question now is which foreign power will dominate Libya. The United States, which has waged this little war from well offstage? Italy, which gets most of its oil from Libya? France, where President Sarkozy has been hinting at a Mediterranean union – bien sure, under French tutelage?

Oil is a potent aphrodisiac. Libya has vast reserves of premium, low-sulphur oil and gas, and a hundred-year supply of ancient artesian water.

Energy-rich Libya will become an important market for European consumer products and industrial exports, as well as a huge major supplier of investment funds from its estimated US$50 billion worth of annual oil exports.

There are more prizes to be had: Libya's gold reserves, estimated at US$4-5 billion; and its nearly US$100 billion of foreign deposits and investments.

The files of its intelligence agencies which may reveal the true story behind the bombings of a French and US airliner in the 1980's.

Western intelligence will also want to talk to Gaddafi's intelligence chief, closest confidant and brother-in-law, Abdullah Senoussi, with whom I spent a most interesting evening in Tripoli. France has a warrant out for his arrest for the 1989 bombing of a UTA airliner over Niger.

It's likely US, British and French intelligence have already grabbed Gaddafi's files.

Eric S. Margolis is an award-winning, internationally syndicated columnist, writing mainly about the Middle East and South Asia. Comments: letters@thesundaily.com

Related Post:
Ex-colonizers aid Libyan Rebels Assault on Tripoli 'planned weeks ago';No easy transition, rebuilding after Gaddafi  

Malaysia's future: A time for Malay renewal !

Tweet

A time for renewal, too

Ceritalah By KARIM RASLAN

The debate over Malay identity is fundamental to Malaysia’s future. Only when tensions within the Malay community itself are cooled will the resentment and grievances between Malaysia’s ethnic groups be resolved.

AS I reflect over the events of the fasting month – and indeed the past 12 months – I cannot help but conclude that Malaysian Malays are facing an existential crisis, which is primarily political in nature.

Moreover, because the Muslim/Malay community is dominant numerically; its tribulations will impact the rest of the nation.

In short, no one can be insulated from the community’s uncertainties.

Sadly, Malaysia’s communal peace has been further rocked by the Jais raid on the Damansara Utama Methodist Church (DUMC).

This has been accompanied by a steep increase in the number of claims of Christian proselytising amongst Muslims.

Such fears over murtad are nothing new.

They have been current for years, even decades, peaking in times of political uncertainty: witness the Maria Hertogh riots back in 1950.

However, we need to put things in perspective; 2011 is not 1950.

Malay/Muslims currently outnumber non-Muslims significantly. In short, demography favours the ummah. Moreover, the position of Islam is constitutionally-assured.

Nonetheless, the re-emergence of the murtad issue suggests a more deep-rooted anxiety among Malay-Muslims about the future.

Indeed, there are fundamental concerns about the Muslim response to both globalisation and modernity.

How do we maintain our faith and culture in an era when interaction with non-Muslims has become both a norm and a necessity?

The ummah has responded to such challenges differently and this reflects the Malay/Muslim community’s underlying heterogenity.

Contrary to Umno’s obsession with Malay unity, the community is by no means monolithic.

At the same time, political developments post-2008, have heightened and accentuated these shifts – lending them a partisan hue as PAS, Umno and PKR have weighed in on various issues.

As these differences of opinion surface, we are faced with a secondary challenge: how do we deal with disagreements over what it means to be Malay and Muslim?

Can we maintain our dignity, objectivity and calm when face-to-face with opposing views? How do we manage when our major political parties – PAS and Umno – assume conflicting positions?

Amid the debate, many are electing to withdraw, preferring isolation to engagement. Such a retreat makes dissent, however reasonable, even more complicated and potentially dangerous. To my mind, withdrawal is a disaster.

The Malay community has always possessed an outward-looking mindset. We cannot, and should not, abdicate from our engagement with the world. We have thrived by exchanging ideas and knowledge with others as traders, scholars and travellers. Indeed, the decline of the Muslim world came when we closed our hearts, minds and borders.



Still, I am not disputing the need for Muslims to maintain their faith, but the notion that the only way we can do this is by shunning non-Muslims and/or trampling on the rights of minorities is nonsensical.

Doing so will only reinforce the misperception that Islam is intolerant and regressive. It also hastens our own decline.

Given these concerns I’ve been heartened by Prime Minister Najib Razak’s recent attempts to recapture the centre ground.

His willingness to end censorship and reform the electoral system is most welcome.

It displays an openness (however belated) to listen to others. This is courageous given the narrow-mindedness of many of his fellow party members.

However, opening up in the midst of a debate is always tough. Will tentative changes be enough to satisfy an increasingly restive Malay (and Malaysian) public? Will it be too little and too late?

The debate about Malay identity is fundamental to Malaysia’s future.

It will become increasingly heated and painful. For example, Malay identity cannot be separate from the role of the Rulers. This bond has to be examined and questioned.

Given the depth and breadth of the upcoming debate we must ask whether Umno alone can manage this process? Indeed, has PAS’ greater moral authority sidelined the party of Merdeka?

The consequences of half-hearted reforms are obvious if we look across the Causeway to Singapore where the presidential elections have just been concluded.

While the PAP government deserves praise for allowing all four candidates to campaign openly – providing them with equal mainstream media coverage, there’s no doubt that many Singaporeans feel “shortchanged”.

Reforming from within rarely satisfies. Indeed, Dr Tony Tan’s incredibly slim margin of victory underlines the unhappiness of ordinary Singaporeans who expect much, much more from their politics.

Malaysians will be like their cousins across the Causeway. They won’t be willing to suffer timidity and half-hearted reforms.

Tentative steps will be swept away by a tide of popular resentment. Indeed, boldness will be the only solution.

At a time when the very core of Malay identity is being debated, piecemeal reform will not be enough. Reform will go nowhere unless the state loosens its grip.

The Najib administration must recognise that a mere shift in tactics will not be enough to win back Malaysia’s cynical and jaded electorate, especially the Malays.

The last three years have taught us that the Malay/Muslim community is becoming more complex and indeed, difficult to please.

As Umno and the Prime Minister discovered during the Bersih 2.0 debacle, it is no longer possible to succeed solely on emotive appeals for ethnic and religious unity.

Rather, Najib and his government must be willing to accept the diversity that now exists within Malay discourse, and tailor their policies accordingly.

Indeed, Umno no longer controls the debate.

For instance, economic policies need to champion the interests of middle- and working-class Malays, rather than expecting them to automatically back the ventures of the intra-ethnic elite.

Barisan has to keep asking themselves: what’s really in it for the people?

Furthermore, differing views over culture and faith must be allowed rather than repressed.

Indeed, one feels that such an approach may very well work among every race in Malaysia in general.

All the same, the resentment and grievances between Malaysia’s ethnic groups can only be resolved when tensions within the Malay community itself are cooled.

This Hari Raya must not only be a time of celebration for Malaysian Malays, but also renewal.

Related posts:

Malaysia still in pursuit of full independence 

The true meaning of independence

 Reviving our winning ways