Economic

WHEN Najib Razak took office last April as Malaysia’s prime minister, the timing could hardly have been worse. The export-led economy was in recession. The ruling coalition was in the dumps after an unprecedented near-defeat in elections in March 2008. Opponents warned that Mr Najib’s government would crack down on political dissent to save its skin.

Against the odds, though, Mr Najib, a British-educated economist, has emerged as a more sure-footed, and less scandal-prone, leader than many expected. He has stimulated the economy back to life and liberalised some financial services. Growth is likely to exceed 4% this year—reaching 6%, in his own optimistic forecast. There are ambitious new targets for cutting crime and building roads, among other populist policies. Foreign businesses have been encouraged by Mr Najib’s promises to liberalise the broader economy, spur innovation and raise productivity. Everyone agrees that Malaysia needs to move beyond run-of-the-mill electronics and focus on knowledge-based industries.

This, however, is where Malaysia’s political realities start to bite. Any serious overhaul has to tackle the perks given to Malays and other indigenous races, who make up about 65% of the population. The system saps Malaysia’s competitiveness, and has driven some frustrated members of the minorities—mainly Chinese and Indians—to decamp to more meritocratic countries. Mr Najib has signalled a readiness to pare back the privileges for so-called bumiputras (sons of the soil). They were introduced, as the “New Economic Policy” by his father, Abdul Razak, Malaysia’s second prime minister, after race riots in 1969. The idea was to redress the imbalance under which the Chinese minority in particular dominated the economy.

Investors have been waiting eagerly for Mr Najib’s “New Economic Model” (NEM). Officials say that the NEM will be unveiled in the next few weeks. But details may be sketchy, as Mr Najib tries to contain a backlash, including from...