VZCZCXRO6951
PP RUEHAG RUEHBZ RUEHCHI RUEHDT RUEHFK RUEHGI RUEHHM RUEHKSO RUEHMR
RUEHNAG RUEHNH RUEHPA RUEHPB RUEHPOD
DE RUEHKL #0303/01 1130847
ZNR UUUUU ZZH
P 230847Z APR 09
FM AMEMBASSY KUALA LUMPUR
TO RUEHC/SECSTATE WASHDC PRIORITY 2633
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUCNWTO/WORLD TRADE ORGANIZATION COLLECTIVE
RUEHNE/AMEMBASSY NEW DELHI 0893
RUEHGV/USMISSION GENEVA 1697
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 KUALA LUMPUR 000303 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR -- WEISEL AND BELL 
STATE PASS FEDERAL RESERVE AND EXIMBANK 
STATE PASS FEDERAL RESERVE SAN FRANCISCO TCURRAN 
SINGAPORE FOR SUSAN BAKER 
USDOC FOR 4430/MAC/EAP/M.HOGGE 
TREASURY FOR OASIA AND IRS 
GENEVA FOR USTR 
 
E.O. 12958: N/A 
TAGS: ECON EINV PREL EFIN ETRD MY
SUBJECT: MALAYSIAN PM LIBERALIZES SOME SERVICES SUBSECTORS 
 
REF: KUALA LUMPUR 297 
 
 ¶1.  (U) SUMMARY:  Malaysian Prime Minister Najib Razak today 
announced a services sector reform package exempting firms in 
27 subsectors from a government requirement that each firm 
maintain a minimum 30 percent ownership stake by ethnic 
Malays and indigenous groups ("bumiputera").  Najib said this 
was being done to improve Malaysia's competitiveness in the 
"softening" global economy and to attract more foreign 
investment.  (Note:  Foreign direct investment in 2009 is 
projected to be half the amount of 2008 inflows, and 
economists have been calling for liberalization, especially 
of the services sector, as Malaysia's best hope of surviving 
the global economic crisis (reftel).  End note.)  Najib said 
these liberalizations were in line with what ASEAN countries 
were doing, according to press reports.  He also promised 
more liberalization to come in the financial services sector, 
with details to be announced next week.  One professor of 
economics at a local university told Econoff that, although 
the impact on the economy might not be significant, the move 
breaches an important psychological barrier as a concession 
to non-bumiputera. 
 
 
¶2.  (SBU) Comment:  PM Najib's long-awaited announcement on 
services covers only 27 relatively insignificant subsectors 
in terms of the greater Malaysian economy, and of little 
import to most U.S. businesses currently operating in 
Malaysia.  However, the announcement is important because it 
sets a precedent for cutting back on Malay preferences in the 
interests of improving Malaysia's competitiveness.  If Najib 
can carry out this reform without creating a backlash from 
the Malay majority, he will have set the stage for greater 
reforms down the road.  If successful, this measure also 
could undermine the political opposition, who have long 
called for the removal of pro-Malay policies and have used 
this issue as one of their key platforms.  At the same time, 
by keeping the scope of the reforms small Najib hopes to 
assure the bumiputera that any steps taken to liberalize the 
economy by his government will be gradual.   If these 
measures do not generate a substantial backlash, Najib is 
likely to continue testing the waters to see how far and how 
fast to go on future economic liberalizations.  The degree of 
movement is small, and far from the broad-based opening of 
services that we have sought in the FTA negotiations, but it 
is a start.  Next week's anticipated announcement on 
financial sector reform would be another incremental step in 
this economic opening process.  End summary and comment. 
 
¶3.  (SBU) On April 23 Prime Minister Najib Razak outlined 27 
sub-sectors of the computer, health, social services, 
tourism, transportation, recreation, business, and shipping 
services industries which would no longer be subject to a 30 
percent bumiputera ownership requirement (see list below). 
Dr. Suresh Narayanan, Professor of Economics at University 
Sains Malaysia in Penang and a renowned expert in political 
economy, told Econoff that the move "breached an important 
psychological barrier" as a "concession to non-Malays."  He 
did not doubt that the subsectors likely represented only a 
small piece of the Malaysian economy, but said Najib's 
willingness to take such a bold step in beginning the process 
of dismantling preferences for Muslim Malays was important. 
Pointing out that the services sector was the fastest-growing 
part of the Malaysian economy, he said liberalization was the 
only way to maintain Malaysian competitiveness in the "global 
value chain."  Najib likely was just testing the waters, he 
explained, to see what the response would be by "pro-quota 
Malays" whose reaction would be an indicator of Najib's level 
of influence.  "The immediate economic impact is beside the 
point," Dr. Narayanan said, describing liberalization as "the 
only way to go."  The only thing up for debate was "the speed 
and manner of liberalization, not the question of yes or no." 
 Fortunately, Najib appears to realize that and has begun to 
act on it. 
 
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THE LIST 
 
KUALA LUMP 00000303  002 OF 002 
 
 
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¶4.  (U) Following are the sub-sectors no longer subject to 
the the 30 percent bumiputera ownership requirement: 
 
COMPUTER AND RELATED SERVICES: 
-- Consultancy services related to the installation of 
computer hardware. 
-- Software implementation services:  systems and software 
consulting services, systems     analysis services, systems 
design services, programming services, and systems 
maintenance services. 
-- Data processing services:  input preparation services, 
data processing and tabulation services, time sharing 
services, and other data processing services. 
-- Database services. 
-- Maintenance and repair services of computers. 
-- Other services:  data preparation services, training 
services, data recovery services, and development of creative 
content. 
 
HEALTH AND SOCIAL SERVICES 
-- All veterinary services. 
-- Welfare services delivered through residential 
institutions to the elderly, the handicapped, and children. 
-- Child day-care services, including day-care services for 
the handicapped. 
-- Vocational rehabilitation services for the handicapped. 
 
TOURISM SERVICES 
-- Theme parks. 
-- Convention and exhibition centers with a seating capacity 
of more than 5000. 
-- Travel agencies and tour operators. 
-- Hotel and restaurant services, including other food and 
on-site beverage services, for four- and five-star hotels. 
 
TRANSPORT SERVICES 
-- Class C freight transportation (private carrier license to 
transport own goods). 
 
SPORTING AND RECREATIONAL SERVICES 
-- Sporting services (defined as sports event promotion and 
organization services). 
 
BUSINESS SERVICES 
-- Regional distribution centers. 
-- International procurement centers. 
-- Technical testing and analysis services:  composition and 
purity testing and analysis; testing an analysis of physical 
properties, integrated mechanical and electrical systems, and 
technical inspection services. 
-- Management consulting services:  general, financial 
(excluding business tax), marketing, human resources, 
production and public relations services. 
 
RENTAL/LEASING SERVICES WITHOUT OPERATORS 
-- Rental/leasing services of ships that excludes cabotage 
and offshore trades. 
-- Rental of cargo vessels without crew (&bareboat 
charter8) for international shipping. 
 
SUPPORTING AND AUXILIARY TRANSPORT SERVICES 
-- Marine agency services. 
-- Vessel salvage and refloating services. 
 
LEGAL SERVICES FOR ISLAMIC FINANCE 
-- Najib also announced that up to five foreign legal firms 
would be authorized to practice in Malaysia, but only to 
offer legal services related to Islamic finance.  This would 
be part of Malaysia,s push to make the country a global hub 
for Islamic financial services. 
KEITH