Will Malaysia's new economic model work?

The most controversial area of reforms. How far will Prime Minister Najib Razak go in unwinding the linchpin of Malaysia's political and social system that gives a wide array of benefits to the 55 percent Malay population?

Although the proposals say that social support will shift to the poorest 40 percent of families after subsidies are cut, the issue of how far the rest of the social safety net for Malays will change has been fudged.

The “New Economic Model” planned by Najib is being marketed as the successor to the decades old “New Economic Policy” introduced by his father, Malaysia's second prime minister, Abdul Razak Hussein, in the wake of race riots in the 1960s.

To please reformers and win back ethnic Chinese and Indian voters who deserted the National Front in 2008, Najib will have to embrace deep reform. In doing so, he would alienate Malays who are the core voters of his United Malays National Organisation (UMNO), the linchpin of the National Front coalition.

So far, Najib's reforms have been welcomed by investors but have not gone far enough. Najib's political style was described as at best “pragmatically cautious” by Bridget Welsh, a Malaysia expert at Singapore Management University.

Najib already faces a growing tide of Malay concern that has focused on religion and rights.

'Zero Tolerence' on Corruption

Malaysia has long pledged to eradicate corruption, one of the reasons that voters deserted the government in the 2008 polls. Najib has made some efforts to clean up vote buying in UMNO by enlarging the franchise in party polls, but there have been no major arrests on graft charges.

Malaysia has fallen to a record low of 56th place among 180 countries in anti-graft watchdog Transparency International's 2009 corruption perception index.

A billion dollar scandal over a port free trade zone that has rattled bondholders has seen a few minor company officials charged.

UMNO recently ran a state legislature candidate who was a former cabinet minister suspended from the party in 2004 for corruption, a move critics said showed it was business as usual for cronyism.

High-Quality Education for All

Crucial to Malaysia's bid to win a stake in the global knowledge economy is its education system. At present, it turns out tens of thousands of graduates a year who learn by rote and are ill-equipped for the new economy.

Malaysia's tertiary education enrolment ratio lags both Singapore and Thailand, according to U.N. data. A report from investment bank Morgan Stanley said its gross tertiary enrolment ratio and gross tertiary completion ratio are 7 percent and 6 percent lower than the average of economies with its level of GDP per capita.

Education has become increasingly politicized with the abandonment of a policy of teaching math and science in English instead of Bahasa Malaysia.

It is also an issue that could trigger a racial backlash against the government.

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