During Najib Razak's premiership from 2009 to 2018, Malaysia's economic policy marked a significant departure from previous state-centric approaches, ushering in an era of economic liberalization. A cornerstone of this shift was the New Economic Model (NEM), announced in 2009. The NEM's ambitious goal was to transform Malaysia into a high-income, quality-growth economy by 2020, aiming to more than double the per capita annual income from approximately $7,000 to $15,000. This model emphasized "high income, sustainability, and inclusiveness," focusing on stimulating economic growth by empowering the private sector, improving worker productivity, and reducing fiscal disparity. Critically, the NEM also sought to replace the long-standing New Economic Policy (NEP), with Najib acknowledging flaws in the NEP's affirmative action implementation and advocating for better targeting.
Key to this liberalization drive were measures designed to attract and retain foreign investment. The government moderated preferences traditionally benefiting ethnic Malays, allowing foreign investors to hold majority stakes in most enterprises, easing insurance regulations, and curtailing the powers of the Foreign Investment Committee. Notably, the minimum quota for Malay ownership in publicly traded companies was lowered from 30 percent to 12.5 percent. These reforms were swiftly followed by approvals for major American banking firms like Goldman Sachs and Citigroup to expand their operations in Malaysia, a stark contrast to Malaysia's historical stance of domestically dominated and tightly regulated financial markets. Concurrently, the Malaysian central bank under Najib began allowing the ringgit to appreciate and planned for offshore settlement and borrowing in the currency.
Another significant area of reform involved government subsidies. Najib's administration initiated a comprehensive overhaul, cutting subsidies for petrol, diesel, and LPG in 2010 as part of wider rationalization efforts. Sugar subsidies were also targeted, with the Prime Minister noting the lack of logic in subsidizing a commodity that could endanger public health, besides disproportionately benefiting the wealthy and foreigners, encouraging over-consumption, and creating opportunities for fraud and smuggling. While these cuts were projected to save the government substantial amounts, the administration assured the public that essential services like education and healthcare would continue to receive state support, and the prices for unsubsidized commodities would remain among the lowest in Southeast Asia.
Beyond domestic reforms, Najib aggressively promoted free trade and signed several international agreements, including the Asean FTA (AFTA), Asean-Australia-New Zealand FTA (AANZFTA), and Asean-India FTA in Goods. Specific agreements included a free-trade agreement with New Zealand in 2009, reducing or eliminating tariffs on various products and establishing Most Favoured Nation status in several service sectors. Similarly, agreements with India covered cooperation in higher education and finance, with plans for a "Comprehensive Economic Cooperation Agreement" and a new visa regime for Indian managers and knowledge workers to visit Malaysia. Additionally, to counteract the global economic downturn, the Malaysian government introduced two stimulus packages, the first valued at RM7 billion in late 2008, demonstrating a proactive approach to economic challenges.