SINGAPORE: Abdullah Badawi, the Malaysian prime minister, unveiled recently the country's new M$200bn ($54bn) five-year economic plan, which emphasised education and rural development over infrastructure projects.
The shift in spending priorities underscored Mr Abdullah's attempts to close an income gap between urban and rural areas that had been exploited by the fundamentalist Islamic opposition party to win votes. The plan aims to halve the poverty level to 2.8 per cent of the 26m population.
He also vowed to continue the controversial affirmative action programme for the ethnic Malay majority to increase their influence in the economy, which is dominated by ethnic Chinese.
The plan includes developing a special economic zone along the Thai border to help end an insurgency in Thailand's southern region, which is largely inhabited by ethnic Malays.
The government said manufacturing would lead economic growth, at an average annual rate of 6.0 per cent in 2006-10 against 4.5 per cent in the previous five years.
But the biggest share of the development budget will go to education and training, which will be allocated M$41.11m, a fifth of total spending, over the next five years. This is aimed at boosting Malaysia's competitiveness as it risks losing out to China and India.
With Malaysia hoping to reach developed nation status by 2020, Mr Abdullah said the "competition for investment and jobs is becoming stiffer. As an open economy, Malaysia is not insulated from an even more competitive environment. We must act faster."
But critics have said Malaysia's affirmative action policy has hampered economic efficiency because it has awarded contracts for state projects based on racial guidelines rather than merit. Mr Abdullah said the government would reform the process of awarding contracts by increasing competitive bidding and setting performance targets.
Companies without Malay directors or employees cannot bid for state contracts. The issue is seen as a barrier to foreign companies operating in Malaysia.
Economists believe that growth could expand in the next five years because Malaysia has important natural resources including oil and gas and palm oil.
Since coming to power in 2003, Mr Abdullah has reduced spending on infrastructure projects that had led to a large budget deficit. He aims to cut the deficit from 3.8 per cent to 3.4 per cent of gross domestic product by 2010.