KUALA LUMPUR: Malaysia Tuesday announced measures to liberalise the economy as it heads into recession, winding back a decades-old policy of positive discrimination for Muslim Malays.

Prime Minister Najib Razak scrapped a rule requiring initial public offerings to reserve 30 per cent of stock for Malays, and dumped regulatory approval for foreign property purchases.

"The new policies will make our economy more vibrant. I think it will put us high up on the radar to attract foreign direct investment and equity," Najib said.

Economists hailed the liberalisation moves, which come after the government warned the economy could contract by as much as 5.0 per cent this year.

"Given the sharp drop in foreign direct investments, this move will put Malaysia in a favourable position to attract FDIs and sustain domestic investments which have been in the doldrums since the 1998 Asian financial crisis," said Yeah Kim Leng, chief economist with RAM Holdings.

The government removed the requirement for regulatory approval by the Foreign Investment Committee (FIC) on property transactions, except those that dilute interests of bumiputera - a term for Malays and indigenous people.

Foreign investors will also no longer have to obtain approval for acquisitions and mergers.

"As for FIC, we can say it no longer exists," Najib told reporters, adding it was "no longer an effective instrument to support growth."

The FIC was part of Malaysia's affirmative action plan known as the New Economic Policy (NEP), a controversial scheme to raise the economic standing of ethnic Malays who dominate the population of the multicultural nation.

The policy was introduced after 1969 racial riots to address the dominance of the business sector by Malaysia's ethnic Chinese community, by providing a raft of benefits in housing, education and jobs.

Critics say the policy has suppressed growth and that it has mostly benefited Malay entrepreneurs, while failing to address poverty among the community.

When the NEP was introduced bumiputeras had only 2.4 per cent ownership in Malaysian companies. Najib said that figure has now grown to 19.4 per cent and voiced confidence there would not be any political backlash to his reform plan.

"We want to be fair to all communities. No one must feel marginalised or disincentivised. It is a tricky balancing act. It is do-able," he said.

- AFP/yb