The public management of national provident funds for state‐led development

Abstract

The Malaysian Employees’ Provident Fund (EPF) was created as a mandatory national saving plan in 1951 and has grown consistently. Following two decades of state‐led economic development, substantially funded through EPF contributions, the Malaysian Government is now ostensibly seeking to reduce state intervention in the economy in order to encourage liberalization and thereby engender further economic growth. Tracing the parallel evolution of the EPF and the growth of the Malaysian economy, highlights both the direct role of the EPF in providing soft‐loan capital for state‐sponsored development projects and the indirect role of the fund in underpinning politically effective, but not concomitantly economically efficient, strategies for ethnically rebalancing the economy. Accordingly, in direct contradiction to recent World Bank analyses, concludes that the continuing Malaysian commitment to a publicly managed national provident fund (NPF) is based on both efficiency criteria (in relation to the EPF itself) and effectiveness criteria (in relation to state‐determined investment strategies). Although the success of Malaysian economic development policies inevitably involves a restructuring of the operations and management of the EPF itself, the continuity in the Malaysian commitment to its NPF complements and underpins similar continuities in the active role of the Malaysian state, even in an era of privatization.