Malaysia PM says to liberalise economy

Malaysia's new Prime Minister Najib Razak is to push ahead with economic liberalisation even if there is a voter backlash, he told Singapore's Business Times newspaper in an interview.

Najib, who has been in office since early April, has undertaken some reforms, opening up the financial services industry and some other sectors to foreign investment, although there have been few radical moves.

"Every time there is change, there are those who will be affected," he said ahead of a visit to Singapore.

Najib also sought to play down tensions between Malaysia and its smaller neighbour over a range of issues from water to a new bridge, as well as some Malaysians' fears of the economic power of Singapore, and said he would "welcome Singapore investment".

The main domestic challenge for Najib is to reform a system of economic and social privileges for ethnic Malays, 64 percent of the Southeast Asian country's 27 million population, that critics says has damaged competitiveness and fostered corruption.

Najib did not spell out specific reforms to the policy but told the Business times that without change: "We will be left uncompetitive and then everyone will lose -- including the Malays."

Most economists have welcomed Najib's initial moves, although they say he needs to pursue a more aggressive liberalisation to deal with the country's structural economic problems beyond the current slump in demand for its exports.

"Although much still has to be done, and the measures taken so far have hardly made any visibly significant impact," Citigroup said in a report this week.

"What is important at this juncture is to ensure that signals are sent to investors of Malaysia's willingness to push for reforms, essentially giving investors, especially foreign investors, a breath of fresh air from the stale investment climate in the country."

Malaysia has been overtaken in the race for foreign investment by the likes of Thailand and Vietnam since the 1998 Asian financial crisis and despite the recent global economic growth, which boosted demand for its exports, it has run steadily larger budget deficits, projected to hit 7.6 percent of gross domestic product this year.

KUALA LUMPUR, May 21 (Reuters)