A major shortcoming of the Malaysian education system is its cookie-cutter style of teaching, which assumes students are homogeneous, have the same learning styles, and learn at the same pace. One solution which is often touted by education reformers in other countries, and one I personally am partial to, is the idea of school choice.
The fundamental idea is to give families a choice of schools besides those in the standard public school system. A common mechanism for accomplishing this is school vouchers: the government gives each family a voucher, which can either be redeemed for a standard public school education, or at a private school. Another such mechanism is charter schools — schools funded like public schools, but more like private schools in terms of autonomy and freedom to operate. (Charter schools are funded by the central government, but held accountable by the local government or another entity which sponsors the charter.) Both have been implemented to some degree in many other countries; New Zealand in particular has completely switched over to charter schools for its public school system.
The BBC has a brief and interesting piece on school vouchers in Sweden. I have brought up the idea of school choice on this blog before, but many people dismissed it as unstructured and giving schools too much autonomy to operate. As the Swedish example shows, school choice doesn't mean removing government from the picture. The government sets out some fundamental requirements from schools, and sets schools free to accomplish these requirements however they wish. If we were to have school choice in Malaysia, we could well still have standardised exams -- schools would still be required to perform according to set metrics.
One last, brief word on school choice: although I have never been a fan of the Chinese school system, a reason I think they work so well (compared to other public schools) is because they are run like charter schools. Chinese schools are primarily accountable to the communities they serve, and are relatively free from government interference in how they are run. Each school thus has some distinct character to it, and does things differently -- and this positive competition thus not only leads to better schools overall, but also caters to a broader spectrum of people than the standard, homogeneous national schools.
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