Income Inequality:Causative Factors and How to Address It Lim Teck Ghee Center for Public Policy Studies What’s Happening to Income Inequality • Historical trends since independence • Trends since NEP ended • Recent ethnic and regional patterns • • • • • Decreasing inter-ethnic disparities Increasing intra-ethnic disparities Marked regional disparities Narrowing urban-rural disparities Growing urban disparities Gini-Coefficient by Ethnic Groups, 1957-1995 1957/58 1967/68 Overall 0.412 0.444 Malay 0.342 0.400 Chinese 0.374 0.391 Indian 0.347 0.403 1970 1976 1979 1984 0.502 0.526 0.493 0.480 0.466 0.494 0.488 0.469 0.455 0.505 0.470 0.452 0.463 0.458 0.460 0.417 1987 1990 0.458 0.446 0.447 0.428 0.428 0.423 0.402 0.394 1995 1997 0.4560 0.4586 n.a. 0.4495 n.a. 0.4188 n.a. 0.4092 n.a. = not available. Source: AH Roslan (The Gini Coefficient measured income disparities. The higher the coefficient, the greater the disparity.) Caveats to Income Inequality Data • How reliable? • Who are data gatekeepers? • How do these data collectors and gatekeepers operate? • The culture of secrecy and lack of transparency Other Indicators and Data Sets • • • • Consumer Price Index and its weaknesses Official poverty line data Poverty estimates Based on OPLI of $529-$695 per month per hh, 2002: 200,000 hhs = 1 million • Estimates based on WB US$2 per day per capita: possibly 2- 3 million Conclusions on Income Inequality Trends • • • • Worsening trends Prevalence of Hard Core Poverty Growing Relative Poverty Urban Context of Income Inequality Illegal Migrants: Trends and Impact • Big spurt since 1992 • Annual totals of 500,000 ± • Largest inflow from Indonesia • Adverse impact on local labour market and employment • Annual remittance outflow in billions • Major contributor to growing income inequality Illegal Immigrants in Malaysia • Table 1: Number of immigrants over the past 15 years • Table 2: Departures of illegal immigrants Country of Origin 1989 Indonesia 12,000 1998 2000-1 309,905 1 million 2 million Philippines 411 400,000 Thailand 22,518 33,000 Burma 9,389 South Asia 29,869 Africa + Middle East 135 Total N/A 1992 200,000 1993 372,268 1995 250,000 *a 1996 554,941 ** * Discrepancy in figures: a b 500,000 – 700,000; New Straits Times, April 5 1996 1 million; The Star, July 30 2001 ** An additional 1 million illegal immigrants refused regularisation 1997 612,000 N/A 2003 2004 – 2005 1.2 million 200,000 300,000 *b 560,000 400,000 Bail Outs: Trends and Impact • • • • Steady stream of bailouts since 1970’s Estimated value of bailouts: Who gains, who pays and who loses Impact on poverty alleviation and income inequality Malaysian Bail Outs? A Chronological List of Malaysian Corporations in Debt No. Company Involved Year Recorded Losses/Debts Incurred (RM) 1 Bank Bumiputra 1970 3.51 billion 2 Kojadi 1985 N/A 3 Kosatu 1986 1 billion 4 Komuda 1987 3.3 million 5 Koteksi 1987 3.1 million 6 Sepadu 1987 10.6 million 7 Indah Water Consortium Late 1990s 1 billion 8 Renong Group 1998 28 billion 9 Konsortium Perkapalan Berhad (KPB) 1998 1.7 billion 10 United Engineers Malaysia Berhad (UEM) 1998 12 billion 11 Ekran Berhad 1998 950 million 12 Park May Berhad (Renong Group) 1999 146 million 13 Setegap Berhad 2000 95.5 million 14 Affin Holdings Berhad 2000 101 million 15 Chongai Corporation Berhad and Pembangunan Bandar Mutiara Sdn Bhd 2000 115 million 16 Trans Capital Holding Berhad 2000 185.6 million 17 Nam Fatt Corporation Berhad 2000 312.3 million 18 Gadek Berhad (DRB-Hicom) 2000 750 million 19 Idris Hydraulic (Malaysia) Berhad 2000 782 million 20 Naluri Berhad 2000 950.1 million 21 Tongkah Holdings Berhad 2000 1.189 billion 22 Metroplex Berhad 2000 1.2 billion 23 Mycom Group 2000 1.8 billion 24 Lion Group 2000 10 billion 25 Malaysia Building Society Berhad 1998-2001 950 million 26 TA Enterprise Berhad 2001 1.77 million 27 New Straits Times Press (Malaysia) Berhad (NSTP) 2001 2.97 million 28 National Steel Company 2001 3 million 29 K&N Kenanga Holdings Berhad 2001 16.76 million 30 Country Heights Holdings Berhad (CHHB) 2001 74.51 million 31 Malayawata Steel Berhad 2001 20.17 million 32 Dewina Berhad 2001 25 million 33 Rashid Hussain Berhad (RHB) 2001 198.08 million 34 Berjaya Sports Toto 2001 1.01 billion 35 DRB-Hicom 2001 5.06 billion 36 Sistem Transit Aliran Ringan Sdn Bhd (Star) and Project Usahasama Transit Ringan Automatik Sdn Bhd (Putra) 2001 5.5 billion 37 38 39 40 41 42 43 44 45 Intrakota Komposit Berhad Cygal Berhad Actacorp Holding Berhad Johor Corporation Land & General Berhad HVD Entertainment Berhad NCK Corporation Berhad Abrar Corporation Berhad Abrar Corporation International Sdn Bhd 2001 2001 2001 2001 2001 2001 2001 2001 2001 46 Timbermaster Industries Berhad 2001 47 48 49 50 51 52 Cableview Services Sdn Bhd Magnitude Network Sdn Bhd Bridgecon Holding Berhad Jupiter Securities Sdn Bhd Suasa Unik (M) Sdn Bhd Perusahaan Sadur Timah Malaysia Berhad 2001 2001 2001 2001 2001 2001 53 54 55 56 57 Red Box (M) Berhad ELITE Business Focus Sdn Bhd Tanco Holdings Berhad Hai Ming Holdings Berhad 2001 2001 2001 2001 2001 Companies contributing to Corporate Debt Restructuring Committee’s (CDRC) management of a total of RM29 billion of corporate debts as of year 2001. 58 I-Berhad 2002 10.66 million 59 Telekom Malaysia 2002 29 million 60 George Kent (Malaysia) Berhad 2002 173 million 61 Johan Holdings Berhad 2002 318 million 62 Chase Perdana Berhad 2002 570 million 63 Sriwani Holdings Berhad 2002 609 million 64 Sistem Televisyen Malaysia Berhad (TV3) 2002 645 million 65 Expressway Lingkaran Tengah Berhad 2002 1.05 billion 66 Malaysian Resources Corporation Berhad (MRBC) 2002 1.8 billion 67 Employment Provision Fund (EPF) 2002 10 billion 68 Malaysia Airlines System (MAS) 2002 9 billion 2005 Half year net loss 684.4 million 69 EPE Power Corporation Berhad 2003 2.38 million 70 Lien Hoe Corporation 2003 240 million 71 Perwaja Steel 2003 10 billion 72 Amtel Holdings Berhad 2004 783,000 73 Astro All Asia Networks 2004 2.4 billion 74 Pantai Holdings Berhad 2004 112.7 million 75 Time dotCom 2004 833.24 million 76 Tenaga Nasional Berhad (TNB) 2004 30 billion 77 Perusahaan Otomobil Nasional Berhad (Proton) 1999 19 million 2005 154.3 million 2nd 78 79 BIMB Holdings KUB Malaysia Berhad Quarter ended September 2006 315 million 2005 456.44 million 2005 9.02 million 2nd Quarter ended June 80 PSC Industries Berhad (PSCI) 2005 789 million CDRC: Company Debt Restructuring Cases (RM Mil) Subject 1998 1999 2000 Application received (accumulative) Total Debts (36) (66) (75) 11,028.15 24,624.62 11,556.98 Withdrawn/ Rejected Cases - 3,504.35 (15) 4,855.28 (6) Transferred to Danaharta - 2,764.70 (8) 1,813.54 (1) Completed Cases 344.50 (2) 11,089.28 (11) 13,698.63 (20) Cases Outstanding 10,683.65 (34) 16,651.13 (28) 12,093.40 (12) Note: figure in parenthesis is the number of applications/cases Source: CDRC Website • The Malaysian private (corporate) sector is struggling to settle its debt. The debt has been estimated at more than RM60 billion since the Asian financial crisis struck in 1997. • Loans to the private sector in 1997 which was RM406.9 billion declined to RM397.2 billion in 1998 and increased marginally in 2000 to RM398.3 billion. However, loans in the form of debt papers (securities) accelerated from RM40.7 billion in 1997 to RM54.5 billion in 1998 to RM72.2 billion in 2000. • Since the formation of the Corporate Debt Restructuring Committee (CDRC) in July 1998, 84 debt restructuring cases amounting to RM65.9 billion were referred to it. • According to AmResearch, within Khazanah’s stable of companies, only six out of 24 companies yielded positive total shareholder returns in 2005, and of these, only five saw year-on-year (yoy) gains in their share prices. Sources: •Asian Free Trade Act (AFTA) Online •Aslam, M. (2001), ‘Heterodux Economic Policies in Malaysia. Economic Rational, Stock Market and a Corporate Mess’, Applied Economics Department, Faculty of Economics and Administration, University of Malaya, Malaysia. •Corporate Debt Restructuring Committee (CDRC) Press Release, Newspapers •Daily Express •Asian Financial Network (AFN) •New Guiding Principles of Corporate Debt Restructuring Committee (CDRC), September 2001 •The Edge Daily •The Star •Yeoh, K.K. (2005), ‘Diasporic Dilemma and Economic Exigencies: Communal Corporatization or Corporate Communalism?’, Department of Analytical Economics, Faculty of Economics and Administration, University of Malaya, Malaysia. Size of Federal Government’s Development Budget Development Allocation for Education and Training, 1996-2005 (RM million) Programme Education • Pre-school • Primary Education • Secondary Education Government & Government-aided Schools MARA Junior Science Colleges Technical & Vocational Schools • Tertiary Education • Teacher Education • Other Educational Support Programmes Training • Industrial Training • Commercial Training • Management Training Total 7MP 8MP Allocation Expenditure Allocation 17,948.5 123.6 2,632.0 5,330.1 3,860.0 710.0 760.1 5,362.8 350.0 4,150.0 17,542.2 107.5 2,631.8 5,317.5 3,853.7 707.2 756.6 5,005.1 332.5 4,147.8 18,660.0 147.4 2,750.0 4,862.6 3,262.6 700.0 900.0 8,900.0 300.0 1,700.0 2,237.3 1,876.0 71.3 290.0 2,181.9 1,827.0 71.2 283.7 4,000.0 3,760.0 100.0 140.0 20,185.8 19,724.1 22,660.0 Source: Malaysia, (2001). Eighth Malaysia Plan 2001-2005, Kuala Lumpur. Percetakan Nasional Malaysia Berhad.