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					     COUNTRY REPORT OF
 THE ASEAN ASSESSMENT ON
    THE SOCIAL IMPACT OF
THE GLOBAL FINANCIAL CRISIS:
         MALAYSIA




       with the support of:
This volume is a product resulting from a project jointly implemented by the staff of the International Bank for Reconstruction and Development/
the World Bank and the ASEAN Secretariat, with financial support of the Australian Government. The findings, interpretations, and conclusions
expressed in this paper do not necessarily reflect the views of the Executive Directors of the World Bank, the governments they represent, the ASEAN
Secretariat, the Australian Government and/or ASEAN Member States. The World Bank, the ASEAN Secretariat and the Australian Government do
not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in
this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance
of such boundaries.



                                                                              i
  !"#$ %&'()*$ +,-)'.$ &/$ ."#$ 0(1)1'()*$ 23(4(4$ )15$ ."#$ %&'()*$
  63&.#'.(&1$7#4-&14#8$9)*):4()$
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  "
    The ImpacT of The crIsIs and The GovernmenT’s response
I. "#$#%&'#!(#&!)**+!(',!(#-.!)%!,(*!/$0)#$!1'+#+2'#$!2-'&'&!,(-03/(!,(*!.*2$'+*!'+!/$0)#$!.*4#+.!
    malaysia has been hit hard by the global financial crisis through the decline in global demand for its exports,
   10-!',&!*560-,&7!)3,!',!(#&!&322**.*.!'+!20+,#'+'+/!,(*!+*/#,'8*!'46#2,!0+!',&!08*-#$$!*20+04%! but
  #+.!0+!,(*!$#)0-!4#-9*,#"$%&"'(&)*&+*",-.)/*"01"2)3)4+,)5+"&/010-4"/)-&"*%(06'%"*%&"7&/3,1&"
   it has succeeded in containing the negative impact on its overall economy and on the labor market. The greatest
  ,1"'308)3"7&-)17"90("2)3)4+,)5+"&:.0(*&7"-)169)/*6(&+#"2)3)4+,)1"&:.0(*+"9&33"84";;#<".&(/&1*"
   impact on Malaysia’s economy came through the decline in global demand for Malaysia’s exported manufactures.
  4&)(=01=4&)(",1">)16)(4")17"84";?#<".&(/&1*",1"@.(,3"ABB<"CD,'6(&"!E#"F&)3"GHI"7(0..&7"84"J#A"
   Malaysian exports fell by 33.9 percent year-on-year in January and by 35.9 percent in April 2009 (Figure 1). Real GDP
  .&(/&1*",1"*%&"9,(+*"K6)(*&("09"ABB<L"86*"(&)3")/*,M,*4")..&)(&7"*0"+*)8,3,N&",1"*%&"+&/017"K6)(*&("
   dropped by 6.2 percent in the first quarter of 2009, but real activity appeared to stabilize in the second quarter
  09"ABB<"CO0(37"P)1QL"ABB<E#"$%&")116)3"/01*()/*,01",1"(&)3"GHI"-07&()*&7"*0";#<".&(/&1*",1"*%&" of
   2009 (World Bank, 2009). The annual contraction in real GDP moderated to 3.9 percent in the second quarter (Figure
  +&/017"K6)(*&("CD,'6(&"AE#"$%&"%,'%",-.0(*"/01*&1*"09"2)3)4+,)5+"&:.0(*+!.(0M,7&7")"8699&(")17"
   2). The high import content of Malaysia’s exports R&(&" 80*%" 6." and private ;#?" .&(/&1*" K6)(*&(=01=
  .(,M)*&" /01+6-.*,01" )17" 9,:&7" ,1M&+*-&1*"provided a buffer 84" )(0617"consumption and fixed investment
   were both up by around /01+6-.*,01" -)Q,1'" )" .0+,*,M&" /01*(,86*,01" *0" )116)3" '(0R*%#" $%&"
  K6)(*&(L" R,*%" .(,M)*&"3.5 percent quarter-on-quarter, with private consumption making a positive contribution
  /01*()/*,01" ,1" -)169)/*6(,1'" /01*,16&7L" )38&,*" )*" )" +30R&(" ()*&" 09" =!S#?T" 4&)(=01=4&)("
   to annual growth. The contraction in manufacturing continued, albeit at a slower rate of -14.5% year-on-year
  /0-.)(&7"R,*%"=!U#<".&(/&1*",1"*%&"9,(+*"K6)(*&(#"$%&"+&(M,/&+"+&/*0(L"6."84"!#J".&(/&1*"4&)(=01=
   compared with -17.9 percent in the first quarter. The (03&" ,1" *%&" up by 1.6 percent GHI#" $%&" in the second
  4&)(" ,1" *%&" +&/017" K6)(*&(L" .3)4&7" )" -)V0("services sector,+*)8,3,N)*,01" 09" year-on-year()*&" 09"
   quarter, played a major role in the stabilization +&/*0(" )3+0" 7&/3,1&7L" R,*%" )'(,/63*6(&" (&*6(1,1'" *0"
  /01*()/*,01" ,1" *%&" -,1,1'" )17" K6)((4,1'"of GDP. The rate of contraction in the mining and quarrying sector
   also declined, with agriculture returning to growth and construction continuing its expansion. Monthly industrial
  '(0R*%")17"/01+*(6/*,01"/01*,16,1'",*+"&:.)1+,01#"201*%34",176+*(,)3".(076/*,01"7)*)")3+0"+%0R"
  ,-.(0M&7"(&)3"06*.6*+L!R,*%"*%&"()*&"09"/01*()/*,01",-.(0M,1'"*0")"()*&"09"=W#S".&(/&1*"4&)(=01=
   production data also show improved real outputs, with the rate of contraction improving to a rate of -8.4 percent
  4&)(",1">634#""
   year-on-year in July.
  "
                            :'/3-*!;<!=560-,!/-0>,(!6*-!"0+,(!?%*#-@0+@%*#-A!




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                             !"#$%&X"2)3)4+,)"H&.)(*-&1*"09"Y*)*,+*,/+"

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                                                           1
    on aggregate, the malaysian labor market has held up remarkably well during the crisis. The overall unemployment
    rate has increased only slightly since the beginning of the crisis, and overall employment has continued to increase
    for all but foreign workers. The unemployment rate dropped to 3.6 percent in the second quarter of 2009 after
    reaching 4.0 percent in the first quarter. This is still close to the 2008 rate of 3.7 percent. The total number of
    unemployed individuals increased by 13.2 percent (52,700) year-on-year in the first quarter of 2009 after increasing
    by 5.3 percent (17,600) in the fourth quarter of 2008. Overall employment rose by 2.2 percent in the first quarter of
    2009, very much in line with the 2.6 increase in total labor force.


    however, there have been significant sectoral shifts within the labor market, with jobs moving away from export-
    oriented sectors and into the sectors that have benefited the most from the stimulus measures that the government
    has taken in response to the crisis. Data on retrenchments, temporary lay-offs, and salary cuts in large enterprises1
    points in the same direction (Figure 3). This decline in employment in manufacturing and agriculture, however, was
    offset by an increase in the number of employees in the retail and service sectors as well as in the public sector.
    In those sectors, employment has increased by 6.8 and 10 percent respectively in the first half of 2009. Employment
    in the health and social sectors has increased particularly strongly, with an increase of almost 25 percent year-on-
    year.




1 Large enterprises are those with more than 10 employees. The data are administrative data collected by the Ministry of Human Resources, as described
  below in the Monitoring subsection.



                                                                                  2
           :'/3-*!M<!N*#-@0+@%*#-!C(#+/*&!'+!=46$0%4*+,!)%!O*2,0-!?P;!#+.!PB!BQQRA!




                                                                                                             !
     !"#$%&X"2)3)4+,)"H&.)(*-&1*"09"Y*)*,+*,/+"

                                                       !
                  :'/3-*!S<!D*,-*+2(4*+,!)%!O*2,0-!?H2,!;&,!BQQT@U3/!;V,(!BQQRA!




                                                                                          "
                  !"#$%&X"H&.)(*-&1*"09"^)80(!

!
There were also important differences in the effects of the crisis on employment across different segments of the
J(*-*! >*-*! #$&0! '460-,#+,! .'11*-*+2*&! '+! ,(*! *11*2,&! 01! ,(*! 2-'&'&! 0+! *46$0%4*+,! #2-0&&!in the
manufacturing sector. While overall the manufacturing sector shed roughly 5.7 percent more of its employees
.'11*-*+,! &*/4*+,&! 01! ,(*! 4#+31#2,3-'+/! &*2,0-I" O%,3&" 0M&()33" *%&" -)169)/*6(,1'" +&/*0(" +%&7"
first quarter of 2009 and 8.5 percent more in the second quarter than in the equivalent periods in the previous year,
(06'%34"?#U".&(/&1*"-0(&"09",*+"&-.304&&+",1"*%&"9,(+*"K6)(*&("09"ABB<")17"W#?".&(/&1*"-0(&",1"
export-oriented manufacturing industries such as the semi-conductor, veneer sheets and &:.0(*=0(,&1*&7"
*%&" +&/017" K6)(*&(" *%)1" ,1" *%&" &K6,M)3&1*" .&(,07+" ,1" *%&" .(&M,06+" 4&)(L" plywood, and electronic
valve industries ,176+*(,&+" +6/%" )+" *%&" +&-,=/0176/*0(L" M&1&&(" notable positive exception from
-)169)/*6(,1'"experienced the biggest decline in employment (Figure 6). A+%&&*+" )17" .34R007L" )17" the
&3&/*(01,/"M)3M&",176+*(,&+"&:.&(,&1/&7"*%&"8,''&+*"7&/3,1&",1"&-.304-&1*"CD,'6(&"JE#"@"10*)83&"
.0+,*,M&" &:/&.*,01" 9(0-" *%&" 70R1R)(7" *(&17" R)+" *%&" /0-.6*&(" )17" .&(,.%&()3+" ,176+*(4#" $%,+"
                                                        3
                                                      ;"
downward trend was the computer and peripherals industry. This was the only major export-oriented industry
that experienced an increase in employment in the first quarter of 2009 compared with the previous year, though
nominal wages in the industry have declined steadily over the past 18 months.




The labor market adjustment to the crisis also took place through prices, with declines in wages and working
hours. For example, nominal wages in manufacturing industries dropped by 5 percent on average in January 2009
(Figure 6) but returned to pre-crisis levels within six months because of the rapid decline in employment. The
government’s stimulus policies (see below) and the tradition of labor dialogue in Malaysia both prompted employers
to respond to the crisis by reducing wages rather than by laying off workers.




                                                          4
     [('$*!,(*!/08*-+4*+,]&!&,'43$3&!6#29#/*!(#&!6$#%*.!#+!'460-,#+,!-0$*!'+!,(*!$#)0-!4#-9*,]&!
     While the government’s stimulus package &*2,0-! (#&! important role in the labor $%(06'%" ,*+" +*,-636+"
     -*&60+&*7! ,(*! -0$*! 01! ,(*! '+10-4#$! has played an#$&0! )**+! '460-,#+,#" " market’s response, the role of
     -&)+6(&+L"*%&"'0M&(1-&1*"%)+"8&&1"+6//&++963",1".(0-0*,1'"&-.304-&1*",1"*%&".683,/"+&/*0(#"
     the informal sector has also been important. Through its stimulus measures, the government has been successful
     @3+0L" *%&" ,190(-)3" +&/*0(" %)+" 8&&1" '(0R,1'L" ',M&1" *%)*" )" 3)('&" +%)(&" 09" V08+" ,1" *%&" (&*),3" )17"
     in promoting employment in the public sector. Also, the informal sector has been *)Q,1'" )7M)1*)'&" large share
     +&(M,/&+" +&/*0(+" *&17" *0" 8&" *&-.0()(4" )17" ,190(-)3L" R,*%" (&*),3" +%0.+" growing, given that a09" *%&"
     of jobs in the retail and services sectors tend to be temporary and informal, with retail shops taking advantage
     ,1/(&)+&",1"3)80("+6..34"*0"%,(&"/%&).")77,*,01)3"3)80("01")1")+=1&&7&7"8)+,+#" $%,+",+"80(1&"06*" of
     the increase *%)*" *%&" R)'&" hire cheap additional labor on an (&-),1&7" )3-0+*" /01+*)1*" 7&+.,*&" fact
     84" *%&" 9)/*" in labor supply to 3&M&3" 90(" *%&" (&*),3" +&/*0(" %)+"as-needed basis. This is borne out by the*%&" that
     ,1/(&)+&7"3)80("+6..34#"" sector has remained almost constant despite the increased labor supply.
     the wage level for the retail
     !
                          :'/3-*!T<!D*,-*+2(4*+,!)%!O*2,0-!?H2,!;&,!BQQT@U3/!;V,(!BQQRA!




                                                                                                               "
                            !"#$%&X"2)3)4+,)"2,1,+*(4"09"_6-)1"F&+06(/&+"

     !
       data from the ministry of human resources on retrenched workers also suggests that migrant workers
       F#,#!1-04!,(*!"'+'&,-%!01!K34#+!D*&03-2*&!0+!-*,-*+2(*.!>0-9*-&!#$&0!&3//*&,&!,(#,!4'/-#+,! and
       >0-9*-&! #+.! >04*+! (#8*! )**+! (',! hard by the financial crisis.2)%! ,(*! 1'+#+2'#$! 2-'&'&IB" 2,'()1*"
       women have been hit disproportionately .'&6-060-,'0+#,*$%! (#-.! Migrant workers represent a particularly
       vulnerable category during any economic crisis, and this holds true )14" &/010-,/" /(,+,+L" )17" make up about
       R0(Q&(+" (&.(&+&1*" )" .)(*,/63)(34" M631&()83&" /)*&'0(4" 76(,1'"in Malaysia. Foreign workers *%,+" %037"
       *(6&",1"2)3)4+,)#"D0(&,'1"R0(Q&(+"-)Q&"6.")806*"!B".&(/&1*"09"*%&"*0*)3"3)80("90(/&L"86*"*%&4"
       10 percent of the total labor force, but they have suffered disproportionately from the impact that the crisis has had
       %)M&" +699&(&7" 7,+.(0.0(*,01)*&34" 9(0-" *%&" ,-.)/*" *%)*" *%&" /(,+,+" %)+" %)7" 01" *%&" 3)80(" -)(Q&*#"
       on the labor market. The number of foreign workers employed in Malaysia has decreased steadily starting in
       $%&"16-8&("09"90(&,'1"R0(Q&(+"&-.304&7",1"2)3)4+,)"%)+"7&/(&)+&7"+*&)7,34"+*)(*,1'",1"*%&"*%,(7" the
       K6)(*&("ABBW"01")"4&)(=01=4&)("8)+,+#"P&*R&&1"[/*08&("!L"ABBW")17"D&8(6)(4"!WL"ABB<L"!JLJ!!"
2      R0(Q&(+" Human 8&&1" .&(-)1&1*34" (&*(&1/%&7;" 84" 9,(-+" R,*%" -0(&" This provides only a partial picture because
     The Ministry of%)M&" Resources collects data on retrenchments from firms with more than 10 employees.*%)1" !B" &-.304&&+L" )17" ;J" most
    firms have fewer than 10 employees and are, therefore, not captured in these data.
       .&(/&1*"09"*%&+&"R0(Q&(+"R&(&"90(&,'1"R0(Q&(+"CD,'6(&"<E#"$%&"+)-&",+"*(6&"90("R)'&"(&76/*,01+"
       )17L"*0")"-6/%"3&++&("&:*&1*L"90("*&-.0()(4"3)4=099+#"\1"*&(-+"09"'&17&(",-.)/*L"R%,3&")"7&&.&("
       )1)34+,+" ,+" R)(()1*&7" *0" /).*6(&" *%&" 9633" &99&/*" 09" *%&" /(,+,+" )*" *%&" %06+&%037" 3&M&3L" D,'6(&" !B"
                                                                                5
       +6''&+*+"*%)*"R0-&1"-)4"%)M&"8&&1"-0(&")99&/*&7"*%)1"-&1#"Y,:*4".&(/&1*"09"*&-.0()(4"3)4=
       099+")17"?U".&(/&1*"09")33"(&.0(*&7"R)'&"/6*+"%)M&"8&&1"&:.&(,&1/&7"84"R0-&1#""@3+0"10*)83&",+"
    third quarter 2008 on a year-on-year basis. Between October 1, 2008 and February 18, 2009, 16,611 workers have
    been permanently retrenched3 by firms with more than 10 employees, and 36 percent of these workers were foreign
    workers (Figure 9). The same is true for wage reductions and, to a much lesser extent, for temporary lay-offs. In
    terms of gender impact, while a deeper analysis is warranted to capture the full effect of the crisis at the household
    level, Figure 10 suggests that women may have been more affected than men. Sixty percent of temporary lay-offs
    and 57 percent of all reported wage cuts have been experienced by women. Also notable is the fact that, in the
    case of both salary cuts and lay-offs, this gender discrimination is higher among foreign workers.

     :'/3-*&!R<F'&,-')3,'0+!01!D*,-*+2(4*+,!)%!                                    :'/3-*!;Q<!F'&,-')3,'0+!01!D*,-*+2(4*+,!)%!
                        H-'/'+!!                                                                      E*+.*-!




                                                                                                                                              "
                !"#$%&X"2)3)4+,)"2,1,+*(4"09"_6-)1"F&+06(/&+"

                                                    "
    F#,#!0+!+34)*-&!01!-*/'&,*-*.!L0)!&**9*-&7!L0)!6$#2*4*+,&!#+.!06*+!8#2#+2'*&!'+.'2#,*!,(#,!
    data on numbers of registered job seekers, job placements and open vacancies indicate that the labor market
    ,(*! $#)0-! 4#-9*,! &',3#,'0+! >'$$! *#&*! &04*>(#,! 08*-! ,(*! 204'+/! 40+,(&I! $%&" 3)*&+*" )M),3)83&"
    situation will ease somewhat over the coming months. The latest available labor market data as of mid-2009
    3)80("-)(Q&*"7)*)")+"09"-,7=ABB<"+6''&+*"*%)*"*%&(&",+"3,'%*")*"*%&"&17"09"*%&"*611&3"CD,'6(&+"W"
    suggest
              @3*%06'%" light at the end of the tunnel (Figures 8 and 9). Although still growing by at '(0R*%" ,1"
    )17" <E#"that there is+*,33" '(0R,1'" 84" )*" )806*" J?" .&(/&1*" 01" )" 4&)(=*0=4&)(" 8)+,+L" *%&" about 65 percent
    on a year-to-year basis, +&&Q&(+" in registered active job seekers declined considerably ,+" *(6&" 90(" *%&"
    (&',+*&(&7" )/*,M&" V08"the growth7&/3,1&7" /01+,7&()834" ,1" >61&" ABB<#" $%&" +)-&"in June 2009. The same
    is true for the number of newly registered job seekers. After increasing by more than 100 percent 01" )1"
    16-8&(" 09" 1&R34" (&',+*&(&7" V08" +&&Q&(+#" @9*&(" ,1/(&)+,1'" 84" -0(&" *%)1" !BB" .&(/&1*"on an annual
    )116)3"8)+,+",1"D&8(6)(4")17"2)(/%"ABB<L"*%,+"16-8&(",1/(&)+&7"84"`0134a"??".&(/&1*",1">61&#" of
    basis in February and March 2009, this number increased by “only” 55 percent in June. However, the number
                 *%&" 16-8&(" 09" (&',+*&(&7" JobMalaysia (an automated 84" >082)3)4+,)" C)1" )6*0-)*&7"
    _0R&M&(L"job seekers placed in jobs byV08" +&&Q&(+" .3)/&7" ,1" V08+"online job matching service provided by
    registered
    013,1&"V08"-)*/%,1'"+&(M,/&".(0M,7&7"84"*%&"2,1,+*(4"09"_6-)1"F&+06(/&+E",+"+*,33"7&/(&)+,1'"01"
    the Ministry of Human Resources) is still decreasing on an annual basis. The number of registered vacancies is
    )1")116)3"8)+,+#"$%&"16-8&("09"(&',+*&(&7"M)/)1/,&+",+")10*%&("`'(&&1"+%00*a"01"*%&"2)3)4+,)1"
    another “green shoot” on the Malaysian labor market. Year-on-year, the number of vacancies increased by almost
    3)80("-)(Q&*#"b&)(=01=4&)(L"*%&"16-8&("09"M)/)1/,&+",1/(&)+&7"84")3-0+*"SBLBBB".0+,*,01+L"R,*%"
    40,000 positions, with manufacturing industries contributing almost 25,000 of these
    -)169)/*6(,1'",176+*(,&+"/01*(,86*,1'")3-0+*"A?LBBB"09"*%&+&"M)/)1/,&+#! vacancies.
                                                                             !
       :'/3-*!;;<!N*#-@0+@%*#-!C(#+/*!'+!,(*!Z34)*-!01!U2,'8*!#+.!Z*>$%!D*/'&,*-*.!X0)!O**9*-&!
                                            #+.!G$#2*4*+,&"




3 The Department of Labor distinguishes between retrenchments and lay-offs. The former refers to permanent lay-offs, whereas the latter is a temporary
  measure where workers will get back to their jobs after a while.



                                                                                  6
16-8&(" 09" 1&R34" (&',+*&(&7" V08" +&&Q&(+#" @9*&(" ,1/(&)+,1'" 84" -0(&" *%)1" !BB" .&(/&1*" 01" )1"
)116)3"8)+,+",1"D&8(6)(4")17"2)(/%"ABB<L"*%,+"16-8&(",1/(&)+&7"84"`0134a"??".&(/&1*",1">61&#"
_0R&M&(L" *%&" 16-8&(" 09" (&',+*&(&7" V08" +&&Q&(+" .3)/&7" ,1" V08+" 84" >082)3)4+,)" C)1" )6*0-)*&7"
013,1&"V08"-)*/%,1'"+&(M,/&".(0M,7&7"84"*%&"2,1,+*(4"09"_6-)1"F&+06(/&+E",+"+*,33"7&/(&)+,1'"01"
)1")116)3"8)+,+#"$%&"16-8&("09"(&',+*&(&7"M)/)1/,&+",+")10*%&("`'(&&1"+%00*a"01"*%&"2)3)4+,)1"
3)80("-)(Q&*#"b&)(=01=4&)(L"*%&"16-8&("09"M)/)1/,&+",1/(&)+&7"84")3-0+*"SBLBBB".0+,*,01+L"R,*%"
-)169)/*6(,1'",176+*(,&+"/01*(,86*,1'")3-0+*"A?LBBB"09"*%&+&"M)/)1/,&+#!
                                                      !
    :'/3-*!;;<!N*#-@0+@%*#-!C(#+/*!'+!,(*!Z34)*-!01!U2,'8*!#+.!Z*>$%!D*/'&,*-*.!X0)!O**9*-&!
                                         #+.!G$#2*4*+,&"




                                                     J"
"




monitoring
The malaysian government produces good quarterly labor statistics as part of its regular data system and has
implemented additional measures to track the impact of the crisis on the labor market. The Labor Force Survey
(LFS) is conducted quarterly and collects standard data on employment and wages. The survey makes it possible to
monitor in depth important sectors such as manufacturing and retail and wholesale trade with a very fine degree of
granulation. Ministry of Human Resources (MoHR) collects data on jobseekers, open vacancies, and job matching
on a regular basis, and these figures are made available with only a short time lag. At the onset of the financial
crisis, the MoHR established an “Operations Room” in which to track retrenchments, temporary lay-offs, and wage
cuts. When employers wish to retrench any of their workers, they have to file a report with the MoHR explaining



                                                      7
    why the worker needs to be retrenched, the type of work he or she did, the firm’s employment strategy, and the
    amount of unemployment compensation that the worker will receive. Following that, the MoHR will “visit the place
    of employment & discuss with employer and workers on measures can be taken to avoid retrenchment.”4 These
    reports generate administrative information that can be tracked for the purposes of monitoring lay-offs in the
    economy as a whole.


    The Government’s response
    The government’s policy response to the economic crisis has been robust and has consisted of an expansionary
    fiscal policy and an accommodating monetary policy. Two separate stimulus packages were announced in
    November 2008 and March 2009 consisting of 1 and 9 percent of GDP respectively over two years (the direct fiscal
    injection is estimated to be about 3.5 percent of GDP over two years). The first stimulus package (SP1) of RM 7
    billion focused on infrastructure development and public investment. SP1 allocated resources mainly to building
    public infrastructure (police quarters, schools, roads, hospitals, public transport systems, abandoned housing
    projects, and micro-enterprises). Also included in the package were: (i) an extension of housing loans from 25 to 30
    years and an increase in home loan amounts for civil servants; (ii) the opportunity for Employment Provident Fund
    members to reduce their contributions; and (iii) an allowance for foreigners (and companies) to buy commercial
    real estate without seeking the approval of the Foreign Investment Committee.5 The second stimulus package
    (SP2) of RM 60 billion over two years was more comprehensive. SP2 aims to increase employment by providing
    training programmes and by supporting private sector investment and the development of small and medium-sized
    enterprises (SMEs) that will build Malaysia’s economic capacity for the future. It includes spending measures
    (RM 15 billion), guarantee funds (RM 25 billion), equity investments (RM 10 billion), private finance and off-budget
    initiatives (RM 7 billion), and tax incentives (RM 3 billion).




4 Presentation of the MoHR: “Management of Retrenchment of Workers”,
  http://www.mohr.gov.my/pemberhentian/managing_retrenchment.pdf
5 ADBI Working paper 148, p14



                                                                       8
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                                                                 9
II. socIal proTecTIon proGrammes aT The onseT of The crIsIs
    malaysia has a low poverty rate but grapples with the problems of relatively high inequality and pockets of
    poverty for which social assistance is an important tool. Its social services are generous, and it has numerous
    social assistance programmes. In 2009, the Malaysian Federal Government’s budgeted current expenditure was at
    21.3 percent of GDP, up from 20.4 percent in 2008. In 2009, budgeted development expenditure (economic services,
    social services, security, and general administration) accounted for 7.8 percent of GDP, a significant increase from
    the 5.7 percent in 2008.6 Within social expenditure, spending on education and health constitutes over 60 percent
    of total spending. Welfare services received less than 1 percent of social expenditure between 2001 and 2010.7


    social protection programmes and policies in malaysia can be divided into three broad categories: (i) universal
    health and education services; (ii) welfare assistance schemes and social safety nets that are predicated on income
    levels and targeted toward specific groups; and (iii) a mixed social security system for members of employment-
    based insurance and savings schemes.


    Universal health and education
    The government provides free access to primary and secondary education, as well as to primary health care. While
    these are not social protection programmes per se, they protect the human capital of the vulnerable population
    and, therefore, play an important role in the broader social protection system. Public expenditures on education,
    in particular, have been consistently high over the years in an effort to expand education, increase skills, and,
    ultimately, enhance productivity. While a number of small targeted programmes exist to support education and
    are described below, the largest support programmes in education are not specifically targeted to the poor.8 The
    government also heavily subsidizes access to tertiary education. Access to health care is provided on a universal
    basis financed from general government revenues. Yet, despite the availability of free or near-free services in
    the public sector, around 40 percent of total health expenditures are financed by out-of-pocket payments. This is
    because many patients, even among the poor, are using private providers, in most cases to get swifter access to
    services or due to their dissatisfaction with the public sector. Private health insurance is expanding rapidly, but it
    is also important for policymakers to consider other approaches to this problem, for example, by reforming public
    financing and service delivery (and improve the quality of public service) and/or establishing supplementary social
    health insurance.


    safety nets and Welfare
    The government supports a large number of safety nets. The majority of these are general consumer or producer
    subsidies (some of which are better targeted than others) and smaller social assistance programmes, of which
    some are targeted to the poor and others are targeted based on criteria other than poverty. The government has
    also put in place a variety of programmes to promote employment and entrepreneurship among welfare recipients


6 Economic Planning Unit, 2009 key figures, Public Sector Accounts.
7 9th Malaysia Plan 2006 – 2010, Development Allocation, p529,
  http://www.epu.gov.my/html/themes/epu/html/rm9/english/allocation1.pdf
8 For example, a meals programme for students living in hostels, administered by the MOE, accounts for almost one-third of the total allocation for support
  programmes.



                                                                                   10
    with the aim of reducing poverty and preventing welfare dependency. However, little information is available on
    how well these programmes are working.


    spending on safety nets is substantial, but a large share goes to un-targeted subsidies. The Government of
    Malaysia subsidizes the consumers (or producers) of several products in order to guarantee access to food and
    other essential commodities at affordable prices. In the past, the greatest share of these subsidies has gone to
    keeping the prices for oil products and rice low. However, the prices of palm oil, sugar, flour, and bread are also
    controlled. Because they are universal, subsidies are not the most appropriate instrument to assist the most
    vulnerable populations. While the subsidy on low-quality rice can reasonably be expected to benefit these groups,
    subsidies such as fuel subsidies tend to favor higher-income groups who have larger energy needs. Some of the
    programmes – for example, the one-off subsidy to car owners and some of the food subsidies – are being reduced
    or phased out in the current budget. The IMF estimates that fuel subsidies in Malaysia will amount to 1.2 percent of
    GDP in 2009, down from 2.2 percent in 2008.9


    several ministries (the ministries of Women, family, and community development, of regional and rural
    development, of health, of housing and local Government, and of education) administer a large number of small
    targeted social assistance programmes. The Department of Social Welfare Malaysia (DSWM) manages many
    small programmes aimed at supporting specific vulnerable groups such as poor children, the elderly, widows, and
    the disabled, mostly by providing them with cash transfers (Annex 1). These programmes tend to use simple means
    testing as their targeting mechanism, with social workers checking households’ self-reported against the national
    poverty line. A mobile unit, the Khidmat Penyayang, was established in 2002 to visit local communities, provide
    appropriate services and information, and register those needing assistance, particularly disabled people. The
    Ministry of Education manages school feeding programmes, tuition aid, federal scholarships, and the poor students’
    trust fund among others. In the health sector, a medical assistance fund has been established to subsidize the use
    of health services by the poor, but it has only limited funding. Targeting is managed separately by each respective
    ministry, which means that there is a significant risk that programmes overlap each other in terms of beneficiaries
    and spending.


    To improve targeting and reduce overlaps, the government has recently developed a centralized database to
    identify and manage a list of poor and hardcore-poor households. The new system, e-Kasih, was launched in
    November 2007 and is maintained by the Implementation and Coordination Unit in the Prime Minister’s Department.
    This system represents a step in the right direction but some challenges remain. Some critics question the reliability
    of the data and the robustness of the data collection process. Partly due to these problems, agencies such as
    the Social Welfare Department of the Ministry of Women, Family, and Community still maintain a large cadre of
    local social workers who have been trained to assess household conditions according to a broader set of criteria
    (including identifying the disabled and other target groups that may include some non-poor households). Moreover,


9 IMF Article IV (2009) p.32




                                                            11
    the measures taken to date have failed to address some of the more fundamental challenges associated with the
    current targeting system, in particular the difficulty of verifying households’ cash income, the risk of mis-targeting
    due to the high variability of cash income, and the failure to capture non-cash income.


    social Insurance/social security
    Both contributory and non-contributory social security schemes exist in malaysia, but they only cover those
    employed in the formal sector, which comprises approximately 60 percent of the total labor force. Public sector
    employees are covered by the government’s Civil Service Pension, which is a non-contributory scheme funded
    by the government through tax revenues. The Civil Service pension is comprehensive and provides benefits for
    employment injury, disability, superannuation, and dependant’s pension in the case of the death of the policyholder.
    Formal private sector employees contribute to the Employees’ Provident Fund (EPF), which is a mandatory retirement
    saving scheme in which benefits are accrued from contributions from both the employer and employee.10 The
    EPF provides retirement benefits11 but no invalidity, injury, or death benefits. In 2008, there were around 12 million
    members of the EPF, with a total of 5.7 million active members. The EPF estimates that it covers around 50 percent
    of the workforce (almost exclusively in the formal sector), leaving many workers uncovered by formal pension
    arrangements. Moreover, due to gaps in the contribution periods of some workers (during which they may have
    been working in the informal sector) and the early retirement age in Malaysia (55-60 years in the private and 58
    years in the public sector), the accumulated savings can often be inadequate to finance a worker’s retirement.
    Finally, there are three government unit trusts that offer guaranteed savings schemes12 targeted to different
    groups. In particular, in an effort to increase the contributions of the very poor to savings schemes, the government
    established the Bumiputera Unit Trust loan scheme in 1992 to provide interest-free loans to households earning
    less than RM 5,000.13


    accident and invalidity benefits and invalidity pensions for employees and their families are provided by the
    social security organization (socso), the main social insurance scheme for private sector workers who earn
    less than rm 3,000 a month.14 contributions are 1.25 percent and 1 percent respectively by the employer and
    employee.15 The most recent data for the SOCSO are for 2006, when there were 5.5 million active employee members
    and around 269,000 benefit recipients. Foreign workers are not allowed to participate in the SOCSO or to take part
    in the Workmen’s Compensation Scheme, which was established in 1993.




10 Between 2004 and 2008, the total contribution rate was 23 percent of employees’ wages, of which 11 percent is by the employee and 12 percent by the
  employer.
11 In the past, most withdrawals (95 percent) from the fund have been in the form of lump sums, but since 2007, members have been able to take funds in
  installments and on an ad hoc basis from the age of 55 years.
12 The National Unit Trust and the Amanah Saham Bumiputera (ASB), which are only open to Bumiputera, the Amanah Wawasan 2020, which is open to all
  Malaysians between the ages of 12 and 29, and the Amanah Saham Malaysia, which is open to all Malaysians.
13 Ragayah Haji Mat Zin, East Asia Development Network, p30
14 The SOCSO consists of an Employment Injury Insurance scheme for medical benefits, a temporary disability benefit, a permanent disability benefit, a
  dependents’ benefit, a death benefit, and a rehabilitation benefit and of an Invalidity Pensions scheme that provides coverage against invalidity or death due to
  any cause.
15 Ragayah Haji Mat Zin, East Asia Development Network



                                                                                     12
III. adjUsTmenTs made To socIal proTecTIon proGrammes In response To The crIsIs
    The government’s response to the crisis was strong and multifaceted. Through the stimulus packages, the
    government focused on creating employment and on providing the kind of training necessary to accompany the
    sectoral shift in the labor market. As previously described, the government was able to contain the extent of the
    negative impact of the crisis on the labor market by creating a significant number of jobs. However, the jobs that
    were created were in the construction, services, and public sectors, while jobs that were lost came from the
    manufacturing sector. The stimulus packages included financing for training and skills development, as well as
    incentives for employers to retain/rehire employees. Apart from the direct incremental stimulus measures that
    gave employers incentives to retain their employees, the government also encouraged mediation and consultation
    among employers, employees, and the MoHR as a way to minimize retrenchments and save jobs. In this process, if
    retrenchment turns out to be inevitable, then the government [check] provides the worker with additional education
    and vocational training in order to increase his or her skills and to bring him or her back into the labor market.


    The safety net response of the malaysian government was not large in fiscal terms but was nonetheless
    notable. The government focused on expanding cash transfers, accompanied by additional measures to increase
    households’ disposable income. The interesting question with respect to these measures is the extent to which
    they will be only short term or whether they will be retained as part of a longer-term strengthening of the social
    protection system in Malaysia.


    The malaysia social safety net, or jaringan Keselamatan sosial malaysia (jKsm), a cash transfer programme,
    was relaunched in february 2009 with expanded eligibility criteria for financial assistance. Annual funding for the
    programme was increased to RM 850 million from RM 350 million in 2008. for receiving social safety net funds were
    raised from RM 400 to RM 720 (per month) for Peninsular Malaysia and from RM 830 to RM 960 for other regions.
    It is expected that these reforms will extend benefits to at least 110,000 families, which will be 50,000 more than
    in 2008.16 The existence of e-Kasih is likely to have helped to identify and target assistance to the most vulnerable
    households.


    additional measures have been implemented to increase households’ disposable income and facilitate access
    to housing. The employee contribution rate to the EPF was reduced to 8 percent in February 2009 to continue until
    December 2010, so that the total contribution rate is currently 20 percent. However, approximately half of the active
    members chose to maintain the original 11 percent contribution rate. Rm 5.6 billion was allocated to increase
    food production for 2008 to 2010 on unused land. In addition, marginal tax rates were reduced for high and middle
    income groups, and the tax deduction was increased for travel expensed to and from the workplace. Also, a new
    childcare allowance for children of employees earning up to RM 2,400 per year was implemented. To facilitate
    access to housing, the government enhanced the Housing Programme by introducing a 50 percent stamp duty
    exemption on loans that finance the purchase of medium-cost houses. Also, the existing Housing Credit Guarantee



16 Liza Wong, ‘Help for the needy’, the star online, http://thestar.com.my/lifestyle/story.asp?file=/2009/3/30/lifefocus/3355711&sec=lifefocus




                                                                              13
    Scheme (SJKP), which assists those with no fixed income to own affordable houses, was increased.17 Finally, the
    fiscal stimulus contained RM 50 million to build and repair houses.


Iv. polIcy IssUes for fUrTher consIderaTIon
    The global financial crisis has highlighted a number of policy issues that need to be addressed in malaysia’s
    social protection system. Even in the absence of the crisis, the government of Malaysia would have had to confront
    these issues soon as Malaysia’ social protection needs are changing now that it is becoming a middle-income
    country. Social protection policies have an important role to play as the government strives to maintain a flexible
    and competitive economy without exposing the population to serious poverty risk. Some of the issues on which
    the government is focusing and on which it will need to continue focusing as Malaysia consolidates its post-crisis
    recovery include:


    •	 Expanding	coverage	of	the	SP	system	to	include	various	groups	who	currently	have	little	or	no	coverage,	in	
        some cases under social assistance programmes and in others under social insurance. This includes workers
        in the informal sector, elderly people, and foreign workers in the case of social insurance. The coverage of
        social assistance for a country of Malaysia’s income level and administrative sophistication is particularly low
        by international standards. An important policy question is the extent to which the government intends the
        recent crisis-related expansions in coverage to be the beginning of wider reform of the SP sector or whether
        these expansions are meant to be temporary.


    •	 Developing	a	common	targeting	mechanism	for	SP	programmes	that	is	coordinated	across	agencies. Resources
        and programmes to protect the poor are available, though transfers and benefits do not always reach the most
        vulnerable households because a large share of these programmes is untargeted. More accurate identification
        of vulnerable households would make these programmes more effective and help policymakers to prioritize
        resources, which will be particularly necessary given the fiscal impact of implementing two large stimulus
        packages. There may also be some scope to shift the policy emphasis away from generalized subsidies and
        towarbds new and more accurate targeting mechanisms, which would increase the effectiveness of individual
        programmes and reduce leakage.


    •	 Rationalizing	the	administration	of	the	wide	range	of	institutions	involved	in	the	SP	system	in	Malaysia. Many
        different ministries and agencies are involved in providing social protection, and the many SP programmes
        differ widely in terms of their targeting mechanisms (and sometimes criteria), benefits, and administrative
        arrangements. For example, the Ministry of Women, Family, and Community Development, the Ministry of Regional
        and Rural Development, the Ministry of Health, the Ministry of Housing and Local Government, and the Ministry
        of Education all operate programmes to assist the poor. This fragmentation at the national level is compounded
        by fragmentation between levels of government (states also provide social assistance in coordination with the
        Ministry of Women, Family, and Community Development). This fragmentation is likely to result in significant


17 Economic Planning Unit, 2009 Budget, http://www.epu.gov.my/html/themes/epu/images/common/pdf/bajet/Budget2009-theme_and_strategies.pdf



                                                                           14
inefficiencies. The lack of coordination contributes to two possible problems. First, the fact that each agency
has their own institutional mechanism for identifying beneficiaries increases the possibility that the selection of
beneficiaries is not uniform across programmes, even if the same income criteria are applied. Second, there is
currently no system in place to find out which programmes are servicing which household and whether there
are any overlaps. The centralized database, e-Kasih, may become a useful monitoring tool for this purpose, but
it still suffers from several programmes, as discussed in the previous section.




                                                    15
                                                    references



Asian Development Bank Institute (2009). Working paper 148, Malaysia and the Global Crisis: Impact, Response, Rebalancing
        Strategies
Department of Statistics, Malaysia: “Labor Market report Q1 2009”
Department of Statistics, Malaysia: “Labor Market report Q4 2008”
Department of Statistics, Malaysia: “Labor Market report Q3 2008”
Department of Statistics, Malaysia: “Labor Market report Q2 2008”
Department of Statistics, Malaysia: “Labor Market report Q1 2008”
Economic Planning Unit, 2009 Budget, http://www.epu.gov.my/html/themes/epu/images/common/pdf/bajet/Budget2009-theme_
        and_strategies.pdf
Economic Planning Unit, 2009 key figures, Public Sector Accounts
9th Malaysia Plan 2006 – 2010, Development Allocation, http://www.epu.gov.my/html/themes/epu/html/rm9/english/allocation1.
        pdf
IMF Article IV (2009)
International Labour Organization (2009) “The effect of the Global Economic Crisis on Asian Migrant Workers and Governments’
        responses”, February
Ministry of Human Resources, Presentation: “Management of Retrenchment of Workers”, http://www.mohr.gov.my/pemberhentian/
        managing_retrenchment.pdf
World Bank (2009), “Malaysia Real Sector Update – September 2009”
Ragayah Haji Mat Zin, East Asia Development Network
Liza Wong, ‘Help for the needy’, the star online,
        http://thestar.com.my/lifestyle/story.asp?file=/2009/3/30/lifefocus/3355711&sec=lifefocus




                                                                    16
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