Income InequalityCausative Factors and How to Address It

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					 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

                        Overall            Malay            Chinese             Indian
     1957/58            0.412              0.342             0.374              0.347
     1967/68            0.444              0.400             0.391              0.403
       1970              0.502              0.466             0.455              0.463
       1976              0.526              0.494             0.505              0.458
       1979              0.493              0.488             0.470              0.460
       1984              0.480              0.469             0.452              0.417
       1987              0.458              0.447             0.428              0.402
       1990              0.446              0.428             0.423              0.394
       1995             0.4560               n.a.               n.a.              n.a.
       1997             0.4586             0.4495            0.4188             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         1989        1992        1993           1995         1996    1997      1998       2000-1       2003     2004 –
  Origin                                                                                                                   2005


    Indonesia     12,000                 309,905                                        1 million   2 million              1.2
                                                                                                                          million

Philippines                                 411                                         400,000                           200,000


    Thailand                              22,518                                        33,000


     Burma                                 9,389


South Asia                                29,869


    Africa +                                135
    Middle
     East

      Total         N/A      200,000     372,268         250,000   554,941    612,000     N/A       300,000     560,000   400,000
                                                           *a         **                              *b



* Discrepancy in figures:

a   500,000 – 700,000; New Straits Times, April 5 1996
b   1 million; The Star, July 30 2001

** An additional 1 million illegal immigrants refused regularisation
    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          1998          1.7 billion
                  (KPB)
10    United Engineers Malaysia Berhad       1998          12 billion
                  (UEM)
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     2000      115 million
      Pembangunan Bandar Mutiara
               Sdn Bhd
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)       2000      782 million
                Berhad

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      1998-2001   950 million
                Berhad
26        TA Enterprise Berhad          2001    1.77 million

27       New Straits Times Press        2001    2.97 million
        (Malaysia) Berhad (NSTP)

28       National Steel Company         2001     3 million

29   K&N Kenanga Holdings Berhad        2001   16.76 million


30   Country Heights Holdings Berhad    2001   74.51 million
                (CHHB)

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   2001     5.5 billion
     Bhd (Star) and Project Usahasama
      Transit Ringan Automatik Sdn
                Bhd (Putra)
37      Intrakota Komposit Berhad              2001
38             Cygal Berhad                    2001
39       Actacorp Holding Berhad               2001
                                                       Companies
40           Johor Corporation                 2001
41        Land & General Berhad                2001   contributing to
42      HVD Entertainment Berhad               2001
                                                      Corporate Debt
43       NCK Corporation Berhad                2001
44       Abrar Corporation Berhad              2001   Restructuring
45   Abrar Corporation International Sdn Bhd   2001
                                                       Committee’s
46   Timbermaster Industries Berhad            2001
47     Cableview Services Sdn Bhd              2001      (CDRC)
48     Magnitude Network Sdn Bhd               2001
                                                       management
49      Bridgecon Holding Berhad               2001
50      Jupiter Securities Sdn Bhd             2001    of a total of
51       Suasa Unik (M) Sdn Bhd                2001
52   Perusahaan Sadur Timah Malaysia Berhad    2001   RM29 billion

53        Red Box (M) Berhad                   2001    of corporate
54               ELITE                         2001
55       Business Focus Sdn Bhd                2001     debts as of
56       Tanco Holdings Berhad                 2001    year 2001.
57      Hai Ming Holdings Berhad               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      2002         645 million
                   (TV3)
65     Expressway Lingkaran Tengah          2002         1.05 billion
                 Berhad
66   Malaysian Resources Corporation        2002          1.8 billion
             Berhad (MRBC)
67   Employment Provision Fund (EPF)        2002          10 billion

68    Malaysia Airlines System (MAS)        2002           9 billion

                                            2005         684.4 million
                                         Half year net
                                             loss
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           1999            19 million
            Berhad (Proton)
                                            2005          154.3 million
                                    2nd   Quarter ended
                                          September
                                            2006           315 million

78                                          2005          456.44 million
          BIMB Holdings
79      KUB Malaysia Berhad                 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                    (36)                        (66)     (75)
        received
     (accumulative)
       Total Debts                11,028.15                  24,624.62   11,556.98

      Withdrawn/                        -                     3,504.35   4,855.28
     Rejected Cases                                             (15)        (6)
      Transferred to                    -                     2,764.70   1,813.54
        Danaharta                                                (8)        (1)
    Completed Cases                 344.50                   11,089.28   13,698.63
                                      (2)                       (11)        (20)
         Cases                    10,683.65                  16,651.13   12,093.40
       Outstanding                   (34)                       (28)        (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                                                                7MP                     8MP
                                                                                    Allocation            Expenditure      Allocation
Education                                                                               17,948.5                17,542.2     18,660.0
• Pre-school                                                                               123.6                   107.5        147.4
• Primary Education                                                                      2,632.0                 2,631.8      2,750.0
• Secondary Education                                                                    5,330.1                 5,317.5      4,862.6
      Government & Government-aided Schools                                              3,860.0                 3,853.7      3,262.6
      MARA Junior Science Colleges                                                         710.0                   707.2        700.0
      Technical & Vocational Schools                                                       760.1                   756.6        900.0
• Tertiary Education                                                                     5,362.8                 5,005.1      8,900.0
• Teacher Education                                                                        350.0                   332.5        300.0
• Other Educational Support Programmes                                                   4,150.0                 4,147.8      1,700.0
Training                                                                                  2,237.3                2,181.9      4,000.0
• Industrial Training                                                                     1,876.0                1,827.0      3,760.0
• Commercial Training                                                                        71.3                   71.2        100.0
• Management Training                                                                       290.0                  283.7        140.0
Total                                                                                   20,185.8                19,724.1     22,660.0

 Source: Malaysia, (2001). Eighth Malaysia Plan 2001-2005, Kuala Lumpur. Percetakan Nasional Malaysia Berhad.

				
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