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

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

Gini-Coefficient by Ethnic Groups, 1957-1995

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 1992 1993 1995 1996 1997 1998 2000-1 2003 2004 –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 + Middle East

135

Total N/A 200,000 372,268 250,000

* a

554,941

**

612,000 N/A 300,000

* b

560,000 400,000

* 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 (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 Intrakota Komposit Berhad 2001

Companies  

contributing to

Corporate Debt  

Restructuring  

Committee’s  

(CDRC)  

management  

of a total of  

RM29 billion  

of corporate  

debts as of 

year 2001.

38 Cygal Berhad 2001

39 Actacorp Holding Berhad 2001

40 Johor Corporation 2001

41 Land & General Berhad 2001

42 HVD Entertainment Berhad 2001

43 NCK Corporation Berhad 2001

44 Abrar Corporation Berhad 2001

45 Abrar Corporation International Sdn Bhd 2001

46 Timbermaster Industries Berhad 2001

47 Cableview Services Sdn Bhd 2001

48 Magnitude Network Sdn Bhd 2001

49 Bridgecon Holding Berhad 2001

50 Jupiter Securities Sdn Bhd 2001

51 Suasa Unik (M) Sdn Bhd 2001

52 Perusahaan Sadur Timah Malaysia Berhad 2001

53 Red Box (M) Berhad 2001

54 ELITE 2001

55 Business Focus Sdn Bhd 2001

56 Tanco Holdings Berhad 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 (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 2nd Quarter ended

September

154.3 million

2006 315 million 

78  BIMB Holdings

2005 456.44 million 

79 KUB Malaysia Berhad 2005 2nd Quarter ended

June

9.02 million

80 PSC Industries Berhad (PSCI) 2005 789 million

Subject 1998 1999 2000

Application received

(accumulative)

(36) (66) (75)

Total Debts 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/casesSource: CDRC Website

CDRC: Company Debt Restructuring Cases (RM Mil)

• 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

Programme 7MP 8MP

Allocation Expenditure Allocation

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

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

Training• Industrial Training• Commercial Training• Management Training

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

Total 20,185.8 19,724.1 22,660.0

Development Allocation for Education and Training, 1996-2005 (RM million)

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