Kuala Lumpur needs new plan to fight poverty

Denis Hew, The Straits Times, Asia News Network, Singapore

Malaysia's track record in poverty eradication over the past three decades has been impressive indeed. The overall incidence of poverty declined from 52.4 percent in 1970 to 6.8 percent in 1997.

The country suffered a temporary setback during the 1997-1998 Asian financial crisis, when the incidence of poverty increased to 7.6 percent and hardcore poverty rose from 1.4 percent to 1.5 percent (hardcore poverty is measured at an income that is less than half the national poverty line).

Nevertheless, Malaysia's economic recovery since then has helped reduce poverty levels.

Based on the most recent data from Malaysia's Ministry of Finance Economic Report, incidence of poverty was 5.1 percent in 2002 while hardcore poverty stood at 1 percent.

Many would argue that poverty is no longer a pertinent issue for Malaysia -- a country which is widely considered an economic success story. Yet Prime Minister Abdullah Ahmad Badawi has often mentioned that he is committed to eradicating poverty, and it remains an important part of his economic policy agenda. The Abdullah administration aims to reduce hardcore poverty to a mere 0.5 percent by 2009.

In the light of interest in this issue at the very highest levels of government, it may be worth revisiting poverty and poverty-related issues in Malaysia.

Despite decades of affirmative action via the National Economic Policy (NEP) and, more recently, the National Development Policy (NDP), poverty levels continue to be significantly higher among bumiputeras compared to other groups. The poor were found to be entrenched in predominantly bumiputera states such as Kelantan, Kedah, Terengganu, Sabah and Sarawak. Non-bumiputera Indians in low-skilled jobs also suffer from a high degree of poverty.

As one of the more developed countries in East Asia, Malaysia is paradoxically one of the region's most unequal.

Both the World Bank and the Asian Development Bank put Malaysia in the category of relatively high-income inequality countries. Malaysia's Gini coefficient -- a measure of income inequality -- ranged from 0.44 to 0.46 over the second half of the 1990s. (A Gini coefficient of zero corresponds to perfect equality where everyone has the same income while a coefficient of one corresponds to perfect inequality where one person has all the income and everyone else has no income.)

Some development economists have argued that the national poverty line is underestimated. In the Eighth Malaysian Plan, the national poverty line (per month per household) in peninsular Malaysia was RM510 (S$220). This is based on an average household size of 4.6. However, most Malaysian residents would seriously doubt whether a family of five could survive on a monthly income of RM1,000 let alone half this figure. (A quarter of Malaysian households earn less than RM1,000 a month.)

Income disparity is also widening between urban and rural households -- the former earns almost double the latter. Hence, a single national poverty line may not reflect the true state of poverty in Malaysia as it does not differentiate between the urban poor and the rural poor.

Poverty in Malaysia has also evolved as a result of the country's rapid industrialization. For instance, urbanization and rural-urban migration had led to urban poverty becoming a more serious policy issue. Current concerns of rising graduate unemployment due to a mismatch between the supply and demand of labor skills as well as declining foreign direct investments (FDI) in the manufacturing sector could exacerbate urban poverty in the near future.

Persistent poverty and high income inequality may reflect structural flaws in the country's economy. For example, industrial development has not been well spread out throughout the country. Most of Malaysia's industries are concentrated in the more urbanized west coast states (such as Selangor and Penang). At the same time, the country remains heavily dependent on a large pool of cheap foreign workers to keep its economy going.

The recent deportation of almost 400,000 illegal workers paralyzed many sectors of the economy -- manufacturing, construction, plantations and services. Rising unemployment and urban poverty stand in stark contrast to this acute shortage of labor.

Furthermore, Malaysia's hitherto industrial success is attributable to its pro-FDI policies which favor multinational corporations (MNCs) at the expense of its domestic small- and medium-sized enterprises (SMEs). However, SMEs, particularly in the rural areas, have shown that they can play an important role in poverty alleviation in many developing countries.

New forms of poverty are emerging among the most vulnerable segments of Malaysian society. These include single-parent households, the elderly, the handicapped, unskilled workers and the Orang Asli (aborigines) community. There are also those at the fringe of Malaysian society, such as the families of low- skilled foreign workers.

In the light of all these developments, a very different picture emerges with regards to what it means to be poor in Malaysia. Malaysian policymakers should consider taking a more nuanced approach in designing future poverty eradication plans.

The writer is a Fellow and coordinator of the Regional Economics Studies program at the Institute of Southeast Asian Studies. This is a personal comment.