Poverty in Malaysia

Anti-poverty moves: Old wine, new bottles?

KUALA LUMPUR - With Malaysia's impressive track record in economic development over the past 30 years, and the constant push to modernize the country, it would seem that the problem of poverty would feature less prominently on politicians' agendas here. But this is not the case for the newly minted prime minister, Abdullah Ahmad Badawi. Soon after assuming office, he declared an ambitious plan to eradicate hardcore poverty within five years.

Malaysia's record in reducing poverty is impressive even on an international scale - so impressive that global agencies such as the World Bank and the United Nations have showered it with accolades. The government is currently documenting its success in a report to the UN on its efforts toward achieving the Millennium Development Goals - a UN blueprint, which among others things, aims to reduce poverty worldwide by half by 2015.

As a model country, Malaysia has much to share. After racial riots in 1969 triggered by dissatisfaction among the Bumiputra population (mainly Malays but also including indigenous people) who worried about losing their political influence to the economically strong Chinese, the government launched the ambitious New Economic Policy (NEP) in 1970, an affirmative action plan designed to give poor Malays a greater share of the country's future wealth. This "growth by equity" policy represented an active commitment to combat poverty, particularly among the Malays, who made up the majority of the poor, and to ensure economic growth that would benefit all.

Despite the controversy, the NEP was successful in reducing poverty and even exceeded its target goals. The series of government-installed regulations - quotas, scholarships and other privileges designed to help the Malays - successfully transferred wealth to this group. Their share of the national wealth jumped from 2.3 percent in 1970 to 20.6 percent in 1995. The NEP was replaced in the 1990s by the New Development Plan, which primarily continued the NEP policies.

These policies have paid off handsomely based on commonly quoted absolute figures. Due to stable economic growth and the government's poverty reduction policies, per capita gross domestic product (GDP) more than doubled from US$1,750 in 1975 to about $4,300 in 2003. The incidence of poverty has declined steadily over the years, plunging from 49.3 percent in 1970 to about 5 percent today.

But on closer examination, a less-than-ideal story emerges. Malaysia's poverty problem could be far more serious than the statistics show, and the prime minister's poverty eradication plan is proving timely, as the nature of the problem has changed over the years and new ways of tackling poverty now are needed.

"While both absolute and rural poverty have declined considerably due to past poverty eradication efforts, there are indications that relative and urban poverty is worsening, new forms of poverty are emerging and inequalities are increasing," said Sulochana Nair of the University of Malaya.

According to a study by the Organization of Economic Cooperation and Development (OECD), while poverty has always tended to be largely and disproportionately rural phenomenon, the disparity between incidences of urban and rural poverty increased in the 1990s compared with the 1970s and 1980s, underscoring the increasingly uneven economic development that impacts contemporary Malaysia.

The OECD noted that in spite of its very substantial improvement in the incidence of poverty, in terms of income distribution, Malaysia's record has been less impressive. While current levels of income inequality as measured by the Gini coefficient (named after Italian statistician Corrado Gini), have improved compared with conditions in 1970 and with those in the late 1950s and 1960s, they seem to have worsened, especially in the 1990s, and appear worst among Malays. Rural households earned approximately 55 percent of the income earned by urban households in 1999. Again, while this urban-rural disparity represents an improvement over the disparity in 1970, it is worse than circumstances in the late 1980s.

The World Bank shares that analysis, noting that income inequality usually decreases as poverty rates fall. It said Malaysia was one of the few countries in East Asia where inequality fell over the past few decades, but where, despite the long-term reduction in poverty rates, the trend has reversed itself since 1990. "Overall, Malaysia remains among the most unequal countries in East Asia," it said.

According to World Bank data, Malaysia's Gini coefficient - a measurement of income inequality where 0 (zero) indicates perfect equality and 1.0 represents perfect inequality - of 0.49 is higher than Thailand's (0.41), the Philippines' (0.46) and Indonesia's (0.32). It is also higher than both Laos (0.37) and Vietnam (0.36). Another study pointed out that in 1999 Malaysia also had the highest income disparity in the Asia-Pacific region, with an income disparity ratio of 11.7 percent between the richest 20 percent and poorest 20 percent of the population.

This serious inequality is attributed to the rural-urban divide, as well as regional and ethnic disparities. Between 1970 and 1990, the income disparity ratio between urban and rural households increased from 1.70 to 2.04. Poverty rates vary between different ethnic groups, and although there is evidence that these differences have narrowed over time, the majority of the poor are still Bumiputras, who also comprise the largest of the nation's three major ethnic groups, namely the Malays, the Chinese and the Indians. Income disparities between Bumiputra and non-Bumiputra household have been widening since the 1990s despite affirmative action policies aimed at narrowing the gap between these households, according to Nair, of the University of Malaya.

In 1997, 70.2 percent of households in the bottom 40 percent income group were Bumiputra, while 62.7 percent of households in the top 20 percent income bracket were non-Bumiputra.

Observers have noted that, given their weaknesses, existing strategies for poverty eradication are unlikely to resolve the poverty problem. Little has changed in the way poverty is conceived, measured and addressed since the NEP went into effect. Poverty in Malaysia was largely perceived as a rural problem with strategies, programs and development spending reflecting a strong rural, and Bumiputra, bias.

First, the method used to calculate the incidence of poverty in Malaysia belies the real extent of the problem, say analysts. The income threshold used for the poverty line, currently set at about $135 a month in peninsular Malaysia, is unrealistic since studies suggest that the average income for an urban family with five members or less is about $230 a month. Therefore, the poverty figures do not capture the real numbers because they do not take into account the differences in the cost of living between rural and urban areas and thus exclude large numbers of the poor in urban areas from anti-poverty policies and programs.

Second, new forms of poverty also have emerged as a result of rapid economic growth and the development process itself. According to Nair, of the University of Malaya, "the underdevelopment of the rural areas and the growing privatization of resources and commercialization of activities impoverish certain groups and marginalized weaker sections in society."

These societal changes are increasing poverty levels for single, female-headed households, migrant workers and unskilled workers, while persistent poverty continues to plague the Orang Asli (indigenous people in peninsular Malaysia) and other indigenous people in East Malaysia, as well as Indians. Urban poverty has become critical with rapid urbanization and rural-urban migration. The increasing number of foreigners in poverty in the post-Asian financial crisis period also has increased the incidence of poverty. Non-citizens as a proportion of poor households more than doubled, from 7 percent to 15 percent between 1990 and 1997.

The Asian financial crisis of the late 1990s also highlighted some weaknesses in the system and its inability to cope with economic uncertainties. Between 1997 and 1998, the incidence of poverty rose from 6.1 percent to 8.5 percent, though this rise was less severe than that of other countries in the region such as Indonesia and Thailand, thanks to Malaysia's capital controls and public expenditure programs. However, the lack of a social safety net has raised concerns about the need for some form of unemployment insurance for those most in need during economic crises.

Some critics say the government needs to look at a broader spectrum of issues and factors in order to measure the poverty rate, going beyond the standard conomic causes of poverty such as lack of housing, health care and education, areas in which costs are escalating. Social problems such as drug addiction and alcoholism often involve school dropouts from low-income families, they say.

For the government, tackling the poverty problem is like putting old wine in new bottles. Yet if recent official statements promising to revamp the system - from taking a more targeted approach to more realistically revising the poverty line - were to be taken seriously, the poor might see some light at the end of the tunnel.