This chapter addresses the fifth objective of the Recovery Plan. The economic crisis has created far-reaching effects on the equity and socio-economic aspects of development. Growing unemployment and loss of earning power will adversely affect household income and poverty levels, while the restructuring targets under NDP will need to be reassessed. There are also pertinent issues on foreign workers, state corporations and environment to be addressed. Action Ameliorate the hardship from poverty Address Bumiputera equity ownership Expand employment opportunities Meet the challenge of expanding tertiary education Address graduate unemployment Control the influx of foreign workers Gear up state corporations to face the crisis Revamp cooperatives and cooperative banks Protect the Environment Action 1: Ameliorate the Hardship from Poverty The incidence of poverty is expected to increase from 6.8 per cent in 1997 to 8.0 per cent in 1998. The number of poor households is estimated to increase from 346,000 to 414,700 during the same period. With regard to hardcore poverty, the incidence is expected to increase from 1.4 per cent in 1997 to 1.7 per cent in 1998, with the number of hardcore poor households increasing from 70,300 to 88,100. Consistent with the increase in national income per capita, mean household income is expected to increase from RM2,258 in 1997 to RM2,395 in 1998, registering a growth rate of 6.0 per cent per annum. Past records indicated that a lower economic growth would result in a lower growth in household income, and these could lead to a narrowing in income inequality. During the recession in the mid-1980s, the overall income distribution had improved. However, it is too early to say whether this outcome will be repeated in the current economic slowdown. There is likelihood that income inequality will not change sharply in 1998 and 1999, and over all income inequality might remain unchanged. To reduce the full negative impact of the economic slowdown on the poor, the Government has introduced several compensatory measures, some of which are as follows: Retain the original budget allocation for the Program Pembangunan Rakyat Termiskin (PPRT), which is not subjected to budget cut. In anticipation of a higher incidence of poverty, the Government has also allocated an additional budget for the PPRT amounting to RM100 million from the RM1 billion (USD300 million) World Bank loan. Allocate RM200 million of the World Bank loan to provide micro-credit assistance to petty traders and hawkers in urban areas. Make smaller cuts to the 1998 budgets of ministries involved in providing the social safety net, such as the Ministry of Health whose budget has been cut by only 12 per cent. This measure also applies to ministries involved in rural development and agriculture where most of the poor are found. In addition, RM200 million of the RM1 billion World Bank loan is being allocated for rural infrastructure facilities. Allocate from the additional RM7 billion for 1998 development allocation, RM300 million for poverty eradication, RM200 million for rural development and RM350 million for agricultural development. Employment Opportunities The slower employment growth and retrenchment of workers will worsen the hardship faced by poor households. Real personal incomes will fall due to the income and price effect of the economic crisis. The following measures are recommended to increase opportunities for employment and self-employment: Encourage organised and systematic petty trading, farming (vegetable cultivation, livestock rearing, etc.) and setting up of small businesses. Institute and provide training schemes for newcomers in petty trading and agricultural activities. Revitalise construction and infrastructure projects with multiplier employment effects. Price Increase The price increase and inflation is expected to adversely affect the poor households, which face increasing prices of food items with reducing real household income. The following are recommended: Imperfections and distortions in the marketing and distribution of essential commodities should be addressed to improve efficiency and competition. Organise campaigns to encourage people to grow their own vegetables. Where imported sources of food items are cheaper, the government should allow imports to increase supply and reduce pressure on prices. Import cheaper food items from foreign sources, especially ASEAN countries through bilateral arrangements. Establish a one-stop information centre on agriculture, including extension services, technical support and prices, at the Ministry of Agriculture for public use. Increase the number of wholesale and hypermarkets and factory outlets in the country. Increase market outlets for perishable goods, including the permanent site for pasar tani. Increase the number of fruit outlets. Local authorities and PLUS should be lenient in relocating fruit traders for easy market access by consumers along the highways. Reduce post harvest loss through better sorting and handling of foodstuff, such as fish, fruits and vegetables. Increase the landing capacity for deep sea fishing vessels. Persuade hypermarkets and supermarkets to allow small and medium-scale food producers to display and market their products at preferential rates. Action 2: Address Bumiputera Equity Ownership The current economic crisis has affected the performance and market capitalisation of the KLSE. The impact has been greater on Bumiputera investors. The market value of equity held by Bumiputera has decreased by 54 per cent compared with the non-Bumiputera and foreigners, at 50 per cent and 47 per cent, respectively. The reduction in stock prices of Bumiputera controlled companies is estimated at 55 per cent, non-Bumiputera controlled companies is estimated at 52 per cent, and foreign-controlled companies 36 per cent. As a result of the stock market collapse, it is estimated that the overall Bumiputera equity ownership in public-listed companies (excluding Government ownership) at market value has decreased from 29 per cent in June 1997 to 27 per cent in February 1998. With the slower growth potential of the Bumiputera corporate sector, it is anticipated that the share of Bumiputera equity at par value in the corporate sector as a whole in 1998 will remain at the 1995 level (i.e. 20.6 per cent). The sharp drop in share prices on the KLSE has also affected most Bumiputera businesses, especially domestic-oriented industries and high import-content industries. Higher interest rates, higher liquidity conditions, and tougher loan provisioning requirement, as well as the credit squeeze have also affected Bumiputera businesses. During the current economic slowdown, the resources for education have become more restricted and Bumiputera students will be affected as most of them are dependent on financial assistance provided by the Government. The recent Government decision to stop sponsoring and sending students overseas will affect about 16,000 Bumiputera students annually. Currently, local public universities are able to cater for an additional 4,000 places for all students. Therefore, competition among Bumiputera students is expected to increase and it is anticipated that only the top Bumiputera students will be able to get the opportunity to acquire tertiary education. The real impact on the future employment pattern would much depend on the capacity of public universities to provide more places as well as the provision of financial support for Bumiputera students to study in private universities. Taking into account the higher cost of tertiary education in private colleges and the limited financial capability of Bumiputera, the share of Bumiputera students in private colleges would probably decrease. It is further anticipated that the imbalances between the enrolment of Bumiputera and non-Bumiputera in the local higher educational institutions, especially in private universities, would also increase. Among some of the measures introduced by the Government to address the problems in relation to the restructuring objective are as follows: Retain the 1998 development budget for the Bumiputera Commercial and Industrial Community (BCIC) programme. Create the Small and Medium-Scale Industry (SMI) Fund of RM1.5 billion to assist small and medium-scale entrepreneurs involved in manufacturing for export to expand their business. Since most Bumiputera businesses are small and medium-scale in size, the SMI Fund is expected to be of assistance to them. Allow Bumiputera companies facing financial difficulties as a result of the drop in share value to sell their shares to non-Bumiputera buyers. Determine that strategic Bumiputera companies that have been well-managed and profitable before the economic downturn should be provided with the necessary government assistance to recover and re-establish themselves. Allow government-sponsored pre-university and first degree students currently studying abroad, the majority of whom are Bumiputera, to continue with their studies. The issues are as follows: The government decision to allow the sale of Bumiputera shares to non-Bumiputera buyers is still not well understood and not broadly accepted by the Bumiputera community. A major reason for this is the lack of understanding of the rationale for the decision. While the principle of limiting the sale of Bumiputera shares to non-Bumiputera Malaysians is well-taken, it may fall short of meeting the target of revitalising troubled Bumiputera companies with needed funds. Furthermore, it will not help in bringing in fresh foreign funds into Malaysia. While the principle of providing government assistance to financially troubled Bumiputera or Malaysian companies is taken care of, it is necessary to clarify the scope and actual source of such assistance. The decision to stop sponsoring and sending students overseas will lead to overcrowding for places at local universities. This will increase competition among Bumiputera students and only the better qualified Bumiputera students may be able to get places at local universities. The overseas post-graduate training programme for government officers, which has been suspended as part of the budget cut, can lead to a shortage of a better qualified cadre of senior officers in the future. The following measures are recommended to address distributional issues: Give to the public a full and open clarification of the governmentís rationale for allowing the sale of Bumiputera shares to non-Bumiputera buyers. Give consideration to the possibility of extending the decision to allow the sale of Bumiputera shares to non-Bumiputera buyers to include foreigners. If this is agreed upon, there should be a full and open clarification on the rationale. Study thoroughly the costs and benefits of utilising public-contributed funds, such as PNB, and devise an appropriate scheme to assist ailing Bumiputera and other companies. Continue to sponsor and send Bumiputera students abroad selectively, especially in professional and other courses that are not available in the country. In addition, private higher educational institutions should provide more places for Bumiputera applicants. In terms of finance, allocate a higher portion of the National Education Fund for Bumiputera students. Reinstate the in-service training programme for post-graduate studies for civil servants at local universities. Enlarge the size of the middle-income group by pushing up those in the lower-income group. In this regard, they (including Bumiputera professionals) must be encouraged to take up business and given training in business management. These potential entrepreneurs must be provided with the necessary incentives and support services. Action 3: Expand Employment Opportunities The economic slowdown is reversing the situation and the lower GDP growth is giving rise to slower employment growth, rising unemployment, surplus labour, increasing retrenchment, decline in human capital investment, falling productivity and competitiveness, and crowding out by foreign workers. Employment growth is expected to decrease by 1.8 per cent from 8.3 million in 1997 to 8.2 million in 1998. Employment growth will be slow or negative in many of the sectors except for some manufacturing subsectors that are export-oriented. The unemployment rate is expected to increase from 2.7 per cent in 1997 to 6.4 per cent (or 564,200 persons) in 1998. Despite retrenchments in some industries, there are requests from firms in the textile, electronic, furniture-making and rubber industries to hire additional workers. The retrenchments largely affect Malaysian workers rather than legal foreign workers. For instance, in April 1998, 93 per cent of the retrenched workers are Malaysians. There is the need for a mechanism to increase labour mobility and speed up the redeployment of workers The following measures are recommended to expand employment opportunities: Increase employment creation and opportunities through encouraging more investment in industries that are export-oriented and require highly skilled labour. Revitalise the construction and infrastructure projects with multiplier employment effects. Encourage self-employment through organised petty trading, farming and small businesses. Assist consultancy firms in engineering and other technical fields to bid for international businesses. Malaysian embassies and overseas Matrade offices should be more proactive in providing information on the availability of Malaysian goods and consultancy services. Improve the mobility of labour through setting up electronic labour exchanges at the state and district levels, publication of vacancies, and having regular dialogues/working groups with industry associations to monitor retrenchment and vacancies. Encourage flexibility in employment practices by reviewing provisions in the Employment Act 1955, and encourage industries to institute part-time employment, pay cuts, and reduction of working hours/shifts. Encourage and increase training and retraining to be financed by HRDC, CIDB, Institute of Banks, and with levy collected from foreign workers. The Government should assist business organisations that can aggressively market and distribute Malaysian products and consultancy services in foreign countries. The warehousing and distribution facilities provided by Arshad Tamin in South Africa and Boustead Sdn. Bhd. in Myanmar are models to be emulated. A stocktaking exercise should be undertaken to examine the current capacity of industrial training facilities in the public and private sectors, including those found in technology and industrial parks throughout the country. Action 4: Meet the Challenge of Expanding Tertiary Education Degree level education in Malaysia is conducted in eleven public universities that offer Arts, Sciences and Technical courses, and in 24 private institutions which conduct courses through twinning or credit transfer arrangements. Beginning in 1995 higher education has undergone some major changes. Among others, these changes allow for the establishment of private degree granting institutions, provide greater accessibility, as well as ensure the quality of education. As local institutions are unable to provide enough places to cater for the demand of higher education, about 54,000 students are pursuing tertiary level courses in foreign institutions. The currency depreciation has affected the financial capacity of the sponsors. Generally, the cost to sponsor students has increased by 53.8 per cent in USA and 65 per cent in UK. These have given rise to the following issues: The Government has decided not to recall students overseas as these students may have to face problems of incompatibility of courses, difficulties in credit transfers, differences in curriculum, teaching methods and medium of instruction if they resume their studies in the local institutions. The Government has been sending students abroad to pursue courses in critical areas. Therefore, new sponsorship for the top university programmes should be continued. However, taken into consideration the present currency depreciation, PSD and MARA proposed to send only a total of 200 students in 1998 requiring a total of RM11.2 million. Local public institutions are unable to meet the demand for places at the degree level while expansion programmes under the Seventh Malaysia Plan are seriously affected by the budget cuts. Since students will no longer be sent overseas, students with average results could be deprived of places in local institutions. Local public institutions are experiencing a shortage of teaching staff. The training of teaching staff including post-graduate courses is affected by the budget cuts. Even though the Private Higher Educational Institution Act, 1996, allows for the establishment of degree granting institutions by the private sector, currently only one foreign and three private institutions have been invited to conduct full degree courses. Appropriate policy and administrative adjustments are required to facilitate the establishment of private degree granting institutions including accommodating the requirement of these institutions to bring in foreign lectures. As the Government is not sending any new students to further their studies overseas, students who are completing their preparatory studies will have to be absorbed mostly into local public institutions, thus, affecting the current 55/45 Bumiputera/non-Bumiputera quota system. The amount of RM300 million allocated for The National Higher Education Fund is insufficient to cater for the additional applicants and to accommodate the higher fees in the private institutions of higher learning. As part of the strategy for economic recovery, the Government will no longer sponsor students abroad and encourages Malaysians to study locally. The 1998 development allocation, including that of the MOE's, has been reduced. The recurrent budget of MOE, MARA and PSD has also been reduced, and as such the sponsorship programmes under these agencies are only sufficient to cater for existing students overseas. Basically the budget cuts should not seriously affect educational programmes, as education is vital for human resources development. Based on these considerations, the following measures are recommended: Existing sponsored students should be allowed to complete their studies abroad. The MOE, together with the Ministry of Finance, should consider the financial assistance that has been offered by relevant foreign universities or Governments and international lending agencies. The Government should consider giving financial assistance to Malaysian students studying overseas based on the importance of the expertise and technology in their fields of study. Parents who are in the high-income group should be required to partly pay for the cost of their childrenís studies. Sponsorship for British and American top universities programmes should be continued. Ministry of Finance is to provide RM11.2 million required to sponsor 200 students under these programmes in 1998. Sponsorship of students under these programmes should be under the allocation for the Ministry of Entrepreneurial Development. The Ministry of Finance is to restore the development allocation for public institutions of higher learning. Financial assistance from international bodies or foreign Governments should be considered for this purpose. The provision of physical facilities has to be based on the increase of student intake. Only physical facilities necessary for teaching and learning purposes are to be provided, and not other support facilities such as great hall and mosque. A standard university building design should be introduced to avoid the construction of university campus with excessive frills, which increase cost. The establishment of universities or faculties using existing buildings, such as shop houses, is an alternative to constructing luxurious campus on a large piece of land. Franchise arrangements between local public and private institutions as well as existing off-campus and distance learning programmes should be expanded. However, the implementation of the franchise programme needs to be re-evaluated to ensure, among others, that the quality of education is upheld, the fees charged are not too burdensome or too high, and the teaching and learning facilities provided are at par with public institutions. The cost effectiveness of the off-campus and distance learning programmes should be evaluated since there is the tendency to use expensive electronic equipment but the programmes are less effective than the conventional method of instruction. Introduce more flexibility to the recruitment policy by public institutions to allow hiring on contract basis professionals from the private sector and allow the usage of English as a medium of instruction especially in critical courses. The MOE should evaluate the capacity of local universities to train their teaching staff in terms of their staff requirement by discipline and number of intake at the post-graduate level. The basis for this evaluation is to determine whether local tertiary institutions are capable of conducting such courses and to ensure a fuller utilisation of existing facilities. Post-graduate courses should, as much as possible, be conducted in the local tertiary institutions. The establishment of a private institution of higher learning should be based on the countryís need to acquire technology and expertise in the related fields. This basis should also be recognised and realised by the related professional bodies. MOE is to expedite evaluation and approval processes so that more private institutions can participate. The processes with regard to the approval of the curriculum and validation should be simplified without sacrificing quality. Expedite the processing of various documents and work permits by the Immigration Department and the Manpower Department. The Government should give incentives such as tax exemption and pioneer status to foreign and private institutions to encourage them to offer courses in engineering, medicine, information technology, and emerging technology. With the incentives, the MOE will have to make sure facilities provided are up to the international standard and are compatible with those provided at the parent institutions. Allow foreign lecturers to be employed especially in key disciplines where local lecturers are limited. However, during their stay these lecturers are required to transfer their knowledge and expertise to their local counterparts. The private institutions are also required to train their own teaching staff to meet their long-term requirements. The Government should increase the capacity of the public institutions to maintain the current quota system. Private institutions to provide places for Bumiputera at reduced cost or with subvention from the Government. In return, the Government should allow facilities at the public institutions to be utilised by the private institutions when they are not in use such as during night time and on weekends. Besides maintaining the Bumiputera/non-Bumiputera quota of 55/45, the MOE should ensure that at least 55 per cent of the Bumiputera students are in the science and technology fields of study at the local institutions of higher learning. To ensure that there are sufficient number of students taking science and technology-based subjects, the primary and the secondary levels should increase efforts to produce suitably qualified Bumiputera students in these fields of study. Efforts should be increased to avoid polarisation, whereby Bumiputera students have less interactions and are less able to compete with non-Bumiputera students at the higher educational levels. These efforts should begin at the primary and secondary schools. The concept of scholarship or loan should be well understood since it is closely related to the provision of reward and financial assistance principle. Students with excellent results should be given scholarships as rewards and in recognition of their potential irrespective of their parentsí income level. Financial assistance, however, are to reduce the financial burden of parents in bearing the education cost. Only those from the low-income group can borrow the maximum amount from the National Higher Education Fund which cover tuition fees, hostel and other fees, books and other allowances. Parents who can afford should start repayments when the loan is disbursed and the repayment transferred to the students when they are employed. To reduce administrative costs and to avoid duplication other sponsoring agencies such as MARA and PSD should cease to provide scholarships and loan for students. There should be a centrally managed education fund, which gives out loans for tertiary education. Graduates who had borrowed from the fund would repay their loans by having their repayment instalments deducted from their salaries by employers. Encourage the establishment of a private sector scholarship foundation. Action 5: Address Graduate Unemployment In 1998, about 33,000 local university and polytechnic graduates will enter the labour market and graduate unemployment could be a problem given the slowdown in job creation. Staff retrenchment in engineering consultancy firms will lead to a vacuum of engineers and other technical staff, which will limit the capacity and capability of the construction sector to respond when the economy recovers. Recommendations to address the problem of graduate unemployment are as follows: Co-ordinate the registration, monitoring and placement of unemployed graduates by the Ministry of Education. Exempt employees and employers for new graduates from contributing to EPF. Encourage unemployed graduates to participate in Yayasan Salam programmes and take up self-employment. Give graduates priority to participate in agriculture projects, small businesses and apprenticeship schemes in big companies and MNCs. Funding and training should be provided to them. Allow sponsored graduates to work overseas after completion of their courses. Encourage unemployed graduates from local and foreign universities to seek employment in foreign countries. Allow unemployed graduates to fill public sector posts, requiring non-graduate qualifications. Action 6: Control the Influx of Foreign Workers Currently there are about 1.14 million legal foreign workers who constitute 13 per cent of the labour force. The continued economic crisis in Indonesia is expected to increase the influx of foreign illegal immigrants and swell the pool of 800,000 illegal workers (with 400,000 dependants) in the country. These foreign workers will not only be competing with Malaysians for the same jobs but they could be a liability if their presence and entry are not be controlled. The use of migrant labour has economic and social costs that have to be borne by Malaysian taxpayers. The following measures are recommended to deal with the influx of foreign workers: Review the policies and strategies on foreign workers to provide more consistency and transparency to Government policies on foreign workers. Continue with the freeze on foreign workers. Excess foreign workers and those who cannot be re-deployed should be repatriated. Negotiations on a Government-to-Government basis with the countries of these illegal immigrant workers will have to be intensified to prevent an influx of illegal immigrants and also ensure repatriated workers do not return to Malaysia. The relevant authorities and mass media should not give undue publicity to the repatriation of illegal immigrant workers. If necessary, allow the use of foreign workers only in export-oriented industries. Strict enforcement of the Immigration Act which spells out severe penalties for syndicates/persons bringing in illegals as well as employers employing illegals and those forgoing ICs and passports. Foreign labour should be charged medical fees and ward charges at market rates when they sought treatment in public hospitals and clinics. School fees charged on foreign children should be equivalent to those charged by private schools. The Jawatankuasa Kemajuan dan Keselamatan Kampung (JKKK) should be mobilised to assist in monitoring and reporting the entry of illegals especially in villages near the Malacca and Johore coastlines. Action 7: Gear Up State Corporations to Face the Crisis The present economic crisis has varying impact on the State Economic Development Corporations (SEDCs) and State Agricultural Development Corporations (SADCs). For some SEDCs with diversified activities, the economic downturn has negatively affected specific activities. Those with investments in the stock market have experienced significant paper-losses due to the stock market turmoil. The economic slowdown and the haze episode of late 1997 also adversely affected the tourism activities of the SEDCs. The issues facing the state corporations are as follows: The current economic situation will reduce further the profits of the SEDCs in 1997 and 1998. Even in 1996, when the economy was booming, only 55% of all SEDCs ventures recorded profits. The economic crisis will only worsen the losses of these ventures. SEDCs and SADCs are faced with higher input cost in their agricultural projects, such as fertilisers, pesticides, and animal feeds, as a result of the currency depreciation. In addition, there is a considerable lack of marketing outlets in the country to market agricultural produces. The labour released from the construction and certain manufacturing subsectors can be transferred to the productive agriculture sector and also into food production. However, there is the absence of a proper co-ordination mechanism to facilitate the transfer. SEDCs and SADCs have become over-diversified in their activities, while conglomeratisation of SEDCs and SADCs poses problems of operational and financial management. Other than Johor Corporation, which has been corporatised, the other SEDCs are tied to the usual public sector red tape and bureaucracy, resulting in inflexibility and delays. Opportunity costs and trade-offs among states should be considered alongside the need to encourage SEDCs and states to specialise in specific sectors, such as food production, water supply and other natural resources maintenance for the benefit of the whole nation. The state governments should be compensated for the potential loss in revenue as a result of refraining from other more lucrative land uses, such as industrial development. The following measures are recommended to gear up the state corporations: SEDCs and SADCs should closed down or sell-off to willing buyers any ventures that are not performing well and of doubtful long-term viability. SEDCs should consolidate their activities in which they have the comparative advantage. Since SEDCs are closely linked to the state governments, they should re-emphasise their traditional role as catalyst and facilitator in state development. SEDCs to play a catalytic and facilitative role in releasing land for the immediate development of low-income housing and small- and medium-scale industrial premises. As for land shortage, state governments should utilise SEDCs and SADCs to make available institution-owned land and suitable state land for food production. The government must consider the utilisation of suitable reserve land for short-term food crop, such as railway reserve land, PLUS reserve and TNB reserve lands. A system or mechanism should be devised to exploit idle land and find ways to optimise such land. Participants in schemes and projects that have been promoted and facilitated by SEDCs and SADCs should be given easier access to credit facilities such as the Fund For Food Scheme. State governments and SEDCs should facilitate large-scale foreign investment in food production. Local substitutes to be used as inputs in agriculture sector. R&D agencies such as MARDI and PORIM should be quick and aggressive in researching and disseminating information on the commercial viability of using the input substitutes in the agriculture sector. Plantations should also be used for grazing to increase local meat supplies. SEDCs facilitate the establishment of more wholesale markets and pasar tani at state, district and town level. The ëauctioní system be implemented in the wholesale markets to overcome problems created by the consignment system. The Government should assign a specific agency to provide clear guidelines and set up the mechanism to help in transferring excess labour to the plantations, food production and manufacturing sector. SMI Fund needs to provide more information on and facilitate the process for quicker access to this Fund. Besides, lending institutions should also be required to provide more appropriate terms on a case by case basis to Bumiputera entrepreneurs in productive sectors. SEDCs should facilitate the provision of affordable industrial premises to Bumiputera-owned SMIs. SADCs should consolidate their activities in food production and agriculture. Their involvement in other non-agricultural activities should be withdrawn. SEDCs role and activity structure should be subject to review in the light of the new orthodoxy of ëgovernment has no business in businessí. Their role as facilitator and catalyst in state economic development, including the development of Bumiputera entrepreneurship, should be emphasised. SEDCs should take cognisance of subregional cooperation in the Growth Triangle initiative in order to ensure that maximum benefit is accrued to the relevant Malaysian states. All SEDCs should consider opting for corporatisation in line with the Johor Corporation model, to enable them to operate commercially as financially autonomous entities, while maintaining their traditional role of promoting Bumiputera entrepreneurship and the establishment of the Bumiputera Commercial and Industrial Community (BCIC). The Johor Corporation and the other future corporatised SEDCs should be privatised ultimately either as a whole or in parts. FAMA's role can be enhanced particularly if that agency can be restructured and privatised to proven players in food distribution such as BERNAS. An Opportunity Cost Policy is timely to compensate states for the ëtrade-offsí by being involved in food production and preserving the natural resource of the state. This policy can help reduce the gap between the rich and poor states in this country. Action 8: Revamp Cooperatives and Cooperative Banks The cooperative movement has been in existence for the past 75 years ago. In December 1997, there are 3,847 registered cooperatives with a membership of 4.38 million. They have an accumulated share capital of RM3.09 billion and asset amounting to RM13.65 billion. Starting with thrift and loan cooperatives with the main function of providing credit, the cooperatives today have expanded and diversified into other businesses covering housing, transport, construction, estates and services. However, credit and consumer cooperatives still form the main activity of the movement. The financing of cooperatives is obtained from both internal and external sources i.e. loans from commercial banks, as well as deposits from members and trade creditors. Currently, the cooperative movement faces the following issues:- Substantial involvement in the share market. The fall in the share market has adversely affected their other primary activities. The Cooperatives that borrowed to invest in shares were the most badly affected as they have not only to provide for their paper losses but are also burdened with heavy debt-servicing obligations. The high interest rate has jeopardised their main activity and other activities, such as housing and hotel projects, which have to be postponed or temporarily stopped. Managementís violation of the Cooperative Act in share investments with borrowed funds without obtaining prior approval of the Registrar General. Problems faced by cooperatives. Cooperatives face increased finance cost, decline in sales/cooperative business, and erosion of confidence in cooperatives. In the present environment, some cooperatives have curtailed their credit facilities and frozen loans to members;. They cut costs by freezing yearly increment, allowance, bonus, while some had resorted to selling their assets. Need for a National Cooperative Policy High liquidity ratio maintained by Bank Rakyat To address the issues above, the following are recommended: Substantial Involvement in the Share Market Cooperatives should adhere to the basic objectives of the cooperative movement and abide by their charter. Cooperatives should reduce their dependence on share investment to make profits. The Department of Cooperative Development should enhance its regulatory, supervisory and advisory support role to the cooperatives. Cooperatives should seek to reschedule or restructure their loans from banks. The banking sector is needed assist the affected cooperatives by giving them time to tide over this problematic period. The Department of Cooperative Development should consider making it mandatory for investment panels with independent members to be established in cooperatives. Cooperatives are encouraged to resort to professional fund managers to assist in the management of their business investments. The Department of Cooperative Development should impose a percentage limit on the utilisation of surplus fund for investment in shares. The cooperatives are encouraged to invest in trust funds. The Cooperative Act should be reviewed and amended to specifically address the powers of cooperatives to borrow for investment and set out the prudential limit and other criteria for investment to reduce the risk of losses due to investment and speculation. Increased Finance Cost Banks are advised to reduce the rate of interest on loans to a reasonable level, say, at BLR + 1.5 per cent or Cost of Funds (COF) + 1.5 per cent, whichever is lower. Existing Revolving Fund of the Department of Cooperative Development be utilised to assist the cooperatives for to refinance their loans. Cooperatives should restructure the group companyís activities to strengthen their operation. In addition, they should a. intensify loan collection from customers b. freeze new loans and financing of new projects c. postpone, cancel and reduce capital consumption d. review and enhance management expertise as well as prudential practices to meet the scope and scale of its operations to ensure its long term viability. The Government should consider licensing and supervising Bank Rakyat under BAFIA so that its management and prudential practices may be enhanced with guidance and supervision by Bank Negara Malaysia. Role of Cooperatives in Controlling Inflation Cooperatives should promote the expansion of Consumer Cooperative Consortium to service their members by getting supplies directly from manufacturers or producers at competitive prices, thereby reducing the role of middlemen. Establish a chain of mini markets in every town to enable bulk purchasing from suppliers, thereby achieving competitive prices for members. Cooperatives should open up unattended land for agriculture and use them for the production of vegetables and fruits. Cooperatives are encouraged to supply agricultural goods to members at designated markets such as Pasar Tani and mini markets. Credit and consumer cooperatives are encouraged to form buying consortiums along the line of Consumer Credit Cooperatives in order to improve the bulk purchasing terms from suppliers and achieve better prices for members. Erosion of Confidence in Cooperatives Credit cooperatives should pursue more aggressively the mobilisation of membersí savings. The recent establishment of Amanah Saham Angkasa (ASA) provides an avenue for savings to be professionally invested. The cooperative movement in general and individual cooperatives should embark upon a concerted confidence-building exercise to reassure members that their money are safe and managed professionally. Managementís Violation of the Cooperative Act Action should to be taken by the Department of Cooperative Development in accordance with Section 93, Cooperative Act 1993 against the Board of Directors of the cooperatives that have acted ultra-vires to the Act. The Department of Cooperative Development needs to strengthen its supervision, monitoring and enforcement procedures so that these violations, which are not new in the history of the cooperative management, shall not recur in the future. The Department of Cooperative Development should seek the Attorney-Generalís or Federal Counselís opinion on the borrowings taken from financial institutions to purchase shares with regards to the provisions of the Act. Need for a National Cooperative Policy A National Cooperative Policy be formulated on an urgent basis. The policy should outline the new role of the Cooperative movement to meet new challenges and take cognisance of the changing environment. The Government instructs corporatised agencies to maintain the monthly wage deduction of cooperative members through ANGKASA. Action 9: Protect the Environment The current economic situation may lead to greater pressures on natural resources and increased pollution as businesses cutback on expenses and their environmental programmes are among the first to be aborted. In addition, the budget cutback on government agencies may negatively affect enforcement. For instance, the Department of Forestry (DOF) reports that with the budget cuts, the objectives set for 1997 could not be fully attained, affecting Malaysiaís commitment that all timber products for the international market be harvested from sustainably managed forests by the year 2000. Failure in achieving this will affect Malaysiaís trade in wood products, which in turn will affect the countryís foreign exchange earnings. The current economic slowdown has also created some negative overall impact on industriesí environmental programmes. The following actions adopted or proposed by several frontline environmental agencies are re-affirmed: The move by the Ministry of Science, Technology and Environment to re-prioritise its activities and to seek additional multilateral and bilateral funding for its activities. The prioritisation of enforcement action by frontline environment agencies to ensure that the environment does not deteriorate. Short Term Measures With the cut in funds for enforcement, the focus should be on priority areas where adequate funding must be made available to ensure that enforcement activities in these areas are not affected. The priority areas include: a. Open burning, which needs extensive air surveillance b. River pollution, especially those caused by illegal factories, which results in frequent fish deaths in rivers. The relevant authorities, in particular the municipalities, must look into this issue. c. Haze d. Industrial pollution e. Toxic waste should be sent by their generators for treatment at the toxic waste facility in Bukit Nanas, instead of storing it at their premises. f. Degradation and destruction of water catchment areas. Development at water catchment areas must be stopped. One possible mechanism is to ensure that states governments do not de-gazette protected areas unnecessarily and would be required to seek Federal approval before they could do so. g. Groundwater. There are extensive groundwater sources and funding should be made available for the procurement of pumps, borers and drills to access the source. h. Solid waste, especially in Kuala Lumpur and the Klang Valley, where the current landfill methods are not adequate. It is proposed that the government should consider installing an incinerator to adequately address solid waste disposal issues. Short-term measures should concentrate on invoking, implementing, and enforcing whatever existing guidelines and laws, so as not to place additional demands on the overall national expenditure. Accordingly, the following measures are recommended: Administrative, Legal and Institutional Measures Enforcement sections and activities of environmental agencies should be given priority. Natural Resource Accounting should be introduced, to provide clearer economic tracking of the use of natural resources. A sustainable development indicators system should be developed to enhance environment and resource planning in Malaysia. The environmental capabilities of State Economic Planning Units (or its equivalent) in each State should be upgraded, by making one officer responsible for ensuring that environmental considerations are included in development planning. Water Issues The current pricing system of domestic water supply should be revised to reflect more closely the actual cost of developing water resources. The availability of water should be a major factor in determining the viability of proposed land use and development activities. The process of approving the Interim National Water Quality Standards must be expedited to give DOE greater enforcement powers, and more control over the discharge of waste into water systems. The extraction of groundwater needs control, and the feasibility of licensing commercial users based on well size or extraction rate as minimum criteria should be studied. The emphasis of management should shift from the searching and developing of new water sources, to conserving existing ones. The practice of recycling water should be encouraged by providing economic incentives and infrastructure. The maintenance of riparian strips or river reserves should be made mandatory by amending the relevant section of the Water Enactment (at present it is a guideline). The guideline for establishing riparian strips in the Water Enactment should be amended to specify preferred activities (e.g., maintenance of vegetation, tree-planting etc.). Land Issues Reclassify landuse priorities under the Land Capability Classification to reflect the true economic value of water catchments, forest reserves, and protected areas. The use of the Land Resources Report (LRR), prepared in 1974, which provides a more rational and balanced approach to land use decisions than that in the Land Capability Classification, should be encouraged. Encourage the use of the National Land Code Act to designate protected areas, through a Statesí right to gazette land for public purposes. Stricter conditions should be administered for land use activities on steep land. Forest Issues Gazettement of forests on steep land should be done under Section 10 of the National Forestry Act. All forest on steep land should be classed as Soil Protection Forest, with altitude limits set as boundaries for steep land. Mangrove and nipah forests at river estuaries should be classed as Soil Reclamation Forest because of the erosion control function they serve and their sensitivity to disturbance. Agricultural Issues The Pesticides Act should be amended to control the total dosages of pesticides and the use of mixtures. Modify current investment incentives in the agricultural sector to target suitable idle lands for development rather than general land clearance practices that deplete natural forests and encroach upon sensitive ecosystems. Industry Issues Industrial sector should be given incentives for wastewater treatment and recycling to reduce pollution and water consumption. States should become more selective in approving investments for ëdirtyí industries. Financial incentives should be provided to facilitate the transfer of ëcleaní technology, and the importation of pollution control equipment. A database on ëcleaní technology relevant to and present in Malaysia should be developed. Industrial estates should have zoning, a buffer, drainage system, and centralised waste treatment facilities designed in consultation with DOE before any factory site is sold. Medium- and Longer-Term Measures The following medium and longer-term measures are recommended: That an economic approach, via the usage of economic or market based instruments be used in addressing environmental and resource issues. The Federal Government should fund the incremental or additional costs that are borne by States in taking environmental action that benefits the whole nation. Taxes for the environment should be based on the polluter pays principle and should be calibrated according to the damage that a firmís pollution causes in the environment.

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