Introduction

The public sector in Malaysia consists of the federal government, thirteen state governments, four municipalities (namely Penang, Ipoh, Kuala Lumpur and Malacca), non-financial public enterprises (NFPEs), and public financial institutions such as the Employee Provident Fund (EPF) and the Bumiputra Investment Foundation. As of September 1988, there were 847 government companies (including government financial institutions), with paid-up capital amounting to $19,652 million, of which the government contributed $13,819 million1 (Economic Report, 1988-89, p. 96).

The fiscal system of Malaysia operates under a federal structure. Under the Federal Constitution (10th schedule), the main revenue sources assigned to the states are receipts from land sales, revenue from lands, mines and forests, entertainment duty and Islamic religious revenue. Additional sources of revenue are assigned to the states of Sabah and Sarawak. These include import and excise duties on petroleum products and export duty on timber and other forest produce. The Constitution also provides for capitation and road grants to the states. In addition, special grants are provided to Sabah and Sarawak.

During the six years ending 1988, consolidated revenue of the thirteen states (excluding grants from the federal government) amounted to about one-sixth of the total revenue of the federal government. The operating expenditure of all the states combined increased steadily from 8.5 per cent of the operating expenditure of the federal government in 1983 to 22.5 per cent in 1988.

The quantitative importance of development expenditure of the NFPEs has been considerable. Thus, during the six years ending 1988, development expenditure by the NFPEs was about 70 per cent of such expenditure by the federal government.

In spite of the importance of the state governments and the NFPEs, this paper focuses on the fiscal system and practices of the federal government of Malaysia and their probable impact on resource allocation, incentives and growth, equity and stabilization.

I. Introduction

The last two decades have seen the relationship between the People's Republic of China (hereafter China) and ASEAN countries undergoing a dramatic evolution. The end of the Vietnam War, the U.S.-China detente, and the Vietnam invasion of Kampuchea are major events which moved many countries of ASEAN to normalize their relationship with Beijing. The changes which took place within China itself have also led to closer co-operation between ASEAN and China.

Many argue that the death of Chairman Mao Tse-Tung and the purge of the Gang of Four escalated the new emerging trend in China and led to the rise of Deng Xiaoping to the supreme position in China. Under Deng, China which had been under the strict socialist path, began to reform her economic system based on the Four Modernization Principles. The modernization of China, which began in 1970, comprises new thinking on the economic system, institutions, and economic relationship with the rest of the world — the so-called ‘open-door policy’. These developments have caused some concern both within China and in the rest of the world. The introduction of the profit motive and the price system into China means that there can be incentives for Chinese to operate according to the market principle. At the same time, China has not solved the problems arising from the parallel operation of the price mechanism system and the planned economy. At present, the price mechanism is limited to certain commodities and localities and it is very difficult to envisage its extension to the whole vast economy.

The introduction of the market system, while generally lauded by outsiders, has also led to a price spiral resulting in a higher cost of living for the Chinese. The economic reforms which China undertook means also that she is more willing to integrate with the international economy. Since China has reached self- sufficiency in many commodities, her exports of surplus items have played a significant role in her economic relations with the rest of the world in general.

I. Introduction

Since its inception in 1978, China's economic reforms have attracted world-wide attention. Their successful implementation is not only crucial to the development of China's domestic economy, but also highly significant in promoting China's economic ties with foreign countries. The ASEAN countries are China's close neighbours, with whom China sincerely aspires to promote vigorous economic relations on the basis of equality and mutual benefit. This relationship hinges upon numerous factors, the most important of which are: firstly, the economic policies, structures, and development of China and the ASEAN states; and secondly, the pattern and development trends in the world economy. China's economic reform, a most assiduous, complex, and time-consuming undertaking, constitutes a long-term factor that will affect the economic relations between China and the ASEAN nations. What is the nature and trend of China's economic reform? And what impact will it have on prospects for China-ASEAN economic relations? These are matters of general concern to the ASEAN countries.

This paper is divided into three parts: first, an overview of China's economic reforms; second, China's economic structure and related policy reforms; and third, an analysis of the impact of China's economic reforms on China-ASEAN economic relations.

II. An Overview of China's Economic Reform

The economic reforms in China involve two interrelated aspects of structural and policy reforms, with focus on the former. The original economic structure characterized by centralized economic planning took shape in the late 1950s. The merit of such a structure lies in its centralized and unified planning which facilitates the mobilization of vast human, material, and financial resources for major projects vital to the national economy and the people's livelihood. It played a significant role in laying the foundation for China's socialist industrialization and in setting up an independent and comprehensive system for the national economy. Yet it also had serious flaws, manifested mainly in: excessive concentration of economic decision-making power; over-emphasis on mandatory planning; neglect of the development of the commodity economy and the regulatory role of the market; and lack of enterprise vitality and low economic returns.

ASEAN-China economic relations is an area of considerable significance. Indeed, if anything, this significance has been increasing in recent years. Yet this relationship remains poorly understood, particularly in terms of the overall issues involved and their implications for individual countries and the region as a whole. It was partly to correct this state of affairs and to put ASEAN-China economic relations in their proper perspective that a group of ASEAN and Chinese scholars came together in April 1985 to plan a three-year research project on “ASEAN- China Economic Relations”. Three themes were identified: Phase I — ASEAN- China Economic Relations: Trends and Patterns; Phase II — Developments in China and ASEAN and Their Implications for ASEAN-China Economic Relations; and Phase III — ASEAN-China Economic Relations in the Context of Pacific Economic Development and Co-operation. The Institute of Southeast Asian Studies, Singapore, and the Institute of World Economics and Politics, Beijing, are the co-ordinating institutions for ASEAN and China, respectively. Dr Chia Siow Yue is the Co-ordinator of the ASEAN aspects of the project and Mr Cheng Bifan, the Chinese aspects. Both Dr Chia Siow Yue and Mr Cheng Bifan are also the joint editors of the publications emanating from the project, with Dr Chia being responsible for the English edition and Mr Cheng Bifan, the Chinese edition.

The papers of the first phase of the project were presented at a workshop in Singapore in June 1986, and published under the title ASEAN-China Economic Relations: Trends and Patterns in October 1987. The research findings of the second phase were presented at a workshop in Beijing in October 1987. It is hoped that this second volume, ASEAN-China Economic Relations: Developments in ASEAN and China will also be useful to scholars and policy-makers concerned with ASEAN-China economic relations. The project on “ASEAN-China Economic Relations” has benefited immensely from the contributions of all participants, and from the financial support provided by the Ford Foundation and the International Development Research Centre, Canada. The Institutes would like to record their appreciation of all this assistance and support.

The “Socio-Economic Consequences of the Ageing of the Population” project is one of the seven population projects of the Phase III ASEAN Population Programme. At the time of its inception, the then five member states of ASEAN — Indonesia, Malaysia, the Philippines, Singapore, and Thailand — agreed to participate in the study under the lead of Singapore. The Project is designed to provide information to policy-makers and planners on the extent of ageing, its implications, and the potential problems which might emerge as a consequence of ageing in each country. It also serves to review the conditions of the aged in different environmental settings and the existing policies and programmes for the elderly in the context of the overall development of the participating countries.

The decision to focus attention on this subject arose out of the realization that the region as a whole is making rapid strides towards completing the demographic transition into a mature society. Presently, the proportion of old persons is still small in ASEAN countries when compared with the West. Therefore, what is faced is not an immediate crisis of ageing but rather a steady trend which will lead to changes in the way societies work.

The political will which inspired the ASEAN Population Programme originated from the ASEAN Summit Meeting in 1976. The Declaration of ASEAN Concord called for the “intensification and expansion of existing co-operation in meeting the problems of population growth in the ASEAN region”. Since then a total of nineteen projects under the umbrella of the ASEAN Population Programme have been implemented with the ultimate objective of improving the quality of life in the ASEAN region. The seven projects under the Phase III ASEAN Population Programme were funded by the Government of Australia.

The Project “Socio-Economic Consequences of the Ageing of the Population” was initiated in 1984. It has undertaken a series of activities under its aegis.

It was stressed in the early part of this report that ageing is a gradual process, and that by the end of the century (fifteen years from now) only Singapore and the non-Malay population of Malaysia will be reaching levels of ageing comparable to those of the least aged Western countries today. The other ASEAN countries will be ageing only gradually, although the absolute numbers of aged will be increasing very rapidly and their ageing process will accelerate in the early decades of the twentyfirst century.

Ageing, therefore, should not be considered an unmanageable process, particularly in view of the fact that overall dependency ratios will be falling in ASEAN countries, even though the aged dependency ratio will be increasing. A positive emphasis on harnessing the potential of old people to assist in development and community welfare is more appropriate than stressing the burdens imposed by an ageing population.

It cannot be denied, however, that ageing takes on some problematic dimensions in the context of social and economic trends in the region. The most basic dilemma is to decide, in a context of scarce resources and government dedication to the goal of raising rates of economic growth in the interests of the community as a whole, how many resources should be devoted to a group who cannot be viewed as human capital for development, as their working and childrearing life has largely ended.

The most worrisome problems facing the elderly in the region appear to be ill health and financial difficulties, with loneliness a problem faced by many. These are the problems, then, that public policy must seek to address.

Cultural preference as well as budgetary limitations in most ASEAN countries ensure that care of the elderly (both financial and material) will be left largely in the hands of families.

The ageing of population is a twentieth century phenomenon, but it is not one that is likely to be reversed. Indeed a historical perspective on world population trends will convince us that the ageing of populations throughout the world is inevitable. It is therefore something to be accommodated and planned for, not to be fought against. Ageing is inevitable simply because of the finite nature of the earth's resources, which implies that continued population growth is not possible. The only civilized way to bring population growth to an end is to balance low mortality rates with low fertility rates: the alternative is high mortality and fertility, the condition prevailing through most of mankind's history. It is a demographic fact of life that populations with low mortality and fertility will, after these trends have been established for some time, have a high proportion of elderly people.

Thus it can be said that the medical and public health advances of the past two centuries have guaranteed that populations will age. This is not so much because people are living longer (though in popular understanding this is often believed to be the main cause of ageing) as because lowered mortality means accelerated rates of population growth (which cannot long be sustained) unless birth rates fall. And it is the fall in birth rates which is the crucial determinant of ageing, through its effect in undercutting the base of the age pyramid (U.N. 1956; Coale 1956).

A few moments' thought should convince the reader that mortality declines in ASEAN countries do not directly serve as a major cause of ageing. Such declines are often heavily concentrated at the infant and childhood ages. As such, their effects are similar to those of a rise in the birth rate, resulting in more people at the base of the age pyramid. It is only after mortality declines have been in progress for a long time that they tend to be relatively greatest at the older ages, thus reinforcing the tendency for the population to age.

Introduction

The Philippines is just beginning to emerge from the economic and political crisis experienced during the last few years of the Marcos administration. During the last two years of the Marcos administration, real GNP (gross national product) growth was negative, at-7.1 per cent in 1984 and-4.2 per cent in 1985 (Tan 1988, p. 218). With the advent of the Aquino administration in February 1986, there has been a modest economic recovery, particularly when the growth rate of real GDP (gross domestic product) or GNP is used as an indicator. According to the same source, GNP grew at a rate of 1.5 per cent in 1986 and 5.1 per cent in 1987. The real GDP is estimated to have grown at a rate of 6.8 per cent in 1988 (Business Times [Singapore], 10 February 1989). While some doubts persist, there appears to be a consensus, particularly among the business oriented publications, that the Philippines will be able to sustain a moderate rate of growth over the next few years. According to a recent study, real GDP of the Philippines is expected to grow at a rate of between 4.3 and 4.6 per cent per year during the 1988-93 period (Hodgkinson 1988, pp. 110-11).

This paper attempts an analysis of the fiscal system and practices in the Philippines, focusing on the period since 1975. Several factors hampering such an analysis should, however, be noted at the outset. First, the fiscal structures and procedures in the Philippines are among the most complex (Cheetham and Hawkins 1976, p. 390). This has been compounded by the frequent changes. Secondly, there are unusually wide divergences between the over elaborate formal fiscal structures and practices and their actual implementation. Thirdly, the fiscal data exhibit wide unexplained divergences even when official publications are used. As a result, the extent of their reliability is not always clear. Fourthly, the lags in the availability of data are unusually long.

Historically, the Philippines has had a centralized government and therefore, there has been little delegation of powers to the provinces and the local governments (Cheetham and Hawkins 1976, p. 390).

Conditions vary very widely in the ASEAN region, and the circumstances of the region's elderly vary accordingly. This section will therefore provide a brief overview of these characteristics. Two main sources of information will be used: national censuses and surveys in which the elderly are enumerated along with the rest of the population; and special surveys of the elderly conducted in each country as part of the project on the Socio-Economic Consequences of the Ageing of the Population (hereafter referred to as ASEAN Ageing Surveys). The latter provide a unique set of data on many aspects of the family situation, living conditions, income, health, and recreation of the aged.

Differences between these two sources of data should be briefly noted. Firstly, the censuses refer to 1980 but the ASEAN Ageing Surveys to 1986 (except for the Philippines, where the survey was conducted in 1984). But more importantly, the censuses give either a complete count or a representative sample of all the elderly in the country, whereas among the ASEAN Ageing Surveys this is true only for Singapore and Thailand. In Malaysia, the survey is representative of the elderly in three west coast states of Peninsular Malaysia — Selangor, Negeri Sembilan, and Melaka. In Indonesia and the Philippines, the sample was chosen to give a broad cross-section of the elderly in various geographic areas and socio-economic groups, without any pretence at statistical representativeness. In Indonesia, the survey was confined to Java, which contains just over 60 per cent of the nation's population. Further details about sampling are given in the Appendix.

One limitation of the surveys is the omission of the elderly whose physical and mental conditions prevent them from being interviewed. This bias, however, is shared by virtually all research on the elderly (Treas and Logue 1986). Another limitation is the omission of the elderly who live in institutions, but this is not a serious omission as only a tiny proportion of the region's elderly live outside a household context.

I. Introduction

The textile industry is one of the world's traditional industries. It was once regarded by many industrialized countries as a stepping stone towards industrial development and economic prosperity. Today, it also plays an important role in building up China's socialist economy. For over thirty years since the founding of the People's Republic of China (PRC), the country's textile industry has made a great contribution to the people's welfare, social employment, promotion of foreign trade, as well as capital accumulation. Being the largest manufacturing industry in the economy, its total output value accounted for 20 to 25 per cent of the national industrial output during the 1950s. Due to the overwhelming development of heavy industry, its weight in the'national economy has been gradually reduced. Nevertheless, the industry still accounted for 18 per cent of the total national industrial output value in 1985 and ranked second only to the machine-building industry among the ten key industries of the country. Of the 18 per cent, 15.5 per cent was accounted for by textiles proper, and the remaining 2.5 per cent by garments. Statistics of the Ministry of Textile Industry show that in 1986 the textile and garment industry employed 6.66 million workers (not including self-employed workers in the urban and rural areas) with 4.60 million working in the textile industry and 2 million working in the garment industry, together accounting for about 17.0 per cent of the nation's total employment, second only to the machine-building industry.

Since 1987, under the policies of “economic reform” and “opening to the outside world”, China's textile and garment industry has entered into a period of speedier development. Presently, China owns the largest number of cotton spindles and looms in the world and leads in the production of cotton yarns and fabrics. Its output of man-made fibres has surpassed 1 million tons to rank fourth in the world, after the United States, Japan, and the Soviet Union.

China's textile and garment industry serves not only as a cornerstone in domestic industrialization, but also plays an influential role in foreign trade.

In high mortality populations, the aged are a very select group: they are those who have survived the dangers of being born, the risks of infancy and childhood, and the sicknesses and accidents of middle age. Until recently, in the countries of Southeast Asia, fewer than 30 per cent of those born could be expected to live to age 60.

Having survived the multiple assaults on their health during childhood and adulthood, what is the health and disability status of those increasing proportions who reach old age? Diagrammatically, the situation might be portrayed as in Figure 6.1.

The proportion of the population enjoying good health gradually declines from age 40 onwards, and the decline accelerates from about 60 onwards. Similarly, the proportion who are neither sick nor disabled declines steadily. It has been argued that, because of medical successes in postponing death but less success in reducing morbidity or disability, the gap between these curves and the mortality curve has widened in recent years, implying an increasing proportion of the elderly population who are in poor health (including an increasing proportion in poor mental health). This is, of course, related to the increasing proportion of the elderly who live to “old-old” age — beyond 75 years — implying an ageing of the aged population itself. (It was noted earlier, however, that in the ASEAN countries over the next two decades, there will not be a universal trend towards an increasing proportion of the very old among the aged population.)

On a more positive note, Fries (1980; 1983) argues a “rectangularization of morbidity, disability, mortality” — related to a steep drop in the mortality curve around age 85, because of a postulated ultimate upper bound on life expectancy determined by biological limits on the normal life span of the human species. Fries' point is that

Strategies for postponing infirmity include preventive approaches to premature chronic diseases, and to changes in prevalent social expectations for the elderly.

Introduction

Fiscal policies, that is, policies concerning the size and the structure of the government budget, along with other economic policies, such as monetary and balance of payments policies, are used by governments to pursue various economic objectives. According to the Outline of the State Guidelines (Garis-Garis Besar Haluan Negara or GBHN), as decreed by the People's Assembly (Majelis Permusyawaratan Rakyat, or MPR), the objectives of development in Indonesia are as follows: (a) to preserve economic, political and social stability; (b) to equalize the costs as well as the benefits of economic development; and (c) to pursue a rapid rate of economic growth. Every five years, during the first deliberations after being elected, the MPR sets an Outline of the State Guidelines as the basis for the government of the newly elected President in drawing its programmes, including the Five-year Development Plan (Repelita). Under the presidential system established under the present 1945 Constitution, the President is the Head of State, the Head of Executive Government as well as the sole mandatary to implement the decrees of the People's Assembly. The Five-year Development Plan is an indicative plan which establishes national development priorities to provide the basis for allocating public sector investment and to give guidance to the private sector.

Originally, the government's budget was intended to be an annual implementation of the five-year plans. In reality, however, the co-ordination between the two has been lacking. This is because, since the first “oil shock” in 1973-74, the government's realized revenues (both oil and non-oil) have always exceeded the targeted revenues. As a result, fiscal projections of the first three five-year plans have been made obsolete.

The public sector in Indonesia consists of three major institutions, namely, the central government, state enterprises and semi-autonomous agencies, such as the National Logistic Agency (Bulog), and the local governments. This study, however, covers only the financial transactions of the central government.