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Rising economies, increasing poverty and incomes disparity – managing unequal benefits of economic growth

Updated On: Apr 13, 2007

In its World Economic Outlook report published twice yearly, the International Monetary Fund (IMF) has said that the outlook for emerging Asia will be a 'very positive' near term growth outlook.

Despite the slowdown of the United States economy, the Asian economies will be pushed by fast-growing Chinese and Indian economic growth. The IMF forecast that emerging Asia as a whole would grow by 8.4% in 2007 before slowing slightly to 8.0% in 2008.

Alas, this optimistic growth outlook for the Asian economies will be tempered by the realisation that for many citizens in these economies that the gains will be not shared evenly. Indeed, in the World Bank's latest report on the East Asian economy released last week, it noted that while East Asia as a whole had succeeded in reducing poverty from 49% in 2001 to the present 29% of the total population, Indonesia had bucked the trend. This increase in the incidence of poverty inIndonesia from 11.25% of its population in February 2005 to 17.25% in March 2006 had been earlier highlighted by the Central Statistical Agency. The World Bank also reported that more than 50% of the Indonesian population or 113 million people lived on daily expenditures of less than US$2. Even more depressingly, the Indonesian Central Bank pointed out that due to labour rigidities, the number of jobs created by one unit of economic growth was now much smaller than before 2000.

Rising income inequality is also increasingly felt in neighbouring Singapore. The Singaporean economy has grown by 6% in the first quarter of 2007. While this figure exceeded the 5.5% median growth predicted by 15 economists in a Bloomberg poll, it is a slowdown from the 6.6% in the fourth quarter of 2006. More crucially, income inequality is rising. Figures from the Household Expenditure Survey in 2005 showed that although average income for households rose 1.1%, the average income of those in the bottom 20% fell 3.2% while those in the top 20% grew about 2% yearly.

The income inequality is not likely to be helped by the recent increase in indirect taxation. The government has just increased the goods and services tax (GST) from 5% to 7%. To tackle the problem of unemployment of the low skilled and the income inequality, the government introduced Workfare, a policy in which the government paid the jobless a wage supplement to encourage them to take up low-paying jobs in certain sector.

What is more controversial is the move by the government to raise its own salaries. The ministers' wages are currently pegged to 2/3 of the median income of the top 48 earners in six professions: lawyers, accountants, bankers, engineers, and the top employees in multinational corporations and local manufacturers. The actual pay has, however, in recent years lagged behind the benchmark. The government has announced that the salaries would be restored to those pegs, resulting in pay rises of up to 33% for the ministers. This means that the basic annual pay of the prime minister is S$3.1 million.

This announcement of pay rise has stirred up public debate mostly objecting to the pay rise. Parliamentary debates have also been heated. While the editorial of the Straits Times did not call for a change in the formula in which the pay of the government is decided, it called for a greater proportion of the salary to be based on performance. The Minister in charge of the civil service, Mr Teo Chee Hean objected to the view that increasing the high salaries of the ministers and senior civil servants would diminish the moral authority of the government. Instead, he argued for the need for competitive salaries to ensure the continual recruitment of talented personnel.

While the talented anywhere are able to fight for their share in any booming economies, the issue that plagued most governments are how best to help those that are left out in the boom to prevent rising discontent.  (12 April 2007)

Sources:

Asia's Near Term Growth Outlook Very Positive (Straits Times, 11 April 2007)

Warning on Income Inequality (Jakarta Post, 11 April 2007)

Economy Turns in Robust 6% Growth in First Quarter (Straits Times, 11 April 2007)

PM Lee: I'll Donate My Pay Increase (Straits Times, 11 April 2007)

Govt Defends Ministers' Pay Formula (Straits Times, 11 April 2007)

'Fair Pay Won't Affect Moral Authority of Ministers' (Straits Times, 11 April 2007)

Bad Timing? Pay Hikes Because Times are Good (Straits Times, 11 April 2007)

Perspective Called For (Straits Times, 11 April 2007)

Private Sector Standards for Public Service: MPs (Straits Times, 11 April 2007) 

No Hidden Extras in Ministers' Wages (Straits Times, 11 April 2007)

Ministers and Civil Servants Get Pay Rise of Up to 33% (Straits Times, 11 April 2007)

Pay Top Leaders Top Dollar But... (Straits Times, 10 April 2007)

Working Out A Fairer Deal (Straits Times, 7 April 2007)