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Malaysian households faced with mounting debt

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Low wages and economic policies that are not in the interest of the ordinary people are driving households deeper into debt, observes Anil Netto.

The other day, I was at the ATM when I noticed a middle-aged couple in front of me in the queue. They tried a few times to withdraw funds. As I waited a few minutes, I overheard them saying they were trying to withdraw RM20, but the machine responded “insufficient funds”. They looked stressed and worried.

All is not well among Malaysians. The level of household debt has been rising over the years at the rate of 11.1 per cent annually.

It climbed to RM560bn by the end of August 2010 and that pushed up the household debt to gross domestic product (GDP) ratio from 66.7 per cent in 2004 to around 76 per cent in 2009. That ratio is the highest level in Asia, apart from Japan. And mind you, those household debt figures probably don’t include hidden borrowings taken out from the notorious alongs (illegal money lenders)!

Housing loans made up close to half of total household loans, motor vehicle loans around a quarter, and credit card lending just over 6 per cent. (Credit card debt shot up 16 per cent annually – the faster growing component of household debt.)

Without probing much deeper, it is easy to conclude,as a few analysts have done, that much of this is due to cheap and easy housing loans. Indeed, the Housing Loans Division of the Treasury is expected to dish out RM6.8bn in loans to government servants this year, higher than last year’s RM5.9bn. It has also raised the maximum loan amount by 15 per cent from RM360000 to RM450000. Banks too have encouraged easier housing loans by extending the repayment period with even the possibility of loans over two generations. And now, under the My First Home Scheme, young adults earning less than RM3000 per month may obtain 30-year full financing from selected financial institutions for houses priced between RM100000 and RM220000.

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But easier access to housing loans masks deeper structural problems: low bank interest rates and greed-driven speculation have driven up property prices in urban areas in Malaysia. This has priced most urban houses and apartments beyond the reach of working-class Malaysians.

Couple that with low wages – we still do not have a minimum wage – and you can see the depth of the problem. Many employers pay their workers wages that are below the official poverty line of RM720 per month. In fact, the human resources ministry revealed last year that almost 34 per cent of about 1.3 million workers earned less than RM700 a month. The unrealistically low threshold of RM720 to define poverty understates the real poverty level in the country. The Selangor government, to its credit, has raised its definition of poverty to RM1500. That puts the poverty rate in the state at a more realistic level of 30 per cent.

Apart from expensive housing prices, the government’s focus on tolled highways and the national car(s) has diverted attention from the need for a good public transport system. This has resulted in many Malaysians having to buy their own cars or motorbikes – and these don’t come cheap either – leaving aside the steadily rising petrol prices.

The failure to provide affordable housing and an efficient public transport has burdened many, many Malaysians, and not a few have problems servicing these loans.

Quite apart from this, The Edge reported on 22 November that 26 per cent of defaulters find difficulty in servicing their credit card debt due to higher medical expenses.

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If we dig deeper, we may well find that neo-liberal economic policies have driven up the cost of essential services such as higher education (not to forget ever-increasing study loans), health care and utilities while under-funded public services deteriorate.

Such policies, over the long run, are driving households deeper into debt; so don’t be surprised if you see more worried faces the next time you are at the ATM. And imagine the plight of those who don’t have enough to even open a bank account.

Anil Netto is treasurer of Aliran.

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