INTRODUCTION

On 30 October 2008, Indonesia's Pornography Law (No. 44 of 2008) was passed after much controversy. The Bill was supported by a loose coalition of conservative Islamist groups and Islamic parties, including MUI (Majelis Ulama Indonesia, Indonesia's Council of Ulama, or religious teachers), which issued an official statement, endorsing the immediate passage of the Bill and more radical groups such as FPI (Front Pembela Islam, the Islamic Defenders Front). Despite the fact that the Criminal Code contains articles, which could be used to charge pornography, but which were not being properly enforced, the Islamic party PKS (Partai Keadilan Sejahtera, the Prosperity and Justice Party), supported by a number of other political parties, was keen to introduce a special Pornography Law, as a means of enforcing Islamic morality throughout Indonesian society. PKS's hopes for the Pornography Law were high. It stated that the Pornography Law would save current and future generations from moral depravity, that pornography is a deviation, and against Eastern culture (budaya ketimuran) (PKS 2006). In other words, Eastern culture was seen in oppositional terms to the “depraved West”. Conservative Muslims called on the state to implement laws for the whole community, Muslim or otherwise, which fitted their own standards of morality. The reference to “Eastern culture” can be seen as a way to broaden their Islamic standards to other Indonesians of different religions. As such, it was part of an attempt to incorporate, at a national level, more conservative Islamic values into Indonesian society in general and its legal system in particular.

The Bill was rejected by a broad coalition of liberal Muslims, religious minorities, feminists, and artists. The groups most vocal in opposition to the Bill were religious minorities (particularly the predominantly Hindu Balinese and the predominantly Christian Papuans), who opposed domination of Islamic values (Kearney 2006; Sawitri 2006); feminists, who were concerned that the Bill would restrict women's daily lives and choices of clothing and behaviour (Arivia 2006; Allen 2009); and artists, who worried that the Bill could lead to a new moral censorship (Lindsay 2008). Liberal-thinking Muslims in this loose coalition of activists who opposed the Bill (who also overlapped with the above categories, of course), included the late Abdurrahman Wahid (Gus Dur), former Chair of Nahdlatul Ulama and former President of Indonesia (Jakarta Post 2006b). Liberals tend to view morality and religious belief as personal issues.

In August 2012, a crowd of Sunni Muslims (Islam's largest denomination) attacked a community of minority Shiite Muslims in the Sampang regency on the island of Madura, part of East Java. They burned down dozens of houses belonging to Shiite members and killed two people. Views of what caused the violence differed greatly. Government officials declared the attacks to be rooted in a “family conflict” human rights activists held that the attack was carefully planned in advance and that a deep-seated mistrust towards members of the Sy'ia community concerning their religious beliefs was at the root of the Sy'ia–Sunni violence. They asserted that the violence was triggered by a group that had intended to stop a number of Shiite students from returning to their boarding school in the town of Bangil, East Java, after spending the holidays marking the end of the fasting month of Ramadan at home. After the Shiite students had reported the threats to the local police, around 1,000 attackers burned down their village.

The assault evoked memories of a similar incident in late 2011, when the home and pesantren (local boarding school) of a Madurese Shiite leader by the name of Tajul Muluk were destroyed. Tajul had been facing accusations of preaching that Islam's holy book, the Qur'an, was not God's original scripture and that its true and final version would only be revealed to the Mahdi, the prophesied redeemer of Islam at the end of times. In response to the charges, the local branch of the Indonesian Ulama Council (Majelis Ulama Indonesia [MUI]) released a fatwa (legal ruling) declaring Tajul's teachings to be “deviant”. The local district court subsequently charged Tajil with “defamation of religion”, which carries a maximum sentence of five years in prison.

These two incidents took place against a backdrop of increasing religious segregation and intolerance in Indonesia. Various surveys suggest that an increasing number of people harbour feelings of resentment and suspicion towards people of different religious convictions, in particular if these happen to live in the same neighbourhood. The most recent survey (at the time of writing), publicized in October 2012, put that share at 67.8 per cent.

INTRODUCTION: RELIGIOUS MINORITIES CHALLENGES IN MALAYSIA

In recent years a situation which has emerged out of Malaysia's multiculturalism and which has caught the attention of various commentators on Malaysian society is the position of religious minorities such as the Hindus, Buddhist, Taoists, Sikhs, Christians, and animists in Malaysia. This is especially within the context of freedom of belief, which is one of the fundamental rights upheld by the Federal Constitution of Malaysia. This basic right is clearly spelt out by Article 3(1): “Islam is the religion of the Federation, but other religions may be practiced in peace and harmony in any part of the Federation.” Furthermore Article 11(1) indicates that, “Every person has the right to profess and practice his religion and, subject to clause 4, to propagate it.” In other words, except for Article 11(4), which prohibits the propagation of any religious doctrine or belief among persons professing the religion of Islam, right to religion is protected in Malaysia.

However, procedures and processes to build non-Islamic places of worship are getting tougher, causing delays and resulting in some projects being abandoned for years before being granted approvals (see Chong in this volume). Moreover, the ban on the use of term “Allah” in all Christian publications including digital media, limitations to certain religious practices and non-Muslims being affected by Islamic Law and legal obstacles to inter-religious marriages have led to increasing concerns over rights to religion and the rise of ethnic and religious polarization in Malaysia. These circumstances (although not exclusively) have led to claims that the nation has never been so divided by race and religion as it is today. Lim and Gomes (2009) equate the contemporary situation to “a sharp crack in the cultural mosaic arising from growing ethnic, religious and cultural polarization” (p. 232). Their claims appear to affirm a long-held perspective that Malaysia is an ethnic time bomb for creating an explosive situation (Gabriel 1996, p. 3).

By the 1980s, a combination of rising per unit-student cost and accelerating demand for higher education had pressured European states to question whether they could afford to maintain their largely public supported higher educational systems. By the first decade of the twenty-first century, in more and more countries, massification of higher education had brought about a funding crisis in higher education (Hahn 2007; Woodhall 2007). Numerous countries found it increasingly difficult to sustain higher educational systems substantially, if not totally, funded by public revenues. To curtail government funding, many countries turned to the “private sector — represented by households, businesses and philanthropists — [to take on] even greater responsibility for the costs of higher education” (Hahn 2007, p. 3). Except for United States and a handful of other countries where historically private finance has played a large role in the provision of higher education, many countries adopted varying cost-sharing systems to support mass higher education (Johnstone 2009; Johnstone, Arora and Experton 1998).

For the developing world, several distinctive factors have contributed to their crisis of financing higher education, such as; “pressures for enrolment expansion given the relatively low enrolment ratios”, “higher education has been the fastest-growing segment of the education sector”, “rapid increase has driven high levels of subsidization”, and public budget allocation limitations (World Bank 1994, p. 2). With the ascendance of neo-liberalism and its promotion of the market and privatization since the 1980s, the prevailing solution adopted is to diversify public higher education's sources of funding and to expand the privatization of higher education. The World Bank indeed advocates “mobilizing greater private financing, including cost sharing with students”, to support higher education (World Bank 1994, p. 40).

Malaysia too experienced several of the distinctive factors that led to higher education funding crisis in the developing world; it rapidly raised the enrolment ratios from low to high, public spending on higher education grew much faster than for primary and secondary, public higher institutions were and remain largely subsidized by the government, and the switch from elite to mass higher education. Similarly, the Malaysian government adopted a cost sharing system to finance higher education where increasingly students and parents are responsible for the cost as well. However, the growth and pattern of financing higher education is also shaped by the politics and political system of a country.

Introduction

The focus of this chapter is on financial reforms in Malaysia after the 1997 East Asian Financial Crisis when the economy suffered its worst recession since independence in 1957. The 1997 currency crisis has been seen as a consequence of the fragility of the banking system by those who diagnosed the crisis as being due to short term overborrowing by the banking system (Radelet and Sachs 1998, p. 9) resulting in the twin problems of currency and maturity mismatches (Corsetti 1998, p. 24). However, those who saw it as a consequence of the decline in exports diagnosed the problem as being due to the inability of the countries to finance their external debt because of the widening current account deficit (Corsetti 1998, p. 24; Radelet and Sachs 1998, pp. 19–26).

The tapering of the growth rate of exports as a result of the cyclical downturn in the world electronics industry in 1996 led to the withdrawal of loans by Japanese and European banks, who had provided short term financing to the Malaysian banks. The Malaysian banks were caught because they had used the short term loans to finance long term infrastructure and property development and other lumpy investments.

Foreign Portfolio Investments (FPI), which had peaked in the Kuala Lumpur Stock Exchange (KLSE) in 1993–94, took flight as a result of the banking panic and the subsequent devaluation of the ringgit (Radelet and Sachs 1998, pp. 9–11). This led to the further depreciation of the ringgit, which had an adverse effect on the balance sheet of the corporations (Krugman 1998) and the capital adequacy of the banks.

The Malaysian government however viewed the crisis as being a conspiracy of western hedge funds, western governments and the IMF to impoverish East Asia by creating the conditions for the crisis (Athukorola 2001, pp. 63–66; Mahathir 1998). The Malaysian government view received some academic credibility from the writings of Stiglitz (1998), Bhagwati (1998) and Wade and Veneroso (1998) who elaborated the Treasury-Wall Street Complex theory, whereby the Federal Reserve Bank collaborated with Wall Street by making cheap credit available for hedge funds to invest in East Asia to create a bubble which they could profiteer from being the first one to be out or “sell and run”.

Malaysia's ICT Agenda

When Malaysia launched its Vision 2020 in 1991, the aspirations were about becoming a “scientific and progressive society”, to develop “an economy that is … able to adapt, innovate and invent …”, and “an economy driven by brain power, skills and diligence, in possession of a wealth of information …”.

Hence, at the start of the Sixth Malaysia Plan (6MP), during the years from 1991 to 1995, Malaysia was ready to embrace its enviable growth in the electronics manufacturing sector, where information and communications technology (ICT) was recognized widely within the realm of hardware components, rather than as a service; as an “enabler” sector, rather than a driver of economic growth.

ICT assumed this “economic enabler” position in Malaysia's manufacturing sector as the country embarked on its transition from a production-based economy to a knowledge-based economy (K-economy) during the 6MP. This was supported by the introduction of the National Information Technology Council (NITC) during the same period, to ensure that ICT is “well integrated in the socioeconomic fabric of the nation”.

The National Information Technology Agenda (NITA) was formulated to realize the core objectives of NITC, during a time when the Malaysian economy was growing at an average gross domestic product (GDP) growth rate of 4.8 per cent. NITA was put together to be the catalyst in transforming Malaysia “into a value-based economy through the development of talent, infrastructure and applications to benefit the Malaysian society”. It was also during this period that the Government launched the Multimedia Super Corridor (MSC) project.

MSC Malaysia

MSC Malaysia represents, perhaps the foremost affirmative action to propel ICT into Malaysia's socio-economic fabric — and leapfrog Malaysia's position into the global ICT fraternity. With lofty ambitions as “to create a world-class environment for attracting the best multimedia enterprises to use this region as a test-bed for cutting-edge ICT applications”,MSC Malaysia embarked on a frenzy of building a new township complete with the required hard infrastructure, for instance, roadways and telecommunication connectivity, in Cyberjaya, approximately 30 km south of Kuala Lumpur city centre.

Phase 1 (1996–2004) of the MSC Malaysia implementation plan focused on accelerating Malaysia's growth as a global ICT hub by attracting foreign direct investment (FDI); as well as the launch of MSC flagship applications.

FROM PLURALISM TO CENTRALIZED ISLAM

Malaysian society was from the outset depicted as a “plural society” (Furnivall 1948) with the connotation that such a society, with its diverse ethnicities, was held together by dint of colonial power. The corollary was that such a social formation was neither socially cohesive nor politically integrated. Since achieving its independence from the British, the Malaysian political class has fashioned a degree of power-sharing and political accommodation to keep peace among Malaysia's different ethnic communities in most areas of political and social life. Ethnic peace has endured except for an episode that saw the eruption of race riots on 13 May 1969 and almost two hundred people killed. No major riots of this sort has occurred for over some four decades, except the Kampung Medan incident of 2001, when Malays clashed with Indians and some six persons of the latter community died. While no serious upheavals have occurred since then, ethnic and religious conflicts continue to afflict Malaysian society, and in more recent years, religious divisions have become particularly prominent. Such conflicts have occurred even as a more universal notion of citizenship has found expression among Malaysia's multicultural populace through the agency of a vibrant civil society.

Paradoxically, the emergence of social activism and an expressive civil society has also given rise to a backlash of religious atavism and religious intolerance in society, evidenced by incidents of Hindu temple desecration and demolitions and church burnings, hitherto absent in the country. By and large, such incidents have been the work of fringe groups, but the worry is that state authorities or the ruling group have condoned these acts. It is clearly evident that mitigating these developments of religious extremism is now integral to the rise of a more tolerant Malaysian middle-class society. Related to the rise of an educated middle class is the emergence of a new participatory politics, which now challenges an old authoritarian politics, based on a model of power-sharing dominated by ethnic elites, which over-privileged the Malay-Muslim community. New politics in Malaysia has given sustenance to a path of social relations and political engagement of citizens cutting across, and to some extent, transcending ethnic boundaries. This by no means suggests that the old path of politics has been eliminated, but rather that the contestation has arguably entered a more progressive phase.

The Malaysian state is usually portrayed as centralized, top-heavy, and far-reaching. Bureaucrats in the powerful Prime Minister 's Office or Economic Planning Unit design ambitious programmes for the country, then government agencies headquartered in the nation's capital implement them in all corners of Malaysia, from Perlis to Sabah.

While true to a certain extent, this depiction overlooks the fact that Malaysia has a federal government structure. In addition to a central government centred in Putrajaya, the country has thirteen state governments that are responsible for particular jurisdictions; receive revenue from specific sources; and have constitutionally-stipulated responsibilities. They are important providers of goods and services, and can play a role in creating an enabling environment for business.

However, Malaysia's governance structure is heavily weighted towards the federal government, which receives the bulk of revenue and is responsible for most public services. In fact, the country is one of the world's most centralized federations, with the centre receiving almost 90 per cent of all government revenue. And, above and beyond duties for fiscal, monetary, and trade policy, the federal government is responsible for most types of infrastructure, science and technology policy, and all levels of education.

While the image of a strong central state may hold appeal, an excessive concentration of responsibilities may not always be optimal. Public finance literature holds that an appropriate attribution of responsibilities and revenue sources between levels of government can enhance welfare. For example, while some services benefit from economies of scale and are best provided nationally, others require detailed knowledge of local conditions and are best supplied locally.

Over the past thirty years, a “Silent Revolution” of decentralization has swept the globe, as sub-national governments have been empowered with additional responsibilities, autonomy, and revenue. However, Malaysia constitutes an important exception. Unlike neighbouring Philippines or Indonesia, that had to construct new levels of government to decentralize, it already has an established federal system.

Despite this, Malaysia has continued to centralize responsibilities at the national level. If it continues, this trend will stifle the vital role that state governments can play in creating an enabling environment for business and leveraging local-level knowledge to foster economic growth.

Introduction

By the time the World Bank started to classify countries by per capita incomes into low, middle and high income countries in the 1980s, Malaysia was already a middle income country. The World Bank used Gross National Income (GNI) per capita of US$1,006–3,975 and US$3,976–12,275 in 2010 to classify countries into lower and upper middle incomes, respectively (World Bank 2011a). Based on the 1985 World Bank classification, Malaysia was already a middle income country with a per capita income of US$2,161 (US$2,027 in current prices) (World Bank 2011b). With a per capita income of US$5,264 in 1985 prices (US$8,519 in current prices), Malaysia managed to remain an upper middle income country. This chapter attempts to explain how Malaysia became an upper middle income country.

Natural resources (minerals, forest products, and agriculture) and industrialization have been the prime routes taken by developing countries to reach middle income status. Major oil exporters such as the North African, Middle Eastern, and Venezuelan economies have relied almost exclusively on oil exports to record middle incomes. Oil has only been one of the exports that drove income growth in Brazil, Malaysia, and Mexico. The only developing countries to graduate into developed high income economies, i.e., Korea, Singapore, and Taiwan, used manufacturing as the prime path to rapid Gross Domestic Product (GDP) growth. Malaysia was no different from most developing countries as its economy was driven by plantation agriculture and tin mining during the British administration until the New Economic Policy (NEP) was launched. The Malaysian government recognized that the supply of natural resources would not be infinite and that dependence on agriculture alone could be catastrophic if the terms of trade are affected by the fallacy of composition problem.Hence, the approach the government took was to diversify primary exports and to stimulate manufacturing growth by attracting foreign direct investment (FDI) (Malaysia 1971).

At the time the NEP was introduced, ethnic identification of the economy in Malaysia was sharp as the Bumiputeras populated mainly in the rural areas, the Chinese concentrated in urban business and mining, and the Indians confined to plantation agriculture and urban occupations as labourers. Coming after the bloodshed on 13 May 1969 that had threatened to erupt into an ethnic crisis, the NEP was crafted with the twin goals of alleviating poverty and restructuring the economy to remove ethnic identification.

The Malaysian economy has seen many notable developments since its independence in 1957 from the British rule. Initially a commodity exporter of rubber and tin, it has undergone several structural changes and is now a diversified economy with 75 per cent of its gross domestic product (GDP) coming from the manufacturing and services sectors. The economy has emerged as a modern, high middle income nation with strong economic fundamentals. Indeed, these economic achievements have been well supported by visionary leadership and proper policies. The developmental journey has spanned 2 Malaya Plans, 9 Malaysia Plans, 3 Outline Perspective Plans as well as a National Mission before coming to this juncture today.

During the Sixth Malaysia Plan in 1991, Vision 2020 or Wawasan 2020 was introduced by the then Malaysian Prime Minister, Dr Mahathir bin Mohamad. The vision called for a self-sufficient, democratic, economically just, mature, liberal and tolerant society, and united Malaysian nation which would achieve US$6,000 per capita income in 1980 prices by 2020. The essence of this transformation has been again outlined in the Tenth Malaysia Plan (2011–15) which was unveiled by Prime Minister Mr Najib Razak in June 2010. In this plan, a clearer perspective has been laid out on how Malaysia can transform itself from a developing country status to a developed country status.

But there remain many pressing challenges which need to be addressed if the country were to implement the Plan and to achieve a high-income status, transforming itself into a developed economy by 2020. In the past decade, the economic landscape, with increasing globalization and emergence of China, India and Brazil, has changed significantly. Hence, Malaysia can no longer depend on a low-cost structure economy to remain competitive internationally. In addition, Malaysia also faces internal challenges to drive economic growth to a higher level, while having to implement a prudent fiscal policy. The nation is confronted with the challenge of providing a conducive investment environment as well as developing high quality human capital, which is critical to enable the shift to a higher level of value added and productivity.

In light of this, a “stock-take” by academics, policy-makers, and the private sector to capture the past, and more importantly, apply lessons from the past to deal with challenges remaining before 2020 would be timely.

Introduction

Malaysia is a developing nation striving towards a developed status by the year 2020 as envisaged by the Malaysian government. Since the beginning of the twenty-first century, also known as the urban century, this country has managed to maintain a semblance of stability in economic growth, social development, and mainstream politics. In the past, Malaysia's development and growth was structured according to the availability of its natural resources and agricultural activities which were exploited for export earnings. Indeed, the country has been exceptionally endowed with vast quantities of oil and gas, and this source of revenue has contributed 40 per cent to the federal revenue (Bank Negara Malaysia 2011). It can be assumed that the continuous rise in cruel oil prices from US$37.00 a barrel in 1980 to above US$145.00 a barrel in 2008, has enabled the government to implement and fast track many high cost projects. These include the twin-towers in Kuala Lumpur, the new federal administrative centre in Putra Jaya, and a host of others. The subsequent consequences from these projects have increased economic activities in the urban conurbation, with the opening up of neighbouring lands for industrial sites and housing construction.

This paradigm shift in economic policy, from an economy that was dependent on agriculture to industry driven, has led to rapid industrialization and to the concentration of economic activities in a few urban areas. This is so as to take advantage of infrastructural facilities like ports, telecommunication, electricity, airports, and institutions of higher learning, which are already in place in these urban centres. This pattern of development has inevitably resulted in the rise of a service sector to cater to the needs of the industrial sector, thus compounding the concentration of population in the existing urban centres and towns such as Kuala Lumpur, Penang, Johore Baru, Ipoh, Klang, Petaling Jaya, and Kota Kinabalu. Ultimately, these towns and cities become attractive, simultaneously serving as the nerve centres of the nation, containing within them the “goods and services” required by everyone.

Urbanization Dilemma

Malaysia has been undergoing rather rapid urbanization and the proportion of urban population to total population especially in Peninsular Malaysia has increased at a rather fast pace. In Malaysia, the term “urban” was reclassified as the “gazetted area and their joining built-up areas with a combined population of 10,000 persons or more at the time of the census” (Department of Statistics 2000).

Banyuwangi is the easternmost of more than eighty administrative districts in contemporary Java. In this district, there are several small but identifiable minorities, including Hindus, Catholics, Protestants, and modernist Muslims. However, the minorities this chapter is concerned with are adherents to mystical and animist practices and beliefs residing in several unique villages. The question I seek to address is how to account for the animist and mystical adherence in these villages in relation to widespread conformity to traditionalist Islam. To answer this, I point to cultural revitalization, state's multicultural, and tourism policies in the face of an Islamic revival. I first provide a brief overview of the religious history of Banyuwangi (I will use the term “Banyuwangi” to refer to the whole district; when referring specifically to the large urban area which is the capital, I will use the phrase “Banyuwangi City”). I then describe the religious culture of the traditionalist majority in Banyuwangi. Following this, I consider the small minority of mystics and animists who are, for the most part, limited to a cluster of four villages. Finally, I consider the historical forces, which account for the uniqueness of the animists and mystics against the widespread conformity in the rest of Banyuwangi.

RELIGIOUS HISTORY OF BANYUWANGI

The earliest evidence of human inhabitation in this area is provided by megalithic remains excavated in Bondowoso, to the west of the Banyuwangi district. Dated around 670–1360, these comprise a stone enclosure and a number of dolmen (stone grave sites) (Prasetyo 2006, p. 167). They are consistent with the pre-Indic, local ancestral, and animistic beliefs and practices of the Southeast Asian region in the pre-historic period (Reid 1993, pp. 136–40; Warren 1993a, pp. 44–45). By 1316, a Hindu– Buddhist dominion called “Blambangan” existed within the borders of contemporary Banyuwangi. Blambangan (c. 1316–1767) was at the eastern reaches of the Majapahit kingdom (1294–1478) and seems to have swung between autonomy and subjugation to Majapahit.

The decline of Majapahit coincided with the rise of the first Islamic kingdoms in Java. Accompanying this, according to Javanese legend, was an exodus of Hindu–Buddhists from these newly Islamic areas towards Blambangan and Bali, which still adhered to Hindu–Buddhist beliefs (Cortesao 1944, p. 198; Hakluyt 1904, pp. 338–39).

Introduction

Income distribution has always been a core and prioritized issue in Malaysian economic development. Although inequality (as measured by the Gini ratio) was rising prior to 1976, it was reduced by about 16.6 per cent by the end of the New Economic Policy 1971–90 (NEP). However, inequality has fluctuated in the last twenty years and currently remains at the same level as in 1990. The persistent high inequality can be an obstacle to eradicate absolute poverty, improve inclusiveness (Bourguignon 2003, p. 6) and can threaten economic growth. Although Malaysia has successfully reduced absolute overall poverty incidence to 3.8 per cent in 2009, there are still geographical areas with high concentrations of poverty. Moreover, Malaysia's income disparity is not only much higher than that of many developed countries in the world, but also relative to its neighbours — Indonesia, Philippines, and Thailand (World Bank 2011, p. 73) which have much lower per capita incomes than Malaysia.

Given the above concerns, this chapter aims to examine the Malaysian income distribution status, attempt to explain the reasons for the changes in the last twenty years, and propose some recommendations to improve the situation. For this purpose, the next section analyses the trends and patterns of overall, rural, urban, and ethnic inequality. Some of the indicators of inequality will also be decomposed into “within group” and “between group” components to give a deeper understanding of the income distribution situation. Section 3 offers several explanations regarding the changes in income distribution, while Section 4 will provide some policy recommendations to narrow income inequality in Malaysia. Section 5 concludes the chapter.

Trends in Income Inequality

Table 16.1 shows that the Gini ratio reflecting the overall income distribution rose from 0.513 in 1970 to 0.557 in 1976, falling to 0.442 at the end of the NEP period, and thereafter oscillating to reach 0.441 in 2007. Table 16.1 also shows that income distribution in both the rural and urban areas exhibit similar trends over the NEP period. The Gini ratio for rural households rose between 1970 and 1976 but fell thereafter to 0.401 by 1992. It also exhibited fluctuating values after this, falling to its lowest level in 2007 but rising again to 0.407 in 2009.