Local Government in Asia and the Pacific: A Comparative Study

Country paper: Malaysia

  Description of the Country
  Evolution of Local Government
  Local Government Categories
  Local Government Functions
  Local Government Finances
  Personnel Systems
  Public Participation
  The Way Ahead
  References

Brief Description of the Country and Its National/State Government Structure

Demography

Located in the heart of tropical South East Asia, Malaysia straddles the South China Sea. Peninsular Malaysia is at the tip of mainland South East Asia while the states of Sabah and Sarawak are part of the island of Borneo. Peninsular Malaysia has an area of 131, 582 square kilometres. It consists of the eleven states of Kelantan, Terengganu, Pahang, Johor Melaka, Negeri Sembilan, Selangor, Perak, Kedah, Penang and Perlis. In East Malaysia, Sabah has an area of 73,709 square kilometres while Sarawak, with an area of 124, 445 square kilometres is the larger. In total land area, Malaysia is about the size of Myanmar, two-thirds that of Thailand, one sixth of Indonesia and one-third of the United Kingdom of Great Britain.

With an estimated Gross National Product (GNP) of about US$35,958 million in 1989 and per capita GNP of about US$2790, the World Bank classifies Malaysia as one of the Middle Income Economies. In this position, Malaysia ranks alongside Mexico, South Africa, Poland and South Korea (World Bank 1994). The GNP per capita has risen from US$1,710 in 1981 to US$3,140 in 1993 (World Bank 1995). The Malaysian development paradigm has undergone a radical shift from a traditionally strong public sector presence in social and economic development of the country to a greater role for the private sector as an engine of growth.

The Malaysian economy is expected to experience further structural changes particularly from the evolution of an agricultural-based economy to one that strongly emphasizes industrial development (Abdul Rahman 1990:2). This structural transformation is evident in the massive increase of the contribution of the manufacturing sector with regards to GDP from a mere 20 per cent in 1980 to 35 per cent in 1996. This accelerated trend is in contrast with the trend posted by the agricultural sector's contribution to GDP that continued to decline from 23 per cent in 1980 to 13 per cent in 1996 (EPU 1996: 14). One can expect that with the continued growth in the manufacturing sector and the present pace of economic growth, the national vision that Malaysia will become a Newly Industrialized Country (NIC) in the near future, might be reality by the turn of the century (Tan 1993: 57). Applying this vision to a longer-term prediction, Malaysia is expected to become an industrial nation by the year 2020.

The rate of urbanization tends to correlate significantly with economic growth. One inevitable consequence of this structural change and the consequent rapid economic growth that has averaged an impressive 8 per cent per annum in the past decade, has been the increasing urbanization of the country. In fact, in 1980 the population living in urban areas was 35 per cent but this figure has shot up to 55 per cent in 1995 (Malaysia 1996: 154). The impact of rapid growth and urbanization is naturally reflected in the number of people living in local authority areas. According to a study made by the Ministry of Housing and Local Government in 1988, 68 per cent of the population in Malaysia live in local authority areas and make demands upon urban services (MHLG 1988). The enlargement of urban areas also means an increase in the problems, needs and complexities relating to urban governance.

It has created a new set of challenges that entail an enhancement in the capacity and capability of the Malaysian local authorities. These problems demand new approaches, strategies as well as practical and effective answers and solutions for urban and local government managers. As noted by Davey (1993: 12): "The role of urban government in managing urban growth cannot be taken for granted in the context of today's debate".

Table 1. Urbanization Rate by State

Source: Seventh Malaysia Plan (1996 - 2000)
¹Based on the Population and Housing Census of 1991
² Includes Wilayah Persekutuan Labuan

Local authorities must be prepared for adjustments in meeting the challenges related to growing urbanization. Such a transformation is already evident. Like local authorities in other countries, particularly those in advanced economies, the local government system in Malaysia is also evolving itself to prepare for the challenges of the next millennium.

National governmental and political structure

A federation of thirteen states, Malaysia is a constitutional monarchy. It achieved Independence from the British colonial rule on the 31st August of 1957. At its birth the new nation promulgated a Federal Constitution. The inclusion of Sabah, Sarawak and Singapore into the federation in 1963 resulted in an amendment to the Constitution. In 1966, Singapore left the federation. The current federation of thirteen states upholds the principles of parliamentary democracy. Parliament is bicameral; it consists of the Yang Di Pertuan Agong (the King) in Parliament, the Dewan Rakyat (the House of Representatives) and the Dewan Negara (the Senate). As prescribed under Article 32 (2) of the Federal Constitution, the Yang di Pertuan Agong has a five-year term and is appointed by the Conference of Rulers from the rulers of nine states in the Peninsula. Melaka, Penang, Sarawak and Sabah do not have rulers but governors appointed every four years by the King. The King does not preside in Parliament but may address the two houses as and when necessary. Article 181 of the Federal Constitution, sets out the executive authority of the King. The Cabinet or Executive Council is a council of ministers appointed by the King to advise him in the exercise of his functions. Chaired by the Prime Minister, the Cabinet consists of an unspecified number of members of Parliament. The Cabinet is collectively responsible to Parliament.

Administratively, Malaysia is organized along a three-tier type of government: federal, state and local government. In carrying out its duties as enumerated in the Federal and Concurrent Lists of the Federal Constitution, the federal government has established a number of ministries (currently they number 24), departments and agencies. The latter also include public enterprises, statutory bodies and corporations. The Cabinet is the highest coordinating executive body of all government activities and interests. Two national councils - the National Economic Council (NEC) and the National Security Council (NSC) - headed by the Prime Minister assist the Cabinet in the discharge of its functions. The NEC is the highest council responsible for coordinating all development programmes while the NSC is responsible for national security.

To improve and enhance coordination within the government machinery, the Federal Constitution provides further avenues of federal influence over the state governments. Such influence is exercisable over matters that are even listed under the state list of the Constitution. The three other national councils, the National Council for Local Government (NCLG) under article 95A, the National Land Council (NFC) under Article 91 and the National Finance Council (NFC) under Article 108, are chaired by the Prime Minister or his appointee. Representatives both from the federal and state governments sit in these committees.

In addition to the Constitutional provisions, there are various other official coordinating forums. These include periodical meetings between the Prime Minister and the Chief Ministers of the states, the Federal-State Liaison Committee (FSLC) and the National Development Planning Committee (NDPC). The Chief Secretary to the federal government chairs the last two committees, which comprise the respective state secretaries and other senior government officials. The NDPC is the highest body formulating and coordinating economic development policies in the country. Its secretariat is jointly held by the Economic Planning Unit (EPU) and the Implementation and Coordination Unit (ICU) of the Prime Minister's Department.

At the state level, the Ruler is supreme. He acts on the advice of the State Executive Council (EXCO) that is chaired by the Menteri Besar or Chief Minister. In the states where there is no hereditary ruler, a governor is appointed by the Agung to be the state's ceremonial head as in the case of Penang, Melaka, Sarawak and Sabah. In distinct contrast to the arrangement in the federal government, all the states have unicameral legislatures. These are elected at least every five years. The state legislature has the autonomy to pass any law so long as it does not militate against a corresponding federal competency, as underlined by Schedule IX of the Federal Constitution. Therefore, the state legislature is the centre of democratic policy. The Executive Committee, or the EXCO, is the Federal Cabinet equivalent at the state level and is the highest coordinating body on all matters of interest in the state. Coordination and supervision are carried out through a committee system where the heads are members of the state legislature.

The next layer in the government hierarchy, which is at the local level, is the district administration. The British formalised district administration nationwide. Today it still is the prominent administrative machinery at district level, for both the state and the federal governments. The District Officer (DO) heads the district council; in that capacity he is also the Land Revenue Collector and President of most district councils. In the former Federated Malay States such as Selangor and Perak as well as the former states of the Straits Settlements such as Penang and Melaka, the DO is a senior federal officer from the elite Administrative and Diplomatic Service. In the states of Sabah and Sarawak and the former Unfederated Malay States such as Kedah, Terengganu and Kelantan, the DO is a senior officer from the respective State Civil Service. The position of the District Officer as the chief administrative officer in a district is further enhanced by virtue of the fact that he is the most senior officer in the district and answers directly to the state secretary.

The District Officer is responsible for the development of the district as a whole. Coordination of the various development activities is done through the various district committees most of which the District Officer chairs. The two most important committees are the District Development Committee and District Action Committee. They include all the heads of governments and agencies at the district level such as the District Council, Agricultural Department and Public Works Department. Although no statute provides for these consultation committees, administratively, they constitute an important machinery to monitor and coordinate all development proposals and activities in the district.

Another dominant local public entity at the local level is the local government or authority (Wan Abu Bakar 1996:487). Under Item 4 in List II of the Ninth Schedule, the Federal Constitution stipulates local government to be a subject under the State List. Hence, all local authorities fall under the exclusive jurisdiction of the state governments. Following an amendment to the Federal Constitution, the government enacted, under Article 95A, the National Council for Local Government to advise and coordinate the local authorities in matters especially pertaining to legal and major policy issues (Malaysia 1986: 79-80). Within this formal framework, the Town and Country Planning Act further enhances the relationship of a local authority with other local institutions (Malaysia 1976). This Act also classifies local authority into two groups: municipality for large towns and district council for small urban centres. Under Section 5 of the Act, a local authority is the local planning authority and thus the authority that approves and controls all planning and development applications in its area. Besides the District Action Committee, the local authority, which incorporates the heads of the technical departments who are either councilors or ex-officio members, especially in full council meetings, also provides a consultation forum at the local level.

Evolution of Local Government, its Legal and Political Background

Like most institutions of government in many countries that were former colonies, the present system of local government in Malaysia could be traced back to Britain, which colonized Malaysia for nearly two centuries. As noted by Norris (1978: 4): "Malaysia inherited a British legacy in terms of local government objectives and style and has been deeply influenced by British precedents". Hence, it is only logical and inevitable that early forms of local authorities introduced in Malaya tended to be modelled along their British institutions. A cursory look into the laws governing the local authorities in Malaysia, particularly during its formative stage, would show that most of these local government statutes were based on English laws. However, with the accretion of time, local government authorities in Malaysia have evolved into a system having its own identity, characteristics and laws that reflect the socioeconomic and political environment of the country. In Malaysia (at that time Malaya), Penang and Malacca - which were part of the Straits Settlement - were the first two states to form local governments. It was in Penang that the British formed a Committee of Assessors in 1801 and gave it the responsibility for planning and implementing urban development. This laid the foundation for the establishment of local government in this country.

Local councils were later set up in Malacca and other Federated and Unfederated Malay States including those in Sabah and Sarawak. To operationalize the setting up of town boards and local councils as well as holding local elections, the British formulated various types of legislation. The Local Authorities Elections Ordinance (1950) for instance, granted the town councils the power to organize elections. In another case, the Local Councils Ordinance (1952) was formulated to provide power to local residents to establish local councils if it was deemed necessary. At the end of colonial period, there were 289 local councils in Malaya (Malaysia 1972). After Independence in 1957, when the Federal Constitution came into existence, local government outside the federal territory was placed under the state list.

The Post-Independence period of the sixties was a turbulent one for local government authorities in Malaysia. Internal administrative and political problems facing the local councils and the violent confrontation against the newly-formed Malaysian federation by Indonesia in 1964, led to the suspension of local government elections. This suspension was executed through the enactment of two regulations: the Emergency (Suspension of Local Government Elections) Regulations (1965) and the Emergency (Suspension of Local Government Elections) Amendments Regulations (1965). Since then, local governments in Malaysia were never to experience another election again even though the local government system in Malaysia has undergone a lot of positive changes. Tenant, writing in 1973, commented that: "Elective local government was a late colonial intrusion which did not flourish within the Malaysian political system" (Tenant 1973: 365). Another writer, Norris (1978:8), remarked that: "The Malayan environment was and remains unfavourable to large scale devolution".

The problems faced by local government authorities in the sixties were further compounded by the existence of various types of local councils as well as by the complexity of the application of a number of different ordinances, enactments, bylaws, rules and regulations. By the early seventies, the proliferation of local government units had resulted in a large number of local administrations and entities. For Peninsular Malaysia alone there were 374 such local governments. Hence, the government felt a need to reexamine and reform the local government system in Malaysia to improve its working. A Royal Commission was established in 1965, but only managed to submit its report to the federal government in December 1969. The report was only released in December 1971.

Even though the report was not accepted, its findings formed the basis for the restructuring of the entire local government system in Malaysia (Sabah and Sarawak included). Based on its recommendations, the report paved the way for the formulation and adoption of the Local Government Act 124 in 1976. This Act was to facilitate the process of restructuring local authorities. Commenting on the restructuring exercise, Norris (1978) had an external perspective of the social, economic and especially the political environment of the local authorities in Malaysia and gave a pragmatic analysis of the issue of local government after the reform. He envisioned the issue as follows: "(...) No longer the authorities' survival but rather the degree of their revival (...) There is above all, a growing awareness of a new value for local government, not in its traditional democratic virtues, but in its potential capacity to spread development" (1978: 75). Norris added that: "This new perceived vision for Malaysian local government is of considerable political significance. A restructured local government system should provide local authorities new impetus to move beyond the traditional role of garbage collection and sanitary inspection or general maintenance functions to those of urban development and management".

Following the passage of the uniform Local Government Act 124 (Temporary Provisions) in 1973 - used as temporary act in the restructuring process - the government reviewed all basic laws that regulated the powers, duties, responsibilities and functions of local authorities. Three parent laws were enacted for that purpose: The Street, Drainage and Building Act 133 (1974), the Local Government Act 171(1975) and the Town and Country Act 172 (1976).

Local Government Categories and Hierarchies

Prior to the restructuring exercise and the adoption of Local Government Act of 1976, there were six types of local authorities:

• City Hall of Kuala Lumpur;
• Municipal council;
• Town council;
• Town board;
• Rural district council; and
• Local councils.

Table 2. Distribution of Local Authorities by State

Source: Report of Royal Commission (1968, Table XII, P.341) and MHLG (Local Government Division)

As a result of the adoption of Act 171, there exist in essence only two types of local authorities in Malaysia: the municipal councils and district councils. However, the Act provides for the establishment of a city council. Conferred by the Supreme King of Malaysia or the Agung, this status requires the prior concurrence of the Conference of Rulers. Over the years, some of these district councils have been upgraded to a higher status. These include the Selayang Municipal Council and the Ampang Jaya Municipal Council that were formerly respectively known as the Gombak District Council and the Ulu Langat District Council.

Table 3. Local Authorities in Malaysia (Status of 1997)

* Inclusive of the Labuan Municipal Council;
Source: Briefing Notes, Ministry of Housing and Local Government

With the completion of the restructuring exercise that took place from 1974 to 1988, the 374 local authorities that were previously in existence (consisting of city Councils, town boards, town councils, rural and district councils) have been restructured into 14 municipal councils and 79 district councils in Peninsular Malaysia. In Sabah and Sarawak, the restructuring has resulted in 6 municipal Councils (4 in Sabah and 2 in Sarawak) and 39 district councils (18 in Sabah and 21 in Sarawak). At present, there are 96 local authorities in Malaysia, 23 in Sabah and 25 in Sarawak. However, due to the expansion of service areas and administrative expediency, it is expected that more local councils will be established or that the present districts will be upgraded to a municipal status.

Local Government Functions

The functioning of local government is based on the principle of ultra-vires and general competence (Mohd Yahya, 1987:466). The situation is very clear as Hashim and Yahya (1984: 155) write that: "Local government in Malaysia operates on the principle of ultra-vires (...) local authorities may perform those functions as specifically enumerated in its various Acts and bylaws. It has no general competence to undertake any activity according to affordability (...) it cannot undertake any activity that is beyond its powers or else it is ultra vires. Being a corporate [body] it can sue and be sued as well".

In spite of what has been written, local authorities in Malaysia have been given wide powers within the Local Government Act of 1976. The functions not only include mandatory functions but discretionary functions as well. The mandatory functions include all critical functions such as refuse collection, street lighting and activities pertaining to public health. Discretionary functions include all development functions such as providing amenities, recreational parks, housing and commercial activities. The provisions of the Local Government Act grant local authorities the following roles ((Mohd Yahya):

• Local planning authority;
• Licensing authority;
• Power to impose certain kinds of taxes;
• Undertake building, housing and commercial construction (markets, hawker stalls etc.);
• Power to perform urban planning and management functions;
• Traffic management and control (manage urban public transport systems); and
• Power to plan and provide public utilities.

The Local Government Act of 1976 provides local authorities in Malaysia with a very comprehensive set of functions and responsibilities. Two other main laws, the Town and Country Planning Act (1976) and the Street, Drainage and Building Act (1974), help local governments to perform their functions under the 1976 Act. These Acts allow the local authorities to assume more developmental functions in the field of urban management and play a more dynamic role in national development. As Mohamed Afandi (1989:125) notes: "Under the provision of the related local government laws (...) local authorities may carry out a whole range of functions, limited only by their own ambitions and resources." The major functions of Malay local authorities can be summarized as environmental, public, social and developmental.

Environmental

This relates to functions of maintenance and improvement of the environment within the area of jurisdiction. This includes obligatory services such as cleansing, collection and disposal of solid wastes, proper drainage and sewage, sewerage system and beautification programmes.

Public amenities

This applies to services such as abattoirs, veterinary services, transportation, burial grounds and crematoria.

Public health and cleansing

This function includes the provision of sanitation and solid waste management system, cleaning drains and roads and the general upkeep of the environment. The licensing of hawkers, stall holders, shop and business operators whose businesses are public nuisances and obnoxious in nature, falls under this function as well.

Social functions

Some larger municipalities provide social services such as childcare centres, clinics within their health care service programmes, ambulance and hearse services. Besides these, they maintain fountains and arrange for lighting public streets and other public services and provide manual labour and facilities to state governments or the district offices to assist in the organization of ad hoc social services at the state and district levels;

Developmental functions

As opposed to mandatory functions of the local authorities, the development functions are considered "discretionary" under the Local Government Act, 1976. Even though local authorities could be regarded as an important instrument for local socioeconomic modernization, the lack of financial and physical capacity limits the extent and functions that they can provide. This is particularly the case with district councils.

In the face of rapid growth and the pressure to fulfil multiple needs of the local citizens and the private sector community, the scope of functions and responsibilities of local authorities are expanding every day. The increase in the rate of industrialization, trade, commerce and development of modern services not only pushes the demand for urban space but also that of urban support services. With an increasing concentration of people and industries in urban areas, the functions and responsibilities of local authorities too have significantly expanded. This requires local authorities in Malaysia to perform multifarious roles that include:

• Efficient service delivery functions and employment generation;
• The normal system maintenance function for public places, drainage and sewerage, market places and crematorium, road maintenance and street-lighting, landscaping and maintenance, public health and sanitation;
• The development planning and control and management functions (building control, land-use planning, development, creation of industrial estates etc.);
• The promotion of tourism and urban renewal beautification programmes; and
• Infrastructure development and support facilities which could facilitate industrial development and other local-based economic development initiatives.

More important, this expansion of functions raises one fundamental issue: How can local authorities become an effective machinery to facilitate national growth and enhance the nation's competitive edge? In essence, local authorities must now play a more effective role in urban planning, development control and managing the urban system and its environment. Such a role is important to ensure uninterrupted growth and sustainable development within the context of maintaining national competitiveness in this era of economic globalization. Besides, it imposes not only financial but also administrative pressures on local authorities. These pressures come in the form of new demands and challenges to increase and improve delivery of urban services. The challenges also pose important and strategic questions regarding their roles at local, national and global levels. One of these challenges is in the management of local government finance.

Local Government Finances

Given the rapid growth in population and increasing rate of urbanization, local government finance has assumed increasing importance in local government management. This is because financial management determines the efficiency and effectiveness of local authority operations. Without adequate funding, it is difficult for local authorities to fulfill their duties as provider of services and act as a facilitator of socioeconomic growth at the local level. However, finance is always a major constraint that local authorities face. Given that finance is critical to local authority management, it is imperative that local authorities develop a good financial administration system. Such financial management will ensure that funds are collected, allocated and disbursed in an efficient manner. Local government finance in Malaysia includes, amongst other things, matters pertaining to expenditure and income as well as inter-government fiscal transfers. Local government expenditure can be divided into two categories: development expenditure and operating expenditure. Development expenditure involves a heavy capital outlay and includes expenditure on the construction of buildings, houses, offices etc. Operating expenditure is spent on short-lived items such as stationery, equipment, salaries, manpower services, etc. In general, it is mainly used for the purpose of maintaining services.

Table 4. Share of Expenditure Items of Local Authorities in 1994

Source: Mohd. Afandi Ismail (1995)

Although the above table indicates only the expenditure items of the local authorities in 1994, the expenditure profile has remained constant over the past decade and even remains unchanged today. Emoluments, services and supplies comprise the main part of expenses (78 per cent). With little surplus funds and no grants - a matter especially critical to district councils - local authorities need to obtain loans and other sources of funding to finance their operating and development expenditures. The weak financial position of most local authorities remains one of the serious impediments to the greater efficacy of local authorities in providing more services and development at the local level. As a result, efforts by the federal government - through disbursement of funds such as annual equalization grants - to fill the gap between the fiscal need and fiscal capacity is deemed necessary.

Table 5. Financial Position of Local Authorities (1991 and 1992)

Source: Ministry of Housing and Local Government

To meet the fiscal needs as represented by the expenditures required to meet the multifarious, but essential services provided by the local authorities, it is imperative that local authorities upgrade their revenue generating capacity. Theoretically, a local government derives its income from three main sources: rents and fees for services, grants/subsidies given by the central or state government (also known as inter-governmental fiscal transfers) and local taxation. In addition, some local authorities also receive grants in lieu of rates (assessment rates of government property). Other sources of revenue include miscellaneous forms of charges and fees such as licenses, payment for various forms of services, rental penalties and compounds as well as interest. Legal provisions with regard to revenue collection are spelt out by Part 5 of Section 39 of the Local Government Act (1976) in Peninsular Malaysia, while the states of Sarawak and Sabah are governed by their respective ordinances. These include, the Local Government Ordinance (1961) of Sabah and Chapter 117 of the Local Authority Ordinance (1948), Volume 5 of the Sarawak Law, the Local Authority (Rating) Regulations, the Kuching Municipal Ordinances (1988) and the City of Kuching North Ordinance (1988) of Sarawak.

The Ministry of Housing and Local Government, classifies the sources of income for the local authorities into six groups, namely:

• Assessment rates (inclusive of contribution in-lieu-of rates);
• Licenses;
• Rentals;
• Government grants (inclusive of road grants);
• Car parking charges, planning fees, compounds, fines and interests; and
• Loans (from government and/ or financial institutions).

Table 6. Breakdown of Sources of Local Authority Revenue in 1994

Source: Mohamed Affandi Ismail (1995)"Usaha Untuk Mempertingkatkan Punca Hasil PihakBerkuasa Tempatan di Semenanjung Malaysia, (paper prepared for the Ministry of Housing and Local Government)

In Malaysia, the major source of revenue is the assessment rate (47 per cent for Peninsular Malaysia). In 1786, the East India Company introduced the concept of rating with the establishment of the Prince of Wales Islands (Pulau Pinang). Section 130 of the Local Government Act (1976) stipulates that rates are to be imposed upon the improved value of the holding. Improved value was defined as: "The price that an owner willing and not obliged, to sell might reasonably expect to obtain from a willing purchaser with whom he has been bargaining for the sale and purchase of the holding". The Act allows a state authority the discretion to opt for annual rental or market value as a basis for rate assessment. The state of Johor, for example, has opted for such a valuation. Collection from the government for its property takes the form of contribution in-aid-of-rates or grants. In 1993, the federal government contributed a sum of RM 32,440,700 to local authorities in the form of in-aid-of rates increasing to RM 44,544,800 in 1995 (MHLG 1996). Assessment rates have been the most lucrative source of revenue. However, over-dependence on this cause has had a negative impact upon local authority functions. Phang (1997:26) notes that: "Heavy reliance and dependence upon assessment do not allow local authorities to fulfill their obligatory functions or serve as agents of growth and development (...) consequently, they need other sources of income".

Another source of revenue for local authorities is fees from licenses issued by local authorities for trading activities within its jurisdiction. These levies constitute about five per cent of the total revenue collected by local authorities in Peninsular Malaysia. Rentals are charges or fees imposed upon users for renting local authority properties. Charges are revenues received for services rendered by local authorities such as fees for planning applications, dislodging of septic tanks, fees for burial facilities and charges for refuse collection. Fines and compounds imposed by local authorities for offences such as littering, dumping of household refuse, hawking without a valid license and illegal parking within the local authority area forms other sources of revenue. Besides, interest and investment earnings are an important source of revenue especially for richer councils that place their funds in financial institutions or realize them through investment activities. The same applies to inter-governmental fiscal transfers that are necessary if local authorities are to fulfill their obligatory duties. These can be categorized as follows:

• Launching grants;
• Annual equalization grants;
• Development project grants;
• Road maintenance and drainage grants; and
• Balancing grants.

Launching grants are an inducement for a state government to restructure its local authorities. These are provided only once and are usually used to purchase new equipment for the purpose of service extensions or to undertake infrastructure development projects. The Local Government Division of the Ministry of Housing and Local Government approves of the utilization of these grants and authorizes their annual disbursements. The formula used for computing the launching grant is based on the land area and population of the local authority. The Ministry of Housing and Local Government staggers out the disbursement of the launching grant over several years to enable local authorities to spread out their expenditure on capital items. The annual equalization grant replaced the annual grant in 1991. The annual grant was calculated on the basis of the population size and the revenue that the authority was expected to collect. The maximum annual grant payable was fixed at RM 107,000.

In contrast, the annual equalization grant is a grant to compensate or equalize the difference between fiscal capacities and fiscal needs of a local authority. Fiscal capacities are revenue sources of a local authority and fiscal needs are its expenditures. Certain criteria are used in determining fiscal needs and a formula is used to calculate the equalization grant for each local authority (Phang, Chee and Yahya 1988). Based on this exercise, total grants to local authorities for 1991 were raised from RM 9 to RM 54.9 million that had been previously allocated to all 94 local authorities in Peninsular Malaysia. In 1992, the total grant was RM 83 million and the minimum amount received by any local authority was RM 215,000 annually (NST 20 April 1992). The Annual Equalization Grant is given by the federal government to local authorities in Peninsular Malaysia through their state governments in accordance with the State Grants (Maintenance of Local Authorities) Act 181 and 245. Local authorities in Sabah and Sarawak do not receive this grant since they are not governed by the provisions of the Local Government Act (1976) but are guided by their respective Local Government Acts and Ordinances.

Development project grants are funds made available to all local authorities for implementing socioeconomic projects especially towards upgrading the services provided by the local authorities in their areas of jurisdiction. Some of the projects include infrastructure projects, social facilities, cleanliness and beautification, purchase of equipment and machinery, recreational parks and sanitary projects (landfills and incinerators). The allocations for the local authorities under the Development Project fund for 1995 was RM 103,060,400. This was 4.63 per cent more than the 1994 allocation of RM 98,500,010 (MHLG 1995). Under the Seventh Malaysia Plan (1996-2000), local authorities can obtain development funds for implementing socioeconomic projects designed especially towards helping the Bumiputra and industrial community. Such projects include bus stations, markets, food courts and shop houses. The grants are also provided for the development of new and traditional villages within local authority areas. The purpose of this development expenditure is to bring these villages into the main stream of the local authorities' socioeconomic activities and functions (MHLG). Any allocation made for a specific project of this nature is considered an outright grant and does not involve any repayment by the recipient local authority. Nevertheless, in allocating funds for this purpose the emphasis is placed upon projects that would generate revenue for the local authority and provide employment opportunities for its people. According to Yahya (1987: 582), a major problem confronting the grant system as a whole is that all the fiscal transfers are channelled through the various state governments and it is also doubtful whether the states pass on the Federal transfer promptly to the relevant local authorities.

All local authorities are eligible for road maintenance grants. Roads that are not federal roads are considered state roads and are maintained by local authorities. Local authorities can directly claim the upkeep of such roads from the respective state governments. Road grants are calculated based on the average cost of maintaining one mile of road using the minimum quality standard as specified by the federal government. Each local authority has to apply to the state government for the grant. The state government, in turn, passes the application over to the Public Works Department to evaluate whether the claims meet the standards required for maintenance and to certify accordingly. The list of the approved roads is then submitted to the Federal Treasury for payment of the annual maintenance grant. Drain maintenance grants are ad hoc allocations by the Ministry of Housing and Local Government to all local authorities to upkeep and upgrade their drains. It is not compulsory for MHLG to provide this grant annually but nevertheless, the Ministry paid about RM 50 million in 1994 to local authorities to clean and maintain their drains. The motive was to encourage flood mitigation activities to prevent flash floods - arising from rapid economic development - from occurring in local authority areas.

State governments also offer financial assistance to their respective local authorities in the form of a balancing grant. There are no formal criteria in determining the purpose and amount of this grant. Basically, the state grant is aimed at covering deficits that arise primarily from increases in pay levels negotiated by the federal government for the public sector, hence the term balancing grant. Particularly for smaller councils, the financial assistance from balancing grants helps them finance minor projects such as markets and community halls or building their offices. In general, the state fiscal transfer has been small, representing roughly 2.5 per cent of the total s expenditure (Mohd Yahya 1987). It must be emphasized that the state government plays a significant role in local authority finance in terms of granting approval for any development project. For the bigger infrastructure projects, local authorities are encouraged to seek loans and other forms of fiscal aids rather than depend on grants from central and state governments.

Scope of capital finance

Under the Local Government Act of 1976, local authority is equipped with legal powers to borrow (Sections 42 to 49). The local authority is empowered to borrow through mortgages, issues of stock and debentures and from federal and state governments as well as to obtain overdraft facilities from private banks. The main constraint however, is the restrictive clause in Section 41 and thereafter followed by the various sections stating that all borrowing requires the blessing and approval of the state government. As a result, the source for borrowing has been confined only to the federal government. The only exception has been the city hall of Kuala Lumpur that has obtained some loans from the World Bank.

Domestic loans for local authorities

A local authority in need of a loan normally seeks the consent of the state government in compliance with Section 41 of the Local Government Act of 1976. Once the state government gives its approval or consent, a request for a loan is submitted to the Federal Treasury. A project brief that details the project background, needs and scope with sufficient details of financial viability is to be sent to the Federal Treasury for its assessment. If the project is commercial in nature, the Federal Treasury could examine the loan request strictly from a financial point of view. The Federal Treasury also obtains its finance from both government revenue and from borrowing. Hence, it has to scrutinize strictly all requests for loans to ensure an equitable distribution of limited funds.

International loans for local authorities

Apart from domestic loans, local authorities can also finance their capital projects through international loans from the Asian Development Bank and funding from the Japanese and Arab governments. Some of the international loans currently made available to the Malaysian government include loans from the World Bank and its subsidiaries, the International Development Association and International Finance Corporations.

Financial issues in local government

There are a number of financial issues facing local governments. Three major ones merit discussion: the federal (state) - local financial relationship, accountability and weak financial position of local authorities.

Federal state-local financial relationship.

Local government is under the State List in the Federal Constitution. The only formal framework that exists is consultation through the National Council for Local Government. It must be emphasized that the federal government deals with local governments primarily through the MHLG. Such dealings are carried out through the state government, in particular the State Local Government Division. Federal fiscal transfers include the provision and launching of annual grants, minor projects grants and the contribution in-lieu-of-rate that are made through this relationship. Beyond that, the federal government cannot interfere directly in the affairs of local authorities. The federal government is helpless even in reported cases where the state withholds, albeit temporarily, the Federal contribution in-lieu of rates for local authorities or the state refusal to impose new rates based on the property revaluation done by the Ministry of Finance. In essence, for implementation purposes, financial initiatives greatly depend on the state government. The State Authority has direct financial powers over local authorities. Such powers are also incorporated in the Local Government Act of 1976.

Accountability

Public accountability embraces all aspects of government action. In financial management, the most elementary form of public accountability is the requirement that local authorities give an account of their activities to the public and provide justification of what has been done. Even at this simple level, only a few local authorities are able to produce the annual financial accounts, let alone the annual reports that report on the whole range of the activities of the local authority. Audit work is also hampered and delayed by the inability of the local authority to produce supporting documents for the expenditures made, accurate accounting of the expenditure and up-to-date annual accounts.

Weak financial position of local authorities

From the above discussion, it is apparent that the financial position of most local authorities in Malaysia is weak. Except for a small minority comprising the larger local authorities, many do not have additional income to meet the demands and expectations of their communities. Certainly, with increasing demands for local government functions and services, new avenues for revenue generation must be sought to supplement the income of local authorities. This may include sale of municipal bonds, rezoning of land from residential to commercial purposes or taking equity share in privatization projects.

Meeting local financial needs in the next millennium

It is estimated that by the year 2000 more than 65 per cent of Malaysians will be living in urban areas as opposed to 51 per cent in 1991. To meet the needs of these urban residents, local authorities must be able to strengthen their financial capacity and search for innovative means in order to remain financially viable. This is an important challenge for local authorities if they are to sustain a high level of urban services and quality of urban life in the next millennium. The Minister of Housing and Local Government of Malaysia suggested a number of strategies to strengthen the financing side of local authorities in Malaysia during his presentation at the IULA 33rd World Congress in Mauritius on 7 April 1997. These are elaborated upon below

Restructuring of local authority revenue sources

In view of the emergence of new issues as well as old ones such as urban congestion, urban poverty, environmental degradations and social ills (drug abuse and AIDS) coupled with increasing demands for recreational and leisure facilities of a growing middle class and a more affluent section of society, there is a need to review the revenue distribution between the Federal and state governments. At the same time, the sources of finance in the local authorities need to be expanded and strengthened.

Greater autonomy to revise taxes

Since local authorities are semi-autonomous entities within the state framework, any decision to revise taxes must get the approval of the respective state governments. This in essence, discourages the local authorities to consider a review of rates to such extent that they reflect the cost of services they provide. Even though increasing rates are linked to a broader political process, a system should be devised to take into consideration the costs of services provided by local authorities in order to arrive at a fairer calculation of rates beneficial to all parties involved. A more decentralized decision making should be encouraged that gives local authorities the power to decide on the imposition of new rates.

Deregulation and privatization

In line with the government policy to reduce its involvement in the public sector development, concrete attempts must be made to explore new ways and means to reduce the expenditure of local governments through deregulation and privatization. This may include the deregulation of building control by giving this task to professional bodies or privatizing cleaning and maintenance works of parks to private contractors.

Enhancing federal and state government support

Local authorities need substantially larger allocations than normal to tackle emerging social problems in urban areas such as drug abuse, AIDS and loitering of youth. The continuous support of the federal and state governments is vital to manage these problems effectively. Federal and state government support is also crucial in assisting local authorities to maintain and enhance the quality of services in their localities. Most of the local authorities, especially the smaller councils are ill-equipped to combat these social and urban ills on their own. Without the generous and unwavering support of the federal and state governments, measures taken by local authorities could be costly and divert scarce resources away from their mandatory obligations.

Community support and participation

The role of community support and participation is crucial in the performance of local authorities as it ensures the success of a particular urban programme and can help reducing the cost of operation. To a great extent, the public can be involved in tree planting activities, recycling of wastes, reducing litter and controlling vandalism. In these cases, local authorities take the initiative to link up with non-governmental organizations and schools in order to promote community support and participation. Such measures will greatly enhance or improve abilities of local authorities in discharging their duties.

Personnel Systems in Local Government

One of the guiding principles behind the setting up of the local government system is to meet the objective of administrative efficiency (Mohd Zin 1987:124). It is argued that as the machinery of the government becomes decentralized, some aspects of its functions may be more efficiently implemented. The Malaysian experience has demonstrated that the mere effort to bring the decision-making process to the lowest level, is not sufficient to meet efficiency objectives. Efficiency in resource allocation and utilization depends upon the quality of the decision-making process itself. This in turn depends on the manpower, personnel and expertise available, which is another area in the management of local authorities that merits serious attention of Federal as well as state governments.

Recruitment, selection and promotion

Under the Local Government Act (1976) every local authority is given the power to recruit personnel to carry out its functions. However, the state government has to approve the budget and the reasons for recruitment. Given this discretion, local authorities can appoint their own staff, exercise control and execute disciplinary action and undertake other personnel functions such as training, promotion and pension matters as far as these are approved of by the state government. As a result of the implementation of local government reform, local councils are now bodies appointed by the state authorities. Similarly the chief executives, i.e. mayor for a city council; president for municipal or district councils, are also appointed by the state. The exception is the City of Kuala Lumpur, which is headed by the Commissioner for the City of Kuala Lumpur. The Local Government Act (1976) provides for the appointment of not less than eight and not more than twenty-four councilors and a mayor or a president to sit on the full council of a local authority. The organization of local authorities remains the same as before the restructuring exercise, except for the fact that the state authorities appoint the mayor or president, as is also the case with the secretary who is the chief administrative officer of the council. Other employees of the council are employed directly by the local authority concerned.

Concerning the appointment of a mayor or a president to head a particular council, some state governments such as Kelantan and Trengganu, opted to appoint a politician from the ruling party in the states instead of administrators from state services. In such cases, the deputy mayor or president will be chosen from among the administrators. In other states such as Pahang, Perak and Melaka, the mayor or president and secretary are picked amongst the officers of the Malaysian Administrative and Diplomatic Service. Other categories of personnel in a local authority belong to that particular authority from the beginning to the end of their career. Given this lifetime tenure, local authorities must employ the right personnel.

The recruitment process is considered most important in the public service as it determines the type of individual taken into the service. If the recruitment processes are weak, it will lead to a mismatch between recruited personnel and the job requirements. Such mismatching will seriously hinder the efficient functioning of local authorities. In this respect, one must note that local authority posts in Malaysia, can be divided into permanent and pensionable, permanent and non-pensionable, temporary, contract and supernumerary posts. In the case of temporary posts, it can be for specific periods or on a month-to-month basis. Each category of posts differs in many ways from the other in their terms and conditions of service. These differences in turn, may have implications; one of which is that each category is subjected to different recruitment styles and regulations. Recruitment in local governments is based on the principle of merit. The aim of the merit system is to appoint candidates on the basis of their intellectual ability, personality, potentiality and where relevant, their professional or technical skills in relation to the requirements of the posts to be filled. To achieve this objective, local government (through its board) is charged with the responsibility of performing its functions with independence, integrity and impartiality. In this case, each local authority will have its own board whose functions are to appoint, confirm, place on the permanent or pensionable establishment, transfer and exercise disciplinary control over members in the service. The recruitment process to fill a vacant post involves five different stages:

• Clearance from the state government, the Treasury and the Public Service Department for filling the posts;
• Recruitment procedure;
• Offer of appointment;
• Probationary period; and
• Confirmation of appointment.

The selection exercise is not an elaborate part of the recruitment exercise for the local authorities. It is based on the scheme of service for a particular job. Some require professional qualifications while others entail pre-posting courses and examination. For the purpose of mobility in the local government, the career of its civil servants is determined by the scheme of service of the various classes of jobs. An officer is recruited to the lowest grade in a scheme of service and not to a particular post. An officer who is holding a post in a certain grade is eligible for promotion to a higher grade within the same scheme of service to which he belongs.

In case of promotion, a Promotion Board conducts all exercises whenever a vacancy occurs in a higher grade in the scheme. As with appointment procedures, the promotion exercise has also adopted the interview method of assessing the candidate's suitability. In all cases annual performance and special confidential reports are taken into account. Whatever the method, the prime consideration is that all promotions are based on merit. This principle is unambiguously stated in General Order 50 Chapter A that defines merit as consisting of two factors: efficiency shown by an officer in the performance of his/her duties and personal qualities including qualifications and experience related to the post to be filled. Unsuccessful candidates are given the right to appeal against the decision to a Special Appeals Committee. Before an officer is promoted to a higher grade, he is normally required to occupy a higher post or a higher grade in an acting capacity so as to determine his/her suitability for promotion. An officer who fails to be promoted is usually allowed to continue acting until the next promoting exercise is held. When an officer is acting in view of a promotion, he or she enjoys all the privileges of the higher grade.

Many of the complaints and dissatisfaction voiced by local authority personnel relate to promotion and prospects of their service in that particular local authority. Firstly, the prospect of promotion depends on the availability of posts at the higher grade within that organization. If there is no vacancy, an officer will have to stay and stick to a particular job for a long time until a new post at a higher grade is created. The ability of the local authority to create new posts not only depends on the workload of the authority but also on its financial capacity. Related to this is the problem of horizontal mobility. A person employed by a local authority will have to work in the authority he was originally recruited into until he retires. He cannot be transferred to another local authority of his choice through filling a similar post or by mutual transfer without losing his seniority and other privileges. Attempts are now being made to set up a Local Government Service at state level. This is to facilitate officers from an authority to fill a post - either by way of transfer or promotion - in another authority without having to lose seniority and other privileges. The state of Selangor has already developed the system.

Ethical behaviour and employee discipline

For the purpose of achieving the objectives set by the local government, personnel should be informed or reminded about accepted standards of work ethics and conduct so as prevent any undisciplined behaviour that may discredit the local authorities' services. Even though disciplinary problems are not of serious concern to local authorities, its increasing trend can have a negative impact on their efficiency and effectiveness. Recognizing the importance of discipline, high ethical standards and productivity, a number of approaches have been adopted by many government agencies including local authorities since the late seventies. Among others, these initiatives include the introduction of a Punch Clock, Name-Tag, Code of Ethics in the Public Service, Manual of Office Procedure, Desk Files, Quality Control Circles and a Productivity Measurement Programme.

As part of the public sector reform in Malaysia, local authorities are also involved in the development of productivity and quality management programmes initiated in 1989. Local authorities like other public agencies must be proactive in the delivery of quality services, more market-driven and customer oriented in their dealings with the public. To implement these programmes, the government has encouraged public agencies to adopt a total quality management approach, the establishment of a Client's Charter and the implementation of ISO 9000 standards. To reinforce these efforts towards creating and sustaining a culture of quality, the government has also launched a number of awards such as Efficiency Service Awards, Public Sector Innovation Awards, Quality Control Circles Awards, the Prime Minister's Quality Award and Public Service Quality Awards as part of the incentive package for public agencies.

Implementation of a new remuneration system

In an effort to improve the remuneration packages given to public sector employees, the government has introduced a new remuneration system in 1992. Like other public agencies, local authorities have adopted this system that provides local government personnel with a new, more flexible and attractive remuneration package of wages, allowances and other incentives. It eliminates several levels of hierarchy existing in many government agencies and encourages promotion and salary movements based on merit and performance (Ahmad Sarji 1992:3). In essence the new system has introduced major changes in the salary and allowance structure as well as in other areas of personnel administration and management. These include reducing the size of local government personnel, promoting organizational restructuring and emphasizing training of public sector personnel.

Training programmes

Like many other Asian countries, the government is the largest employer in the country. If we add the number of posts in the armed forces and the police to the public service employment figure, we will find that one out of every 14 persons in the country is an employee in the public sector. Out of the 831,049 posts created by the federal government about 58,041 (7 per cent) are in Local Governments.

Table 7. Posts in Public Sector Agencies* (1990-1995)

* Excluding the Police and Armed Force
** Figures for August 1995
Source: Seventh Malaysia Plan, 1996-2000

As discussed in the previous section, the new remuneration system places great emphasis on the crucial role of training and its impact on the performance of local government personnel. The objective of training is not only to upgrade knowledge and skills, but to develop the right kind of attitude and mind-set among civil servants towards the assimilation and internalization of positive values and work ethics to support public sector reforms. Training also enables civil servants to cope with increasing job demands and to achieve greater levels of performance.

The Public Services Department, through its Training Division and the National Institute of Public Administration (INTAN), is responsible for planning and conducting training programmes for public sector personnel including those from the local government sector. At the Ministry of Housing and Local Government, the training component is being handled by the Department of Local Government that has a small training unit. Nevertheless, all local authorities are encouraged to set up their own training units and develop their own training programmes as part of the human resource development effort. The city hall of Kuala Lumpur for instance, has its own training institute. This effort includes the provision of training opportunities for all levels of local government personnel such as the lower level comprising clerical, technical and other support groups, the executive and subprofessional groups which form the middle management and the top management level covering the administrative, professional and non-professional groups. As part of the continuing efforts to produce local government personnel of high caliber, many local authorities throughout Malaysia have adopted a number internal as well as external of training strategies.

Internal training

Comprises of departmental training to provide technical and/or practical knowledge and ability in specific working fields through training programmes developed by the department concerned as well as on the job training that is conducted while performing regular job activities.

External training

Personnel may join training programmes organized by other national/international bodies or may be attached to certain local municipal and agencies (training by assignment).

While the National Institute of Public Administration (INTAN) fulfills most of the training needs of local authorities in the fields of executive development, management, information technology, finance, language and communication, media technology and training of trainers, there are other public agencies that also provide training for local government personnel. These include the Public Works Training Institute (IKRAM), the Institute of Public Health, the National of Public Health, the National Valuation Institute (INSPEN) and local universities and various state governments that conduct training through their own training outfits.

Extent of Public Participation

The important role public participation plays in the management of a particular locality is universally accepted even though the extent and degree of participation may vary from one country to another or amongst local authorities themselves. In Malaysia, participation can take many forms and levels of involvement. According Phang and Nooi (1989: 65-68), the term covers at least four general features that are by no means exhaustive, but seem to imply a system of representative or participatory democracy in local governance:

• Consultation, where the council identifies an issue and seeks public response;
• Direct involvement or power sharing, where the community is a full member in the decision making body;
• Community action, where groups put forward their own demands; and
• Community self-management, where groups have control over facilities and resources.

Public participation in local government activities in Malaysia depends on a number of factors: types of local government - municipal or district - local leadership and finance or resources. In most cases, the public will participate in local authority-driven activities. For example, the Municipal Council of Petaling Jaya recently launched a river clean up campaign near Sungei Ara squatter settlement areas as part of its river beautification programme (The Star 1997). However, there are instances too where programmes are community-driven and local councils will assist residents with logistic support through the loan of their lorries and equipment. Corporate bodies or local politicians sponsor the provision of refreshments during such community self-help programmes. The activities where public participation is most common are those related to maintenance and routine services such as clearing rubbish from drains and along roads in housing estates and clearing unwanted vegetation along riverbanks as part of the "Love Your River Campaign", a national effort promoted by the government. Some of these resident associations may assume the role of a local pressure group in voicing the people's concerns on issues affecting them such as new traffic routing and congestion and proposals to increase population in a particular area through erecting high-density condominiums.

Another other important avenue to participate in the running of a local authority is through councilors appointed by the government taking part in local councils. According to the Local Government Act (1976), the appointment of councilors is done: "From amongst persons the majority of whom shall be persons ordinarily resident in the local authority area who, in the opinion of the State Authority, have wide experience in local government affairs or who have achieved distinction in any profession, commerce or industry, or are otherwise capable of representing the interests of their communities in the local authority area (Malaysia 1976: 18)". Section 10 of the Act stipulates that number of councilors in a particular council may range from not less eight to not more than twenty-four. Even though the state government control them, the councilors may be viewed as representatives of the area from where they hail or representing various business communities or interest groups. The councilors provide a channel of communication between the local government and the local residents. They sometimes act as mediator in times of disputes over land matters and environmental issues such as dust problems caused by lorries ferrying earth and noise made by developers working overtime.

Rapid socioeconomic development and the emergence of a larger middle class also saw the proliferation of interest and pressure groups and non-governmental organizations (NGOs). Voluntary welfare-oriented organizations, citizen watch groups, consumer and neighbourhood associations and environmental protection societies want local authorities to acknowledge the contribution these bodies can make to solve a range of issues pertaining to urban management such as environmental pollution, beautification, improving the quality of life of residents and preserving the heritage of the community. In Petaling Jaya for instance, a voluntary organization is being formed to help with the planting of trees in Bukit Gasing to replace those that were burnt by an irresponsible section of the society.

Under tight financial constraints facing the country, local authority cannot be expected to be responsible for such community services all the time. This is where the community and other voluntary organizations play a crucial role. It will also allow the local council to rechannel its resources to improving its services in other areas such as squatter and traffic improvement schemes. The element of public participation has also been incorporated in the Town and Country Planning Act particularly with regard to the preparation of the Structure Plan. According to Section 13, in preparing the Plan, local planning authorities must consider representations from the public. In this case, adequate publicity and access to both the draft Structure and Local Plans would have to be made available to the general public. Under the Act, the State Planning Committee would receive all objections from the public against the Structure Plan and a public local inquiry would be formed to study these objections and suggestions. Both the plans may be changed and modified after taking into consideration the views of the public. In this context, the Town and Country Planning Act of 1976 may be viewed as an important cornerstone in the history of the development of physical planning whereby the role of public participation is formally recognized.

As the level of education and affluence rises, local authorities must recognize that public participation has an important role in the decision-making process of a locality. The public or residents are more likely to know of their rights and hence would be in position to assert them if the need arises. In view of the growing expectations and the general demands of the local population, local governments must be responsive to meet public needs by harnessing the untapped reservoir of talent and resources of the communities in many of their activities. Through better and effective local government-citizen interaction and participation, a win-win situation could be created in which all parties, such as the local authority, residents and business communities in Malaysia, could gain from holistic partnership.

The Way Ahead

Rapid economic growth, population increase and urbanization that characterize most countries in the Asia-Pacific region impact inevitably on the urban environment. The emergence of new issues and problems poses new challenges to traditional ways of managing urban areas. It entails new approaches, strategies as well as practical and effective answers and solutions from local authorities. Greater globalization of the economy, accelerated advances of information technology, greater demands for accountability of results and the need to foster closer public and private collaboration pose tremendous challenges to national as well as local governments. One of the emerging issues arising is whether Malaysian local authorities, particularly the smaller ones, will have the capacity and capability to assume new roles to meet new challenges. In the future, local authorities must move from a maintenance-oriented administration to being a facilitator, pacesetter and regulator of socioeconomic development in order for them to contribute effectively towards the nation's competitiveness.

With regards to these challenges as well as the capability and need to reform to remain effective, the Prime Minister commented that: "Given these rapid changes in the world economy, the public service must be prepared to confront new sets of challenges in the 21st Century (...). Continuous efforts must therefore be made to review the public service so as to be in line with the current needs and times. We need to look into new ways and means to improve and enhance the capability of our public service (Mahathir 1995: 12)". As part of the national efforts to reform the public service in meeting the current needs and times, local governments together with other public agencies have been undertaking a number of reform programmes based on a series of strategies. These reform efforts are intended to create excellence in the public service based on the core values of quality, productivity, innovation, integrity, accountability, discipline and professionalism and include:

• The provision of customer oriented services;
• Improvements to systems and procedures;
• Greater use of information technology;
• Strengthening relationships with the private sector;
• Improvements to the organizational structure and human resource management;
• Enhancing accountability and discipline; and
• Enculturation of values and excellence.

As instruments of national development, local governments in Malaysia have changed fundamentally, albeit slowly from a service provider to a facilitator of growth. Besides, local governments have assumed a more developmental role in creating an enabling environment for businesses to thrive and for citizens to prosper. In the age of rapid urbanization and globalization, the ability to manage change and fast-paced development is an important imperative for local government. This entails continuous capability and capacity-building efforts, reforms, innovations and the willingness to learn from others.

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