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manner in which lessons learnt from the experience of Southeast Asia might contribute to
the development of longer-term social policies both within Southeast Asia and in other
developing countries. It is also an issue of concern to the APEC HRD Working Group as
outlined in the Haworth Report of the Human Resource Development Working Group
(HRDWG) Task Force on The Human Resource Development Dimensions of the Asian
Financial Crisis: Towards the Definition of an APEC Response. As a result, a proposal
was developed and submitted to the Canadian members of this committee to carry out
such a study. Thus this project is designed to provide inputs into the development of
longer term social policy in selected Southeast Asian countries but is hoped that this
information will also be valuable to members of the APEC community.
1.4 The specific goals of the project are:
1. to assess the effectiveness of social safety net programs in terms of:
program formulation
financing
implementing systems
results
2. to profile some case studies of exemplary practices in the social safety net
programs of these countries
3. to involve Canadian and Southeast Asian policy makers, academics and NGOs in
the preparation and evaluation of these programs
4. to produce results that can be made available to policy makers to provide input
into developing social policies
5. to incorporate a gender analysis of the impacts wherever possible in the study
6. to disseminate the results of the report as widely as possible
2. CONCEPTUAL FRAMEWORK
2.1 The Southeast Asian Background
2.1.1 The last two decades have been a period of considerable economic growth and
growing involvement in the world economy for Southeast Asia. At the beginning of 1980
there were sharp differences between the socialist economies of Vietnam, Laos,
Cambodia and Myanmar, and the market-led ASEAN core countries of Singapore,
Malaysia, Thailand, Indonesia, the Philippines and Brunei, in standards of living, degree
of integration in the global economy, and systems of governance. But in the following 15
years they began to move closer together, experiencing accelerating rates of economic
growth and increasing political integration within the framework of ASEAN. As Figure
1.1 shows, these sharp differences still remain with transition economies still exhibiting
much lower levels of per capita income than the ASEAN core countries. The latter group
had begun to experience rapid structural change over this period, with a decline in the
contribution of agriculture to the GDP (see Figure 1.2) and a considerable growth of
industry increasingly directed towards export-orientated industry, such as electronics and
textilesthe focus of foreign direct investment particularly from Japan (see Figure 1.3).
There was also a rapid acceleration of portfolio investment in the region as well as a
increasing volume of loans from developed countries banks granted to the private sector.
This financial surge was associated with a building boom in the major cities, increasing
the levels of urbanization, and a decline in the proportion of the labour force in
agriculture, a process that accelerated in the latter part of the 1990s (see Figure 1.1).
Thailand
Malaysia
Singapore
Vietnam
Cambodia
Laos
Burma
Philippines
Indicator
Indonesia
Figure 1.1: Southeast Asia: Basic Social and Economic Indicators in the Mid-1990s
980
1050
2740
3890
26730
240
270
350
--
6.0
1.5
8.4
5.7
6.2
--
--
2.7
--
7.2
6.0
7.1
7.9
8.3
--
--
--
--
1980-90
6.1
1.2
7.6
5.2
6.7
--
--
--
--
1990-95
7.6
6.0
7.1
8.7
10.5
8.3
6.4
6.5
--
75
61
84
63
--
82
83
--
1980
59
52
71
41
73
76
80
--
1990
57
45
64
27
72
74
78
--
31
47
19
51
100
20
13
19
25
Adult illiteracy,
percent, 1995
16
17
35
43
19
the labour-intensive industries of the export-orientated sector (see Figure 1.6). Women
have played an important role in the Asian economic miracle as workers, entrepreneurs,
in the informal sector, and the household economy. Their participation in the paid labour
force has increased rapidly since the 1960s.
2.1.3 Thus, in the period up to 1995, while Southeast Asia continued to exhibit
considerable variation in levels of living between and within countries with respect to
social and economic development, the overall picture was one of continuing
development. This is also reflected in the general increase in levels of education in the
region. However, Southeast Asian governments, with the exception of Singapore and
Brunei, have generally spent much less than developed countries on education and health,
as a percent of GNP. In 1993 this amounted to US$19 per capita in Indonesia, $36 in the
Philippines, $103 in Thailand and $251 in Malaysia. This compares with over $1000 in
the developed countries (see Hugo, 2000).
2.1.4 For countries of Southeast Asia, these encouraging overall trends in social and
economic development over the last two decades have not translated into a reduction in
the unequal distribution of income. In all five selected Southeast Asian countries the
highest 20 per cent of households earned more than 40 percent of total household income
(see Figure 1.7). These figures translate into considerable proportions of population still
below the poverty line, although this proportion has declined considerably over the
twenty years, with the exception of the regions laggard: the Philippines (see Figure 1.8).
Figure 1.3: Amount of Foreign Direct Investment Received in Asian Countries, 1993
Taiwan
1214
273
-----
144
62
Hong Kong
372
Singapore
2423
481
Malaysia
2442
645
43
347
37
203
-----
Thailand
4294
2705
32
217
124
273
59
----3
European
countries
75
US
688
341
285
208
201
60
91
896
470
45
683
87
239
431
588
Vietnam
-----
930
China
286
Philippines
1044
Hong
Kong
South Korea
South
Korea
----
Japan
Recipient
Japan
Total amount
received
(million USD)
3078
Indonesia
Thailand
Malaysia
Singapore
Taiwan
Provider
31
7
3
---------
Indonesia
8144
836
661
131
384
1460
37
Philippines
532
112
41
39
China
27514
1324
374
3139
17275
491
91
Vietnam
2615
76
371
404
402
250
347
95
-----
29
-----
234
66
123
-----
445
909
88
108
2063
513
-----
178
India
2905
84
1135
507
Pakistan
739
41
30
192
Philippines
Thailand
Malaysia
Singapore
Vietnam
Cambodia
Laos
Burma
Brunei
Southeast
Asia
Indicator
Population (millions)
204.3
73.4
60.1
21.0
3.5
75.1
11.2
5.1
46.8
0.3
501
Natural increase
(annual %)
Infant mortality rate
1.7
2.3
1.1
2.2
1.1
1.6
2.9
2.8
1.9
2.3
1.8
66
34
32
11
38
111
102
49
11
52
Life expectancy at
birth
Total fertility rate
62
66
69
72
76
67
49
52
61
71
64
2.9
4.1
1.9
3.3
1.7
3.1
5.8
6.1
4.0
3.4
3.2
Percent of population
under 15 years
Percent of population
over 65 years
34
38
30
36
23
40
46
45
36
35
36
Year
Total Overseas
Period
Total Deployed
Burma
1995
415000
1989-92
35248
Indonesia
1997
1000000
1969- Aug.97
2072304
Philippines
1997
6100000
1984-95
6299556
Thailand
1995
445000
1973-95
1529694
Vietnam
1995
195000
1997
178000
To a large extent the governments of the market led economies have relied upon
economic growth to reduce the incidence of poverty at the individual level. This reflects
the fact that the policy has been focused on economic growth and on securing the
custodial goals of the state. While this developmental thrust is understandable, in that the
governments of the market economies were attempting to force their countries into a
condition of development, it may be argued that this approach undervalued the need to
develop a broader institutional capacity in the corporate sector and a wider participation
of civil society in the systems of governance. This is an important theme of this report:
we argue that many of the problems of the financial crisis that increased poverty were a
consequence of not developing adequate institutions of social capital to promote growth.
This point will be elaborated in a later section.
2.1.5 The main features of the financial crisis, which hit the region with varying degrees
of severity in July of 1997, have been dealt with in many sources and will not be
described in detail here. The crisis has raised important policy issues, suggesting that
there is a need to expand the original economic development orientation by incorporating
a larger component of social policy in development planning and implementation. It has
also forced greater consideration to be given to the role of the state in relation to civil
society in social policy. The accompanying Figure 1.9 presents a framework for
understanding the functions of the state. It distinguishes between the minimal functions
of the state that are concerned with addressing market failure or creating conditions
required to permit the market to function more effectively, and those functions directed to
improve equity.
2.1.6 Minimal required functions such as defense and anti-poverty programs are
contrasted with activist functions that include regulating markets and asset redistribution.
Looked at from the perspective of the market economies of Southeast Asia over the last
twenty years, the major functions of the State have been to improve the market
environment, with minimal attention paid to equity issues. The exceptions to this trend
are of course Malaysiawhere the government has played a very active role in
attempting to increase equity between the bumiputera and other Malaysiansand
Brunei and Singapore, which have attained sufficiently high levels of income to create a
substantial middle class.
15-20 Years
Ago
37
Most recent
51
Primary
Secondary
1980
1995
1970
Latest
1970
Latest
43
Percent
difference
+5.3
35
40
84
93
59
62
55
+4.0
45
47
59
77
36
66
Malaysia
36
44
+7.6
47
47
88
95
69
104
Philippines
37
36
-1.2
33
37
n.a.
94
n.a.
99
Singapore
40
49
+8.4
35
38
88
90
103
100
Thailand
50
53
+3.0
47
46
88
95
69
97
Vietnam
47
49
+2.1
48
49
n.a.
n.a.
n.a.
n.a.
Burma
n.a.
n.a.
n.a.
n.a.
n.a.
89
n.a.
65
n.a.
Cambodia
n.a.
n.a.
n.a.
56
53
n.a.
n.a.
n.a.
n.a.
Figure 1.7: Distribution of Income or Consumption in the Late 1980s or Early 1990s
Percentage of Share of Income or Expenditure by Percentile of Groups of Households
Country
Laos
Year
Lowest 20%
2nd Quintile
3rd Quintile
4th Quintile
Highest 20%
Highest 10%
Gini index
1992
9.6
12.9
16.3
21.0
40.2
26.4
30.4
Indonesia
1993
8.7
12.3
16.3
22.1
40.7
25.8
31.7
Thailand
1992
5.6
8.7
13.0
20.0
52.7
37.1
46.2
Philippines
1988
6.5
10.1
14.4
21.2
47.8
32.1
40.2
Malaysia
1989
4.6
8.3
13.0
20.4
53.7
37.9
48.4
Singapore
1982
5.1
9.9
14.6
21.4
48.9
33.5
n.a.
Vietnam
1993
7.8
11.4
15.4
21.4
44.0
29.0
35.7
Figure 1.8: Incidence of Poverty in Indonesia, Malaysia, the Philippines and Thailand
Note: Poverty data is not included on Vietnam because of the limited availability of longitudinal data.
Source: Rigg, 1997.
10
Minimal functions
Intermediate functions
Addressing externalities
Basic education
Environmental protection
Activist functions
Regulating monopoly
Utility regulation anti-trust
policy
Coordinating private activity
Forecasting markets
Cluster initiatives
Improving equity
Protecting the poor
Anti-poverty programs
Disaster relief
Overcoming imperfect
information
Financial regulation
Consumer protection
11
extended by the work of Sen (1999) to include the concept of deprivation of basic
capacities to achieve the break out of poverty. It has also been widened to include the
concepts of vulnerability, voicelessness and powerlessness as fundamental components of
the condition of poverty.
2.2.3 Considerable difficulties are encountered in employing both of these approaches in
a cross-country context, particularly the basic needs approach, which is more holistic and
requires greater data input. Therefore, most countries adopt the first approach, using
household consumption and income data, based on household surveys conducted at
regular intervals. International agencies such as the World Bank have attempted to
overcome these problems of international comparison of cost-of-living differentials by
adjusting household income and consumption data through purchasing power parity
(PPP). These poverty levels can also be adjusted in relation to the per capita income in a
given country. It is important to stress that the use of income and consumption measures
presents considerable difficulties at times of economic shocks, for a number of reasons:
1. Macro-economic shocks often result in high inflation of food prices in urban
areas, and since these form such a large component of the basket of consumption
goods, higher food prices sharply increase the number of people living in poverty.
This point was central to the debate over the numbers of people who fell below
the poverty line in Indonesia in the first year of krismon (see Chapter Two, this
report).
2. Household income data, including private transfers (e.g. remittances), may be
incomplete or under-reported.
3. Insufficient attention is generally paid to rural-urban differences in the estimation
of poverty numbers.
4. Social income (i.e. subsidized or free public services) is often ignored.
5. Differences in household size and composition, particularly in terms of
dependency ratio and stage of life cycle, are not well distinguished. Instead,
households are usually classified only by number of members (Squire 1999).
6. Too often no separation is made between transient and chronic poverty, despite
evidence of significant movement in and out of poverty from year to year, or by
season, indicating the dynamic nature of poverty (Squire 1999). Any rapid
acceleration of people living below the poverty line as a consequence of macroeconomic shocks is difficult to measure quickly, particularly through survey data
collected only once a year or even less frequently.
2.2.4 It is one of the central arguments of this study that income measures are weak
indicators of the incidence of poverty. A more multifaceted approach is needed to assess
social problems in times of macro-economic crisis. Such an approach is implicit in the
basic needs approach, but a framework for understanding poverty, which can be adopted
in the specific cultural and national contexts of individual countries, is also needed. The
World Development Report for 2000-2001 offers such a framework, taking account of
12
Household level
Private land, pasture, forests,
fisheries, water: quality and quantity
Community level
Common land, pasture, forests,
fisheries, water
Extra-community level
National and global commons, rivers
and watersheds, lakes, seas, oceans,
air
Human
Labour pool
Labour markets
Physical or Material
Financial
Social
Political stability
Political participation
Effectiveness of collective action
Governance
Human rights and security of person
and property
13
individuals and households coping with these situations of risk which are posed by
macro-economic shock (see Figure 1.10). This framework lists a range of assetsnatural,
human, physical, financial, social, location/infrastructure, and political/institutional
each of which is manifested at the household, community and extra-community level.
Access to such assets and the amount of return received from them is used to determine
poverty at the household level. Thus, fewer assets bring lower returns and more volatility
in return on these assets. This diagram also shows how the decline in one asset, such as a
decline in fishing stock (a natural asset), at the extra-community level could reduce
assets at the household level and thus exacerbate poverty. Non-market factors such as
institutions can also affect returns, one example being the role of legal systems. Finally,
the framework is helpful in looking at specific situations of poverty acceleration for it
permits analysis of the various contributory elements.
2.2.5 One limitation of this framework, however, involves the conflation of the household
and individual level. An accumulation of assets at the household level does not ensure
that control over its use or enjoyment of its benefits will be equally distributed among all
household members. Such inequalities at the intra-household level are often divided
along lines of gender and age. This point is considered in the figure for institutional assets
only, but its interplay in terms of other assets might have been clarified by including a
separate column for the intra-household level (see the Asset Vulnerability Matrix in
Moser, 1996: 25 and Moser, 1998).
2.2.6 The framework outlined in Figure 1.10, nevertheless, is helpful in understanding
how the poor cope with risk in specific situations of income depletion, as outlined in the
examples from the results of Participatory Poverty Assessments in four provinces of
Vietnam in Figure 1.11. Figure 1.12 provides another way of representing household
responses for mobilizing assets in response to changes in economic circumstances. Other
household responses include the following. In Indonesia and Thailand, many laid-off
workers in factories and the construction industry moved to urban informal sector and
back to the countryside. The poor also used social networks and informal systems of risk
management to reduce vulnerability, as discussed later in this report. These group
mechanisms of informal risk sharing use the social capital of groups of households to
provide mutual sharing through borrowing and extending credit, etc. An illustration of
these diverse ways of coping with declines in well-being is taken from the recent World
Bank Report for Vietnam, Attacking Poverty (see Figure 1.13), which describes many
mechanisms for coping with declines in well being. It is important to note that the
difference between coping mechanisms, which are short-term preventive measures, and
adaptive mechanisms that offer a longer-term possibility of escaping from poverty
(Davies, 1996; Devereux 1999).
2.3 The Role of the State in Poverty Alleviation in a Time of Shocks
2.3.1 The preceding discussion has only implicitly raised the issue of the role of the state
with respect to social policy at the time of macro-economic crisis. As demonstrated in the
accompanying diagram on poverty instruments available to the state for poverty
alleviation (Figure 1.14), most governments have a wide variety of policy instruments
that they can deploy to reduce inequity and poverty in their societies. These are generally
14
Figure 1.11: Poor Households describe Many Mechanisms for Coping with Declines in Well-being in Vietnam
Province
Coping mechanisms within
the community
Formal safety nets
Borrowing small amounts of
cash for day-to-day expenses
Borrowing large sums of cash
from neighbours
Borrowing money from
moneylenders
Lao Cai
Ha Tinh
Tra Vinh
Some help available from the local community in all four sites
Some formal safety nets available, though very limited in scope and irregular in distribution
Common strategy, but only small amounts available from friends or relatives at favourable rates
More difficult: poor households are often part of poor, extended families with limited spare resources. In some villages, no
household is well-off enough to make large loans
Reportedly common. High
Not easy, because the moneyOnly common in midland
interest (20-70% per month)
lenders do not consider the
villages at interest of about 8and repayments ruthlessly
poor to be creditworthy
10% per month
enforced
Livestock
Livestock
Houses
If available; migration to
urban areas increasingly
common
If available
Mentioned in all four research sites as a strategy to deal with general poverty, unpredicted shocks and seasonal hardship
Especially in highland
villages
Mentioned amongst the poor households for all four sites
Hunting, gathering wild food
15
Household responses
Housing
Labour
Household relations
Social capital
long-term programs (traditionally part of five-year plans) which assume that poverty is a
static category that can be reduced by indirect policies. It is also assumed that the result
of decreasing poverty will also lead to greater security, for it will increase the asset basket
of those who have moved above the poverty line and even those falling just below the
poverty line (for a summary of this position see Ahmad, Dreze, Hills and Sen 1991). But
our concern in this report is with societies that are exposed to events that can trigger a
decline in well-being. These can affect individuals (e.g. death) or communities and
societies (e.g. macro economic shocks; famine). We argue that in these shock situations,
while they may affect whole societies, it is the poor who are most vulnerable because
they control the fewest assets.
2.3.2 Thus it can be argued that poverty reduction strategies need to build in greater
security for the poor against risk. In the context of developed countries, a generic term
that is used for programs that provide for this aspect is social safety net programs.
Figure 1.15 demonstrates the two-fold distinction that can be made between formal and
informal social safety nets in such programs. Formal social safety nets fall into three
main categories:
16
Meso
Macro (covariate)
Rainfall
Landslides
Volcanic eruption
Earthquakes
Floods
Drought
High winds
Type of risk
Natural
Health
Illness
Injury
Disability
Old Age
Death
Epidemic
Social
Crime
Domestic violence
Terrorism
Gangs
Political
Economic
Environmental
Riots
Unemployment
Harvest failure
Resettlement
Civil strife
War
Social upheaval
Political default on social
programs
Coup detat
Growth collapse
Balance of payments,
financial or currency crisis
Technology- or trade-induced
terms of traditional shocks
Pollution
Deforestation
Nuclear disaster
Source: Adapted from Holzmann and Jorgensen 1999 and Sinha and Lipton 1999.
2.3.3 The other group of social safety net activities is informal social safety nets, that
have been described in the preceding section. It is generally true to say that in the
Southeast Asian context, formal social safety net programs are underdeveloped and
principally exist only within the government and larger corporate sector. Singapore and
Brunei are the exceptions to this generalization. For reasons that are not entirely clear,
programs that were introduced during the financial crisis in Southeast Asia to target the
poor suffering asset depletion have been labeled social safety net programs, but these
emergency measures should not be confused with the more formal and long-term social
safety net programs that exist in many OECD countries.
2.3.4 A key challenge of this study is to identify effective policy instruments that could
be adopted in short-term safety net rescue operations. Should these policies be driven by
17
the public sector? What is the relationship between the public sector and informal
mechanisms for risk avoidance? What is the role for the private sector, particularly with
respect to the poor? What kind of mix of public, private and informal mechanisms for
Figure 1.14: Policy Instruments for Poverty Alleviation Strategies in Asia
Policy
Instruments
Indirect
policies
Direct policies
Sectoral
policies
Asset
Redistribution
Projects (Health,
agriculture,
Infrastructure,
Housing, Education)
Land reform
External environment
Economic, social and
political power structures
Condition of
the poor
Public
expenditures
NGO programs
18
1.
2.
2.
3.
3.
4.
reducing risk should be built into social policy as the Southeast Asian countries recover?
These issues are explored in the country papers that form the body of this report.
2.4 The Diversity of Poverty, Gender, Ethnicity, Urban and Rural Poverty: Towards a
Concept of Plural Poverties
2.4.1 As we have commented in the earlier part of this chapter, Southeast Asia is
extremely diverse, in terms of ethnicity, language, culture and economic inequity, both
between and within countries and communities. Three dimensions of this diversity are of
particular importance in developing social safety net policies and assessing their success.
The first is to try to disaggregate data so as to show the particular features of poverty as
differentiated between men and women. One of the important features of labour force
development in the market economies of Southeast Asia has been the increase of women
working in the formal sector, particularly in urban areas (see Figure 1.6), and many were
dismissed in the first period of employment contraction after July 1977. This is indicative
of the problem of women being considered a disposable labour force. In what way do
poverty alleviation programs attempt to specifically target these disadvantaged groups of
women? Do government budgets specifically target women as recipients of social safety
net programs? What role do women play in informal social safety nets activities?
Although not well documented in official statistics, many women laid off from factory
work were forced into the informal sector to seek income to provide for their families.
Households that are headed by young single mothers or widows without family support
may be particularly disadvantaged by employment policies that assume that women are
only secondary income earners.
2.4.2 A second dimension relates to ethnicity. Southeast Asian societies are very
heterogeneous particularly in urban areas where immigrant communities form an
important part of the social fabric of society. But probably the most disadvantaged groups
are the ethnic minorities who inhabit the upland regions of Southeast Asia. They
invariably are identified among the poorest segment of the population and there is a need
to develop distinctive policies to alleviate their poverty which respond to their specific
needs (see van de Walle and Gunewarden 1999). Finally, there are sharp differences in
the parameters of poverty between rural and urban areas and between different regions of
the Southeast Asian countries, which suggests the need for more localized poverty
alleviation programs (see Figure 1.1). This underscores an important conceptual
19
component of poverty alleviation and risk avoidance: to recognize that within countries
there are many poverties. This notion might also be described as plural poverties.
3. METHODOLOGY
3.1 The major focus of this study was concerned with determining the policy architecture
adopted by Southeast Asian countries for alleviating the social impacts of the financial
crisis on poorer populations. Therefore, this study did not attempt to generate primary
data by carrying out surveys or fieldwork among the poor, although all of the project
participants had extensive experience in this type of data gathering. While it would have
been ideal to implement primary data collection through focus groups and household
surveys, the time limitations of the study (one year) and the limited financial resources
made this impossible. Information for this project was gathered primarily from five main
sources:
1. national government published and unpublished reports
2. studies carried out by international agencies such as the World Bank, the Asian
Development Bank, International Labour Organization and other UN agencies
3. interviews with government officials and NGO groups
4. other sources such as journals, newspapers, NGO reports, etc.
5. in some cases, interviews with poor families or groups
3.2 The major methodological problems encountered in the study are not new. They
occurred in three areas. First, since this is mainly a policy assessment study, there were
problems in establishing the base line and cut-off in terms of the temporal dimensions of
the study. For example, it seems logical to start measuring the social impacts of the
financial crisis from the time of the Thai crisis in July 1997 but in fact there were already
some indications of increases in unemployment in both Thailand and Indonesia prior to
this date. The cut-off point is much clearerDecember 1999when the first drafts of the
country reports had to be completed. But again, because of the slowness in the
availability of assessments of the impact, it may be that fuller assessments will have to
await other studies still being implemented. Secondly, there was the problem of
attempting to disentangle the effects of the crisis from other events that were also
affecting the fabric of Southeast Asian societies. These include the El Nio drought and
political instability, particularly in Indonesia, and the problems of transitional societies
grappling with the marketization of their economies, as for example in Vietnam. Thirdly,
there was the challenge of developing comparative understanding between the country
researchers: for instance, establishing common understandings of country definitions of
poverty and social policy. Developing cross-cultural understanding by the team members
was made a main focus of the workshops and a subject on which each country researcher
reported at each meeting.
3.3 The issue of the selection of Southeast Asian countries must be explained. An initial
review of the literature on the social impact of the financial crisis indicated that Thailand
20
and Indonesia were obvious choices because of the severity of the crisis but the choice of
Malaysia, the Philippines and Vietnam were less obvious using this criterion. After
discussion with the Canadian and some potential Southeast Asian researchers it was
decided to include Malaysia, as an example of a country that had followed a poverty
reduction policy directed towards reducing inequity, and we were anxious to establish
what effect the financial crisis had had on these programs. With respect to the
Philippines, the ongoing high levels of poverty were a major factor in its choice despite
the fact that in the initial phases of the financial crisis the Philippines seemed least
affected. Finally, we considered Vietnam a good example of a transitional economy
engaged in a reshaping of its socialist past as well as embarking upon a vigorous poverty
reduction program introduced finally in 1998.
3.4 The policy recommendations of the report were reviewed by a series of Southeast
Asian country experts at a meeting held in Bangkok on July 23-24, 2000 (see Appendix
1). Their suggested revisions were subsequently incorporated into the report.
4. GLOBALIZATION, DEVELOPMENT AND THE FINANCIAL CRISIS
4.1 Framework for analysis of social impacts
4.1.1 There is now general agreement that the major Asian financial crisis which began in
July 1997 with the collapse of the Thai baht was largely the result to structural problems
in the financial sector and considerable exposure to overseas portfolio investment, which
led to large capital outflows. The effects of the crisis were sharp contractions in the GDP
of the most severely impacted Southeast Asian economiesThailand and Indonesia
and a slowing of growth in others, reflected in falls in the value of all national currencies
against the US dollar. Initial reaction to these developments focused upon both the
economic dimensions and the social impact of the crisis, such as increase in poverty,
unemployment, and increasing crime and threats to the social fabric of society.
4.1.2 In this study, we analyze the effects of the social crisis utilizing a five-fold
framework (also adopted by the ADB; see Knowles et al. 1999) as follows:
1. examining how the macro-economic shocks were transmitted and the effects on
the welfare of the Southeast Asian populations
2. investigating the differential social impact on various groups
3. reviewing the responses of governments, quasi-governmental sector, private
sector, NGOs, and households, and suggesting a typology of these programs
4. giving examples of good practices in these responses
5. suggesting policy recommendations to lessen the social impact of any macroeconomic shocks in the future.
4.1.3 A useful distinction for understanding how the crisis has affected levels of poverty
is primary (private) income versus secondary (social income). Primary income is derived
21
from employment and self-employment, subsistence production, and income from assets.
Secondary or social income is provided by the state in the form of free or subsidized
goods and services and income transfers (e.g. unemployment benefits). An additional
source of support is derived from private transfers within families, or sometimes the
community. To the extent that minimum needs cannot be met, deficiencies in either
private or social income give rise to poverty. The first type corresponds to private
income poverty (PIP), in reference to how private income is distributed among
households, while the second type, social income poverty (SIP) relates to government
allocation of secondary income to meet social development objectives. They should be
analyzed in relation to each other to understand the link between growth and poverty
(Stewart and Ranis, 1999).
4.2 Transmission of social impacts
4.2.1 Figure 1.16 on the social impact of the financial crisis indicates that there are five
main channels of impact. First, the financial shocks caused currency depreciation that
produced changes in relative prices, which in turn changed relative wages, employment
patterns and consumption baskets. These price increases occurred primarily in goods that
are imported or have a high import content, such as pharmaceuticals, food and fuel.
Increases in the prices of these goods particularly affect the urban poor, who are net
consumers, but in the Southeast Asian context they also affected poor farmers who had
been hit by the El Nio drought. On the other hand, those rural people who were
producers of export crops, as in Sumatra, generally benefited from the fact that their
crops were more competitive in international markets due to devaluation, and thus the
rupiah incomes of producers increased more rapidly than did the cost of living.
4.2.2 Secondly, there were significant changes in labour demand resulting in open
unemployment, and increasing underemployment which in the Southeast Asian context
initially affected the urban areas which were the major areas of factory employment for
the rapidly growing export industries and the construction industry. There was also a
reduction in demand for international labour which affected countries that rely on this
source of labour for a large proportion of international exchange, as in the Philippines.
4.2.3 Thirdly, in some cases there was loss of assets in the form of savings, some
possessions, or even houses serviced by short-term mortgages. This particularly affected
the lower middle class in the urban areas. The poor are particularly affected by inflation
because they typically hold more of any savings they may have in the form of money,
which was losing its purchasing power.
4.2.4 Fourthly, the sharp rise in credit rates reduces consumption and housing
construction. Thus the inability to raise credit particularly for overseas components in the
industrial production leads to factory closures and unemployment.
4.2.5 Finally, lower government revenues affect government budgets, causing a reduction
or redirection in government expenditures, which can lead to a reduction in social
transfers at the time they are most needed.
22
Labour markets
Assets
Credit
High investment rates
reduce consumption,
housing
Government budget
Lower government
revenue
Lower budgets
++
+++
+++
+++
Thailand
+++
++
++
Philippines
Malaysia
Vietnam
23
24
Indonesia
GDP growth rate fell
from plus 4.9% in 1997
to minus 13.7% in 1998
Inflation reached 78%
in 1998
Basic food prices rose
sharply
Philippines
Real GDP which rose
5.2% in 1997 fell by
0.50% in 1998
Vietnam
GDP growth fell from
8.8% in 1997 to 5.8%
in 1998
Malaysia
Target GDP growth
1996-2000 was 8% but
fell to 3.0% p.a. in
1996-1999
Poverty and
inequality
Number in poverty
grew by more than 1
million 1996-1999
Gini coefficient rose by
47.7 in 1996 to 48.1 in
1998
Labour
markets
Unemployment rate
rose from 5.4% to 8.5%
between Feb. 1997 and
Feb. 1998
Unemployment rose
10.4% to 13.3%
between second quarter
of 1997 and second
quarter of 1998
Unemployment in cities
rose from 5.885 in 1996
to 7.40% in 1999, and
in rural areas from
26.6% to 30% in the
same period
Effects of recession
cause layoffs in
construction industry,
etc. Special effect on
Indonesian contract
labour
Social
Spending
In 1999 budgetary
allocations included
11% cut by Ministry of
Education, 14.6% cut
by Ministry of Public
Health, 15.4% cut by
Ministry of Labour and
Social Welfare
Budget for education
cut by 15% in 1998
Real government
expenditure for health
increased by 11%
Unemployment rose
from 5.1% in Feb. 1997
to 14.8% in 1998
Agriculture experienced
major increase in
employment by 5
million
3% increase in informal
sector 1997 to 1998
Real 1998-1999
allocations for
education were the
same as 1996-1997
Real basic education
budget increased by
55% between 1996-97
and 1998-99 (mainly
for Stay at School
Scholarships and school
block grants)
Real allocations to
secondary education
Spending on social
services fell to 3% of
government sectoral
spending in 1998, down
from 4.1% in 1998
Spending on health
services fell from 2.9%
to 2.4% of budget
Budget allocations to
primary education were
reduced to 58.9% of the
education budget in the
same period
Main crisis
indicators
25
increased by 11%
between 1997 and 1998
secondary education
fell 42% and to higher
education 26%
Health
Education
Considerable rise in
proportion of school
age children dropping
out, particularly in 1319 age group; 6.4% rise
in rural areas and 2.3%
in rural areas
The poorest quartile of
families experienced
the greatest incidence
of drop-outs
In 1999 drop-outs
increased 3 million to
3.2 million students
Other
indicators
Increase in violence
against women
Evidence of increase in
crime, mainly in urban
areas
same period
Expenditures for
secondary and higher
education increased
slightly
Reports of increasing
malnutrition
Introduction of
socialization of
education and health
programs which were
essentially the
introduction of user
fees
Public expenditures on
health fell in both real
and nominal terms in
1998
Little evidence of
change in health of the
population
Secondary school
registration slowed
from 2.6% increase
between 1993-94 and
1997-98 to 0.9% in
1998-99
Public expenditures on
education fell in real
terms in 1998
Education expenditures
increased in real terms
No data provided in
report
No data provided in
report
No data provided in
report
26
Regional
impact
Effect on
women
Women increase
participation in
agriculture and trade
Women increase
participation in
informal sector
Concerns about
unemployed factory
workers
in expenditures in the five selected countries, with the exception of Malaysia. The poor
were severely affected by the sharp increase in the price of pharmaceuticals, particularly
in Thailand and Indonesia. Household surveys indicate sharp reductions in the amount
spent on health expenditures. It was often assumed that these cutbacks at both the public
and household level had deleterious effects on the nutrition and health of the children and
young.
4.3.5 The overall effects of the crisis on the social fabric of these societies were
considerable. The incidence of crime and violence increased, and the instability of the
social situation was conducive to an opening up of considerable political dissatisfaction
that ranged from open civil protest in Indonesia, to democratically electing new
governments in Thailand and the Philippines. Even in Malaysia, which did not experience
a change in government, the extent of political dissatisfaction clearly increased. Vietnam
remained relatively insulated from similar developments.
4.3.6 Different manifestations of crime and violence include domestic abuse as well as
ethnic tensions. These trends are indicative of declining social capital at times of
economic stress. Community cooperation, participation, and trust are often more strained
when resources are limited, although in some circumstances it is precisely under these
conditions when tendencies of volunteerism are enhanced. Trends in social capital are
thus subject to significant local variation, and should be considered with a qualitative
analysis.
4.3.7 Environmental issues in times of crisis often become a low priority. Governments
and companies alike often adopt short-term planning horizons, and enforcement of
environmental regulations may be lax, with serious long-term repercussions, often with
the poor suffering the worst effects.
4.3.8 The spatial impact of the crisis was similar throughout the region with the urban
areas being most severely impacted and rural areas being unevenly hit by the crisis. Thus,
for instance, cash crop areas of Sumatra and Sulawesi in Indonesia have benefited from
the devaluation of the rupiah. These impacts are discussed in each of the country chapters
and used as a basis for recommendations in the final chapter.
4.4 Coping with Poverty in Times of Crisis. A Working Typology
4.4.1 Since this report is intended as an evaluative study of the response of the selected
Southeast Asian countries, the research team focused its attention on developing a
typology of responses that was both comprehensive and yet allowed cross-county
comparison. This typology is set out below in Figure 1.18, which provides a simple
matrix of the institutions involved in the crisis and an example of type of response that
might be most beneficial to the poor who are more severely impacted by the crisis. It
must be stressed that in these responses we have not focused on what may be called
macro-economic responses, since this is a subject that has received considerable attention
already. For example, we fully appreciate that the decision in Indonesia to not increase
gas prices in January 1998, as was requested under the IMF restructuring agreement, was
an example of such a macro-economic policy-making process. The decision was reversed
28
Food Security
Social Protection
Employment
Creation
Enterprise Activities
Food distribution
Maintenance of
basic needs
programs
Make work
programs
Skills training
Quasi-government
Production
intensification
Housing
Micro-credit
NGO
Agricultural inputs
subsidies
Support midwives
Infrastructure
development
SMEs development
Cut costs
Increase production
of foodstuffs
Freeze education
and health charges
Reduce household
expenditures
Reduce material
inputs
Sell more cheaply
in early May 1998 and was a major underlying contributor to social unrest (see Chapter
Two). Rather than dwelling in detail on such macro-economic responses, we have
concentrated on those policies that could be directed to achieve the maximum short-term
result of alleviating problems among the poor. It is important in this respect to make the
distinction between poverty reduction programs, which have been already active in all
the selected Southeast Asian countries, and poverty alleviation responses, which are the
programs introduced to cope with the poverty thickening aspects of the crisis situation.
4.4.2 These responses that can largely be described as institutional can be further broken
down into three components. First, regarding delivery agents, what department, agency,
firm, NGO, community or household agent is responsible for delivering the particular
response? Secondly, what are the features of the responses? How are the most needy
targeted? What delivery systems are developed for responses? What are the fiscal
features of these responses? Thirdly, how can these programs be evaluated? What
systems of monitoring can be developed that give an ongoing assessment of the progress
of poverty alleviation? For example, at times of crisis what is the relative contribution to
poverty alleviation of government programs compared to the household/community
sector (often labeled informal responses)? It is frequently assumed that the government
has a major responsibility to develop and deliver poverty alleviation programs at the time
of crisis, but it may well be that greater responsibility should be devolved to the NGO
community and household sector as implementing agents engaged in poverty alleviation.
This last aspect of poverty alleviation programs is the least researched, and is discussed
in greater detail in the conclusion and the country chapters.
29
30
Thailand for employment creation. In May 2000 the Japanese government has announced
a continuation of this type of initiative with a transfer of 10 billion yen to the Asian
Development Bank to be used for poverty reduction. However, it is equally important to
stress the role of institutional capacity building in reducing the worst social impacts of the
crisis. A careful review should be carried out of the use of local decentralized institutions
that use local community participation in these situations. This is now recognized as the
vital role of social capital, and this clearly entails broader consideration of the role of
informal response networks during times of crises.
5.5 Issue Five: Targeting the Impacted Groups: Accepting Plural Poverties
5.5.1 Many studies from the selected Southeast Asian countries indicate that one of the
crucial components of the policy alleviation programs is the successful targeting of
groups to receive funds. Most of the government long-term programs used area-based
units for identifying the most needy poor, who were often living in rural villages. In
addition, the large-scale nature of these programs did not allow adequate disaggregation
of the poor, and their particular circumstances and urgent needs. The experience of the
Southeast Asian countries indicates that those defined as poor under the poverty
reduction programsoften defined by economic criteria and mostly ruralwere not
always the worst affected. Rather, it was urban populations and sub-groups of that
populationwomen, specific occupational categories, children and the elderlywho
were in most need as a result of the crisis. This poses considerable problems for formal
policies that are not designed to deliver help under this framework.
5.6 Issue Six. Designing Specifically Targeted Programs for Women, the Elderly and
Children
5.6.1 Accepting the concept of plural poverties carries with it a serious challenge to
policy makers to plan social safety net programs in such a way that the beneficiaries can
be clearly targeted and there is guaranteed delivery of benefits to them. There is ample
evidence from the country studies that women play a major role in managing the response
to economic shocks at the household and often the community level. It is they who have
to make the decisions, such as food expenditures, on which the survival of the household
is based. At times of crisis they are also often active in strategizing to increase household
income, such as joining the informal sector by selling goods. Gender-blind employment
and income-generation programs can unwittingly disadvantage women. Major priority
must therefore be given to programs that can be delivered to this segment of Southeast
Asian societies. Other social services providers might pay attention to the trend of
worsening domestic violence at times of increased economic pressures.
5.6.2 Children have been affected by the crisis in multiple ways. After years of rising
enrollment levels, data show that in Thailand the total number of students declined 3.2%
between 1997 and 1998, and drop-out rates were higher among girls than boys. Rising
food prices have also affected childrens well-being (Stewart and Ranis, 1999: 141).
Rates of malnutrition among children in Indonesia rose considerably following the crisis.
Households in slum and shantytown areas of Thailand, Indonesia and the Philippines
31
reported efforts to reduce consumption by reducing the number of meals consumed per
day from three to two or even one, linked to a rising infant mortality rate.
5.6.3 Rates of child labour and female labour have also been rising, the latter impinging
on the ability of women to care for their children. Conflicting demands of household
management and income generation force families to turn to their children for help. The
more vulnerable a family is, the more inevitably will be its reliance on childrens labour,
either outside the home to supplement the familys income, or within the home, freeing
up others to work. This too easily becomes a continuing and onerous burden that affects
health, and interferes with play, rest, and education (Bartlett et al. 1999: 39). The elderly,
particularly those who do not live in the extended family, are especially vulnerable at
times of crisis and specific programs will have to be developed for them.
5.7 Issue Seven. Developing an Effective Basket of Programs
5.7.1 In section 4.3 the team presented a typology of policy responses distinguishing
between basic needs such as food, employment creation such as public works programs,
and enterprise support through for example micro-credit schemes. The major policy issue
is whether such policy responses should be delivered as an integrated package or
separately. The general observation of the research team is that in Southeast Asia most of
the policies were delivered by different departments and that there was considerable
unevenness and fragmentation in this process. It is clear that the mix and sequencing of
reform measures needs to be carefully reviewed and evaluated.
5.8 Issue Eight: Ongoing Monitoring of the Poverty Alleviation Responses
5.8.1 Most of the long term poverty reduction policies have assumed that macroeconomic indicators of income and annual household and income consumption surveys
will provide the necessary information on poverty reduction. But the monitoring needs of
poverty alleviation programs are much more immediate. Methods must be established to
evaluate these programs using more informal systems of measurement and involving
local level assessment of the success of these policies as a form of community-based
monitoring.
5.9 Issue Nine: The Evaluation of Poverty Alleviation Programs
5.9.1 The team considers this to be one of the weakest areas of the policy architecture.
While there are well-developed methodologies for evaluating the costs and benefits of
such schemes, which aid the design and implementation of future programs, there is a
need to develop new methods of evaluation. Such methods should
1. use participatory quantitative and qualitative approaches that involve poor people
themselves, using instruments such as participatory surveys, focus groups, and
visual tools; and
2. pay attention to such issues as gender, intra-household allocation, the role of
extended families and unequal power relations within the household. In other
32
words evaluation needs to find some way of measuring the degree of participation
of beneficiaries in a more comprehensive manner.
5.10 Issue Ten: The Use of Exemplary Practices Case Studies
5.10.1 The research team had great difficulty in developing criteria for identifying
exemplary practices. It has become almost a conventional practice of development
literature to include best practice case studies, yet there is a paucity of information
about how these best practices are selected. The choice for the research team was further
complicated by the fact that there was such a wide range of programs that could be
chosen. Finally the team agreed to choose exemplary practices in a number of different
programs. We realize that much more work should be done in determining the selection
criteria for such case studies, and how to compare them across different countries.
5.11 Issue Eleven: Local Understandings of Poverty and Social Policy
5.11.1 One of the main issues that the research team identified as requiring further
attention is the manner in which poverty is understood locally in each of the five
countries. The team recognized that with the resources available it was not possible to tap
the local voices of the poor. Yet we also understand that one of the main thrusts of
poverty reduction is advocating greater participation of the poor in reducing poverty. This
can be done by empowering the poor to take control of poverty reduction programs both
in design implementation, monitoring and evaluation. The policy issue is how to use
these principles and apply to the delivery of the fast track programs of poverty alleviation
that are needed at the time of economic shocks.
6. ORGANIZATION OF THE REPORT
6.1 The research team devoted considerable attention in various meetings to the form and
organization of the final report. Initially our inclination was to organize it in a series of
chapters that broadly followed the main issue identified above in Section 5. But after
much discussion we decided to present the report with an introductory chapter identifying
the main aims and issues to be investigated, followed by individual country chapters
written by each of the Southeast Asian researchers. We devote the last chapter to a series
of policy recommendations that we hope will provide input into policy formation for
poverty alleviation at times of crisis in the future.
6.2 While each of the country chapters has been written by a Southeast Asian researcher,
and Chapters One and Seven drafted first by McGee and Scott, each chapter has been
reviewed by fellow team members, plus reviewers from Southeast Asian countries who
presented their comments at the Bangkok policy workshop (see Appendix 1). We wish to
emphasize that this version of the report is a draft and welcome input on suggested
revisions.
33
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