Albion Monitor /News

Stock Plunge Just Part of Asian Economic Woes

by Johanna Son

Higher unemployment, double-digit inflation
(IPS) MANILA -- Stockbrokers in suits and property tycoons are licking their wounds as Asia goes through a rough financial spell, but in the end it is the poor who will have to pay the highest price for the region's economic turmoil.

As Asia's currency and market malaise threatens its economic health, economists and social activists say countries should pay extra attention to the poor, who will be hard pressed by austerity measures.

While the rich and middle class have room to tighten their belts -- rich Thais are selling their personal jets and wealthy Filipinos have stopped buying luxury European cars -- the poor are in the weakest position to cope with the projected effects of Asia's economic woes. These include higher unemployment, rising prices, and budgetary cutbacks in basic services.

"When things go bad, the poor get hurt. When things get better, the rich benefit," said Edward Van Roy, director of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) based in Bangkok.

Signs of problems are already evident. Thailand expects some 100,000 people to lose their jobs before the year ends
Speaking ahead of a meeting of Asia-Pacific senior officials on social development November 4, Van Roy said that while trickle-down economics did not work in distributing growth, it certainly applies when it comes to distributing the fruits of economic turmoil.

"Trickle-down works very well in a downturn, but not in an upturn," he explained succinctly.

If the region's currency problems do develop into a prolonged downturn, Asia's efforts to lift its 1.3 billion absolute poor from poverty will be even more of a challenge.

While Asia has drastically cut its ranks of the poor in the last three decades, it still has three-quarters, or 1.3 billion, of the world's poor. Half of these are in South Asia and nearly 400 million are poor rural women.

Asia's economic woes also show up the lack of safety nets that governments, lulled into a degree of complacency during their long period of rapid growth and lavish spending, have put in for its marginalized sectors.

"I think that now our negligence is catching up with us," Leonor Briones of Social Watch Asia said in an interview. She says Asian governments must realize that it is not wise to focus on rapid growth without making a "deliberate" effort to chip away at poverty.

"By and large safety nets have not been established," Van Roy explained, adding that many governments have not given enough priority to poverty and often think that growth in itself will automatically solve the problem.

This weakness has been exposed in the months since July, when the devaluation of the Thai baht triggered currency turmoil that spread to Southeast Asia. The contagion spread to Hong Kong in late October, triggering panic reactions in markets in North America, Europe, and Latin America.

In the wake of the crisis, governments across the region from Thailand to Malaysia are reducing growth projections for the next few years. The Asian Development Bank expects Southeast Asia's GDP growth to range only from 4.9 to 5.7 percent this year, down from its original projection of seven percent for the year.

And while just about everybody talks about how huge market crashes and crises in confidence are shattering Asia's economic record, not too many are talking about the human cost of market turmoil.

"Everybody is aware of the financial crisis and the possible economic crisis. What we are not so well aware of is the social implications," Van Roy said.

Analysts say it is too early to say how market turbulence will actually affect Southeast Asia's economies, and how long it would last. But Cielito Habito, the Philippines' economic planning minister, says Asia's jitters could translate into real economic problems and burdens for the poor if investors stay away, production slows down, inflation rises and fewer jobs are created or unemployment actually rises.

"Obviously the first impact is at the very least a slowdown in employment generation, or at worse a rise in unemployment, which we all know is directly related to poverty," Habito said.

Signs of problems are already evident. Thailand expects some 100,000 people to lose their jobs before the year ends and its labor department has been flooded with requests for help. Indonesia's inflation rate is expected to hit double-digit figures in early 1998.

There is also the question of how government budgets will fare under austerity programs that countries like Thailand and Indonesia are taking on under the tutelage of the International Monetary Fund (IMF). The Philippines has also had to turn to the Fund for a stand-by loan.

Under IMF conditions, Thailand is required to post budget surpluses and find ways to raise money through taxes. Indonesia is required to remove subsidies on fuel, which will hit the poor sectors most and make a good number of people "miserable," as one community leader said.

Ironically, while the IMF's entry into some of Southeast Asia's once vibrant economies have elicited positive responses from stock markets, its impact could have serious implications for social development.

When the IMF provides funds, "its conditions include either an increase in revenue or a cut in spending, or both. In Asia this usually means a cutback in social expenditures" such as health and education, Van Roy argued.

"We have very solid experience with this type of structural adjustment," Briones said, in which social sectors get cut and the poorest who need basic services find themselves left in the lurch. "The first victim is social development, because it is always sacrificed first."

That is why social development ministers attending the Manila conference should "stand up in arms against this kind of policy," Van Roy added.

Malaysia, Thailand and Indonesia are cutting back on expenditures, especially those with large import components, to save on precious foreign exchange and address yawning current account deficits.

Said Habito: "The challenge is to prevent this kind of cutbacks, to prevent an actual increase in the number of poor."

Comments? Send a letter to the editor.

Albion Monitor November 10, 1997 (

All Rights Reserved.

Contact for permission to reproduce.

Front Page