-Caveat Lector-
> WSWS : News & Analysis : Asia
>
> Two years after the economic meltdown
>
> No end to the social crisis in Asia in sight
>
> By Peter Symonds
> 24 June 1999
>
> Back to screen version
>
> Nearly two years ago, the devaluation of the Thai baht on July 2, 1997
> sparked an economic collapse throughout Asia. Currencies, share and
> property values plummetted, creating a spate of bankruptcies. The
> international financial press is now pointing to the first tentative
> signs of economic growth in former Asian “tigers” like South Korea as
> evidence that the worst of the crisis is over.
>
> Two recent reports produced by the Asian Development Bank (ADB) point
> to the fragile character of the economic recovery, and underscore the
> fact that improvements in profit rates and economic growth will not
> alleviate the social position of tens of millions thrown out of a job
> and into poverty during the past two years.
>
> The ADB's Asian Development Outlook 1999 highlights the extent of the
> economic downturn throughout the region last year. Excluding China,
> the so-called Newly Industrialised Economies (NIEs) recorded a
> negative growth rate of -1.4 percent—a marked reversal from an average
> growth rate of 6.0 percent in 1997. The bank predicts that Hong Kong's
> economy will continue to decline by -0.5 percent in 1999, with small
> increases of 2 percent in South Korea, and 1 percent in Singapore.
>
> The report pointed to the far deeper crisis in the South East Asian
> economies. More than $30 billion in capital fled from Indonesia,
> Malaysia, the Philippines and Thailand during 1997 and 1998. An
> average growth rate of 4.0 percent in 1997 plummetted to -6.9 percent
> in 1998; and according to the bank will only reach 0.8 percent in 1999
> and 2.8 percent in 2000. Worst affected was Indonesia, where the
> economy shrank by a massive -13.7 percent, followed by Thailand, which
> recorded a -8 percent contraction and Malaysia with a -6.7 decline.
>
> High levels of bad debt also continued in 1998: “The situation of the
> corporate and banking sectors continued to deteriorate, particularly
> in Indonesia and Malaysia. The proportion of non-performing loans rose
> and more financial institutions found themselves insolvent. At the end
> of 1998, of Indonesia, Malaysia, Philippines and Thailand, Indonesia
> had the highest level of non-performing loans at 35 percent or more of
> loans outstanding, followed by Thailand at upwards of 30 percent,
> Malaysia at 25 percent, and the Philippines at 10 percent or more.”
>
> While the report cautiously claimed that the “worst in Asia seemed to
> be over,” it warned of the potential for rapid reversals caused by
> economic instability elsewhere. “As long as international capital
> markets remain shaky, developing countries in Asia and the world will
> be vulnerable to investor panic. .... Developments in the industrial
> countries are also likely to affect Asia's prospects for recovery. A
> large enough stock price drop in the United States would damage
> consumer confidence and reduce US import demand. With the United
> States being the first or second largest market for many
> export-dependent Asian countries, a US recession could spark another
> round of contagion in the region. A recession in Europe could have the
> same impact, though perhaps a smaller one.”
>
> The economic prospects are further undermined by the vast productive
> overcapacity throughout the region. An article in the June 17 issue of
> the Far Eastern Economic Review noted: “Business spending across the
> region also looks shaky—with good reason. In most of Asia there are
> few compelling reasons to invest in new capacity. The investment boom
> that preceded the crisis left the region with more than enough
> restaurants, car factories and chemical plants to meet demand. The
> amount of factory capacity actually being used has improved slightly
> this year in Thailand, for example but remains below 60 percent. Using
> the broadest measure of overall economic capacity, it's clear that
> there is plenty of slack.”
>
> The Asian Development Bank, a Japanese-backed financial institution,
> points to criticisms of the International Monetary Fund (IMF) policies
> imposed on Indonesia, South Korea and Thailand. As the crisis erupted
> in Asia, the IMF, backed by the Clinton administration sought, to
> exploit the collapse. It pressed ahead with its longstanding demands
> for extensive restructuring to open up the region's economies to
> international trade and investment at the expense of local business
> interests and monopolies.
>
> The IMF agenda provoked conflicts with Japan, in particular, which was
> developing its own economic strategy. Japan's leading international
> financial figure, Dr Eikuke Sakakibara, also known as “Mr Yen,”
> explained in an interview in May that the US Treasury had vetoed his
> plan to set up a $US100 billion Asian monetary fund to bail out the
> region's economies. He told the Australian Financial Review that the
> disagreement between Japan and the US over this issue was “the tensest
> time” in the two-year crisis.
>
> Far from welcoming signs of economic growth in South Korea, the IMF
> and the World Bank have warned that an upturn may undermine demands
> for the restructuring of the country's conglomerates or chaebol. Sri
> Ram Aiyer, World Bank director in South Korea, warned in an article in
> May that changes to the top five chaebol were at an “early stage” and
> are “an area where the reform program faces perhaps the greatest risk
> to its sustainability”. “Korea will need to guard against a premature
> sense of complacency as economic conditions improve,” he warned.
>
> Social crisis continues
>
>
> These remarks also highlight the fact that an economic recovery will
> do nothing to end the social crisis confronting hundreds of millions
> of workers, small farmers and small businessmen. In fact, the IMF's
> demands for the removal of price and trade controls, budget cutbacks,
> the breakup of monopolies, and financial restructuring will lead to a
> further decline in living standards as jobs, social services and real
> wages are slashed.
>
> In a comment in the British Financial Times, ADB chief economist Dr
> Jung Soo Lee warned that economic growth would not halt rising levels
> of unemployment and poverty. “The social impact of the crisis is still
> unfolding. The social crisis is likely to be deeper and can be
> expected to persist long after economies have returned to solid
> positive growth,” he said.
>
> In its second report, the ADB released studies of the economic
> breakdown's social impact on five Asian countries. While rather
> conservative in its estimates and patchy in its reportage, the survey
> does provide an insight into the widespread and ongoing devastation to
> the lives of masses of people.
>
> Indonesia
>
>
> The social crisis has been greatest in Indonesia. Real salaries have
> fallen by 30 percent, average household expenditure is down by 24
> percent and the incidence of poverty has doubled from 11 percent in
> 1996 to 20 percent in 1998. The ADB reports unemployment at 6.37
> million or 6.64 percent. Other figures indicate that 20 million
> workers are jobless and 100 million people, or nearly half of the
> population, are living in poverty.
>
> According to an ADB press release: “The report ‘Social Impact of the
> Economic Crisis in Indonesia' paints a grim picture of events since
> the rupiah's fall from 2,500 to a low of 16,000 in 1997, which led to
> panic-buying, riots and an overall inflation rate of 58 percent. The
> price of rice—the country's staple food—doubled. Farmers' inability to
> afford pesticides and fertilisers coupled with severe drought, led to
> failed harvest. Some villagers admitted to supplementing their diet
> with palm tree sap.
>
> “Around a quarter of all families have cut spending on important
> protein-based foodstuffs such as meat, eggs and fish, and the birth
> weight of babies is falling. While weighing stations offer
> supplementary feeding to young children, these are operating less
> efficiently than before the crisis. Rates of serious health problems
> are on the rise, but the spiralling cost of medicines have forced many
> to put themselves at risk through self-treatment or by resorting to
> faith healers and traditional midwives.
>
> “School fees and books are now beyond the budget of many families.
> Many older children have left school to help their families earn
> money, with girls being the most likely to drop their education. Many
> have been forced into early marriages to relieve the financial burden
> on their parents. The price of contraception has risen steeply, and
> while free services are still available in some areas, authorities may
> be unable to maintain this provision in the long-term.”
>
> South Korea
>
>
> Unemployment in South Korea jumped from 2.5 percent in 1997 to 6.8
> percent in 1998 and 7.4 percent in 1999 as tens of thousands of
> workers were retrenched. Despite reports of economic growth, the
> jobless figure is expected to remain above 5 percent for the
> foreseeable future. Central and local governments slashed more than
> 40,000 jobs in 1998. Consumption by urban worker households dropped by
> 16.8 percent during 1998. The incidence of poverty has more than
> doubled from 3 percent to 7.5 percent.
>
> “The crisis saw monthly average real incomes fall by 20 percent at end
> of 1998 compared to a year earlier, while the price of some foods rose
> by more than 20 percent, and fuel, power and water by 25.1 percent.
> Households have coped by drastically cutting their spending.
>
> “In education, school dropout and absentees in elementary schools have
> risen sharply, but college admissions have increased by 8 percent due
> to decreasing job prospects. Private tutoring, previously viewed as a
> crucial complement to school education, fell by 24 percent.
>
> “Health care was relatively unaffected, as public health insurance
> covers 97 percent of the population. However, government expenditure
> almost halved between 1997 and 1998, and many patients now choose
> public health centres over more expensive hospitals. The use of
> contraceptives has risen, and uptake of counselling services for
> unwanted pregnancies has climbed by 77.7 percent. The number of
> abandoned babies is expected to double.”
>
> Malaysia
>
>
> Unemployment in Malaysia rose by 109,000 to 342,000 in 1998 with the
> greatest impact in urban areas. Food prices rose by 8.9 percent, rent
> and fuel by 4.4 percent and medical and health expenses by 6.2
> percent. The increased medical costs affected the elderly in
> particular, while the public health system had to cope with up to 18
> percent more patients who could no longer afford private health care.
>
> “The incidence of poverty climbed from 6.8 percent in 1997 to 8
> percent in 1998, mainly in the cities. Women were particularly likely
> to lose their jobs, which could severely affect the 630,500 families
> headed by single mothers.
>
> “However, the biggest issue in the country was its massive reliance on
> cheap foreign workers—many from neighbouring countries, which have
> suffered even more from the crisis. With little or no legislation to
> protect them, many were sent home—around one million in 1998—to make
> way for newly unemployed locals. Malaysian employers found guilty of
> harbouring illegal workers were threatened with caning or indefinite
> detention without trial under the draconian Internal Security Act.
>
> “Education was also badly hit. Government spending was slashed by 18
> percent, at the start of the crisis, but was later reinstated. Many
> teachers apparently drifted away from schools to concentrate on more
> lucrative private classes, and many of the 54,000 university students
> studying abroad had to come home after the government sponsorship
> program was temporarily scrapped.”
>
> The Philippines
>
>
> According to the ADB survey, the Philippines was one of the least
> affected countries in the region. Nevertheless as the report noted:
> “The most significant effects of the regional troubles were rises in
> unemployment and prices, which resulted in lower real incomes.
>
> “The urban poor and fishing communities were the hardest hit. The
> report instances cases where parents encouraged their young daughters
> to go into prostitution, and others where poverty encouraged
> involvement with illegal drugs.
>
> “More than 3,000 firms closed or retrenched in 1998—double the figure
> of 1997. Total employment in 1998 grew at a slower pace and was unable
> to accommodate a growing labour force—causing a rise in both
> unemployment and underemployment. Jobs in construction, manufacturing
> and quarrying were most affected.
>
> “Although lower nominal incomes did not affect everyone, price
> increases did. Inflation rose from 5 percent in 1997 to about 9
> percent in 1998 and food prices by 6.4 percent. As wages did not
> generally increase, the number of families who rated themselves as
> poor rose from 40 percent in 1997 to 43 percent a year later...
>
> “Health services suffered from reduced availability of drugs and
> vaccines. In the education sector, the number of school dropouts rose,
> especially in public secondary schools, as teenagers were forced to
> stay at home to look after their younger siblings or go out and get
> jobs themselves.”
>
> Laos
>
>
> The ADB report described the economic crisis as a “surprising boon” to
> Laos as farmers, who make up 85 percent of the population, found
> markets for their produce in neighbouring Thailand following the
> devaluation of country's currency—the kip. The income in agricultural
> communities doubled since 1997 and there was also increased income
> from tourism.
>
> “However, the report, ‘Social Impact of the Economic Crisis in the Lao
> PDR' says the picture is not entirely rosy. Foreign investment fell
> from $US142 million in 1997 to just $US45 million in 1998. Foreign
> grant aid fell by 27 percent and loans by 19 percent.
>
> “This has left the government struggling to pay state employees. While
> government salaries have been raised by 60 percent, prices in the
> capital, Vientiane, have risen more than twice as fast. A mid-level
> government employee now earns only a seventh of the income of the
> average farmer. Inflation is threatening social safety nets and
> pensions. Hundreds of state employees are resigning in favour of
> agriculture, and farmers have been selling land in order to buy farm
> machinery. The price of land near towns is rising rapidly.”
>
> The report notes that there has been no increase in health problems or
> impact on the country's education system. Health and public education
> services, however, are poor—the country's life expectancy is very low
> at 51.7 years and its adult literacy rate is just 60 percent.
>
>
>
>
>
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