Economic crisis to deepen poverty in Asia too...!!!

Economic crisis to deepen poverty in Asia
Chee Yoke Heong

As Asia is drawn into the global financial crisis, millions will remain trapped in poverty while more are likely to join their ranks.

As the global economic slowdown deepens, poverty in Asia is set to be further entrenched. Today, about a billion people in Asia live in abject poverty and the numbers are increasing as a result of slagging incomes and loss of jobs amid a collapse in export-led growth, Asia's road to prosperity.

The signs are already visible. A slew of reports are making it clear that the current global financial and economic crisis will have a significant impact on the vulnerable section of the population in Asia, home to the largest number of people living in poverty in the world. This was arguably not so obvious a year ago when there was still discussion about the possibility of Asia 'decoupling' from a recession in the rich countries. But it is now clear that the region is not immune from the impact of the global crisis.


Self sufficiency in food through agriculture

Growth for developing Asia as a whole is expected fall by three percentage to 3.4%, the slowest growth rate since the 1997/1998 Asian financial crisis, according to the Asian Development Bank (ADB). Its recovery will depend on the depth and length of the recession in the US, Europe and Japan, the markets of about 60 percent of Asia's exports.

Slower growth means that more than 60 million people in developing Asia - including 14 million in China and 24 million more in 2010 - would continue to be trapped in poverty. These are the people who would otherwise have been freed from the shackles of poverty had economic growth continued at pre-crisis levels, says the ADB.

The United Nations projected that in Southern Asia, both the number of poor and the poverty rate are expected to increase further in some of the more vulnerable and low-growth economies. And it has been widely accepted that the global crisis is likely to wipe out gains made over the last decade in reducing poverty. On the ground, the global downturn has struck the poor particularly hard. Prices of food and fuel may have come down from their peaks, but not enough for people to return to 2007 living standards.

Results of field research in poor rural and urban communities in five countries including Bangladesh and Indonesia by the Institute of Development Studies (IDS) in the UK show that people in poor communities are eating less frequently, and less diverse and nutrient-rich foods. In some cases, people are resorting to self-medication and avoidance of expensive procedures. Children's education is also at risk as there are many cases of children being withdrawn from school or moved to (cheaper) madrassa schools.

As recession evolves in rich countries, local businesses that depend on the export sector are hit by a slowdown in export manufacturing resulting in factory closings, layoffs, and supply chain disruptions. Declining prices of commodities such as rubber meant reduced production resulting in less income or migration.

In the urban area around Jakarta, migrant export sector workers started to return home late in 2008 when their contracts were not renewed; others have had their working hours reduced. While garment factory workers in Dhaka reported that new jobs are available, these are in poor quality, unsafe sub-contractor sweatshops, rather than in the labour standard-compliant factories.

Some have looked for other ways to make a living, often low-yield or dangerous activities. Among them are those from Kalimantan, Indonesia who traveled to other islands to mine gold, and cross-border smuggling was reportedly rising in rural Bangladesh - both illegal and dangerous but potentially lucrative activities.

In China, it is reported that tens of thousands of export-oriented firms in cities such as Shanghai and Guangzhou have closed in recent months while 20 million domestic migrant workers were said to have lost their jobs as a result of the collapse in export orders.

According to the ADB, since the fourth quarter of 2008, the drop in developing Asia's export growth averaged nearly 30% in East and Southeast Asia and was approaching double digits in South Asia. This translates to sizable job losses across much of export-driven Asia.

As recession begins to sink in in places such as Europe, the United States, and the Middle East, migrant earnings to developing countries are estimated by the World Bank to decrease to about US$290 billion in 2009 from US$305 billion in 2008, threatening the lives of families who depend on remittances sent home by migrant workers.

For some countries such as the Philippines, remittances from expatriate workers are the single largest source of export revenue, and this source is already diminishing. The IBON Foundation in the Philippines reported that overseas remittances in the first quarter of 2009 had fallen in 11 out of the 20 countries which account for 96 percent of overseas remittances. Remittance growth in another four countries, meanwhile, is already slowing and could also soon turn negative.

Elsewhere, in South Asia (India, Bangladesh and Pakistan), for example, remittance flows are forecast to slow sharply from over 16% growth in 2008 to zero in 2009. The rising pressures on international labour markets are also being felt in Indonesia.

Up to 200,000 Indonesian workers - out of a total of over 4 million expatriate Indonesian workers worldwide - might need to return home if the international economic crisis remains severe, according to a report by the Lowy Institute in Australia. The severity of the economic downturn is not only measured by the number of job losses but also its significant negative impact on the working poor. These are people who are employed, but who do not earn enough to lift themselves and their families above the poverty line.

The International Labour Organisation forecasts that the increase in the numbers of working poor in Asia is likely to be 50-120 million for the period between 2007 and 2009.

The adverse impact of the crisis has been particularly harsh on women in the region. An ADB official in a speech has related how most workers in the lower segment of the global supply chain of exported goods are women, and they are being heavily affected by recent job losses -particularly given their dominant employment position in the garments, textiles, and electronics industries.

These industries, which are being heavily hit by the current crisis, employ five female workers for every two male workers. As they continue to shed jobs amid the downturn, it is mostly women who are losing their livelihoods.

The impact of developments in international capital markets presents serious risks for countries in Asia as well. In recent months, all major global financial institutions have understandably become much more risk-averse. International financial agencies are much more cautious about providing finance than was the case before the global financial crisis broke out.

The ADB notes that "the region is ... experiencing a precipitous drop in foreign direct investment" and "funding for infrastructure projects is fast drying up." The result, says the Lowy Institute, is that many developing countries are finding that their access to international capital is being squeezed at a time when it is critically needed for development and to overcome poverty.

Whilst it is true that some proposed reforms to international financial institutions such as the IMF (International Monetary Fund) and international development banks might provide some extra funding for developing countries, the overall impact of the proposals currently under consideration seems likely to be small.

There are also worrying signs of increasing protectionism in capital markets. In recent months, many rich countries have introduced various forms of assistance for their domestic financial sectors.

While some of these have clearly been emergency measures needed to head off systemic collapse, the Lowy Institute says some other measures have the effect of tilting the playing field for international capital markets in favour of rich countries themselves. UK Prime Minister Gordon Brown described these kinds of measures as "mercantilism in a new form" and "a form of financial protectionism."

Open economies in Asia will also need to contend with increased trade protectionism in the industrialized countries, which has been on the rise as the latter grapple with putting their houses in order. For example, since the G-20 leaders summit in November in Washington where leaders pledged not to raise new barriers to trade or investment, the pledge has been widely flouted. The World Bank recently estimated that 17 of the G-20 countries have instigated 47 policies that have restricted trade since the G-20 summit last November.

Difficulties faced during economically challenging times are usually compounded by social problems. As the IDS research found, stress levels have been rising in many households and there are signs of rising domestic violence, as well as incipient signs of inter-group tensions.

Minority groups have been criticized for taking advantage of the crisis, but are typically disadvantaged compared to the majority in terms of access to official resources. Petty crime, drug and alcohol abuse were reportedly on the rise. So are the abandonment of children and the elderly, and crime rates among youth.

The situation is serious not only for the poor and much needs to be done to help people protect against the worst of the crisis. Some government programmes are working well, but many cover too few people with too little support to make a difference. Others are not reaching the poorest.

Public safety nets for the poor in Bangladesh, for example, were criticised for the small amounts disbursed. In Jakarta, migrant workers who had lost their jobs were not able to access government rice for the poor, which typically goes to longer-term residents. There were widespread concerns that even the limited public resources available to support people through the crisis were not necessarily reaching those most in need.

The nature and speed of the current global crisis highlight the increased interdependence of a globalized world and fuel debates over the merits of global integration and the terms for engagement. What is obvious is that a looming poverty crisis is a stark reality and as usual, most countries are unprepared for it.

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