You are on page 1of 34

CHAPTER ONE

THE POOR AT RISK: SURVIVING THE ECONOMIC CRISIS IN


SOUTHEAST ASIA
T.G. McGee and Steffanie Scott
1. INTRODUCTION
1.1 Looking backwards from the second millennium, the gloom and doom of the
financial crisis that engulfed the Southeast Asian region in the last three years of the
1990s have given way to a renewed if guarded optimism. Growth rates of GDP, which
had slowed to below two percent, or even declined, have begun to accelerate to three to
four percent and even higher. Whether this trend can be continued will, to a large extent,
depend upon external factors such as the growth of the Japanese economy and the import
demands of other OECD markets. The internal capacity of Southeast Asian countries to
carry out reforms in the financial sector as well as maintain political stability will also be
of importance in this recovery. In the current policy climate most attention is being
focused on the macro-economic policies that could be implemented to speed this process.
But it may be just as important to seize upon the crisis as an opportunity for accelerating
a broader development agenda. Singapores Prime Minister Goh Chok Tong has argued
that the crisis has produced four positive outcomes: it has accelerated the opening-up of
economies, forced Asians to be more aware of good corporate governance, made the
region concentrate on its real competitive strengths, and provided a hard lesson about
globalization (The Economist, 2000: 3).
1.2 While these lessons are undoubtedly important it may be argued that an equally
important dimension of the financial crisis in Southeast Asia has been its effect on the
social domain of many Southeast Asian societies particularly the many households that
had to experience losses in wages, jobs and other assets. This report focuses on the social
impacts and the responses of Governments and civil society to these developments. The
origins of the report arose out of the involvement two of the project participants in a
policy study providing inputs to the Indonesian governments social safety net policies
implemented between 1997 and early 1999. What emerged out of this review was the
realization that Indonesiathe most severely impacted of the Southeast Asian
countriesdespite a vigorous poverty reduction program in the preceding years lacked
the capacity to respond effectively to the rapid increase in the social difficulties brought
about by the crisis. While this was partly explained by the volatile political situation in
Indonesia in this period, of greater importance was the fact that there was limited social
policy experience in reacting to such severe economic shocks. As a result, Indonesian
policy makers were anxious to learn about the comparative experience of other
developing countries both in Latin America and Southeast Asia in the implementation of
social programs in response to the financial crisis (see McGee, Setiawan and Firman,
1999).
1.3 This issue was clearly a growing focus of public policy concern with the World Bank,
UN agencies, the Asian Development Bank and international NGOs, who have begun to
implement major studies in this area. They have become increasingly interested in the

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

GNP per capita


(USD), 1995
Percent growth in
GDP (1985-95)
Average annual
growth in GDP
1970-80

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

--

Percent labour force


in agriculture
1960

75

61

84

63

--

82

83

--

1980

59

52

71

41

73

76

80

--

1990

57

45

64

27

72

74

78

--

Percent urban, 1997

31

47

19

51

100

20

13

19

25

Adult illiteracy,
percent, 1995

16

17

35

43

19

Source: World Bank, 1994; World Bank, 1997.

2.1.2 Accompanying these developments have been significant demographic changes


including rapidly falling fertility rates, particularly for Indonesia which contains almost
40 per cent of the regions population (see Figure 1.4). This has contributed to a general
lowering of the rates of natural increase in the region. The falls in mortality also led to an
increase in the older population. Another important dimension of the demographic
features of the region are the increasing rates of population mobility reflected in
increased rural-urban migration and international migration which was particularly
important in the cases of the Philippines, Thailand and Indonesia (see Figure 1.5).
Women international migrant workers typically outnumber male workers; Corner (1998)
notes that this ratio is twelve to one in the Philippines, with total remittances from
Filipino workers abroad amounting to six to seven billion dollars per yearalmost half
the national budget. Finally, it is important to draw attention to the fact that the number of
women working outside the home has grown considerably in the period, in particular in

Figure 1.2: Percentage of the Population Employed in Agriculture and Industry,


1980 and 1990

Source: World Bank, 1997.

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

Source: Matsubara, 2000.

Figure 1.4: Southeast Asia: Some Basic Demographic Indicators, 1997


Indonesia

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

Source: Population Reference Bureau, 1997.

Figure 1.5: Official Estimates of Deployment of Workers, 1971-1997


Country

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

Source: Hugo, 2000.

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.

Figure 1.6: Indicators of Changes in Womens Roles


Female Workforce
Participation Rate
Country
Indonesia
Laos

15-20 Years
Ago
37

Most recent

51

Females per 100 Males in Education


Percent Female

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.

Source: UNESCAP, 1993: 4-39; World Bank, 1997: 220.

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

Source: World Bank, 1997: 222-223.

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.

2.2 Engaging Definitions of Poverty


2.2.1 To date the most common definition of poverty has been the income/consumption
model, in which a person or household is defined as poor if they are deprived of access to
economic resources insufficient to acquire commodities to meet basic material needs.
Basically, this is a physiological deprivation model and involves two methods of
measurement. The first is a food-energy method which estimates the food-energy
minimum required to satisfy dietary energy (caloric requirements). The second, called the
food-share method, estimates the minimum cost of a food basket sufficient to fulfil basic
food-energy needs. This permits the creation of a poverty line that represents an adequate
intake to achieve a required calorific level.
2.2.2 The second approach to the measurement of poverty is the basic needs approach
which is much broader, including minimum specified quantities of needs such as food,
clothing, shelter, water, etc. (see Streeten et al. 1981). A lack of these basic needs is seen
to be a condition of social deprivation which also includes features such as lack of access
to services such as education, income and housing which has become an important
component of development planning in the 1980s and 1990s. This approach has been

10

Figure 1.9: Functions of the State


Addressing market failure
Providing pure public goods
Defense
Law and order
Property rights
Micro-economic management

Minimal functions

Intermediate functions

Addressing externalities
Basic education
Environmental protection

Activist functions

Source: World Development Report, 1997.

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

Providing social insurance


Redistributive pensions
Family allowances
Unemployment insurance
Redistribution
Asset redistribution
Subsidies

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

Figure 1.10: Household-Level Assets and Links to Other Levels


Asset type
Natural

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

Household composition and size


Health and nutritional status
Education and skills

Labour pool

Labour markets

Physical or Material

Productive assets (tools, equipment,


work animals)
Household assets (housing, household
goods and utensils)
Stocks (livestock, food, jewelry)

Productive assets (communal and


private)
Stocks (livestock, food)

Productive assets (rental markets)


Stocks (buffer stocks)

Financial

Cash, savings, access to credit,


insurance markets

Cash, savings, access to credit,


insurance markets

Finance and insurance systems


Access to international finance

Social

Household social ties and networks


Intra-household dynamics

Community social ties and networks

Extra-community social ties and


networks

Location and infrastructure

Proximity and access to water and


sanitation, education and health,
marketplace, storage, roads

Water and sanitation, schools, health


centres, marketplace, storage
facilities, roads
Proximity to transport and
communication infrastructure

Distance to markets, transportation,


communication, information systems
Health and education infrastructure

Political and institutional

Participation in household decisionmaking (including power


relationships related to gender and
age)

Participation in community decisionmaking


Governance
Security of person and property

Political stability
Political participation
Effectiveness of collective action
Governance
Human rights and security of person
and property

Source: Siegel and Alwang, 1999.

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

Selling assets, liquidating


savings
Find day labour, including
migration
Send children labouring

Withdrawing children from


school at low levels of
attainment
Selling women for marriage
and babies for adoption
Selling blood
Living with ill-health
Reducing consumption
Gathering food or firewood
from the forest
Source: World Bank, 1999: 45.

Lao Cai

Ha Tinh

Ho Chi Minh City

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

Land and livestock

In highland, labour sold


locally for food

If available; migration to
urban areas increasingly
common

If available

If available; some migration


to Ho Chi Minh City

May sell lottery tickets, sell


noodle soup, help parents
with piece work

May work on own farm or on


others farms

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

Gathering firewood for sale

Quite common in study


districts
Common: approximately
US$10 per time
Especially for migrants who
have no exemption for fees
Urban equivalent: scavenging
in markets

Collecting leaves for weaving


panels

15

Figure 1.12: Household Responses for Mobilizing Assets in Response to Changes in


Economic Circumstances
Type of Asset

Household responses

increase the number of women working

allocate a disproportionate share of womens time to meet increasing


responsibilities

allocate more time to obtaining services in response to declining quality of


infrastructure

increase reliance on child labour

diversify income through home-based enterprises and renting out

Housing

adopt intergenerational nesting strategies to accommodate households of


adult children (longer-term trend)

Social and economic


infrastructure

substitute private for public goods and services

increase reliance on extended family support networks

increase labour migration and remittances (where viable)

increase reliance on informal credit arrangements

increase informal support networks among households (e.g. to share


childcare and space)

increase community-level activity (sometimes through local or


international NGO projects that built on community participation)

Labour

Household relations

Social capital

Source: Adapted from Moser, 1998: 8.

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

1. mandatory programs such as social security insurance and unemployment


insurance, delivered by both private and public sector
2. social transfers such as child allowances, old age pensions, disability pensions,
and war pensions, generally delivered by the state
3. voluntary insurance programs (based on individual contributions), delivered by
the private sector
Figure 1.13: Main Sources of Risk
Micro (idiosyncratic)

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

Growth policies and


promotion of
market mechanisms

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

(i) Increase productivity


-Technology systems
-Productive inputs
(ii) Create asset base
-IRDP
-Area development
-Credit
(iii) Create employment
-Works program
-Employment guarantee
(iv) Welfare schemes
-e.g. Food and nutrition; direct income
transfer
(v) Investments

(vi) Capacity building


-Institution development
-Social empowerment
-Training

18

Figure 1.15: Types of Social Safety Net Programs


Social safety nets
Informal social safety nets

Formal social safety nets


1.

Mandatory or secondary social insurance

1.

Mutual assistance among family members

2.

Social transfers (e.g. war pensions)

2.

Loans among friends

3.

Voluntary insurance programs (private sector)

3.

Loans from money lender

4.

Rotating credit associations

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

Figure 1.16: Social Impacts of the Financial Crisis


Channels of impact
Currency depreciation
Rising prices, inflation
(primarily imported and
good with high import
content)
Demand for consumer
goods

Labour markets

Assets

Fall in demand for labour:


-external (migrant)
-internal (open and underemployment)

Loss of assets, e.g. bank


failure, house prices fall

Credit
High investment rates
reduce consumption,
housing

Government budget
Lower government
revenue
Lower budgets

Degree of Impact on Country and Poor


Indonesia

++

+++

+++

+++

Thailand

+++

++

++

Philippines

Malaysia

Vietnam

+++ very strong impact


++ strong impact
+ moderately strong impact
= limited impact
Source: Country reports for Social Safety Nets in Selected Southeast Asian Countries, 1997-1999 Project .

23

4.3 Impact on the Poor


4.3.1 One of the more challenging aspects of this study has been to develop a
comparative framework for analyzing the impacts of the macro-economic shocks and the
downturn of the economy between the selected countries. Figure 1.17 summarizes
material presented in the various country reports on the social impact of the crisis,
comparing information on poverty and inequality, labour markets, social spending,
health, education, regional impact and other indicators of social crises. In presenting
these results, we have tried to use comparative data from the selected Southeast Asian
countries, although in some cases data are not available or cannot be compared.
4.3.2 Recent comparative work by Lustig (1999) shows that there is a strong link between
macro-economic downturns and increases in poverty. In general, the data from the five
selected countries shows evidence of real contraction in the economy in the case of
Indonesia and Thailand, and slowing of economic growth rates in the less directly
impacted countries of Malaysia, Vietnam and the Philippines. The evidence is less clear
on the relationship between shock and increasing poverty that seems to be, at least in
part, a reflection of the nature of the impact that has been likened to a form of flu. Thus,
using the broadest of the poverty defining measuresincome/consumptionin the case
of Indonesia and Thailand the numbers increased by more than ten percent; in Malaysia
and the Philippines by less than three per cent, and in Vietnam, the most insulated of the
countries, it continued to fall to reach a level of 15.7 per cent by 1998. There is
considerable evidence that inequity also increased.
4.3.3 Turning to the impact on labour markets for the selected Southeast Asian countries
for which data are available, it is clear that unemployment increased considerably in the
urban areas of the most severely impacted societies, which in the case of Indonesia and
Thailand translated into millions of openly unemployed. But there is also evidence of
increased underemployment as workers from the formal sector shifted into the informal
sector. Both countries saw a reversal in rural-urban migration trends, with urban workers
returning to rural areas. In the two least impacted societies, Vietnam and the Philippines,
a combination of large numbers of people entering the labour force and a slowing of the
economy increased unemployment and under-employment. In Malaysia, the crisis was
particularly severe for urban-based contract workers from Indonesia.
4.3.4 With respect to social spending, government budgets were reduced as a
consequence of falling revenue, which squeezed budget expenditures on education (with
the exception of Malaysia), although government made efforts to keep social expenditure
at pre-crisis levels. In some cases, this actually increased the proportion of social budgets
in the total budget. Efforts were generally made to concentrate these cuts in capital,
equipment and maintenance costs so as to avoid dismissals of teachers. However, the
costs of out of pocket expenses for schooling (fees, books, school supplies, etc.)
increased and impacted the poorer households most severely. This led to declining
enrolment, although this was by no means uniform throughout all the selected Southeast
Asian countries. With respect to public health expenditures, there was generally a decline

24

Figure 1.17: Social Impact of the Economic Crisis


Thailand
Average real GDP fell
1.8 % in 1997 and 10%
in 1998

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

Overall poverty rate


increased from 11% to
19.9% between 1997
and 1998, and to 24%
in 1999

Incidence of selfreported poverty


increased from 40% in
1998 to 43% in 1999

Poverty incidence fell


from 30% in 1992 to
15.7% in 1998
Overall poverty
decreased from 58% to
37% in the same period

Between 1998 and 1999


increase in percent in
poverty from 6.8% to
7.5%. Most of new
poor were in urban
areas

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

In 1998 budget for


social expenditures
increased in real terms
but fell as a proportion
of total budget
A major investment in
HEPR after 1998, with
significant foreign
donor contribution

Smaller cuts to Ministry


of Health, and rural
development and
agriculture
Additional funds
allocated for poverty
alleviation despite
overall decrease of
budget by 2%

Main crisis
indicators

25

increased by 11%
between 1997 and 1998

secondary education
fell 42% and to higher
education 26%

Health

Public health and


education services
expanded during the
crisis although this may
have masked the
unequal access by the
poor

Drug prices rose


between 200% and
300% between Nov.
1997 and Mar. 1998
Most indicators of child
nutrition status
remained the same
although anemia and
vitamin A deficiency
increased in children
under 5

Education

Total enrollment ratio


rose from 74.8% in
1997-98 to 75.5% in
1998-99
Dropouts as a percent
of school-age
population rose from
5.5% in 1997-98 to
6.7% in 1998-99

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

NGOs report increase


in child prostitution,
child labour and child
beggars

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

Although crisis began


in Bangkok, impact
transmitted to rural
areas through return of
temporary migrants.
Worst hit was the NE
where per capita real
income fell 32.4% in
first quarter of 1998
major impact in
Bangkok where real per
capita income fell by
8.1%
Evidence of
unemployed women
entering the urban
informal sector
Return of women to
rural areas

Crisis hit urban areas


because of the collapse
of the formal sector. In
rural Java effect of El
Nio was important.
Outer islands
experienced increase in
cash crop prices

Social impact of the


crisis primarily felt in
the rural areas because
of El Nio

Most impact in urban


areas where the
slowdown in economy
caused increase in open
unemployment
Rural unemployment
continued to increase
because of rapid rate of
increase of labour force
and no employment in
formal sector

Major impact in urban


areas in factory and
construction sector

Women increase
participation in
agriculture and trade

Women take on major


roles in adapting to the
crisis

Women increase
participation in
informal sector

Concerns about
unemployed factory
workers

Source: Various country chapters in this report.

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

Figure 1.18: Typology of Potential Coping Responses at Times of Crisis


Types of impact
Delivery agent
Government

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

Training and skills


development

Micro-credit

NGO

Agricultural inputs
subsidies

Support midwives

Infrastructure
development

SMEs development

Make extra jobs in


informal sector

Cut costs

Free lunches for


schoolchildren
Household/
community

Increase production
of foodstuffs

Freeze education
and health charges
Reduce household
expenditures

Reduce material
inputs
Sell more cheaply

Source: Chapters in this report

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

5. CROSS-CUTTING ISSUES AND CHALLENGES OF THE PROJECT


The purpose of this introductory chapter is primarily to identify the major cross-cutting
issues of the policy architecture for poverty alleviation at the times of crisis in the five
selected countries. Each of these issues is discussed in the ensuing country reports in
greater detail. This list was arrived at after extensive discussion within the research team
at the three meetings of the group.
5.1 Issue One: Establishing the Context
5.1.1 The comparison of the pre-crisis context of each country is crucial to processes of
evaluating policies and programs. The severity of the crisis shock and the capacity of a
given country to react to the situation in terms of poverty alleviation programs are very
much a reflection of the mix of existing poverty reduction programs, and the degree of
preparedness for such crisis. Most of the selected Southeast Asian countries had
comprehensive poverty reduction programs already in place for some time, with the
exception of Vietnam, where the Hunger Eradication and Poverty Reduction (HEPR)
program was only introduced in 1998. While there were differences in these programs
for instance Malaysia programs were much more activist and directed to correcting
income inequity between the major communitiesthe major thrust of poverty reduction
was for most cases indirect (see Figure 1.14).
5.2 Issue Two: Distinguishing Between Poverty Reduction and Poverty Alleviation
Programs
5.2.1 The second issue, which follows in part from issue one, is the evaluation of policy
responses to the crisis. This must involve careful investigation of the programs that are
simply a continuation of existing programs, but have been given greater financial
resources, as distinguished from new programs that have been specifically developed to
alleviate the problems of the poor brought on by the crisis. The division is an important
cause of the success of the programs, and the programs we are describing in this report
can be broadly called rescue or recovery programs.
5.3 Issue Three: Identifying the Institutional Components of the Delivery of poverty
alleviation programs
5.3.1 In section 4.4 we identified the main delivery agents of the poverty alleviation
programs. It is important in reviewing the policy architecture to ensure that all
components are considered. For example, several of the country studies show that the
community-based NGO and household responses to the crisis which were much more
effective in reducing the severity of the impact than government responses.
5.4 Issue Four: Identifying the Capital Sources for Poverty Alleviation
5.4.1 It is generally assumed that the introduction of poverty alleviation responses
involves the allocation of funds from central governments, often enhanced with loans
from international agencies such as the World Bank, ADB, as well as special funds such
as those allocated by the Miyazawa initiative, under which Japan provided funds to

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

REFERENCES
Ahmad, S.E., Dreze, J., Hills, J. and Sen, A.K. (eds.) Social Security in Developing
Countries. Oxford: Oxford University Press.
Bartlett, Sheridan, Hart, R., Satterthwaite, D., de la Barra, X. and Missair, A. (1999)
Cities for Children: Childrens Rights, Poverty and Urban Management. London:
UNICEF and Earthscan Publications.
Chambers, Robert (1993) Rural Development: Putting the Last First. Essex: Longman.
Corner, Lorraine (1998) Womens Employment in the Context of the Asian Economic
Miracle and the Asian Economic Crisis: A Long-Term Perspective. Asian Women, 7
(Dec.): 1-16.
Davies, Susanna (1996) Adaptable Livelihoods. London: Macmillan.
Devereux, Stephen (1999) Making Less Last Longer: Informal Safety Nets in Malawi.
Institute of Development Studies (IDS) Discussion Paper 373. Brighton: University
of Sussex.
The Economist (2000) A survey of South East Asia. February 14.
Evans, Peter (1995) Embedded Autonomy. Princeton, NJ: Princeton University Press.
Habito, Cielito (1999) Discussion of Papers by Frances Stewart and Emil Salim. In
OECD, Structural Aspects of the East Asian Crisis. Paris: OECD, p. 177-183.
Hugo, Graeme (2000) Demographic and Social Patterns in Thomas R. Leinbach and
Richard Ulack (eds.) Southeast Asia: Diversity and Development. New Jersey.
Prentice Hall
Lustig, Nora (1999) Crisis and the Poor: Socially Responsible Macroeconomics Inter
American Development Bank Working paper. Washington D.C.: IADB.
Matsubara, Hiroshi (2000) A Comparative Study on the Urban Systems in Asian
Countries. Fukuoka: Asia Pacific Center.
McGee, T.G., Bakti Setiawan and Tommy Firman (1999) From the Roots Up. A Report
on the Role of Employment Creation Policies for the Poor in a Period of Slow
Economic Recovery and Political Volatility in Indonesia. Report submitted to CIDA
and Bappenas by P.T. Hickling. Indonesia.
Moser, Caroline (1998) The Asset Vulnerable Framework: Reassessing Urban Poverty
Reduction Strategies. World Development, 26 (1): 1-19.
Moser, Caroline (1996) Confronting Crisis: A Comparative Study of Household
Responses to Poverty and Vulnerability in Four Poor Urban Communities.
Washington, DC: World Bank.
Population Reference Bureau (1997) World Population Data Sheet. Washington, DC:
Population Reference Bureau Inc.
Putnam, Robert et al. (1993) Making Democracy Work: Civic Traditions in Modern Italy.
Princeton, NJ: Princeton University Press.

34

Rigg, Jonathan (1997) Southeast Asia: The Human Landscape of Modernization. London:
Routledge.
Sen, Amartya (1999) Development as Freedom. New York: Knopf.
Siegel, Paul and Jeffrey Alwang (1999) An Asset-Based Approach to Social Risk
Management: A Conceptual Framework. Social Protection Discussion Paper 9926.
Washington. DC. World Bank.
Squire, Lyn (1999) The Evolution of Thinking About Poverty: Exploring the
Interaction. Ninth Bradford Development Lecture. Bradford, UK: University of
Bradford.
Stewart, Frances and Gustav Ranis (1999) The Asian Crisis: Social Consequences and
Policies. In OECD, Structural Aspects of the East Asian Crisis. Paris: OECD, p.
133-162.
United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP)
(1993) State of Urbanization in Asia and the Pacific. New York: United Nations.
United Nations Department of Economic and Social Information and Policy Analysis
(1994a) World Population. New York: United Nations.
United Nations Department of Economic and Social Information and Policy Analysis
(1994b) World Urbanization Prospects: The 1994 Revision Annex Tables. New York:
United Nations.
United Nations Development Program (1997, 1999) Human Development Report. New
York: UNDP.
World Bank (1990, 1994, 1997) World Development Report. New York: Oxford
University Press.
World Bank (2000) World Development Report: Poverty and Development. Consultation
Draft.
World Bank (1999) Vietnam Development Report 2000. Attacking Poverty. Hanoi:
World Bank.