Asia's growth hopes crumble

By M H Ahssan

As the global economic slowdown deepens, poverty in Asia is set to become further entrenched. The number of people living in absolute poverty is increasing as a result of sagging incomes and loss of jobs amid a collapse in export-led growth, which has been the region's road to prosperity.

A slew of reports makes it clear that the global financial and economic crisis will have a significant impact on the vulnerable section of the population in Asia. A year ago there was still discussion about the possibility of Asia "decoupling" from the recession in the rich countries; it is now clear that the region is not immune.

Growth in developing Asia as a whole will fall three percentage points this year to 3.4%, the slowest 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 United States, Europe and Japan, the destinations for about 60% of Asia's exports.

The global economic crisis will keep in poverty more than 60 million people in developing Asia - including 14 million in China - and 24 million more in 2010 who would otherwise have been freed from that shackle had economic growth continued at pre-crisis levels.

A just-released United Nations assessment says that both the number of poor and the poverty rate are expected to increase further in some low-income southern Asian economies. It has been widely accepted that the global crisis is likely to wipe out gains made over the past decade in reducing poverty.

Across Asia, poor communities are feeling the consequences of the global downturn particularly hard. Prices of food and fuel have declined from their peaks, but not enough for people to return to 2007 living standards.

Research in poor rural and urban communities in five countries, including Bangladesh and Indonesia, carried out by the Institute of Development Studies (IDS) in Britain, found 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 In some cases, people are resorting to self-medication while children's education is suffering, with them being withdrawn from school or in Islamic countries moving to (cheaper) madrassa schools.

Export-dependant businesses are closing factories, laying off workers and are being hit by supply chain disruptions. Declining prices in commodities such as rubber mean reduced production, resulting in less income and job 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. Garment factory workers in Dhaka report that new jobs are available, but these are in poor-quality, unsafe sub-contractor sweatshops, rather than in factories that comply with labor standards.

More workers are having to resort to low-yield or dangerous jobs. People from Kalimantan, Indonesia, are traveling to other islands to mine gold, while cross-border smuggling is reportedly rising in rural Bangladesh - both illegal and dangerous but potentially lucrative activities.

In China, 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 are said to have lost their jobs as a result of the collapse in export orders.

As recession deepens in Europe, the United States and the Middle East, migrant earnings sent home to developing countries may fall to about US$290 billion in 2009 from US$305 billion in 2008, according to the World Bank. For some countries such as the Philippines, remittances from expatriate workers are the single-largest source of export revenue.

The IBON Foundation in the Philippines reported that in the first three months of this year, overseas remittances fell from 11 out of the 20 countries that account for 96% of such remittances. Remittance growth in another four countries is slowing and could soon turn negative.

In India, Bangladesh and Pakistan, remittance flows are forecast to slow sharply to zero growth this year from over 16% growth in 2008. The rising pressures on international labor markets are also being felt in Indonesia. Up to 200,000 Indonesian workers, out of more than 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.

As for people who are employed but who do not earn enough to lift themselves and their families above the poverty line, the International Labor Organization forecasts that their number in Asia will increase by 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 Asian Development Bank (ADB) official 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 in the garments, textiles and electronics industries. These industries, heavily hit by the current crisis, employ five female workers for every two males.

The impact of developments in international capital markets also presents serious risks for Asian countries. In recent months, all major global financial institutions have become much more risk-averse and financial agencies are much more cautious about providing funds.

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 they are critically needed for development and to overcome poverty.

Proposed reforms to financial institutions such as the International Monetary Fund and 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 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 been emergency measures needed to head off systemic collapse, the Lowy Institute said some other measures have the effect of tilting access to the playing field for international capital markets in favor of rich countries at the expense of developing countries. British 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. For example, since last November's Group of 20 (G-20) summit in Washington, a pledge by leaders not to raise new barriers to trade or investment has been widely flouted. The World Bank recently estimated that 17 of the G-20 countries had instigated 47 policies that had restricted trade since the summit.

Difficulties faced during economically challenging times are usually compounded by social problems. As the IDS research found, there are signs of rising domestic violence growing inter-group tensions. Minority groups have been criticized for taking advantage of the crisis, but are typically disadvantaged compared with the majority in terms of access to official resources. Petty crime, drug and alcohol abuse were reportedly on the rise. So were the abandonment of children and the elderly; micro-credit default; and criminalization of youth.

Help from governments is severely limited in many countries. Public safety nets for the poor in Bangladesh, for example, were criticized 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.