Manila Social Forum

CHAPTER 1:
THE MANILA SOCIAL FORUM

2 Chapter 1: The Manila Social Forum
ECONOMIC GROWTH, SOCIAL DEVELOPMENT,

2
AND POVERTY REDUCTION IN ASIA
His Excellency, Joseph E. Estrada, President of the Philippines
I wish to thank the Asian Development Bank (ADB) and the World Bank for inviting me to
address your Manila Social Forum. May I also extend to our foreign guests the warmest
welcome of the Filipino people here in the Hardin ng Pag-asa, the Garden of Hope, in the midst
of the city of Mandaluyong. I thank and commend both ADB and the World Bank for choosing
Manila as the venue for this gathering. It recognizes the confluence of the theme of your forum
and the aspirations of our country. Just as poverty reduction is the core purpose of the World
Bank and the newly-announced strategy of ADB, poverty eradication is also the overriding
mission of the Philippine Government.
POVERTY ERADICATION THE OVERRIDING VISION OF OUR JOINT EFFORTS

I do not hesitate to use the word eradication. It reflects, and helps to intensify, the
strength of our ambition. And reduction, the preferred language of ADB and the World Bank, is
actually the transition, the forward move, from the present prevalence of poverty to its ultimate
eradication. Reduction is the process. Eradication is the outcome. Poverty eradication may be
unattainable in theory, but we can get close enough to it for all practical purposes.
As you may know, I ran and won as president of my country largely on my anti-poverty
platform. In 1998, I was deeply honored by the Asia Pacific Economic Cooperation (APEC)
when it named me as the groups anti-poverty exponent. And I was pleased to read about the
recent strategic shift of ADB from promoting growth, in general, to focusing on poverty
reduction, in particular. I can observe the major convergence of the Manila-based ADB and the
strategy of the Philippine Government. President Tadao Chino of ADB talks about his vision of
an Asia free of poverty and I addressed the Philippine nation in my inaugurating speech as
President with A Poverty-Free Philippines.
My Government considers poverty an intolerable social shame that cries out not for
marginal attention but for a total approach. For us, the war on poverty is not just a policy but a
passion. As President of the Philippines I deplore the fact that the past economic programs of
this country were mostly upside-down. They aimed at developing the apex and neglected the
base. Our belief is the opposite: uplifting the rich leaves the poor behind, but uplifting the poor
lifts everyone, including the rich. Our vision is, therefore, not just the alleviation of poverty but its
ultimate eradication. Alleviation is temporary, eradication is permanent. Alleviation is limited,
eradication is total. The proper response to the problem of poverty is not superficial treatment
but total structural change. Although eradication may be unattainable, getting as close to it as
possible is worth the effort.
Jesus Christ said: The poor you will always have with you, but he did not say they had
to be the majority. My vision is to drive poverty away from the center and into the periphery of
our concerns, to make it a marginal rather than a mainstream problem. Hence, our war on
poverty is not just one program of the Government; it is the overriding business of governance
itself, built into and embedded in our total economic and social programs. Poverty alleviation
2
This is a modified version of President Estradas keynote address to the Manila Social Forum during the Meeting
with the Filipino People in Mandaluyongs Garden of Hope.
J. Estrada: Economic Growth, Social Development, and Poverty Reduction in Asia 3
defines and drives the substance, the content, and the heart and soul of our entire strategy of
Government.
POVERTY IS BAD ECONOMICS

It is essential for our war on poverty that development efforts be redirected towards the
poor, towards the base of our society. Poverty is not just a social disgrace but bad economics.
The converse is that poverty eradication is not just a requirement of social justice, not just a cry
of the conscience, but also good economics. Poverty constricts domestic markets, poverty
reduction expands them to the extent that investments create new jobs and increase incomes.
Poverty suppresses productivity, poverty reduction enhances it, to the extent that it opens up
access to better education, health care, and other social services that build up the people's
capabilities.
One pattern of development is to modernize the apex and neglect the base, to upgrade
the penthouse and allow the foundations to rot or at best to expect the benefits of progress to
trickle down. This model is totally unacceptable and discredited. The drip method it entails is
the development equivalent of water torture. Development could result in higher incomes but
also in their greater concentration, or narrower dispersion. A growth program that considers
poverty eradication incidentalor even accidentalis bound to increase inequality, which
improvements in per capita incomes could very well mask.
The primary eradicators of poverty are private investments and public investments in
social and economic infrastructure. These create jobs, provide new incomes, and open up
opportunities for personal improvements in career and competencies. It is the task of
government to provide the laws, the policies, and an environment of peace, justice, and stability
that encourage such investments. It is also the task of government to remove the obstacles that
stand in the way of investments. Some of these obstacles are in laws and policies, which can be
improved through legislation or policy revisions. Others are physical, which can be removed
through infrastructure.
PRO-POOR GROWTH AND SOCIAL DEVELOPMENT

The condition sine qua non for poverty reduction is growth. While growth can take place
without poverty reduction, poverty reduction cannot take place without growth. Robin Hood is
not an ideal model for redistributing incomes to the poor. Yet, while growth is essential, it is not
enough. Aspiring for growth in the aggregate does not guarantee poverty reduction. Determining
the right structure of growth is also critical: Some patterns of development are more pro-poor
than others, even if they produce the same rate of growth. Farm-to-market roads have a higher
poverty-reduction impact than urban skyways. So do labor-demanding investments as against
heavy capital-intensive industries, rural health units as against sophisticated tertiary hospitals,
and primary and secondary education as against just about everything else.
In our view, there should be no separation between growth and poverty eradication.
Poverty reduction cannot be just a byproduct of development, but its very objective. The poor
must not be just the end-beneficiaries of the process of development, but its starting point.
Investments in physical capital and the employment of technology must be aimed primarily at
creating jobs for them, and investments in human capital must be aimed at equipping them for
those jobs. If development begins with the poor, then the result is not trickle-down, but heave-
up.
Growth can and must take a pro-poor path. Growth and equity cannot be sequential,
with growth coming first and distribution after: that is precisely the trickle-down concept. Growth
and poverty reduction must be integrated in one process. And this demands a systemic rather
than a piecemeal approach. Poverty cannot be conquered by pocket battles alone; it calls for
total war. And in the case of the Philippines, it calls for a tectonic shift in strategy.
POVERTY ALLEVIATION IN THE PHILIPPINES

The East Asian experience shows what works, and what doesnt, in promoting growth.
What works is development that is market-driven, export-pursuing, outward-looking, in an
environment of sound policies, good governance and of stability. What didnt work was shown in
different ways by what we might call the old China and the old Philippines. The old China
subjected its economy to central planning. The old Philippines pursued an inward-looking
policy of import-substitution, protectionism, and controls. The Peoples Republic of China (PRC)
has since discovered the wonders of the market, released large sectors of its economy to its
forces, and displayed exceptionally high growth rates over a sustained period.
The Philippines, since 1986, has radically shifted from a mandate to a market economy.
The state has withdrawn its interventionist, protectionist, and heavy regulatory hand from the
market, and instead has reshaped its role. It has devoted itself to ensuring and enhancing the
markets efficiency and integrity, and aims at providing stability, sound policies, and good
governance. In this, the Philippines at least enjoy the latecomers advantage. We can learn from
those who preceded us, emulate their successes, and avoid their mistakes, but modifying the
lessons from their experience with the insights we derive from our own culture, history, and
defining characteristics as a people.
We in the Philippines now have to accelerate and compress our timetable for our poverty
reduction program. We want to catch up, not so much with our neighbors, but more with our
own aspirations and our own sense of social justice. Our catch-up goals are ambitious. We
aspire to reduce poverty substantially: from an incidence of over 32 percent today to 25-28
percent by 2004. In other words, we seek to lift more than 3.9 million Filipinos out of poverty,
and we hope to lay the foundations and launch the initiatives that will make the process
irreversible, even beyond my term as President of this country.
For example, whereas past administrations were dazzled by the glitz and glamour of
capital-intensive industries, my Government has made a strategic shift of focus in our policies
and budgets towards agriculture and the development of the rural areas, where two thirds of our
poor people live, work, or look for work. We are pushing for the full implementation of the
Agriculture and Fisheries Modernization Act, which seeks to move these sectors into the 21st
century and to make them globally competitive. Our pro-poor bias is also manifest in the
emphasis we have placed on food security, and in our increased allocations for irrigation
facilities, farm-to-market roads, and post-harvest facilities. we have also expanded our support
of non-farm industries in the rural areas.
We are pouring a massive portion of our budget into education, which, more than any
other possible area of investment, is the foundation of future growth and progress. We are
restructuring our health programs to provide preferential attention to the indigents, among
others by lowering the price of medicines within a free market environment. We are accelerating
the land redistribution process under the agrarian reform program. We have highly augmented
the funds going to the local government units. And, despite some well-publicized slip-ups which
we have corrected, we are placing top priority in low-cost and socialized housing, first because
shelter is a basic requirement of life, and second because housing construction itself is labor-
intensive and has a high multiplier effect on the rest of the economy.
Just as we create a demand for people through investments in physical capital, we must
also enhance the competencies of people through investments in human capital. And this we
J. Estrada: Economic Growth, Social Development, and Poverty Reduction in Asia 5
must do at a time of bewildering change brought about by globalization, the constant birth of
new technologies, and the dynamic shifts in market tastes and preferences.
These changes pose a special challenge to education, since they continue to render a
wide range of traditional skills irrelevant, and their possessors redundant. We need to plan our
educational system to enable it to provide our people with competencies required by tomorrows
enterprises, not just todays, and certainly not yesterdays. Education must consider the future a
moving target. And as hunters would say, in hunting ducks in flight, the hunter should aim at
where the duck will be, not where it is, and certainly not where it has been.
Giving the poor access to health services, and providing them with an environment
conducive to healthincluding housing, water, sanitation, efficient sewerage, waste
management, and clean airis essential in enhancing their productive capabilities.
Equity must not be limited to the present populations but extend across generations.
This is why the state must make sure that the markets cooperate with it in protecting the
environment as a whole, to make development sustainable way into the future.
As the economy grows, more and more people benefit. But there will always be those
who will be left behind, excluded, displaced, and cast aside by the very process of development.
These must be cared for through the appropriate safety nets. There is no reason why capitalism
cannot be compassionate.
LESSONS TO BE LEARNED FROM EAST ASIA

It is easy enough to say: leave the market alone. The East Asian experience clearly
shows that economic growth is better served where markets are free, open, efficient, and
honest.
On the other hand, by its very nature, it is impossible for the government to leave the
market alone. Whatever it does affects the market, for better or for worse. The policies, projects,
budgets, and operations of the government necessarily shape the market one way or another.
One way is for government programs to promote growth in the aggregate, and let the
distributive process take care of itself. The other is to go for growth that is explicitly pro-poor
from its inception: pro-poor in its basic premises, in its design, and in its goals. The latter is the
strategy and intent of my government. We explicitly call it a "pro-poor, pro-market" strategy. The
very fact that you are holding this forum shows that this is also becoming the preferred option
for the developing world at large.
William Penn once said: It is a reproach to religion and government to suffer so much
poverty and excess. I am not sure I can speak for religionI know certain quarters that would
be horrified if I tried tobut I can say amen to the reproach to government. For growth and
poverty reduction will succeed or fail depending on the quality of governance: the soundness of
policies, the maintenance of stability, the promulgation of justice, the delivery of basic services,
and the keeping of the peace. This is the type of environment that allows markets to flourish.
Perhaps the words of Henry George, the 19th century American economist, very well
sums up the underlying theme of this Manila Social Forum: So long as all the increased wealth
which modern progress brings makes sharper the contrast between the House of Have and the
House of Want, progress is not real and cannot be permanent. In other words, growth has no
meaning unless it brings about the total redemption of the poor. This is the mission that we must
all adopt.
OPERATIONAL LESSONS AND CHALLENGES

FOR SOCIAL DEVELOPMENT IN ASIA3
By Jean-Michel Severino, Vice-President of the World Bank
INTRODUCTION
The Regional Meeting on Social Issues in Bangkok, in January 19994, saw the birth of a
new and significant common effort. It brought together key partners dedicated to the effort to
redress the social harm inflicted by Asias economic and financial crisis: national and local
governments, civil society organizations, international, bilateral and nongovernment
development actors, and academia. The Manila Social Forum rightly moved the focus from this
short-term, but crucial, concern dealing with the crisis and mitigating its social impact to
longer term priorities and questions: what should be the framework for new social policies in a
changing Asia? How can we together help establish the foundations of the new social agenda
that the people in the region need?
FROM BANGKOK TO MANILA: CHANGES IN THE ECONOMIC AND SOCIAL LANDSCAPE

The change in economic and social perspectives between the two large social policy
gatherings at Bangkok and Manila, only ten months apart, tells a remarkable story. At the
beginning of 1999, the crisis still dominated discussions, and the future was uncertain. By late
1999, all signs pointed to regional and national economies on the threshold of a solid recovery.
In retrospect, it is clear that the recession in the five most affected countries of East Asia
bottomed out in 1998, and during 1999 output began to expand, at varying speeds to be sure, in
virtually all the major economies.
The lasting impact of the crisis appeared, in November 1999, to be less grave than
feared even ten months earlier. The strength and resilience of the social fabric told the most
impressive story, but the remarkable efforts by national and local governments and civil society
organizations also played a major role in mitigating the social costs of the crisis. Economic
recovery had begun to show up in social indicators, particularly in unemployment statistics.
During 1999, remarkable progress was made in improving the knowledge base. Last and not
least, was a growing consensus around the belief that rapid growth cannot be the primary safety
net, and sole provider of jobs and income security in the future. The crisis underscored that
growth is a prerequisite for restoring incomes of the poor and the principal vehicle for
improvement in their welfare, but it is simply not enough. For all these reasons, the social
agenda needs to be at the center of policy and of international cooperation for East Asia in the
future.
Hard facts were highlighted in Manila, in the presentations of many people operating at
national and community levels, and these tempered premature enthusiasm. A central theme
3
This overview reflects the statements by Jean-Michel Severino at the Manila Social Forum. Mr. Severino was, as
the former World Bank Vice-President for East Asia and the Pacific, deeply involved in the partnership
preparations of the Manila Social Forum.
4
The Bangkok Social Meeting was organized by the World Bank, in collaboration with Economic and Social
Commission for Asia and the Pacific (ESCAP). It gathered some 200 participants from a wide range of
organizations. One outcome was an agreement that a continuing social forum for East Asia, bringing together
the partners, should be maintained, based both on strengthened information systems (including web sites and
newsletters) and on periodic meetings (notionally held at least once a year).
J. Severino: Operational Lessons and Challenges for Social Development in Asia 7
was a call to banish complacency. The crisis caused terrible direct damage and it slowed
momentum. It was the source of great suffering, across all strata of society; however, those
most directly affected were the most vulnerable. It also eroded invaluable social capital and
community structures and resulted in sharp declines in middle-class standards of living. These
effects will have a long-term impact, at the individual and collective levels. They have also
brought back into focus the central questions of distribution and social cohesion. While
sustained economic growth is clearly the only viable engine driving poverty reduction, the
complex picture of social impact and indicators in the immediate post-crisis period suggested
that much more attention was needed on issues of distribution: the transmission mechanism
that connects the engine to the wheels.
A CHANGING ASIA: SEVEN FUNDAMENTAL ENGINES OF SOCIAL CHANGE

Asia has changed and is changing profoundly. This basic message and reminder
explains the common theme, a central conclusion from Bangkok that shaped deliberations at
Manila: the social policies for tomorrow must differ from the social policies of yesterday. It is
useful to sketch, rapidly, some of the profound forces that are bringing change, as a backdrop to
the discussion in this book. The central engine of rapid change is globalization. Globalization of
financial and goods markets has been an essential ingredient in the East Asian miracle, and will
continue to offer new opportunities and benefits to the emerging markets and transition
economies in Asia. Nonetheless the crisis years in East Asia underlined how, without proper
safeguards and sound economic policies and institutions, the forces around globalization
expose developing countries to external shocks and increased volatility.
Six other major structural transformations, that need to be taken into account in social
policy formulation, are aging, urbanization, industrialization, democratization, the rise of the
middle-class, and decentralization/localization. The rapid aging of the population will have major
implications for old-age security and for the profile and evolution of the workforce. Urbanization
demands enormous new investments in services and transforms social relations; it also is
weakening traditional support and coping mechanisms and increasing the number of vulnerable
people who lack any support. A rise in non-agricultural employment and the formal sector not
only brings a greater need for better articulated formal social policy but also a greater
opportunity to provide it. The political transition towards greater pluralism and participation may
result in increased demands for a greater government role in protecting the poor, the
unemployed, the disabled, and other social groups, but also in demands for greater
accountability of the use of public resources. The emergence of an educated, powerful and
vocal middle-class will fundamentally change the way social policies have been designed and
implemented so far. Finally, localization, or decentralization, increases expectations and
demands from citizens and social actors and changes social policy design and management.
CONSOLIDATING THE FOUNDATIONS OF THE NEW SOCIAL MODEL IN A CHANGING

ASIA: CHALLENGES AHEAD
A central, and crucial, challenge ahead is inclusive and socially responsible
macroeconomics. Genuine human and social development can only be sustainable if it is based
on sound macro-economic adjustment and structural policies. A broad-based, inclusive
recovery, ensuring that the poor participate in the income gains from economic reactivation, is a
key element of the new social agenda. Improving future crisis management to make it more
sensitive to the plight of the poor, the workers, and the most vulnerable groups in the policy mix
and patterns of public spending is a central lesson. The relations between economic and social
policies are not linear but circular: sound economic policies cannot be sustained if patent
inequity is left unaddressed.
A second challenge is to deal better with risks and the uncertainties that accompany
globalization. The East Asia crisis highlighted the need to give much more attention to risks and
avoiding painful shocks. The severity of the banking crisis was a lesson. This challenge calls for
improved national safety nets (work-fare programs, scholarships, food distribution, etc.) and
social insurance programs (unemployment insurance if the country can afford it; pensions, etc.).
It also involves efforts to bolster community and informal family-based safety nets.
A third challenge is improved governance and social infrastructure. Sound and caring
social policies in the region rely on stronger and more transparent legal, institutional and public
infrastructure. This calls for a predictable and enforced legal system that is both conducive to
attracting foreign investment and protecting individual freedoms and workers fundamental
rights. It also implies improving the quality of the public sector, a modernized industrial relations
system, mechanisms for greater accountability and transparency everywhere in the society and
a everlasting war against corruption. The World Bank has committed itself to join concerned
governments to fight corruption wherever it is found and is moving vigorously forward with a
broad-based anti-corruption agenda in the region.
Establishing an integrated social policy framework is a fourth and difficult challenge.
Decisions taken in one area of social policy have important implications in the other areas: there
is a delicate and fine-tuned social policy mix that has to be better understood and managed.
This integrated approach to social policies and poverty reduction in the region has, however,
been sadly lacking to date. Today, Asia urgently needs a framework that brings synergy
between the different social policy instruments, a framework that binds together rural
development, human capital investments in health and education, urban development initiatives
to create livable and workable cities, and social risk management instruments such as active
and passive labor market policies, old-age policies and social assistance policies.
Bringing the weakest and the most vulnerable from the margins of the society to the
center stage is the last fundamental challenge. This is what Jim Wolfensohn called the
challenge of inclusion two years ago at the World Bank/International Monetary Fund (IMF)
Annual Meetings in Hong Kong, China. This is what is needed to ensure that the voices of the
poor, their experiences, priorities and recommendations, are always taken into account. And the
poor tell us that they care about their material well-being, their physical well-being, their security,
their freedom of choice and action, and their social relations.
A large and complex component of the social agenda is thus about empowerment. It is
about people helping themselves. It is about how to achieve social solidarity and cohesion
through first enabling individuals and families to support themselves. A related challenge is of
course to make sure that the voices of more organized social actors, crucial actors from an
historical point of view, such as trade unions, employers, nongovernment organizations (NGOs),
are central in the design of national and local social policies.
THREE KEY ISSUES ON THE SOCIAL AGENDA

The responsibilities of the private sector pose a first set of issues that we still need to
address. Private sector involvement is key to any modern and effective social policy, especially
in this region where growth has been built on remarkable private sector initiatives. Private sector
engagement is crucial to effective social services delivery, social policy financing, social
innovations, and high quality of services. But how can we best enhance the social role of the
private sector, promote social responsibility of private firms, and encourage socially conscious
individuals? There is no easy answer but the partners to the Manila Social Forum can and
should address this question as a priority.
J. Severino: Operational Lessons and Challenges for Social Development in Asia 9
A second issue deals with the relations between poverty alleviation, a fundamental and
common objective, and the new social agenda. Social policies, in Asia as well as in Europe and
in the United States, have broader objectives than poverty reduction and they have emerged as
a central focus across the political arena because of the support of the working classes and
then the middle class. Given that resources are limited and pressures come from all segments
of society, notably those best organized and closest to decision-makers, how do we keep the
focus on the very poor, while ensuring a clear and sustainable focus also on the broader social
agenda? How can we deal with the contradictions that sometimes present themselves between
a focus on the poor and the key role of the middle class as taxpayers and voters? Respect for
cultural diversity and traditional values in implementing modern social policies is a third, also
very difficult issue. Every policy and agenda must be specifically tailored to the cultural
environment of the country where it is implemented. Hence the new social agenda has to be
designed for each country concerned, reflecting its culture, social character, and history.
Cultural diversity in Asia is indeed an enormous asset. However a major issue is to determine
how modern, comprehensive and effective social policies can be established, building on
existing community ties and family values and incorporating lessons from worldwide thinking,
experience, and best practice.
We set ourselves a key and very difficult challenge at Bangkok, reinforced at Manila: to
measure explicitly and better social achievements and our own performance in advancing them.
Setting and monitoring indicators using participatory processes is a key element of any effective
poverty reduction strategy and sound and sustainable social policy. Measuring and assessing
our performance is also and always an imperative if we want to improve our work and be truly
accountable for what we do. Having said that, the issue of measurement poses a host of difficult
problems, in particular to determine what the best indicators are.
CONCLUSION
At national level, coalitions with governments, civil society, the private sector, academia,
trade unions, foundations and religions are central in building a new social model. At regional
level, coalitions to promote a common vision of social development with organizations such as
the Association of Southeast Asian Nations (ASEAN) and APEC, are also fundamental.
Finally, coalitions and partnerships at international level are needed more than ever
before. Joining forces with ADB here is a particular pleasure. The impact of the crisis, coupled
with the implications of globalization, have made it clear that multilateral banks need to be more
active in the region in the social sectors. That is why a stronger alliance between the World
Bank and ADB is needed. The comprehensive development framework (CDF) that is much
discussed in the region, highlights ways to enhance institutional cooperation. With the key
partnership of UN organizations, in particular the International Labour Organization (ILO), World
Health Organization (WHO), United Nations Childrens Fund (UNICEF), and United Nations
Educational, Scientific and Cultural Organization (UNESCO), let us make the new social agenda
a solid basis for new international strategic partnerships.
CHAPTER 2:
THE SOCIAL IMPACT

OF THE ASIAN CRISIS
12 Chapter 2.1: Economic and Social Implications of the Asian Crisis
THE FINANCIAL AND ECONOMIC CRISIS IN ASIA:

CAUSES AND LONG-TERM IMPLICATIONS5
INTRODUCTION
For more than three decades, the countries of East Asia were models of economic
development. Between 1960 and 1990, real per capita income in the region rose by an average
of 4-6 percent per annum, about three times as fast as Latin America and South Asia, and five
times faster than Sub-Saharan Africa. During this period, several of the East Asian economies
were transformed from primarily agricultural to newly industrialized economies. The number of
people living in absolute poverty (defined as $1 per day) dropped by half, from 720 million to
350 million and life expectancy increased from 56 years in 1961 to 71 years in 1990.
This pattern of growth came to a crashing halt in 1997 with a currency crisis in Thailand
that spread to other countries in the region. The currency troubles quickly developed into a full-
fledged financial and economic crisis. Within slightly more than a year, the contagion had
spread across developing countries and global capital markets. The severity of what is now
known as the Asian Crisis is unprecedented in recent times, and took the international
community by surprise. As a result, important questions have been raised regarding the causes
of the crisis, the role of the IMF, and the financial architecture of international capital markets.
This chapter reviews the principle causes of the Asian Crisis and discusses its implications for
long-term economic development in the region.
CURRENCY ATTACKS AND THE CRISIS

The Asian crisis was triggered by attacks on currencies in the region. The Thai baht was
by all accounts the first to come under heavy selling pressure, reportedly as early as July 1996,
following the collapse of the Bangkok Bank of Commerce, and the subsequent injection of
liquidity by the Bank of Thailand to support the financial system. More serious pressure on the
baht was exerted in late 1996 and early 1997. At the same time, increasing concerns about
nonperforming assets (NPAs) in the financial sector, and poor fiscal and export data for fourth
quarter 1996, were emerging.
The problems in Thailand and the rapid depreciation of the baht drew the attention of
banks and investment funds to the conditions of other countries in the region. Soon the
currencies of Hong Kong/China; Indonesia; Republic of Korea; Malaysia; Philippines; and
Taipei, China also came under speculative attack. Within months, what had started as a series
of speculative currency attacks and exchange-rate corrections quickly intensified into a regional
currency and financial crisis that took on global dimensions. The speed with which the effects of
the crisis were felt is illustrated by the timing of currency and stock depreciations in the affected
countries.
By the end of 1997, the Thai baht had dropped to about half of its June level and its
stock market index fell by more than 20 percent.
By January 1998, the Indonesian rupiah had lost more than 80 percent of its July 1997
value and the stock market index had dropped by more than 75 percent.
5
This paper was written by Justin Yifu Lin. Mr. Lin is Professor at the Peking University and at the Hong Kong
University of Science and Technology.
J. Lin: Long Term Implications of the Asian Financial and Economic Crisis 13
In Malaysia the ringgit had depreciated by more than 45 percent and the stock market
index had fallen by about 50 percent by January 1998.
In the Philippines, by end 1997, the peso had depreciated by about 35 percent from
July, and the stock market index had fallen by about 20 percent.
In Taipei, China, despite its strong economic indicators, the NT dollar depreciated by
15 percent by the end of 1997. The stock market index fell by 30 percent during
September to mid-October in response to concerns about currency depreciation.
Despite the fact that Hong Kong, China had exchange reserves of about $90 billion in
1997, and a well-regulated financial sector, the stock market index fell by about 60
percent from its height in mid 1997.
By January 1998, the Singapore dollar had dropped by 20 percent and the stock
market index had fallen by 30 percent, despite substantial exchange reserves.
In the Republic of Korea the won dropped by 50 percent in the five weeks from end of
October to the end of December 1997. The stock market dropped by more than 40
percent between mid-1997 and the end of the year.
During the crisis, the Indonesian, Republic of Korea and Thai Governments requested
the IMF to arrange rescue packages to meet their short-term debt servicing obligations, and
were forced to implement painful and controversial structural and institutional reforms.
Real GDP growth in the region slowed significantly in the crisis. Output in the industrial
production of the severely hit economies was about 25 percent below what it had been just a
year earlier. Even after exchange rates started stabilizing, growth in most economies in the
region remained sluggish and substantially below the pre-crisis trend. A number of factors
contributed to the poor growth performance.
Domestic corporations access to financing was severely reduced as a result of
continuing problems in the financial sectors and of the withdrawal of international
capital. (Indonesia, the Republic of Korea, Malaysia, Philippines, and Thailand had
together recorded a total net private capital outflow of $11 billion in 1997, as compared
to a total net capital inflow $72.9 billion in 1996).
High interest rates and austerity budgets set either by the IMF or by the governments
themselves in order to defend their currencies severely affected economic
performance.
A marked negative wealth effect brought about by sharp drops in stock and property
prices significantly dampened aggregate demand.
In addition to the slowdown in economic growth rate, the unemployment rate in the
Republic of Korea increased from 2 percent in 1996 to 6.8 percent in 1998, from 2 percent to
6.5 percent in Thailand, and shockingly from 2.3 percent to 17.1 percent in Indonesia in the
same period. The urban poor workers that lost their jobs were the worse affected group.
Meanwhile, many corporations became bankrupt, leading to losses of social and organizational
capital.
However, it is interesting to note that the severity of the crisis differed greatly among
East Asian economies. Indonesia, the Republic of Korea, and Thailand were the hardest-hit
countries. In addition to the devaluation, banking crisis, and depression, they also had a
payment crisis and required rescues from international organizations to meet their short-term
payment obligations. The rescue packages came with controversial conditionalities. Malaysia
also had a sharp devaluation, banking crisis, and depression during the crisis but it did not have
to seek international rescue to meet its short-term payment obligations. Singapores currency
devalued but its gross domestic product (GDP) growth rate was 1.5 percent in 1998. The
Philippines GDP declined only slightly in 1998, by 0.5 percent. In spite of several speculative
attacks on Hong Kong, Chinas currency, it was able to maintain its peg to the US dollar,
although its real GDP had a 5.1 percent growth rate in 1998. Taipei, China had a moderate
devaluation of 15 percent in 1997 but its real GDP maintained positive growth throughout the
crisis and reach 4.8 percent in 1998. Finally, the PRC did not devalue its currency and
maintained 7.8 percent growth rate during the crisis.
UNDERLYING CAUSES OF THE CRISIS

The Asian crisis distinctive feature was its rapid development from initial speculative
currency attacks into a full-scale financial, economic, and social crisis, and the subsequent
widespread contagion across the region and beyond. The vulnerability of the Asian economies
was largely unexpected in view of their solid growth record during the past decade, particularly
in the cases of Indonesia, the Republic of Korea, Malaysia, and Thailand.
The sudden and wide contagion of the crisis can only be understood in light of the
integration and intrinsic instability of international financial markets. Without this factor, the
extent and severity of the crisis cannot be adequately explained. Technological changes have
greatly reduced the costs in transportation and communication and become a driving force for
global integration. Between 1985 and 1994, the average annual growth rate of real GDP of the
world as a whole was 3.2 percent, and international trade increased twice as fast, reaching 6.7
percent per year. Gross capital flows expanded even faster, increasing at 14.3 percent per year
for direct foreign investment and 12 percent for international bank loans. Asian economies were
among the largest beneficiaries of international financial integration. Total net private capital
inflows to Asia were $19.1 billion in 1990, increasing to $110.4 billion in 1996. However, due to
the following factors, the international financial markets are intrinsically unstable:
Sudden Shifts in Market Expectations and Confidence

Many international lenders and investors were either new to Asia or only significantly
expanded their exposure in the area in the 1990s. They had built up expectations and
confidence about Asian countries and borrowers during this period without having conducted
sufficient due diligence. Once the weaknesses in the economies and institutions became
known, their expectations shifted suddenly, leading to widespread panic and massive
withdrawals of capital. IMF statistics show that in 1996, total net private capital inflows into Asia
reached a record high of $110.4 billion, of which the five most affected countries accounted for
$72.9 billion. In 1997, net private capital inflows to Asia dropped to $13.9 billion. The five most
affected countries experienced a net outflow of $11 billion. Only a significant net inflow of official
loans to these countries, plus continued net inflows of foreign direct investments and portfolio
investments, were able to partially offset a net outflow of $32.3 billion in the other areas
(primarily bank loans).
Advances in Capital Market Technology and Financial Products

One factor contributing to instability in capital markets is technological advancement.
The application of technology in the markets and the globalization of financial institutions has
allowed players in international capital markets to move substantial amounts of funds across
borders and around the world almost instantly, thus creating the possibility of massively
disrupting the markets. In addition, new financial products, such as derivatives, have flourished
in recent years. While these new products allow participants to reduce risk, they can also create
exposures that make them more vulnerable. They also provide more opportunities for
speculation in the market and can contribute to its instability. Prior to the onset of the crisis, the
widespread application of many of these products with banks, clients, and even regulators
lacking a clear understanding of the extent of the possible risks involved increased to
unprecedented levels the magnitude of risk in the markets.
Extensive Use of Leverage

The frequent and often extensive use of leverage allowed market participants to take
large positions in the market, and contributed to market instability. Leverage was widely used in
the Asian and global capital markets. A prominent example of the extent of risks involved was
the case of Long-Term Capital Management LP (LTCM) in Korea which was reported to have
leveraged by more than 20 times. Largely as a result of this level of leverage, the magnitude of
LTCMs market positions was such that there was serious concern as to whether its collapse or
any uncontrolled unwinding of its positions would trigger a system risk in global financial
markets. As a result, a $4 billion rescue package had to be put in place in September 1998 to
ensure its continued survival. A subsequent report commissioned by the US Government in the
aftermath of the LTCM incident revealed that hedge funds were not alone in using leverages
extensively. The report estimated the leverage levels of the top five US investment banks to
average 27 times, even higher than that of LTCM.
The above intrinsic instability of the integrated international financial market made the
swift contagion of any financial crisis possible. However, the start and the differences in the
severity of crisis in each individual economy can only be explained by the fundamental
weaknesses of each individual economy. With hindsight, it has started to become apparent that
weaknesses at both the macroeconomic and the microeconomic levels were emerging towards
the mid-1990s in the crisis-hit economies. Some of the key weaknesses were as follows.
Deteriorating Terms of Trade and Emerging Current Account Deficits

Trade has been a major source of growth among Asian countries. Trade increased
considerably in East Asia over the three decades prior to the crisis. As a share of GDP, trade
rose from 15 percent in 1970 to more than 50 percent in 1995. Exports reached a peak during
first quarter of 1995. Export growth (in US dollars) reached more than 20 percent in the
Republic of Korea, Malaysia, and Thailand, and 12 percent in Indonesia. Starting in the latter
part of 1995, however, growth began to decelerate rapidly. By 1996, export growth had slowed
to 4 percent for Republic of Korea, 6 percent for Malaysia, and 9 percent for Indonesia, and it
actually contracted 1 percent in Thailand. By 1996, current-account deficits reached about 3
percent of GDP in Indonesia, about 5 percent in Korea, about 6 percent in Malaysia, and about
9 percent in Thailand (although Malaysia and Thailand had already experienced large current-
account deficits during the past decade). However, as Table 1 shows, economies that were less
affected by the crisis, such as PRC, Singapore, and Taipei, China, all had better performances
in the current account balance of payments.
Table 1: Balance of Payment on Current Account (US$ million)

Economy 1992 1993 1994 1995 1996 1997
PRC 6,401 -11,609 6,908 1,618 7,243 20,000
Indonesia -2,780 -1,944 -2,790 -6,431 -7,660 -5,713
Korea, Rep. of -3,939 1,016 -3,855 -8,250 -23,061 -8,840
Malaysia -2,167 -2,991 -4,520 -7,362 -4,964 -5,384
Philippines -858 -3,016 -2,950 -3,287 -3,914 -4,328
Singapore 5,653 4,417 12,226 14,449 14,283 14,630
Taipei, China 8,547 7,042 6,498 5,474 11,027 7,721
Thailand -6,304 -6,364 -7,802 -13,207 -14,351 -6,272
Source: own compilation
Increasing Reliance on Global Capital Markets to Finance Growth

The fast growth of the Asian economies during the period 1990-1997 coincided with the
rapid expansion of global capital markets and the increasing flow of capital to the emerging
markets. During the same period, the volume of private capital flows to developing countries
rose from $42 billion in 1990 to $256 billion in 1997, growing by nearly 30 percent annually. IMF
sources revealed that net private capital inflow for the five most affected Asian countries rose
from $24.9 billion in 1990 to $35.1 billion in 1994, and then rapidly expanded to $62.9 billion in
1995 and $72.9 billion in 1996. As shown in Table 2, the hard-hit economies relied much more
heavily on the foreign debt to finance its growth than the slightly-hit economies.
Table 2: Foreign Debt as a Percent of GDP
Economy 1990 1991 1992 1993 1994 1995 1996
PRC 14.26 14.84 14.99 14.35 18.38 16.60 15.44
Hong Kong, China 16.80 14.84 14.99 14.35 18.38 16.60 15.44
Indonesia 65.89 68.21 68.74 56.44 60.96 61.54 56.74
Korea, Rep. of 13.79 13.51 14.34 14.18 14.32 23.80 28.40
Malaysia 35.80 35.48 34.51 40.74 40.40 39.31 40.06
Philippines 69.02 71.45 62.29 66.09 62.42 53.21 49.75
Singapore 11.23 11.07 9.47 9.45 10.79 9.84 10.74
Taipei, China 11.04 10.73 9.37 10.44 10.87 10.40 10.07
Thailand 32.80 38.38 37.51 34.10 33.31 33.78 50.05
High Short-term Debt to Foreign Reserve Ratio

The effective peg of most Asian currencies to the dollar encouraged short-term and often
unhedged borrowings. The high weighting of short-term foreign bank debt within this capital
inflow rendered the economies vulnerable to any sudden reversal. One indication of this
vulnerability was the ratio of short-term foreign debt to foreign-currency reserves, as shown in
Table 3. The three countries that needed to seek international rescues were the countries with
the highest short-term debt to foreign reserve ratio, the Republic of Korea reaching 203.23
percent, Indonesia 176.59 percent, and Thailand 99.69 percent in 1996. Therefore, when the
reversal in the international capital flow occurred, these three countries were unable to meet
their debt servicing obligations and to accept the rescue packages from the IMF.
Table 3: Short-term Debt as Percent of Foreign Reserve

Economy 1990 1991 1992 1993 1994 1995 1996
PRC 31.49 24.68 66.76 68.33 33.04 29.62 23.74
Hong Kong, 23.52 21.78 18.38 17.09 16.49 14.16 22.35
China
Indonesia 149.28 154.62 172.81 159.70 160.36 189.42 176.59
Korea, Rep. of 72.13 81.75 69.62 60.31 54.06 171.45 203.23
Malaysia 19.54 19.05 21.12 25.51 24.34 30.60 40.98
Philippines 479.11 152.31 119.37 107.68 95.00 82.85 79.45
Singapore 2.65 2.67 2.35 2.04 1.75 1.78 2.60
Taipei, China 21.56 20.21 21.00 23.64 21.76 21.64 21.31
Thailand 62.55 71.31 72.34 92.49 99.48 114.21 99.69
Inadequate Regulation and Supervision in the Financial Sector

A large portion of the capital inflow from international markets was intermediated through
domestic banking systems, particularly in the Republic of Korea, Thailand, where financial
institutions had borrowed heavily in foreign currencies. Asian countries had generally
implemented financial reforms in order to cope with the requirements of rapid economic growth.
However, significant weaknesses continued to plague the regulatory and supervisory areas.
Financial institution governance was weak, often leading to heavy direct or indirect influences by
government policies. In addition, the institutional development of the financial sector was
general lagging behind. Much of the credit was either evaluated on a collateral rather than a
cash-flow basis, or provided on the basis of the borrowers relationships to governments or bank
owners. Against this background of weak regulatory and supervisory frameworks and loose
market discipline, some of the countries attempts at liberalizing their financial sectors actually
left the sector exposed to the instabilities of the international financial markets and rendered it
even more vulnerable.
Bubble in Stock Market and Real Estate Sector

The combination of financial-sector liberalization and international capital inflows led to
high liquidity and rapid credit expansion in many Asian countries, where the rapid credit
expansion had led to overinvestment and to speculation in the real estate sector as well as in
stock markets in the early 1990s.
Thailand is a good example. In the 1990s, Thai finance companies mainly used loans
borrowed from foreign financial institutions to sharply accelerate their lending to the real estate
and property sector and drove up the stock and real estate prices. In Malaysia, the banking
problems were less serious until 1995. However, there was an overall increase in bank lending
by 27.6 percent, with a sharp switch from lending to the manufacturing sector to lending for
equity purchases. The growth rate of former dropped from 30.7 percent in 1995 to 14 percent in
1996 and the latter from 4 percent in 1995 to 20.1 percent in 1996. The increased availability of
loans sharp drove up asset prices in 1996. When the stock and real estate declined many of the
bank loans, collaborated by stocks and real estates, become bad loans and made the banking
systems very fragile.
High Leverage Among Corporations

Another distinguishing feature of the hard-hit countries in the crisis was their
corporations high level of leverage, as shown in Table 4.
Table 4: Debt to Equity Ratio in 1996

Economy Mean Median
Hong Kong, China 1.56 1.42
Indonesia 1.88 1.83
Korea, Rep. of 3.55 3.25
Malaysia 1.18 0.90
Philippines 1.29 0.93
Singapore 1.05 0.81
Taipei, China 0.80 0.74
Thailand 2.36 1.85
The high leverage ratios within the corporate sector in the hard-hit countries were in
many ways the outcome of these countries growth strategies and government policies. The
countries generally pursued aggressive capital intensive and/or export-oriented strategies as the
basis for economic growth. The capital intensive industries and/or exporters were often provided
with incentives such as credit facilities, subsidized loans, and tax breaks. This was most
prominent in the case of the Republic of Korea, where corporate leverage levels were generally
the highest. A World Bank study in 1993 reported that in order to promote the heavy and
chemical industries, for example, the Republic of Korea Government provided high levels of tax
exemptions and directed banks to extend preferential policy loans to the sector. It was
estimated that during the height of the governments promotion effort in 1977, 45 percent of the
total domestic credit of the banking system (which was at that time substantially owned and
controlled by the Government) was directed towards supporting the heavy- and chemical-
industry sector. Even though the promotion was later abandoned during 1979-1981, policy-
related lending continued within the banking sector. It has been estimated that in 1993, about 40
percent of total domestic credit in the Republic of Korea was still policy related. The exporters
retained earnings were often too low to adequately fund their increasing financing needs as they
expanded and upgraded equipment in order to move up the technology ladder and remain
competitive in global markets. As a result, the banking sector served primarily as a funding
channel for exporters, corporations had to borrow increasingly larger amounts of bank debt and
sharply raise their leverage levels.
LESSONS LEARNED
In the three decades before the recent financial crisis, the East Asian economies export-
oriented market-friendly development strategy was claimed to be an underdeveloped economys
model for economic development. The unexpected East Asian financial crisis has prompted us
to rethink whether the model is appropriate, especially in view of the intrinsic instability of the
global financial market.
Admittedly, growth in the East Asian economies in recent years has been fuelled to a
large extent by the inflow of international capital as the globalization of capital markets has
gathered momentum. While this enabled the economies to keep up their fast pace of growth, it
also rendered them vulnerable to the ebb and flow of international capital. A massive withdrawal
of foreign capital could create a widespread financial and economic crisis. From this experience,
a number of lessons can be drawn.
Foreign direct investment, which is relatively stable, is more favorable than short-term
capital flow, which is very volatile. Moreover, foreign direct investment in most cases
comes with a package of management expertise, technical human capital, product and
process technologies, and overseas marketing channel. All of those accompanying
factors are as important for economic development as the funds themselves.
Therefore, when an economy liberalizes its financial market, it is imperative to create a

policy framework, that encourages foreign direct investment and long-term capital
inflow and discourages short-term loans.
Many of the short-term capital inflows in hard-hit economies were used to finance the
investment in stock and real estate markets, causing overheating in these markets. If
the banks are allowed to use a large portion of loans to finance stock and real estate
investments, any bursting of stock and real estate bubble will cause the loans to
become bad and make the banking system fragile. Besides a banking crisis, it may
reverse internal capital flows and trigger a currency crisis. To prevent bubbles and
financial crises, it is important for an economy to strengthen banking regulation and
supervision over bank loans when an economy liberalizes its capital markets.
Globalization of financial markets is a trend. However, facing the same intrinsic instability
of the international financial markets, Hong Kong, China; Singapore; and Taipei, China were
only mildly affected by the crisis. In addition to their better banking supervision and regulations,
these three economies share some common characteristics: first, their trade and current
account balances were in surplus in the 1990s (see Table 1); second, their foreign debt to GDP
ratios were low (see Table 2); and third, the stock of their foreign reserves was relatively large
and their short-term debt to foreign reserve ratios were comparatively low (see Table 3).
The East Asian economies all pursued an open, outward-oriented development strategy.
Why did Hong Kong, China; Singapore; and Taipei, China possess the above three
characteristics whereas the other hard-hit economies did not, although they all followed a
seemingly similar strategy? The key may lie in these three economies better observation of
their economies comparative advantages.
Openness and outward orientation in these three economies were a way to make full
use of their economies comparative advantages instead of being an end in itself. Because their
development followed more closely along the lines of their comparative advantages, their
firms/industries would be more competitive in the international markets. Therefore, their
economies had a better balance of payment performance and had larger stocks of foreign
exchange reserves. Their firms would also be more profitable in domestic and international
markets. When their firms engaged in expansions and/or technological upgrading, they could
rely more on own accumulated profits and less on external funding to finance the projects.
Therefore, their firms had less leverage and their economies had less external debts.
In contrast, the hard-hit economies seemed to take the outward-orientation as a goal by
itself and develop their economies beyond what determined by their economies comparative
advantages. Therefore, although they exported large portions of their GDP, their industries were
not competitive in the international markets and current account surpluses were small or
negative. The profits of their firms were low and the upgrading or expansions of their firms relied
heavily on external financing, resulting in high leverage and large external debt. Moreover, the
industries that are not consistent with an economys comparative advantages are not viable. To
support the development of nonviable industries, the governments need to intervene directly in
the allocation of financial resources and provide other administrative supports as well to firms in
the industries, opening the door for all kinds of rent-seeking behavior. The cronyism observed in
the hard-hit economies was a result of the governments intervention in the resources allocation.
In an open economy, international capital markets are quick to punish countries that
pursue policies that are perceived to be incompatible with macroeconomic sustainability. For an
economy to develop along the lines of its comparative advantages, the main policies are a
liberalized market system so that prices can fully reflect the relative scarcity of a factor of
production, and an information-providing, rule setting/enforcing, and externalities compensating
government. Such policies will contribute to macroeconomic stability and sustainability.
Moreover, if a densely populated economy develops along the lines of its comparative
advantages, labor-intensive industries will be developed first and upgrade to more capital-
intensive industries only when the resource endowment structure upgrades. Such a
development path will create more jobs to absorb the large labor resources, resulting in a
favorable income distribution, reduced social cleavage, and contributing to political stability,
which is also essential for the successful development of an economy.
It was a trend after World War II for developing countries to adopt a certain type of
development strategy, such as development that was heavy industry-oriented and relied on
import-substitution, which attempted to leapfrog the industrial structure determined by the
economys comparative advantage. Therefore, there are many policy legacies in the developing
countries, which make their economies vulnerable to a sudden liberalization, especially capital
market liberalization. Institutional reforms and strengthening are necessary for those countries
development. However, the pace and sequencing of reforms should be determined by each
countrys particular situation. The PRC is a case in point. The reason that the PRC was able to
maintain its exchange rate and a high growth rate during the Asian financial crisis was because
its currency was not convertible and its capital account was not liberalized. Therefore, the PRC
was able to insulate itself from the contagion and shield itself from speculative attacks.
Finally, financial crisis may not be completely predictable and be preventable. When a
crisis occurs, in general the urban poor suffer the most. Therefore, governments must adopt
alleviation policies aimed at the poor during such crises.
E. Pernia: Social Consequences of the Financial Crisis in Asia 21
THE DEEPER CRISIS:

SOCIAL CONSEQUENCES OF THE FINANCIAL CRISIS IN ASIA6
INTRODUCTION
The Asian financial crisis quickly led to marked contractions in GDP and employment in
the affected economies. GDP shrinkages in 1998 ranged from nearly 14 percent in Indonesia to
0.5 percent in the Philippines. In turn, these resulted in adverse social consequences. Although
there are signs that the worst of the financial crisis is over, the social impacts can be expected
to persist long after the crisis economies will have returned to solid growth.
This paper derives from a study that assesses the social impact of the crisis, based on
data drawn from available recent surveys, and supplemented by primary information gathered
from local communities and households using participatory methods.7 The countries included in
the study are Indonesia, Republic of Korea, Lao Peoples Democratic Republic (Lao PDR),
Malaysia, Philippines, and Thailand. The social impacts of the crisis can be gauged mainly in
terms of changes in prices and assets, employment, incomes, income distribution and poverty,
education, health, social capital, and environment.
SOCIAL IMPACT
Prices and Assets

The currency devaluations that signaled the onset of the crisis exerted an almost
immediate upward pressure on the prices of imported goods and services or goods with a high
import content. While inflation was moderated in some cases by government subsidies, price
controls, and by additional imports of necessities, inflation skyrocketed in most Asian countries.
For example, Indonesias consumer price index jumped to nearly 60 percent in 1998 from 6.6
percent in the previous year. In Lao PDR, inflation hit 90 percent, while in the Republic of Korea
it climbed to 7.5 in 1998 percent from the previous years 4.5 percent. Since food prices
generally increased more rapidly than non-food prices, the impact of inflation was harsher on
the poor. Inflation not only clipped purchasing power but, along with the collapse of stock
markets and banks, also drastically reduced the real value of the lifetime savings of households.
Employment and Incomes

Unemployment rates increased in all countries, with the largest increase recorded in the
Republic of Korea, from 2.3 percent in 1997 to 7.4 percent in 1998. In the Philippines,
unemployment rose from 7.9 to 9.6 percent, and in Malaysia, 2.5 to 3.9 percent. However, the
unemployment rate can be a misleading indicator, particularly during a crisis because it does
not reflect dropouts from the labor force (also referred to as discouraged workers). In the
Republic of Korea, for example, changes in unemployment rates give the appearance that
males were more adversely affected than females (i.e., male unemployment rate increased from
6
This paper was presented at the Manila Social Forum by Ernesto M. Pernia, Lead Economist of the Asian
Development Bank in Manila, Philippines.
7
Pernia and Knowles (1998) and Knowles, Pernia, and Racelis (1999), based on an ADB regional technical
assistance study (RETA 5799).
2.8 to 7.7 percent while female unemployment rate increased from 2.3 to 5.6 percent). However,
female labor force participants declined by 3.8 percent, while the male labor force increased by
1 percent (Moon, Lee, and Yoo, 1999).
Chart 1: Percentage Changes in Real Earnings Per Worker, 1997-1998
0
-1.0
-5
-10
-10.5
-15
-20
-21.0
-25
-27.0
-30
Thailand * Indonesia Korea, Malaysia
* wet season (August) R f
Sources: Pongsapich and Brimble (1999); Sigit and Surbakti (1999); Moon, ete al, (1999)
l. and Piei (1999)
Decreases in real earnings have occurred in all countries and have been more important
in labor market adjustment during the crisis than either unemployment or decreases in the
number of hours worked. The negative employment and earnings effect has been typically more
severe in urban areas than in the countryside. Moreover, the crisis has affected some regions
more than others. In Indonesia, it is clear that the impact of the crisis was worse in Java, where
about two thirds of the population live and which was previously relatively prosperous. In
Thailand, the impact has been much worse in the relatively poor Northeast region, although part
of the problem there can be linked to drought.
The construction sector and, to a lesser extent, the manufacturing sector were
negatively affected in all countries. By contrast, employment increased in the agriculture and
service sectors in many countries. In Lao PDR, there is evidence that the steep currency
devaluation led to an agricultural boom, with Lao farmers exporting large quantities of their
relatively inexpensive produce to Thailand through informal channels (Chamberlain, 1999). The
informal sector share of total employment increased in Indonesia and the Republic of Korea, but
it decreased in Thailand.
The gender employment impact of the crisis is not completely clear. Although women
fared significantly worse in the Republic of Korea, and probably also in the Philippines and
Thailand, the picture is mixed in the other countries. In Indonesia, for example, the female
unemployment rate appears to have increased by 14 percent between 1997 and 1998,
compared with a 27 percent increase among males, while female employment increased by 4.2
percent, compared with a 1.7 percent rise among males (Sigit and Surbakti, 1999).
Nevertheless, these comparisons do not reflect the additional burdens that women continued to
carry beyond the workplace
Youth (ages 15-29) have been most negatively affected by the employment and
earnings impact of the crisis. In the Republic of Korea, employment declined by more than 14
percent among persons ages 15-29, while it declined by less than 1 percent among those ages
30-49 (Moon, Lee, and Yoo, 1999). Elderly workers were also more negatively affected in
Indonesia and the Republic of Korea, and probably also in Thailand, but they appear to have
fared relatively well in the Philippines. More educated workers have been less hurt by the crisis
in Republic of Korea, Philippines, and Thailand, while the available evidence is conflicting in
Indonesia.
The number of migrant workers leaving Indonesia increased by 392 percent, and the
value of remittances flowing into the country also rose sharply (171 percent) between 1997 and
1998. For the Philippines, departing migrant workers rose by only 1 percent compared with a 13
percent increase in the previous period, while the dollar value of remittances fell by 13 percent.
Meanwhile, the predominantly labor-importing countries of Republic of Korea, Malaysia, and
Thailand used various measures to encourage the repatriation of illegal migrant workers.
Real per capita household income declined between 1997 and 1998 by 20 percent in
Korea, and by 12 percent in the Philippines. In Indonesia, real per capita household expenditure
fell by 24 percent.
It is likely that the crisis has also significantly affected some forms of non-labor income.
Interest income has probably been affected, positively by the steep interest rates used by
central banks to stabilize exchange rates, and negatively by the failure of many financial
institutions and corporate borrowers to meet interest payments. Rental income has also
probably been reduced by low occupancy rates and by the inability of many tenants to pay their
rent. Profits and other forms of business income, which tend to be very sensitive to cyclical
fluctuations in business activity, probably also declined sharply.
Income Inequality and Poverty

Income inequality appears to have increased in some countries in conjunction with the
crisis. The income share of the rich has increased from 20.5 to 22.5 percent in Thailand, from
22 to 24.5 percent in the Republic of Korea, and from 39.3 to 42.9 percent in the Philippines. By
contrast, in Indonesia, data on changes in household expenditure suggest that the size
distribution of income has improved.
Poverty incidence has also increased in the crisis countries. In Indonesia, poverty
increased sharply from 11 percent in 1996-97 to 24 percent in 1998-99, but much less than
many had predicted. In the Republic of Korea, the poverty rate more than doubled, from 3 to 7.5
percent.8
The intra-country regional distribution of income has also been affected by the crisis. In
Thailand, metropolitan Bangkok and the Central region improved relatively during the crisis
while other regions worsened, especially the Northeast region. In Indonesia, the data clearly
indicate that the worst impact of the crisis was in Java.
Education
Education budgets were cut in all of the crisis countries except Malaysia. Cuts have
been particularly sharp in the Philippines and Thailand. Budget cuts have generally spared the
8
The poverty line in the Republic of Korea is a relatively generous $7 per day. However, the reported estimate is
based on a workplace survey of employed urban workers (i.e., it does not include the unemployed or self-
employed).
personnel line item and have instead fallen mainly on such traditionally under-budgeted line
items as teaching materials and maintenance. In addition to budget cuts, schools have had to
contend with reductions in off-budget sources of revenue (fees from parents and community
contributions). As a result, dropout rates have increased in most countries and rates of entry
into grade one and continuation rates from one level to the next have declined more than overall
enrolment. There is no strong evidence yet that the crisis has led to reduced primary school
enrolments. However, it has already had negative effects on secondary school enrolment --
particularly among girls and among the poorin all countries for which data are available. The
crisis has led to increased enrolment at the tertiary levels in several countries. This reflects not
only reduced employment opportunities among youth but also the availability of crisis-related
government scholarship and loan programs, as well as devaluation-induced shifts away from
overseas to domestic schools (particularly in Malaysia).
Health and Family Planning

Public health budgets in real terms have declined significantly in all countries, except
Malaysia. Whereas personnel line items have been protected in most cases, the availability of
medicines has decreased noticeably, particularly in Indonesia and the Philippines. Public health
facilities have also contended with steep reductions in off-budget sources of revenue (user fees,
charitable and community contributions). As a result, the utilization of public health facilities has
increased in all countries except Indonesia, reflecting significant shifts of consumers from
relatively expensive private providers to less expensive public health facilities. Household
expenditure on health care has declined sharply in real terms in Indonesia, Republic of Korea,
and Thailand. Although the cost of medical care has increased more rapidly in some countries
than the overall rate of inflation, it appears also that households delay or avoid medical care as
one of their coping mechanisms during the crisis. While there is no evidence yet that
immunization coverage has declined in any country except the Philippines, and no consistent
signs yet of increased calorie malnutrition, there are many reasons to believe that such
evidence will appear as time goes on. For example, there is already some evidence of
micronutrient deficiency in Indonesia.
Especially Disadvantaged Groups

Although the employment and income impact of the crisis has not been
disproportionately heavier on the poor than on other groups, the poor have suffered more from
its impact because their low incomes and education provide them with fewer options for coping
with the crisis. Some of the major effects of the crisis on disadvantaged groups are as follows.
Women have had to add income-earning activities to their already heavy work burdens at home
and on family farms. Institutionalized populations and children in orphanages and boarding
schools designed to serve ethnic minorities have been severely affected by the crisis in Lao
PDR and Thailand due to reductions in government budgets, high inflation and reductions in
charitable donations. Overseas migrants working in other Asian countries have been harmed,
both by reductions in employment opportunities and by currency devaluation. On the other
hand, migrants working outside the region have benefited both from more stable employment
opportunities and from hard-currency appreciation. Urban populations have been more
adversely affected by the crisis than have rural populations in all countries except Thailand.
RESPONSES TO THE CRISIS
Household Coping Mechanisms

Households have responded to the crisis in a variety of ways, including altering their
consumption and savings behavior, borrowing and selling assets, postponing rental payments
and debt repayments, increasing work effort, migrating to other areas or countries to obtain
employment, and shifting from private to public providers of social services. In most of their
coping ways, households have given more emphasis to satisfying current as compared to future
needs. Whereas some of these adjustments are unlikely to have any negative long-term effects
(e.g., postponing the purchase of consumer durables, substituting cheaper staples for more
expensive foods), others may have deleterious consequences, including reducing health care
expenditures and taking children out of school to save money. Such potentially harmful
household coping mechanisms help to explain why an appreciable delay occurs between the
economic crisis and its social impact.
Government Responses
One of governments most important crisis-coping mechanisms involves reallocating its
budget, usually shifting funds away from infrastructure investments and national defense to
meet more immediate needs, such as the salaries of government personnel, basic social
services and social safety nets, recapitalization of financial institutions, and repayment of foreign
debt. Often, governments have sought the assistance of multilateral and bilateral agencies for
their social safety net programs. Policy reforms (e.g., shifts to more targeted forms of support)
have typically been part of the assistance agreements.
CONCLUSION AND IMPLICATIONS

The Asian financial and economic crisis has already exerted a wide range of negative
social impacts in most of the affected countries. In addition, there are good reasons to expect
that the social crisis, as distinct from the economic crisis, has not yet peaked in severity. There
is a danger, therefore, that improving economic conditions may lull observers into thinking that
social conditions have recovered when they may in fact be worsening. Yet the Asian crisis also
provides a unique opportunity to learn how social systems function under duress. The crisis has
revealed that considerable effort needs to be directed to the setting-up or further development of
social safety nets throughout the region. This is especially because traditional family systems of
support are likely to weaken over time, given continuing socio-economic change and
urbanization. Shared povertya common theme of community and household coping
mechanisms during the crisishas its limits.
A number of lessons emerge:
Many of the subsidies currently provided in the region are untargeted and do little to
promote equity. Due to the limited funds available, particularly during a crisis, it is
important to channel as much as possible to those in need.
The crisis has placed heavy strains on public health and school systems, as many
have shifted from private to public providers at a time when public budgets were being
cut. Facilities became crowded, and quality declined.
The employment impact of the crisis has fallen more heavily on youth, especially
females and new entrants into the labor force. There is a tremendous need for
upgrading of the skills of most of the regions workforceparticularly its female

workforce.
Crisis monitoring systems are in need of further development in most countries.
Existing statistical systems have evolved mainly to meet the needs of long-term
planning. They are ill-equipped to provide timely data on the social impact of an
economic crisis.
REFERENCES
Asian Development Bank. 1999. Asian Development Outlook 1999. Hong Kong: Oxford University Press.
Chamberlain, James. 1999. The Social Impact of the Economic Crisis in the Lao PDR. Paper prepared
for the Asian Development Bank (May).
Knowles, James C., Ernesto M. Pernia, and Mary Racelis. 1999. Social Consequences of the Financial
Crisis in Asia, ADB Economic Staff Paper Number 60. Economics and Development Resource
Center. Manila: Asian Development Bank (November).
Moon, Hyungpyo, Hyehoon Lee and Gyeongjoon Yoo. 1999. Social Impact of the Financial Crisis in
Korea: Economic Framework. Paper prepared for the Asian Development Bank (June). Seoul: Korea
Development Institute.
Pernia, Ernesto M. and James Knowles. 1998. Assessing the Social Impact of the Financial Crisis in
Asia, EDRC Briefing Note Number 6. Economics and Development Resource Center. Manila: Asian
Development Bank (November).
Piei, Mohd. Haflah, Musalmah bt. Johan and Syaris Yanti Abubakar. 1999. The Social Impact of the
Asian Crisis: Malaysian Country Paper. Paper prepared for the Asian Development Bank (June
1999).
Pongsapich, Amara and Peter Brimble. 1999. Assessing the Social Impacts of the Financial Crisis in
Thailand. Paper prepared for the Asian Development Bank (June).
Poppele, Jessica, Sudarno Sumarto and Lant Pritchett. 1999. Social Impacts of the Indonesian Crisis:
New Data and Policy Implications. Draft report (May). Jakarta: SMERU.
Reyes, Celia M., Rosario G. Manasan, Aniceto C. Orbeta and Generoso G. de Guzman. 1999. Social
Impact of the Regional Financial Crisis in the Philippines. Paper prepared for the Asian Development
Bank (June).
Sigit, Hananto and Sudarti Surbakti. 1999. Social Impact of the Economic Crisis in Indonesia. Paper
prepared for the Asian Development Bank (May).
G. Macapagal-Arroyo: Beyond the Asian Crisis: The Centrality of Social Policy 27
BEYOND THE ASIAN CRISIS: THE CENTRALITY OF SOCIAL POLICY9
SOCIAL IMPACT OF THE ASIAN CRISIS

The immediate and even medium-term future of Asia seems clear, at least in economic
terms. The region is on the way to recovery. There may be some snags here and there, but it
seems likely that the regions economies will be humming again as its inhabitants resume
consuming and investing at a faster pace. The V-shaped trajectory of the East Asia economies,
although with varying slopes across countries, seems to be the common expectation in the next
two or three years. But if we are to succeed beyond the crisis, one of the most important areas
where a change in thinking and policy direction is crucially needed is investing in human capital
and bringing up large segments of our populations from poverty, in other words, social policy.
The hardest impact of the Asian crisis fell on the poor and vulnerable sectors of our
societies. The most immediate task, therefore, is to mitigate this impact and to ensure that the
harm done by the crisis will not have a permanent and cascading impact on future generations.
A poor student thrown out of school by the crisis would be unable to land a decent job and
therefore in turn would not be able to afford schooling for his own children. Children unable to
get sufficient nutrition and health care now would likely pass on the burden of poor productivity
to future generations. Mitigating the social impact of the crisis is difficult enough. But it is even
more difficult to effect lasting improvements in the productivity of a countrys main resourceits
peoplethrough provision of sufficient social services such as education, health, and nutrition.10
INVESTING IN SOCIAL SOFTWARE

Investments in human capital and so-called social software will become more and
more important in the post-crisis scenario. Growth in the region in that past has been mainly
fuelled by investments in hard capitalplant and equipment, and infrastructure. Spending on
basic services were considered more as transfers to the poor, as part of the governments social
mandate. Every amount taken away from hard investments and moved into social services was
considered an opportunity cost for furthering growth. We now know better. Social spending and
investments in human capital are now recognized as key and core of development. Social policy
is now considered as central policy.
This realization takes on new meaning today as we realize that foreign direct
investments are no longer attracted to a country mainly by access to markets, but rather by
production advantages, such as the presence of skilled and competent staff resources.
Moreover, the knowledge-intensive industries, mainly information technology, are still the wave
of the future. The increasing weight that these industries now bear in Asian exports overall
reflects this trend. This means that to be able to maximize this sector as the main driver of
growth, these countries will have to make substantial investments in higher-level education,
training and research. A large and growing pool of educated and technically equipped workers
can be a major, if not the main, driving force for sustained economic growth.
9
This paper was written by Vice-President and Secretary Gloria Macapagal-Arroyo. Ms. Macapagal-Arroyo is the
Vice-President of the Philippines and the Secretary of the Department of the Social Welfare and Development of
her country.
10
The Department of Social Welfare and Development (DSWD), appreciates ADB and World Bank support for the
Early Childhood Development Program, a $59.9 million project that represents the first time that the DSWD has
been able to take the lead in a major foreign-assisted project. It is hoped this program can be expanded from the
three regions in which it is operating today, to the entire Philippines.
BROAD-BASED, SUSTAINABLE, AND EQUITABLE GROWTH

For growth to be sustainable in the long-term, it must be broad-based. We speak of
global integration and regional integration. But in many countries of Asia, the lack of internal
integration is still a major concern. Thus we see large pockets of underdevelopment side by side
with enclaves of rapid growth. This is similar to the dual economies of older paradigms of
underdevelopment. It will be difficult to achieve sustained growth in a situation where there are
wide discrepancies in regional development within a country. Serious problems are bound to
arise such as urban congestion, debilitating rural poverty, environmental problems, and political
tensions.
SOCIAL POLICY IN THE PHILIPPINES

Social policy is central to the current Philippine administration under President Joseph
Ejercito Estrada. The Medium-Term Philippine Development plan for the period 1999 to 2004
envisions a sustainable development path anchored on growth with social equity. The overall
achievement of this vision will be measured in large part by a reduction in poverty, especially in
the rural areas, and in improvement in the distribution of income. We target the reduction in the
number of poor families and the incidence of poverty, from 32 percent in 1997 to between 25
and 28 percent by 2004. We also would like to achieve greater access of the disadvantaged to
government institutions, and a larger contribution of rural areas and regions outside of the
National Capital Region to economic growth. These will be the measurable indicators that will
be used to assess performance in carrying out the vision of the Medium-Term Philippine
Development Plan.
In support of the overarching vision, the Medium-Term Philippine Development Plan is
directed towards the acceleration of rural development by modernizing the agriculture and
fishery sectors and expanding nonfarm income opportunities of rural households. It is also
directed towards the delivery of basic development services in health and nutrition, education
and training, housing and social welfare, and ensuring the greater access to these services by
the poor, complemented by other social safety nets and human capital investment programs.
The acceleration of agricultural growth through a comprehensive modernization program
is necessary in achieving growth with equity in the next six years. The Government is
commissioned to land distribution while being equally committed to adopt the proper policies to
attract greater domestic and foreign capital and technology.
Government resources will be prioritized towards delivering basic development services.
These serve as the key interventions of government to protect and eventually empower the
most vulnerable and disadvantaged sectors of society.
Government will pursue reforms in the educational system and promote other modes of
human capital formation to make Filipinos more productive and competitive in the global
economy. All government programs in these areas must meet the tests of fiscal viability and
effective delivery and most encourage self-reliance, not dependency, over the long term. Social
development will also require the promotion of a population program that respects cultural and
religious beliefs of the individual.
In implementing the Medium-Term Philippine Development Plan mission, all concerned
institutions and sectors should be guided by the principle of equity. All policies, strategies,
programs, and projects must improve the quality of life of all Filipinos, particularly the poor and
the disadvantaged. These should also lead to a more equitable distribution of income, wealth,
and opportunities. Equity also implies that as the economy moves further towards globalization,
G. Macapagal-Arroyo: Beyond the Asian Crisis: The Centrality of Social Policy 29
the burden of adjustments shall be shared equitably among the various stakeholders of
societygovernment, business, and civil society.
Reducing poverty and sustaining the improvement in the quality of life of all Filipinos are
the medium-term objectives of Philippine social and human development efforts. It is difficult to
look beyond the crisis. But we are compelled to do this to free our people from the centuries-old
bondage of poverty. Given the constraints engendered by the Asian crisis, the path of social
policy is now more tricky. But if we are watchful and perceptive enough, if we all work together
and think together as in the Manila Social Forum, we may still find abundant opportunities to
bring us closer to our goal of prosperity for the greatest number of our people. We are confident
that this Manila Social Forum will contribute to the attainment of this goal.
30 Chapter 2.2: Labor Markets and Employment
MIGRATION AND REGIONAL INTERDEPENDENCIES:

THE LABOR MARKET IN LAO PDR 11
Lao PDR, like other countries in the region, was severely affected by the Asian financial
crisis. In 1998-1999, the inflation rate reached 143 percent and the kips exchange rate to the
dollar devalued from KN930 in early 1997 to KN9,500 by August 1999. Many businesses
ceased operations, sharply increasing officialunemployment. Yet while unemployment appears
to be a relatively minor problem in Lao PDR, little reliable information is available on labor
markets. This paper briefly reviews what is known of the basic structure of the labor market, and
highlights Lao PDRs reliance on labor mobility and foreign employment.
BACKGROUND
In 1986, Lao PDR began to reform its centrally planned economy towards a more
market-oriented model. The aim was to promote foreign and local investments that would
enhance economic opportunities in all economic sectors. Economic reforms have helped to
increase national output, and per capita income and the populations living conditions have
th
improved. Yet as of 1996, Lao PDR still ranks 138 among 174 countries in the world with a per
capita income of $335. Thus, Lao PDR remains one of the worlds least developed countries.
According to the 1995 census, Lao PDR has a population of 4.6 million, projected to
increase to 5.2 million by year 2000, based on an average growth rate of 2.5 percent per
annum. The population comprises 68 ethnic minorities. However, the lifestyle of minorities has
evolved with socio-economic development and migration, and this has reduced the importance
of ethnic differences.
LABOR MARKET STRUCTURE

The countrys economic base depends mainly on subsistence agriculture, while
industries and services are still in the initial development stage. In 1994, for example, agriculture
accounted for 56 percent of GDP, while general industry accounted for only 17 percent and
services another 24 percent. 12 According to the 1995 Census, the labor force of 2.2 million
people comprises three categories of workers: (i) rural labor involved in subsistence agriculture
(1.8 million people); (ii) employees in the civil service and army (130,000 people); and (iii)
employees in state and private enterprises (80,000 people). The remaining labor force is
unemployed or self-employed. Little information is available on labor market changes due to the
financial crisis, and particularly about migration to and from Thailand.
The first detailed labor surveys of Lao PDR took place in 1992 and 1994 for some urban
districts. They were carried out by the Ministry of Labor with technical cooperation and financial
assistance from ADB. Of the total surveyed population, 157,678 were of working age, and only
89,995 or 57 percent were working, of which 52.7 percent were men and 47.3 percent were
women.
11
This paper was written by Noy Indavong. Mr. Indavong is the Vice-Minister of the Ministry of Labor and Social
Welfare in Lao Peoples Democratic Republic.
12
NIE, Strengthening Labor and Market Monitoring and Analysis, Lao PDR Final Report
N. Indavong: Migration and Regional Interdependencies in the Labor Market 31
LABOR MARKET INTERDEPENDENCIES
Labor Migration from Lao PDR

The availability of jobs within the country is limited, but the number of potential workers
is increasing rapidly. Annual population growth is estimated at around 120,000 people, with
some 73,000 entering the labor market each year. According to current estimates, the industrial
and service sectors may absorb only 3,000 additional workers per year. To mitigate this
oversupply of workers and resulting unemployment, one response has been to export labor to
neighboring countries.
Lao legislation facilitates such labor movement, but a multitude of difficulties has to be
overcome, given the nature and qualifications of workers, including the following:
poor skills due to a largely subsistence economy with limited opportunities to develop
skills (literacy rates for the population above 15 years of age are 73.5 percent for men
and only 47.5 percent for women);
poor foreign language skills, especially English;
Lao people are traditionally attached to their motherland and family; and
poor work discipline, because working as an employee is considered a secondary
occupation. For example, some workers abandon their jobs due to personal problems
and return to their families without considering the consequences for their employment.
Despite these difficulties, a substantial 40,000 workers migrate abroad. The majority is
working in Thailand, as the Lao and Thai people living on both sides of the Mekong River are of
the same race, speak the same language, and uphold the same customs, religion, and beliefs.
With the financial crisis, unskilled jobs in neighboring countries became scarce and many
migrant workers came back from Thailand. These workers found some employment in the
initially booming Lao agriculture, but these jobs became scarce again in mid-1999, when the
Thailand rural economy recovered from the deep depression of the Asian financial crisis.
Foreign Labor in Lao PDR

Despite Lao PDRs limited economic development and job availability, foreign labor has
entered the country with the majority being from PRC, Thailand, and Viet Nam. They have come
to Lao PDR: (i) with proper work permits; (ii) legally to visit relatives or as tourists, then illegally
looking for work; or (iii) illegally, arriving without detection to work. A reduction in the number of
foreign workers is expected, resulting from the severe impacts of the financial crisis, including
the drastic devaluation of the kip. Lao PDR still needs foreign labor to fill jobs for which domestic
labor lacks the necessary knowledge and skills.
Through the Labor Department, the Ministry of Labor and Social Welfare, has worked to
enhance conditions to facilitate the presence of foreign workers in Lao PDR. However, a serious
challenge is to strike a balance between the presence of foreign labor and the need to promote
domestic employment. To achieve this goal, an important requirement is to develop domestic
workers skills, through training and other means.
Training sponsored by the Government is limited. The Ministry of Labor and Social
Welfare was established six years ago, and operates only one vocational training center in
Vientiane Municipality, with a training capacity of about 600 persons per year. Currently,
vocational training is offered only by the private sector.
CONCLUSIONS
Despite economic progress in recent years, the economy of Lao PDR is mainly based on
subsistence agriculture. This situation has been compounded by the effects of the financial
crisis in Asia. The result is low incomes and difficult living conditions for the population.
The country has responded to the economic difficulties in part by exporting labor to
neighboring countries. This practice can provide employment and improve the skills of Lao
workers. Further, Lao PDR has taken steps to become more fully integrated into international
markets. The country is a full ASEAN member and has enacted various laws and regulations
promoting foreign investment and a free market economy. In addition, the government is
studying international labor markets to develop specialized vocational training programs for
workers. It is hoped such measures will increase employment and contribute to economic
development in the future.
A. Navotniy: Social Priorities and the Labor Market in Uzbekistan 33
SOCIAL PRIORITIES AND THE LABOR MARKET IN UZBEKISTAN13
INTRODUCTION
The purpose of all reforms in Uzbekistan is to create the necessary conditions to provide
opportunities for all citizens to make their lives better, both economically and spiritually. To this
end, measures to create a socially focused market economy include a strong system of social
protection and firm guarantees of individual employment rights. The experience of countries
carrying out similar transition reforms suggests that success depends on broad-based support
of the reforms objectives. The population of young independent states such as Uzbekistan
needs to share in the benefits of the social reforms if they are to result in successful
development.
Rather than creating a capitalist society the Uzbekistan governments goal, since
independence, has been to build a socially responsible market economy. The basis of the
model is found in the principles formulated by Islam Karamov, the president of Uzbekistan.
These include:
maintenance of the well-being of all members of society as a guarantee of political
stability and public consent;
recognition of the leading role of the state in the initiation and organization of economic
reforms;
predominance of the law, assuring the equality of all citizens and state and public
structures before the law;
achievement of an evolutionary transition to a market economy, without revolutionary
jumps and "shock" measures; and
formulation of a strong social policy that takes into consideration the traditions,
customs, mentality, and image of the people of the Republic.
Right after independence in 1991, reforms in Uzbekistan aimed at offering citizens real
opportunities to provide a decent standard of living for themselves and their families. Broad
choice of labor activity assured opportunities in various enterprises, as well as offering
additional income through secondary employment and self-employment. The years of
transformation established a reliable legal basis to regulate processes in the social and
economic spheres. They created mechanisms that have ensured an effective system of social
protection. The core of this system is its emphasis on the family as the foundation of society.
The system of social support in Uzbekistan provides for families, especially the needy, and
assures reliable income maintenance for the most socially vulnerable groups families with
many children and the unemployed.
INCOME MAINTENANCE AND SOCIAL PROTECTION POLICY

Active transformation and privatization have resulted in the creation of new sources of
income for the population. At the same time, they allowed wider differentiation of income among
different segments of the population. As a result, the Governments income policy also changed.
13
This paper was written by Aleksandr S. Navotniy. Mr. Navotniy is the Head of the Department of Monitoring and
Social Development in the Ministry of Labor in Uzbekistan.
Income Policy
Between 1991 and 1994, against a background of soft credit policy, the program was
characterized by a high share of consumer grants and by various kinds of direct and indirect
social transfers and privileges. These softened the losses resulting from the liberalization of
prices. Since the second half of 1994, when the most painful social consequences of inflation
began to diminish, more rigid money-credit and budget policies were applied. As a result, since
1995, the number of necessary wage increases has been reduced to no more than two a year;
consumer grants were reduced and were kept only for an insignificant number of municipal
services; and grants and privileges were eliminated and replaced by social protection targeted
to specific groups in the population.
By 1996, economic growth and cumulative incomes of the population were precisely
defined as to source and activity. The process of providing farmers with lands is the most
important factor contributing to the growth of peoples real incomes. Today, more than 650,000
hectares of fertile lands allotted to private small-scale (decan) farmers provide about 30 percent
of the countrys aggregate income. In addition, Uzbekistans economy is beginning to create a
stronger middle class with rising consumption of goods and services.
The Social Protection System

With independence, the republic has developed its own system of social protection. In
an initial period, Uzbekistan applied a system of anticipatory measuresincluding direct and
indirect subsidies for manufacturers and various consumer market protections, such as
prohibiting the export of basic foods. As reform progressed productive social support to needy
families was extended to other segments of the population.
A major component of social policy in Uzbekistan is the mahalla the traditional
association of families working together to address their most important problems. No other
country has a similar institution although there are comparable structures in southern
Kazakhstan and Mongolia. For centuries mahallas have provided self-management and mutual
aid. In recent times the mahalla has been given new responsibilities for public social protection
and employment generation. Today the mahalla is the main provider of state programs for
families and social assistance. The open democratic mechanism for making decisions in the
mahalla has led to greater support and the avoidance of bureaucratic delays in the payment of
grants and better targeting.
Labor Market and Employment

The growth of economic activity has changed the sectoral distribution of employment. In
1991, the public sector accounted for 60 percent of the workforce. Today the situation is almost
completely reversed with 70 percent in the private sector and 30 percent in the public sector.
The labor market is defined by demographic factors. Because of high birthrates in recent
years, there has been a substantial increase in younger age groups in the Republic. As of 1999
there were 10 million people in Uzbekistan under the age of 16. Most of these young people
entering the workforce are unqualified and not equipped for the new labor market demands. At
the same time, the requirements for labor are increasing, with a growing demand for much more
highly skilled workers.
Registered unemployment levels between 1993 and 1998 did not exceed 0.5 percent.
However, many workers do not register as unemployed due to low unemployment benefits and
loss of social security entitlements; the number seeking work in 1998 was more than 500,000,
A. Navotniy: Social Priorities and the Labor Market in Uzbekistan 35
or 5.7 percent. There are also vast numbers of underemployed from the agricultural sector,
bringing the rate of combined un- and underemployed to close to 20 percent. In the past two
years more than 340,000 people moved out of agriculture and in the near future another
300,000 will bring further pressure on the labor market.
To improve the situation and provide effective employment, Uzbekistan is instituting
policies to create new workplaces, especially in areas with high concentrations of unemployed.
In addition, training is being provided and special measures for the least skilled are being
established. Further efforts will be directed toward providing temporary work for the able-bodied
actively seeking work and income guarantees for all unemployed. Finally, to better react to the
changes in the economy, the country will regularly monitor and track labor movement and
changes in labor requirements.
TRAINING OF PERSONNEL
In 1992, Uzbekistan adopted its first Education Law. This law provides for obligatory,
free general and professional education without distinctions based on sex, age, national, or
ethnic origins. Since then, more than 2,000 schools and 543 pre-schools have been
established. These educational institutions are supported by the most modern selection and
training technologies to ensure the certification of a highly professional staff. The training is
directed toward maximizing skills needed to meet the requirements of the new market economy
while, at the same time, realizing the potential of the whole person.
The Education Law was modified in 1997 through the National Program on Training
Personnel. This program provides for the following:
preparing experts at all levels and transforming the structure of educational
establishments in view of requirements and new directions of development of the
Uzbekistan economy;
transition to 12 years of training. Thus the nine-year general average education is basic
and obligatory. The next three years of training will take place in professional
educational institutions (professional colleges and academic Lyceums); and
development of state standards of professional training according to new requirements
of the economy.
With this law, by 2005 Uzbekistan wants to have improved the overall skills of the entire
15-18 year old population to increase the competitiveness of youth in the new labor market and
reduce the economic weakness caused by a large, unskilled labor supply.
EMPLOYMENT POLICIES IN THE REPUBLIC OF KOREA

AFTER THE CRISIS14
INTRODUCTION
In the period immediately after the Republic of Korea applied for the International
Monetary Fund (IMF) bailout loan at the end of 1997, the Korean economy experienced a
severe recession fueled by the devaluation of the won and a frantic withdrawal of foreign
investments out of Korean firms. Corporate bankruptcies increased as credit was constrained
and cash flow has slowed. These pressures resulted in structural adjustments that affected the
labor market adversely, including declining working hours, wages and job losses, and increasing
labor disputes in industry.
Total employment was reduced from 21.1 million in the fourth quarter of 1997 to 19.8
million at the end of 1998. The average working hours in the nonagricultural sector declined by
3.3 percent and real wages decreased by 8.1 percent in the first quarter of 1998. The financial
crisis resulted in major structural changes in the Korean labor market, such as higher
involuntary unemployment; unstable employment structure; increases in long-term
unemployment; and high unemployment among youth. The Government took a number of
measures to alleviate the problems, which contributed to Koreas miraculous recovery in late
1999. This paper reviews several key strategies employed during the height of the 1997-1998
crisis.
LABOR MARKET POLICIES AND INITIATIVES

Faced with high and increasing unemployment, the Korean Government took diverse
measures to alleviate the adverse impact of high unemployment on peoples lives. These
initiatives can be grouped into five main areas: (i) maintaining jobs, (ii) creating employment, (iii)
job training, (iv) job placement, and (v) social safety net development.
Maintaining Employment
The Government took two measures to keep workers in their jobs: intervening to prevent
firms from going bankrupt and subsidizing firms in order to minimize layoffs and maintain
employment levels during recession. Bankruptcy prevention was focused on giving credit to
small- and medium-sized firms. The subsidy given to firms who adopt qualitative rather than
quantitative labor adjustments is funded by the Employment Stabilization Scheme in the form of
a wage subsidy (employment maintenance subsidy) to the employers who practice the
subsidized plan.
The qualitative adjustment methods include: (i) temporary shutdown, (ii) reduction of
working hours, (iii) providing training to redundant workers, (iv) providing paid/unpaid leave, and
(v) dispatching or reassignment of workers. To be subsidized, firms should be in a situation
where employment reduction is inevitable for managerial reasons and should adopt subsidized
practices. Subsidies equivalent to one half to two thirds (depending on the size of the firm) of
the wages or allowances paid to their workers were paid for a maximum of six months. In 1998,
1,896 firms received employment maintenance subsidies, covering a total of almost 800,000
14
This paper was written by Hanam S. Phang. Mr. Phang is the Director for Research Planning and Coordination
of the Korean Labor Institute in the Republic of Korea.
H. Phang: Employment Policies in Korea After the Crisis 37
workers. However, participation by covered firms in employment subsidy programs in 1998 was
less than 1 percent.
The Employment Stabilization Scheme has been criticized as being inefficiently
managed and was unable to induce the vast majority of firms to participate. It was difficult and
costly to determine whether a firm applying for wage subsidy was truly in a situation requiring
employment reduction. Furthermore, for businesses on the brink of bankruptcy, the wage
subsidy program was not likely to provide a strong enough incentive to induce firms to maintain
employment.
Measures to Create Jobs and Other Work Opportunities

Measures for job creation include creating new jobs by supporting and subsidizing new
business start-ups (between W3 million and W5 million, depending on business size and plan,
plus exemption from acquisition and registration taxes); and providing temporary work for
unemployed workers such as that provided by public works programs.
Public works programs are expected to achieve two policy objectives: creation of
temporary job opportunities and protection of the basic livelihood of the unemployed. Public
works programs are offered through central and local government projects. Selection criteria
can be different depending on the characteristics of the projects. For the projects administered
by local government, screening is based on scores assigned to the following nine items and
scores: age (10), householder (10), number of dependents (15), property ownership (20),
household income (10), female householder (5), handicapped (5), duration of unemployment
(10), and participation in previous public works projects (10).
The budget spent on public works projects amounted to W1 trillion in 1998 and W2.5
trillion in 1999. As of September 1999, about 1.2 million eligible people had participated in the
project since it first started in May 1998, exceeding the initially planned number of participants.
About 300,000 low-income people were registered and participating in the Public Works
Program (November, 1999). The daily wage rate for participants depends on the type and
difficulty of work. In 1998, the wages ranged from W22,000 to W35,000 per day.
The Public Works Program is among the most direct methods of providing earnings
opportunities to the unemployed with low income who urgently need social protection. However,
early in the program screening was not adequate and some non-poor people participated, while
many poor unemployed people were excluded. This targeting problem was further exacerbated
by the fact that the wage rate paid was higher than the market wage in some areas. The
Government responded to these criticisms by strengthening the screening mechanisms and
lowering the wage rates. Currently, the daily wage rate ranges from W19,000 to W29,000, which
is still higher than the minimum wage rate.
As the unemployment situation is slowly emerging from its state of emergency, the
Government is focusing on how to institutionalize the program and to make it more clearly
targeted to the most needy people in the long run. Also it has been pointed out that public works
projects need to be linked to active labor market policies such as vocational training and
employment services to avoid the negative lock-in effect.
Job Training
Since the onset of the economic crisis, the Government has set up training programs
available to the unemployed. In 1998 about 360,000 unemployed benefited from various
Government-sponsored job training programs, about eight times as many as in the preceding
year. The budget for vocational training was W738 billion in 1998, about 13 percent of total
government expenditure on unemployment measures.
Unemployed workers covered by the Employment Insurance Scheme are eligible for
reemployment training programs. Participants receive training and allowances in lieu of
unemployment benefits. However, training allowances are reduced for each additional training
course that is taken, down to zero if a third course is taken. Similar training opportunities and
benefits are offered to the unemployed not covered by the Employment Insurance Scheme.
Government-sponsored job training programs have been criticized because some
unqualified training institutions have received government funds for inadequate training. Also,
some trainees have participated only to receive the allowance and were not interested in
developing skills. However, even though reemployment probabilities are not raised significantly
with training, some participants gained new skills and used the allowance to alleviate economic
difficulties.
To enhance the efficiency of the job training schemes, a pilot program of training
vouchers was launched in 1998. The objective of the voucher system is to provide the
unemployed with more training choices and to promote competition among providing
institutions. In addition, vouchers make it easy to monitor course registration and attendance. In
1999, the Ministry of Labor intends to provide job training to 340,000 jobless workers and the
training budget has been increased by about 19 percent to W880 billion.
Job Placement: Public Employment Services and the LMI System

To help reduce the unemployment problem, the Government has expanded and
reinforced public employment service agencies for job placement and has created a nationwide
network for job information. The number of public employment service agencies managed by
the Central Government increased from 52 in February 1997 to 134 in March 1999, and the
number of public workers specialized in job placement services also increased from 141 to
2,684 during the same period.
Over the last year, to improve the quality of employment services and to create a user-
friendly environment, the Government combined the employment insurance department and the
employment security department of local labor offices into Employment Security Centers. These
centers are based on the concept of one-stop service and are designed to provide job seekers
with all kinds of information and services, from job vacancy information to vocational training. An
important advantage of these centers is that an unemployed worker can receive unemployment
benefits and job search assistance at the same place.
In addition, the Government in May 1999 launched an electronic labor exchange system
called Work-Net using Canadas WorkInfoNet as a standard. Work-Net can be accessed
from the Internet at home. It provides various information and services such as job vacancies,
vocational training, career guidance information, employment policies, employment insurance,
labor market statistics, and labor laws. Almost all job vacancies registered in public employment
agencies can be searched in Work-Net unless employers refuse to let the information be
posted. Currently, more than 3 million job seekers are registered in Work-Net and 30,000
individuals visit the site per day.
Social Protection for the Unemployed

Measures that have recently been taken to improve the social safety net for the
unemployed include:
H. Phang: Employment Policies in Korea After the Crisis 39
extending the application of the Employment Insurance System to all establishments.

In 1998 the scheme was extended to cover workers in all firms regardless of size and
to include part-time workers (working more than 80 hours a month) and daily workers
(employed more than one month at the covered firms);
relaxing the qualifications for unemployment insurance benefits. To provide better
protection for temporary workers, the minimum contribution requirements were reduced
from 12 out of the last 18 months to six out of 12 months on temporary status;
extending the coverage of the public aid program for the poor. In 1998 the Temporary
Livelihood Protection program was introduced, which provides low-interest long-term
loans for livelihood, support for housing, medical, and educational costs, and low-
interest loans for self-employment; and
providing grants for children's educational expenses and family medical expenses.
The Government revised the Livelihood Protection Act in July 1999 into the Act on
Ensuring Peoples Basic Living Standards. Through this reform, the Government aims to
guarantee a national minimum standard of living for all people regardless of their working
capacity. The Act will become effective on 1 October 2000.
To implement the unemployment policy measures described, the Government has spent
about W10 trillion in 1998 and plans to spend W7.7 trillion for 1999. A supplementary budget
has been proposed to spend an additional W6.4 trillion to create jobs, W103 billion on
vocational training, W721 billion for social safety net interventions and W1.05 trillion on public
works programs. Thus, a total of W16 trillion, about 4 percent of GDP, has been set aside for
unemployment policies in 1999.
Table 5: Public Expenditure for Unemployment Measures in the Republic of Korea, 1998
Unemployment Measures Budget (W100 Amount Spent Number of
million) (Provisional, Beneficiaries
W100 million) (1,000 persons)
Job Creation 38,170 37,666 -
Expansion of SOC XXDEFINE?? 32,950 32,446 -
Investment
Support for Venture Enterprises 5,220 5,220 -
Employment Security 21,174 20,688 781
Employment Maintenance Subsidies 1,224 1,125 -
Support for Small- and Medium-sized 19,950 19,563 -
Firms
Job Training and Job Placement Services 9,011 7,607 363
Livelihood Protection for the Unemployed 32,352 30,346 1,843
Public Works Projects 10,444 9,252 438
Unemployment Benefits 8,500 8,050 441
Loans for the Unemployed 7,500 7,153 109
Livelihood Protection and Others 5,908 5,891 855
TOTAL 100,707 96,307
Source: Ministry of Labor, White Book on Labor, 1999.
CONCLUSIONS
The Republic of Korea economy grew 4.6 percent in the first quarter of 1999. With the
economy gradually picking up, the unemployment rate has slowed, dropping to 5.7 percent
(1.24 million) in August 1999. Yet the number of temporary and daily workers keeps rising. And
although the Employment Information Scheme has been extended to all employers, a large
number of workers remain excluded. The Governments employment programs have helped to
avoid unnecessary mass layoffs, generated jobs, and made the labor force flexible to adjust to
the new demands in the sector. Further structural adjustments are expected to help bring back
the countrys economy to its pre-crisis vitality and efficiency. However, the Government must
deal with the social problems of the new labor market, including a high unemployment rate and
lack of social protection for the unemployed. An even more systematic and long-term strategy
for addressing unemployment and its associated problems must be developed.
D. Zhang: Increasing Urban Employment in Shanghai 41
INCREASING URBAN EMPLOYMENT IN SHANGHAI:

ACTIVE LABOR MARKET PROGRAMS AND OTHER INITIATIVES15
INTRODUCTION
Over the past 20 years state-owned enterprises in the PRC have been in flux. Steady
efforts have been undertaken to minimize the involvement of Government in their management
and to transform the state-owned enterprises (SOEs) into functioning corporate bodies capable
of managing themselves and assuming responsibility for the firms success. The change in
operational structure aims to develop a modern enterprise system with clear ownership
separate from the Government, clear rights and responsibilities of both owners and State, and
to promote efficient management. Reform of SOEs has been the focal point of industrial reform
since 1993. This has led to large scale restructuring of employment. This paper briefly
discusses the impact of this restructuring on employment in Shanghai, the PRC.
THE STRUCTURE OF EMPLOYMENT DURING THE ECONOMIC TRANSITION

In the 1990s, annual GDP growth of the PRC averaged 10 percent, and Shanghais
economic growth rate was even higher, with a per capita GDP of $3,400 in 1998. It is expected
that in the early 21st century, Shanghais GDP growth rate will remain stable, and average
annual net growth of GDP will be 8-10 percent. Rapid growth of Shanghais economy has
increased new job opportunities and labor demands. In the 1990-1998 period, an average of
300,000 new jobs was generated annually.
With rapid economic development Shanghais industrial base has also been
restructured, substantially changing the nature of employment in the city. From 1990 to 1998,
employment in tertiary industries increased by 1.14 million jobs. The ratio of employment of
Shanghais primary, secondary, and tertiary industries changed from 11, 59, and 30 percent,
respectively, in 1990 to 12, 58, and 42 percent in 1998. With changes in ownership structure,
the orientation of the working population has become more diversified. Before 1990, about 78
percent of the urban employed worked in the state sector of the economy, and 21 percent in the
collective sector. By the late 1990s, the proportion had changed sharply: At end 1998, the state
sector employed 67.4 percent, and the collective sector 15.7 percent. The employment ratio in
other sectors has risen to 16.9 percent. The number of employed has reached 1.68 million, of
which 36.3 percent are self-employed sector or engaged in private enterprises.
With enterprise restructuring and transition, unemployment also is on the rise. The city
government of Shanghai has explored various new means of job creation and active labor
market policies. These are described below:
15
This paper was written by Zhang Dezhi. Mr. Zhang is the Division Chief of the Social Security Bureau in
Shanghai, the Peoples Republic of China.
THE REEMPLOYMENT PROJECT AS AN ACTIVE LABOUR MARKET INTERVENTION
The Reemployment Project

The Shanghai Reemployment project involves several integrated components, including
job placement services, such as vocation recommendation service, career guidance, job
training, and small business owners training.
Job placement service. In the 1990-1998 period, 450 employment agencies were
established, all of which have been incorporated into the citys labor information network
covering the urban areas. Job hunters may obtain information about the citys labor demand and
record the vacancies that they are interested in. Candidates found to meet the employer's
specifications then attend job interviews.
Career guidance. There are about 2,200 full-time career teachers in Shanghai. Every
public employment agency has one or more specialized career teachers to offer job seekers
both up-to-date career materials and consulting services. Career guidance has substantially
enhanced reemployment. Statistics indicate that each year hundreds of thousands of laid-off
personnel or unemployed workers find jobs through these agencies.
Job training. In Shanghai, job training, which is often free or very cheap for the laid-off
and the unemployed with city government support, works on a computer information network;
and it is closely linked to the employment market. In addition, the city government invites
tenders, including from training schools run by private enterprises, to participate in job training
for laid-off personnel. In 1998, 110,400 laid-off and unemployed workers received skills
upgrading and training in all sorts of job training agencies. After job training, the ratio of
reemployment among them reached 54.7 percent.
Small business training. To help laid-off personnel and to promote small businesses
among the unemployed, the city government has provided free job training. Furthermore, the
city government has also launched several policies specially to help self-employed set up their
own business. In 1998, three training programs were initiated for 380 students. Of the 127
students who graduated, 91 students managed to successfully start businesses, and this
created more than 960 new jobs for laid-off personnel and the unemployed.
Success of Reemployment Project

The Reemployment Project has been largely successful. Between 1991 and 1998, a
total of 1.5 million redundant personnel were laid off by Shanghais state-owned and collective
enterprises. However, one million of these have found new jobs through this project.
At the end of July 1999, there were 308 reemployment service centers funded and built
jointly by the city government, society, and enterprises. A total of 730,000 laid-off personnel
entered the centers, and 550,000 found new jobs. The labor structure of SOEs has been
rationalized and enlarged. The total numbers of staff and workers in the state-owned industrial
enterprises have dropped from 1.27 million in 1996 to 780,000 in 1998. As a result, traditional
state-owned industries such as light industry, textiles, and the instrument and electric sectors
have made up deficits and increased surpluses. By the end of June 1999, light industry had
turned losses of Y720 million into profits of Y850,000. The textiles industry realized an annual
profit of Y250 million in 1998. And in 1998, the instrument and electric industry realized a gross
output value of Y11.7 billion, up 15 percent from the previous year, with its total profit standing
at Y370 million (up 13 percent).
D. Zhang: Increasing Urban Employment in Shanghai 43
CREATING ALTERNATIVE EMPLOYMENT OPPORTUNITIES

With the population aging, life expectancy rising, housing becoming scarce, and life
modernizing, people's demands for social services are expanding rapidly. Developing
employment in non-regular areas, such as in-home, home maintenance, family handicraft
industries and so on can create new jobs.
Outdated knowledge and simple skills of laid-off personnel have made it difficult to adapt
to the needs of new jobs supplied by new- and high-tech industries. Instead, employment in
non-regular departments is more appropriate for them. The largest obstacle they confront is that
it is difficult for them to join the public social insurance programs once they obtain employment
from private enterprises. Hence, enterprise restructuring and new job-creation must be linked to
a substantial social insurance reform.
Preferential Policies
The city government has introduced a series of preferential policies and measures such
as preferential social insurance, reduction and exemption from taxes and fees, and free job
training. At the end of August 1998, there were more than 5,300 recognized non-regular
organizations, which had absorbed 55,000 laid-off personnel. It is expected that total
employment in non-regular departments will exceed 100,000 in the next two years.
Preferential social insurance. In Shanghai, laid-off personnel in non-regular departments
can take regular staff and workers average monthly wage income and taxable wage in the
previous year as the contribution base. The contribution base in 1998 was Y600, and the
proportion of individual contributions is 16 percent. They cover medical insurance based on a
5.5 percent of the pension insurances contribution. The city government also establishes
special offices in the community to be in charge of handling questions pertinent to the social
insurance program.
Reduction and exemption of both tax and fee. During the first three years, non-regular
organizations are exempted from some local tax such as sales tax and income tax. In addition,
they are also exempted from other social fees except for legal contributions, such as pension
and medical insurance.
Free training. When laid-off personnel, who are working in a non-regular department,
join the training for a certificate of vocation qualification and skill, they may apply for city
government sponsorship and then they enjoy almost free training.
Others. The city of Shanghai also established a general employment insurance scheme.
It also developed a fund for employment in non-regular departments (in 1996). The fund may
provide a loan with low interest to the non-regular organizations, which are expanding in
numbers.
Non-Profit Organizations as Job Opportunities

The city of Shanghai is using nonprofit organizations to place people with special
difficulties in employment. In practice, the city government always arranges jobs for those who
find it hard to get employment and bears the basic living cost of those who lost their jobs.
At the end of August 1999, there were more than 155 community non-profit service clubs
for employment placement. They engaged in activities such as conducting environmental
cleaning, maintaining plants and grass, and repairing public utilities. These clubs had absorbed
no less than 20,000 laid-off persons. About two thirds of them enjoyed several types of city
government sponsorship.
CONCLUSION
The restructuring of the industrial base towards promoting efficient enterprises has led to
significant changes in the structure of employment in Shanghai in a remarkably short time.
Further, taking a longer-term perspective, it appears that the new arrangements reflect a far
more efficient use of personnel and resources in this new setup. This period of economic
transition has led to unemployment, but instead of adding these numbers to the poor, alternative
avenues for productive employment are being found.
A. Kelles-Viitanen: The Concept of Social Exclusion 45
THE CONCEPT OF SOCIAL EXCLUSION AND VULNERABILITY16
INTRODUCTION
The financial and economic crisis in Asia has underscored the vulnerability of economies
and societies to changes in the global economic environment. The crisis has provided us with
an opportunity to deepen our understanding of such vulnerabilities. The issue of vulnerability is,
however, not a new phenomenon. Many Asian countries have significant social and institutional
barriers preventing large vulnerable segments of population from sharing the benefits from the
economic development. Gender disparities and marginalization of the poor and other vulnerable
groups remain dominant characteristics of the Asian landscape.
SOCIAL EXCLUSION
The concept of social exclusion is closely linked to the concept of vulnerability and is
helpful in understanding social processes that sustain or lead to vulnerability. The concept has
two distinct advantages compared with the earlier concepts of deprivation and poverty: (i) it
makes the multiple, multi-dimensional and cumulative aspects of deprivation central to the
analysis; and (ii) it focuses on social processes, institutions, and mechanisms as well as on
actors that exclude people. (De Haan, 1998; Bhalla and Lapeyre, 1999).
In Western Europe, the discussion has mainly centered on the relationship between
labor markets and social exclusion. However, in developing countries and countries in transition
the focus must shift to include other factor markets (for example, access to land and credit),
processes through which these markets are developing, avenues for popular participation as
well as to analysis of various institutions through which the rules governing exclusionary and
inclusionary practices are negotiated (ILO, 1995).
The few country studies on the subject that have been carried out so far indicate that it is
important to analyze more closely social institutions, social structures, and socio-cultural values
that establish the status and the balance of power between various social groups. Societies may
have a dominant paradigm or a form of social exclusion, or an operational hierarchy of
discrimination that influences the exact practice and outcomes of exclusion. (ILO, 1995)
Four paradigms of social exclusion have been identified: a solidarity paradigm, a
specialization paradigm, a monopoly paradigm, and an organic paradigm. These paradigms are
based on various national social policies and ideas about society and social integration. A
solidarity paradigm sees society as a moral community with a core of shared values and rights
and interprets exclusion as a breaking of the social ties, a failure of the relationship between the
society and the individual. The specialization paradigm sees exclusion resulting from individual
behaviors and exchanges. Individuals may exclude themselves by their choices or they may be
excluded because of patterns of interest or contractual relationships among other actors, or their
exclusion may occur as a result of discrimination of other actors, or their exclusion may result
from the market failures or of unenforced rights. The monopoly paradigm views society as
hierarchy, with different groups controlling resources. Insiders protect their domains from
outsiders, constructing barriers and restricting access to occupations, to cultural resources, to
goods and services. The organic paradigm sees society as an organic system, which can take a
variety of forms. It is composed of groups, which may be functional, regional, or ethnic in
16
This paper was written by Anita Kelles-Viitanen. Ms Kelles-Viitanen is Manager of the Social Development
Division of the Asian Development Bank.
46 Chapter 2.3: Vulnerability and Exclusion
character. Exclusion in such systems arises where all groups are not equal players in the game,
where political or economic power becomes concentrated, and when individuals are not well
integrated into the mainstream groups around which society is constructed. (Rodgers, 1995).
SOCIAL INCLUSION: TOWARDS A MORE HOLISTIC SOCIAL POLICY

The crisis in the region has clearly brought out the need to have adequate social safety
nets to strengthen the capacity and elasticity of various sections of society to respond to various
shocks, crises, and transitions. There is a need to design a wide range of policy responses to
minimize negative impacts on the poor and on other vulnerable groups, and to build a better
response and resiliency, giving priority to preventing irreversible and long-term losses in human
and social conditions, such as long-term unemployment, withdrawal of children from school,
increase of child labor, trafficking of women and children, prostitution, infant malnutrition and
delayed immunization, breakdown of family and social structures, substance abuse, and loss of
assets in distress sales.
Attention to vulnerable groups should not imply a target groups-oriented charity
approach. The prerequisite in this approach would be to enable the excluded and vulnerable
groups to enter mainstream society by identifying their needs through participation and
consultation and by making the social, cultural, political, physical, and economic infrastructures
of society fully accessible to all, and to enable their fullest possible participation in their
societies. A truly inclusionary social policy is required that reflects the diversity of people and
that will mainstream their needs into all sectors including education, health, and social
protection. This has been the goal of social development in ADB. This approach is briefly
described below.
Social development is best described as a process of planned social change designed to
promote the well-being of the population as a whole in conjunction with a dynamic process of
economic development. (Midgley, 1995, 25). Ensuring that peopleand their capacities, values,
and needsare placed at the center of the developmental process is the particular contribution
of social analysis. Issues of social sensitivity and feasibility are also important. Some of the
aspects that are analyzed in the context of the development intervention, relate to:
improvement or impoverishment of livelihoods;
access to or exclusion from resources;
expansion or reduction of knowledge; and
participation in or alienation from rights.
Social analysts usually look at the total social universe of a development project. They
identify the various actors or stakeholders who are involved in, or likely to be affected by aid
policies and projects. Social analysts must be alert to and able to interpret the wide range of
different perspectives and values held by the different stakeholders. They need to query
assumptions based on conventional wisdom that ignore complex social reality and divergent
views and, when left unchallenged, may lead to inappropriate action and unintended negative
effects.
Such knowledge needs to be explained to colleagues coming from other disciplines and
the knowledge needs to contribute to practical solutions. Social analysis helps to make projects
efficient, effective, realistic, and sustainable. Social analysis, together with economic, technical,
institutional, and environmental analyses, contributes to the high quality of the development
projects.
ADB has introduced a number of social development policies and strategies (on gender,
indigenous and ethnic people, involuntary resettlement, poverty reduction, and participation) as
A. Kelles-Viitanen: The Concept of Social Exclusion 47
well as processes such as social assessments to identify social risks and to mainstream the
concerns of the vulnerable people into Banks operations. In this, the Bank pays attention to the:
(i) equity issues (e.g., distributional policies, inter-generational transfers and ownership and
distribution of income and assets); (ii) poverty eradication efforts; (iii) inclusion of minorities; iv)
gender equity; and (iv) rooting of development decisions in local socio-cultural realities.
Increasing attention is also being paid to the participatory processes including consultations with
various stakeholders.
Such mainstreaming efforts should be at the core of the Social Policy in addition to other
sector specific socially sensitive efforts. Only multiple efforts will help to change the present
disabling environment, in which the vulnerable live, into a more enabling and humane
environment and will bring out a society for all.
The social policy that is to be considered for Asia needs to reflect the particular paths, or
paradigms (as discussed above) and patterns of socio-economic structure and development. It
should be broad-based with a balanced set of economic, financial, and social instruments that
address social exclusion. Unlike in Europe, social development in Asia cannot be pursued as a
sectoral initiative alone. In Asia, the poor are constrained by various interlinking barriers. For
any sustainable impact, it would be necessary to address this whole gamut of disabling
environment to release the poor from their captivity. We would require a synergy of combined
approaches. Such an approach should include various efforts in order to address the issues of
vulnerability, social exclusion, and poverty in all sectors. Such a broad-based approach would
make it possible to translate economic gains into improved access to social services and higher
standards of living for the whole population; to address non-economic factors such as
technological change and environment; as well as improved social organization and social
capital and their impacts on the distribution of wealth and opportunity. Diverse social institutions,
including market, community, and state would need to be mobilized to promote peoples
welfare, involving participatory processes.
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Geneva.
P. Licuanan: Addressing Gender Concerns in the Asian Economic Crisis 49
CHALLENGES IN ADDRESSING GENDER CONCERNS

17
IN THE ASIAN ECONOMIC CRISIS
BACKGROUND
The movement toward economic globalization and the Asian crisis have both strongly
affected the countries of Asia. The consequences of these phenomena for women and the poor
have been especially marked. In many cases, these groups overlap. The Platform for Action
that came out of the United Nations Fourth World Conference on Women emphasized the
feminization of poverty. It highlighted the fact that the majority of the worlds poor are women
who have more limited access to economic resources such as credit, land inheritance,
education and training, and support services. While poverty affects men, women, and
households as a whole, women are affected differently and more seriously because of the
gender division of labor. As mothers, household managers and producers, they manage
consumption and production of the household and make ends meet with increasingly limited
resources. Policies, programs and activities impact differently on men and women because of
insufficient attention to gender issues.
Recent efforts to bring gender issues into = APEC as well as research analyses have
called attention to the effects of globalization and the Asian crisis on women. This paper
summarizes some of the key findings.
THE EFFECTS OF GLOBALIZATION

Globalization of the worlds economies has had both positive and negative
consequences for women in the region. On the positive side, globalization has been credited
with the following benefits to women: (i) increased opportunities for education, particularly in
computer literacy and other high technology areas; (ii) an increase in the numbers and
proportion of women in the labor force; (iii) new occupational choices such as data processing
and computing, recreation and tourism, and banking and financial services; (iv) increased
incomes contributing to poverty alleviation as well as greater autonomy and participation in
household decision-making; (v) more flexible labor arrangements such as subcontracting and
homework; and (vi) expansion of opportunities for women-owned small and medium enterprises
(SMEs).
However, globalization has had a number of decidedly negative consequences for
women. Globalization has contributed to
preponderance of low-paying jobs with poor working conditions: Globalization has led to
a decrease in female-dominated jobs as industry moves toward higher productivity and
more technologically sophisticated industries. Sub-contracting and homework
arrangements that have been heavily used by women are increasingly characterized by
lower earnings, reduced access to training opportunities, and limited access to
technology;
reduced access to and control of resources by women: Globalization has meant a shift in
agricultural production away from traditional crops to cash and export crops. This has
reduced female involvement in the production and control of food resources, resulting in
17
This paper was written by Patricia B. Licuanan. Ms. Licuanan is the President of Miriam College in Manila,
Philippines and Co-convenor of the Asia Pacific Women Watch.
declining household food security and disproportionate cuts in food consumption for
women and girls;
negative impacts of trade on women-owned businesses: Businesses owned by women
have suffered due to unequal access to productive resources and increased competition
from imports. Also, high tariffs on certain goods have forced industries with heavy female
participation such as textiles and garments to cut production costs or close down
because of intense competition; and
heightened commodification or objectification of women: There has been a distinct
feminization of overseas employment, including an expansion of trafficking in women
and girls.
The UNs Platform for Action also calls attention to the statistical invisibility of womens
contributions to their societies economies. It recognizes that formal accounts systematically
underestimate and undervalue womens work. Underestimation occurs in virtually all areas of
activity: wage labor, subsistence farming and fishing, work in the informal sector, production of
goods and services for the market and for household consumption, assisting in family
enterprises, and unremunerated domestic and community work.
THE IMPACT OF THE FINANCIAL CRISIS

The initial effects of the Asian financial crisis translated into sharp price increases, falling
labor demand, and a squeeze on public spending. As the crisis deepened, in some instances it
began to erode the very social fabric of communities. Women, in particular, were hit hard in
terms of unemployment, loss of pay, and increased family responsibilities. Results from recent
studies, surveys, and rapid assessments aimed at monitoring the impacts of the crisis give
further support to the messages presented above. This research supports the hypothesis that
the crisis has made things worse for women in Asia and highlights the important interplay
between economic and socio-cultural factors in development.
Some of the major findings of studies on the gender impacts of the crisis include the
following:
womens labor force participation, employment, and incomes have declined.
Assessments indicate a clear deterioration of employment and incomes in some
countries, particularly the Republic of Korea and the Philippines, and more mixed results
in others including Indonesia and Thailand. On the other side, cost cutting strategies
employed by firms, means that inexpensive women were hired to replace higher-earning
men;
increased family responsibilities for women: With drops in household income as well as
decreased government expenditures on health, education and other social infrastructure,
womens traditional responsibility to provide for the familys basic needs has increased,
and often became more burdensome;
increased female participation in the informal sector: To sustain household income
levels, women are leaving their unpaid family work and seek employment in the informal
sector, including prostitution. The crisis has also increased child labor participation and
has added more children, mostly teenage and pre-teenage girls, to the sex trade;
the informal sector has been negatively affected: Homeworkers, traditional artisans,
weavers, craft workers, and other informal participants, many of them women, are the
biggest losers in the crisis. They have suffered because of rising prices when there is
less work, lower wages and a drastic decline in the demand for their output. Also,
migrant workers are returning home without jobs. Many of these are women serve as
P. Licuanan: Addressing Gender Concerns in the Asian Economic Crisis 51
domestic workers in Hong Kong, China; Malaysia, and Singapore, entertainers in Japan,
and production workers in the Republic of Korea; and
resurgence of social problems and constraints: With heightened economic instability and
social unrest, there is a rise in violence against women. In addition, there is a revival of
traditional and cultural definitions of women and their roles and a reassertion of
patriarchal values in some countries. These have the effect of making integrated
economic participation by women more difficult, as well as complicating the social roles
of women.
CONCLUSIONS AND CHALLENGES

While not all the data are in, some conclusions are clear. Womens paid and unpaid
work played an important role in the economic boom in Southeast and East Asia, in terms of
paid labor in export-related activities and services, remittances of migrant women workers and
the immense amounts of unpaid work at home. These contributions were not always visible or
valued. The expansion processes of the boom years were not managed properly to ensure that
the economic gains were benefiting women. Now, there is great danger that the costs of
recession will fall disproportionately upon women. The current crisis affects women differently
and more severely than men. The crisis represents a grave threat to the economic and social
gains that women have made so far.
It is encouraging that there have recently been a number of efforts to analyze the social
and gender impact of the Asian financial crisis. But more needs to be done. First, the data has
to continue to improve. There is need to institutionalize collection of sex-disaggregated data on
employment and work patterns looking at different groups. Documentation of coping strategies
of different sectors would be valuable along with action research testing the effectiveness of
different approaches to mitigating the impact of the crisis including the role of social safety nets.
A second area for further work is the analysis of broader aspects of the crisis; i.e.,
dealing more deeply with the social fabric in the different countries. There is need to understand
more thoroughly the social tensions, to study more directly the relationship between economic
factors and such social phenomena as gender relations, womens roles and socialization, as
well as violence, prostitution, and trafficking.
Along with further research, there is a need to recognize the continuing importance of
womens role in economic recovery. Women play a vital part in improving the economic
conditions in Asia: in crisis recovery packages, in measures to protect and promote enterprise
development, in job creation and distribution, in skills development and upgrading, training and
re-training, and in social security and social protection systems.
The challenges for Asia are to minimize the negative impact of the crisis on women,
removing the remaining barriers to womens participation in the economy and effectively
mobilizing women to respond to the crisis by exploiting emerging opportunities.
REFERENCES
Asia Pacific Economic Cooperation. 1998. Women and Economic Development and Cooperation in
APEC. An overview paper prepared for the APEC Ministerial Meeting on Women held from 15-16
October 1998 in Makati, Philippines.
Illo, Jeanne Frances I. 1999. Gender and Markets: A Framework for Analyzing the Effects of the
Economic Crisis on Women. In Carrying the Burden of the World: Women Reflecting on the Effects
of the Crisis on Women and Girls. Illo, Jeanne Frances I. and Rosalinda Pineda Ofreneo, eds.
Quezon City: University of the Philippines Center for Integrative and Development Studies.
ILO 1998. Social and Gender Dimensions. Unedited working paper prepared under the AIT/ILO
Research Project on the Gender Impact of the Economic Crisis in Southeast and East Asia.
Karnjanauksorn, Teeranat, and Voravidh Charoenloet. 1998. The Impact of the Economic Crisis on
Women Workers in Thailand: Social and Gender Dimensions. Unedited working paper prepared
under the AIT/ILO Research Project on the Gender Impact of the Economic Crisis in Southeast and
East Asia.
Kelkar, Govind, and Mari Osawa. 1998. Gender Disparities in the Asian Economic Crisis: Women Coping
with the Bitter End. Unedited working paper prepared under the AIT/ILO Research Project on the
Gender Impact of the Economic Crisis in Southeast and East Asia.
Knowles, James C., Ernesto M. Pernia, and Mary Racelis. XXYEAR?? Social Consequences of the
Financial Crisis in Asia: The Deeper Crisis. ADB EDRC Briefing Notes, No. 16.
Licuanan, Patricia B. 1998. Reaction paper on AIT/ILO Research Project on the Gender Impact of the
Economic Crisis in Southeast and East Asia. Bangkok.
Oey-Gardiner, Mayling, Nick Dharmaputram, and Insan Hitawasana Sejahtera. 1999. The Impact of the
Economic Crisis on Women Workers in Indonesia.
United Nations. 1996. The Beijing Declaration and the Platform for Action. New York: United Nations
Department of Public Information.
UNIFEM and CIDA-SEAGEP. 1998. Women in a Global Economy: Challenge and Opportunity in the
Current Asian Economic Crisis. An Information Kit prepared with the collaboration of the ILO
Regional Office for the Asia and the Pacific.
World Bank. 1999. Gender Dimensions of the East Asia Crisis. 224kb. PDF File January 1999. East
Asia and Pacific Region, The World Bank.
http://www.worldbank.org/poverty/eacrisis/library/index.htm.
S. Mu-Leiper: Women and Civil Society in Cambodia 53
WOMEN AND CIVIL SOCIETY IN A CRISIS ENVIRONMENT:

EXAMPLES FROM CAMBODIA18
This paper provides a general overview of the crisis and the response of civil society in
Cambodia. It then describes briefly how civil society approached the problems. Finally, it
proposes what needs to be done to further enhance the role of civil society.
CAMBODIA AND THE CRISIS

As the economic crisis began to unfold rapidly, many governments in Southeast Asia
were confronted with problems on a scale hitherto unimagined. While the governments of the
regions and organizations such as the IMF, World Bank, and ADB were struggling to develop
appropriate responses, civil society played a key role in analyzing and disseminating information
that helped to develop informal social safety nets among the poor and vulnerable groups.
The three decades of civil strife and social dislocation experienced in Cambodia during
the 1950s through the 1980s have resulted in my country being one of the poorest in the region,
with a depleted social and economic infrastructure. Cambodias social indicators are among the
weakest in the world. The health situation in the country is characterized by high mortality,
morbidity, and population growth rates. Lack of adequate food and the near non-existence of a
basic infrastructure for safe water supply and waste disposal have a negative impact upon the
health of the population, especially mothers and children.
The 1997 regional economic crisis compounded the effects of Cambodias political
upheavals in that year to further impede our attempts to reconstruct the economy and society.
This double crisis called for an extended role of civil society in consolidating the fragile
democracy, ensuring stability, and in helping to meet the immediate economic needs of the
people. The women and children of Cambodia, who constitute the majority among the poor,
bore the brunt of this crisis.
Published reports indicate that the economic crisis significantly reduced the real wages
earned by women in the labor force and necessitated their migration to urban centers or
neighboring countries in search of livelihood. Simultaneously, many analysts noted a
feminization of poverty. Public and private investments in health and education, inadequate
even before the crisis, were further reduced.
THE RESPONSE OF CIVIL SOCIETY

Civil society responded to these challenges with a number of activities. A series of
forums and debates were convened that explored and defined the rights and responsibilities of
individuals and the government on a range of national issues. These efforts emphasized that
the only way to build a just and sustainable developed society would be to provide equal
economic opportunities for all people. This conclusion was both political and economic in
nature.
International and national NGOs are engaged in a broad range of activities nationwide
that include the provision of essential basic services as well as the promotion of democracy and
human rights and the raising of public awareness on various development issues. In terms of
18
This paper is a modified version of H.E. Sochua Mu-Leipers speech during the Manila Social Forum. Ms. Mu-
Leiper is the Minister of Womens and Veterans Affairs in Cambodia.
financial contribution to the country, the NGOs share has increased from about $75 million in
1995 to $90 million in 1998. The number of local NGOs has increased from 150 in 1995 to
almost 400 in early 1999. In addition, nearly 180 international agencies continue to work in
Cambodia with little interference on the part of the Government.
In Cambodia, women's organizations have played a particularly influential role in helping
women contribute to the development of the society. For example, NGO media outlets,
established and managed by the women's media center, assisted in promoting alternate
approaches that would strengthen sustainable development in the country. Increased civic
activity was evident when 39 political parties took part in the 1998 national elections and more
than 90 percent of the eligible voters exercised their franchise, a significant increase in
participation compared to the 1993 elections. Women also took a greater role both within the
political parties and in exercising their right to vote.
The 1998 elections saw the formation of the Committee for Free and Fair Elections
(COMFREL) and the Coalition for Free and Fair Elections (COFFEL), teams of national NGOs
who monitored the electoral process. Both coalitions organized voters education to increase
public awareness on the electoral process and democracy. Their cohesion, political stance, and
implementing capacity were tested and established.
Also traditional Buddhist institutions revived, and provided the social glue to overcome
challenges. The peace and education campaigns conducted by the Buddhist monks have
provided an atmosphere of trust and self-help that enabled many communities to confront the
challenges. These efforts supported the gradual growth of Village Development Committees.
Since early 1995, capacity building at the community level has been promoted
particularly through the establishment of the democratically elected Village Development
Committees (VDCs), supported by the Ministry of Rural Development. The VDCs are viewed as
the foundation of a bottom-up rural development structure and the basis for achieving
participatory and sustainable rural development.
ENHANCING THE ROLE OF CIVIL SOCIETY

Despite immense difficulties, civil society in Cambodia has done much to support the
reconstruction of economic and social infrastructure that was destroyed during the Khmer
Rouge period. However, civil society remains a relatively weak force. In addition, weaknesses of
the state and large disparities between rich and poor prevent communities from investing in
infrastructure. How do we increase the involvement and contribution of civil society?
It is clear from the Cambodian experience and elsewhere that investment in democracy
and in education alone is not enough to promote sustainable development. For true
development to take place, the ultimate stakeholdersindividuals, communities, villages
should be fully involved in the process of economic development. They must assume a larger
advocacy role with respect to national and provincial governments, international donors, and the
private sector. The advocacy role should include demanding a fair share of national resources for
their communities.
There have been many attempts at participatory rural development in Cambodia and in the
region. They have not been problem-free; formidable challenges persist. For civil society to flourish
and develop as an influential force, support from the government is vital. Many governments, both in
Cambodia and elsewhere, have viewed NGO activities negatively. Further, civil society has initiated
programs without adequate financial support and without a strong link to other programs or to a
larger national framework. Independent, uncoordinated initiatives cannot make a substantial overall
impact on poverty alleviation and sustainable human development.
S. Mu-Leiper: Women and Civil Society in Cambodia 55
The most important objective of assisting the civil societys role in promoting sustainable
development is to create and maintain an enabling environment for participatory economic growth,
political and social development priorities, and emphasis on poverty alleviation efforts at the village
level. This highlights the needs to build capacity within local governments, as well as within the
national government, to work with civil society, and to manage development effectively and in
an efficient manner.
CONCLUSION
The model of civil society that is evolving in Cambodia is one where there is a multitude
of competent, independent, and self-reflective community-based organizations and individuals.
This involvement will ensure that the dangers from the excesses of power, by the state or the
market place, are reduced. More people will now have access to resources and decision-
making power and will be empowered to correct imbalances when they occur. This approach of
building a civil society will help in initiating new institutions and reviving social practices, which
will bring people together within the framework of traditional activities and associations. People
are being reminded of the values and hopes that they share. They are developing many of the
skills needed for community organization and the regeneration of civil society for the 21st
century. I am confident that the full participation of civil society in development will assist
communities and the Government of Cambodia to successfully meet the challenges of the
future.
VULNERABILITY AND REVERTED GENDER ISSUES

19
IN EDUCATION AND HEALTH
INTRODUCTION
Mongolia entered the 20th century as a backward former colonial territory of the Manchu
Empire in China. Its public health and education systems were patently inadequate. The Soviet
Union helped to develop health and education systems in Mongolia after 1921. Following
dissolution of the Soviet Union and transition from a command economy, Mongolia has faced
difficulties in maintaining these systems adequately. The resulting social problems affect the
entire population, but are particularly onerous for specific vulnerable groups. Two examples are
the effects of the economic transition on the condition of child-bearing women in remote
communities and on the schooling of young males.
MATERNAL MORTALITY IN REMOTE COMMUNITIES

Mongolia has a small population and historically had problems maintaining a sufficient
population growth rate. Between 1868 and 1918, for example, the population of Mongolia
decreased 4.5 percent. During the same period, the infant mortality rate was very high at 500
per 1,000 live births, the maternal mortality rate was 13 per 100 deliveries and the general
mortality rate 30 per 1,000 population. Some early demographers predicted the near biological
death of the nation in the 20th century.
Since the National Liberation Movement in 1911, the Government has consistently paid
great attention to the health and growth of population. The main demographic approach until the
late 1980s was characterized by generous financial incentives for women to bear children
coupled with drastic restrictions on access to contraceptive methods.
In spite of the official efforts to increase the population, fertility began to decline again by
the mid 1970s, intensifying during the second half of the 1980s. Also, infant and maternal
mortality rates were quite high (70 and 0.1 per 1,000 live births) despite the relatively complete
health service coverage available to the population. These developments caused some to
criticize the official birth policies, arguing that it sacrificed the health of women. A lifting of social
and political restrictions in Mongolia in the late 1980s under the influence of glasnost in the
former Soviet Union made possible a more forceful criticism of the countrys birth policies. As
one result, in 1989, abortion was legalized.
Government administrations after the political changes in 1990 have endorsed a new
population policy based on the free choice of couples to have a family, and making family
planning methods available to them. Largely as a result of this policy, fertility and infant mortality
rates have declined impressively. However, contrary to expectations, maternal mortality and
abortion rates have actually increased.
The existence of a high abortion rate in Mongolia despite the availability of contraceptive
methods can be explained partly by the influence of stereotypes of family planning and society
formed during the past. In the past, women relied on illegal abortions to limit births, and this
practice continued due to lack of information and limited supply of contraceptive alternatives,
particularly in remote communities.
19
This paper was written by Professor Pagbajabyn Nymadawa. Prof. Nymadawa is the Social Policy Adviser to the
President in Mongolia and the former Minister of Health of his country.
P. Nymadawa: Reverted Gender Issues in Mongolias Education and Health Sectors 57
The remedy of this phenomenon is to increase the awareness of family planning

methods and to increase the supply and diversity of contraceptive means. Since 1991,
successive governments have undertaken initiatives with the support of bilateral and
international donors such as United Nations Population Fund (UNFPA) and GTZ (German
Government Agency for Technical CooperationDeutsche Gesellschaft fur Technische
Zusammenarbeit). As a result, a recent survey showed that awareness and knowledge of
reproductive health and family planning have greatly increased.
The increase in maternal mortality has occurred largely because of the reduction in
hospital deliveries in rural areas. The quality of prenatal health care has declined in recent years
partly because of the dissolution of the maternal rest homes (MRH) system, and partly because
the number of emergency vehicles available in rural areas has declined. Access by health
providers to vehicles is an important element in the delivery of health care in the sparsely
populated areas of rural Mongolia. The service area for a 1st level Referral Medical Facility
(District Hospital) often covers only 2,000-3,000 people in an area with a radius of 100-150 km
(a population density 0.5 to 1 person per km2). Climate is harsh, and the terrain is very difficult,
frequently without adequate roads. An additional factor was the increased workload to women in
households due to increased number of privatized livestock.
In Mongolia the first MRH was set up in 1957 in the Bayankhongor aimak (province) at
the initiative of members of an agricultural co-operative. This initiative was supported by a joint
decision of the Supreme Council of the Union of Co-operatives, the Mongolian Women's
Federation, the Ministry of Agriculture and the Ministry of Health. By the mid 1970s, all somons
(districts) had established MRHs. The MRHs are attached to the somon Hospitals and have two
to six beds. Pregnant women come to the MRH two weeks prior to delivery for rest, nutrition
supplements, medical check-ups, and treatment. The costs of housekeeping, food and
transportation were provided entirely by the agricultural co-operatives. The MRHs ensured close
medical supervision and promoted healthy activities during and after childbirth. A detailed study
in Gobi-altai aimak in 1980-1985 revealed a substantial improvement in obstetric care indicators
due to the MRHs. The study recommended improving conditions in the MRHs, and planning for
an expansion to 3.62 MRH beds per 1,000 rural population.
Despite the benefits of the MRHs, during the first privatization exercise of agricultural co-
operatives in 1990-1992, most of the privatized MRHs were converted into private business
centers or other profit-making enterprises. To prevent this kind of conversion the Ministers of
Health and Agriculture, and the President of the Agricultural Cooperators Association have
issued a joint order requesting the economic units which acquired MRHs by privatization to
continue support the somon Hospitals, to run predelivery services to rural women. But the order
has not been followed properly. A survey conducted by the Ministry of Health and UNFPA in mid
1993 revealed that only 52 MRHs were functioning out of 371 that existed in 1991.
Since 1993, the Government of Mongolia has gradually begun to restore MRHs. This
initiative has been strongly supported by international donors through their reproductive health
and poverty elimination activities. As a result, almost all somons and some aimak centers have
restored MRHs. But the increasing maternal mortality trend has not yet been fully reversed.
SCHOOL DROP-OUTS AMONG MALES

In terms of basic educational skills, Mongolia has a highly educated population.
Compared to other developing countries, the educational distribution across social groups is
relatively egalitarian. In fact, Mongolia's achievements in the education sector during 1950-1990
compare favorably with middle-to-high-income countries. Along with a literacy rate reaching 98
percent for males and 95 percent for females, education increased at all levels of schooling over
the period. By 1989, about 40 percent of the population had completed at least secondary
education and about 15 percent of the population were graduates of tertiary educational
institutions.
Although the literacy and education levels in Mongolia continue to be relatively high,
there is evidence that the process of transition, especially in its early stages (1989-1992), has
damaged the education of children. According to Ministry of Education, Science and Culture,
Mongolia (MESC) data, the number of children dropping out before completing secondary
school increased from 6,133 in 1989, to a peak of 48,446 in 1992. The total number of dropouts
between 1989 and 1998 was 166,000. Overall, two thirds of dropout children were from grades
1-4 (primary school), and almost 70 percent were boys.
The increase in the male drop-out rate is commonly attributed to a combination of three
factors:
Increasing direct and in-kind household schooling costs, especially in rural areas, and
especially in regard to the financial squeeze in boarding schools, which particularly
affects households with many young children.
Increasing need for male child labor following the privatization of agricultural
cooperatives. Privatization resulted in increased livestock herd sizes, which has placed
a larger demand on male labor.
Large travel distances to schools. The more liberalized society has allowed parents to
reject sending children to distant boarding schools.
Understanding the relative importance of these factors is vital. The first factor applies
mostly to children from poor families. The second affects primarily children of richer families,
and the third factor is connected to children of families living in more remote areas.
Along with the increase in school dropouts, there has been a sharp fall in enrollment
across different levels of education. According to the National Statistical Office (NSO), the
combined primary and secondary gross enrollment rate was 91.1 percent in 1989, 54 percent in
1992, and 75 percent in 1998. On the other hand, more than 70 percent of university students
are women.
The Government has undertaken a number of measures to alleviate the dropout
problem, including organizing special classes for dropout children and providing mobile teams of
teachers for children living in remote areas. Several bilateral and international donors are also
supporting this effort. But with schools already overcrowded and undersupplied, the
effectiveness of these measures will be limited.
A longer-term problem arises with the large number of children whose stunted or
disrupted education will limit their capacities in the future. The cumulative effect of this
disruption will create a wave of less literate cohorts passing through Mongolian society over the
next 40-50 years. Even assuming that male dropouts will not lose the knowledge acquired
during their school years, a simulation for the over-15 age group suggests that the literacy rate
will drop sharply by 2002, with the greatest damage occurring to males in rural areas.
The phenomenon of increasing male dropouts and a poor male literacy rate compared
with that of females is creating new social problems in Mongolia. For example, male drop-outs
now constitute the bulk of street children and young criminals. Also, less educated males have a
decreased chance of marrying successful women, and if they do marry, are subject to
household and societal problems. Yet another problem is caused by the relative oversupply of
educated women from rural areas. Many of these women will choose to live in cities, generating
an imbalance in the gender ratio in rural areas, which in turn will contribute to the
underdevelopment of rural Mongolia.
P. Nymadawa: Reverted Gender Issues in Mongolias Education and Health Sectors 59
CONCLUSION
As Mongolia works to improve its health and education systems, it must pay particular
attention to the effects of policy and spending decisions on the most vulnerable groups of the
population. What may at first seem to be unobtrusive cuts in funding allocations or simply
maintaining the status quo in social policy can have far-reaching economic and social
consequences for vulnerable individuals. These consequences are illustrated by the link
between spending on MRHs and rural maternal mortality and the link between a stagnant
education system and increasing social problems for young male dropouts. Incorporating the
needs of vulnerable groups into social policy is essential if Mongolia is to create opportunities
for its citizens to reap the benefits of the new market economy.
REFERENCES:
Aday, A. L., and R. Anderson. 1974. A Framework for the Study of Access to Medical Care. Health
Services Research,pp. 208-20.
Byambaa, R. 1986. Some Aspects of Organization of Obstetric Care in Rural Areas of the Mongolian
People's Republic (on examples of Gobi-altai aimak). Ph.D. Dissertation, Ulaanbaatar, 120 pp. (in
Mongolian).
Directions of the Population Policy in Mongolia approved by the Presidential Decree No 115 of 1991, In:
Annual Review of Population Law, v.18, 1991, UNFPA and Harvard Law School, pp.262-3.
Dugarjav, J. 1977. Health and Social Protection of Mothers and Children. In: 55 years of Public Health
In the Mongolian People's Republic (1921-1976). Ulaanbaatar, pp. 113-135.
Farrel, C. 1999. Women in the Workplace: Is Parity Finally in Sight? BusinessWeek, Asian Edition, 9
August 1999, p.39.
Human Development ReportMongolia. 1997. pp. 20-21.
Huque, Z., and D. Olonchimeg 1993. Maternity Rest Homes in MongoliaProblems of Transition.
Mongolia Safe-motherhood Newsletter, No 1, pp. 7-8.
Karruters, D. 1914. Mysterious Mongolia. Sankt Petersburg (in Russian).
Kozlov, P.K. 1905. Mongolia and Kam. Sankt Petersburg (in Russian).
National Statistics Office of Mongolia. 1999. Mongolian Statistical Yearbook, 1998. Ulaanbaatar, pp 222.
Neupert, R.F. 1992. Mongolia: Recent Demographic Trends and Implications. Asia-Pacific Population
Journal, v.7, No 4, pp. 3-24.
Nymadawa, P. 1998. Population Dynamics of Mongolia in the Twentieth Century. In: ProceedingsPublic
Health in Asia, Memorial Conference for Dr. K. P. Chen, March 5-6, 1998, National Taiwan University,
Taipei, China, pp. 216-222.
Nymadawa, P. 1990. Renewals Expected in the Health Service of the Mongolian People's Republic and
Main Directions in the Improvement of the Health Situation of the Population in the Period until 2005.
Mongolian Medical Sciences, No 1(77): 3-12 (in Mongolian).
Nymadawa, P. 1992. Problems of Family Planning, Mongolian Medical Sciences, No 1(79): 3-8 (in
Mongolian).
Tsagaankhuu, D. 1963. Health Service of the Mongolian People's Republic in 1919-1960. Ph.D.
Dissertation, Moscow (in Russian).
WHO. 1996. Maternity Waiting Homes: A Review of Experiences. WHO/RHT/MSM/96.21, Geneva, pp.38
THE VULNERABILITY OF HOMEWORKERS IN SOUTHEAST ASIA20
WHO ARE THE HOMEWORKERS?

There are two types of homeworkers: the dependent subcontractor and the independent
own account worker. The former is known as the homeworker while the latter is known as the
home-based worker. The distinction is important because it denotes the workers degree of
autonomy and it has implications on the workers level of vulnerability. Both types are
considered members of the informal sector. Informal employment often increases when there is
a crunch for jobs in the modern sector. The ILO defines homeworkers as those who carry out
work at workers premises of choice, other than the workplace of the employer, for
remuneration, which results in a product as specified by the employer, irrespective of who
provides the equipment, materials or other inputs used (Homeworkers Convention of 1996).
The homeworker's main contribution is their labor in the production of a good or service.
Homeworkers are usually price-rated. There are many women among the ranks of
homeworkers. (this is a worldwide phenomenon).. In brief, homeworkers are mostly women
earning low incomes either as self-employed or subcontractors. They are poor, often
marginalized, and vulnerable.
THE VULNERABILITY OF HOMEWORKERS

Homeworkers are subject to a number of disadvantageous circumstances. These
include: (i) Irregularity of orders resulting in uncertain income; (ii) dependence on intermediaries;
(iii) low piece-rates over which homeworkers have no control; (iv) lack of bargaining power, and
(v) lack of a contractual employer-employee relationship. These disadvantages are
interconnected and can be summed up into three strategic disadvantages, namely invisibility,
lack of access to productive resources, and lack of socio-legal protection.
Homeworkers fall in a gap between informal and formal sector statistics. Although they
are not likely to be included in the list of employees of the formal firms for which they work, they
are also often excluded from informal sector surveys. A 1990 ILO review of 70 countries found
that only seven countries had a separate category for homeworkers in their labor force
surveys. The invisibility of homeworkers means that the sector is mostly ignored in national
planning and policy making.
Access to credit facilities, product development, marketing assistance, technology
transfer, and social insurance remain inadequate for homeworkers. These are, however, vital in
cultivating micro- and small enterprises as alternatives to homework. Formal sector employment
remains a dream for many homeworkers since the developing economies of Asia where
homework abounds are mostly labor surplus countries
Homeworkers are often unable to seek redress in court because of their unclear
employer-employee relationship. Their ambiguous status as workers makes it difficult to apply
existing labor laws which have been designed mainly for wage workers. There are no social
insurance provisions for life contingencies. Where the self-employed can be covered under the
social security system, in practice they cannot afford to pay the premiums.
20
This paper was written by Lucita Lazo. Ms. Lazo is a Trustee of HOMENET International, Philippines, and was
Chief Technical Adviser of an ILO subregional technical cooperation project on rural women homeworkers.
L. Lazo: The Vulnerability of Homeworkers in Southeast Asia 61
HOMEWORKERS CHALLENGE TO ECONOMIC ORTHODOXY

The case of homeworkers poses three challenges to economic understanding of the
informal sector.
Challenge to Official Statistics

Research and micro-studies on micro-enterprises, the informal sector, and womens
work show the critical importance of homework as a source of employment, especially for
women. Homebased work is prevalent in both the rural non-farm sector and the urban informal
sector, especially in manufacturing and service activities. This survey found the population of
microenterprises to be larger than previously estimated.
Challenges to Mainstream Assumptions

The case of homeworkers challenges mainstream characterizations of the informal
sector in at least three ways. It shows that some subsectors of the informal sector have direct
production, trade or service links to the formal sector. Many employers subcontract work to
homeworkers as a cost-reducing strategy or in response to the deregulation of labor. Second,
the informal sector is of policy relevance. Activities in the informal sector are governed by and
impacted by macroeconomic and sectoral policies and regulations. And third, the informal sector
is growth promoting. Informal sector workers actually subsidize capitalist growth by providing
space, equipment, and by working for below-minimum wages.
Challenge to Orthodox Prescriptions

In the World Development Report 1995, the World Bank offers various prescriptions to
deal with income insecurity for formal labor markets. But, in regard to informal labor markets,
after acknowledging that informal sector workers are more vulnerable to income insecurity and
loss than formal sector workers, the World Bank states that it is more difficult to provide security
through public intervention to the informal sector than to the formal sector. The only policy the
Bank recommends to deal with income insecurity in the informal sector is public works.
WHAT CAN (AND SHOULD) BE DONE FOR HOMEWORKERS?
Reforms in National Statistics

There is a move to include homeworkers in national labor force surveys. Pilot studies
have been completed in Indonesia and the Philippines, under the auspicies of the ILO-Danish
International Development Agency (DANIDA) Rural Women Homeworkers Project in 1988-
1996. What remains is for these experiments to be adopted and institutionalized in the
respective national statistical systems.
Redesign Policies
Field experiences indicate that informal sector workers can be protected and promoted
through public interventions and policies. The concerns of the informal sector workers and
entrepreneurs can be (and has been) integrated in macroeconomic, sectoral, and regulatory
policies. In different countries, a variety of policies have been introduced.
Market Policiesto increase the demand for goods and services produced in the
informal sector, to remove biases against the barriers faced by informal sector workers.
Labor Policiesto provide legal recognition to informal sector enterprises and workers;
to enforce labor and safety standards for informal sector workers.
Urban Policiesto promote protective (remove restrictive) zoning and housing
regulations; to incorporate informal sector workers in urban plans.
Social Security and Insurance Schemesto provide health, life, occupational, and
property insurance schemes to informal sector workers.
Institutional Policiesto promote organizations of informal sector workers and to
promote representations of informal sector workers in policy-making bodies.
Grassroots Organizing and Networking of Homeworkers

Organizing has proven to be an important mechanism for reducing the strategic
disadvantages of homeworkers. Through the organization of homeworkers, advocacy for policy
reforms has been pursued and direct aid can be channeled in a systematic way.
Homeworkers in various countries have organized and linked themselves into national
and international networks. In the Philippines, for example, there are 12,000 members of the
National Network of Homeworkers known locally as Pambansang Tagapag-ugnay ng
Manggagawa sa Bahay (PATAMABA). Similar national networks have been set up in Thailand
and Indonesia. In South Asia, the Self-Employed Womens Association (SEWA) and the
Working Womens Forum (WWF) have formed a pressure group to organize against exploitation
of any kind and increase their bargaining power vis a vis employers. Providing credit at low
rates of interest for its members and marketing finished items have been major activities of
these organizations..
The international network links the national networks in various countries and is known
as the International Network of Homeworkers (HOMENET International). HOMENET has
lobbied strongly for the passage of the Homeworkers Convention of 1996 at the International
Labor Conference.
A major drawback for homeworkers organizations is their lack of wherewithal to support
their action programs to assist homeworkers. External donors have been willing to fund
programs but not the administrative expenses for running such programs. The common view is
that homeworkers equity is their volunteer time. However, this has been found to be untenable
of late, due to the increasing demands for women to help tide over their respective households
day to day expenses. In the recent ADB study on the impact of the financial crisis, it was
reported that the crisis appears to have reinforced womens proverbial multiple burden . The
study does not make direct reference to homeworkers but one can surmise that the women are
engaged in homebased work as a means of coping with the crisis.
The emergence of the ILO Homeworkers Convention is a welcome development as it is
the first international treaty that sets labor standards for the informal sector. If ratified and
implemented by national governments, the Convention can be a potent means to reduce
poverty among homeworkers. It could also change the whole face of the international labor
movement given the sheer size of the informal sector.
The World Social Summit has also underscored globalization as a trend that will impact
significantly on homeworkers and the informal sector. There is a need to look into the impact of
globalization and the General Agreement on Tariffs and Trade (GATT) regime on homework
and define appropriate actions. Solidarity action and international networking may be necessary
for homeworkers to consolidate their disparate forces and influence the architecture of new
L. Lazo: The Vulnerability of Homeworkers in Southeast Asia 63
social and economic policies in the 21st century. Homeworkers representation may be
necessary for this to be a reality.
64
Chapter 2.3: Vulnerability and Exclusion
____________________________________________________________________________
CHILDREN AS LOSERS IN ECONOMIC DEVELOPMENT:

STRATEGIES AND POLICIES TO PROMOTE THE BEST INTERESTS
21
OF CHILDREN IN EAST AND SOUTHEAST ASIA
INTRODUCTION
The Manila Social Forum reflects a growing consensus on the need to redress the social
consequences of the Asian crisis. As an international NGO that operates around the world,
Save the Children welcomes this timely move and the concerns of ADB and the World Bank for
pro-poor economic growth and social policy challenges. However, we believe that the goals of
poverty reduction and social development will be achieved only if childrens needs, interests,
and their perspectives are placed at the center of the new social agenda, equal to those of
adults.
Whereas the general economic impact of the financial crisis in Southeast Asia and the
economic reforms taking place in Asia are covered by various studies, little is known about the
specific damage to children caused by the economic crisis and reforms. It is uncertain whether
children of the crisis will be able to bounce back while the economies and the markets are now
heading toward recovery.
This brief paper focuses on how children22 were hurt by the Asia crisis and how they are
often excluded in the process of economic development. The paper also sets forth some
recommendations to help include them into a new social agenda.
CHILDREN IN CRISIS: IMPACTS OF THE ECONOMIC CRISIS IN THAILAND

In Thailand, children make up 33.5 percent of the 60 million population. It is ironic that
although the country is a major world food producer, about 58.7 per cent of the six million
children of primary school age are undernourished; of this more than one million are critically
malnourished. (National Youth Bureau, 1999)
A Save the Children study of rural communities in two provinces in Northeastern
Thailand confirmed that children are critically affected by the crisis. Massive unemployment,
rising food prices, and increasing poverty directly reduce the ability of the familythe
fundamental institution of Asian societyto provide care and protection to children. (Juntopas,
1998). Other studies have also indicated that the quality of life of marginalized children
deteriorated after the crisis. Many child laborers were laid off without dismissal pay, were forced
to reduce expenditures by eating less or consuming low-quality food (Foundation for Children
Development, 1999). The unemployed in the cities tended to suffer from health problems, many
reporting conflicts within the family. Compared to previous years, children of younger ages, both
girls and boys, were found to run away from home and be at risk of drug addiction and sex
work, and an increasing trend of child sexual and physical abuse was evident (Northeast
Development Association).
Drug use, crime involvement, and abandoned children are all phenomena associated
with the Asian crisis. Half of the drugs-related crimes in 1997 were committed by children and
21
This paper was written by Kanchada Piriyarangsan. Ms. Piriyarangsan is the Regional Development Adviser for
East Asia and the Pacific of Save the Children UK.
22
In this paper a child is anyone under eight years of age (UN Convention on the Rights of the Child).
K. Piriyarangsan: Children as Losers in Economic Development 65
young people. Data from 40 Childrens Welfare Homes in Thailand and public hospitals
indicated that child abandonment in 1998 increased at the rate of 9.7 and 34 percent among
children between 0-5 years and between 6-18 years, respectively. (National Youth Bureau,
1999)
PUTTING CHILDREN AT THE CENTRE OF THE NEW SOCIAL AGENDA

It is essential to stress that the damage to children in East and Southeast Asia was not
caused only by the immediate economic crisis but their vulnerability existed prior to the crisis
and is due inherently to fundamental weaknesses in the growth-led economic development
model.
What should we do if the damage to children is to be reversed? Short-term sectoral
interventions targeting children are essential but not sufficient. Attention to providing a favorable
economic environment or waiting for another economic growth spurt is not enough. The Manila
Social Forum is aimed toward a new social agenda. But whose agenda are we talking about?
Who sets the agenda and the prioritiesnational policy makers, or international donors, or the
disadvantaged adults? How can the social agenda ensure the best interests of children and who
defines such interestsadults or children? To enable children to become winners in economic
development, a policy framework needs to be put in place to protect childrens rights together
with operational strategies and mechanisms to ensure that such a framework functions
efficiently.
Social Policy Formulation Needs to Prioritize Children s Rights

National governments should be encouraged to avoid promoting economic growth at the
cost of inequity and social problems. The severe shortages of resources facing policy-makers in
the crisis-hit countries are often cited as constraining the choices that can be made.
Nevertheless, there is always some room to spend less on artillery and more on food security,
primary education and social welfare. This requires a rethinking of public spending priorities.
Historically, children have been a low priority for social investment. The exclusion of
children is obvious in both the open economies and transition economies. In open economies
such as the Philippines and Thailand, investment in children falls far below investment for items
such as defense and debt service. Prior to the crisis, the Philippines and Thailand invested only
7.7 and 14.6 percent of their national budgets, respectively, in basic education, primary health
care, and water and sanitation. These social investments are vital for childrens survival and
development. By contrast, the combined allocation for defense and debt service was 40.6 and
15.5 percent. Social underfunding has continued after the crisis. The 1999 budget allocated to
Public Welfare Department in Thailand for protection of those in extreme need (the poor,
neglected children, children with disabilities, acquired immune deficiency syndrome (AIDS)
orphans, prostitutes, the elderly, ethnic minorities, and those suffering from natural disasters)
was cut by 14.6 percent. The allocation for other preventative social work was slashed by 52.6
percent. In the transition economies, economic growth is a higher priority than child protection.
In PRC, Mongolia, and Viet Nam, economic reforms have been implemented with a reduction of
the States role in terms of both financial deregulation and the provision of education, health
care and social safety nets.
66
____________________________________________________________________________
Table 6: Budget Allocation to Basic Social Services, Defense,

and Debt Service in Selected Countries
Basic Social Services
Country Year Total Education Health Water & Nutrition Defense Debt
Sanitation Service
Nepal 1997 13.6 8.3 3.1 2.3 - 4.7 14.9
Philippines 1992 7.7 6.8 0.6 0.3 - 9.9 30.7
Sri Lanka 1996 12.7 3.5 4.5 1.0 3.6 18.5 21.5
Thailand 1997 14.6 10.2 4.4 - - 14.2 1.3
Source: Country experiences in assessing the adequacy, equity and efficiency of public spending on basic social
services, Paper prepared by UNICEF and UNDP for presentation at the Hanoi Meeting on the 20/20 Initiative, 27-29
October 1998
Where social investment is available, it does not automatically assure that the poor
benefit proportionally from the service delivery. For example, in Indonesia and Viet Nam the
share of benefits going to health spending was much higher among the richest quintile of the
population than the poorest (UNICEF/United Nations Development Programme [UNDP] 20/20
Initiative).
Table 7: Distribution of Benefits of Public Health Spending in Selected Countries
Quintile shares of:
Primary Facilities Hospital Hospital Inpatient All Health
Outpatient
Poorest Richest Poorest Richest Poorest Richest Poorest Richest
Indonesia 18 16 7 41 5 41 12 29
(1990)
Viet Nam 20 10 9 39 13 24 12 29
(1993)
Colombia 24 19 - - - - 18 27
(1997)
Costa Rica 43 7 25 13 30 15 30 13
(1992)
South Africa 18 10 15 17 - - 16 17
(1994)
Source: Country experiences in assessing the adequacy, equity and efficiency of public spending on basic social
services, Paper prepared by UNICEF and UNDP for presentation at the Hanoi Meeting on the 20/20 Initiative, 27-29
October 1998
Investment in social safety nets should not be used only as a means to stabilize
government, nor as a compensation for inequitable economic reform processes. Rather social
safety nets need to
focus on the welfare and long-term well-being of children to enable them to develop into
a healthy future of the nation;
repair, or substitute for, the support systems, both formal and informal, that protect poor
families, children, and communities, in both rural and urban areas, from livelihood
(economic, social, and political) insecurities, stresses, child abuse, neglect and
exploitation;
strengthen local capacity to manage and plan resources for better care, protection and
development of their children;
establish an ombudsman system, at all administrative levels, to oversee that childrens
issues/ rights are attended to; and
remove barriers that discriminate against vulnerable children (disabled children, children
of human immunodeficiency virus (HIV) positive parents or children orphaned by AIDS,
children of ethnic minorities, children of irregular migrants, street children, children at risk
of/ victimized by sexual abuse) in education, training, economic gains and decision
making; gender sensitivity needs to be ensured.
Making Children More Visible in Economic and Social Policies

A number of indicators of child health and well-being are routinely collected and
analyzed in most countries. These indicators include birth rate, average birth weight, infant
mortality rate, immunization rates, nutritional status, school enrolment and literacy rates. But
beyond these basic health and education data, children are absent from social information.
They are not included explicitly in unemployment or poverty figures, or in analysis of migration.
When children are considered, they are normally viewed as a cost to the family and to the
state in terms of investment, or as a commodity for commercial and exploitation purposes as in
the case of trafficked children and child sex workers.
Economic planners fail to see children in their strategies because the prevailing
economic analysis fails to include children. The Save the Children study in Viet Nam
demonstrated that reality changes once children are taken as the unit of poverty analysis. The
Viet Nam Living Standards Survey done in 1992/93 reported that after the introduction of doi
moi (economic renovation) policy by the end of 1980s the number of people in poverty had gone
down from 70 to 50 percent of the population. But when we disaggregate this figure by age, we
find that almost 60 percent of children under the age of 18 live below the poverty line while only
45 per cent of adults over the age of 18 live in poverty (Theis, 1999). A joint World Bank/Save
the Children study of vulnerable groups in Mongolia in 1992 showed that 49.7 percent of the
population living below the minimum income level were under the age of 16, while children
accounted for 42 percent of the total population, reflecting a disproportionate rate of poverty
between adults and children (Harper, 1994).
Economic policies and social intervention programs should be informed by child-specific
data and indicators. National statistics should:
disaggregate poverty-related data by age and gender;
recognize economic values of important non-monetary work especially that undertaken
by unpaid family workers (most of whom are women and children);
include the number, distribution, and characteristics of children in exploitative or
hazardous labor and monitor their health and nutritional status;
develop measures to regularly monitor micro (economic and social) impacts of macro-
economic policies on poor people including children and women particularly the
economic restructuring programs and the poverty alleviation so as to identify what are
beneficial, what are harmful, and what should be strengthened; and
include child-specific indicators (particularly those which are meaningful to childrens
rights) in macro-level policy analysis.
Promoting Participation of Children as Social Actors Not Just as Target

Recipients
One of the key principles of the UN Convention on Rights of the Child is that children
should be participants in policy formulation and implementation. Considering age and maturity,
children can and should participate productively in discussing issues that affect them.
68
____________________________________________________________________________
Promoting childrens participation in an international conference has begun to be

instrumental in bringing policy makers closer to young people and in getting childrens
messages across.
The presence of children as participants at the World Congress against Commercial
Sexual Exploitation of Children (Stockholm, Sweden, August 1996) was productive and
impressed policy makers. At the Regional Consultation against the most Intolerable Forms of
Child Labour (Bangkok, Thailand, September 1997) working and street children from five
countries formulated a statement on what they considered the most unacceptable forms of child
labor and a list of short-term actions to deal with the problems. The statement was input into the
International Child Labour Conference (Oslo, Norway, October 1997).
Childrens participation also works well at the programming level. In PRC, Cambodia,
Thailand, and Viet Nam, involving children in HIV/AIDS prevention projects at schools and
communities has proven to be effective. Our offices in Viet Nam and Lao PDR engaged children
in research on child labor and on childrens needs. The experience indicated that through
special training, children in their teens and youths are able to work as researchers, and through
participatory methods many children of younger ages can act as key informants. The findings
reflect childrens views on their needs, concerns, and interests, many of which are quite different
from those described by adults.
To encourage childrens participation, it is recommended that decision-makers, program
planners, and researchers should
listen to, communicate with, and interpret childrens view;
create social space for children to participate in their own protection and undertake their
own initiatives; and
develop mechanisms to include childrens views in decisions that affect them.
What can the ADB and World Bank do as major international donors?
International donors such as ADB and the World Bank can help national governments to
fulfil their commitments to children. Through lending and technical assistance activities the
donors can encourage national governments to involve children, NGOs, and civil society
organizations in the formulation and monitoring of assistance programs. International donors
can also help to ensure that assistance packages are coordinated with government policies to
secure a holistic approach toward childrens needs, rights, and perspectives. Finally, donors can
help establish reliable, coherent data collection systems to avoid distributional and allocative
deficiencies and permit evaluations of crisis-related interventions as they affect children and
other vulnerable groups.
CONCLUSION
Implementation of childrens rights is the responsibility of the state as much as the family
and community. Childrens rights as embodied in the UN Convention on the Rights of the Child
should be an obligation of the State and civil society as a whole, at local, national, and
international levels. Unless economic and social reforms ensure implementation of the basic
rights of children, they will continue to be left behind in the development process. This will
hinder the progress of all nations.
REFERENCES
Foundation for Childrens Development. 1999. Bangkok
Harper, Caroline. 1994. An Assessment of Vulnerable Groups in Mongolia: Strategies for Social Policy
Planning. World Bank discussion paper no.229, World Bank/SCF, Washington.
Harper, Caroline. 1998. Children and economics framework. December 1998. London
Juntopas, Muanpong. 1998. Social Impact of the Economic Crisis on Vulnerable Children in Thailand.
November 1998. Bangkok
Malhotra, Kamal. 1999. Economic Renovation, User Fees and the Provision of Basic Services to
Vulnerable Families: Lessons for Viet Nam. Save the Children Alliance and UNICEF. UNICEF
Thailand, Master Plan of Operations for Development and Protection of Children in Thailand, 1999-
2003.
Myers, Williams. 1999. Concepts of Childhood and Approaches to Child-Centered Programming and
Policy Work Related to Child Labour Issues. September 1999.
National Youth Bureau. 1999. Situation of Children and Youth in Thailand 1997-1998. September 1999.
Bangkok
Petty, Celia. 1998, 1999. Series Papers on Social Policy, Social Welfare.
Save the Children UK. 1999. Position on Childrens Rights. January 1999. London
Save the Children. 1995. Toward the Children Agenda. London
The Nation. 13 August 1999. Thailand
Theis, Joachim. 1999. Children and Poverty in Viet Nam: Disaggregating Living Standards Survey Data
by Age..Save the Children, January 1999.
UNDP and Save the Children UK. 1998. Listening to the Voice of Young People. Vientiane.
de Vylder, Stefan. 1996. Development Strategies, Macroeconomic Policies and the Rights of the Child.
Radda Barnen.
CHAPTER 3:
RURAL AND URBAN FACES

OF POVERTY
72 Chapter 3.1: Urban Development and Poverty
REFORMS OF STATE-OWNED ENTERPRISES AND SOCIAL PROTECTION

23
IN THE PEOPLES REPUBLIC OF CHINA
REFORM OF STATE-OWNED ENTERPRISES

Since 1978, the PRC has pursued substantial market and enterprise reforms, with SOEs
being targeted since 1993. These enterprise reforms have passed through three distinct
legislative stages in the past 20 years. They are discussed briefly below.
Extended Rights of SOEs

The first stage involved extending the rights of SOEs. The major focus of this stage of
reforms was to rebalance the responsibilities and rights between the State and enterprises. The
3rd Plenary Session of the 11th Party Central Committee held in December 1978 gave support
for the idea of sharpening the distinction between the Party, the government and enterprises,
and gave enterprises more discretion in their own management. In 1979, the State Council
circulated five documents pertaining to SOE rights, which included the Regulations on
Extending Management Rights of State-Owned Industrial Enterprises. By the end of 1980, more
than 6,600 experimental enterprises were implementing the new management style. In 1981,
the new management rights were extended to all SOEs.
Extended Management Responsibilities

The second stage of SOE reform was to implement the system of contracted
management responsibility and to further mobilize energies from enterprises and their
employees for production and management. The Decisions on Reforms of the Economic
System of the Party Central Committee (Decisions), issued in October 1984, proposed setting
up a planned system to develop the commodity economy that is based on the conscious
application of an objective value law. The Decisions advanced an economic system with cities
as the focal point, relying on the innovations and vigor of large- and middle-sized enterprises.
The Decisions, for the first time, codified the distinguishing functions between government and
enterprises, and identified proprietary rights with management rights, emphasizing the need for
enterprises to make independent managerial decisions.
Beginning in March 1988, the State Council successively issued two important
documents, Provisional Regulations on the System of Contracted Management Responsibility in
State-owned Industrial Enterprises and the Regulations of Transforming the Management
Mechanism in state-owned Industrial Enterprises. These documents outlined 14 management
rights of SOEs. By the end of 1988, 95 percent of SOEs used the system of contracted
responsibility.
During the first two reform stages, enterprise management reform was largely
experimental. Enterprises implemented different reform models, including contracting for a fixed
rate of profits, substituting profits with tax reductions, using the system of contracted
management responsibility, and others. But in practice, enterprises were still fully dependent on
the Government.
23
This paper was written by Chen Qunzhou. Mr. Chen is the Deputy Department Chief of the Ministry of Labor and
Social Security in the Peoples Republic of China.
Q. Chen: Social Protection for the Urban Poor in China 73
Reforming the Operational Structure

The third stage of reform was initiated with Deng Xiaopings speech during his visit to the
PRCs southern provinces in early 1990. The major task at this stage was to implement more
fully the system put forward by the 14th Party Congress, and to transform the SOEs into
functioning corporate bodies capable of managing themselves and assuming responsibilities for
firm success
In November 1993, the 3rd Plenary Session of the 14th Party Central Committee issued
the Decisions on Certain Problems in Establishing Socialist Market Economy System
(Decisions). The Decisions clearly stated the direction of future reform, to develop a modern
enterprise system with clear ownership separate from the Government, clear rights and
responsibilities of both ownership and State, and promoting efficient management.
The 15th Congress of the Party, held in September 1997, formulated specific strategic
objectives to carry out reorganization of SOEs, emphasizing ownership structure, and
supporting additional models of performance-oriented state ownership. According to the plan of
the 15th Congress, by the end of the 20th century, the Government would complete the
reorganization of large- and medium-sized SOEs into market-driven entities.
SECURITY FOR THE URBAN POOR

Due to the industrial adjustment and enterprise transformation in the 1990s, some
enterprises went bankrupt, and there has been an increase in the number of unemployed
workers. Since most SOEs are located in urban areas, the number of urban residents who have
experienced unemployment and poverty has increased.
The Government has set up three levels of social protection systems for poor urban
residents: The first level consists of providing basic income to workers laid-off from SOEs. The
second program is a comprehensive social insurance system for old age pension,
unemployment, and workers disability. The third component provides a minimum income level
to poor urban residents. In addition, there is a social relief system, which dates back to 1949.
The main population segments for which the system was originally designed are urban
residents who are old, unemployed, disabled, or young orphans. This system is not appropriate
to meet the social challenges at the beginning of the new millennium. With enterprise
restructuring, the social relief system needs to be reformed.
Efforts to reform the social protection system through minimum social assistance
requirements have been underway for several years. For example, in 1993, the Shanghai City
government issued minimum living standard requirements after a thorough study of its
population. In 1994, the Ministry of Civil Administration required the determination of minimum
living requirements in major cities. In 1995, 12 cities, including Xiamen, Fuzhou, and Qingdao,
conducted studies on the minimum incomes necessary to live at a reasonable standard. The 9th
Five-years Plan and the Long-term Plan (2010) for National Economic and Social Development
of the Peoples Republic of China further emphasized the need to set up a social protection
system for urban residents based on minimum income requirements.
In September 1997, the State Council sent out a Circular on Setting up the Minimum
Living Security System for Urban Residents in the Whole Country (Circular). This Circular asked
model cities to establish the Minimum Living Security System for Urban Residents before the
end of 1998. In addition, all cities at county level and county government were requested to
implement this system before the end of 1999. The Circular also stipulated that all city residents
whose average family income per capita was lower than the minimum living security standard of
the city should receive relief. At the same time, the State Council held special video telephone
meetings to support this work. By the end of June 1999, there were 660 cities and 1,505 towns
where county governments have set up the Minimum Living Security System for Urban
Residents, which, respectively, accounted for 99 percent and 92 percent of total urban
settlements. In the first half of 1999, local government at all levels provided more than Y600
million in relief measures to more than 2.2 million urban poor people. Each locality decided and
promulgated local minimum living security standards according to the average standard of
living, consumption indexes, and financial situation of the locality. The data indicate that the
minimum security standard of the whole country is Y70 per month per capita, the maximum
Y260; and most cities fall in the Y100-150 range.
In September 1999, Zhu Rongji, the Premier of the State Council, issued the
Regulations on Minimum Living Security for Urban Residents (No. 271 Command of the State
Council) (Regulations). These Regulations determine --based on local actual conditions(i)
requirements of urban residents for enjoying minimum living security support by the
Government, (ii) resources to be raised under minimum living security funds, (iii) security
standards and work procedures, (iv) management and supervision of work, and (v) staffs and
social security responsibilities. These Regulations play an important role in helping to accelerate
the process of standardizing and systematizing the minimum living standards for the
approximately five million urban poor in the PRC.
S. Boonyabancha: Citizens Network to Address Urban Poverty in Thailand 75
CITIZENS NETWORK TO ADDRESS URBAN POVERTY IN THAILAND24
INTRODUCTION
A major challenge for national governments and international organizations over the last
several decades is to address poverty more effectively. The key is to find mechanisms for
poverty reduction on a large scale and make continuous efforts that are administratively
manageable as well as cost effective. Experience shows that conventional government-led
approaches alone are not effective and that small adjustments to the public system cannot
succeed, given the scale and complexity of urban poverty problems. New ways to combat
poverty must be found that do not rely solely on the capacity of the existing institutional system
and that can work across a wide range of urban populations with sufficient strength, capacity,
and authority. One important mechanism in Thailand is citizen networks that deal with various
development issues through the support of the Urban Poor Development Fund.
THE URBAN COMMUNITY DEVELOPMENT OFFICE IN THAILAND

Thailand has about 2,000 slum communities, in which about two million urban poor
people are living. The number of urban poor in fact is substantially more than two million, since
many people live outside the slums. More than 70 percent of the urban poor work in the informal
sector, with the majority in small trading businesses and daily wage jobs. Lack of income
contributes to many problems, among them land and housing insecurity, lack of basic
infrastructure, and poor health and education.
Since 1992, the Urban Community Development Office (UCDO) has experimented with
new development processes and techniques to address urban poverty in Thailand. The "Urban
Poor Development Fund" has been used to generate holistic urban community development
processes by and for the urban poor community. Through the very basic process of community
saving and credit activities, more than 600 urban poor saving and credit groups in more than 40
provinces throughout the country have been organized into community networks located in each
city. These networks have created a collaborative development mechanism at community level
that provides the urban poor with a politically active voice as well as a link to other civil groups
and local organizations in the cities.
The Fund is not limited to providing credit to the poor. The savings and credit activities
that the Fund promotes are a means for the communitys self-determined comprehensive
development, linking the urban poor together and to external resources. Linking the savings and
credit groups within the same city, region, or district reinforces the common interest shared by
community members within the network. The Fund consists of a revolving credit pool of B1.25
billion (about $32 million). The Fund is used to improve the living conditions of urban poor
communities by promoting community savings and credit groups and by providing integrated
loans at favorable interest rates.
Networks can be formed in the same geographical area or are established based on the
common interest of the constituent groups. The UCDO and the Fund also help to develop
managerial capacity of communities by linking and creating various development activities such
as housing, welfare, environment, community enterprise, etc. in such a way that communities
are linked to work or to learn together as well as with other local actors.
24
This paper was written by Somsook Boonyabancha. Ms. Boonyabancha is working for the Urban Community
Development Office of Thailands Housing Authority.
THE FORMS AND FUNCTIONS OF COMMUNITY NETWORKS

A community network is not difficult to start in Thailand. A gathering of urban poor
groups to discuss common problems and issues of importance, if facilitated properly, can lead
to community collaboration and networking. Most networks start as a loose gathering of people
and gradually develop into an organization. As people understand each other, more communal
activities are implemented, both small and large, both simple and sophisticated projects, based
on the peoples needs and the current situation in the poor neighborhood.
There can be many different types of community networks. The basic idea is to establish
linkages and connections that permit the urban poor community to participate in and influence
its surroundings. To be effective, the network needs to be organized at the smallest constituent
level, which acts as the base from which links to other larger constituencies can be established.
In Thailand, this base constituency has been the district or the city, which then links together at
the provincial, regional, and national levels. Each network provides a common platform for
communities with similar backgrounds or interests to work together to attain their development
objectives and to promote related structural or policy changes. Once there is a community
network, it can act as a horizontal development mechanism among the urban poor on various
development activities.
Examples of urban community networks to address urban poverty in Thailand include
the following:
community networks to address land and housing problems. Serious land and housing
problems are common among the urban poor. Disputes over land tenure and the threat
of eviction from absentee owners prevent them from establishing a stable residential
status. Community networks have helped in several areas: (i) resolving eviction and
land disputes; (ii) helping to secure housing rights and improving housing conditions for
the poor; and (iii) getting involved in residential and commercial planning with
government agencies;
community networks to develop savings and credit mechanisms. Developing financial
resources within communities increases earning and job creation opportunities at the
local level and allows development and poverty alleviation to be managed by the poor
themselves. UCDO has recently provided funds for the formation of Network
Development Funds that will disburse loans to individuals in member communities;
community networks to develop community enterprise activities. Networks can
organize poor individuals with similar skills or professions so that they can develop
businesses or compete with established private firms that would otherwise exclude the
urban poor from potential economic gain. Examples in Thailand include: (i) networks in
Bangkok that subcontract projects directly from the Bangkok Municipal Authority. In
1999, such subcontracts amounted to B30 million ($800,000) and included production
of school uniforms, garbage collection, and small-scale repair and construction; (ii)
networks that promote and plan for economic development of urban constituencies;
and (iii) professional networks that link poor individuals in the same profession to
promote policy changes and improved work conditions.
development of a welfare system by community networks. The development of local
safety nets to assist the very poor and disadvantaged can be crucial in filling gaps in
government assistance. During 1999, UCDO worked with the Social Investment Fund
to develop a welfare program with community networks as the central operators.
Through the community networks, urban communities identified disadvantaged groups
and planned welfare activities. Most urban community networks in Thailand now have
their own welfare funds with a full range of components, such as funds for school fees,
S. Boonyabancha: Citizens Network to Address Urban Poverty in Thailand 77
old people, hospitalization, treatment of drug addiction, and revolving credit funds for
income generation activities; and
development of urban environment activities by community networks. During the period
1996-1999, UCDO coordinated with DANCED to develop the Urban Community
Environment Fund. The Fund supports environment projects organized by community
organizations and networks. The resulting projects are implemented faster and more
cheaply than Government-initiated activities. About 200 projects were put into action
between 1997 and 1999.
CONCLUSION
Citizens networks offer an effective mechanism to harness the resources of the urban
poor themselves, and can empower them to remove political and structural constraints that
hinder growth and development. They have proved remarkably successful in Thailand, with
support from the Thai Government provided through UCDO.
78 Chapter 3.2: Rural Development and Poverty
RURAL DEVELOPMENT POLICIES FOR POVERTY ALLEVIATION:

SUCCESSES IN VIET NAM 25
For many different reasons, Viet Nam remains an undeveloped country. Per capita GDP
is low, the proportion of poverty is high, the life of the people is hard. To overcome this situation,
the Government of Viet Nam has promulgated a wide range of measures to develop the
economy and alleviate poverty with the aim of raising standards of living. Economic growth and
pro-poor government policies have reduced the incidence of poverty from more than 40 percent
to about 20 percent in the last eight years. Viet Nam is currently said to be the most impressive
success story for poverty reduction in Asia.
GOVERNMENTAL POLICIES
In 1986, the Viet Nam Communist Partys Sixth National Congress ratified a
comprehensive economic and social policy with three key objectives: (i) to shift from a centrally-
planned regime to a market-oriented economy managed by the State; (ii) to democratize the
society; and (iii) to strengthen cooperation and relationships with other countries for peace,
independence, and development.
Viet Nam is an agricultural country with more than 80 percent of the population, over 70
percent of the national workforce, and more than 90 percent of the poor living in the countryside.
Therefore, the policies promulgated by the Party and the Government give priority to agricultural
and rural development. In 1988 the Party Politburo decided to: (i) allocate land to farmers for
longer terms so that they would be willing to invest in production; (ii) contract out to individual
households; and (iii) permit farmers to buy materials and sell their products in a free market.
Irrigation
After introducing land-use reforms affecting tenure, distribution, and taxation, the State
invested a significant proportion of its budget in irrigation and reclamation projects. So far, 743
medium and large ponds and dams and 3,500 small ones have been built. More than 1,000
large draining sewers and more than 1,000 large drainage and irrigating channels have been
constructed. The 10,600 large and medium pumping stations have a capacity of 24.8 million
cubic meters per hour. Cooperatives and farmers purchased more than 755,000 small and
medium water pumps. In the past 10 years, irrigation capacity has risen by 1.4 million hectares.
Reforestation
Major Government efforts have aimed at reforestation. From 1976 to 1990, forested area
was disappearing at an average rate of 190,000 hectares per year. In the 1991-1998 period,
that rate had dropped to 35,000 hectares. During that period 1.373 million hectares of forest
were planted, 9.3 million hectares of existing forest protected, and 700,000 hectares
regenerated. The forest cover ratio rose from 28.2 percent in 1995 to 30.8 percent in 1998. In
1998 the Government approved a project to plant five million hectares of forest land. Forestry
has changed from an industry biased toward cutting timber to one that is based mainly on
25
This paper was written by Hong Thai Le. Mr. Le is the Deputy Director of the Department of Agriculture and Rural
Development in the Ministry of Planning and Investment in Viet Nam.
H. Le: Rural Development Policies for Poverty Reduction in Viet Nam 79
sylviculture, with the people regarded as a major work force to protect and develop forests.
These programs improve the ecological environment, generate jobs, contribute to the alleviation
of poverty in the countryside, and supply materials to the wood-processing industry.
Fishing
In 1997 a program for offshore fishing was established. Through this program the State
provides preferential loans to people who build and re-equip high-powered ships. There are now
71,600 engine-powered ships, of which 4,000 are of large-capacity (90 horsepower or more)
and are equipped for offshore fishing. A network of fishing ports has been built and upgraded.
Machines now perform many hard jobs, simultaneously decreasing manual labor and increasing
productivity. The output of fisheries has become a major export for the national economy,
accounting for 20 percent of agricultural exports and about 9 percent of national exports. In
1998, fisheries produced 1.755 million tons with an export value of $850 million.
Support Services, Forward and Backward Linkages, and Infrastructure

In conjunction with these policies, the State has implemented many other programs to
encourage broad scale economic development, such as the free circulation of goods,
eradication of price controls, and ensuring equality for all economic sectors in business
including import and export aspects (except some items forbidden or strictly managed by the
State).
Many large-scale specialized regions that produce agricultural commodities have been
developed and closely coordinate their production with processing industries in rubber, cotton,
fruit, milk, tea, and sugar. Meanwhile, rural professions have been re-established and expanded
to create cottage industries in rural villages in porcelain, textiles, woodwork, etc.
Efforts are continuing to create more favorable conditions for attracting foreign
investment capital. Internally, domestic investment is being encouraged through tax
preferences; programs for preferential loans to develop forest areas and support industrial
crops, such as sugar cane, have been established. In addition, the Viet Nam Bank for the Poor
was established in 1995 specifically to provide loans to poor households at preferential interest
rates.
Overall, vital infrastructure has been greatly improved. The rural transport system has
been developed and/or upgraded. By the end of 1997, 93 percent of communes had roads to
their center; nearly 70 percent of communes had electricity; 98 percent of communes had
primary schools; 92 percent had health clinics; nearly 40 percent of the population had safe
water to use. Many new rural towns were established.
ACHIEVEMENTS IN REDUCING POVERTY

The national economy has achieved a high growth rate, averaging 8.2 percent for the
period 1991-1995 and 7.5 percent for the period 1996-1998. Inflation was pushed back. In the
past ten years, the rural areas of Viet Nam have seen remarkable changes. The most notable
achievement is the continuous increase in food production brought about by improved
management, transfer of functions from the central to the local level, and by applied scientific
and technical advancements. As a result, Viet Nam has been transformed from a food-shortage
country to one of the primary rice and food exporters in the world. Across the spectrum of
agricultural activity, there is measurable progress. For example: (i) Leaner pigs and Sindhi
hybrid cattle have been introduced; (ii) special aquaculture enterprises, including shrimp farming
and crab farming are underway; and (iii) in crops, hybrid cotton, high-yielding sugar cane, and
other hybrid varieties have been extensively planted. Nearly 70 new varieties of rice have been
introduced and rice exports in 2000 are estimated to amount to four million tons.
The tremendous increase in production has invigorated communities materially,
culturally, and spiritually. Advances in agriculture have played a very important part in leading
the country out of crisis and in creating a foundation for social-economic and political
stabilization. They have helped the country to participate in regional and international
organizations, and have created preconditions for pushing forward with industrialization and
modernization.
Programs are also under way to reclaim waste lands and facilitate the moving of
populations to land-plentiful areas or to new economic areas. About 800,000 ethnic minority
people have been settled permanently; and more than 1.2 million people benefited through
projects for settled agriculture and resettlement. Many border areas were stabilized by
disarming mines and upgrading the infrastructure.
The Government has approved a National Program for job generation with the goal of
attracting 1.3 million to 1.4 million workers annually, reducing urban unemployment
substantially, and increasing the rate of rural working time. The major emphasis of the program
is on skills training and occupational capabilities to increase labor productivity.
Most important, living conditions have improved materially. The proportion of households
that have solid houses, television sets, radios, bicycles, motorbikes, and electric fans is
increasing. The proportion of poor households declined from 30 percent in 1992 to about 17
percent in 1998. The number of people who can read and write and who have graduated from
universities, training colleges, and secondary schools has increased. Cultural affairs,
gymnastics and sports, and traditional customs and festivals have been re-established.
PERSISTENT PROBLEMS:
The income of peasants continues to be low, and the proportion living in poverty remains
too high. The income gaps between rural and urban areas and between different regions are
high and the trend is increasing. Major reasons for this situation include: (i) lack of land for
production (100,000 households in the Mekong River Delta are landless); (ii) lack of capital for
production and doing business; (iii) lack of experience in production and business; (iv) lack of
access to markets; (v) families with a shortage of manpower; and (vi) families with disease or
bad luck.
The Government has identified 1,715 communes with serious problems. Most of these
are located in remote or northern mountainous areas. In 1998 a major commitment was made to
build infrastructure (fresh water system, transportation, irrigation, power system, schools, health
clinics), rearrange population, support financial lending, and strengthen agro-forest extension
activities. In 1999 the State invested D400 million in each poor commune.
CONCLUSION:
Viet Nam has made great progress towards alleviating poverty. Millions of people in Viet
Nam are now enjoying more stable and more productive lives with rising standards of living.
However, despite the many programs that the Government has put in place, the poverty
situation continues to be a serious challenge. Therefore, poverty alleviation, especially in the
countryside, is one of the most important tasks facing the Government in this period and in the
years to come.
Em. Haryadi: Microfinance and the Rural Poor: Some Reality Checks in Indonesia 81
MICROFINANCE AND THE RURAL POOR:

SOME REALITY CHECKS IN INDONESIA26
REACHING THE POOR

The 1980s witnessed the emergence of a new set of microfinance institutions in Asia.
These institutions have brought the finance of microenterprises to unprecedented levels in two
important dimensions: scale and financial viability. They reach far greater numbers of the poor
than their predecessors, and cover more of their costs.
Among these new organizations are the Grameen Bank in Bangladesh and Bina
Swadaya in Indonesia which are pioneers in the field. These organizations, while differing
importantly from each other, constitute the foundations of a financial-systems approach to the
poor through microenterprise development. They share, in varying degrees, important
characteristics that set them apart from the previous generation of microenterprise programs.
Their ability to reach large numbers of the poor on a nearly commercial basis should propel the
field of microfinance to a new level of importance. However, the Asian financial crisis also
affected these institutions, although they provided during that time a good safety net for many
poor.
IMPACT OF INDONESIAN ECONOMIC CRISIS ON MICROFINANCE

The prolonged economic crisis has brought disorder to the Indonesian economy.
Indonesian industries are still collapsed due to great foreign debts, exports have not been
progressing, while banking was unable to provide credit to the real sectors. Banking
recapitalization has yet to occur. An estimated more than Rp600 quintillion (or 60 percent of the
recent GDP of Indonesia) is needed to recapitalize Indonesias banking system.
But despite these economic shocks, poverty in Indonesia did not increase much
between 1996 and 1999. Urban poverty increased by only 900,000 people, after increasing by
6.1 million people in the crisis period of February 1996 to December 1998, while rural poverty
decreased from 21.3 percent (26.5 million people) in 1996 to 20.2 percent (25.1 million) in 1999.
That means that many poor people, especially women who earn income from microenterprises
in the informal sector, had effective safety net mechanisms to cope with the economic difficulties
of the Asian crisis.
Table 8: Poverty in Indonesia, 1996-1999
YEAR URBAN RURAL TOTAL
Percent Million People Percent Million People Percent Million People
Feb 1996 15.6 11.5 21.3 26.5 19.2 38.00
Dec 1998 21.9 17.6 25.7 31.9 24.2 49.5
Aug 1999 15.1 12.4 20.2 25.1 18.2 37.5
Source: Puguh Irawan & Haning Romdiati, The Impact of Economic Crisis on Poverty and Its Implication for
Developing Strategies, Pra-Widya Karya Nasional Pangan dan Gizi VII, LIPI, 23-24 November 1999.
With microfinance programs, non-formal financial institutions (such as self-help groups

running Savings and Credit) developed by NGOs and rural formal financial institutions (like
26
This paper was written by Em. Haryadi. Mr. Haryadi is the Director of the Bina Swadaya Foundation in Indonesia.
BPRs/rural banks) helped to mitigate the social costs of the Asian crisis. The rural economy
using microfinance to support microenterprise development opened up new working
opportunities and absorbed a good number of self-employed from the formal industrial-based
sector. Data suggest that the rate of credit repayment during the crisis decreased from 96 to 85
percent. Credit repayment of micro-enterprises has risen again to 90 percent. In short, the
microcredit programs survived remarkably well through the crisis.
Today, the acute economic crisis in Indonesia is largely over, but many people still suffer
in poverty. Therefore, changes to support a community-based economic development approach
are needed to regain economic growth.
INTERMEDIATING THE POOR

The financial systems approach of these organizations focuses on developing
intermediation for the poor. Financial intermediation works only if the cost of raising funds,
lending and recovery can be met by fees and interest income. In other words, financial
intermediation requires financial self-reliance on the part of the intermediary institutions.
Embracing the goal of self-reliance represents a major change in the thinking of those in the
field of microfinance. The concept has gained acceptance in large part because an increasing
number of successful programs have been developed by a variety of organizations that serve
microenterprises.
THE BINA SWADAYA EXPERIENCE

The Bina Swadaya's approach in promoting microfinance institutions for the poor can be
analyzed in terms of four distinct levels of self-reliance. Presenting these levels as a progression
is not meant to imply that programs should begin at the bottom and work up. Beginning most of
the way up is far preferable to starting at Level One. Nevertheless, programs should be judged
less by their current level of achievement than by their demonstrated progress in moving toward
higher levels.
Level One: Microfinance Formation. This level is associated with traditional, highly-
subsidized programs. Bina Swadaya organizes those in greatest need into Self-Help Groups
(SHGs) to form microenterprises or to manage income-generating projects. Grants or soft loans
cover operating expenses and establish a revolving loan fund. At this stage, Bina Swadaya
encourages the SHGs to undertake savings mobilization. Each member of an SHG has to save
a small amount of money on a regular basis. Bina Swadaya provides training and technical
assistance to the group leaders of the SHGs. However, when programs are heavily subsidized
and performing poorly, the value of the fund erodes quickly through delinquency and inflation.
Revenues fall short of operating expenses, resulting in continuing needs for grants.
Level Two: Microfinance Institution. When the SHGs savings increase moderately, Bina
Swadaya introduces "Solidarity Savings" which each group deposits with Bina Swadaya. The
Microfinance Programs also create a so-called "solidarity credit, borrowing on terms near, but
still below, market rates. Interest income covers the cost of funds, and a portion of operating
expenses, but grants are still required to finance some aspects of operations. At this level the
subsidy required is significantly smaller than at the earlier level. However, the microfinance
programs should not remain at this level. Therefore, the SHGs should be consolidated and
trained in accountancy, microenterprise management and SHG procedures, as well as savings
and deposit mobilization.
Em. Haryadi: Microfinance and the Rural Poor: Some Reality Checks in Indonesia 83
Table 9: Bina Swadaya Achievements in Indonesia

Level 1 Level 2 Level 3 Level 4 Total
Savings and Credit
Operation
Number of Bina 7 6 5 4 22 FOs
Sadaya Field Offices
Number of MF- 196 362 611 570 1739 MF-SHGs
SHGs
Total Savings 56,396,600 301,069,548 446,300,414 230,123,907 1,033,890,469
Mobilized (Rp)
Total Revolving 87,869,600 87,869,600
Fund (Rp)
Total Bank Loan 548,375,000 819,740,373 848,994,280 2,217,109,653
(Rp)
Total Credit 1,058,733,880 819,740,373 848,994,280 2,727,468,533
Disbursed (Rp)
Institution & Capacity
Building Support
Training on:
SHG Principles 196 SHGs 222 SHGs 418 SHGs
Accountancy skills 222 SHGs 222 SHGs
Microenterprise 46 SHGs 50 SHGs 96 SHGs
Management
Marketing 50 SHGs 50 SHGs
management
Partnership 55 SHGs 55 SHGs
Management
Production 55 SHGs 55 SHGs
Processing and
Marketing
Technical
Assistance on:
SHG By-Laws 196 SHGs 196 SHGs
Bookkeeping 42 SHGs 42 SHGs
SHG Procedures 71 SHGs 71 SHGs
Business 31 SHGs 31 SHGs
Accountability
Marketing Services 31 SHGs 31 SHGs
Business Networking 50 SHGs 50 SHGs
Marketing 50 SHGs 50 SHGs
Source: Bina Swadaya.
Level Three: Improved Microfinance Institution. Market rate loans are applied by Bina
Swadaya. Most subsidies are eliminated, but it is difficult to eradicate a persistent dependence
on some degree of subsidy. Level Three is associated with most of the well-known credit
programs, and it is probably necessary to reach at least this point in order to achieve large-scale
operations. The Microfinance Programs at this level are rarely required to take the next step,
because their sources of support are satisfied with their performance. The Solidarity Savings
and Credit Program has eliminated subsidy from Bina Swadaya headquarters, but requires
some grant support for supervision. At this stage, the eligible SHGs are also being linked with
banks to receive a market rate loan without collateral under the "HBK-Scheme" (Central Bank
Program on Linking Banks and SHGs). The SHG members should be assisted with business
management, marketing, and accountancy to improve performance in running and expanding
their microenterprises, and in managing daily savings collection.
Level Four: Microfinance Transformation. The final level of self-reliance is reached when
the microcredit program is fully financed from the savings of its clients, and funds are raised at
commercial rates from formal financial institutions or banks. Fees and interest income cover the
real cost of funds, loan loss reserves, operations, and inflation. The Bina Swadaya has reached
this level in promoting microfinancial self-help groups and a microenterprise development
program by establishing four rural banks in partnership with a number of SHGs and the micro-
entrepreneurs.
A. Kyptchakbaeva: Credit Unions in the Kyrgyz Republic 85
CREDIT UNIONS AS ALTERNATIVE BANKING INSTITUTIONS:

THE EXPERIENCE OF THE KYRGYZ REPUBLIC27
INTRODUCTION
Since independence in 1991, the Kyrgyz Republics transition from a centralized system
to a free market economy has come with substantial hardships. The collapse of most systems
and subsidies under the command economy resulted in supply shortages and rapid price
increases. Wages and incomes, at least in the public sector, have remained low. Private sector
activities, while increasing, have not yet generated the levels of employment and income
necessary to overcome the systemic deficiencies that are the legacy of the previous system.
Cuts in government subsidies and services have seriously hurt the situation of people in rural
areas also. The disintegration of traditional marketing channels, and declining disposable
incomes and savings, have resulted in decreased incomes for farmers, and virtual elimination of
managed, subsidized agricultural input supplies and public transfers have resulted in significant
declines in productivity. The most pressing impact was the one on poverty, which tripled within
just 10 years from 20 percent at independence in 1991 to 63 percent in 1999.
After the fall of the Soviet Union, banking services to the rural areas were available
through AgroPromBank, which was liquidated in 1994 because of bankruptcy. Since then,
access to banking services has been minimal for the small and medium-sized farmers and
enterprises both in urban and rural areas due to high risks and administrative costs. In these
circumstances, credit is available to them only through loans given by international donor
institutions such as Mercy Corps, FINCA (Finance and Credit Association, an USA based NGO)
etc. These usually involve schemes in which money is provided to an informal group and all
members bear joint responsibility for the loan. However, merely providing credit could not
ensure sustained development. The Government, therefore, decided that the best solution was
the creation of locally owned financial intermediaries such as credit unions.
DEVELOPMENT OF CREDIT UNIONS IN THE KYRGYZ REPUBLIC

In August 1996 the National Bank of the Kyrgyz Republic (NBKR) with technical
assistance of ADB initiated pilot project on credit unions (CUs) in the Kyrgyz Republic, the Rural
Financial Institutions Project. Three trial credit unions were established in different regions, and
a special department of the NBKR worked full-time with these CUs. The project itself, approved
in November 1997, envisages the development, over a period of seven years, of a credit union
system comprising a network of about 280 individual CUs and an apex institutionFinancial
Company for Support and Development of Credit Unions (FCSCU). The goal is to mobilize rural
savings and provide smaller-sized and generally short-to-medium term loans. CUs are
considered as cooperative financial institutions that must be registered as legal entities and
licensed by the National Bank. Each CU is expected to have an average of about 100 members.
The individual CUs are to offer both savings and lending services to members. The FCSCU is to
promote, develop, monitor, and supervise the CUs.
As the project goal is not just to provide loans to people for current needs, but to create
institutions that would be permanent financial providers, promotion of the CUs has needed huge
efforts. Taking into account that credit unions were a new and unknown type of institution,
27
This paper was written by Ainura Kypchakbaeva. Ms. Kypchakbaeva is the General Director of the Settlement
and Savings Company, under the Central Bank of the Kyrgyz Republic.
FCSCU spent much time explaining to people their objectives and principles, and training them
to be managers and accountants of CUs. Special regulations on establishing and operating
credit unions were prepared and approved by the NBKR.
FCSCU has conducted the following activities: (i) assistance in establishment of credit
unions; (ii) consulting services and practical assistance to credit unions; (iii) creation of a
regulatory and supervisory base for credit unions; and (iv) financial services to credit unions. At
the very initial stages of building the system, especially in circumstances of low incomes and
savings of the population, credit unions needed additional donor funds. Credit unions are
allowed by the legislation to receive an initial matching loan from the FCSCU, if it meets the
following criteria: (a) it has a minimum paid in share capital of Som50,000; and (b) it has
established appropriate lending arrangements. The matching loan in this case must be equal to
a CUs total paid in share capital.
By 1 October 1999, 152 credit unions had been registered all over the republic and
licensed as non-commercial financial institutions. They served more than 6,000 people, 68.5
percent of them from rural areas. Total capital is Kyrgyz Som 24,648,000 (equivalent of
$587,000). The total loan portfolio is Kyrgyz Som 34,422,000 (equivalent of $819,600). The
repayment rate in credit unions is high at 91.5 percent of total loans outstanding. Credit unions
are more popular in the rural areas.
Evidence of the high activity of the population involved in the process of the creation of
the CU system is the establishment of the Consultative Committee, which comprises
representatives from 10 CUs. The Consultative Committee represents the interests of the CUs
and provides operational feedback on the development of the CU network.
OBJECTIVES AND ORGANIZATION OF CREDIT UNIONS

The objectives and principles of CUs are founded on the philosophy of cooperation and
the central values of equality, equity and mutual self-help. At the heart of these principles is the
concept of human development expressed through people working together to achieve a better
life for themselves and their children.
The objectives of these noncommercial financial institutions are: (i) the promotion of thrift
among their members by the accumulation of their savings; (ii) the creation of sources of credit
for the benefit of their members at a fair but commercial rate of interest; (iii) the use and control
of members savings for their mutual benefit; and (iv) educating the members to enhance
economic, social, and cultural harmony. The membership of CUs consists of persons with
certain common bonds including bond of occupation, residence, or employment by a common
employer.
To establish a CU, not less then ten persons are needed. Each CU has to have paid-up
capital of at least Som30,000 before being eligible to obtain a license from NBKR to operate.
Operating Principles of Credit Unions

All CUs operate in accordance with several principles, as follows:
Open Membership: Membership in a CU is voluntary and open to all within the accepted
common bond who can make use of its services and are willing to accept the corresponding
responsibilities.
Democratic Control: CU members have equal rights to vote (one member, one vote) and
participate in decisions affecting the CU, without regard to their amount of share capital or
A. Kyptchakbaeva: Credit Unions in the Kyrgyz Republic 87
deposits, or their volume of business. The CU is autonomous, within the framework of law and
regulation, and it is recognized as an entity, owned and controlled by its members.
To run a credit union its members choose a group of at least three persons from among
their ranks to serve as a board of directors. Also, they choose a group to be a credit committee,
and another to be on a supervisory committee.
General meetings of members of a CU approve interest rates, credit, and budgeting
policies. The Board of Directors controls daily operations, the services offered and all major
decisions about the CU. The Credit committee is responsible for the execution of credit policy,
disbursement of loans, and collecting loans. A supervisory committee conducts regular checks
of all procedures. These bodies report key events at the annual general meeting. Elected offices
are voluntary in nature and the holders of these offices do not receive salary for fulfilling their
duties. However, their legitimate expenses may be reimbursed.
Minimization of risks: To minimize risks in the activity of a CU: (i) the maximum paid in
share capital of any member is not to exceed 10 percent of the total paid in capital of the CU; (ii)
the loan to a member of a CU is not to exceed three times the saving share of this member, and
not to exceed 15 percent of share capital of the CU; and (iii) every loan to a member must be
sanctioned against collateral.
Member Services and Distribution

Specific services and a distribution of profits are provided to members of CUs. Services
are provided exclusively to the members of CUs. They are directed towards improving the
economic and social well-being of all members rather then towards the maximizing of surpluses.
At the initial stage credit unions accumulate savings from members only in the form of shares.
There is a provision in the legislation that only mature credit unions will be allowed to attract
deposits, subject to special permission of the NBKR. Credit unions charge affordable loan
ratesalmost the lowest available. In the Kyrgyz Republic, most members join a CU in order
not to save but borrow money. Because of this CUs make small, short-term loans.
To encourage savings, and thus to provide loans and other services, a fair rate of return
is paid on members savings, within the capacity of the CU. The surplus arising out of the CUs
operations, belongs to and benefits all members. This surplus is distributed among members at
the end of a year as dividends in proportion to their saving shares, or directed towards improved
or additional services. Owing to the low cost of CUs business and the high repayment rate, CUs
can afford competitive dividends on members shares.
CONCLUSIONS
All the necessary conditions for the successful development and operation of a credit
union system are present in the Kyrgyz Republic. The temporary Rules on Credit Unions
activity were replaced by the Law on Credit Unions, adopted by the Parliament of the Republic
in October 1999. The regulations of the NBKR on CUs activities are being improved according
to practical experience and the current situation.
Looking to the future development of the credit union system, efforts are being directed
now to increasing the size of existing CUs, not expanding the total number. This strategy is
being implemented because: (i) only large credit unions can be sound and sustainable and can
provide appropriate services to their members with lower cost; (ii) large mature CUs will be able
to increase a number of services and attract deposits from members; (iii) the training and
supervision of large credit unions can be more effective; and (iv) only large CUs can afford the
ownership of a cooperative bank, which is necessary for their success.
POVERTY REDUCTION AT THE BEGINNING OF

28
THE NEW MILLENNIUM: CHALLENGES FOR THE PRC
Over the last several decades, the PRC Government has made unrelenting efforts to
reduce rural poverty, and has several achievements in this respect. Since the mid-1980s,
chronic food and clothing shortages have been reduced for more than 200 million rural poor
people. Further, the living and working conditions of the poorer areas have been materially
improved during this time, along with increased incomes. Social services provided to the poor,
including basic education, job training, and health care, have been greatly enhanced. Yet much
more effort will be needed as PRC begins the new century. This paper briefly reviews some of
the key approaches to reducing poverty and discusses the future of poverty reduction and
development in the PRC.
POVERTY ALLEVIATION AND DEVELOPMENT STRATEGIES

The first step towards formulating development strategies is to define the standards and
scope for assistance. This begins with the construction of the operative poverty line. Given the
fact that there is still a large proportion of low-income poor, the current poverty line is based on
the per capita net income of farmers. The income level thus determined is equivalent to the
minimum expenditure needed for subsistence29. Using this poverty line, the number of rural poor
who face critical food and clothing problems has been reduced to about 42 million through the
new poverty initiatives now in place, as of the end of 1998.
The main approaches and strategies adopted by the PRC Government in reducing
poverty and promoting development include:
Shifting from a blood transfer approach to blood generation approach. Experience
over the past few decades suggests that a general relief approach based on subsidies
and hand-outs can only temporarily solve the living difficulties of the poor. It cannot lead
to the sustained reduction of poverty. Therefore, our new poverty alleviation initiatives
rely more on tapping the capacities and wisdom of local communities and officials. With
the essential support from the Central Government, the new approach strives to harness
the local natural resources, promote market-oriented production, and enhance the
development of local capacity and self-development.
Focusing on sustainable development of the poor areas. Poverty reduction initiatives are
now closely integrated with the development of education, science and technology,
culture, health care, family planning, and ecological improvement. This comprehensive
approach is intended to link the reduction of poverty to social progress in a coordinated
fashion.
Increasing funds for poverty reduction and improving the efficient use of funds. The
central government budget allocated for poverty eradication and human development
has increased annually for the past several years. In 1999, the Central Government
funds earmarked for poverty alleviation reached Y24.8 billion. At the same time, local
governments are required to contribute additional proportional funding from their own
28
This paper was written by Zhang Lei. Mr. Zhang is the Deputy Director General of the PRC State Council
Leading Group Office on Poverty in the Peoples Republic of China.
29
The rural poverty line in the PRC is about $0.66 at international standards. This compares with Y635 per capita
income in 1998 at 1985 Purchasing Power Parity (PPP) prices. The international poverty line of $1 a day per
capita income compares with Y947 in 1999 at 1985 PPP.
L. Zhang: Poverty Reduction at the Beginning of the New Millennium in China 89
budgets. In addition, to ensure the efficiency of fund utilization, the Central Government
has formulated Management Regulations on the National Poverty Alleviation Funds.
Improved targeting of programs to poor households. Development of agriculture and
animal husbandry activities are increasingly emphasized as well as agro-processing
industries as a means to increase the income of the poor farmers. Two types of
programs are targeted to the poor: the first entails direct assistance to poor households
by local Party members and officials and capable households; the second delivers
poverty alleviation funds to the poor through micro-finance mechanisms.
Mobilizing domestic social forces to participate in poverty reduction. Fully 138 central
government ministries and departments have been organized to assist 325 nationally
designated poverty counties. Further, under the East-West Poverty Reduction and
Economic Cooperation Program, 13 coastal provinces and municipalities were
organized to help 10 poorer hinterland provinces and municipalities. This sort of cross-
community support will be important to the poverty eradication effort.
Actively seeking the cooperation of the international community. International
organizations or foreign governments have supported scores of poverty reduction
programs in the PRC, including projects funded by the World Bank. The Government is
currently looking into ways to support poverty projects in collaboration with ADB. The
poverty eradication process can clearly be accelerated through international
cooperation. The Government can also draw on the lessons learned and best practices
from successful international experiences to help improve the effectiveness of our
efforts.
A primary goal of the National 8/7 Poverty Reduction Plan is to eliminate food, clothing,
and basic living problems for the rural poor. In order to achieve this end, the Government is
intensifying program efforts. In June 1999, the Central Party Committee and the State Council
held a National Working Conference on Poverty Reduction and Development. The conference
mobilized all social forces to participate in these initiatives. As a result of the new initiatives, we
are confident that another 20 million rural poor can be lifted out of poverty in the next two years.
CONCLUSIONS
In the new century, the PRC wants to further intensify the work on poverty eradication
and economic development. There remain more than 20 million poor who are still faced with
serious subsistence living problems. Using the World Bank's more generous dollar-a-day
poverty line, there are still 117 million poor rural Chinese. Further, the living and working
conditions in the poor areas have not changed fundamentally. These populations are so
vulnerable to natural disasters that any calamity will cause many people to slip back into
extreme poverty. Finally, it will be a long process to change completely the social and economic
backwardness of the poor rural areas and minimize the regional disparities in living conditions.
In view of these factors, the Government believes that the basic solution to the
subsistence living problems of the rural poor is merely one step in the poverty reduction and
development process. In the new century, poverty reduction endeavors will focus on a level of
development beyond the subsistence standard. The State Council Leading Office on Poverty is
preparing the poverty alleviation and development programs that will lead the PRC into the new
millennium.
WHEN DOES AGRARIAN REFORM WORK FOR THE FILIPINO POOR?30
INTRODUCTION
Historically, there have been many examples of agrarian and land reform movements
led by governments, such as in: PRC, Japan, Republic of Korea, Taipei, China, and Viet Nam.
These experiences suggest that agrarian reform works best under an authoritarian state
because the state is able to curtail landlord opposition, effectively subsidize increased
productivity, and enable more capital accumulation. Land reform in a democratic setting faces
more challenges. This is illustrated by the Philippine experience. Implementation under
democracy means a lesser reliance on previous "dirigiste" models of State intervention and
greater reliance on fully functioning markets to offset asset and consumption inequalities.
International scholarship on agrarian reform clearly spells out the positive effects of
redistribution on incomes, health, and education. But these effects were created in less than
democratic circumstances, where landlord opposition was suppressed and where redistribution
was swiftly undertaken
This paper examines recent agrarian reform efforts in the Philippines and discusses
shortcomings of those reforms and future plans. It is organized in four sections. The first section
briefly examines the connection between agrarian reforms and poverty reduction. The second
section briefly describes the countrys agrarian reform program. The third section discusses the
programs impact on rural markets and how it influences the evolution of social capital in rural
areas. The final section reviews some opportunity costs of continuance of the agrarian reform
program and spill-over effects to other social concerns.
THE PHILIPPINE AGRARIAN REFORM PROGRAM

Republic Act 6657 or the Comprehensive Agrarian Reform Law operates within a broad
context. The Agrarian Reform Program that is being implemented by the Department of
Agrarian Reform (DAR) weaves together the three aspects of land tenure improvement,
program beneficiary development, and the delivery of agrarian justice. It is in the context of this
law that land ownership support services were provided to farmers.
The literature on the significance of land redistribution derives from an analysis of the
inverse relationship between farm size and output per unit of land. The advantages of small-
scale farming refer mainly to labor-intensive production processes. The inverse relationship
tends to break down where the most efficient ways of production require capital intensive
technologies that allow large farms to capture economies of scale.
The Government has an important role to play in the process of carrying out
administrative reforms, such as the formal registration of land titling. Such a land reform process
results in static and dynamic effects. Under the static effects, land transfer is facilitated and the
efficiency of land use will increase. With the dynamic effects, since farmers are better assured
of reaping the future benefits from their land, they have more incentives to invest in the land and
are able to access capital by using their land as collateral.
The program mandates that landowners be compensated for their land based upon a
price that is either too high for farmers to repay directly or too low for landowners to voluntarily
30
This paper was written by Horacio R. Morales. Mr. Morales is the Secretary of the Department of Agrarian
Reform in the Philippines.
H. Morales: When Does Agrarian Reform Work for the Filipino Poor? 91
give up their land. A retention limit is set across all crops without consideration of scale
economies and beneficiaries are prevented from accessing land markets or to use their land as
collateral for the first ten years after land transfer. However, in the Philippine case, agrarian
reform has been constantly delayed due to landlord opposition and the deferment in coverage of
some crops by the Congress. These limitations place an inordinately heavy burden upon the
state to provide support services to beneficiaries.
PHILIPPINE AGRARIAN REFORM AND POVERTY REDUCTION

Of the Philippines' total agricultural land, about eight million hectares are covered under
the Comprehensive Agrarian Reform Program (CARP). As of June 1998, a total of 4.7 million
hectares of land had already been transferred by the Department of Agrarian Reform (DAR) and
the Department of Environment and Natural Resources (DENR) to some 3.2 million rural
families. In areas where all or a majority of lands have been placed under CARP coverage, and
where Agrarian Reform Communities (ARCs) have been established, the benefits accruing from
government subsidies for infrastructure and directed credit have resulted in income gains. In
these communities, new irrigation facilities, farm-to-market roads, and storage facilities, plus the
emphasis on matching agribusiness entrepreneurs and companies with agrarian reform
beneficiaries, resulted in increased market access and higher off-farm and non-farm incomes.
Yet, smaller land holdings are making it more difficult for farm households to depend
upon farm incomes alone. Studies for the Belgian Agrarian Reform Support Project show very
small land parcels for beneficiaries, amounting to an average of 1.57 hectares each. This is
much less than the 1991 Census of Agriculture national average of 2.14 hectares. The 1997-
1998 research conducted by NGO Management and Organizational Development for
Empowerment, Inc. (MODE) on rice farms showed that economic viability required at least two
to three hectares of land per household. This may explain why 49 percent of the study's
respondents depended on non-farm sources of income, higher than the 45 percent who
depended on on-farm income. Six percent were dependent on off-farm income sources.
At a national level, aggregate evidence on the direct effects of land redistribution in
recent episodes of economic growth is tentative and scarce. Studies conducted by the UN Food
and Agriculture Organization's SARC-TSARRD (Agrarian Reform Community Technical
Assistance Project) program indicate rapid increases in income in selected ARCs that are above
the norm, sometimes averaging as much as 200 percent in the advanced ARCs or as low as 20
percent in the less developed ARCs. A more recent survey, conducted by the Institute for
Agrarian and Urban Development Studies in 1998 (formerly UP-IAST), found that more than half
of Agrarian Reform Beneficiaries. interviewed rated themselves as being better off after CARP,
even though a majority (70 percent) remain below the poverty threshold of P75,000 ($1,900 for
a household of six). However, a national data sample of the Institute of Agrarian Studies of the
University of the Philippines in Los Banos (UP-IAST), resurveyed by MODE in 1997 to 1998,
show that income increased due to nonpayment of rent rather than from an increase in farm
investments and productivity.
It is also a central task to identify the spillover effects of the program on such indicators
as urban poverty, agricultural diversification, and agricultural investments. The World Bank is
presently conducting a study of CARP's impact on rural productivity, investments, and other
social needs, as part of the impact assessment on agrarian reforms in the Philippines,
sponsored by ADB, UNDP, and others.
RURAL MARKETS AND SOCIAL CAPITAL

One direct effect of the flawed institutional design of CARP is that more barriers to
effective functioning of rural markets have been established. A recent study conducted by the
DAR Policy Advisory Group shows, for example, how factor share calculations in joint venture
arrangements are determined less by the marginal contribution of land to the production
process, but more by the bargaining power and access to information of beneficiaries and their
associations, plus the weak fiscal basis of local states. If factor shares are priced high,
landowners will be able to secure bigger profits from the sale of land, creating a perverse
incentive to sell rather than invest in agricultural modernization. The inflationary result will
increase the burden on the agrarian reform beneficiary or the cooperative.
On the part of beneficiaries, a high factor share increases their rental streams and equity
share in a joint venture enterprise. However, it also increases their renting-in costs and their
effective amortization costs. The prohibition on beneficiaries to fully transfer, sell, or convey the
titles of their land to buyers or to institutional sources of credit prevent them from accessing the
collateral value of their lands in credit markets, or to shift to non-farm employment and livelihood
opportunities. These have damaging effects: they drag out the process of land transfer and
tenure improvement.
The foregoing is also indicative of the problems in social capital formation in agrarian
reform communities. Instead of evolving trust, the institutional design of the program creates
some barriers to fulfilling expectations among beneficiaries. In the banana and pineapple
plantation sector that is now to be covered by redistribution, intense and often violent conflicts
have broken out between various beneficiary groups negotiating leaseback or joint venture
arrangements.
After the downfall of the Marcos government in the mid 1980s a proposal was made to
abolish direct payment schemes and legal ties between landowner and peasant by paying the
landlords a one-shot payment equivalent to P600 pesos ($15) per hectare. The absence of any
strong contract enforcement mechanism, in the case of contracted prices between producers
and traders or end-users, further aggravates the problem, and sets back the aims of agricultural
diversification.
Strengthening horizontal linkages between beneficiaries and between beneficiaries and
buyers and other external agents can contribute to mitigating the negative effects of agrarian
reform institutions fostered by the State, but they cannot substitute for undertaking agrarian
reform as a precondition for market-led growth. Studies have shown that mere improvements in
productivity, or increased employment brought about by economic clustering such as ARCs or
agribusiness investments is insufficient in eradicating poverty in inegalitarian agrarian
economies.
POLICY COHERENCE AND INTERSECTORAL COORDINATION

There are at least three important aspects to consider in terms of policy coherence and
intersectoral coordination.
First, is the strategy of the State in bringing together all the rural line agencies and the
CARP implementing agencies to focus resources for broad based and sustained agricultural
growth and poverty eradication. The expectation is that economic clustering within ARCs or
within the recently conceptualized Strategic Agricultural and Fisheries Zones (SAFDZ) will
facilitate positive spillover effects on health, education, peoples capabilities, and even on urban
poverty.
H. Morales: When Does Agrarian Reform Work for the Filipino Poor? 93
Second, is the joint effort of civil society groups, government, and the private sector to
shape a coherent strategy for poverty eradication and implement the social reform agenda. The
National Anti-Poverty Commission (NAPC) is expected to bring about greater formal
coordination between initiatives of the Government, the private sector, and the private voluntary
sector to eradicate poverty.
And third is the coherence of agrarian reform and poverty eradication initiatives with
preparations for global competitiveness. This includes government preparations for a new round
of multilateral trade talks under the World Trade Organization (WTO), and current government
trade positioning within APEC and the ASEAN Free Trade Area (AFTA). The Philippine
Governments position in these organizations should be informed by the food security and
poverty eradication objectives of all stakeholders, including the private sector and civil society
groups. In the case of globalization, the effects of the recent economic crisis appear to validate
the general unpreparedness of the country for competition. Moreover, continued high levels of
protection and subsidies for industry translate into higher redistributive costs.
CONCLUSION: THE FUTURE OF PHILIPPINE AGRARIAN REFORM

To ensure that market-led strategies actually reach the poor, DAR believes that it can no
longer transfer land without integrating the means that will transform beneficiaries into
sustainable farmer-entrepreneurs. Thus, the department has embarked on an integrated,
differentiated, and demand-driven approach to land tenure improvement and program
beneficiary development.
Three steps are being taken in this direction. First, the DAR has recently launched the
MAGKASAKA (Farm Partnerships) Program and is about to launch a Farmers Trust Program
that is designed to promote joint venture arrangements and facilitate the flow of agri-agra funds
into the countryside. Both projects fall within the framework of averting risks in agricultural
production by providing insurance and other fund guarantee schemes, coupled with traditional
investments in irrigation and rural infrastructure. Ultimately the plan is to be able to act as an
intermediary between producers and entrepreneurs.
Second, the DAR is about to finish the feasibility study and the operational manual for
the piloting of a community managed agrarian reform program. This is where local communities
are placed in the driver's seat in initiating productive sub-projects in lands secured through the
willing seller-willing buyer principle. Building upon community designed and managed activity
substantiates, our commitment is to the full blossoming of social capital in both rural and urban
areas.
Third, the DAR is committed to pursuing an integrated approach to program design and
service delivery through a convergent strategy involving DAR, DA, (XXDEFINE??) and the
DENR. The objective is to jointly improve the capabilities of public sector service providers
through intensive skills development, reduction in red tape and corruption, and improved
transparency and public accountability.
The World Bank acknowledged in 1997 that an effective state should have the capacity
to move from functional and intermediate roles to undertake "activist functions" such as asset
redistribution and the fostering of markets.
This entails massive institutional capacity on the part of the State, and an understanding
of the appropriate relationship between state, market, and civil society. It also underscores the
decisive nature of agrarian reform as a precondition for a developing country government to
eradicate poverty and ensure broad-based and sustainable economic growth.
CONCLUSION
The paper has argued that agrarian reform works for the poor, in particular the Filipino
poor, when it enables market-led growth strategies to reach the poor. Reform must continue and
be reinforced following the initial reform efforts. The results of initial reform are inherently
unstable, and since the rural poor tend to be socially differentiated over time, agrarian reform
programs must have both short and long term objectives.
BIBLIOGRAPHY
Balisacan, Arsenio. 1999. "What Do We Really Know or Don't Know about Economic Inequality and Poverty in the
Philippines." In: Balisacan and Fujisaki (eds) Causes of Poverty: Myths, Facts & Policies. Diliman, Quezon City:
University of the Philippines Press.
Binswanger, Hans, and Elgin, Miranda. 1998. "Reflections on Land Reform and Farm Size." Reprinted in:
International Agricultural Development, Eicher and Staatz (eds), Third Edition. Baltimore and London: John
Hopkins University Press.
Dyer, G. 1996. "Output per Acre and Size of Holding: The Logic of Peasant Agriculture Under Semi-Feudalism." In:
The Journal of Peasant Studies, Vol. 24, No 1-2, October 1996/January 1997
Institute of Agrarian and Urban Development Studies, College of Public Affairs, UP Los Banos. 1998. Current State
of Agrarian Reform Beneficiaries: Its Implications to CARP. IARD, UP Los Banos, November 1998.
Institute of Agrarian Studies, UP Los Banos. 1998. Final Report: Baseline Survey in 11 Agrarian Reform Communities
Covered by BARSP. IAST, UP Los Banos, April 1998.
Lara, F., et. al. Agrarian Reform in Rubber Plantation and Development Alternatives. Research paper on
Development Management, DESTIN, London School of Economics, London, May 1997.
Management and Organizational Development for Empowerment (MODE). 1998. National Re-survey of the 1989
IAST ARB survey. Quezon City: MODE.
Monsod, Solita Collas, and Toby Monsod. 1999. "International and Intranational Comparisons of Philippine Poverty."
In Balisacan and Fujisaki (eds) Causes of Poverty: Myths, Facts & Policies. Diliman, Quezon City: University of
the Philippines Press.
Policy Advisory Group. 1999. "Factor Shares in Commercial Croplands." In: Ed Tadem (ed), Compilation of Policy
Studies on Agrarian Reform: 1998-1999. PAG-PRIDI, March 1999
Ruttan, Vernon and Hayami, Yuhiro. "Induced Innovation Model of Agricultural Development." In: Food Research
Institute Studies in Agricultural Economics, Trade, and Development 9, No. 2, 1972. Reprinted in: International
Agricultural Development, Eicher and Staatz (eds), Third Edition. Baltimore and London: John Hopkins University
Press.
Yuhiro, Hayami, Quisumbing, M.A., and Adriano, L.. 1990. Toward an Alternative Land Reform Paradigm: A
Philippine Perspective. Quezon City: Ateneo de Manila University Press.
CHAPTER 4:
SOCIAL SAFETY NETS

96 Chapter 4: Social Safety Nets
FALLING THROUGH SAFETY NETS AND

BUILDING ON PILLARS OF SOCIAL PROTECTION:
31
SUMMARY OF PANEL AND WORKSHOP DISCUSSIONS AT THE MANILA SOCIAL FORUM
ELEMENTS OF SOCIAL PROTECTION SYSTEMS FOR ASIA

The Asian crisis and its aftermath have served to highlight the importance of social
safety nets and social protection policies in general as essential components of healthy
economies. Most countries in the region invoked some combination of expanding existing safety
net programs and hastily implementing new ones to address the increasing joblessness,
poverty, and vulnerability resulting from the crisis. However, many of these same countries
discovered that implementing piecemeal public programs in reaction to the crisis was
unsatisfactory. A key issue for the Asia region is how best to establish country-specific systems
of social protection that can lessen the impacts of future shocks.
ESTABLISHING THE SOCIAL PROTECTION SYSTEM

There is a growing consensus that social protection should be seen as an investment in
human capital and as a set of proactive instruments to promote equity and growth. It should not
simply be viewed as a reaction to the plight of the most vulnerable in crisis conditions. Publicly
provided programs represent only one set of mechanisms to manage social risk. A social
protection system also incorporates informal and market based arrangements such as individual
household savings, support from relatives, or private insurance. Indeed, throughout much of
Asia, private households provide the major share of funding for risk management. Care must be
taken to design public safety nets and social protection interventions that do not promote
dependency on public assistance and do not crowd out private mechanisms.
Information is critical for a well functioning system. Systematic information on poverty, on
vulnerable groups, and on program costs and expenditures is essential to assess the impact of
program interventions on beneficiaries, and is essential in improving and designing new
programs. Attention needs to be paid to putting in place the appropriate information gathering
and processing institutions to support the social protection system. These institutions exist in
places, but too often governments are relying on the analysis of outside institutions to provide
the needed information. In order for social protection to be sustainable, countries must be able
to design, monitor, evaluate, and implement programs without outside assistance.
Social protection should be a participatory process. Evidence indicates that successful
interventions are those where communities and civil society are directly involved throughout the
process. There is a need to develop innovative mechanisms for providing assistance, including
looking to the private sector. The Mahalla program in Uzbekistan provides an interesting
example of direct community involvement in the targeting and administration of public benefits.
ISSUES OF PROGRAM DESIGN AND IMPLEMENTATION

The design and implementation of specific programs should occur only after a thorough
assessment of the social risks, notably for the population groups primarily vulnerable to those
31
This paper was written by John Blomquist. As consultant to the ADB, Mr. Blomquist helped organize the Manila
Social Forum. He is now with the World Banks Social Protection Network.
J. Blomquist: Social Protection: Falling through Nets and Building on Pillars 97
risks. Experience with existing interventions suggests several aspects of programs and the
policy environment that deserve priority consideration. Among these are program adequacy,
benefit targeting, institutional structure, prevailing budget and other constraints, and overall
sustainability.
Adequacy. Public interventions are costly to manage and administer. Therefore it is
essential that program benefits provide significant assistance to recipients to justify the
costs. Many current programs do not satisfy this most basic criterion. Benefits from
pension programs or direct cash transfers are frequently not sufficient to meet minimum
consumption needs. The piecemeal implementation of many initiatives has also resulted
in a significant overlap of beneficiaries and objectives, leading to an unwieldy and
inadequate safety net.
Targeting. In keeping with the need for adequacy, limited resources need to be well-
targeted to meet the needs of the vulnerable who will benefit most. Examples of
interventions in which unintended recipients benefit disproportionately are all too
common, including leakages of benefits to the nonpoor from public works and other
safety net programs. Further, many pensions and unemployment insurance mechanisms
do not cover vast segments of the needy population, particularly in the informal sector.
Institutional structure. Public programs often involve heavy administrative and oversight
demands. Emphasis should be placed on developing the necessary institutional capacity
to implement programs. Developing capacity involves setting up monitoring and
evaluation units for programs, training staff to manage and implement interventions, and
developing the means to coordinate effectively between government agencies or
ministries involved.
Constraints. Consideration should be given to the financial, infrastructure, political, or
cultural constraints that will affect program operation. Design options are available to
reduce or circumvent these constraints, including involving the private sector more
prominently in the provision of programs, or relying on a more decentralized approach to
program management. How countries deal with these constraints will vary. There is no
single best social protection system.
Sustainability. Social protection interventions should be in place prior to a crisis situation
and should be designed to be sustainable. Program sustainability involves ensuring that
costs are manageable within the budget framework, that financing and benefit delivery
mechanisms are secured for the planned future, and that the program is consistent with
the existing policy and regulatory frameworks. It is difficult to create an effective social
protection system quickly under crisis conditions, as illustrated by the experiences of
Thailand and Indonesia.
CONCLUSION: THE WAY FORWARD

Individuals and families cannot cope alone with the social risks inherent in participation
in the economy. There is a role for the state in risk management through the provision of social
protection programs. However, more attention should be paid to assessing the risks, vulnerable
groups, and potential interventions in the context of the priorities and constraints faced by
society.
Governments have become increasingly aware of the need for sound policies,
highlighted by the interest in social protection raised in regional forums such as APEC. The
international community is devoting increasing attention to the value of effective social
protection policies in the fight against poverty. Both the World Bank and the Asian Development
Bank reflect social protection assistance in their planned operational programs. The next step is
to work together to utilize the experiences of government, civil society, and international
institutions to create country-specific social protection systems.
E. Jimenez: Emerging Lessons on Social Safety Nets 99
EMERGING LESSONS ON SOCIAL SAFETY NETS32
INTRODUCTION: WHAT, WHY, AND WHY NOT?

Social safety net programs were not often discussed in policy circles in the East Asia
region even three years ago. It was largely accepted that the tremendous export-oriented
growth of the Asian Tiger economies would continue, further reducing poverty and improving
conditions for the poor as a byproduct. The crisis changed the discussion, putting poverty
alleviation, safety nets and social protection on the policy agenda. This note briefly summarizes
experiences with safety nets in Asia and points to emerging lessons for the future.
It is useful to begin by highlighting the meaning of safety nets. The discussions
surrounding this policy area have used a variety of terminology to refer to similar but distinct
concepts, including social safety nets, social assistance, welfare, and social protection. In the
following discussion, formal safety nets refer to programs that provide or substitute for income.
These include: i) cash or cash-like transfers such as family allowances, unemployment
allowances, and public works ; and ii) in-kind transfers such as food stamps and subsidized
public services. Similarly, informal safety nets refer to private mechanisms that provide or
substitute for income, including personal assets and assistance from friends or relatives.
Why are formal safety nets needed? The traditional view is that they protect
consumption and provide support during hard times. An alternative view expands on the
traditional to regard safety nets as a social investment. According to this view, safety nets
reduce or mitigate social risk, in turn promoting risky but high return investments in human
capital and productivity which benefit society. Further, safety nets create a floor for living
standards which promotes social cohesion, as well as limiting irreversible losses to vulnerable
households.
Yet safety nets have costs. First, there are incentive costs in that there is a tendency for
recipients of safety net programs to work less than they otherwise would. Second, there is the
possibility that public safety nets will substitute for, or crowd out informal mechanisms thereby
increasing the social cost of providing the programs. Finally, there are administrative costs in
terms of the institutional capacity, the information, and the management and delivery of
programs.
SAFETY NETS IN EAST ASIA

Throughout much of Asia, formal social safety nets tend to account for only a small part
of government budgets, reflecting both policy priorities and a strong culture of self-help. Chart 2
shows that public spending on social security and welfare is lower in East and South Asia than
in either Latin America or OECD countries. As a consequence of the lower spending, public
transfers are a very small part of average household incomes in Asia. For example, in both the
Thailand and the Philippines, recent data shows that public transfers amount to less than 2
percent of average household incomes. Private transfers, however, amount to 8 and 11 percent
of household incomes in the two countries, respectively.
32
This paper was written by Emmanuel Jimenez and John Blomquist. Mr. Jimenez is the Sector Director for the
Education Sector Unit South Asia of the World Bank. Mr. Blomquist is now in the World Banks Social Protection
Network. As consultant to the ADB, he helped organize the Manila Social Forum.
Chart 2: Public Sector Spending on Social Security and Welfare
Public Spending on Social Security

and Welfare
Spending as a percent of
total government expenditure
12.7
12
4 3.6
2.2
1.0
0
East Asia Latin South Asia OECD
America
Safety net programs in Asian countries tend to be targeted to specific population groups
and are aimed at increasing economic participation through work programs and micro-credit
schemes. Formal insurance mechanisms such as unemployment insurance and pensions
typically have lower coverage rates than in other regions.
EMERGING LESSONS
Based on the experience of safety net programs in Asia and elsewhere, several lessons
for the future are emerging:
Spending must increase during crises. Spending on social safety nets should be
countercyclical and should increase during crisis conditions. Informal mechanisms help,
but are often insufficient in the face of covariate shocks which affect large groups of the
population at the same time. In the years immediately following the onset of the crisis,
many Asian countries responded with increased spending on safety nets, including
Malaysia, Indonesia, and Korea. Conversely, when faced with a similar crisis, safety net
spending in Russia actually declined.
Institutional response is limited by country conditions. The ability of governments to
scale-up existing programs or to design and implement new programs quickly depends
on the prevailing conditions, including the coordination between ministries responsible
for programs, the delivery mechanisms in place, and the political will of the government.
Information is critical. Reliable, timely information on poverty and vulnerability is vital to
developing safety nets programs. Without it, governments cannot adjust to changing
economic conditions. Country-specific safety nets are key to successful policies. For
example, available evidence indicates that urban population groups were more affected
E. Jimenez: Emerging Lessons on Social Safety Nets 101
by the crisis than others in Indonesia, but this was not the case in Thailand. This
information can be used to develop safety nets that target effectively.
Appropriate targeting methods should be used. Several methods are available, including
needs-based targeting, geographic targeting, community targeting and self-targeting,
with the choice of method depending on available information and administrative cost. In
general, needs based cash transfers are preferable to general food subsidies. However,
the cost of subsidies can be reduced if linked to other target-related activities such as
participation in school or public works programs. Labor intensive public works provide
both short-term income to participants and improvements in infrastructure, and they are
self-targeting. The ability to target must be considered when designing programs.
CONCLUSIONS
Social safety nets can play an important countercyclical role in mitigating the effects of
social risks. While informal mechanisms such as family transfers can help in the face of
temporary idiosyncratic shocks, they are generally insufficient under widespread crisis
conditions. The effectiveness of publicly provided safety nets can be improved with continued
advances in information gathering and processing, program targeting, and the development of
appropriate institutional mechanisms.
SOCIAL PROTECTION AND THE ASIAN DEVELOPMENT BANK33
INTRODUCTION
The overarching mission of the ADB is to help its developing member countries (DMCs)
achieve accelerated and irreversible reductions in poverty. Social protection, as an analytic
concept and lending activity, is an integral component of that mission by making growth more
equitable.
Recent events underscore the need for greater attention to social protection issues in
this region. The crisis countries have discovered that inadequate and under-developed social
protection systems have exposed their working populations to excessive risk, increased the
incidence of poverty, reduced social welfare and threatened to undermine longer-term human
capital investment efforts. Further, many countries in the region that escaped the worst of the
crisis have learned from the experience of their neighbors that improvements in social protection
are important elements in furthering economic and social development, as urbanization and
industrialization gradually undermine the effectiveness of traditional and informal protection
systems. Globalization, while increasing the opportunities for growth, will also increase the risks
of future macroeconomic shocks. As unemployment and poverty result from economic
downturns, issues regarding the adequacy of social protection and social safety nets to maintain
progress made to date, and assure future progress in social development are being brought to
the forefront in many Asian countries.
This paper presents an abbreviated discussion of the increasing importance of social
protection in the work of the Asian Development Bank. It begins by describing what is meant by
social protection, followed by a discussion of the relationship between social protection and the
ADBs long-term objectives. Finally, the paper closes with a summary of the operational
implications for the ADB.
A DEFINITION OF SOCIAL PROTECTION

Social protection is defined as the set of policies and programs designed to promote
efficient and effective labor markets, protect individuals from the risks inherent in earning a living
either from small-scale agriculture or the labor market, and provide a floor of support to
individuals when market-based approaches for supporting themselves fail.
The policies and procedures included in social protection can be thought of as involving
five major kinds of activities:
Labor market policies and programs designed to facilitate labor adjustments and
promote the smooth operation of labor markets,
Social insurance programs to cushion the risks associated unemployment, disability,
work injury, and old age,
Social assistance and welfare service programs to provide a floor for those with no other
means of adequate support,
33 This paper is based on the Asian Development Banks Framework for Operations on Social Protection, written in
1999 by I. Ortiz, L. Thompson, D. Lindeman and J. Blomquist. Ms. Ortiz, Economist (Poverty Reduction) at the
Strategy and Policy Department of the ADB, is responsible for developing a social protection framework, to
become the social protection strategy of the ADB. Comments may be sent to Isabel Ortiz, SPD, Asian
Development Bank, Manila, Philippines, Tel: 0063-2-6324444; Fax: 0063-2-6362444; email iortiz@adb.org.
I. Ortiz: Social Protection and the Asian Development Bank 103
Agricultural crop and price insurance to cushion the risk to agricultural incomes from
crop failure or temporary market disruptions, and
Social funds and other temporary employment generation programs designed to offer a
temporary source of earned income while enhancing the social infrastructure.
This definition recognizes that social protection encompasses activities that span those
in both the formal and informal sectors and regardless of whether households derive their
incomes from industry, services or agriculture. Households in the formal sector will be reached
by labor market interventions and structured social insurance, crop insurance and social
assistance. Those in the informal sector are more likely to be reached by less structured social
assistance. microinsurance, social funds and other temporary employment programs, as well as
price subsidies for food and energy or price supports to farmers.
Of the five pillars, the three first (labor markets, social insurance and social assistance)
are normally included in any social protection strategy. Given that most of the Asian poor are
rural and part of the informal sector, the ADB must take a fresh look at new instruments such as
integrated insurance, rural programs and social funds. Agricultural insurance provides the same
sort of social protection to small-scale agriculture that the more traditional social insurance
programs supply to the urban labor force. Two areas of critical importance emerge: first,
exploring options for simplified integrated insurance programs for rural areas, combining some
health, old age and life insurance to sustain livelihoods; second, assessing the trade off
between disaster mitigation operations and the possible economic gains from developing
comprehensive protection mechanisms in Asia.
Social protection issues have become a major concern of the Bank only in the second
half of the 1990s. The first projects consisted of technical assistance for administrative reform
and improvement of the Mongolian welfare system and safety nets after the transition from a
centrally planned to a market economy. The first loan addressing a major social protection issue
involved pension reform in Kazakhstan, where assistance was needed for retrenchment and
restructuring of an over-extended social protection system. Subsequently, Social Sector
Program Loans negotiated with Thailand and Indonesia provided resources for strengthening
institutions that had been weakened by the economic crisis, stop-gap measures to alleviate
some of the longer-term harm that might have otherwise occurred in health an education, and
assistance in creating new approaches to provide social protection. As these issues took on a
new urgency at the Bank, the need for more effective coordination strategies became clear. A
first step in achieving this objective is a common vocabulary for discussing social protection
issues and a common understanding of their scope.
SOCIAL PROTECTION AND ADBS LONG-TERM STRATEGIC FRAMEWORK

Social protection policies and programs, if designed and implemented properly, can
make a major contribution to the ADBs overarching mission of reducing poverty. By focusing on
labor markets, social protection is the link between private sector led economic growth and
poverty reduction. Effective social protection policies can contribute to economic growth by
encouraging farmers and workers to take entrepreneurial risks, helping labor markets to allocate
workers to their most productive uses, and facilitating investment in human capital. They also
increase social welfare by providing a dependable income security base. Social protection,
however, is not a substitute for basic measures that promote economic development and
adequate living standards, including core investments in public goods and the development of
efficient and transparent markets.
Social protection should therefore be seen as one of several measures that work
together to promote socially inclusive human development. Other kinds programs and projects
contributing to socially inclusive human development include programs designed specifically to

improve education and health, promote gender equity, encourage enterprise, and improve
agriculture.
There is a need to balance the potential gains from greater social protection with the
potential losses from market distortions. This will involve careful review of the conditions under
which benefits are provided and the ways in which subsidies are constructed, the relationship
between the value of the assistance offered and prevailing wages or prices, the incentives
established in the program for delaying taking benefits and/or returning to work as quickly as
possible, and the balance between costs and benefits of new regulations.
Social protection strategies will vary from one country to another as a result of
differences in traditions, institutions, and environments. These include differences in countries
pre-existing institutions and traditions for dealing with social risks, their stage of development,
and their cultures and customs. There is no prescription or preferred social protection model. An
obvious place to begin is with the ability of the program or proposal to achieve its stated
purpose of supplying effective social protection. Such an assessment needs to focus on
considerations such as: (i) the sustainability of the program (except, perhaps for certain
temporary interventions motivated by an economic crisis), (ii) its likely actual coverage, and (iii)
the adequacy and predictability of the support it offers. Investments in program design and
development may not be worthwhile where sustainability is open to question, coverage is likely
to be limited, and benefits are likely either to be too low or to be unreliable. The ADB is
researching ways to assess how to expand coverage in its DMCs while maintaining a proper
balance between the social gains from improved protection and sustainability of the social
protection systems.
OPERATIONAL IMPLICATIONS FOR THE ASIAN DEVELOPMENT BANK

Within ADBs operations, social protection issues arise in four contexts: (i) developing
country strategies, (ii) policy lending to provide broad budget support with social protection
conditionalities; (iii) project lending for specific invesment components and capacity building in
social protection; and (iv) collateral issues associated with lending where social protection is not
the central objective.
In the context of country strategies and policy loan conditions around social protection,
the key topics will be a countrys labor market standards and rigidities, the coverage and
sustainability of existing or emerging social insurance (wage replacement) programs, and the
cost and effectiveness of its overall safety nets.
An ideal relationship with a client country for social protection reform is one in which
policy and project lending takes place in a country strategy that advances reforms (e.g.,
liberalizing labor markets or expanding coverage) that the government has taken on in
partnership with the ADB, civil society and the IMF, World Bank, and other donors. Well-
developed social protection systems are large and complex undertakings that can become an
integral part of the fabric of a society and have important implications for both social and
economic development. To be effective, social protection strategies should be articulated in an
integrated manner and discussed with all relevant social players as reforms are an opportunity
to rethink the country's social contract. This, however, is often not the case, and reforms are
precipitated by crises that have exposed or exacerbated flaws in preexisting policies (e.g., the
withdrawal from centrally planned economies, the Asian financial crisis). Especially in the latter
context, experience suggests that governments should not be asked to pursue policies that will
require a consensus over time or time consistency that has not yet formed within the society
(e.g., structural pension reform usually demands an all-party consensus). A social protection
I. Ortiz: Social Protection and the Asian Development Bank 105
agenda should be framed taking into account DMCs national policies and priorities within the
ADBs overarching goal of reducing poverty, assuring that social protection is integrated with
other development activities and into ongoing country dialogue.
This process of consultation indicates that reforms cannot successfully proceed before
sufficient analysis, planning and participation has been done, including detailed assessments on
whether reforms can be implemented and managed. A wide variety of approaches are available
for re-structuring and improving social protection programs but there is no single prescribed
model or solution given the variety of systems and needs in the area. Future social protection
systems in Asia may likely differ from country to country given the multitude of factors involved.
Social protection project lending is usually designed to enhance the capacity of
government institutions to provide social protection benefits or services directly or to regulate
interventions mandated through the private sector. Investment projects may include
components such as active labor market programs, social/rural funds, and social safety net
programs. Common functions in need of strengthening institutional capacity include collection,
data processing and service delivery mechanisms needed to operate formal wage replacement
programs and labor exchanges, capacity to enforce labor market standards, development of
locally-based social assistance agencies and community institutions for those needing
permanent or temporary care, and improved ability to develop and enforce sound regulation of
financial market institutions and their investment policies.
Social protection issues also emerge as important collateral issues in other lending
where social protection policy or capacity building is not the direct object of the loan. Tipical
examples are loans dealing with shifts toward market determined pricing of energy, water,
telecommunications, and housing. Ideally these measures should take place after appropriate
regulatory institutions have been created and safety nets established. Often, however, interim
measures may have to be adopted to ease the effects on households (e.g., tiered pricing of
utilities).
Addressing these social protection issues in a coordinated and systematic way involves
at least two new challenges for the ADB. First, a recognition that social protection involves
complex analytical and technical issues, many of which represent new areas of concern for the
ADB and its developing member countries' governments. The ADB will need to invest in its own
human capital to acquire the necessary new skills and work capacities. Second, social
protection policies and programs must often strike a balance among multiple social and
economic objectives, equity and sustainability concerns. The various multiple objectives have
traditionally been the focus of different units within the ADB. To assure proper balance among
the various objectives, the ADB will need to develop new procedures for managing work and
coordinating efforts among its various units.
SOCIAL RISK MANAGEMENT: THE WORLD BANKS NEW

CONCEPTUAL FRAMEWORK FOR SOCIAL PROTECTION34
The recent financial crisis in East Asia has again demonstrated that individuals, in
particular the poor, are vulnerable to economic down-turns and that past high economic growth
rates and income levels matter little if appropriate safety nets are not in place. The need for
appropriate social risk management instruments to deal with man-made and natural shocks
goes well beyond public interventions to help individuals cope with the effects of shocks once
they have occurred. A sustained development process and lasting poverty reduction require a
comprehensive set of instruments and public interventions provided by a multiplicity of actors to
assist individuals, households, and communities better manage risk before and after it strikes.
Risk and vulnerability associated with natural disasters, crop failure, war and violence,
illness and injury, old age and death, and job loss and business failure have been present in the
public policy arena for decades, and the more advanced countries have complex arrangements
in place to help manage these risks. Risk and vulnerability have moved more to center stage in
recent times for three reasons:
globalization of trade in goods, services and factors of production and the increased
inter-connectivity of economies and societies present enormous opportunities for
developing countries to prosper. They also bring risks and increased variability in
outcomes;
technological change is helping to accelerate the pace of development but at the same
time has the potential to widen the inter-country and intra-country gulf between the
haves and the have-nots; and
increased political openness sets the stage for improved governance by holding those
in power more accountable to larger segments of the population. The poor are finding
their voices and asking for help in managing risk.
People in all income strata around the world are vulnerable to income and welfare losses
associated with shocks, but the poor suffer disproportionately in these situations. They are
typically more exposed to adverse risk while they are less able to protect themselves due to
their lower asset position and endowments; they typically have little access to formal insurance
market arrangements; and downward fluctuations in incomes can be devastating for them and
result in permanent welfare loss. The poor, nonetheless, are very aware of the risks they face
and have developed elaborate mechanisms of self-protection such as asset accumulation
(often cattle) in good times, income diversification and informal family and community pooling
arrangements. These self-insurance and self-protection arrangements are typically relatively
expensive and inefficient, and when shocks erode productive assets and prevent human capital
accumulation (e.g., withdrawal of children from school, inadequate nutrition preventing learning),
they can send households into a spiraling downward trend, into the so-called vicious cycle of
poverty. As households become poorer and approach extreme poverty and destitution they
become very risk averse and fundamentally lose their ability to manage risk: at best, they cope.
Thus, beyond conventional handout programs that help the poor deal with the circumstances
of poverty, interventions that act as a springboard, and prevent and mitigate the devastating
effects of shocks are clearly preferable.
34
This paper was written by Robert Holzmann. Mr. Holzmann is the Director for Social Protection of the World
Bank in Washington, D.C.
R. Holzmann: Social Risk Management 107
Given the need to go beyond the traditional program definition of Social Protection
(SP)labor market interventions, social security and social safety netsin order to deal with
poverty and vulnerability more effectively in a globalizing world, a new definition of SP based on
a conceptual framework of Social Risk Management (SRM) has been developed (Holzmann
and Jorgensen, 1999 and 2000). This new framework constitutes the conceptual basis for the
Strategy Paper of the Social Protection Sector in the World Bank. The final approval process of
this strategy document took place early in the year 2000. The SP Strategy Paper is based on
regional strategy papers that will be discussed with the client countries and published during
late 2000.
The proposed definition sees SP as public interventions to (i) assist individuals,
households, and communities better manage risk, and (ii) provide support to the critical poor.
This definition and the underlying framework of Social Risk Management:
present SP as a safety net as well as a spring-board for the poor. While a safety net for
all should exist, the programs should also provide the poor with the capacity to bounce
out of poverty or at least resume gainful work;
view SP not as a cost, but rather, as one type of investment in human capital
formation. A key element of this concept involves helping the poor keep access to
basic social services, avoid social exclusion, and resist coping strategies with
irreversible negative effects during adverse shocks;
focus less on the symptoms and more on the causes of poverty by providing the poor
with the opportunity to adopt higher risk-return activities and avoid inefficient and
inequitable informal risk sharing mechanisms; and
take account of reality. Among the world population of six billion, less than a quarter of
individuals have access to formal SP programs, and less than 5 percent can rely on
their own assets to successfully manage risk. Eliminating the poverty gap through
public transfers is beyond the fiscal capacity of most World Bank client countries.
The main idea behind SRM is that in a world of imperfect markets and asymmetric
information (i) the type of shock matters, (ii) there are more risk management than risk coping
strategies, and (iii) there are more risk management arrangements than public transfers.
The capacity of individuals, households, or communities to handle risks and the
appropriate risk management instruments to be applied depend on the characteristics
of risks: their source, correlation, frequency, and intensity. Most important, while
households can often cope with uncorrelated (idiosyncratic) risks, such as temporary
sickness, though informal arrangements, they are unable to do so when faced with
highly correlated (co-variant) shocks such as floods or financial crisis.
Risk can be addressed ex-ante and ex-post. Prevention strategies are introduced
before the risk occurs and include good macroeconomic policy, disaster management,
and well functioning labor markets. Mitigation strategies also exist ex-ante but attempt
to decrease the potential impact of future downside risk that cannot be prevented and
include portfolio diversification and insurance. Coping strategies attempt to relieve the
impact of a risk once it has occurred. Since each strategy has direct and opportunity
costs, no single strategy dominates. However, in the past, too much attention has been
given to coping strategies in comparison with prevention and mitigation strategies,
implying the need for a redistribution of emphasis.
Each of these strategies can be applied under different arrangements: informal,
market-based or public. Informal arrangements such as family, mutual community
support or savings in real assets work well for some risks but can be detrimental for
development. Market-based arrangements, such as financial assets and insurance,
allow management of a broad range of risks but require well functioning financial
market institutions. Finally, public arrangements such as social insurance, transfers
and public works become important if the first two arrangements fail but are
surrounded by problems of their own.
The application of this framework goes well beyond Social Protection since many public
interventions such as sound macroeconomic policy, good governance, access to basic
education and health care all help to reduce or mitigate risk, and hence vulnerability. It also
extends Social Protection as traditionally defined since it goes beyond public provision of risk
management instruments and draws attention to informal and market-based arrangements and
their effectiveness and impact on development and growth.
REFERENCES:
Holzmann, R., and Jorgensen, S. 1999. Social Protection as Social Risk Management: Conceptual Underpinnings
for the Social Protection Sector Strategy Paper. Social Protection Discussion Paper No. 9904, The World Bank,
Washington, D.C., http://www.worldbank.org/sp.
Holzmann, R., and Jorgensen, S. 2000. Social Risk Management: A New Conceptual Framework for Social
Protection, and Beyond. Social Protection Discussion Paper No. 0006, The World Bank, Washington, D.C.,
http://www.worldbank.org/sp.
Social Protection Sector Strategy Paper, The World Bank Social Protection Sector, Human Development Network,
The World Bank, Washington, D.C. (in preparation).
P. Pak: Public Work Programs in the Republic of Korea 109
_____________________ _____
PUBLIC WORKS PROGRAMS

35
FOR MANAGING THE ECONOMIC CRISIS IN THE REPUBLIC OF KOREA
INTRODUCTION
Unemployment has been a key social consequence of the massive breakdown of the
Korean economy that began in November 1997 with the onset of the Asian Crisis. The
unemployment rate shot up from a pre-crisis range of 2.0-2.5 percent to 8.7 percent by February
1999. While the unemployment figures have been stabilizing somewhat in recent months, they
remain at a level too high for sustaining the countrys socio-economic position.
Faced with the huge outpouring of work force from the corporate sector, the Korean
government introduced several measures aimed either at minimizing the scope and extent of
layoffs or addressing the needs of those already laid off. This brief note considers some key
aspects of one of the principal crisis measures, the public works program. The attributes and
shortcomings are examined with a view to drawing lessons for future efforts in the areas of
social protection and poverty eradication.
PROGRAM CONTEXT AND ATTRIBUTES

In the turbulent first few months following the collapse of the Korean economy, the
Government initiated thousands of public works projects to provide alternative support to the
families of the unemployed and help maintain their work capacities. The projects were soon
expanded to include the low-income able-bodied unemployed who were not already benefiting
from other forms of public assistance.
The Public Works program therefore consists of two operational modules. The first
module is intended for individuals who were formerly employed and who are either not entitled
to employment benefits or have exhausted them. Together with unemployment insurance and
job retraining and placement, this first public works module forms the basic set of social
protection programs available to the unemployed.
The second public works module targets poor marginal workers who have been day
laborers or are unsustainably self-employed. The second module, along with the temporary
Livelihood Protection Program, comprises temporary public assistance aimed at helping the
low-income unemployed.
The overall administrative charge of both Public Works program modules rests with the
Ministry of Administration and Self Governing Bodies while the substantive responsibility for
program implementation goes to the Ministries of Labor and Health and Welfare. Most of the
project activities are carried out at the local government level, although a small number take
place under the supervision of central government ministries. Also, many NGOs have been
involved at the operational level, formulating project plans and implementing them under
governmental supervision. Payment of the cash benefits to the project participants is also
carried out by local governments or NGOs.
35
This paper was written by Po-hi Pak. Ms. Pak is the Director of the Korea Institute for Social Information and
Research in Seoul.
The Public Works budgets are drawn entirely from the governments general revenues.
In 1998, a total of 1,044 billion Won was budgeted for the program, jumping 53 percent in 1999
to 1,600 billion Won.36
PROGRAM EFFICACY
What distinguishes public works from other social safety net components in general and
public assistance packages in particular is its objective of sustaining the work viability of the
jobless and down and out. The program in Korea is not without shortcomings however. Major
issues have been raised, including the questionable value and efficiency of public works project
activities and the general inadequacy of the benefits to participants.
Cost-effectiveness. In the first year of the program the focus was not on the efficiency
of the projects since the intent was to alleviate the urgent subsistence needs of as many of the
unemployed as possible in the socio-politically explosive early months of the crisis. As the
program has extended into its second year, the government as well as the public at large began
turning attention to the programs cost-effectiveness and the need to align its activities with the
countrys overall development concerns, especially in relation to the needs in the human
services and environment fields that had tended to be neglected in the countrys growth-
oriented development context. The government is reportedly working on measures to improve
the productivity aspect of the program in the next implementation phase.
Coverage. It has been estimated that the Public Works program has been effective in
helping to stabilize the livelihood of a cumulative total of anywhere between 786,000 and
789,000 able-bodied but destitute unemployed and their families between 1998 and 1999.
However, determining what sort of coverage for the eligible population is implied by these
figures is difficult. Estimates on the number of the unemployed who are eligible for public works
participation varies from 480,500 (National Statistical Office) to 1,184,200 (Korea Confederation
of Trade Unions). These estimates would imply a coverage rate of the eligible population
somewhere between 35 percent and 86 percent. Given that the number of unemployed who
were turned away from the program in 1998 was 2.5 times the number accepted while
assuming that the majority of rejected applicants were in fact eligible, it is very likely that the
37
coverage rate is closer to 35 percent.
Benefit level. There is a question as to the adequacy of the benefits provided by the
public works program. If the current standard of the monthly Minimum Cost of Living (MCL) for
the average Korean family of 3.5 is used as a benchmark, then the monthly average earnings
available through the program are reasonable the MCL is 690,000 Won while a participant
38
who works the maximum of 20 days per month would earn 480,000 Won per month. Yet, the
MCL only accounts for bare subsistence needs and does not necessarily reflect adequate
minimum needs for real life in Korea. Therefore, program benefits could well be insufficient.
Further, the public works benefits are more or less the same for all participants, although
their individual needs vary considerably. Compared to the Livelihood Protection program
(Koreas standard public assistance program) whose benefits are adjusted to family size and
36
Source: Ministry of Labor.
37
Korea Institute of Health and Social Affairs (KIHASA) and Korea Labor Institute (KLI), Report on the Conditions
of the Unemployed and their Welfare Needs. April 1999, pp.186-187.
38
Kim Mi-Gon of KIHASA estimates that the monthly income of family of 3.5 persons where the primary bread-
winner is engaged in the public works program would be 676,000 Won (480,000 Won from participation in the
program plus 196,000 Won of own disposable income). This total is 98% of the amount required for minimum
subsistence living (690,000 Won).
P. Pak: Public Work Programs in the Republic of Korea 111
_____________________ _____
include cash provisions for medical care, childrens education and small business loans, the
Public Works program is not well-targeted.
Yet another issue is the wage level offered to participants of the Public Works program.
Wages are significantly below prevailing rate in the labor market, and are even below the
minimum wage standard. Some rationale exists for the generally low wages, since the public
works benefit should not crowd out interest in the Livelihood Protection program, nor should
public works become a preferred employment option over the regular labor market. However,
public works do have a role as a buffer and mediator in managing fluctuating labor demand
conditions and they are not just the employer of last resort. Public works wages should be at
least at the level of the prevailing minimum wage to provide adequate resources, a structure
which would not reduce the desirability of private sector employment options.
Benefit duration. Limited benefit duration is a potentially serious problem. An
unemployed person is allowed a maximum 6 work months in the public works program. In many
cases, 6 months is not sufficient time to secure work in the regular labor market, and the
exposure to the program alone is not sufficient to obtain stable employment. Leaving
participants to their own devices at the conclusion of a very short participation period could be
worse for many of them than not having been in the program in the first place. Some
consideration should be given to complementary provisions such as: i) a built-in job placement
service to facilitate the participants transition from the projects to normal jobs; ii) extendable
work period up to at least another 6 months in the case of the second module public works
participants; and iii) transformation of some public works projects into small enterprises that can
offer sustainable jobs to participants after participation in the program.
CONCLUSIONS
Two observations arise from consideration of the Korean public works experience. The
first is that the program is based on the assumption that participants will find independent
sources of income and livelihood, either by returning to jobs from which they were previously
laid-off or through an alternative employment option. This assumption may be unrealistic,
however, because the currently unemployed do not necessarily have the skills that are in
demand and low-skilled opportunities are likely to diminish with the accelerating tempo of
automation.
The second observation is that the public works program as it exists today in Korea is
wasteful. It barely permits participants and their family members to survive for short periods
without doing much to strengthen long-term economic prospects. Yet the public investment
required for such meager support is enormous.
Korea is therefore faced with the challenge of reformulating the Public Works program or
of finding an alternative approach. One way of responding to this challenge could be to design
and operate the program in such a way as to gradually turn each of its projects into community-
based cooperative enterprises, with the project participants and other external supporters (other
39
than the government) as joint stake-holders or investors.
39
A pilot project is currently underway along this line based on a tri-partite Government-UNDP-NGO collaboration.
For more information contact the Korea Institute for Social Information and Research.
Table 10: Korean Social Safety Net Components (May 1999; 10,000 persons)
Social Safety Net Structure Program Social Risks Target Group St at u s o f
Covered Cov erage
Primary Social Safety Net Medical Insurance Illness All people All permanent residents
(Social Insurance) In Korea
National Pension Old-Age Wage workers; All industrial workers;
self-employed in Self-employed in
agriculture and Agriculture & fisheries
fisheries (urban self-
employed pending)
IndustrialAccident Industrial Accident Wage workers Workplaces under 5
Compensation employees, excluding
Insurance temporary workers
Employment Unemployment Excluding only daily
Insurance workers (after October
1998)
2ndary Supplementary Public Works Unemployment The unemployed 439 participants (as at
Social Measures the end of 1999)
Safety Net
Job Training 320 participants (as at
the end of 1999)
Loan Projects 70 beneficiaries (as at
the end of 1999)
Livelihood Public Works Poverty Low income group 1390 (on-going: 770;
Protection temporary: 620)
(including
temporary
livelihood)
Home Protection 530 (on-going: 390
temporary :140)
D. Gasgonia: Which Poor to Help? 113
____________________________________________________________________________
WHICH POOR TO HELP?

COORDINATED POVERTY ALLEVIATION IN THE PHILIPPINES40
WHICH POOR TO HELP

An appealing campaign platform for many world leaders, as well as many international
aid organizations, has been the eradication of poverty. Yet the sheer numbers and diversity of
poor people make this goal extremely difficult to achieve. Reality is no more forgiving in the
Philippines. Poverty figures for December 1997 indicate that 32.1 percent of total households
lived below the poverty line, translating into four million poor families or roughly 24 million poor
Filipinos. How do we address poverty given limited public resources? More specifically, how do
we decide which poor to help?
The approach taken in the Philippines since May 1998 under President Estrada has
been to help the poorest of the poor first, recognizing that resources should be concentrated on
those individuals who are trying to help themselves. This paper briefly reviews an approach to
this question reflected in the poverty alleviation program of the National Anti-Poverty
Commission (NAPC).
TARGETING THE POOREST FAMILIES

The target set by President Estrada for the poverty eradication program is to bring down
the poverty index to only 20 percent by the end of his term41. This means a reduction of 2
percent per year for six years. This is at par with the regional performance for Southeast Asia.
Yet resources are limited, so it is essential to know which poor to help before formulating public
programs.
The National Economic Development Authority (NEDA) statistics show that in December
1997, about 44 percent of the families living below the poverty line are found in the rural areas.
These are the people who lack income as well as basic social and economic serviceshealth,
education, housing, electricity, communication, and transportation. Although NEDA statistics
report dwindling numbers of poor in the urban areas, they still must be part of the targeted poor
of the poverty eradication program.
In order to reach the 2 percent reduction target every year, the program is designed to
benefit the entire barangay village where the poorest families live. The program will identify the
poor in stages, beginning with the 100 poorest families in each of the 78 provinces and 83 cities.
Subsequent groups of the 100 poorest families in each of the 1,525 municipalities and
eventually in the 40,000 barangays will be identified by NAPC42.
In view of the administrations budgetary constraints, the package of minimum
assistance has been made available only to these lists of the poorest families nationwide.
However, poor families that live in the remotest areas and in poorer municipalities (especially in
40
This paper was written by Donna Z. Gasgonia. Ms. Gasgonia is the Presidential Assistant for Poverty
Eradication, and the Chairperson of the Presidential Commission for the Urban Poor and Vice-Chairperson of the
National Anti-Poverty Commission of the Philippines.
41
This figure is lower than the target set by the Medium-term Philippine Development Plan, which is 25-28 percent.
The Estrada Cabinet, led by NEDA, is now studying what changes are needed so that the Plan can meet the
lower target of 20 percent.
42
NAPC was established by law, Republic Act No. 8425, effective 30 June 1998.
the fifth and sixth class municipalities), whether or not they are in the list of 100 poorest families,
will get services from other government programs.
WHO ARE THE POOREST

The Minimum Basic Needs (MBN) approach is used to determine the poorest families
based on a set of 32 socioeconomic indicators. The indicators represent three major areas of
family well beingsurvival, security, and services. Survival indicators relate to water and food
intake and basic health, among others. Security includes food security that assures that
nutritional requirements for a healthy diet are met and housing security. Enabling services
monitored by the MBN include health and education. Both the Department of Health and the
Department of Education, Culture and Sports have revised their programs to respond better to
the needs of the poorer segments of society. NAPC is focusing on their programs intended for
the young children of poor families.
The United Nations Human Development Index (HDI) provides a way to compare
conditions in the Philippines with other countries. In 1998 the Philippines ranked below many
countries in the region, including Brunei Darussalam; Hong Kong, China; Japan, Republic of
Korea; Malaysia; Singapore, and Thailand. The relatively low ranking on the HDI suggest that
more attention should be given to improving life expectancy at birth, adult literacy, and
enrollment rates, and real per capita income.
One of the greatest problems is that the Philippines has the highest annual population
growth in the region at 2.3 percent. With its insufficient budget for education, the government
will forever trail behind the ideal ratio of school children per classroom. On the other end, there
are many adults who also need assistance to become literate. NAPC has adopted a more
culturally sensitive perspective in addressing this problem by enhancing the indigenous culture
as against imposing literacy in the national language and alphabet.
Livelihood is also severely lacking for the poor. NAPC devised a program to develop
microenterprises through the establishment of a trust fund for the capability building of local
government units, NGOs and peoples organizations43.
POVERTY ERADICATION PROGRAM

The poverty program seeks both to alleviate absolute poverty and address relative
poverty. Here, absolute poverty refers to the number of households below the minimum food
threshold level while relative poverty refers to the resource gap between the rich and the poor.
The policy framework of the poverty eradication program stresses five major
components: food security; modernization of agriculture and fisheries for sustainable
development; low-cost mass housing; and protection of the poor against crime and violence.
Active participation of local government units in program implementation is sought.
Food security means that no Filipino should go hungry. This short-term objective is to
make sure that the poor families affected by lack of available food receive food through the
National Food Authority (NFA) rolling stores. The medium-term goal is for specific regions to
produce enough rice and corn, in order to meet their local demand. The long-term goal is to be
self-sufficient. Modern technology that supports the agriculture and fisheries industries is being
made available to farmers and fisherfolk. Sustainable integrated area development has been
declared as the offical framework for development of the agriculture and fisheries industries.
43
Sec. 11, R.A. 8425
D. Gasgonia: Which Poor to Help? 115
____________________________________________________________________________
Low-cost mass housing is an important step towards poverty eradication. The National
Shelter Program intends to construct 200,000 housing units by the year 2004. The strategy
adopted is to build communities, not just houses. Every cluster of 500 families will also have a
social area or clubhouse with sports facilities and a livelihood/training center. This strategy is
designed to combat drug abuse and violence among poor communities. One approach is to use
police officers in drug abuse resistance education in elementary schools.
CONVERGENCE OF PROGRAM
The Philippines is an agricultural country and 44 percent of the rural population lives
below the poverty line. Development, therefore, needed to focus on the rural poor. In response,
three departmentsthe Department of Agrarian Reform (DAR), the Department of Agriculture
(DA), and DENR have formulated a convergence of their respective programs. The target poor
are the agrarian reform communities, the farmers, the fisherfolks, and the upland and coastal
communities.
The Department. of Health, Department of Education, Culture and Sports, and the
Presidential Commission of the Urban Poor were directed to plan for a convergence of health,
education and housing services for the urban poor.
A small, P2.5 billion ($50 million) fund called the Lingap para sa Mahihirap (poverty
alleviation fund) was appropriated for the year 1999 to provide assistance in terms of (i) medical
and health services, (ii) food, (iii) housing, (iv) youth and child protection, and (v) grants to
cooperatives. The Lingap fund is intended to prop up the poorest families so that they can begin
to help themselves in economic activities, preferably using microenterprise development. The
bigger and more substantial funds of the national government agencies will be the eventual
sources of enabling services that will create the economic stimuli for the poorest communities to
rise out of their poverty.
FUNDAMENTAL SERVICES
The poor communities lack basic services such as electricity, water, communications,
and transportation. Realizing that without these services any help to these communities would
be wasted, resource mapping is being done to assess their needs for such services.
About one fourth of the barangays have no electricity. Many of them are in the uplands,
isolated coasts, and small islands. Connection to on-grid electricity is impractical. In response,
The Philippine Energy Plan emphasizes the need for installing isolated power plants utilizing as
much renewable energy as possible.
Updated information and communication are essential to level the playing field for the
poor communities so that they can exercise judgment without the obstacle of not knowing what
is happening everywhere. This lack of information is what moneylenders, usurers, and
middlemen capitalize on. The poor can make decisions to ensure better production. With power
and communication established, product and service delivery requires particularly upgrading of
transportation facilities.
In consonance with the major components of the poverty eradication program, the
participation of local government units is important to ensure that the benefits reach the poorest
families. The national government then comes in with sustained training and technology transfer
through the Community Empowerment Program at the barangay level. The Department of the
Interior and Local Government and the Department of Labor and Employment through its
attached agency, the Technical Education and Skills Development Authority (TESDA) lead this
barangay-based program. Poor workers also lack access to the latest technology, education,
and skills needed to be competitive in the marketplace. TESDA will provide them with a
comprehensive, integrated but simple training program in accordance with local abilities and
market needs.
INCREASE PURCHASING POWER OF THE POOR

Many economic managers expect miracles to happen through massive national projects,
yet these projects treat the poor as mere recipients, not market players. The flaw of this top-
down approach has already been exposed. Besides, this top-down approach shifts the blame
to the poor when after a single seminar or training, the poor do not meet the expectation to
become successful entrepreneurs or skilled workers with secure jobs.
The poor are the best channels for the much-needed stimulus to energize economic
activity. As soon as the poor receive money, it moves quickly in local economies stimulating
other economic activities. Reversing reliance on the trickle-down effect, funds are being
moved to the poor communities directly to increase their purchasing power. This assures that
the poorest of the poor are not left out in the poverty eradication program. Aside from service
and fund infusion, the poor will be assisted in evaluating local socioeconomic data. This would
generate greater saving among them. Savings by the poorest families can then boost the
economy, first at community level, and eventually at the national level.
PRO-POOR MARKET DRIVEN PROGRAM

The poverty eradication program of the Philippines is pro-poor and market-driven. It
enables the poorest families to help themselves. It provides access to market information and
the market itself. It provides vital government services to meet the minimum basic needs of the
poor. Then it encourages microenterprises through the provision of microfinancing. A pro-poor,
market-driven program removes hidden subsidies and market distortions. By focusing on long-
term development, artificial and unsustainable short-term gains are avoided. This results in a
steady, stable, and paced development that is sensible and fair to the poor.

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CHAPTER 1:

THE MANILA SOCIAL FORUM

ECONOMIC GROWTH, SOCIAL DEVELOPMENT,

POVERTY ERADICATION THE OVERRIDING VISION OF OUR JOINT EFFORTS

POVERTY IS BAD ECONOMICS

PRO-POOR GROWTH AND SOCIAL DEVELOPMENT

POVERTY ALLEVIATION IN THE PHILIPPINES

LESSONS TO BE LEARNED FROM EAST ASIA

OPERATIONAL LESSONS AND CHALLENGES

By Jean-Michel Severino, Vice-President of the World Bank

FROM BANGKOK TO MANILA: CHANGES IN THE ECONOMIC AND SOCIAL LANDSCAPE

A CHANGING ASIA: SEVEN FUNDAMENTAL ENGINES OF SOCIAL CHANGE

CONSOLIDATING THE FOUNDATIONS OF THE NEW SOCIAL MODEL IN A CHANGING

THREE KEY ISSUES ON THE SOCIAL AGENDA

THE SOCIAL IMPACT

THE FINANCIAL AND ECONOMIC CRISIS IN ASIA:

CURRENCY ATTACKS AND THE CRISIS

UNDERLYING CAUSES OF THE CRISIS

Sudden Shifts in Market Expectations and Confidence

Advances in Capital Market Technology and Financial Products

Extensive Use of Leverage

Deteriorating Terms of Trade and Emerging Current Account Deficits

Table 1: Balance of Payment on Current Account (US$ million)

Increasing Reliance on Global Capital Markets to Finance Growth

High Short-term Debt to Foreign Reserve Ratio

Table 3: Short-term Debt as Percent of Foreign Reserve

Inadequate Regulation and Supervision in the Financial Sector

Bubble in Stock Market and Real Estate Sector

High Leverage Among Corporations

Table 4: Debt to Equity Ratio in 1996

Therefore, when an economy liberalizes its financial market, it is imperative to create a

THE DEEPER CRISIS:

Prices and Assets

Employment and Incomes

Income Inequality and Poverty

Health and Family Planning

Especially Disadvantaged Groups

RESPONSES TO THE CRISIS

Household Coping Mechanisms

CONCLUSION AND IMPLICATIONS

upgrading of the skills of most of the regions workforceparticularly its female

BEYOND THE ASIAN CRISIS: THE CENTRALITY OF SOCIAL POLICY9

SOCIAL IMPACT OF THE ASIAN CRISIS

INVESTING IN SOCIAL SOFTWARE

BROAD-BASED, SUSTAINABLE, AND EQUITABLE GROWTH

SOCIAL POLICY IN THE PHILIPPINES

MIGRATION AND REGIONAL INTERDEPENDENCIES:

LABOR MARKET STRUCTURE

LABOR MARKET INTERDEPENDENCIES

Labor Migration from Lao PDR

Foreign Labor in Lao PDR

SOCIAL PRIORITIES AND THE LABOR MARKET IN UZBEKISTAN13

INCOME MAINTENANCE AND SOCIAL PROTECTION POLICY

The Social Protection System

Labor Market and Employment

EMPLOYMENT POLICIES IN THE REPUBLIC OF KOREA

LABOR MARKET POLICIES AND INITIATIVES

Measures to Create Jobs and Other Work Opportunities

Job Placement: Public Employment Services and the LMI System

Social Protection for the Unemployed

extending the application of the Employment Insurance System to all establishments.

INCREASING URBAN EMPLOYMENT IN SHANGHAI:

THE STRUCTURE OF EMPLOYMENT DURING THE ECONOMIC TRANSITION

THE REEMPLOYMENT PROJECT AS AN ACTIVE LABOUR MARKET INTERVENTION