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An Intellectual Dialogue on Building Asia's Tomorrow

The Asian Crisis: Meeting the Challenges to Human Security

Tokyo, Japan
December 2-3, 1998

The Asian Financial Crisis: Human Security Dimensions

By Chia Siow Yue and Shamira Bhanu
Institute of Southeast Asian Studies, Singapore

Table of Contents

Social Effects of the Crisis

Policy Measures and Actions

Annotated Bibiliography

The Asian economic crisis is affecting the lives of millions in East Asia and aggravating social vulnerabilities. It has had several negative impacts, among them falling incomes, rising poverty and malnutrition, declining public services, reduced access to education, deteriorating health-care status, heightened pressure on women, and increased crime and violence. The effects of the crisis are acute in Indonesia and severe in Thailand, the Republic of Korea, and Malaysia. The Philippines, while somewhat less affected, also shows signs of worsening social conditions. In Indonesia, there has also been a radical breakdown in social order as an increasingly fragile social equilibrium is brought under acute stress by the economic and financial collapse. The economic crisis has affected almost all households and segments of society. However, some segments and groups are particularly vulnerable, namely, migrant workers, the urban poor, the elderly, women, and children.

This paper is an attempt to summarize the materials pertaining to the human security aspects of the Asian economic crisis. It was compiled based on materials gathered between October and December 1998. The paper looks at both the nature and magnitude of the social impacts and at the policy responses and actions of governments, major international development and aid organizations, civil society organizations, nongovernmental organizations (NGOs), and research institutes. In compiling the paper, two difficulties were confronted. First, the time constraint precluded a comprehensive literature survey. Second was the tremendous disparity in available data and the rapid changes taking place on the ground. The lack of reliable and up-to-date information and analysis concerning the Asian crisis to adequately serve policymakers highlights the need for urgent action.

Social Effects of the Crisis

The most useful information on the social effects of the crisis is found in Oxfam International, World Bank, and International Labor Organization (ILO) sources.

The list of social problems exacerbated by or newly arising from the crisis is long and varies according to country as well as region within a particular country. Indonesia, Thailand, and South Korea, followed by Malaysia and the Philippines, attracted the most attention in available documentation.

The World Bank's East Asia: The Road to Recovery outlines some of the main social problems arising from the crisis: falling labor demand; increased underemployment; migrant workers; women disproportionately targeted for layoffs; sharp price increases, especially in medications; public spending squeeze; erosion of social fabric; and drought (with parts of Indonesia, the Philippines, and Thailand badly hit). This report states that the Asian crisis has exacerbated preexisting social vulnerabilities, resulting in "falling incomes, rising absolute poverty and malnutrition, declining public services, threats to educational and health status, increased pressure on women, and increased crime and violence," and that "the effects of the crisis are acute in Indonesia, and severe in Thailand, [South] Korea, and Malaysia. The Philippines has been less affected, but shows signs of worsening" (World Bank 1998b, 80).

In the Oxfam study East Asian "Recovery" Leaves the Poor Sinking of October 1998, the growth prospect for Indonesia is particularly grim, with gross domestic product expected to contract by 20 percent, with lesser contractions of 6-8 percent in Thailand and South Korea. Rising unemployment has been felt most by low-income households, reduction of services has affected particularly the rural communities, and drought has worsened already dire situations in some countries. The severity of the crisis is evident in the following:

Oxfam warns that, with a reduction of household incomes and reduced access to health care and schools, there is a strong danger of poverty becoming entrenched and being transmitted to the next generation. The crisis is threatening to set back the worst-affected countries by a decade.

The World Bank's Social Consequences of the East Asian Financial Crisis (1998e, 38) documents that local NGOs have reported erosion in social capital in most East Asian countries, as evidenced in the increase of conflict in households, communities, and societies at large and a loss of trust and an increased sense of vulnerability and isolation in communities.

Falling Real Incomes and Rising Incidence of Poverty

Indonesia

The sharp devaluation of the rupiah and economic collapse have inflicted deep pain across most social sectors of Indonesia. The crisis has led to a severe drop in the real incomes and standard of living of millions of Indonesians, as the currency devaluation has led to inflation rates of 80-100 percent, with sharp increases in prices of food staples and imported goods. Azis (1998, 140) reported that by May 1998 the annual rate of inflation had reached over 50 percent and the food component in the Consumer Price Index had risen more than 70 percent. The increase for rice was 40 percent, for palm oil 74 percent, wheat flour 95 percent, and condensed milk 128 percent.

Reports point to rising poverty in both urban and rural areas. The World Bank noted that "in Indonesia, a 12 percent decline in aggregate GDP in 1998 is estimated to increase poverty from 11 percent in 1996 to 14 percent in 1999, affecting both rural and urban residents. Even if second-round effects are ignored, most poverty in Indonesia would remain rural. Yet the immediate effect of the crisis is expected to be more acute in urban areas, resulting in a significant scale of urban poverty—8 percent in 1999—for the first time in many years" (1998b, 84).

Oxfam in April 1998 warned that

the number of people [in Indonesia] living below the poverty line could quadruple over the next 6 months to affect 40 percent of the population—the same incidence as in 1977. . . . Recent field visits from Oxfam staff already point to a distressing expansion of poverty in Indonesia, as a result of the economic crisis and a prolonged drought. Human suffering is on the increase, with huge numbers of people out of work, a sharp rise in the price of essential food and non-food items, the breakdown of distribution of basic goods and services and the increasing violations of human rights. . . . In West Timor, 75 percent of families are eating one meal a day and that often includes Aputak, the bark of a tree normally used as cattle feed. (1998b, n.p.)

A June 1998 ILO study (ILO/United Nations Development Programme [UNDP] 1998) estimated that in mid-1998 around 75 million people, or 37 percent of the population, were expected to be below the poverty line (defined as US$1 per person per day, in 1985 prices). These numbers were expected to rise rapidly to around 100 million, or 48 percent of the population, by year-end 1998. The ILO forecasts that, in the absence of improvements in household income, further price rises in 1999 will push some 140 million people, or 65 percent of the population, below the poverty line, resulting in poverty levels not seen since the 1960s. In contrast, the World Bank (1998b) projected that with a 10 percent contraction in aggregate GDP between 1998 and 2000, the number of people living under the US$1-per-day poverty line will rise from 13 million in 1997 to 34 million in 1999 and 2000.

The ILO noted that because the crisis will hurt almost everyone in Indonesia, income inequality may remain largely unchanged. If the devaluation stimulates strong export growth in the agricultural sector in the Outer Islands, there may even be a favorable impact on income distribution.

This observation is borne out in a Far Eastern Economic Review article (McBeth 1998b), which reports the existence of large pockets of prosperity in the midst of a national economic contraction of more than 15 percent in 1998. It notes that rural entrepreneurs from the Spice Islands in the Banda Sea to the fertile agricultural lands of South Sulawesi and Sumatra have for some time now been benefiting from the combined effects of Indonesia's economic meltdown and a bumper harvest. For a long while after May 1998, when the rupiah hit record lows against the U.S. dollar, farmers selling crops for export were enjoying a boom: From nutmeg and cloves to palm oil, cacao, and shrimps, their goods earned local-currency profits previously unheard of. For instance, in rural Sulawesi and Sumatra, shrimps rose from Rp17,000 to Rp150,000 a kilogram in May, patchouli oil from Rp50,000 to Rp1.2 million a kilogram, pinang (betel nut) from Rp800 to Rp16,000, and cacao from Rp1,200 to Rp17,000. Central Aceh farmers, who produce 95 percent of Indonesia's arabica coffee, saw prices nearly triple from Rp10,000 to Rp28,000 a kilogram. However, there are signs that these windfall profits are now fading with the rupiah's recent strengthening and prevailing high inflation rates.

Malaysia

A study by the Malaysian Institute of Economic Research (Ariff et al. 1998) projects the economy to record negative growth of 1.8 percent, an inflation rate of 7-8 percent, and a rise in the unemployment rate to 2-3 percent by year-end 1998, leading to a substantial decline in real household income. It is expected that the unemployment and income effect will be mitigated by the buffer of an estimated 2 million migrant workers, as well as by sustained levels of government spending in the social sector. Nevertheless, a noticeable and, in some instances, drastic erosion of household income and welfare will be unavoidable. In addition to the existing poor group, it is expected that a new poor group will emerge for whom there is no social safety net available to cushion the effects of sudden destitution.

Fiscal policy restraints are likely to have limited repercussions on existing levels of social income for the time being, although the cancellation of and delays in various infrastructure projects could have larger local effects. An across-the-board cut of 20 percent to the 1998 government budget has been offset by an additional allocation of M$3.7 billion (about 18 percent of the total social sector budget), to be made available to help vulnerable groups hit by the crisis, including funds for small farmers, microcredit for small businesses, extension of community and rural health facilities, and development of skills training and higher education. The World Bank has approved a US$300 million loan for this purpose. Another loan of US$700 million is under consideration for funding social programs such as low-cost housing.

Household welfare is more affected by reductions in private incomes. Retrenchments (a doubling of the unemployment rate from 2.7 percent to 5 percent), lower wages and earnings (by a third), business failures (especially of small retailers), and reduced asset and transfer income (of retired households) are expected.

Incomes of those employed in the public sector of Malaysia have been affected by the 10 percent pay cut for ministers and 5 percent pay cut for senior civil servants, as well as by the freeze on salary increments for higher categories of civil servants. It is likely that deeper wage cuts will be experienced by a substantial proportion of the labor force in the nongovernment sector, whether through a reduction in basic salary, in overtime pay, or in other benefits. Furthermore, a large number of retrenched workers will find reemployment only at substantially lower wages. The Malaysia Trade Union Council expects 20-40 percent of workers earning above M$1,500 to take pay cuts of up to a third of their salaries. Lower income earners will also face salary reductions and a loss of overtime income.

Not captured in the official statistics are the small and medium enterprises (SMEs), which will be severely hit through a reduction in demand as well as the high cost of working capital requirements. Many of the self-employed in these enterprises and their employees are likely to lose their livelihoods. More than 2,000 businesses have gone bankrupt since July 1997.

The economic crisis has seen a dramatic asset deflation in the stock and property markets. By year-end 1997, stock market capitalization had declined by more than half, while property prices are expected to fall by up to 40 percent by year-end 1998. Households that derive a substantial amount of income from such assets, which include retirees, will experience a sharp decline in income. Retirees and rural households dependent on transfer payments from urban wage earners will also be adversely affected.

A large number of nonworking households are dependent on transfer income from family members or asset income. These households are also highly vulnerable to increases in the cost of health care. In the absence of a social safety net for such households, a decline in their welfare appears inevitable.

Official statistics show 3.7 percent of urban households are poor, based on the poverty line of M$425. However, academics have argued that a standard poverty line for both urban and rural areas is unrealistic, and that the urban poverty line should be set at M$750. As such, despite high economic growth and low inflation, the incidence of poverty during 1985-1995 rose from 14.3 percent to 23 percent of urban households. With reduced income due to retrenchments and pay cuts, and rising prices of necessities such as food and utilities, poor urban households will suffer a noticeable decline in welfare. While there have been programs to alleviate rural poverty, there are no specific programs or policies targeted at urban poverty.

Highly leveraged households are being disproportionately hit. This group includes middle-income professionals with mortgage payments on their house and car, as well as the self-employed with business loans. Although the majority of professionals and the self-employed will have savings to tide them through, a not insignificant number will lose their assets and slide into poverty. In the 1985 recession, many resorted to emigration and the labor markets of Singapore, Taiwan, and Japan. This option may not be so easily available today, as recession is regionwide.

Almost half of the retrenched workers have been women, especially skilled and semiskilled factory operators. Of particular concern is the fact that there are 630,500 households in the country with female heads.

According to the July 1998 National Economic Recovery Plan, "the incidence of poverty is expected to increase from 6.8 percent in 1997 to 8.0 percent in 1998. The number of poor households is estimated to increase from 346,000 to 414,700 during the same period. With regard to hardcore poverty, the incidence is expected to increase from 1.4 percent in 1997 to 1.7 percent in 1998, with the number of hardcore poor households increasing from 70,300 to 88,100" (National Economic Action Council [NEAC] 1998).

The Malaysian ringgit depreciated 31.4 percent in 1997 against the composite basket of currencies of Malaysia's trading partners. Inflation is estimated to rise 7-8 percent in 1998, up from 2.7 percent in 1997. In March, the Consumer Price Index rose 5.1 percent, but the food index showed a sharper rise of 6.6 percent, while medical care and health expenses rose 5 percent. It should be noted that households had already absorbed rate increases in toll charges; city bus, taxi, and airline fares; and electricity and water rates from privatized service providers in 1997. These increases in the prices of basic necessities will have an impact on lower-income households, particularly the urban poor.

Thailand

Data from the National Statistical Office showed a dramatic decline in poverty incidence, from almost 30% of total population in 1986 to less than 10% in 1994. This decline was not confined only to Bangkok, or its immediate environment; the largest decline in poverty incidence occurred in the poorest region of the country, that is, the northeast.

Given the prolonged nature of the currency crisis, the ILO (April 1998) estimates that the increase in poverty incidence between 1997 and 1998 is of 14% of the population. It means that about 8.5 million people will have dropped below the poverty line in just two years. According to World Bank (1998c) estimates, the poverty incidence could rise to 23% by end-1998, as compared to about 8% of the population in 1996, thus eliminating almost all of the dramatic reductions in poverty incidence achieved since 1981. The poverty incidence will rise further if economic growth remains below 6% beyond 1998.

The ILO (1998c) notes that downward flexibility in real and nominal wages appears to have become relatively widespread in Thailand. Annual bonuses are an important component of total wages; a 1996 Labour Ministry survey found that almost 45 percent of employees across all industries receive an annual bonus, with the actual amount varying across industries. Available evidence shows a substantial reduction in the annual bonus component of total earnings in 1997, and it is anticipated that bonuses will shrink further in 1998. A member of Thailand's National Wage Committee anticipates a 50 percent reduction in the bonus in 1998. In addition, many enterprises have cut nominal wages. In the financial sector, senior management have seen reductions in monthly earnings of 10-30 percent. Lower-level employees have seen their wages frozen. Estimates from various sources show nominal wages rising in 1998 at levels of 0-8 percent. Wage increases are expected to be well below the forecasted inflation rate of 15 percent, indicating a sizeable drop in real incomes.

South Korea

Pak (1998) notes that the crisis will have a negative impact on South Korea's socioeconomic structure. Informal surveys project that the South Korean middle class will shrink from the precrisis 70 percent level to 40-50 percent over the next few years, which, even if roughly valid, carries serious implications for not only social stability but also economic stability, the latter through the weakening of the consumption base.

The ILO notes that "although Korea's record of rapid economic growth had significantly reduced the number of people living under the absolute poverty line, there is now widespread concern that the current economic crisis will very likely reverse the trend" (1998c, 24).

Rising unemployment

Indonesia

The sharp drop in construction and manufacturing activities that was first registered across Java as a result of the prolonged economic crisis has led to rising unemployment, especially among unskilled workers. While precise figures are not available, McCawley (1998, 5) mentions indications that hundreds of thousands of young males in the construction industry in urban areas (many of them casual workers from the rural areas without any form of family network in the cities), as well as perhaps millions of other workers, lost their jobs in the first few months of 1998. In a similar vein, the ILO (1998a) reports that this year alone 20 percent of workers in Indonesia's formal sector have lost their jobs. Unemployment in precrisis Indonesia was estimated at around 4.5 million, or 5 percent of the labor force, in 1996. Official estimates suggest that an additional 10 million may lose their jobs in early 1999 (World Bank 1998b), although it is likely that many of them will move into low-paying urban and rural informal sector jobs rather than into open unemployment. Unemployment is likely to increase sharply as the more than two million new entrants into the labor force each year will have difficulty finding jobs. In addition, another 35-40 million Indonesians are regarded as underemployed, that is, working less than 35 hours per week (Soesastro 1998, 24).

The ILO (1998c) attempted to gauge the impact of the crisis on unemployment by applying employment elasticities to projected GDP in 1998 and 1999. Assuming zero growth of GDP in 1998, the projected level of unemployment is nearly 7.9 million, or 8.3 percent of the labor force, while assuming a 5 percent contraction of GDP yields unemployment of nearly 9.2 million or 9.7 percent of the labor force, which is more than double the level of 5 percent prevailing in 1996. The World Bank (1998b) cautions, however, that given the doubtful quality of the data and the continuing economic uncertainty, such forecasts can only indicate broad magnitudes. Another factor that will be an important influence on how rates of open unemployment evolve is the proportion of the potentially unemployed that will be absorbed into the rural and informal sectors. Where a sizeable segment of the population is still poor and there are no unemployment benefits, people cannot afford to remain openly unemployed for long.

The ILO (1998c) estimates that around 5.4 million workers are expected to be displaced during 1998. The newly unemployed wage workers have been displaced mainly from the service (36 percent), manufacturing (25 percent), and construction sectors (19 percent). Because many of these people cannot afford to remain unemployed for long, around half are likely to find work of some kind in the informal sector. However, the informal sector is also suffering from "drastic contraction in the demand for its products and services," so that the main outcome will be even less work and lower earnings for all workers employed in the already overcrowded informal sector. Many displaced workers in the large cities will also return to their hometowns and villages, thus reversing the rural-urban drift. Urban employment will fall from a peak of 34 percent in 1997 to 30 percent in 1998. Female workers have been disproportionately affected by the layoffs, as society regresses to the traditional norm of men as primary breadwinners. Many home workers and those involved in putting-out work will stop working and stop receiving their usual piece-rate incomes.

Malaysia

Prior to the crisis, the Malaysian economy was facing on increasingly severe labor shortage. The labor shortfall was ameliorated by the presence of 1.14 million registered migrant workers and another half to one million illegal or unrecorded migrant workers in 1997.

The Ministry of Human Resources reported that from the start of the crisis in July 1997 to mid-May 1998, 43,838 jobs had been lost. Of these, 30,152 jobs were lost in the first five months of 1998. A further breakdown of the job losses by geographical location in these first five months shows the largest job losses recorded in Selangor (7,567), Kuala Lumpur (4,593), Pulau Pinang (4,391), and Kedah/Perlis (3,114). By sector, manufacturing led at 15,476, followed by construction (3,773) and retail trade, restaurants, and hotels (3,637). The retrenched were mostly skilled and semiskilled workers, general workers, professionals, and clerical workers. By citizenship, Malaysians made up 89 percent of the retrenched. Women accounted for 44 percent of the retrenched.

The Malaysian Institute of Economic Research (Ariff et al. 1998) estimates that with the economic slowdown the Malaysian unemployment rate is expected to rise to 4.5-5.5 percent by year-end 1998, a projection not far off the mark from an ILO (1998a) announcement in December 1998 that the unemployment rate in Malaysia had hit 5.2 percent. However, official government estimates released in June 1998 projected a rise in unemployment rates to a milder 2-3 percent by the end of 1998. The government study estimates that job losses by year-end 1998 will stand at 80,000. Assuming a growth rate of 2.4 percent in the labor force in 1998, some 206,000 new entrants will join the existing pool of 200,000 unemployed in the job market. The newly unemployed will be added to this stock. The study concludes that, given the previous labor shortage and the presence of an estimated two million migrant workers in the country, many of the newly unemployed should be able to find reemployment, especially those belonging to the production operators, semiskilled, and general worker categories. Retrenched professional, administrative, and clerical workers and new graduates entering the labor market will have greater difficulty finding employment.

Thailand

Up-to-date employment statistics are generally not available in Thailand and estimates of unemployment vary greatly among sources. In early 1998, when the problem of unemployment was of serious concern, the Ministry of Labour and Social Welfare, together with other government agencies, came up with an official estimate putting the number of unemployed at around two million, including the seasonally unemployed in the agricultural sector. The figure of unemployed from small enterprises is surprisingly small, as it includes only those who register with the ministry. The actual level of unemployment could be much higher, with the media quoting figures of 2.8-3 million (Tambunlertchai 1998, 124). The ILO (1998a) in December 1998 stated that the official unemployment rate is set to triple from around 2 percent to 6 percent. The financial, construction, and manufacturing sectors are among those hardest hit by the recession. Such industries as automobiles, steel, cement, chemicals, and consumer products all reported large drops in production.

The increase in unemployment will be felt most in rural Thailand with the large-scale reversal of the traditional rural-urban migration. In January 1998, a government survey of workers returning to rural (nonmunicipal) areas placed the figure at 188,000 persons (ILO 1998c). Compared to each region's rural population, the highest proportion returned to the northeast. This pattern of reverse migration puts pressure on the weakest parts of the Thai agricultural sector; the north and northeast were hit particularly hard by drought in 1997. The returnees are not always employable or productive. Furthermore, those who have very little land, or who sold their land to speculators during boom years, or lost it as a result of rural industrialization and large-scale infrastructure construction projects will be pushed into extreme poverty. This is further exacerbated by the loss of income from migrant workers who remitted much of their income back to their families in the village, relieving the economic pressure on their families. These regions had evolved an economy in which remittances from urban areas played a major role in sustaining living standards. At the community level, this could lead to ecological disaster, as the sheer need for survival might put increasing pressure on natural resources and an already fragile environment.

South Korea

The Social Impact of the Asian Financial Crisis relates primarily to the problem of sudden unemployment and reduced demand for labor due to closure of large companies, the results of which are increasing the overall level of poverty. "There are no recent data on income distribution and changes in poverty levels. However, the Korea Institute for Health and Social Affairs, which is the research arm of the Ministry of Health and Social Affairs, estimates that an additional 103,000 unemployed persons are likely to become recipients of the �livelihood protection scheme' of the Ministry" (ILO 1998c, 24). Sudden unemployment for workers in South Korea means not only termination of wage income but also deprivation from the workplace-based medical system and disqualification from the national pension system (Korean Confederation of Trade Unions, 1997).

An article in the Korea Herald ("Government to Overhaul" 1998) reports that the number of jobless is expected to reach two million by end-1998; the government is therefore shifting its policy stance toward job creation and vocational training programs. The current policy stressing increased investment in infrastructure and credit extension to SMEs will not be effective in offering direct relief to the unemployed. One measure featured in the report of the Planning and Budget Commission is public work programs that hire more young people than elderly. So far, the government has mobilized mostly the elderly poor for public works. The number of recipients of unemployment benefits will grow from 6.3 million to 8.6 million because the government has extended the coverage of unemployment insurance to all work sites regardless of the number of employees beginning in September.

The Korean Labor and Society Institute (1998) draws attention to the fact that Korean official unemployment statistics count as employed those who work only an hour a week for pay. If the temporary workers, who earn very little during the recession, are counted, the actual number of unemployed is over three million. New college graduates are also having a hard time finding jobs. According to a survey of 24 major South Korean universities as of early May 1998, only 41 percent of them had found jobs.

While unemployment is soaring, the institute points out, the social security network of South Korea is utterly insufficient. South Korean welfare expenditure totals about 5-7 percent of the government budget and less than 1 percent of GDP, while that of most of the European Union countries totals around 30-40 percent of the government budget and 15-20 percent of GDP.

According to the institute, 76 percent of the unemployed are not eligible for unemployment benefits. The duration and amount of unemployment benefits are less than those in industrialized countries. The impact of other employment programs such as financial support to companies trying to maintain their existing employment, vocational training and job placement services, and the early execution of public infrastructure projects are not being felt yet.

Prior to the crisis, unemployment had remained below 3 percent for several years. In 1995-1996, there was near full employment and emerging labor shortages. Since the onset of the financial crisis, unemployment has been rising rapidly, peaking at 7.6 percent in July 1998 and easing to 7.3 percent in September, or 1.58 million. The ILO (1998a), however, assesses the unemployment rate to be more than 8 percent.

Most of the rise in unemployment occurred in the four-month period immediately after the crisis. This is attributable mostly to the bankruptcy of SMEs, which suffered from the credit crunch when banks tightened the control of loans. The number of bankruptcies rose from 1,469 in November 1997 to 3,197 in December 1997, and remained above 3,000 until March 1998. The slowdown in bankruptcies helped employment increase again in ensuing months; the government's massive spending to create jobs and absorb those laid off, and seasonal factors in the agricultural and construction sectors, also contributed to growing employment. Labor officials have forecast that 1998 joblessness will hold at around 7 percent.

Declining employment has not been evenly spread across sectors and types and workers. The manufacturing and construction sectors have experienced the largest retrenchments; as of May 1998, employment in the manufacturing sector had shrunk by 14.5 percent and in construction by 22.4 percent as compared to a year ago. Workers in the 20- to 29-year-old age bracket have been the most affected, accounting for more than half of the total employment decline; this concentration reflects in part the sharp decline in new hirings in manufacturing and other sectors in view of greater uncertainty regarding future business conditions. Among the 30-49 prime age group, the decline in employment was relatively small, but it picked up again noticeably among workers 50 years old and over.

Unlike the crisis countries in Southeast Asia, South Korea has an unemployment benefit scheme, with social security requirements stipulating compulsory coverage as long as an enterprise employs five or more workers. However, this still leaves well over 40 percent of South Korean employees unprotected. Moreover, even for the portion of the work force covered, the benefits are often far from adequate. The health insurance system in practice covers less than 50 percent of hospital costs on average. The lump-sum benefits provided by provident funds are also not adequate to finance old age or cover invalidity or death of the breadwinner, as members often have only small balances.

Strikes and demonstrations against layoffs have been rampant following the country's forced economic restructuring drive under the International Monetary Fund (IMF).

Migrant labour

Indonesia

It is reported that there are some one million undocumented Indonesian migrant workers in Malaysia. Recession in Malaysia has led to a considerable return flow of workers to Indonesia. Many of the construction workers, who make up about 25 percent of the 755,000 legal or documented Indonesian migrants, plus many more from among the one million illegals, may have already lost their jobs owing to large cutbacks in infrastructure projects and the downturn in real estate investments. For 1999, it is expected that there will be a significant net return of Indonesian workers because of expulsions from overcrowded detention centers, the unwillingness of many to be redeployed to work in plantations, and the much stricter policing of Malaysian borders. This will add to the already large pool of unemployed in Indonesia.

Malaysia

Official statistics show that 3,246 migrant workers were retrenched in the first five months of 1998 (Ariff et al. 1998). Migrant workers formed an estimated 80 percent of the 768,400 employed in the construction sector. With the dramatic decline in construction activity, the reported figure would be a gross underrecording of migrant worker retrenchments. In addition to those retrenched and repatriated, many in the construction industry have been "abandoned" by their erstwhile employers, or retained without pay until their labor is required again. Some have been redeployed. These undocumented workers have been subjected to unemployment, wage cuts, and nonpayment of wages for months.

Even those not facing retrenchments will lose their jobs when their existing work permits expire. Some 200,000 migrant workers in the construction and service sectors were slated for repatriation when their work permits expired in August 1998. The government expects one million migrant workers to lose their jobs and be sent home during 1998. Another 90,000 will be redeployed in the plantation and manufacturing sectors. Some will remain in the country and seek income in the informal sector, competing with the urban poor, with a possible rise in social tensions as domestic and foreign workers compete for a finite number of jobs.

Most migrant workers have incurred debts to labor brokers, which generally take two years of labor to repay. The abrupt retrenchment, repatriation, and loss of income mean inability to repay and eventual entrapment in a vicious debt-and-poverty cycle.

With declining employment opportunities at home, and differential currency depreciations increasing intercountry wage differentials, there could be a buildup of emigration pressures in one or more of the worst-affected countries. It is anticipated that trafficking in clandestine labor migrants will rise. A rise in clandestine migration will entail heavy private and social costs, both in the countries of origin and those of destination, without really providing avenues for gainful absorption of aspiring migrants. This emerging problem calls for joint and cooperative action on the part of the governments of the countries of origin and destination.

Food Insecurity and Malnutrition

Indonesia

The economic crisis in Indonesia will have far-reaching implications on food security, both in ensuring sufficient rice stocks and ensuring their proper distribution.

Rice is the food staple in Indonesia, with some poor Indonesian households spending up to 50 percent or more of their income on rice alone. The country's annual rice crop, traditionally harvested around February-March, was already showing signs of a shortfall in late 1997 as a result of the 1997-1998 El Niño drought in Indonesia, the worst in half a century; extra food imports were necessary to offset the shortfall in domestic production. However, following the sharp devaluation of the rupiah and the fivefold escalation in the price of rice from Rp1,000 per kg to Rp5,000, the food security issue became more acute (McCawley 1998, 7). The government has introduced large subsidies to stabilize prices. The total cost of emergency subsidies in the current 1998-1999 fiscal year is expected to lead to a national budget deficit of around 8.5 percent of GDP.

Food security also means ensuring the supply of rice across the nation, particularly to poorer groups. The rice distribution channels, handled mostly by Chinese Indonesian traders, have been disrupted by ethnic violence, especially the May 1998 political disturbances. There have been worrying reports that poverty-stricken families have not had enough money to buy even basic food supplies. The Ministry for Food and Horticulture has estimated that over 17 million families nationwide, or about 80 million individuals, are now facing food shortages (McCawley 1998, 8). Reports in Central and East Java indicate that perhaps 60 percent of the 7.3 million poor families, or over 30 million individuals, can only afford one meal per day. Eastern Indonesia has been hardest hit and has reported widespread famine and deaths in the thousands due to the El Ni�o drought and related crop delays or failures.

Another social fallout from the economic crisis is spreading malnutrition among the poorer segments of society. A UNICEF source predicted that the crisis may produce a "lost generation" as malnutrition drives the country's IQ down by some 7 percentage points below the average IQ of 100 (reported in Straits Times, 16 October 1998), with 65 percent of children under three years of age being anaemic and 50 percent under two suffering from a lack of micronutrients. A lack of micronutrients such as Vitamin A, iodine, and iron could cause a 10-15 percent drop in individual IQ levels. The UNICEF source noted that such a "lost generation" would be a "very long-term negative impact" of the crisis over the space of ten years, which would hurt Indonesia's competitiveness.

Malaysia

The rise in the cost of food, including items basic to the budget of poor families, such as sugar (14.1 percent increase in March), fruits and vegetables (13 percent), fish (7.6 percent), meat (5.7 percent), coffee and tea (5.5 percent), and oils and fats (5.1 percent), is difficult to contain because of the high import content in the country's food supply. The 1997 food import bill amounted to M$9 billion.

To alleviate the shortage in essential food items, the Malaysian government has recently instituted measures stipulating that only cooking oil designated for export can be purchased by foreigners for consumption outside Malaysia; the price of cooking oil is subsidized within Malaysia.

Health Care

Indonesia

During the first half of 1998, there were numerous reports of the unavailability or high cost of a whole range of medical and health products (McCawley 1998; Gardiner 1998). Basic medicines, such as those used for the prevention of infection, are in very short supply; for other medicines, prices have risen dramatically. The price of contraceptives has more than tripled; it was reported that in the Indramayu area in West Java thousands of women dropped out of the family planning program as a result. These price rises and supply shortages will deny many low-income families access to medical help, with immediate as well as long-term consequences.

Growing poverty and the decline in the number of people covered by health insurance will lead to increased demand for subsidized public health-care services. ILO (1998c) projected that the number of Indonesians using these services will double in 1998, to 68 percent of the population. It will be difficult to ensure that adequate resources can be made available to satisfy this growing demand, as the government itself is under pressure to adopt a restrictive budget. Thus, it seems inevitable that queues will lengthen and the quality of service suffer.

Although Indonesia has a social health insurance scheme, the benefits tend to exclude certain types of treatment and to leave a significant percentage of costs to be borne by the patient. Another cause for concern is the small balances that members often have in their accounts. For instance, the average amount of balances in JAMSOSTEK, the national provident fund for employees in Indonesia, is Rp200,000, or about US$22. It is also limited in reach, covering only about 12 percent of the labor force.

A UNICEF source noted that the crisis has seen an increase in the maternal mortality rate, especially in Java where it has risen 60 percent, from 22,000 per million of the population to 35,000 per million in the space of one year (as reported in Straits Times, 16 October 1998). This was in part attributed to the lack of money to pay for gasoline to transport difficult cases to the nearest health facilities, as well as a rise of 5-6 percent in anaemia levels in pregnant women. Infant mortality is also said to have risen, although there is no statistical data to substantiate this.

Oxfam (1998b) found a decline in the number of visits to health-care centers in Flores as families cannot afford services, and the closure of hospitals and health-care centers in West Timor.

Malaysia

For a country of Malaysia's size and stage of development, the World Health Organization recommends a health-care budget of 7 percent of GDP. However, the 1997 government health-care budget was only 3.4 percent. Private health care has thus played an important role in assuring adequate health care for the population. With the decline in household income and the rise in the cost of medical fees—a result of the 30 percent rise in the cost of imported drugs, which account for over 60 percent of drugs used in the country—private hospitals and clinics have recorded a drop of 15-50 percent in the number of patients seeking treatment. Together with the cut in the health-care budget announced earlier, the shift from the private to the public health-care system will mean a definite decline in the level of health care available to the poorer sections of the population.

Philippines

Oxfam (1998a) reports that the reduction of preventive health-care services due to the IMF policies dictating "stringent fiscal discipline" will result in an increase in deaths from malaria, an increase in the number of untreated cases of tuberculosis, almost half a million children aged from 12 to 59 months not receiving Vitamin A supplements, and 750,000 women aged from 15 to 40 not receiving iodine supplements.

Thailand

The health impact of the baht's sharp depreciation arising from the crisis is the rising cost of drugs and other medical supplies. Imported drugs have higher baht prices, while locally produced drugs have higher costs due to their reliance on imported raw materials. The crisis has also resulted in lower nutritional status, reduced health care, delayed care due to the reduced ability of the household to pay for it, and increased exposure to ill health. In addition, it has resulted in a lower quality of health care and fewer or limited health services due to higher cost and a resource crunch.

NGO networks have expressed concern that important public health programs may be affected, such as the treatment of HIV/AIDS patients with imported drugs, and that the economic crisis may further marginalize vulnerable HIV/AIDS patients. They state that HIV infection rates would inevitably increase owing to rises in prostitution and poor-quality care. Women and children, many of whom would be forced into prostitution, are likely to be the most affected.

Education

Indonesia

There are reports that poorer families have withdrawn their children from school owing to an inability to pay school fees and the need to put them to work to supplement family income. Local Indonesian newspapers have estimated that in many areas as many as one-third of children are being withdrawn from schools (van Diermen 1998, 23). The Indonesian government estimates that in 1998-1999, if no special measures are taken the number of dropouts from primary school might double to as many as 1.65 million, while dropouts from junior secondary schools could increase to 1.11 million (World Bank 1998c). A report in the Australian (17 September 1998) suggests that in the 13-15 age group, the proportion going to school has dropped from a precrisis level of 78 percent to 54 percent at present. The World Bank (1998b) notes that a similar phenomenon of falling enrollment figures occurred during the recession of the mid-1980s and that it took a decade to recover.

Oxfam (1998a) reports that children in Indonesia are dropping out of school in large numbers. According to Indonesian government sources, as many as 1.6 million primary and junior secondary school students may be forced to withdraw from school. School attendance has declined 60 percent in Maluku.

According to World Bank (1998a, 93), in April 1998 focus group discussions and school visits already indicated that poor schools and children were feeling the impact of the crisis. Reduced public funding for education, higher prices of schooling, and lower family incomes are expected to lead to declines in primary and junior secondary enrollments among the poor. Estimating the impact of the economic crisis on enrollment is difficult, as the crisis is unprecedented in terms of magnitude and depth. Whatever the precise figures, there is general agreement that the impact of the crisis on poor children will be severe.

Malaysia

In tertiary education, demand has outpaced public supply. In 1995, 27,118 applications were received by the Unit Pusat Universiti for admission to the 15,964 places available at the ten public universities in Malaysia. Excess demand for tertiary education has been met by the private sector, both locally and abroad. There are an estimated 50,000-80,000 Malaysian students studying abroad, of whom 12,794 were sponsored by the government.

With the drop in household income and government revenue, and the steep rise in the cost of tertiary education abroad, demand for tertiary education provided by the domestic public sector will rise. In 1998, there were 112,000 applications for the 40,222 places available. This means that 64 percent of students seeking admission into local institutions of higher learning will be denied access.

Thailand

A Ministry of Education report showed that in 1997, 46,218 students had been adversely affected by the crisis as a consequence of their parents and caretakers being laid off. These students included 28,695 preschool, 15,907 primary school, and 1,616 secondary school students. In July 1998, the government estimated that 150,000 out of a total of one million students in the first year of primary school to the second year of secondary school "[had] already dropped out" (Vatikiotis 1998, 18).

Oxfam (1998a) found that the number of primary school children not completing their education tripled from October 1997 to October 1998.

Vulnerable Groups, Women and Children

The economic upheaval has had a different impact on women and men. Women have been disproportionately hurt by the financial downturn, although evidence is mainly anecdotal. Because of their unequal position in the labor market as secondary income earners and their ascribed roles in society, women were among the first to lose their jobs, and families generally pull daughters out of school before sons. Furthermore, women's gross underrepresentation at decision-making levels makes it more likely that gender-biased dismissal policies will be tolerated. With lower incomes than men, many women are feeling the pain of reduced earnings as a result of the crisis, particularly for female heads of households, sole income earners, and household financial managers. This applies to both women in wage employment as well as self-employed women in the informal sector.

Indonesia

Discrimination against women has magnified in the midst of the crisis. The World Bank (1998b) notes that "women are highly represented among rural and urban poor workers. They are at greater risk and are more affected. Wage disparities between women and men, and proportionately lower wages for women, are likely to result in greater numbers of women than men falling below the poverty levels. . . . Women workers predominate in the informal sector in irregular forms of employment (homeworkers, temporary, contract-based labour). They are concentrated in the small enterprises with fewer than 5 workers. These are all outside the coverage of social security systems. Therefore, women are more likely to be affected much more severely than men by the crisis and any subsequent austerity measures." "Further, women are also disadvantaged in terms of relief measures. Their inferior status often means that they are less likely to be provided with unemployment benefits, severance pay and other forms of social protection. Similarly, women may find themselves at a serious disadvantage in gaining access to credit and other employment promotion programmes." According to ILO statistics, 240,000 women in Indonesia will lose their jobs during 1998 in the textile and garment industries alone. A survey from Asosiasi Perempuan Indonesia (APIK; Women's Association for Justice), an independent Indonesian NGO, indicates that women are prime targets for redundancy.

Oxfam (1998a) found that the crisis in the poorest regions of Indonesia is reflected in an increase in child prostitution in Yogyajarta, Central Java. The particularly hard-pressed families may sell their daughters to brothels. Girls as young as ten are now turning to prostitution to feed themselves and their families. Even before the crisis, according to the World Bank (1998e), girls in Indonesia were six times more likely than boys to drop out of school before the fourth grade. Once girls are removed from school they rarely go back. When income shortfalls require reductions in food intakes, women and girls sometimes face disproportionate cuts. Social organizations also point to a rise in domestic violence and prostitution, with women all too often the victims.

Robb (1998) found that as family incomes fall, growing numbers of children have been forced to work, beg, or enter prostitution. School dropout rates have risen and some families can no longer afford education or transport. Immediate strategies for coping with falling incomes include sending more women, children, and elderly into the labor force. In slum areas, people reported cutting down from three meals per day to two or even one. In Maluku and South Sulawesi, school principals complained that parents were having difficulty paying parent association fees on time, if at all. Teachers reported that children were eating less before coming to school in the morning and buying less from vendors, which was affecting some students' ability to concentrate.

In terms of the effect on the health of communities, many important public health programs may be affected, such as the treatment of HIV/AIDS patients with imported drugs. The AIDS NGO network expressed great concern that the economic crisis may further marginalize vulnerable HIV/AIDS patients. They stated that HIV infection rates would inevitably increase owing to rises in prostitution and poor-quality care. The vulnerable groups of women and children, many of whom would be forced into prostitution, are likely to be the most affected (Robb 1998).

Thailand

Children discarded by families hard hit by the financial crisis are another social problem that is manifesting itself. Aged between 3 and 15, these are the street children of Thailand. A recent study by Somphong Chitradub, director of the Education Institute for Underprivileged Students at Chulalongkorn University (as reported in Straits Times, 31 October 1998), estimated that there were some 20,000 street children nationwide, with 4,000 of these in Bangkok. The study found that the rate of increase in the number of street children more than tripled between 1996 and 1997. Before the economic crisis hit, the rate was about 5 percent per year. More street children are expected by the end of 1998, as even middle-class children are now at risk of being thrown onto the streets as the crisis deepens. There is concern about the future impact on society, as many street children grow up into adults with deep emotional scars, with many now heading gangster rings and being involved in the child-sex business. The Thai government has also warned that child labor will increase if the economy does not improve satisfactorily.

Robb notes that NGOs report an increase in child labor, child prostitution, and child beggars. In the slum settlement of Terapak, Khon Kaen, in northeast Thailand, women were "justifiably angry because they had to send their children to the garbage site every day to support the family" (1998, 5).

South Korea

There has been very little information published regarding the impact of the crisis on women and women's issues. Effects that have become apparent so far include a 50 percent default on the 1997 government allocation plan of 10 billion won for the Women's Development Fund and the cancellation of the 1998 allocation plan of another 10 billion won for the same, in addition to a 10 percent cut in the government budget for women; and approximately 605,000 female layoffs in 1998, making up 53 percent of total job losses. The employment decline has been larger among women than men in terms of both share and absolute numbers, if one considers that women have gained employment share during the past decades. Of those suffering from job losses, women in the 30 to 49 age group have been particularly hard hit, with employment declining three times more among women than men, according to figures from the National Statistical Office.

Various service provisions for working women, including subsidized day care, maternity leave, and access to medical care and pension benefits under the national pension and medical insurance schemes, are likely to be curtailed to a considerable degree. In another consequence, an ever-increasing number of women will enter the informal sector as day laborers, vendors, and self-employed. The hoped-for institutional and infrastructural support to the informal sector, such as technical backstopping, microcredit for women entrepreneurs, information service, and skills training and networking, are likely to move down the country's priority list.

The incidences of domestic violence, with women and children as victims, and drug abuse, including among schoolchildren and youths, are also likely to rise sharply in the high-stress context of South Korea today. Households with women heads and elderly women living alone at home or under institutional care will also face a particularly difficult time.

Social Unrest, Crime, Violence, and Suicides

Indonesia

Widening fissures in the ethnic and religious fabric of Indonesian society are becoming increasingly evident. Ethnic Chinese insecurity has become more acute as a result of the May 1998 riots, which targeted ethnic Chinese businesses. Many ethnic Chinese small businessmen, who have had their entire livelihoods destroyed and their families threatened, have fled to neighboring countries. This loss of capital and entrepreneurial expertise makes it more difficult to rebuild the economy. Without improvement in ethnic relations, it is possible that these will not return to Indonesia.

Ethnic and social tensions have been aggravated by food shortages. In recent months there have been reports of attacks on rice mills, of riots in regional towns which appear to have been sparked by food shortages, and of emotional crowds gathering to loot food from shops owned by ethnic Chinese traders.

Another worrying manifestation of the breakdown of the social fabric is the increasing "ninja" attacks in East Java. First targeted at traditional "black magicians," the violence has since widened to include victims who are members of the mass Muslim-based Nahdatul Ulama. There have been allegations of culpability on the part of the military in directing the violence, as well as of other political forces that are cynically manipulating the people's emotions. There has also been a propensity for vigilante-style attacks, as people at the bottom layer of society take the law into their own hands.

For the first time in 30 years, there have been increasing reports of young people in desperate circumstances, especially in urban areas, and noticeable indications of rising social disorder in the form of increasingly bold robberies, petty violence, and such. The number of homeless people and conspicuous vagrants has begun to rise markedly, as well.

Thailand

The suicide rate has more than doubled in the past year, as compared to a year ago, according to government estimates. Nearly 5,000 Thais—eight out of every 100,000 people—killed themselves in the past year. Informed observers attribute part of the cause to hardships arising from the prolonged economic turmoil.

Table of Contents

Social Effects of the Crisis

Policy Measures and Actions

Annotated Bibiliography