ECONOMIC CRISIS WIDESPREAD, DEEPER, BUT GLIMMER OF HOPE SEEN, ESCAP SURVEY OF ASIA-PACIFIC STATES
Press Release
REC/36
ECONOMIC CRISIS WIDESPREAD, DEEPER, BUT GLIMMER OF HOPE SEEN, ESCAP SURVEY OF ASIA-PACIFIC STATES
19990408 Poverty Increases as Health, Education Suffer; Seven Mainland Asia Economies Experience Negative in 1998BANGKOK, 8 April (UN Information Services) -- The economic crisis that began in Asia in 1997 has turned out to be more long lasting, widespread and deeper than had been foreseen, causing dramatic and severe social problems with unemployment and poverty increasing rapidly in several countries. As many as seven economies in mainland Asia suffered negative growth in 1998 compared to none in 1996 and only one in 1997.
These are some of the key conclusions of the Economic and Social Commission for Asia and the Pacific (ESCAP) in its 1999 Economic and Social Survey of Asia and the Pacific. Poverty increased dramatically in Indonesia from 11 to 40 per cent, in Thailand from 11 to 15 per cent, and in Malaysia from under 7 per cent to 8 per cent. In Thailand, estimates of dropouts from education are over 200,000, with about half range at the primary level. In Indonesia overall estimate is 25 per cent. Unemployment increased from 4.7 per cent in 1997 to 21 per cent in 1998 in Indonesia, 2.7 per cent to 6.4 per cent in Malaysia, 2.6 per cent to 7.7 per cent in the Republic of Korea, and in Thailand from 1.9 per cent to 4.4. per cent.
"The Governments' ability to address social problems has been constrained by reduced revenues and, in some cases, by the conditionalities of the bailout packages. However, some of these conditions were recently relaxed", states the Survey.
The overall economic prospects will continue to be uncertain. "Internationally, the weak state of the Japanese economy, possible slowdown in the European Union and, despite its recent strengths, likely flattening of growth in the United States economy in 1999 are the more immediate sources of uncertainty." World financial markets have displayed increased volatility, commodity prices have weakened, and international capital flows to developing countries, especially debt flows, have declined.
The growth performance of developing countries in the ESCAP region as a group in 1998 was dismal. Gross domestic product (GDP) growth fell from
5.8 per cent in 1997 to 0.2 per cent in 1998. The forecast for 1999, however, is 3.6 per cent.
In South and South-West Asia, it increased from 4.6 per cent to 5.3 per cent in 1998. It is expected to grow to 5.6 in 1999. In South-East Asia, the GDP growth sharply fell from 4.3 per cent in 1997 to -6.2 in 1998 and is only expected to rise to 0.4 per cent in 1999. In East and North-East Asia, the GDP went down from 7 per cent in 1997 to 1.5 per cent in 1998, but is expected to reach 4.4. per cent in 1999.
Growth Performance in Pacific Island Economies
Except for Papua New Guinea and Solomon Islands which have substantial trading links with Asian developing countries, and, to a lesser extent, Fiji, the Asian crisis did not have a direct impact on Pacific island economies. However, many of them were indirectly affected because of the impact of the crisis in Australia, Japan and New Zealand, which together absorb a sizeable portion of Pacific island countries' exports.
In addition, the drought associated with the El Niño weather phenomenon affected most Pacific island countries and was largely responsible for their poor economic performance. Although the economic crisis has a severe impact on several economies of the ESCAP region, a mild recovery is predicted towards the latter part of 1999. However, the Survey points out that this will depend on the balance between "a number of positive and negative factors at work, both internationally and within the economies of the region".
The positive signs are that current accounts have shown major improvements; foreign exchange reserves have been substantially rebuilt; exchange rates and stock markets have noticeably recovered; interest rates have declined significantly; and inflationary pressures have generally remained subdued.
Some Policy Recommendations Made by Survey
At the national level, there is a need to restructure corporate and financial structure, more effective institutional arrangements for financial sector governance, and greater transparency in corporate affairs.
However, national level action is not sufficient. At the international level, there should be improvement in emergency assistance, better supervision of capital flows, and a more equitable delineation of the roles of foreign creditors and debtors in situations of debt-servicing difficulties.
At the regional level, there should be greater cooperation in financial sector supervision, establishment of common prudential standards and the development of early warning systems. The Survey recommends the establishment of an Asian Fund and a Social Fund and unemployment insurance schemes.
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The Survey also contains the study for the theme topic of the fifty-fifth session of the Commission, 22 to 28 April. The topic this year is "Asia and Pacific into the twenty-first century: information technology, globalization, economic security and development".
The Survey notes that in 1997 the worldwide market for Information and Communication Technology (ICT) was $1.8 trillion or 6 per cent of world GDP, and growing. ICT investment in the ESCAP region grew at 15 per cent a year during 1992-1997. Worldwide, the Internet now connects 25 to 30 million users in more than 140 countries; it will reach over 200 million by 2000.
The Survey points out that the spread of use of ICT is both an outcome and a determinant of the process of globalization; that it both boosts economic growth and escalates risks to the economic security of countries.
The Survey concludes that new and more complex ICT applications will continue to change development paradigms and present a challenge to governments. "However, ICT itself is a tool, not a threat: rather, its application determines whether is creates or solves problems. Thus, governments and international community need to set ground rules and codes of conduct and monitor them through ICT means, especially in the trade and financial areas.
Important legal issues at domestic and international levels have to be addressed", the Survey states. Governments of developing countries have to develop their own ICT policy, promote skill development, and increasingly use ICT in government administrations. It suggests that applications of ICT can provide a major opportunity to tackle problems of income inequality and poverty so prevalent in several Asian countries, as these applications are not bound by geography or access to traditional physical infrastructure like phone lines. Rather, they can open up a window to the world of trade, education, investment and human communication for poor and remote communities. Countries which do not adjust to the new ICT intensive world will be increasingly marginalized.
Some Major Points about ICT
-- Use of ICT alters the competitive position of countries. ICT reduces the importance of economies of scale and encourages smaller, more dispersed production units, as well as networks within and between companies, both transnational corporations and national ones. Evidence in the ESCAP region includes the textile, automobile, and electronic industries.
Newly industrializing economies and the Association of South-East Asian Nations (ASEAN) have shown that blending national ICT policies and capabilities with imported technology and foreign direct investment (FDI) can lead to accelerated production, export and absorption of ICT products.
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The economic security of countries can be threatened through the increasingly footloose nature of both FDI and domestic investment. This puts added pressure on the crucial role of economic governance (legal and regulatory systems) in attracting investment.
-- The future is Internet commerce. It is predicted that Internet economy will reach $500 billion by 2002. While there is only experimental use with Internet commerce in the region at present, there are many moves afoot to encourage its use by both large and small firms as the Internet saves transaction costs, brings the world market to one's doorstep and increases the efficiency of business operations.
The major problems with Internet commerce, such as legality of electronic signatures, electronic contracts, security of business, assurance of connectivity, etc., need to be tackled at the global level. Many governments in the region are using or have plans to use ICT for rapid customs clearance for exports and imports, transport logistics, and promotion of trade and investment (electronic catalogues, virtual exhibitions, etc.).
-- The financial sector is a major user of ICT. Banking in the region is increasingly done through ICT; 245,000 ATMs (one third of the world total) were in operation in the region in 1997 and increasing rapidly. However, back office use of ICT in banks, financial firms and central supervisory institutions lags in almost all countries of the region.
Securities markets in the region, though small, thin and illiquid, are all modernizing into electronic markets and using ICT to improve supervision and regulation.
Use of ICT by institutional investors and hedge funds increased exposure of Asian capital markets to reversals and contagion: the Survey suggests that the solution is better international coordination, monitoring and regulatory standards based on use of ICT. Also, governments need to implement ICT-based systems for their own financial system supervision to cope with the effects of global flows and to reduce corruption.
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