2 April 1999
Press Release No. G/09/99

Poverty increases as health, education suffer
ECONOMIC CRISIS WIDESPREAD, DEEPER BUT GLIMMER OF HOPE SEEN

BANGKOK (United Nations 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 United Nations 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 drop outs 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 EU and despite its recent strengths, likely flattening of growth in the US 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. 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 7.0 per cent in 1997 to 1.5 per cent in 1998 but is expected to reach 4.4. per cent in 1999.

The growth performance in the 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 Nino 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 the Survey:

At the national level, there is a need to restructure corporate and financial structure, more effective institutional arrangements for financial sector governance, 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.

The Survey also contains the study for the theme topic of the 55th session of the Commission, 22-28 April 1999. 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 1992-97. 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. The Survey 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: