Media Center

printer friendly version

Coherent Policies for inclusive Growth and Decent Work -- Challenges of the Global Economic Slowdown in Asia

Keynote Address by
Ursula Schäfer-Preuss
Vice President, Knowledge Management and Sustainable Development
Asian Development Bank

At the ILO High-Level Forum on "Responding to the Economic Crisis - Coherent Policies for Growth, Employment and Decent Work in Asia and the Pacific"

18 February 2009
ADB Headquarters, Mandaluyong City

I.  Introduction

Excellencies, ladies and gentlemen, dear colleagues Good morning to you all.

I wish to thank our ILO colleagues for bringing this important forum to Asia. The topics are timely, as the world is battling one of the worst global economic crises since the Great Depression. For the poor, unemployed and underemployed, the impacts of this crisis will aggravate the already difficult situation they have had to face after the soaring fuel and food prices last year.

In my view, the current economic crisis presents a far greater challenge for developing Asia than did the 1997 Asian financial crisis. This time, it is a severe slowdown at global scale. The crisis has hit most visibly the export demand for Asian economies. Policy attention is being shifted to rebalance towards domestic and regional markets, which is a challenging task itself.

The impacts on employment and labor markets in Asia will be pronounced, as Asia faces the challenge of achieving inclusive social and economic development. I want, in particular, to draw your attention to the concern of vulnerability. The crisis will affect much more those vulnerable to poverty, that is, low income groups around the $2 poverty line, and perhaps less so for the extreme poor. To protect those vulnerable groups, short term measures may include labor based and community driven infrastructure investments for slum upgrading and rural development, cash transfer systems and social safety nets. Social expenditures need to be protected so that the region does not lose opportunities to meet the MDGs by 2015. Over the long term, far greater and concerted efforts are needed to develop and strengthen social protection systems that can cushion social impacts and build resilience. To do all these properly requires a coherent perspective and a coherent approach to making and implementing financial, economic, and social policies.

In the following, I will elaborate these points. After that, I will share with you briefly what we at ADB are doing to address the impacts of the global economic crisis.

II.  Why the 2009 Global Economic Crisis is Different from the 1997 Crisis

The current crisis is distinctly different from the 1997 Asian financial crisis. During the 1997 crisis, a few countries in East and Southeast Asia were severely affected. The pace of poverty reduction was interrupted then but it was not reverted. Poverty incidences shot up in some countries¹ initially due to the collapse of low paid construction sectors. Many countries in the region have since made further progress in poverty reduction.

A key factor for the Asia's quick recovery from the 1997 crisis was the strong export demand, coupled with devaluated currencies. For many Asian countries, exports to the US, Europe and Japan provided a way out of the crisis. Also in the aftermath of the 1997 crisis, governments of affected Asian countries provided large financing for social safety nets to support public employment programs and to strengthen social protection and insurance measures.

The current crisis is global and affects the real economy and employment worldwide. While 60% of Asia's final export destination is in the G3 countries, this external market is no longer readily available. Thus, the economic crisis could trigger an employment crisis in Asia. The evidence shows that it most affects sectors that employ skilled or low-skilled workers. As a result, increasing numbers of lower income people become vulnerable to poverty.

The policy imperative now is to rebalance the economies towards domestic and regional markets. This, however, will take time. And as I will explain later, the rebalancing investments need to pay sufficient attention to the inclusive social and economic agenda.

III.  Impact on Poverty and Inclusive Growth in Asia

Unfortunately, as companies are slashing production, closing factories and dismissing workers, unemployment will increase significantly. The ILO in its recent report - which I will be presented in more detail tomorrow - warned that this recession may leave over 50 million more people unemployed by the end of 2009, raising the world's jobless total to 200 million people.

Low-skilled, migrant workers and recently graduated college students, both often holding temporary jobs, are among the first to be laid off. In many Asian countries, 10-30% of the labor force works as migrant workers, either abroad or in the cities. Many of those employed overseas are now losing jobs and returning to their countries of origin. Many more are rural-to-urban migrant workers. China, for example, is estimated to have 130 million migrants. Most of them work in sectors affected by the global recession. And many have no choice but to return to their remote villages.

Remittances from overseas foreign workers comprise a major part of budgets in countries like Tajikistan, the Philippines, and Nepal. The World Bank projects a sharp slowing of remittance flows. For South Asia, for example, the official remittance inflows are expected to be cut by half in 2009. Growth of remittances from overseas Filipinos is expected to decline to as low as 6-9% in 2009, compared to 10%-14% in 2008.

Remittances historically act as counter-cyclical measures; they generally rise when the recipient country suffers economic downturn following a financial crisis or natural disaster. This time, however, remittances are actually declining due to the economic recession in the sender countries. When remittances falter, families at home-especially children, sick people, and the elderly-are most affected, with the follow-on impacts on health care, malnourishment, hunger and education of children, especially girls.

On this note, we must be fully cognizant of the gender impacts of the global economic crisis. Sustained economic growth during the 2000s has brought new formal jobs for women in textiles and IT, call centers, domestic care and social service industries abroad. Now they are among the first to get fired. They may cope by accepting lower wages and labor standards in informal economies. Affected are also women in rural areas who managed family and work life while their husbands worked in the cities. References from rural western China, for example, show that the social fabric is rapidly deteriorating due to increased alcoholism and violence when traumatized migrant returnees cannot cope with having lost their role as "provider".

How will all these challenges affect the Asia's future progress in poverty reduction? Our recent analysis shows that if, in 2009, GDP growth in the region slows by two percentage points compared to 2008, about 20 million more people will fall below the poverty line of $1.25 in income per day. If one adds in low income groups that are vulnerable to poverty, the overall number of people affected by the crisis can be much higher.

IV.  Coherent Policies to Address Sustainable Growth Requires Rebalancing of Development Foundations in Asia

To address the impacts of the crisis, a growing number of Asian economies have announced economic stimulus packages. Although they may differ in details, many of the stimulus packages share four key features: (1) enlarging social safety nets to promote demand from low income groups, (2) restructuring the economy towards more local markets, (3) helping export industries, and (4) redirecting government funds for fast-tracking large infrastructure projects with the hope that these would quickly have growth implications. Unlike the stimulus packages of Europe and USA, none of those programs in developing Asia foresee interventions in the finance and banking sectors.

The question is whether these stimulus packages are sufficient to address the structural problems of the economies in developing Asia, or whether more fundamental structural changes are needed.

In my view, we need a coherent policy approach that focuses not only on the economic dimension of recovery and growth, but also on the social and environment dimensions for inclusive and sustainable development. It must not only address short term concerns but also lay a foundation for the long term lasting development path.

The three key elements of a such an approach would be:

• First, to stimulate local demand through employment programs that generate income while addressing urgent infrastructure needs in rural and urban poor neighborhoods. These programs need to be increased to complement larger infrastructure investments, which, because of long gestation period and capital intensity, have less employment and income-generating effects.
• The second element is to develop and strengthen mechanisms to protect poor and low income households in case of poor health conditions, old age, and unemployment. We must correct the misperception that developing countries cannot afford the luxury of a social protection system. We must recognize fully that a well functioning social protection system also has significant growth-enhancing impact.
• The third element is to protect and expand social public expenditures for health and education services, especially for the poor and vulnerable groups. Effective and efficient public spending on social services is critical for achieving the MDGs, especially for non-income MDGs. If developing Asia aspires to provide decent work for its future labor force, it must provide continuous and adequate financing to build the human capital of its future generations. Passing on poverty from one generation to another is simply out of question.

V.  What can ADB Do?

Let me now turn to what ADB is doing in response to the global economic crisis. Last year, we adopted a long term strategic framework, called Strategy 2020, to guide our corporate-wide strategic planning to 2020. The Strategy reaffirms ADB's mission to reduce poverty and improve living conditions and quality of life in Asia and Pacific. The global economic crisis and its unfolding impacts in Asia reinforce the ADB's strategic thrusts of making economic growth and social development in the region more inclusive and sustainable.

We are working closely with our developing member countries to provide relevant and timely financial and advisory assistance. We are considering frontloading and increasing our funds to help those countries most in need. We are ready to increase quickly disbursing program lending and infrastructure financing.

As you are aware, recent G20 meetings have called for international financial institutions including ADB to scale up financing assistance to developing countries for coping with the impacts of the global economic crisis. ADB is requesting its shareholders to decide a sizable general capital increase immediately so that we can help the region in effectively addressing this and many critical development challenges.

We need to act quickly in areas that address the social impacts of the crisis by expanding support to social sectors, providing employment and income-generating opportunities through community driven investments in urban and rural infrastructure, and strengthening social safety nets.

We provided similar assistance in the aftermath of the 1997 Asian financial crisis. Learning from past lessons, we will continue to help our DMCs to develop necessary social protection systems for future resilience. ADB is undertaking a regional technical assistance to assess the experiences of social protection and social safety nets such as pension and insurance schemes, and conditional cash transfers, and to provide relevant and timely policy recommendations and practical lessons to our DMCs.

We are also monitoring and analyzing the impacts of the crisis as they unfold. Timely and accurate analysis is a critical contribution to coherent policy making and implementation. In particular, we need to fully understand these impacts in the context of individual country circumstances. We have just started a major study to assess poverty and social impacts of the crisis in ASEAN economies and plan to disseminate the findings at a regional conference later in 2009. We would like to invite you to join us in this.

VI.  Conclusion

Ladies and gentlemen, we at ADB appreciate our continuing partnership with ILO. The need to develop a full understanding of the global economic crisis and the poverty and social impacts in Asia, and the need to discuss implications of coherent policies for growth and decent work provide a new opportunity for us to explore ways of strengthening that partnership.

Let us always remember that it is the vulnerable and poor who will be most affected by the global economic crisis. They must be given the opportunity to participate actively in the process of recovery and continued growth, and they must be the central focus of coherent policies for future inclusive growth in developing Asia.

In closing, I would like to offer a few questions which the forum may wish to discuss further during the next two days:

• What sectors are most suitable for creating new employment opportunities, both for the local economy, as well as for the Asia-regional market?
• How can we strengthen public policy for social insurance and social protection to mitigate short term risk, reduce vulnerability, and at the same time strengthen growth stimulating consumer demand?
• And, how can we give the growing informal sector the necessary support and facilitate employment creation functions of the informal sector?

I wish you all productive and fruitful deliberations on key policy concerns that are so crucial to developing Asia, now and in future.

Thank you very much.