Tsunami Could Throw Nearly 2 Million Additional People into Poverty in the Affected Countries

MANILA, PHILIPPINES (13 January 2005) - The wall of water that ripped across southern Asia last month, killing more than 150,000, could throw nearly 2 million additional people into poverty, according to a report released today by ADB.

"The poverty impact of the tsunami will be enormous," said Ifzal Ali, Chief Economist with the Manila-based multilateral development bank. "Poverty is potentially the most important effect of this natural disaster."

In Indonesia alone, nearly 1.0 million people could be thrown into poverty by the lingering effects of the tsunami's devastation. In India, the number of poor in the country could increase by 645,000. In Sri Lanka, the figure is estimated at about 250,000. In the Maldives, about half of the country's houses were affected and more than 50% of the population could fall into absolute poverty resulting in 23,500 additional people going below the poverty line.

As devastating as the disaster is to the people in affected areas, Asia's resilience to external shocks will play a role in minimizing the impact the disaster will have on the region's overall economic growth, according to Mr. Ali.

"This is a profoundly tragic event for the region and for the millions who are suffering," said Mr. Ali. "But the economies of the affected countries except Sri Lanka and the Maldives should emerge with minimal damage."

In Indonesia, India, and Thailand, the damage is largely confined to rural areas rather than key economic and densely populated urban centers and industrial hubs that drive the region's economic growth, according to the report, which was produced by ADB's Economic Research Department and titled "An Initial Assessment of the Impact of the Earthquake and Tsunami of Dec. 26, 2004, on South and Southeast Asia."

In Indonesia, the damage is concentrated in Aceh province, which accounts for 2% of Indonesia's overall GDP. The oil and natural gas facilities in the area appear to have survived intact. In India, the economic impact should be minimal as well due to the huge size of the country's economy and the damage. The macroeconomic impact is also expected to be minimal in Bangladesh, Malaysia, and Myanmar.

In Thailand, the damage was centered on southern resort areas that contribute about 3% to the country's GDP. The greatest risk to the country's economy comes from the possibility of tourists perceiving Thailand as an unsafe destination.

"The rest of the country should not be affected unless there is some sort of negative perception about the country's safety that leads to a domino effect," the report states. "This can be overcome by a well-designed advertising campaign. Tourism in the region will likely recover sooner after this disaster than it did following the SARS outbreak."

In general, the ADB report noted, the region is well positioned to withstand such economic shocks. "Following strong growth from 2001 to 2004, the economies of India, Indonesia, Malaysia, and Thailand should be in a strong position to overcome the tragedy," the ADB report states. "For these countries, recent growth has been strong, fiscal positions have improved, and external reserves are high, with the shock absorber of the disaster coming from the government's fiscal position."

The tragedy could also provide a surge of economic activity in the region that could have positive long-term effects. "Reconstruction from natural disasters requires new investment that should have a positive impact," the report states. "And investment should translate into jobs. The aid process has already increased demand for a range of domestic goods and services, including food, water, medicines, building materials and clothing, as well as transport and communication services, which will benefit a number of domestic businesses. Therefore, it is possible that the overall impact could well end up being somewhat positive."

From an economic standpoint, the tsunami disaster should be seen in the context of other disasters that have hit Asia, the report notes. Historically, Asia has been subjected to regular shocks and its countries have always responded swiftly and pragmatically.

"Asia has always been characterized by resilience in the face of turbulence," said Mr. Ali. "With the passage of time, the wounds from the tsunami disaster will heal and the affected countries will emerge stronger to face future challenges."

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