Focus on Trade #23, part 5 of 8 (fwd)

[Robert Weissman <rob@essential.org>]

FOCUS-ON-TRADE #23, MARCH 1998
SPECIAL ISSUE ON THE IMF

Part 5 of 8

A regular bulletin produced by Focus on the Global South, Bangkok,
Thailand

Focus-on-Trade is a regular electronic bulletin providing updates and
analysis on regional and global trade and finance.  Although initially
concerned with APEC, the scope of the bulletin now extends to include
the World Trade Organisation (WTO), the International Monetary Fund
(IMF), the ASEAN Free Trade Area (AFTA), the Multilateral Agreement on
Investment (MAI) and any other acronyms that require critical
attention. Focus-on-Trade contains updates on trends in world trade,
with an emphasis on analysis of these trends from an integrative,
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issues, but also to ecological, political, gender and social issues.
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IN THIS ISSUES

Taming the Tigers: The IMF and the Asian Crisis

by Nicola Bullard, with Walden Bello and Kamal Malhotra

This paper is published jointly by Focus on the Global South in
Bangkok and CAFOD in London for the Asia Europe Meeting (ASEM)being
held in London on 2 and 3 April 1998. The paper will be officially
released on 2 April in London by the two organisations. If you would
like a hard copy, please contact Focus on the Global South at
admin@focusweb.org or CAFOD at dgreen@cafod.org.uk.


The paper is in EIGHT parts:

Part 1: Executive Summary, Introduction and WHOLE DOCUMENT AS 
ATTACHMENT

Part 2: The IMF and Thailand
Part 3: The IMF and Indonesia
Part 4: The IMF and South Korea
Part 5. The social impact of the crisis
Part 6. The social impact of the crisis (2)
Part 7: The role of the IMF
Part 8: Conclusions and recommendations, footnotes

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Part 5 of 8

THE SOCIAL IMPACT OF THE CRISIS

The social impact of the economic crisis and of the measures adopted under
IMF pressure is evident in all three countries covered by this case study,
although much of the information is anecdotal and inferential at this early
stage. Many commentators believe that the main impact of the crisis, in the
shape of rising unemployment and poverty, will not be felt until late 1998
in South Korea and Thailand, while few observers are willing to predict when
Indonesia will hit bottom.  Most expect a minimum of several years of
economic and social turmoil before any upturn occurs. 
While it is extremely difficult to disaggregate the respective social
impacts of the original crisis and the IMF-led response to it, it is
generally agreed that IMF directives to raise interest rates, raise taxes
and cut public expenditure deepened the economic contractions in both
Thailand and Korea, although the Fund argues that this was necessary to
control inflation and stabilise the currencies. In Indonesia, where the
Suharto government has failed to implement many of the promises made to the
IMF in two agreements in October 1997 and January 1998, the specific impact
of IMF-approved measures is still to be seen.
In Thailand and Indonesia, where there is a very large informal and
transient workforce, meaningful statistics will be difficult to collect.
However it is likely that this group, in particular, will be badly hit
because there is no effective social safety net, they are generally
unskilled and often landless, with few resources or means to seek
alternative employment. 
The situation in Korea is different, given the much higher level of
education and employment in the formal sector. Nonetheless, the immediate
impact of the currency devaluation, economic recession and the longer term
impacts of the structural reforms prescribed by the IMF are bound to be
significant. 
Thailand
In the late 1960s, 57 per cent of the Thai population lived below the
poverty line. Prior to the crisis, that figure was down to about 13 per
cent.  Despite tremendous economic growth in the intervening years, around 8
million Thais were still living on less than $2 a day: they did not benefit
from the boom and will now be among the first to suffer from the bust. 


Almost all sectors of the economy have been effected by the rapid slow down,
the rising cost of imports, the high price of credit, failing businesses and
cuts in government expenditure. 
Conservatively, unemployment at the end of 1997 was 1.4 million and is
expected to rise to 2 million in the first half of 1998, however others
estimated that the actual end-of-1997 figure could be as high as 2.9 million
out of a workforce of 29 million.  At the top of the casualty list were the
15,000 employees of the 58 financial firms that had been shut down by the
authorities at the urging of the Fund.  Analysts say up to 200,000 finance
employees could be jobless after the restructuring of the sector.   
Thai Ministry of Labour officials reported at a recent seminar at Bangkok's
Rangsit University that 62,000 workers had lost their jobs as a direct
result of the economic crisis. However, this figure is bound to be low as it
is based only upon companies' monthly reports to the Ministry of Social
Welfare on the number of workers laid off, and does not include people
working in the informal sector or unofficially.  
The fallout from the bursting of the bubble economy appeared to be hitting
the real economy faster than people anticipated.  In the last half of 1997,
work on most construction projects ground to a halt in Bangkok, leaving the
city with ugly half-finished tower blocks and disgorging thousands of
workers onto a contracting economy.  An average of five migrants had
returned to each of the country's 60,000 villages by December, according to
non governmental organisation (NGO) estimates.   
The swarming back into the rural economy was corroborated by, among others,
a social researcher in Pichit, a province three hours from Bangkok by bus,
who found that considerable numbers of construction workers appeared to be
joining the rural work force.  "To my surprise, I was talking to field
labourers that had been recently laid off from construction jobs in Bangkok.
They were dispirited and they were hungry."   
In a survey of unemployed people in the province of Nan in the far north of
the country, the same researcher found that "about 80 per cent of those
interviewed had returned since December [1997] because of the economic
crisis."  
These findings were in line with data gathered by others.  For instance, in
the village of Sap Poo Pan in the Northeast - the region that produces the
greatest number of internal migrants - World Bank researchers found that out
of a total village population of 260, 40 out of the 110 people working
outside the village had already returned by late January 1998. 
In September 1997 then Finance Minister Thanong Bidaya predicted that about
one million Thais would lose their jobs in the coming recession. That was an
underestimate, according to other sources, which said that 2.9 million out
of the country's work force of 29 million were expected to be unemployed by
the end of 1997.  
Government figures showed that by February, 80,000 workers had been laid off
since mid-1997, and this figure, said labor expert Dr Nikhom Chandravithun,
must be added to the 2 million unemployed that year owing to causes other
than the financial crisis. 
The explosiveness of the economic contraction was underlined for both Thais
and the world at large by what amounted to a mini-uprising by workers at the
Thai Summit Auto Parts Factory on 21 January 1998.  The protesters blocked
the busy Bangna-trat Highway in protest against the company's announcement
that it would not give them long-promised  bonuses on which they had counted
to make ends meet.  
There followed several hours of  pitched battles that pitted workers against
police and angry motorists, ending with the wholesale arrest of 54 workers
who were herded in prisoner-of-war fashion into police vans.  To both the
Thais and the international community, the television images of the event
were more reminiscent of Korea than Thailand and came across as a harbinger
of things to come.
The construction sector, which previously employed up to 1.5 million
workers, has been dramatically hit, affecting not only the construction
workers themselves, but also the other industries which feed off real estate
and property. 
In January 1998 the Thai Government announced its intention to repatriate
the estimated 600,000 foreign workers, mostly Burmese, working in low paid
fishing, agriculture and construction jobs to make way for Thai workers
displaced from urban-industrial jobs. The government deadline is June 1998,
after which the migrant workers’ permits will not be renewed. 
Dramatically, in February (and in front of CNN cameras!) the Thai military
forced 100 Burmese men, women and children to make the three hour walk from
the provincial town of Karnchanaburi to the Myanmar/Burma border. Whether it
will be possible for the Government to repatriate migrant workers, and
whether indeed Thai workers would be prepared to do the same work for such
pitiful pay, remains open to question.  There is a decidedly blurred
dividing line between those who leave Burma to escape the regime or those
who are fleeing poverty. Some end up as refugees, others as migrant workers
but all find life back in Myanmar/Burma unbearable.
There is no reliable estimate of the number of construction workers who have
been thrown out of work. In addition to the migrant and illegal workers,
many construction workers are seasonal, moving to the cities for work during
the dry season. 
During the boom years, more than 6 million rural workers migrated to Bangkok
and many are now returning, creating several problems: not only does the
family lose the income which was previously sent home but there is an extra
person to support. On the other hand, some reports say that people are much
happier to be back in their villages, and for those with land there is still
a means to make a living.  
In fact, Thai policy makers are now placing their faith in a resurgence of
the rural economy to pull Thailand out of the economic doldrums, mop up
hundreds of thousands of unemployed factory and construction workers, and to
maintain social stability.   
Although agriculture accounts for less that 20 per cent of the value of Thai
exports, more than 50 per cent of the workforce is employed in the
agriculture sector. But as Chulalongkorn University economist and labour
expert Voravidh Charoenlert comments: 
"As in the past, the Thai countryside will absorb surplus labour arising due
to industrial recession. But it will leave the villagers much poorer in the
long run, as there will be more people sharing the same resources".  
Although Thai agricultural exports should become more competitive due to the
devaluation, by the end of March the improved balance of trade was almost
entirely due to a drop in imports. A chronic liquidity crisis is slowing
down the agricultural sector, which is still heavily dependent on imported
inputs. 
Nonetheless, exports of Thai rice are expected to be the highest for years
due to the shortages in countries such as Indonesia, China and Malaysia,
which have been affected by El Niño-related droughts. Unfortunately, the
high world demand for rice is also pushing up the price in Thailand,
increasing the cost of living for the poor, especially in urban areas where
food costs are highest.
Budget Cuts Cut Deep
The IMF’s insistence on a budget surplus (later revised down to a 1 - 2 per
cent deficit) has cut deep (See Table 2), slashing all areas of public
sector spending, including health, education, agriculture, industry and
labour and welfare – key government activities especially in times of
recession, social dislocation and rising unemployment. 
In early 1998, the Foundation for Children’s Development surveyed 143
secondary-school-age scholarship recipients from five rural provinces, whose
parents were seasonal factory or construction workers.  Most were landless
and therefore completely dependent on wages. On average, the workers sent
home between 1,000 - 3,000 baht per month which covered household expenses,
clothes, education, farm inputs and medical expenses. 
The survey showed that of the 143 students, 10 had a family member who had
been laid off, 11 had a family member with reduced income, and 19 were out
of work because the firm they worked for went out of business. 
The impact on the children was immediate.  Bus fares had doubled from 3 to 6
baht and a bowl of noodles had increased from 5 to 7 baht – taking minimum
daily expenses from 8 to 13 baht - yet there was less money coming into the
family. At the same time, as part of the IMF-imposed budget austerity
measures, milk and school lunch subsidies had been cut by between 40 and 50
per cent. 
The situation for those who have permanently settled in the urban slums of
Bangkok is more desperate. These families have no land to return to, and
their connection to rural life is tentative or broken.  According to
anecdotal reports there is an increase in drug use, and in drug sales,
evidenced by falling prices as more people turn to selling amphetamines to
make money. It is also likely that more women and girls are turning to the
sex industry for work. 
The overall impression, therefore, is of thousands of families who have lost
their livelihood, or whose income has been dramatically reduced, along with
an increase in the cost of living due to price hikes in food, fuel and basic
services. Rice has doubled in price,  from 25 to 50 baht per kilo, mainly
due to the global shortage of rice which has pushed up export prices and
which has a knock-on effect on domestic prices. 
The majority of farming households in Thailand are net purchasers of rice,
so even landed households will feel the impact of the price rise. In
addition, the last rainy season in Thailand was very poor, leaving major
irrigation dams only one third full, and lowering overall rice production. 
The full impact of the economic crisis and the drought will really only
start to be seen in September and October 1998, when families have exhausted
their own supplies and have to start buying expensive rice to tide them over
to the next harvest. 
According to the UN’s Economic and Social Commission for Asia and the
Pacific (ESCAP), the incidence of poverty increases by one per cent for
every 10 per cent increase in the price of rice.  Conservatively, according
to these figures, the number of people living in absolute poverty should
increase by at least 5 per cent solely due to the rice factor, without even
considering rising unemployment, lower wages and fewer government services.

World Bank To Fill the Breach
Five months after the signing of the IMF agreement, the World Bank sent a
team to Thailand to investigate the social impact if the crisis and to
identify areas for World Bank involvement. The Bank plans to deal with the
social implications of the crisis by establishing the Social Investment
Fund, a $300 million programme to be disbursed partly through the government
and the rest directly to communities through the Government Savings Bank.  
The loans, which attract interest rates of between 7 and 8 per cent,  will
be used to support existing Government programmes which have been affected
by budget cuts, such as infrastructure, health, environment and education or
projects identified by communities or local municipalities. Communities will
receive Investment Funds in the form of a grant, with the Government
assuming the responsibility of repayments.  
The irony of the Social Investment Fund is that it will be used to soften
the impact of the savage budget cuts forced by IMF conditions.  On the other
hand, local and provincial politics in Thailand is riddled with 
corruption and vested interests, so it is possible that making funds 
available directly to communities for projects they have identified 
could redress some of the development imbalances of the past. Forum 
of the Poor, a mass organisation of farmers’ groups from the poorest 
regions in Thailand, has been sharply critical of the IMF-imposed 
austerity measures and the socialisation of private debt. But they 
also see the crisis as an opportunity to go "back to the village" and 
slow the seemingly irreversible pattern of urbanisation and 
industrialisation, bridging the gap between urban and rural 
populations and re-establishing the traditional values associated 
with village and agricultural life. However, there is a concern that 
the promises made by the Chavalit Government last year, as a result 
of  the Forum’s three-month "sit-in" outside the Government House, 
will not be followed through because of budget constraints. In 
particular, the Government made a commitment to support an innovative 
national agriculture programme for poor and landless farming families 
by setting aside 25 million rai (10 million acres) of land for 
sustainable agriculture (as opposed to export agriculture), providing 
land, training and other inputs. It is estimated that this could 
support up to 8 million people, about the same number currently 
living below the poverty line on between $1 and $2 a day. Although 
there is an urgent need to expand employment opportunities in the 
rural areas and to redress the damage of more than twenty years of 
breakneck industrialisation, it seems likely that budget constraints 
the Government to address this problem.

Indonesia
Of the three countries included in this study, Indonesia has been worst hit
to date, battered by economic and political crises which have become
mutually reinforcing, producing a downward spiral of instability, rising
poverty and unrest, and government inaction with no end in sight. The social
impact of the crisis in Indonesia has been immediate and dramatic, bringing
to light underlying social tensions which had previously been obscured by
relative economic stability. 
Unemployment and lay-off estimates for Indonesia vary wildly, and should be
treated with caution. One news report suggested that 6.6 million have lost
their jobs since the onset of the crisis, while the official government
figure puts it at 2.5 million. An Indonesian labour rights organisation
estimates 4 million layoffs between July 1997 and February 1998, and of a
sample of 28,000 workers in 48 factories working with one organisation, 10
per cent had lost their jobs by the end of January. 
These figures are for jobs lost, and do not include those already unemployed
at the start of the crisis, or the roughly 2.5 million new entrants who
enter the labour force every year..  In early 1998, the Indonesian Muslim
Intellectuals Association (ICMI) put overall unemployment at 12 million.   
Those still in work complain of a freeze on overtime, leaving them to
survive on the Jakarta region’s minimum wage of R5,700 a day, which has not
changed since April 1997. Many more have been sent home from idle factories
on a minimum wage, or even less. 
At current rates, the minimum wage is worth about 63 cents (40 pence) a day.
In dollar terms, this makes Indonesia perhaps the cheapest labour force in
the world, although any export boom is likely to be held back by the
liquidity crisis in the banking sector and investor nervousness about the
ongoing social and political instability.
Prices of basic commodities, such as rice, cooking oil and sugar have
increased by 20-100 per cent and gasoline prices are due to rise by 25 per
cent if the Government follows the IMF directive to lift fuel subsidies on 1
April 1998. Fuel price hikes will have an immediate knock-on effect on food
prices, leading to generalised fear of deepening social unrest. 
In dollar terms, per capita GDP has dropped from $1,000 to $230, while year
on year inflation for February 1998 was estimated at 32 per cent, well above
the IMF prescribed 20 per cent. Inflation for February alone was  12.7 per
cent and the economy is expected to shrink by 2 to 3 per cent in 1998. The
World Bank claims that prior to the crisis the proportion of the population
living below the poverty line had fallen from 60 per cent in 1970 to 11 per
cent in 1996, (although others say that the poverty line was lowered to make
the statistics more favourable).  
Since the onset of the crisis, this process has gone into reverse. Local
experts are currently reassessing the poverty figures, and are predicting
that as many as 30-40 per cent of the population could have fallen below the
poverty line by the end of 1998.  All this in the country previously held up
by the World Bank and the IMF as a paragon of development success. 
Shortages Hit the Poorest
Fears of food shortages have proved self-fulfilling, triggering hoarding and
speculation, disrupting food supplies and causing shortages.  Inevitably it
is the poor who are worst hit as they do not have the cash to buy in bulk
when the prices are low, and pay a much higher price to meet their day to
day needs. 
Imported powdered milk has trebled in price since the onset of the crisis.
Poor families are being forced to feed their infants sweetened tea rather
than milk.    The poultry business, an important source of protein, is
collapsing as it is heavily dependent on imported feed and medicines which
are now completely unaffordable. 
Indonesia’s problems have been intensified by a 10 to 12 million metric
tonne shortfall in rice due to the El Niño-related drought. Rice prices have
doubled in Jakarta since July 1997. 
Although food shortages could be supplemented by imports, the cost is
prohibitive and in any case foreign exporters are refusing to accept letters
of credit issued by Indonesian banks, leaving the wheels of trade to grind
to a standstill.  
Frustration and anger have been directed at the largely Christian Chinese
minority. In many towns and villages, the Chinese are the merchants and
shopkeepers and are therefore blamed for rising prices and shortages. 
However reliable sources say the military has deliberately fuelled
anti-Chinese sentiments to steer attention away from the Government’s own
failings.   In around 30 riots to date, five people have been killed and
hundreds of shops, homes and churches destroyed, but the Chinese minority
fears that much worse is to come. 
However reliable sources say the military has deliberately fuelled
anti-Chinese sentiments to steer attention away from the Government’s
own failings.   In around 30 riots to date, five people have been
killed and hundreds of shops, homes and churches destroyed, but the
Chinese minority fears that much worse is to come. 

END PART 5 OF 8













 
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