Sf,e,adi THtE NEW 5aLPJCA ED iN Asa / ~4*-lEN =Swa Fi _-m Il...- V I N.. . . . .. . ~FILECP A JoINT PUBLICATION OF THE AsiAN DEVELOPMENT BANK AND THE WORLD BANK AUGUST 2000 I THE NEW SOCIAL POLICY AGENDA IN ASIA PROCEEDINGS OF THE MANILA SOCIAL FORUM A Joint Publication of the ASIAN DEVELOPMENT BANK AND THE WORLD BANK August 2000 National Library of the Philippines CIP Data The New Social Policy Agenda In Asia Proceedings of the Manila Social Forum Manila: Asian Development Bank (ADB), 2000, 252 pages. ISBN 971-561-300-4 Publication Stock Number: 040600 This book was prepared by staff and consultants of the Asian Development Bank (ADB) and the World Bank. The analyses and assessments contained herein do not necessarily reflect the views of the ADB and the World Bank, or their Boards of Directors or the governments they represent ADB and World Bank do not guarantee the accuracy of the data included in this publication, and accept no responsibility for any consequences for their use. The term "country" does not imply any judgment as to the legal or other status of any territorial entity The Strategy and Policy Department of the ADB and the Governance and Social Policy Department of the World Bank would be grateful to receive copies of any reviews or adaptations or translations into other languages. Copies of this publication can be obtained from Information Office, Asian Development Bank PO Box 789, 0980 Manila, Philippines; e-mail adb2ub@adb.org Fax No (63-2) 636-2648 T Chino: Fighting Poverty Unites FIGHmNG POVERTY UNITES Foreword by: Tadao Chino, President of the Asian Development Bank THE NEW SOCIAL POUCY AND POVERTY AGENDA IN ASIA In the early 1970s, more than half the people of Asia' lived in extreme poverty, on average, Asians lived only 48 years, and six out of 10 could not read. Today, about a third of Asia's people live in dire poverty, average life expectancy is 65, and 70 percent are literate. And all this happened while the total population jumped from 1.8 billion to three billion. But the Asian miracle was not really sustainable. In many countries development has bypassed the poor. The Asian financial crisis and transition experiences brought vast socioeconomic changes that often reversed the social achievements of years before. These recent difficulties have underscored the sad reality of Asias massive underclass, nearly one billion people left to toil, always hungry, and often sick. What then is the new social policy and poverty reduction agenda arising from the Asian economic cnsis and the transition experience? The East Asian and the transition countries have in common the need to stabilize the pace of social change in a period when they are facing sudden extemal (and intemal) economic, social, political, and even cultural shocks. From a social perspective, globalization and transition share the same implications: a relatively well developed and comprehensive social system-one that was highly successful in the last 20 years in reducing poverty and improving human development for all-has come under tremendous financial and organizational pressures. Substantial social reforms are urgently needed to adapt those countries' social systems and make them more sustainable within new global trends. Such change can carry a bitter taste. In most countries, it means giving up long-established social privileges. There are many new losers in this globalization process: not only the children, the elderly, and the disadvantaged, but also the urban lower middle class and migration workers. Development institutions such as the Asian Development Bank (ADB), the World 13ank, the United Nations (UN) family, and bilateral donors have invested much money and designed many prolects to address increasing unemployment and poverty arising out of the globalization process. Much of our common work has had positive and immediate results for the poor. But we have had to cope also with a lot of new challenges. It is time now to reflect on what the new social agenda for Asia is and how we can improve our responses to it. What are the best tools to address these challenges in a world facing increased intemational competition, and reduced public funds available for social development? in the face of sudden, deep-going, and long-lasting social shocks during the crisis and increasing problems at the interface between governance and poverty, how should central and local govemments, and nongovernment organizations (NGOs) interact? What is then the new role of the private sector-is privatization of social services really improving their quality and with it access to the poor? The Asian crisis and transition experiences show that dependence on the private sector may have been premature How to react to the new challenges of development finance and external assistance with increasing intemational competition, reduced public funding, and concentration of money in a smaller number of countries? These are some of the new concerns in development cooperation. The Manila Social Forum covered only those Asian countries directly affected by the Asian economic crisis 1996- 1999 (Indonesia, Republic of Korea, Malaysia, Philippines, and Thailand), as well as by transition (i e, the five Central Asian Republics of Kazakhstan, Kyrgyz Republic, Mongolia, Talikistan, and Uzbekistan, the four countries in the Greater Mekong Subregion (Cambodia, the Lao PeopleS Democratic Republic, Thailand, and Viet Nam), and the Peoples Republic of China) Southasla and the Pacfic region were not covered In the discussion ii Foreword Good governance and more effective delivery of social and economic services for the poor are the center of the new social agenda for Asia. The challenge is to provide adequate structures for inclusive social development To do so * more emphasis needs to be given to urban poverty issues, and the interrelations between urban and rural impoverishment must be addressed. At the same time, in some countries such as the Philippines or parts of Central Asia, poverty is heavily rooted in structural weaknesses of the rural economy; * targeted interventions are urgently needed for particularly vulnerable groups such as street children or unemployed youth; * rather than merely increasing social allocations, the emphasis in the face of tighter budgets needs to be on rationalizing public social expenditures to better respond to the new social needs and make the social services delivery system more sustainable; * to be more, efficient and demand-dnven, the state, private sector, local governments, and civil society need to assume new responsibilities for social protection and social services delivery; * in the face of urbanization, changing age and family structures, and increased unemployment, informal and formal social safety nets in Southeast Asia, the People's Republic of China (PRC), and the transition economies can no longer provide through prior arrangements comprehensive social protection and insurance against risks and economic crises. Pension reform and health insurance, for example, are emerging as new areas of concem for such economies; * intra-regional disparities are widening and poverty related tensions are increasing between and within the Asian countries; and C the regional (multi-country) dimensions of the socioeconomic crisis and its impact on labor markets, remittances, regional health, and national and interregional migration need to be addressed. Rationalizing social sector budgets; creating a more inclusive formal labor market system; building up new forms of social protection, including health and old age insurance, enhancing the responsibilities and means of local govemments to promote social development; more critically assessing what the pnvate sector can do and what it cannot do in the social sphere; and being more aware of the critical interface between govemance and poverty These are some of the topics that were the focus of the Manila Social Forum. THE MANILA SOCIAL FORUM From 9 to 12 November 1999, ADB in close cooperation with the World Bank held the Manila Social Forum at the ADB headquarters. The Manila Social Forum was not intended to be just another academic conference spouting dry theories. It was a meeting of practitioners from central and local govemments, NGOs, and the private sector About 250 high-level representatives (including seven ministers, 25 NGO representatives, 24 delegates from external assistance agencies and Organisation for Economic Co-operation and Development [OECDI countries, 41 World Bank staff including two Vice-Presidents, and more than 50 ADB colleagues including the entire senior management) discussed the new social policy agenda in Southeast, East, and Central Asia. Countries covered in the Forum were those whose social fabric is most directly affected by globalization (i.e, the five East Asian cnsis countnes) and by transition (i.e, from Central Asia, the Greater Mekong subregion IGMS], and the PRC). T Chino: Fighting Poverty Unites iii The papers presented at the Forum were based on the countries' realities and implementation capacities. It was a refreshing experience to see what really works, and what does not A highlight of the Forum was the Meeting with the Filipino People, that brought together with President Joseph Estrada and Cabinet members of the Philippines, a World Bank Vice-President and many senior staff, and the entire ADB senior management in Mandaluyong's Garden of Hope (Hardin ng Pag-asa) The Forum revealed that some of the solutions that were taken for granted before the globalization process really took off in the mid-1 990s need to be changed. For example: (i) with enterprise restructuring, divestiture of social and other assets, policies to increase wages and income, and the generation of new education-intensive jobs in the formal sector, labor market issues are gaining more relevance; (ii) social safety nets in Asia are responsive to crises However, they are not inclusive enough and probably also not sustainable. There is a need for more public systems of risk aversion, (iii) in health and education, rationalizing social expenditures is the major concern. Decentralized service delivery and social expenditure systems was found to best protect against social sector budget cuts; (iv) whereas the private sector has limitations in delivering social services for all, corporate responsibilities can be explored more, (v) there must be increased responsibility for a transparent and well governed state, and increased emphasis on stakeholders such as local governments and NGOs. Also, intemational finance institutions need to strengthen their good governance activities; (vi) one of the long-term implications of the crisis and globalization process is the inherent contradictions between financial and economic incentives and social orientation. The complexity of infrastructure and agriculture investments need to be considered, and investments in these sectors need to be better linked to social sector and poverty alleviation activities in other sectors, and (vii) in the face of globalization, the private sector and governments are reallocating resources to short-term stabilization of the financial and banking sectors. As a result, necessary social and economic infrastructure investments are being neglected, and support for the real economy is redirected to short-term profit gaining sectors. In this context, multinational development banks may have a new role to address the long-term social and economic implications of the crisis and transition. THE ADB POVERTY REDUCTION STRATEGY As an institution whose purpose is the economic development of the region, ADB has always been concemed with poverty. Poverty has economic costs, reduces development potential, and increases inequity. In pursuing its development objectives of inclusive economic growth, equitable human development, and sustainable environment, ADB-in partnership with its clients, pnvate sector, civil society and NGOs, and bilateral and multilateral institutions-has leamed much about how to address the various dimensions of poverty. In November 1999 the Board of Directors announced that poverty reduction shall be the overarching goal of the ADB. From 2001 onwards, all loan projects and all other activities of the ADB have to prove how they contribute to poverty reduction in a given country With this poverty reduction focus, the hierarchy of ADBs development objectives has changed, and the project classification scheme was revised. Between 1993 and 2000, ADB classified its projects in five strategic development objectives (SDO), ie., promoting growth, and committed itself to ensure at least 50 percent of its projects have development goals other than pure economic growth. From 2001 onwards, all projects will be redesigned to address the three pillars of the poverty reduction strategy: i.e., pro-poor growth projects, poverty and core poverty interventions, and good governance for poverty reduction From then onwards, at least 40 percent of ADB public sector lending shall go to poverty and-by 2002- the percentage of core poverty intervention in the overall portfolio of ADB will substantially increase. This means, we will be doing more farm-to-market roads and fewer airports, more iV Foreword rural health clinics and fewer big power plants. We will be looking for low-tech labor-intensive solutions for production and construction activities. We will be searching for new ways to provide protection when people or economies fall on hard times. And we will try to make all of our work in the social sectors more relevant to the needs of the disadvantaged. To reduce poverty more effectively, we shall do more work direct with local communities and NGOs. We will also work more closely with the donor community Donors provide support through finance, demonstration, and advice. But though aid agencies can do a great deal, the main responsibility for reducing poverty rests with countnes themselves That is why good governance is a centerpiece of ADB's new strategy. Good govemance is critical to effective delivery of basic services to the poor Good governance promotes sound management and stops corruption. Get rid of corruption and millions of people would be no longer poor. Corruption hurts the poor most. And it holds back economic development ADB will offer a mix of assistance to each country, depending on the specific causes of poverty, the country's and other assistance programs, the institutional setting, and ADB's comparative advantage. For example, where past performance in poverty reduction has been weak, and inequality is rising, the emphasis will be on governance and social development. Cross-cutting priorities such as participation, inclusion of vulnerable groups, promoting gender equity, pnvate sector development, environmental sustainability, and good governance and equitable development will be highlighted in the project designs In countries where essential reforms have been undertaken, growth-oriented investments will reduce poverty. In each country, the mix and nature of prolects will be shaped by a participatory poverty analysis. This will ensure that ADB tackles actual constraints and opportunities for poverty reduction and not merely symptoms. ADB has a new role if these efforts are to be successful. And this role goes beyond providing funds and financing prolects or even financing the poor. Implementing the poverty reduction strategy is the mandate of everybody in ADB on the country programming side, project level, and with regard to cross-cutting dimensions and poverty analysis. The partnership agreement will help ensure that only those projects will be selected that promise the biggest return in terms of poverty reduction. To target the poor as beneficiaries and create a sustainable environment for structurally addressing poverty, the intra-sectoral and macro-linkages of the project will also be considered. WORKING TOGETHER IN THE INTERESTS OF ASIA'S POOR The complexity of poverty, the limited resources available, and the need for developing countries to best use the relatively expensive money they get from our loans, all this calls for more cooperation and more options and choices The topic of poverty reduction and social development, it seems, brings together people with a sincere aim for change. The Manila Social Forum has seen ADB and the World Bank make a great effort to jointly work with their partners to forge a new social agenda for Asia. It was also a good example of close cooperation between the two institutions, which share the same concerns of sustainable and inclusive development as well as the overarching aim of poverty reduction. We are leaming more and more that we need each other to implement this goal, because addressing poverty is much more difficult than promoting economic and environmentally friendly growth through infrastructure, finance and agricultural investment, human development, poverty and improving social development in Asia The World Bank has proposed a comprehensive development framework. We support this approach and have already agreed on the Kyrgyz Republic and Viet Nam as the two pilot countries However, there are also areas of social development where different institutions have different comparative advantages, and where the developing country T China. FRghting Poverty Unites V governments have good reasons to choose between different offers of support. For example, in Central Asia, ADB and the World Bank have a good cooperation agreement based on the former's long-standing experience in education and the latter's in health. FROM COOPERATION TO OPERATION Setting the right strategic focus, attracting support from our partners in the developing and the OECD world as well as the private sector and civil society, and working closely together as two independent institutions, each of which brings its own comparative advantages, are a good starting point for success. However, the challenge is now to operationalize our commitment towards the new social policy and poverty agenda in Asia. We have to make sure that we do not apply a "one size fits all" approach to poverty reduction. Countries differ in their needs, and so do social groups. The urban poor in Mongolia are very different from the urban poor of, say, Manila. We have to find new ways to maximize the impact of our loans After all, that is what will count, not conferences or forums. Like all institutions and people, ADB has limited resources. In the face of economic realities and as poverty becomes more complex in the context of globalization and transition, we need new creative and workable ideas to design good projects. Not every project in which the poor are beneficiaries is a good project when it comes to sustainable poverty reduction. And likewise, non-targeted economic growth projects with trickle down effects to the poor can have substantial poverty reduction impact if a more structural approach is taken. Combating poverty is a challenge bigger than simply building roads and power plants. We cannot afford duplications, redundancies, and conflicts in our work. That is, why I would like to emphasize the need for even more cooperation between the two banks, but even more so with all of you. ADB is situated in Manila. From my window I can see the high-rise skyline of Makati and the squatter area of Mandaluyong. I can see a waste dump, a rice field, and a park. What a city of extremes, like most in Asia-with a few rich people, some ordinary folks, and a lot of poor people living in squalor. Outside the city, there can be found more of the underprivileged. And outside the Philippines, we would find the tragedy of poverty repeated many times over. Altogether 900 million Asians live on less than a dollar a day, less indeed than the price of a cup of coffee in a restaurant many of us might visit daily. These people have missed out on Asia's boom years. Their plight is simply unacceptable. We can get rid of this scourge We need to give hope to them, by listening to them, by giving them opportunities, and by empowering them to help themselves. This is what development is all about. It is what drives the development assistance of ADB and the World Bank. S Nishimoto and I Schweitzer Acknowledgments Vii ACKNOWLEDGMENTS This book is about partnership, and a rededication of the development community to the new social agenda for East Asia for the 215 century It reflects an important common effort of ADB and the World Bank to join forces and work closely together to meet the challenges for human development that face Asia today. The crisis that struck Asia in 1997 has proved even more a social than a financial emergency. While Asia is clearly on a road to economic recovery, the social consequences are still unfolding, with serious implications for poverty and govemance. The crisis affected virtually every aspect of life, with particularly negative effects for human potential in the short and long terms. Workers left without jobs, fathers and mothers unable to feed their children, and children dropping out of school illustrate this drama. As formal and informal safety nets proved insufficient, social exclusion and violence has increased, with particularly grave consequences for the vulnerable and for poor communities. Asian countries may well emerge from the crisis with a renewed commitment and greater capacity to fight poverty through more effective social policies. Thus, the challenges of the last three years present an opportunity to reflect on fundamental development policies and introduce strategic reforms in the region to consider the needs of a new social policy agenda. As growth resumes, Asia can shift its development paradigm towards socially inclusive equitable growth, human development, and participatory governance for sustainable poverty reduction. To address the social challenges that confronted Asia as a result of the crisis, the World Bank, with strong support from ADB, in January 1999 organized a meeting in Bangkok. The Bangkok conference was seen as the first of a regular senes to address the social impact of the Asian crisis. We can see now, more than a year later, that the social impact of the crisis has proved less devastating than it appeared when the Bangkok process was launched. However, the discussions in early 1999 did highlight the human significance of the crisis impact and the need to learn lessons from the experience. More important, it underscored the challenge to the complex development partnerships in responding to a new and demanding agenda to put social issues and the battle against poverty back squarely at the center of Asia's development agenda. Ten months later, the two institutions, this time with ADB in the lead, organized the Manila Social Forum. As a meeting of practitioners who know realities on the ground, the Forum addressed a wide range of topics such as inclusive labor markets, rationalizing social public expenditure through decentralization of social services, the role of the private sector in job creation, governance and poverty, the new challenge of urban poverty, and building up proactive social safety nets. The Forum made abundantly clear that some of the presumptions and paradigms accepted as axiomatic before the globalization process really took off in the mid-1 990s need to be changed. It stimulated new thinking on the Asian social agenda coinciding with the beginning of the new millennium. The Manila Social Forum brought together about 250 people from all sectors of society (high-ranking members of govemments, civil society, and the private sector, as well as from academia and international donors). They engaged in an active dialogue to help elaborate a new social policy agenda for the region. The importance of the institutional partnership between the World Bank and ADB is indicated by the active involvement of the senior management of these institutions. These included all three Vice-Presidents and President Thdao Chino of ADB, while the Washington-based World Bank brought to Manila practically Viii Acknowledgments its whole East Asia management staff, including two Vice-Presidents, various country directors, and sector managers ADB and World Bank also jointly established a web site to support the event. A particularly moving highlight of the Forum was the Meeting with the Filipino People, together with President Estrada and many Cabinet members of the Philippines in Mandaluyong's Garden of Hope Compiling the Manila Social Forum proceedings, this publication offers another example of the two organizations' firm commitment to contribute in partnership to development and poverty reduction in the region. It is also an example of good collaboration and commitment of staff. Above all, we acknowledge the work of Katherine Marshall (Director, Social Policy and Governance, the World Bank) and her staff team (John Clark, Kathrin Plangemann, Louis-Charles Viossat, and Sonya Woo), and particularly Armin Bauer (Economist, Social Development, ADB) with his consultant team and secretariat (John Blomquist, Adel Burgos, and Zuleikha Mulsid as well as Eric Ambata, Graham Dwyer, Jhoanna Gavinio, and Clarisse Molina) in organizing the Manila Social Forum and putting together this publication. The proceedings will be published in two volumes with ADB taking the lead on the first book. The second publication (on Social Safety Nets) is scheduled for distnbution in 2001 It is a fundamental part of our mission to work together to ensure that our efforts are complementary and, individually and collectively, support and enrich the development agenda for the peoples of Asia. We hope that this publication will help policymakers in the Asian and Pacific region address these new social policy challenges And we also hope that the remarkable human development achievements of the last two decades cannot merely be preserved, but serve as an impetus for stronger socially and economically sustainable development at the beginning of the new millennium. Shoji Nishimoto Julian Schweitzer Director, Director for Strategy and Operations Strategy and Policy Department East Asia and the Pacific Asian Development Bank, Manila The World Bank, Washington Acronyms, Abbreviations, and Currency Equivalents ix ACRONYMS AND ABBREVIATIONS ADB - Aslan Development Bank AIDS - acquired immune deficiency syndrome AMC - Asset Management Corporation APEC - Asia Pacific Economic Cooperation ARC - Agrarian Reform Community ASEAN - Association of Southeast Asian Nations ASEM - Asia-Europe Meeting CARP - Comprehensive Agrarian Reform Programme (Philippines) CDF - Comprehensive Development Framework CU - credit union DAR - Department of Agrarian Reform (Philippines) DENR - Department of Environment and National Resources (Philippines) DMC - developing member countries (of ADB) DSWD - Department of Social Welfare and Development (Philippines) ESCAP - Economic and Social Commission for Asia and the Pacific EU - European Union FCSCU - Financial Company for Support and Development GDP - gross domestic product GMS - Greater Mekong subregion ha - hectare HDI - Human Development Index HIV - human immunodeficiency virus HOMENET - Intemational Network of Homeworkers IBRD - International Bank for Reconstruction and Development IDA - International Development Association ILO - Intemational Labour Organization IMF - Intemational Monetary Fund IRA - Internal Revenue Allotment JBIC - Japan Bank for International Cooperation km - kilometers Lao PDR - Lao People's Democratic Republic LTCM - Long-Term Capital Management MBN - minimum basic needs MODE, Inc. - Management and Organizational Development for Empowerment MOH - Ministry of Health X Acronyms, Abbreviations, and Currency Equivalents MRH - matemal rest homes (Mongolia) NAPC - National Anti-Poverty Commission (Philippines) NBKR - National Bank of the Kyrgyz Republic NEDA - National Economic Development Authonty (Philippines) NGO - nongovernment organization ODA - official development assistance OECD - Organisation for Economic Co-operation and Development PO - People's Organization PRC - People's Republic of China RGC - Royal Govemment of Cambodia SDO - strategic development objective SHG - self-help group SME - small and medium enterprises SP - social protection SOE - state-owned enterprise SRM - social risk management SSE - social services expenditure UCDO - Urban Community Development Office (Thailand) UN - United Nations UNDP - United Nations Development Programme UNESCO - United Nations Educational, Scientific and Cultural Organization UNFPA - United Nations Population Fund UNICEF - United Nations Children's Fund WHO - World Health Organization Note: T$" means US dollar, unless otherwise stated Acronyms, Abbreviations, and Currency Equivalents Xi CURRENCY EQUIVALENTS (AS OF 4 AUGUST 2000) Country Currency $ Equivalent Australia Australian Dollar $1 = A$1.7 Cambodia Riel $1 = KR3,772 China, People' Republic of Renminbi $1 = Y8.3 European Euro Euro $1 = EUR1.09 Indonesia Rupiah $1 = Rp8,772 Japan Yen $1 = Y108.7 Kazakhstan Tenge $1 = T141 Korea, Republic of Won $1 = W1,1 16 Kyrgyz Republic Som $1 =Som467 Lao, People' Democratic Republic of Kip $1 = KN7,600 Malaysia Ringgit $1 = RM3 8 Mongolia Tugrik $1 = Tugnkl,033 Philippines Peso $1 = P44.7 Tajikistan Thjik Ruble $1 = T1R899.4 Thailand Baht $1 = B40.8 United Kingdom Pound $1 = £0.67 Uzbekistan Sum $1 = SUM251.0 Viet Nam Dong $1 = Dl 4,090 Table of Contents Xiii TABLE OF CON1ENTS FOREWORD .................................................................. Fighting Poverty Unites (Tadao Chino, President of the Asian Development Bank) ACKNOWLEDGMENTS ................................................................ vil Shoji Nishimoto (Director Strategy and Policy Department, Asian Development Bank) and Julian Schweitzer (Director, Strategy and Operations, The World Bank) ACRONYMS, ABBREVIATIONS AND CURRENCY EQUIVALENTS .......................................... Ix LIST OF TABLES AND CHARTS ................................................................ xvii 1. THE MANILA SOCIAL FORUM .1 1.1 Economic Growth, Social Development, and Poverty Reduction in Asia (H.E. Joseph E. Estrada, President of the Philippines) .1 1.2 Operational Lessons and Challenges for Social Development in Asia (lean-Michel Severino, former Vice President of the World Bank for East Asia and Pacific Region) .5 2. THE SOCIAL IMPACT OF THE ASIAN CRISIS . . . 9 2.1 Economic and Social Implications of the Asian Crisis 2.1.1 The Financial and Economic Crisis in Asia: Causes and Long-term Implications (Justin Lin, Peoples Republic of China) .9 2.1 2 The Deeper Crisis: Social Consequences of the Financial Crisis in Asia (Emesto M. Pernia, Asian Development Bank) .18 2.1 3 Beyond the Asian Crisis: The Centrality of Social Policy (Gloria Macapagal-Arroyo, Vice-President of the Philippines) 24 2.2 Labor Markets and Employment 2.2.1 Migration and Regional Interdependencies: The Labor Market in Lao PDR (Noy Indavong, Lao People's Democratic Republic) .27 2.2.2 Social Priorities and the Labor Market in Uzbekistan (Aleksandr S. Navotniy, Uzbekistan) .30 2.2.3 Employment Policies In the Republic of Korea After the Crisis (Hanam S. Phang, Republic of Korea) .33 2.2.4 Increasing Urban Employment in Shanghai: Active Labor Market Programs and Other Initiatives (Zhang Dezhi, People's Republic of China) .37 2.3 Vulnerability and Exclusion 2 3.1 The Concept of Social Exclusion and Vulnerability (Anita Kelles-Viitanen, Asian Development Bank) .40 2.3 2 Challenges in Addressing Gender Concerns in the Asian Economic Cnsis (Patncia Licuanan, Philippines) .45 2 3 3 Women and Civil Society In a Crisis Environment: Examples from Cambodia (Sochua Mu-Lelper, Cambodia) 49 XiV Table of Contents 2 3 4 Vulnerability and Reverted Gender Issues in Education and Health (Pagbalabyn Nymadawa, Mongolia) .......... ............. .. .... 52 2.3.5 The Vulnerability of Homeworkers in Southeast Asia (Lucita Lazo, Philippines) ....................................... ...... .... .... 56 2.3.6 Children as Losers in Economic Development: Strategies and Policies to Promote the Best Interests of Children in East and Southeast Asia (Kanchada Pinyarangsan, Thailand) ........ ..... ....... 59 3. RURAL AND URBAN FACES OF POVERTY ................................................................ 65 3.1 Urban Development and Poverty 3.1 1 Reforms of State-owned Enterprises and Social Protection in the People's Republic of China (Chen Qunzhou, People's Republic of China) .65 3 1 2 Citizens' Network to Address Urban Poverty in Thailand (Somsook Boonyabancha, Thailand) .68 3.2 Rural Development and Poverty 3.2.1 Rural Development Policies for Poverty Alleviation in Viet Nam (Le Hong Thai, Viet Nam) ..... .... ..... .. ...... .. ... . 71 3.2.2 Microfinance and the Rural Poor: Some Reality Checks in Indonesia (Em. Haryadi, Indonesia) ......... ............. ...... .... ...... ... 74 3.2.3 Credit Unions as Altemative Banking Institutions: The Experience of the Kyrgyz Republic (Ainura Kyptchakbaeva, Kyrgyz Republic) .... .............. ....... ....... 78 3 2.4 Poverty Reduction at the Beginning of the New Millennium: Challenges for the PRC (Zhang Lei, People's Republic of China) ................. ............... .... .. 81 3 2 5 When Does Agrarian Reform Work for the Filipino Poor? (Horacio Morales, Philippines) ................. ... ................ ... ........... .. 83 4. SOCIAL SAFETY NETS ............................................................... 89 4 1 Falling Through Safety Nets and Building on Pillars of Social Protection. Summary of Panel and workshop Discussions at the Manila Social Forum (John Blomquist, USA) ......... .. .. ... .............. 89 4.2 Emerging Lessons on Social Safety Nets (Emmanuel Jimenez, World Bank) ................................................... ...... 92 4.3 Social Protection and the Asian Development Bank (Isabel Ortiz, Asian Development Bank) .............. .. .... .......... ... ... .. .... .... . 95 4.4 Social Risk Management: The World Bank's New Conceptual Framework for Social Protection (Robert Holzmann, World Bank) ........ .... .. .. ......... ... 99 4.5 Public Works Programs for Managing the Economic Cnsis in the Republic of Korea (Po-hi Pak, Republic of Korea) ............... .... ............. .... 102 4.6 Which Poor to Help' Coordinated Poverty Alleviation in the Philippines (Donna Gasgonia, Philippines) ............................ ......................... ...... 106 5. SOCIAL SECTOR REFORMS ............................................................... 111 5.1 Social Sector Reforms in Asia After the Crisis: Operational Lessons (Katherine Marshall, World Bank) ......1.............................................11 5.2 Local Governments' Expenditures for Social Services Delivery (Benjamin Diokno, Philippines) .............................. ................................. 115 Table of Contents xv 5.3 Block Grants to Reform the Education and Health Sectors in Indonesia (Hidayat Syarief, Indonesia) .117 5.4 Cambodia's Health Situation Policy Reforms and Investment Implications (Char Meng Chuor, Cambodia) .120 5 5 Reforming Social Sectors and Reducing Poverty: TWo Different Issues in Mongolia (Sodov Sonin, Mongolia) .124 5.6 Labor Market Relevant Education Reforms in the Kyrgyz Republic (Melisbek Satybekov, Kyrgyz Republic) .127 5.7 Thailands New TWelve Years of Education for All Program (Chuachan Chongsatityoo, Thailand) .129 6. PUBUC-PRIVATE INTERFACE AND CORPORATE RESPONSIBILITIES . .135 6.1 The Role of the Private Sector for Poverty Reduction and Social Development in Asia (Christine Wallich, ADB) .135 6 2 Corporate Responsibility for Social Development in the Philippines (Roberto de Ocampo, Philippines) .141 6.3 Public-Private Partnerships in Health and Education: Conceptual Issues and Options (Yidan Wang, ADB Institute) .144 6.4 Promoting Business for Poverty Reduction: An Example from the Philippines (Paul Dominguez, Philippines) .149 6.5 Economic and Social Impediments to Small Industry Development in Uzbekistan (Klara Djumamuratova, Uzbekistan). 151 6.6 Socially Responsible Investment: How to Make it Possible (Amy Domini, USA) .154 7. GOOD GOVERNANCE FOR POVERTY REDUCTION IN ASIA . .157 7.1 Good Governance for Poverty Reduction: An Introduction (Katherine Marshall, The World Bank) .157 7.2 Governance and Anticorruption: A Hopeful Realism (Salvatore Schiavo Campo, Asian Development Bank) .160 7.3 Fighting Corruption to Help the Poor fTnku Abdul Aziz, Malaysia) .162 7.4 Social Impact of Governance Reforms in Mongolia (Davaadorjiin Delgertsorgt, Mongolia) .164 7.5 Local Govemments and National Poverty Alleviation Programs in the Philippines (Jesse Robredo, Philippines) .169 7 6 Increasing Transparency of Government-Sponsored Poverty Projects in Indonesia Through Community-Based Information (Hetifah Sjaifudlan, Indonesia) .173 7.7 What Can NGOs Do to Enhance Economic Development Benefiting the Poor in the Philippines (Teresita Quintos Deles, Philippines) .176 7.8 Monitoring Foreign Aid: Governance Challenges for Poverty Reduction in Thailand (Nontaphon Nimsomboon, Thailand) .178 Xvi Table of Contents 7.9 Reflections on the Role of the Media in Promoting Transparent and Participatory Social Development (Malou Mangahas, Philippines) .. ....... ... 181 8. THE REGIONAL DIMENSIONS OF POVERTY ............................................................... 183 8.1 Regional Dimensions of the Asian Cnsis: An Overview (Shoji Nishimoto, ADB).13 .... ......................................................... 183 8.2 Challenges for the Developed World in Supporting Regional Social Development in Asia (Robert McKinnon, Australia) ............. ............. ..... 188 8.3 Europe, the Asian Economic Crisis, and the ASEM Trust Fund (Alistair MacDonald, European Commission) .................................. ....... ..... .. 191 8.4 Japan's New Role for Regional Social Development in Asia (unichi Hasegawa, Japan) .. . .... . 194 8 5 Regional Cooperation for Social Policy: The ESCAP Agenda (Gonzalo Jurado, ESCAP) ................. .............................................. 196 9. LONG-TERM IMPLICATIONS OF GLOBALIZATION ........................................................... 199 9.1 Why are Multinational Development Banks in the Loop Again? (Brahm Prakash, ADB). ....................... ............................ ........ . ... 199 9.2 What Does Poverty Cost? Reflections on Philippine Government Anti-Poverty Programs (Leonor Bnones, Philippines) ....................... . .... 202 9.3 Asia's Economic and Structural Policy Agenda (Masahiro Kawai, World Bank) .204 9.4 Social Benefits of a Gradual Approach. The Example of Uzbekistan (Bakhtiya K. Khamidov, Uzbekistah) ................................ ............... . 207 9.5 Promotion of Social Development in Asia. The Japan Bank for Intemational Cooperation (Rentaro Tamaishi, Japan) .. .................................... 210 9.6 The New IMF Architecture in Asia (Peter S. Heller, IMF) ...................... ........ 212 9 7 Weapons or Well-Being? East Asia's Most Important Choice for the New Millennium (Kul Gautam, UNICEF) ................................ ............. .... 215 9.8 Sustainable Development: New Milestones for Asia (Terence Jones, UNDP) .219 10. THE VISION OF A NEW SOCIAL PARTNERSHIP IN ASIA .223 ADB and World Bank's Vision of a New Social Partnership in Asia (Peter Sullivan and Mats Karlsson, Vice-Presidents of the Asian Development Bank and the World Bank) .223 1 1. APPENDIX: LIST OF PARTICIPANTS AT THE MANILA SOCIAL FORUM .227 List of Tables and Charts Xvii LIST OF TABLEs Table 1: Balance of Payment on Current Account ($ million) in Asia .1 3 Table 2: Foreign Debt as a Percent of GDP in Asia .13 Table 3: Short-Term Debt as Percent of Foreign Reserve in Asia .14 Table 4: Debt to Equity Ratio in Asia, 1996.15 Table 5: .Public Expenditure for Unemployment Measures in the Republic of Korea, 1998.36 Table 6: Budget Allocation to Basic Social Services, Defense, and Debt Service in Selected Countries .61 Table 7: Distribution of Benefits of Public Health Spending in Selected Countries .61 ibble 8: Poverty in Indonesia, 1996-1999 .74 Table 9: Bina Swadaya Achievements in Indonesia .76 Taible 10: Korean Social Safety Net Components (May, 1999; 10,000 Persons) 105 Table 11: Cambodia's Government Budget Devoted to Health Sector ............................. 123 Table 12: Major Indicators of Poverty in Mongolia ............................. .............................. 124 Table 13: Changes of Expenditures on Social Subsectors in Mongolia ........................... 125 Table 14: Enrollment by Levels and Enrollment Rates in Thailand ........ ......... ..... 129 Table 15: Actors for Providing Social Services Through the Public and Private Sectors .........................................14.........4....... 144 Table 16: Distribution of Public-Private Expenditures for Health and Education in Asia, 1990 ................................................................ 145 Table 17: Summary of Social Impact of Governance Reforms in Mongolia ...... ......... 168 LIST OF CHARTS Chart 1: Percentage Changes in Real Earnings Per Worker, 1997-1998 .19 Chart 2: Public Sector Spending on Social Welfare in Asia and Other Regions .93 Chart 3: Military Expenditures by Region .215 Chart 4: Military Expenditures of Different Asian Countnes .216 Chart 5: Military Expenditures by Organizatio .217 The 1 Manila Social Forum ECONOMIC GROWTH, SocIAL DEVELOPMENT, AND POVERTY REDUCTION IN ASIA2 His Excellency, Joseph E. Estrada, President of the Philippines I wish to thank the Asian Development Bank (ADB) and the World Bank for inviting me to address your Manila Social Forum. May I also extend to our foreign guests the warmest welcome of the Filipino people here in the Hardin ng Pag-asa, the Garden of Hope, in the midst of the city of Mandaluyong. I thank and commend both ADB and the World Bank for choosing Manila as the venue for this gathering. It recognizes the confluence of the theme of your forum and the aspirations of our country. just as poverty reduction is the core purpose of the World Bank and the newly-announced strategy of ADB, poverty eradication is also the overriding mission of the Philippine Government POVERTY ERADICATION - THE OVERRIDING VISION OF OUR JOINT EFFORTS I do not hesitate to use the word "eradication." It reflects, and helps to intensify, the strength of our ambition. And "reduction," the preferred language of ADB and the World Bank. is actually the transition, the forward move, from the present prevalence of poverty to its ultimate eradication Reduction is the process. Eradication is the outcome. Poverty eradication may be unattainable in theory, but we can get close enough to it for all practical purposes. As you may know, I ran and won as president of my country largely on my anti-poverty platform. In 1998, 1 was deeply honored by the Asia Pacific Economic Cooperation (APEC) when it named me as the group's anti-poverty exponent And I was pleased to read about the recent strategic shift of ADB from promoting growth, in general, to focusing on poverty reduction, in particular I can observe the major convergence of the Manila-based ADB and the strategy of the Philippine Government. President Tadao Chino of ADB talks about "his vision of an Asia free of poverty" and I addressed the Philippine nation in my inaugurating speech as President with "A Poverty-Free Philippines' My Government considers poverty an intolerable social shame that cries out not for marginal attention but for a total approach. For us, the war on poverty is not just a policy but a passion. As President of the Philippines I deplore the fact that the past economic programs of this country were mostly upside-down They aimed at developing the apex and neglected the base. Our belief is the opposite: uplifting the nch leaves the poor behind, but uplifting the poor lifts everyone, including the rich. Our vision is, therefore, not lust the alleviation of poverty but its ultimate eradication. Alleviation is temporary, eradication is permanent. Alleviation is limited, eradication Is total. The proper response to the problem of poverty is not superficial treatment but total structural change. Although eradication may be unattainable, getting as close to it as possible is worth the effort. 2 This is a modified version of President Estrada's keynote address to the Manila Social Forum during the Meeting with the Filipino People in Mandaluyong's Garden of Hope 2 Chapter 1. The Manila Social Forum Jesus Christ said: "The poor you will always have with you," but he did not say they had to be the majority My vision is to dnve poverty away from the center and into the periphery of our concerns, to make it a marginal rather than a mainstream problem. Hence, our war on poverty is not just one program of the Govemment; it is the overriding business of governance itself, built into and embedded in our total economic and social programs. Poverty alleviation defines and drives the substance, the content, and the heart and soul of our entire strategy of Government. POVERTY IS BAD ECONOMICS It is essential for our war on poverty that development efforts be redirected towards the poor, towards the base of our society. Poverty is not just a social disgrace but bad economics. The converse is that poverty eradication is not just a requirement of social justice, not just a cry of the conscience, but also good economics Poverty constricts domestic markets, poverty reduction expands them to the extent that investments create new jobs and increase incomes Poverty suppresses productivity, poverty reduction enhances it, to the extent that it opens up access to better education, health care, and other social services that build up the people's capabilities. One pattern of development is to modemize the apex and neglect the base, to upgrade the penthouse and allow the foundations to rot - or at best to expect the benefits of progress to 'trickle down" This model is totally unacceptable and discredited. The drip method it entails is the development equivalent of water torture. Development could result in higher incomes but also in their greater concentration, or narrower dispersion. A growth program that considers poverty eradication incidental-or even accidental-is bound to increase inequality, which improvements in per capita incomes could very well mask The primary eradicators of poverty are private investments and public investments in social and economic infrastructure. These create jobs, provide new incomes, and open up opportunities for personal improvements in career and competencies. It is the task of government to provide the laws, the policies, and an environment of peace, justice, and stability that encourage such investments. it is also the task of government to remove the obstacles that stand in the way of investments. Some of these obstacles are in laws and policies, which can be improved through legislation or policy revisions Others are physical, which can be removed through infrastructure PRO-POOR GROWTH AND SOCIAL DEVELOPMENT The condition sine qua non for poverty reduction is growth While growth can take place without poverty reduction, poverty reducfion cannot take place without growth. Robin Hood is not an ideal model for redistributing incomes to the poor Yet, while growth is essential, it is not enough. Aspiring for growth in the aggregate does not guarantee poverty reduction Determining the right structure of growth is also cntical Some patterns of development are more pro-poor than others, even if they produce the same rate of growth. Farm-to-market roads have a higher poverty-reduction impact than urban skyways So do labor-demanding investments as against heavy capital-intensive industnes, rural health units as against sophisticated tertiary hospitals, and primary and secondary education as against just about everything else. In our view, there should be no separation between growth and poverty eradication. Poverty reduction cannot be lust a byproduct of development, but its very objective. The poor must not be just the end-beneficiaries of the process of development, but its starting point. Investments in physical capital and the employment of technology must be aimed primanly at creating jobs for them, and investments in human capital must be aimed at equipping them for those jobs. If development begins with the poor, then the result is not trickle-down, but heave-up. I Estrada: Economic Growth, Social Development and Poverty Reducton in Asia 3 Growth can and must take a pro-poor path. Growth and equity cannot be sequential, with growth coming first and distribution after that is precisely the trickle-down concept. Growth and poverty reduction must be integrated in one process. And this demands a systemic rather than a piecemeal approach. Poverty cannot be conquered by pocket battles alone; it calls for total war. And in the case of the Philippines, it calls for a tectonic shift in strategy. POVERTY ALLEVIATION IN THE PHILIPPINES The East Asian experience shows what works, and what doesn't, in promoting growth. What works is development that is market-driven, export-pursuing, outward-looking, in an environment of sound policies, good governance and of stability. What didn't work was shown in different ways by what we might call the "old" China and the 'old" Philippines. The "old" China subjected its economy to central planning. The "old" Philippines pursued an inward-looking policy of import-substitution, protectionism, and controls. The People's Republic of China (PRC) has since discovered the wonders of the market, released large sectors of its economy to its forces, and displayed exceptionally high growth rates over a sustained period. The Philippines, since 1986, has radically shifted from a mandate to a market economy. The state has withdrawn its interventionist, protectionist, and heavy regulatory hand from the market, and instead has reshaped its role. It has devoted itself to ensuring and enhancing the market's efficiency and integnty, and aims at providing stability, sound policies, and good govemance. In this, the Philippines at least enjoy the latecomer' advantage. We can learn from those who preceded us, emulate their successes, and avoid their mistakes, but modifying the lessons from their expenence with the insights we derive from our own culture, history, and defining characteristics as a people. We in the Philippines now have to accelerate and compress our timetable for our poverty reduction program. We want to catch up, not so much with our neighbors, but more with our own aspirations and our own sense of social justice. Our catch-up goals are ambitious We aspire to reduce poverty substantially: from an incidence of over 32 percent today to 25-28 percent by 2004. In other words, we seek to lift more than 3.9 million Filipinos out of poverty, and we hope to lay the foundations and launch the initiatives that will make the process irreversible, even beyond my term as President of this country For example, whereas past administrations were dazzled by the glitz and glamour of capital-intensive industries, my Government has made a strategic shift of focus in our policies and budgets towards agriculture and the development of the rural areas, where two thirds of our poor people live, work, or look for work. We are pushing for the full implementation of the Agnculture and Fisheries Modemization Act, which seeks to move these sectors into the 21 century and to make them globally competitive. Our pro-poor bias is also manifest in the emphasis we have placed on food security, and in our increased allocations for irrigation facilities, farm-to-market roads, and post-harvest facilities. we have also expanded our support of non-farm industries in the rural areas. We are pounng a massive portion of our budget into education, which, more than any other possible area of investment, is the foundation of future growth and progress. We are restructuring our health programs to provide preferential attention to the indigents, among others by lowering the price of medicines within a free market environment. We are accelerating the land redistribution process under the agrarian reform program. we have highly augmented the funds going to the local govemment units And, despite some well- publicized slip-ups which we have corrected, we are placing top priority in low-cost and socialized housing, first because shelter is a basic requirement of life, and second because 4 Chapter 1 The Manila Social Forum housing construction itself is labor-intensive and has a high multiplier effect on the rest of the economy. lust as we create a demand for people through investments in physical capital, we must also enhance the competencies of people through investments in human capital And this we must do at a time of bewildenng change brought about by globalization, the constant birth of new technologies, and the dynamic shifts in market tastes and preferences. These changes pose a special challenge to education, since they continue to render a wide range of traditional skills irrelevant, and their possessors redundant. We need to plan our educational system to enable it to provide our people with competencies required by tomorrow's enterprises, not just today's, and certainly not yesterday's. Education must consider the future a moving target And as hunters would say, in hunting ducks in flight, the hunter should aim at where the duck will be, not where it is, and certainly not where it has been. Giving the poor access to health services, and providing them with an environment conducive to health-including housing, water, sanitation, efficient sewerage, waste management, and clean air-is essential in enhancing their productive capabilities. Equity must not be limited to the present populations but extend across generations. This is why the state must make sure that the markets cooperate with it in protecting the environment as a whole, to make development sustainable way into the future As the economy grows, more and more people benefit. But there will always be those who will be left behind, excluded, displaced, and cast aside by the very process of development. These must be cared for through the appropriate safety nets. There is no reason why capitalism cannot be compassionate LESSONS TO BE LEARNED FROM EAST ASIA It is easy enough to say: leave the market alone. The East Asian expenence clearly shows that economic growth is better served where markets are free, open, efficient, and honest On the other hand, by its very nature, it is impossible for the government to leave the market alone. Whatever it does affects the market, for better or for worse. The policies, projects, budgets, and operations of the government necessarily shape the market one way or another One way is for government programs to promote growth in the aggregate, and let the distributive process take care of itself. The other is to go for growth that is explicitly pro-poor from its inception. pro-poor in its basic premises, in its design, and in its goals The latter is the strategy and intent of my government. We explicitly call it a "pro-poor, pro- market' strategy. The very fact that you are holding this forum shows that this is also becoming the preferred option for the developing world at large. William Penn once said: "It is a reproach to religion and government to suffer so much poverty and excess." I am not sure I can speak for religion-I know certain quarters that would be homfied if I tried to-but I can say "amen" to the reproach to government. For growth and poverty reduction will succeed or fail depending on the quality of governance: the soundness of policies, the maintenance of stability, the promulgation of justice, the delivery of basic services, and the keeping of the peace. This is the type of environment that allows markets to flourish Perhaps the words of Henry George, the 19th century American economist, very well sums up the underlying theme of this Manila Social Forum: "So long as all the increased wealth which modem progress brings makes sharper the contrast between the House of Have and the House of Want, progress is not real and cannot be permanent." In other words, growth has no meaning unless it brings about the total redemption of the poor This is the mission that we must all adopt. I Severino: Operational Lessons and Challenges for Social Development in Asia 5 OPERATIONAL LESSONS AND CHALLENGES FOR SoCIAL DEVELOPMENT IN ASIA3 By )ean-Michel Severino, Vice-President of the World Bank INTRODUCTION The Regional Meeting on Social Issues in Bangkok, in January 19994, saw the birth of a new and significant common effort. It brought together key partners dedicated to the effort to redress the social harm inflicted by Asias economic and financial crisis: national and local governments, civil society organizations, International, bilateral and nongovernment development actors, and academia. The Manila Social Forum rightly moved the focus from this short-term, but crucial, concern-dealing with the crisis and mitigating its social impact- to longer term priorities and questions: what should be the framework for new social policies in a changing Asia? How can we together help establish the foundations of the new social agenda that the people in the region need? FROM BANGKOK TO MANILA: CHANGES IN THE ECONOMIC AND SOCIAL LANDSCAPE The change in economic and social perspectives between the two large social policy gatherings at Bangkok and Manila, only 10 months apart, tells a remarkable story. At the beginning of 1999, the crisis still dominated discussions, and the future was uncertain. By late 1999, all signs pointed to regional and national economies on the threshold of a solid recovery In retrospect, it is clear that the recession in the five most affected countries of East Asia bottomed out in 1998, and during 1999 output began to expand, at varying speeds to be sure, in virtually all the major economies. The lasting impact of the crisis appeared, in November 1999, to be less grave than feared even 10 months earlier. The strength and resilience of the social fabric told the most impressive story, but the remarkable efforts by national and local governments and civil society organizations also played a major role in mitigating the social costs of the crisis. Economic recovery had begun to show up in social indicators, particularly in unemployment statistics. During 1999, remarkable progress was made in improving the knowledge base. Last and not least, was a growing consensus around the belief that rapid growth cannot be the primary safety net, and sole provider of jobs and income security in the future. The crisis underscored that growth is a prerequisite for restoring incomes of the poor and the principal vehicle for improvement in their welfare, but it is simply not enough For all these reasons, the social agenda needs to be at the center of policy and of intemational cooperation for East Asia in the future. Hard facts were highlighted in Manila, in the presentations of many people operating at national and community levels, and these tempered premature enthusiasm. A central theme was a call to banish complacency. The crisis caused terrible direct damage and it slowed momentum. It was the source of great suffering, across all strata of society, however, 3 This overview reflects the statements by lean-Michel Sevenno at the Manila Social Forum Mr Severino was, as the former World Bank Vice-President for East Asia and the Pacific, deeply Involved in the partnership preparations of the Manila Social Forum The Bangkok Social Meeting was organized by the World Bank, In collaboration with the Economic and Social Commission for Asia and the Pacific (ESCAP) it gathered some 200 participants from a wide range of organizations One outcome was an agreement that a continuing social forum for East Asia, bringing together the partners, should be maintained, based both on strengthened information systems (Including web sites and newsletters) and on periodic meetings (notionally held at least once a year) 6 Chapter 1 The Manila Social Form those most directly affected were the most vulnerable. It also eroded invaluable social capital and community structures and resulted in sharp declines in middle-class standards of living These effects will have a long-term impact, at the individual and collective levels. They have also brought back into focus the central questions of distnbution and social cohesion. While sustained economic growth is clearly the only viable engine driving poverty reduction, the complex picture of social impact and indicators in the immediate post-crisis penod suggested that much more attention was needed on issues of distribution the transmission mechanism that connects the engine to the wheels. A CHANGING ASIA: SEVEN FUNDAMENTAL ENGINES OF SOCIAL CHANGE Asia has changed and is changing profoundly This basic message and reminder explains the common theme, a central conclusion from Bangkok that shaped deliberations at Manila the social policies for tomorrow must differ from the social policies of yesterday. it is useful to sketch, rapidly, some of the profound forces that are bringing change, as a backdrop to the discussion in this book. The central engine of rapid change is globalization. Globalization of financial and goods markets has been an essential ingredient in the East Asian miracle, and will continue to offer new opportunities and benefits to the emerging markets and transition economies in Asia Nonetheless the crisis years in East Asia underlined how, without proper safeguards and sound economic policies and institutions, the forces around globalization expose developing countries to external shocks and increased volatility. Six other major structural transformations, which need to be taken into account in social policy formulation, are aging, urbanization, industrialization, democratization, the rise of the middle-class, and decentralization/localization The rapid aging of the population will have major implications for old-age security and for the profile and evolution of the workforce Urbanization demands enormous new investments in services and transforms social relations; it also is weakening traditional support and coping mechanisms and increasing the number of vulnerable people who lack any support. A rise in non-agricultural employment and the formal sector not only brings a greater need for better articulated formal social policy but also a greater opportunity to provide it. The political transition towards greater pluralism and participation may result in increased demands for a greater government role in protecting the poor, the unemployed, the disabled, and other social groups, but also in demands for greater accountability of the use of public resources The emergence of an educated, powerful and vocal middle-class will fundamentally change the way social policies have been designed and implemented so far Finally, localization, or decentralization, increases expectations and demands from citizens and social actors and changes social policy design and management. CONSOUDATING THE FOUNDATIONS OF THE NEW SOCIAL MODEL IN A CHANGING ASIA: CHALLENGES AHEAD A central, and crucial, challenge ahead is inclusive and socially responsible macroeconomics. Genuine human and social development can only be sustainable if it is based on sound macroeconomic adjustment and structural policies. A broad-based, inclusive recovery, ensuring that the poor participate in the income gains from economic reactivation, is a key element of the new social agenda. Improving future crisis management to make it more sensitive to the plight of the poor, the workers, and the most vulnerable groups in the policy mix and patterns of public spending is a central lesson The relations between economic and social policies are not linear but circular. sound economic policies cannot be sustained if 'patent inequity" is left unaddressed. A second challenge is to deal better with risks and the uncertainties that accompany globalization. The East Asia crisis highlighted the need to give much more attention to risks I Sevenno: Operational Lessons and Challenges for Social Development in Asia 7 and avoiding painful shocks. The severity of the banking crisis was a lesson. This challenge calls for improved national safety nets (work-fare programs, scholarships, food distribution, etc.) and social insurance programs (unemployment insurance if the country can afford it; pensions, etc.). it also involves efforts to bolster community and informal family-based safety nets A third challenge is improved governance and social infrastructure Sound and caring social policies in the region rely on stronger and more transparent legal, institutional and public infrastructure. This calls for a predictable and enforced legal system that is both conducive to attracting foreign investment and protecting individual freedoms and workers' fundamental rights. It also implies improving the quality of the public sector, a modernized industrial relations system, mechanisms for greater accountability and transparency everywhere in the society and a everlasting war against corruption. The World Bank has committed itself to join concemed governments to fight corruption wherever it is found and is moving vigorously forward with a broad-based anti-corruption agenda in the region. Establishing an integrated social policy framework is a fourth and difficult challenge. Decisions taken in one area of social policy have important implications in the other areas: there is a delicate and fine-tuned social policy mix that has to be better understood and managed. This integrated approach to social policies and poverty reduction in the region has, however, been sadly lacking to date. Today, Asia urgently needs a framework that brings synergy between the different social policy instruments, a framework that binds together rural development, human capital investments in health and education, urban development initiatives to create livable and workable cities, and social risk management instruments such as active and passive labor market policies, old-age policies and social assistance policies. Bringing the weakest and the most vulnerable from the margins of the society to the center stage is the last fundamental challenge. This is what Jim Wolfensohn called 'the challenge of inclusion" two years ago at the World Bank/International Monetary Fund (IMF) Annual Meetings in Hong Kong, China. This is what is needed to ensure that the voices of the poor, their experiences, priorities and recommendations, are always taken into account. And the poor tell us that they care about their material well-being, their physical well-being, their security, their freedom of choice and action, and their social relations A large and complex component of the social agenda is thus about empowerment It is about people helping themselves It is about how to achieve social solidarity and cohesion through first enabling individuals and families to support themselves. A related challenge is of course to make sure that the "voices" of more organized social actors, crucial actors from an historical point of view, such as trade unions, employers, nongovemment organizations (NGOs), are central in the design of national and local social policies THREE KEY ISSUES ON THE SOCIAL AGENDA The responsibilities of the private sector pose a first set of issues that we still need to address. Private sector involvement is key to any modem and effective social policy, especially in this region where growth has been built on remarkable private sector initiatives. Private sector engagement is crucial to effective social services delivery, social policy financing, social innovations, and high quality of services But how can we best enhance the social role of the private sector, promote social responsibility of private firms, and encourage socially conscious individuals? There is no easy answer but the partners to the Manila Social Forum can and should address this question as a priority. A second issue deals with the relations between poverty alleviation, a fundamental and common objective, and the new social agenda. Social policies, in Asia as well as in 8 Chapter 1. The Manila Social Forum Europe and in the United States, have broader objectives than poverty reduction and they have emerged as a central focus across the political arena because of the support of the working classes and then the middle class. Given that resources are limited and pressures come from all segments of society, notably those best organized and closest to decision- makers, how do we keep the focus on the very poor, while ensuring a clear and sustainable focus also on the broader social agenda? How can we deal with the contradictions that sometimes present themselves between a focus on the poor and the key role of the middle class as taxpayers and voters9 Respect for cultural diversity and traditional values in implementing modem social policies is a third, also very difficult issue. Every policy and agenda must be specifically tailored to the cultural environment of the country where it is implemented. Hence the new social agenda has to be designed for each country concerned, reflecting its culture, social character, and history. Cultural diversity in Asia is indeed an enormous asset. However a major issue is to determine how modern, comprehensive and effective social policies can be established, building on existing community ties and family values and incorporating lessons from worldwide thinking, expenence, and best practice. We set ourselves a key and very difficult challenge at Bangkok, reinforced at Manila to measure explicitly and better social achievements and our own performance in advancing them. Setting and monitoring indicators using participatory processes is a key element of any effective poverty reduction strategy and sound and sustainable social policy Measuring and assessing our performance is also and always an imperative if we want to improve our work and be truly accountable for what we do. Having said that, the issue of measurement poses a host of difficult problems, in particular to deternine what the best indicators are. CONCLUSION At national level, coalitions with governments, civil society, the pnvate sector, academia, trade unions, foundations and religions are central in building a new social model. At regional level, coalitions to promote a common vision of social development with organizations such as the Association of Southeast Asian Nations (ASEAN) and APEC, are also fundamental. Finally, coalitions and partnerships at international level are needed more than ever before. joining forces with ADB here is a particular pleasure. The impact of the crisis, coupled with the implications of globalization, have made it clear that multilateral banks need to be more active in the region in the social sectors. That is why a stronger alliance between the World Bank and ADB is needed. The comprehensive development framework (CDF) that is much discussed in the region, highlights ways to enhance institutional cooperation. With the key partnership of UN organizations, in particular the Intemational Labour Organization (ILO), World Health Organization (WHO), United Nations Children's Fund (UNICEF), and United Nations Educational, Scientific and Cultural Organization (UNESCO), let us make the new social agenda a solid basis for new intemational strategic partnerships. The 2 Social Impact of the Asian Crisis THE FINANCIAL AND ECONOMIC CPSIS IN ASIA: CAUSES AND LONG-TERM IMPLICATIONS5 INTRODUCTION For more than three decades, the countries of East Asia were models of economic development. Between 1960 and 1990, real per capita income in the region rose by an average of 4-6 percent per annum, about three times as fast as Latin America and South Asia, and five times faster than Sub-Saharan Afnca Dunng this period, several of the East Asian economies were transformed from primarily agricultural to newly industrialized economies. The number of people living in absolute poverty (defined as $1 per day) dropped by half, from 720 million to 350 million and life expectancy increased from 56 years in 1961 to 71 years in 1990. This pattern of growth came to a crashing halt in 1997 with a currency cnsis in Thailand that spread to other countries in the region. The currency troubles quickly developed into a full-fledged financial and economic crisis. Within slightly more than a year, the contagion had spread across developing countries and global capital markets. The severity of what is now known as the Asian Crisis is unprecedented In recent times, and took the international community by surprise. As a result, important questions have been raised regarding the causes of the crisis, the role of the intemational Monetary Fund (IMF), and the financial architecture of international capital markets. This chapter reviews the principle causes of the Asian Crisis and discusses its implications for long-term economic development in the region. CURRENCY ATTACKS AND THE CRISIS The Asian crisis was triggered by attacks on currencies in the region. The Thai baht was by all accounts the first to come under heavy selling pressure, reportedly as early as July 1996, following the collapse of the Bangkok Bank of Commerce, and the subsequent injection of liquidity by the Bank of Thailand to support the financial system. More serious pressure on the baht was exerted in late 1996 and early 1997 At the same time, increasing concems about nonperforming assets (NPAs) in the financial sector, and poor fiscal and export data for fourth quarter 1996, were emerging. The problems in Thailand and the rapid depreciation of the baht drew the attention of banks and investment funds to the conditions of other countries in the region. Soon the currencies of Hong Kong, China; Indonesia; Republic of Korea; Malaysia; Philippines; and Taipei,China also came under speculative attack. Within months, what had started as a series of speculative currency attacks and exchange-rate corrections quickly intensified into a regional currency and financial crisis that took on global dimensions. The speed with which the effects of the crisis were felt is illustrated by the timing of currency and stock depreciations in the affected countries. This paper was written by Justin Yifu Lin Mr Lln is Professor at the Peking University and at the Hong Kong University of Science and Technology 10 Chapter 21: Economic and Social Implications of the Asian Crisis * By the end of 1997, the Thai baht had dropped to about half of its June level and its stock market index fell by more than 20 percent * By January 1998, the Indonesian rupiah had lost more than 80 percent of its July 1997 value and the stock market index had dropped by more than 75 percent * In Malaysia the ringgit had depreciated by more than 45 percent and the stock market index had fallen by about 50 percent by January 1998 * In the Philippines, by end 1997, the peso had depreciated by about 35 percent from July, and the stock market index had fallen by about 20 percent. * In Taipei,China, despite its strong economic indicators, the NT dollar depreciated by 15 percent by the end of 1997. The stock market index fell by 30 percent during September to mid-October in response to concems about currency depreciation. * Despite the fact that Hong Kong, China had exchange reserves of about $90 billion in 1997, and a well-regulated financial sector, the stock market index fell by about 60 percent from its height in mid 1997. * By January 1998, the Singapore dollar had dropped by 20 percent and the stock market index had fallen by 30 percent, despite substantial exchange reserves * In the Republic of Korea the won dropped by 50 percent in the five weeks from end of October to the end of December 1997 The stock market dropped by more than 40 percent between mid-1 997 and the end of the year. During the crisis, the Indonesian, Republic of Korea and Thai Govemments requested the IMF to arrange rescue packages to meet their short-term debt servicing obligations, and were forced to implement painful and controversial structural and institutional reforms Real gross domestic product (GDP) growth in the region slowed significantly in the crisis Output in the industrial production of the severely hit economies was about 25 percent below what it had been just a year earlier Even after exchange rates started stabilizing, growth in most economies in the region remained sluggish and substantially below the pre- crisis trend. A number of factors contnbuted to the poor growth performance. * Domestic corporations' access to financing was severely reduced as a result of continuing problems in the financial sectors and of the withdrawal of international capital. (Indonesia, Republic of Korea, Malaysia, Philippines, and Thailand had together recorded a total net private capital outflow of $11 billion in 1997, as compared to a total net capital inflow $72.9 billion in 1996). * High interest rates and austerity budgets set either by the IMF or by the governments themselves in order to defend their currencies severely affected economic performance. * A marked negative wealth effect brought about by sharp drops in stock and property pnces significantly dampened aggregate demand In addition to the slowdown in economic growth rate, the unemployment rate in the Republic of Korea increased from 2 percent in 1996 to 6.8 percent in 1998, from 2 percent to 6 5 percent in Thailand, and shockingly from 2.3 percent to 17.1 percent in Indonesia in the same period. The urban poor workers that lost their jobs were the worse affected group. Meanwhile, many corporations became bankrupt, leading to losses of social and organizational capital However, it is interesting to note that the severity of the crisis differed greatly among East Asian economies. Indonesia, Republic of Korea, and Thailand were the hardest-hit I Lin: Long Term Implications of the Asian Financial and Economic Crisis 11 countries. In addition to the devaluation, banking crisis, and depression, they also had a payment crisis and required rescues from international organizations to meet their short- term payment obligations. The rescue packages came with controversial conditionalities. Malaysia also had a sharp devaluation, banking crisis, and depression during the crisis but it did not have to seek international rescue to meet its short-term payment obligations. Singapore's currency devalued but its GDP growth rate was 1.5 percent in 1998. The Philippines' GDP declined only slightly in 1998, by -0.5 percent. In spite of several speculative attacks on Hong Kong, China's currency, it was able to maintain its peg to the US dollar, although its real GDP had a -5.1 percent growth rate in 1998. Thapei, China had a moderate devaluation of 15 percent in 1997 but its real GDP maintained positive growth throughout the crisis and reach 4.8 percent in 1998. Finally, the PRC did not devalue its currency and maintained 7.8 percent growth rate during the crisis. UNDERLYING CAUSES OF THE CRISIS The Asian crisis' distinctive feature was its rapid development from initial speculative currency attacks into a full-scale financial, economic, and social crisis, and the subsequent widespread contagion across the region and beyond. The vulnerability of the Asian economies was largely unexpected in view of their solid growth record during the past decade, particularly in the cases of Indonesia, Republic of Korea, Malaysia, and Thailand. The sudden and wide contagion of the crisis can only be understood in light of the integration and intrinsic instability of international financial markets. Without this factor, the extent and severity of the crisis cannot be adequately explained. Technological changes have greatly reduced the costs in transportation and communication and become a driving force for global integration. Between 1985 and 1 994, the average annual growth rate of real GDP of the world as a whole was 3.2 percent, and international trade increased twice as fast, reaching 6.7 percent per year. Gross capital flows expanded even faster, increasing at 14.3 percent per year for direct foreign investment and 12 percent for international bank loans. Asian economies were among the largest beneficiaries of intemational financial integration. Total net private capital inflows to Asia were $19.1 billion in 1990, increasing to $110.4 billion in 1996. However, due to the following factors, the international financial markets are intrinsically unstable: Sudden Shifts In Market Expectations and Confidence Many intemational lenders and investors were either new to Asia or only significantly expanded their exposure in the area in the 1990s. They had built up expectations and confidence aboutAsian countries and borrowers during this period without having conducted sufficient due diligence. Once the weaknesses in the economies and institutions became known, their expectations shifted suddenly, leading to widespread panic and massive withdrawals of capital. IMF statistics show that in 1996, total net private capital inflows into Asia reached a record high of $110.4 billion, of which the five most affected countries accounted for $72.9 billion. In 1997, net private capital inflows to Asia dropped to $13.9 billion. The five most affected countries experienced a net outflow of $11 billion. Only a significant net inflow of official loans to these countries, plus continued net inflows of foreign direct investments and portfolio investments, were able to partially offset a net outflow of $32.3 billion in the other areas (primarily bank loans). Advances In Capital Market Technology and Financial Products One factor contributing to instability in capital markets is technological advancement The application of technology in the markets and the globalization of financial institutions has allowed players in international capital markets to move substantial amounts of funds across borders and around the world almost instantly, thus creating the possibility of 1 2 Chapter 21. Economic and Social Implications of the Asian Crfsis massively disrupting the markets. In addition, new financial products, such as derivatives, have flounshed in recent years. While these new products allow participants to reduce risk, they can also create exposures that make them more vulnerable. They also provide more opportunities for speculation in the market and can contribute to its instability. Prior to the onset of the crisis, the widespread application of many of these products with banks, clients, and even regulators lacking a clear understanding of the extent of the possible risks involved increased to unprecedented levels the magnitude of risk in the markets. Extensive Use of Leverage The frequent and often extensive use of leverage allowed market participants to take large positions in the market, and contributed to market instability. Leverage was widely used in the Asian and global capital markets A prominent example of the extent of risks involved was the case of Long-Term Capital Management LP (LTCM) in the Republic of Korea which was reported to have leveraged by more than 20 times Largely as a result of this level of leverage, the magnitude of LTCM's market positions was such that there was senous concem as to whether its collapse or any uncontrolled unwinding of its positions would trigger a system risk in global financial markets. As a result, a $4 billion rescue package had to be put in place in September 1998 to ensure its continued survival. A subsequent report commissioned by the US Government in the aftermath of the LTCM incident revealed that hedge funds were not alone in using leverages extensively. The report estimated the leverage levels of the top five US investment banks to average 27 times, even higher than that of LTCM. The above intnnsic instability of the integrated international financial market made the swift contagion of any financial cnsis possible. However, the start and the differences in the severity of crisis in each individual economy can only be explained by the fundamental weaknesses of each individual economy. With hindsight, it has started to become apparent that weaknesses at both the macroeconomic and the microeconomic levels were emerging towards the mid-1 990s in the crisis-hit economies. Some of the key weaknesses were as follows Deteriorating Terms of Trade and Emerging Current Account Deficits Trade has been a major source of growth among Asian countnes Trade increased considerably in East Asia over the three decades prior to the crisis. As a share of GDP, trade rose from 15 percent in 1970 to more than 50 percent in 1995. Exports reached a peak during first quarter of 1995 Export growth (in US dollars) reached more than 20 percent in Republic of Korea, Malaysia, and Thailand, and 12 percent in Indonesia. Starting in the latter part of 1995, however, growth began to decelerate rapidly. By 1996, export growth had slowed to 4 percent for Republic of Korea, 6 percent for Malaysia, and 9 percent for Indonesia, and it actually contracted 1 percent in Thailand. By 1996, current-account deficits reached about 3 percent of GDP in Indonesia, about 5 percent in the Republic of Korea, about 6 percent in Malaysia, and about 9 percent in Thailand (although Malaysia and Thailand had already experienced large current-account deficits during the past decade). However, as Table 1 shows, economies that were less affected by the crisis, such as PRC, Singapore, and Taipei,China, all had better performances in the current account balance of payments. I Lin. Long TMirm Implications of the Asian Financial and Economic Crisis 1 3 Table 1: Balance of Payment on Current Account ($ million) Economy 1992 1993 1994 1995 1996 1997 PRC 6,401 -11,609 6,908 1,618 7,243 20,000 Indonesia -2,780 -1,944 -2,790 -6,431 -7,660 -5,713 Korea, Rep of -3,939 1,016 -3,855 -8,250 -23,061 -8,840 Malaysia -2,167 -2,991 -4,520 -7,362 -4,964 -5,384 Philippines -858 -3,016 -2,950 -3,287 -3,914 -4,328 Singapore 5,653 4,417 12,226 14,449 14,283 14,630 Thipei,China 8,547 7,042 6,498 5,474 11,027 7,721 Thailand -6,304 -6,364 -7,802 -13,207 -14,351 -6,272 Source: own compilation Increasing Reliance on Global Capital Markets to Finance Growth The fast growth of the Asian economies during the period 1990-1997 coincided with the rapid expansion of global capital markets and the increasing flow of capital to the emerging markets. Dunng the same period, the volume of private capital flows to developing countnes rose from $42 billion in 1990 to $256 billion in 1997, growing by nearly 30 percent annually IMF sources revealed that net private capital inflow for the five most affected Asian countries rose from $24.9 billion in 1990 to $35 1 billion in 1994, and then rapidly expanded to $62.9 billion in 1995 and $72.9 billion in 1996. As shown in Table 2, the hard- hit economies relied much more heavily on the foreign debt to finance its growth than the slightly-hit economies. Table 2: Foreign Debt as a Percent of GDP Economy 1990 1991 1992 1993 1994 1995 1996 PRC 14 26 14.84 14.99 14 35 18 38 16.60 15.44 Hong Kong, China 16.80 14.84 14.99 14.35 18.38 16.60 15.44 Indonesia 65 89 68 21 68.74 56.44 60.96 61.54 56.74 Korea, Rep. of 1379 1351 14.34 1418 14.32 23.80 28.40 Malaysia 35.80 35.48 34.51 40 74 40.40 39 31 40.06 Philippines 69.02 71.45 62.29 66 09 62.42 53.21 49 75 Singapore 11 23 11.07 9.47 9.45 10.79 9.84 10 74 Taipei,China 11.04 10 73 9 37 10.44 10.87 1040 10.07 Thailand 32.80 38 38 37 51 34.10 33.31 33.78 50 05 Source own compilation. High Short-tenm Debt to Foreign Reserve Ratio The effective peg of most Asian currencies to the dollar encouraged short-term ana often unhedged borrowings The high weighting of short-term foreign bank debt within this capital inflow rendered the economies vulnerable to any sudden reversal. One indication of this vulnerability was the ratio of short-term foreign debt to foreign-currency reserves, as shown in Table 3. The three countnes that needed to seek international rescues were the countries with the highest short-term debt to foreign reserve ratio, the Republic of Korea reaching 203.23 percent, Indonesia 176.59 percent, and Thailand 99.69 percent in 1996. Therefore, when the reversal in the international capital flow occurred, these three countries were unable to meet their debt servicing obligations and to accept the rescue packages from the IMF. 14 Chapter 2 1. Economk and Social Implications of the Asian Crfsts Table 3: Short-term Debt as Percent of Foreign Reserve Economy 1990 1991 1992 1993 1994 1995 1996 PRC 31.49 24 68 66 76 68.33 33.04 29.62 23.74 Hong Kong, China 23.52 21.78 18.38 17.09 16.49 14.16 22.35 Indonesia 149.28 154 62 172 81 159 70 160.36 189.42 176.59 Korea, Rep of 7213 8175 6962 6031 5406 17145 203.23 Malaysia 19 54 19 05 21.12 25 51 24.34 30 60 40.98 Philippines 479.11 152.31 119 37 107.68 95.00 82 85 79.45 Singapore 2.65 2 67 2.35 2.04 1.75 1 78 2 60 Taipei,China 21.56 20.21 21 00 2364 21.76 21 64 21.31 Thailand 62 55 71.31 72 34 92 49 9948 114 21 99.69 Source. own compllation Inadequate Regulation and Supervision In the Financial Sector A large portion of the capital inflow from international markets was intermediated through domestic banking systems, particularly in the Republic of Korea, and Thailand, where financial institutions had borrowed heavily in foreign currencies. Asian countries had generally implemented financial reforms in order to cope with the requirements of rapid economic growth However, significant weaknesses continued to plague the regulatory and supervisory areas. Financial institution governance was weak, often leading to heavy direct or indirect influences by government policies. In addition, the institutional development of the financial sector was general lagging behind. Much of the credit was either evaluated on a collateral rather than a cash-flow basis, or provided on the basis of the borrowers' relationships to governments or bank owners. Against this background of weak regulatory and supervisory frameworks and loose market discipline, some of the countries' attempts at liberalizing their financial sectors actually left the sector exposed to the instabilities of the international financial markets and rendered it even more vulnerable. Bubble in Stock Market and Real Estate Sector The combination of financial-sector liberalization and international capital inflows led to high liquidity and rapid credit expansion in many Asian countries, where the rapid credit expansion had led to overinvestment and to speculation in the real estate sector as well as in stock markets in the early 1990s Thailand is a good example. In the 1990s, Thai finance companies mainly used loans borrowed from foreign financial institutions to sharply accelerate their lending to the real estate and property sector and drove up the stock and real estate prices. In Malaysia, the banking problems were less senous until 1995 However, there was an overall increase in bank lending by 27 6 percent, with a sharp switch from lending to the manufacturing sector to lending for equity purchases. The growth rate of former dropped from 30.7 percent in 1995 to 14 percent in 1996 and the latter from 4 percent in 1995 to 20.1 percent in 1996. The increased availability of loans sharp drove up asset prices in 1 996. When the stock and real estate declined many of the bank loans, collaborated by stocks and real estates, become bad loans and made the banking systems very fragile. High Leverage Among Corporations Another distinguishing feature of the hard-hit countries in the crisis was their corporations' high level of leverage, as shown in Table 4. I Lin: Long Term Implications of the Asian Financial and Economic Crisis 1 5 Table 4: Debt to Equity Ratio In 1996 Economy Mean Median Hong Kong, China 1.56 1.42 Indonesia 1.88 1.83 Korea, Rep. of 3.55 3.25 Malaysia 118 0.90 Philippines 1 29 0.93 Singapore 1 05 0 81 Thlpei,China 0 80 0 74 Thailand 2.36 1.85 Source. own compilation. The high leverage ratios within the corporate sector in the hard-hit countries were in many ways the outcome of these countries' growth strategies and government policies. The countries generally pursued aggressive capital intensive and/or export-oriented strategies as the basis for economic growth. The capital intensive industries and/or exporters were often provided with incentives such as credit facilities, subsidized loans, and tax breaks. This was most prominent in the case of the Republic of Korea, where corporate leverage levels were generally the highest. A World Bank study in 1993 reported that in order to promote the heavy and chemical industries, for example, the Republic of Korea Government provided high levels of tax exemptions and directed banks to extend preferential policy loans to the sector. It was estimated that during the height of the govemment's promotion effort in 1977, 45 percent of the total domestic credit of the banking system (which was at that time substantially owned and controlled by the Government) was directed towards supporting the heavy- and chemical-industry sector. Even though the promotion was later abandoned during 1979-1981 policy-related lending continued within the banking sector. it has been estimated that in 1993, about 40 percent of total domestic credit in the Republic of Korea was still policy related. The exporters' retained earnings were often, too low to adequately fund their increasing financing needs as they expanded and upgraded equipment in order to move up the technology ladder and remain competitive in global markets As a result, the banking sector served primarily as a funding channel for exporters, corporations had to borrow increasingly larger amounts of bank debt and sharply raise their leverage levels. LESSONS LEARNED in the three decades before the recent financial crisis, the East Asian economies' export- onented market-friendly development strategy was claimed to be an underdeveloped economys model for economic development. The unexpected East Asian financial crisis has prompted us to rethink whether the model is appropriate, especially in view of the intrinsic instability of the global financial market. Admittedly, growth in the East Asian economies in recent years has been fuelled to a large extent by the inflow of intemational capital as the globalization of capital markets has gathered momentum. While this enabled the economies to keep up their fast pace of growth, it also rendered them vulnerable to the ebb and flow of international capital. A massive withdrawal of foreign capital could create a widespread financial and economic crisis. From this experience, a number of lessons can be drawn. Foreign direct investment, which is relatively stable, is more favorable than short-term capital flow, which is very volatile. Moreover, foreign direct investment in most cases comes with a package of management expertise, technical human capital, product 1 6 Chapter 2 1. Economic and Social Implications of the Asian Crisis and process technologies, and overseas marketing channel. All of those accompanying factors are as important for economic development as the funds themselves. Therefore, when an economy liberalizes its financial market, it is imperative to create a policy framework, that encourages foreign direct investment and long-term capital inflow and discourages short-term loans. Many of the short-term capital inflows in hard-hit economies were used to finance the investment in stock and real estate markets, causing overheating in these markets. If the banks are allowed to use a large portion of loans to finance stock and real estate investments, any bursting of stock and real estate bubble will cause the loans to become bad and make the banking system fragile. Besides a banking crisis, it may reverse internal capital flows and tngger a currency crisis To prevent bubbles and financial crises, it is important for an economy to strengthen banking regulation and supervision over bank loans when an economy liberalizes its capital markets. Globalization of financial markets is a trend However, facing the same intrinsic instability of the international financial markets, Hong Kong, China, Singapore; and Taipei,China were only mildly affected by the crisis In addition to their better banking supervision and regulations, these three economies share some common charactenstics- first, their trade and current account balances were in surplus in the 1 990s (see Table 1), second, their foreign debt to GDP ratios were low (see Table 2); and third, the stock of their foreign reserves was relatively large and their short-term debt to foreign reserve ratios were comparatively low (see Table 3) The East Asian economies all pursued an open, outward-onented development strategy. Why did Hong Kong, China; Singapore; and Taipei,China possess the above three characteristics whereas the other hard-hit economies did not, although they all followed a seemingly similar strategy? The key may lie in these three economies' better observation of their economies' comparative advantages Openness and outward orientation in these three economies were a way to make full use of their economies' comparative advantages instead of being an end in itself. Because their development followed more closely along the lines of their comparative advantages, their firms/industries would be more competitive in the intemational markets. Therefore, their economies had a better balance of payment performance and had larger stocks of foreign exchange reserves. Their firms would also be more profitable in domestic and international markets When their firms engaged in expansions and/or technological upgrading, they could rely more on own accumulated profits and less on external funding to finance the projects. Therefore, their firms had less leverage and their economies had less external debts. In contrast, the hard-hit economies seemed to take the outward-orientation as a goal by itself and develop their economies beyond what determined by their economies' comparative advantages Therefore, although they exported large portions of their GDP, their industries were not competitive in the international markets and current account surpluses were small or negative. The profits of their firms were low and the upgrading or expansions of their firms relied heavily on external financing, resulting in high leverage and large external debt. Moreover, the industries that are not consistent with an economy's comparative advantages are not viable. To support the development of nonviable industnes, the governments need to intervene directly in the allocation of financial resources and provide other administrative supports as well to firms in the industries, opening the door for all kinds of rent-seeking behavior The cronyism observed in the hard-hit economies was a result of the governments intervention in the resources allocation. I Lin: Long Term Implications of the Asian Frnancial and Economic Crisis 1 7 In an open economy, intemational capital markets are quick to punish countries that pursue policies that are perceived to be incompatible with macroeconomic sustainability For an economy to develop along the lines of its comparative advantages, the main policies are a liberalized market system so that prices can fully reflect the relative scarcity of a factor of production, and an information-providing, rule setting/enforcing, and externalities compensating government. Such policies will contribute to macroeconomic stability and sustainability. Moreover, if a densely populated economy develops along the lines of its comparative advantages, labor-intensive industries will be developed first and upgrade to more capital-intensive industries only when the resource endowment structure upgrades. Such a development path will create more jobs to absorb the large labor resources, resulting in a favorable income distribution, reduced social cleavage, and contributing to political stability, which is also essential for the successful development of an economy. It was a trend after World War 11 for developing countries to adopt a certain type of development strategy, such as development that was heavy industry-oriented and relied on import-substitution, which attempted to leapfrog the industrial structure determined by the economy's comparative advantage. Therefore, there are many policy legacies in the developing countries, which make their economies vulnerable to a sudden liberalization, especially capital market liberalization. Institutional reforms and strengthening are necessary for those countries' development However, the pace and sequencing of reforms should be determined by each country's particular situation. The PRC is a case in point The reason that the PRC was able to maintain its exchange rate and a high growth rate during the Asian financial crisis was because its currency was not convertible and its capital account was not liberalized Therefore, the PRC was able to insulate itself from the contagion and shield itself from speculative attacks Finally, financial crisis may not be completely predictable and be preventable. When a crisis occurs, in general the urban poor suffer the most Therefore, governments must adopt alleviation policies aimed at the poor during such crises. 1 8 Chapter 2 1. Economic and Social Implications of the Asian Crisis THE DEEPER CPISIS: SOCIAL CONSEQUENCES OF THE FINANCIAL CRIsis IN ASIA6 INTRODUCTION The Asian financial crisis quickly led to marked contractions in GDP and employment in the affected economies. GDP shrinkages in 1998 ranged from nearly 14 percent in Indonesia to 0.5 percent in the Philippines In tum, these resulted in adverse social consequences. Although there are signs that the worst of the financial crisis is over, the social impacts can be expected to persist long after the crisis economies will have retumed to solid growth. This paper derives from a study that assesses the social impact of the crisis, based on data drawn from available recent surveys, and supplemented by primary information gathered from local communities and households using participatory methods.7 The countries included in the study are Indonesia, Republic of Korea, Lao People's Democratic Republic (Lao PDR), Malaysia, Philippines, and Thailand. The social impacts of the cnsis can be gauged mainly in terms of changes in prices and assets, employment, incomes, income distnbution and poverty, education, health, social capital, and environment SOCIAL IMPACT Prices and Assets The currency devaluations that signaled the onset of the crisis exerted an almost immediate upward pressure on the prices of imported goods and services or goods with a high import content While inflation was moderated in some cases by government subsidies, price controls, and by additional imports of necessities, inflation skyrocketed in most Asian countries. For example, Indonesia's consumer price index lumped to nearly 60 percent in 1998 from 6.6 percent in the previous year In Lao PDR, inflation hit 90 percent, while in the Republic of Korea it climbed to 7 5 in 1998 percent from the previous year's 4.5 percent Since food prices generally increased more rapidly than non-food pnces, the impact of inflation was harsher on the poor. Inflation not only clipped purchasing power but, along with the collapse of stock markets and banks, also drastically reduced the real value of the lifetime savings of households. Employment and Incomes Unemployment rates increased in all countnes, with the largest increase recorded in the Republic of Korea, from 2.3 percent in 1997 to 7.4 percent in 1998 In the Philippines, unemployment rose from 7.9 to 9.6 percent, and in Malaysia, 2.5 to 3.9 percent. However, the unemployment rate can be a misleading indicator, particularly during a crisis because it does not reflect dropouts from the labor force (also referred to as discouraged workers). In the Republic of Korea, for example, changes in unemployment rates give the appearance that males were more adversely affected than females (i.e., male unemployment rate increased from 2.8 to 7.7 percent while female unemployment rate increased from 2.3 to 5.6 percent). However, female labor force participants declined by 3.8 percent, while the male labor force increased by 1 percent (Moon, Lee, and Yoo, 1999). 6 This paper was presented at the Manila social Forum by Ernesto M Pemia, Lead Economist of the Asian Development Bank In Manila, Philippines Pemia and Knowles (1998) and Knowles, Pemia, and Racelis (1999), based on an ADB regional technical assistance study (RETA 5799) E Pemnia. Social Consequences of the Financial Cnsis In Asia 1 9 Chart 1: Percentage Changes in Real Eamings Per Worker, 1997-1998 0-~~~~~~~~~~~~~~~~~. .5 ~ ~ ~ ~ O. *1520 *05 -20 5 -25 ] - - - - - - - - - - 7g~~~'~________ -30 _ ,-_ _____ ____ , __ _ __ _r _-- Thailand' Indonesia Korea, Rep. of Malaysia *wet season (August) Sources. Pongsapich and Bnmble (1999). Sgit and Surbakti (1999), Moon, et a], (1999) and Piei (1999) Decreases in real eamings have occurred in all countries and have been more important in labor market adjustment during the crisis than either unemployment or decreases in the number of hours worked. The negative employment and eamings effect has been typically more severe in urban areas than in the countryside. Moreover, the crisis has affected some regions more than others. In Indonesia, it is clear that the impact of the crisis was worse in Java, where about two thirds of the population live and which was previously relatively prosperous. In Thailand, the impact has been much worse in the relatively poor Northeast region, although part of the problem there can be linked to drought. The construction sector and, to a lesser extent, the manufacturing sector were negatively affected in all countries. By contrast, employment increased in the agriculture and service sectors in many countries In Lao PDR, there is evidence that the steep currency devaluation led to an agricultural boom, with Lao farmers exporting large quantities of their relatively inexpensive produce to Thailand through informal channels (Chamberlain, 1999) The informal sector share of total employment increased in Indonesia and the Republic of Korea, but it decreased in Thailand The gender employment impact of the crisis is not completely clear Although women fared significantly worse in the Republic of Korea, and probably also in the Philippines and Thailand, the picture is mixed in the other countries. In Indonesia, for example, the female unemployment rate appears to have increased by 14 percent between 1997 and 1998, compared with a 27 percent increase among males, while female employment increased by 4 2 percent, compared with a 1.7 percent rise among males (Sigit and Surbakti, 1999). Nevertheless, these comparisons do not reflect the additional burdens that women continued to carry beyond the workplace Youth (ages 15-29) have been most negatively affected by the employment and earnings impact of the crisis. In the Republic of Korea, employment declined by more than 14 percent among persons ages 15-29, while it declined by less than 1 percent among those ages 30- 49 (Moon, Lee, and Yoo, 1999) Elderly workers were also more negatively affected in Indonesia and the Republic of Korea, and probably also in Thailand, but they appear to have fared 20 Chapter 21. Economic and Social Implications of the Asian Crisis relatively well in the Philippines More educated workers have been less hurt by the crisis in Republic of Korea, Philippines, and Thailand, while the available evidence is conflicting in Indonesia. The number of migrant workers leaving Indonesia increased by 392 percent, and the value of remittances flowing into the country also rose sharply (171 percent) between 1997 and 1998 For the Philippines, departing migrant workers rose by only 1 percent compared with a 13 percent increase in the previous period, while the dollar value of remittances fell by 13 percent. Meanwhile, the predominantly labor-importing countnes of Republic of Korea, Malaysia, and Thailand used various measures to encourage the repatriation of illegal migrant workers. Real per capita household income declined between 1997 and 1998 by 20 percent in the Republic of Korea, and by 12 percent in the Philippines. In Indonesia, real per capita household expenditure fell by 24 percent. it is likely that the crisis has also significantly affected some forms of non-labor income Interest income has probably been affected, positively by the steep interest rates used by central banks to stabilize exchange rates, and negatively by the failure of many financial institutions and corporate borrowers to meet interest payments. Rental income has also probably been reduced by low occupancy rates and by the inability of many tenants to pay their rent. Profits and other forms of business income, which tend to be very sensitive to cyclical fluctuations in business activity, probably also declined sharply Income Inequality and Poverty Income inequality appears to have increased in some countries in conjunction with the crisis. The income share of the rich has increased from 20.5 to 22.5 percent in Thailand, from 22 to 24.5 percent in the Republic of Korea, and from 39.3 to 42.9 percent in the Philippines. By contrast, in Indonesia, data on changes in household expenditure suggest that the size distnbution of income has improved. Poverty incidence has also increased in the crisis countries In Indonesia, poverty increased sharply from 11 percent in 1996 to 1997 to 24 percent in 1998 to 1999, but much less than many had predicted In the Republic of Korea, the poverty rate more than doubled, from 3 to 7.5 percent.8 The intra-country regional distribution of income has also been affected by the crisis. In Thailand, metropolitan Bangkok and the Central region improved relatively during the crisis while other regions worsened, especially the Northeast region In Indonesia, the data clearly indicate that the worst impact of the crisis was in lava Education Education budgets were cut in all of the cnsis countries except Malaysia. Cuts have been particularly sharp in the Philippines and Thailand. Budget cuts have generally spared the personnel line item and have instead fallen mainly on such traditionally under-budgeted line items as teaching matenals and maintenance. In addition to budget cuts, schools have had to contend with reductions in off-budget sources of revenue (fees from parents and community contributions). As a result, dropout rates have increased in most countries and rates of entry into grade one and continuation rates from one level to the next have declined more than overall enrolment There is no strong evidence yet that the crisis has led to reduced pnmary school enrolments However, it has already had negative effects on The poverty line in the Republic of Korea is a relatively generous $7 per day However, the reported estimate is based on a workplace survey of employed urban workers lie It does not include the unemployed or self-employedl E Permia- Social Consequences of the Financial Crisis in Asia 21 secondary school enrolment - particularly among girls and among the poor-in all countries for which data are available. The cnsis has led to increased enrolment at the tertiary levels in several countries. This reflects not only reduced employment opportunities among youth but also the availability of crisis-related government scholarship and loan programs, as well as devaluation-induced shifts away from overseas to domestic schools (particularly in Malaysia). Health and Family Planning Public health budgets in real terms have declined significantly in all countries, except Malaysia. Whereas personnel line items have been protected in most cases, the availability of medicines has decreased noticeably, particularly in Indonesia and the Philippines. Public health facilities have also contended with steep reductions in off-budget sources of revenue (user fees, charitable and community contributions). As a result, the utilization of public health facilities has increased in all countries except Indonesia, reflecting significant shifts of consumers from relatively expensive private providers to less expensive public health facilities. Household expenditure on health care has declined sharply in real terms in Indonesia, Republic of Korea, and Thailand. Although the cost of medical care has increased more rapidly in some countries than the overall rate of inflation, it appears also that households delay or avoid medical care as one of their coping mechanisms during the crisis. While there is no evidence yet that immunization coverage has declined in any country except the Philippines, and no consistent signs yet of increased calorie malnutrition, there are many reasons to believe that such evidence will appear as time goes on. For example, there is already some evidence of micronutrient deficiency in Indonesia. Especially Disadvantaged Groups Although the employment and income impact of the crisis has not been disproportionately heavier on the poor than on other groups, the poor have suffered more from its impact because their low incomes and education provide them with fewer options for coping with the crisis Some of the major effects of the crisis on disadvantaged groups are as follows. women have had to add income-earning activities to their already heavy work burdens at home and on family farms. institutionalized populations and children in orphanages and boarding schools designed to serve ethnic minorities have been severely affected by the crisis in Lao PDR and Thailand due to reductions in government budgets, high inflation, and reductions in charitable donations. Overseas migrants working in other Asian countries have been harmed, both by reductions in employment opportunities and by currency devaluation. On the other hand, migrants working outside the region have benefited both from more stable employment opportunities and from hard-currency appreciation. Urban populations have been more adversely affected by the crisis than have rural populations in all countries except Thailand. RESPONSES TO THE CRISIS Household Coping Mechanisms Households have responded to the crisis in a variety of ways, including altering their consumption and savings behavior, borrowing and selling assets, postponing rental payments and debt repayments, increasing work effort, migrating to other areas or countries to obtain employment, and shifting from private to public providers of social services. In most of their coping ways, households have given more emphasis to satisfying current as compared to future needs. Whereas some of these adjustments are unlikely to have any negative long- term effects (e g., postponing the purchase of consumer durables, substituting cheaper staples for more expensive foods), others may have deleterious consequences, including reducing health care expenditures and taking children out of school to save money. Such potentially 22 Chapter 21. Economic and Social Implications of the Asian Crisis harmful household coping mechanisms help to explain why an appreciable delay occurs between the economic crisis and its social impact. Govemment Responses One of govemment's most important crisis-coping mechanisms involves reallocating its budget, usually shifting funds away from infrastructure investments and national defense to meet more immediate needs, such as the salanes of govemment personnel, basic social services and social safety nets, recapitalization of financial institutions, and repayment of foreign debt. Often, governments have sought the assistance of multilateral and bilateral agencies for their social safety net programs. Policy reforms (e g, shifts to more targeted forms of support) have typically been part of the assistance agreements CONCLUSION AND IMPLICATIONS The Asian financial and economic crisis has already exerted a wide range of negative social impacts in most of the affected countries. In addition, there are good reasons to expect that the social crisis, as distinct from the economic cnsis, has not yet peaked in severity. There is a danger, therefore, that improving economic conditions may lull observers into thinking that social conditions have recovered when they may in fact be worsening. Yet the Asian crisis also provides a unique opportunity to leam how social systems function under duress The crisis has revealed that considerable effort needs to be directed to the setting-up or further development of social safety nets throughout the region. This is especially because traditional family systems of support are likely to weaken over time, given continuing socio-economic change and urbanization. 'Shared poverty"-a common theme of community and household coping mechanisms during the crisis-has its limits. A number of lessons emerge. * Many of the subsidies currently provided in the region are untargeted and do little to promote equity. Due to the limited funds available, particularly during a crisis, it is important to channel as much as possible to those in need. * The crisis has placed heavy strains on public health and school systems, as many have shifted from private to public providers at a time when public budgets were being cut Facilities became crowded, and quality declined * The employment impact of the crisis has fallen more heavily on youth, especially females and new entrants into the labor force. There is a tremendous need for upgrading of the skills of most of the region's workforce-particularly its female workforce. * Crisis monitoring systems are in need of further development in most countries Existing statistical systems have evolved mainly to meet the needs of long-term planning. They are ill-equipped to provide timely data on the social impact of an economic crisis. REFERENCES Asian Development Bank. 1999. Asian Development Outlook 1999. Hong Kong: Oxford University Press. Chamberlain, James 1999 "The Social Impact of the Economic Crisis in the Lao PDR." Paper prepared for the Asian Development Bank (May) Knowles, James C, Ernesto M. Pernia, and Mary Racelis 1999. "Social Consequences of the Financial Crisis in Asia," ADB Economic Staff Paper Number 60. Economics and Development Resource Center. Manila, Asian Development Bank (November). Moon, Hyungpyo, Hyehoon Lee, and Gyeongjoon Yoo 1999 'Social Impact of the Financial E Pemia: Social Consequences of the Financial Crisis in Asia 23 Crisis in Korea: Economic Framework." Paper prepared for the Asian Development Bank (June). Seoul: Korea Development Institute. Pemia, Emesto M., and James Knowles. 1998. "Assessing the Social Impact of the Financial Crisis in Asia," EDRC Briefing Note Number 6. Economics and Development Resource Center. Manila: Asian Development Bank (November). Piei, Mohd. Haflah, Musalmah bt. Johan, and Syaris Yanti Abubakar. 1999. "The Social Impact of the Asian Crisis: Malaysian Country Paper." Paper prepared for the Asian Development Bank (June 1999) Pongsapich, Amara, and Peter Brimble 1999. "Assessing the Social Impacts of the Financial Crisis in Thailand." Paper prepared for the Asian Development Bank (June). Poppele, Jessica, Sudarno Sumarto, and Lant Pritchett. 1999. "Social Impacts of the Indonesian Crisis: New Data and Policy Implications." Draft report (May). Jakarta: SMERU. Reyes, Celia M., Rosario G. Manasan, Aniceto C. Orbeta and Generoso G. de Guzman. 1999. "Social Impact of the Regional Financial Cnsis in the Philippines." Paper prepared for the Asian Development Bank (June). Sigit, Hananto and Sudarti Surbakti. 1999. "Social Impact of the Economic Crisis in Indonesia." Paper prepared for the Asian Development Bank (May). 24 Chapter 21. Economic and Social implications of the Asian Crisis BEYOND THE ASIAN CRIsis: THE CENTRALITY OF SOCIAL POLICY9 SOCIAL IMPACT OF THE ASIAN CRISIS The immediate and even medium-term future of Asia seems clear, at least in economic terms. The region is on the way to recovery. There may be some snags here and there, but it seems likely that the region's economies will be humming again as its inhabitants resume consuming and investing at a faster pace. The V-shaped trajectory of the East Asia economies, although with varying slopes across countries, seems to be the common expectation in the next two or three years But if we are to succeed beyond the crisis, one of the most important areas where a change in thinking and policy direction is crucially needed is investing in human capital and bringing up large segments of our populations from poverty, in other words, social policy The hardest impact of the Asian crisis fell on the poor and vulnerable sectors of our societies. The most immediate task, therefore, is to mitigate this impact and to ensure that the harm done by the crisis will not have a permanent and cascading impact on future generations. A poor student thrown out of school by the crisis would be unable to land a decent job and therefore in turn would not be able to afford schooling for his own children Children unable to get sufficient nutrition and health care now would likely pass on the burden of poor productivity to future generations. Mitigating the social impact of the crisis is difficult enough. But it is even more difficult to effect lasting improvements in the productivity of a country's main resource-its people-through provision of sufficient social services such as education, health, and nutrition."' INVESTING IN SOCIAL SOFTWARE Investments in human capital and so-called 'social software" will become more and more important in the post-cnsis scenano Growth in the region in that past has been mainly fuelled by investments in hard capital-plant and equipment, and infrastructure. Spending on basic services was considered more as transfers to the poor, as part of the government's social mandate. Every amount taken away from hard investments and moved into social services was considered an opportunity cost for furthering growth. We now know better Social spending and investments in human capital are now recognized as key and core of development Social policy is now considered as central policy. This realization takes on new meaning today as we realize that foreign direct investments are no longer attracted to a country mainly by access to markets, but rather by production advantages, such as the presence of skilled and competent staff resources. Moreover, the knowledge-intensive industries, mainly information technology, are still the wave of the future. The increasing weight that these industries now bear in Asian exports overall reflects this trend. This means that to be able to maximize this sector as the main driver of growth, these countries will have to make substantial investments in higher-level education, training 9 This paper was wntten by Vice-President and Secretary Gloria Macapagal-Arroyo Ms Macapagal-Arroyo is the Vice-President of the Philippines and the Secretary of the Department of the Social Welfare and Development of her country '° The Department of Social Welfare and Development (DSWD) appreciates ADB and World Bank support for the Early Childhood Development Program, a $59 9 million project that represents the first time that the DSWD has been able to take the lead in a major foreign-assisted project it is hoped this program can be expanded from the three regions in which it Is operating today to the entire Philippines G Macapagal-Arroyo: Beyond the Asian Crisis: The Centrality of Social Policy 25 and research. A large and growing pool of educated and technically equipped workers can be a major, if not the main, driving force for sustained economic growth. BROAD-BASED, SUSTAINABLE, AND EQUITABLE GROWTH For growth to be sustainable in the long-term, it must be broad-based. We speak of global integration and regional integration But in many countries of Asia, the lack of internal integration is still a major concern. Thus we see large pockets of underdevelopment side by side with enclaves of rapid growth. This is similar to the dual economies of older paradigms of underdevelopment It will be difficult to achieve sustained growth in a situation where there are wide discrepancies in regional development within a country. Serious problems are bound to arise such as urban congestion, debilitating rural poverty, environmental problems, and political tensions. SOCIAL POLICY [N THE PHILIPPINES Social policy is central to the current Philippine administration under President Joseph Elercito Estrada. The Medium-Term Philippine Development plan for the period 1999 to 2004 envisions a sustainable development path anchored on growth with social equity. The overall achievement of this vision will be measured in large part by a reduction in poverty, especially in the rural areas, and in improvement in the distribution of income We target the reduction in the number of poor families and the incidence of poverty, from 32 percent in 1997 to between 25 and 28 percent by 2004. We also would like to achieve greater access of the disadvantaged to govemment institutions, and a larger contribution of rural areas and regions outside of the National Capital Region to economic growth These will be the measurable indicators that will be used to assess performance in carrying out the vision of the Medium-Term Philippine Development Plan. In support of the overarching vision, the Medium-Term Philippine Development Plan is directed towards the acceleration of rural development by modemizing the agriculture and fishery sectors and expanding nonfarm income opportunities of rural households. It is also directed towards the delivery of basic development services in health and nutrition, education and training, housing and social welfare, and ensuring the greater access to these services by the poor, complemented by other social safety nets and human capital investment programs. The acceleration of agricultural growth through a comprehensive modernization program is necessary in achieving growth with equity in the next six years. The Govemment is commissioned to land distribution while being equally committed to adopt the proper policies to attract greater domestic and foreign capital and technology. Govemment resources will be prioritized towards delivering basic development services. These serve as the key interventions of government to protect and eventually empower the most vulnerable and disadvantaged sectors of society. Govemment will pursue reforms in the educational system and promote other modes of human capital formation to make Filipinos more productive and competitive in the global economy All government programs in these areas must meet the tests of fiscal viability and effective delivery and most encourage self-reliance, not dependency, over the long term. Social development will also require the promotion of a population program that respects cultural and religious beliefs of the individual In implementing the Medium-Term Philippine Development Plan mission, all concerned institutions and sectors should be guided by the principle of equity. All policies, strategies, programs, and projects must improve the quality of life of all Filipinos, particularly the poor and the disadvantaged. These should also lead to a more equitable distribution of income, 26 Chapter 21. Economic and Social Implications of the Asian Cnsis wealth, and opportunities. Equity also implies that as the economy moves further towards globalization, the burden of adjustments shall be shared equitably among the various stakeholders of society-govemment, business, and civil society. Reducing poverty and sustaining the improvement in the quality of life of all Filipinos are the medium-term objectives of Philippine social and human development efforts. It is difficult to look beyond the crisis. But we are compelled to do this to free our people from the centuries-old bondage of poverty. Given the constraints engendered by the Asian crisis, the path of social policy is now more tricky. But if we are watchful and perceptive enough, if we all work together and think together as in the Manila Social Forum, we may still find abundant opportunities to bring us closer to our goal of prospenty for the greatest number of our people. We are confident that this Manila Social Forum will contribute to the attainment of this goal. N Indavong Migration and Regional Interdependencles In the Labor Market 27 MIGRATION AND REGIONAL INTERDEPENDENCIES: THE LABOR MARKET IN LAo PDR" Lao PDR, like other countries in the region, was severely affected by the Asian financial crisis In 1998-1999, the inflatibn rate reached 143 percent and the kips exchange rate to the dollar devalued from KN930 in early 1997 to KN9,500 by August 1999 Many businesses ceased operations, sharply increasing official unemployment Yet while unemployment appears to be a relatively minor problem in Lao PDR, little reliable information is available on labor markets. This paper briefly reviews what is known of the basic structure of the labor market, and highlights Lao PDR's reliance on labor mobility and foreign employment. BACKGROUND In 1986, Lao PDR began to reform its centrally planned economy towards a more market- oriented model. The aim was to promote foreign and local investments that would enhance economic opportunities in all economic sectors. Economic reforms have helped to increase national output, and per capita income and the population's living conditions have improved. Yet as of 1996, Lao PDR still ranks 138 h among 174 countries in the world with a per capita income of $335. Thus, Lao PDR remains one of the worlds least developed countries. According to the 1995 census, Lao PDR has a population of 4 6 million, projected to increase to 5 2 million by year 2000, based on an average growth rate of 2 5 percent per annum. The population comprises 68 ethnic minorities. However, the lifestyle of minorities has evolved with socio-economic development and migration, and this has reduced the importance of ethnic differences. LABOR MARKET STRUCTURE The countrys economic base depends mainly on subsistence agriculture, while industries and services are still in the initial development stage. In 1994, for example, agriculture accounted for 56 percent of GDP, while general industry accounted for only 17 percent and services another 24 percent.'2 According to the 1995 Census, the labor force of 2.2 million people comprises three categories of workers. Ii) rural labor involved in subsistence agriculture (1.8 million people); (ii) employees in the civil service and army (1 30,000 people); and (iii) emiployees in state and private enterprises (80,000 people). The remaining labor force is unemployed or self-employed. Little information is available on labor market changes due to the financial crisis, and particularly about migration to and from Thailand. The first detailed labor surveys of Lao PDR took place in 1992 and 1994 for some urban districts. They were carried out by the Ministry of Labor with technical cooperation and financial assistance from ADB Of the total surveyed population, 157,678 were of working age, and only 89,995 or 57 percent were working, of which 52.7 percent were men and 47.3 percent were women LABOR MARKET INTERDEPENDENCIES Labor Migration from Lao PDR The availability of jobs within the country is limited, but the number of potential workers is increasing rapidly. Annual population growth is estimated at around 120,000 people, This paper was wntten by Noy Indavong Mr Indavong is the Vlce-Minister of the Ministry of Labor and Social Welfare In Lao Peoples Democratic Republic 2 NIE, Strengthening Labor and Market Monitoring and Analysis, Lao PDR Final Report 28 Chapter22 LaborMarketsandEmployment with some 73,000 entering the labor market each year According to current estimates, the industrial and service sectors may absorb only 3,000 additional workers per year. To mitigate this oversupply of workers and resulting unemployment, one response has been to export labor to neighboring countries Lao legislation facilitates such labor movement, but a multitude of difficulties has to be overcome, given the nature and qualifications of workers, including the following: * poor skills due to a largely subsistence economy with limited opportunities to develop skills (literacy rates for the population above 15 years of age are 73.5 percent for men and only 47.5 percent for women), * poor foreign language skills, especially English; * Lao people are traditionally attached to their motherland and family, and * poor work discipline, because working as an employee is considered a secondary occupation For example, some workers abandon their jobs due to personal problems and return to their families without considering the consequences for their employment. Despite these difficulties, a substantial 40,000 workers migrate abroad The majority is working in Thailand, as the Lao and Thai people living on both sides of the Mekong River are of the same race, speak the same language, and uphold the same customs, religion, and beliefs With the financial crisis, unskilled jobs in neighboring countries became scarce and many migrant workers came back from Thailand. These workers found some employment in the initially booming Lao agriculture, but these lobs became scarce again in mid-1 999, when the Thailand rural economy recovered from the deep depression of the Asian financial crisis. Foreign Labor in Lao PDR Despite Lao PDR's limited economic development and job availability, foreign labor has entered the country with the majonty being from PRC, Thailand, and Viet Nam They have come to Lao PDR (i) with proper work permits; (ii) legally to visit relatives or as tourists, then illegally looking for work; or (iii) illegally, arriving without detection to work A reduction in the number of foreign workers is expected, resulting from the severe impacts of the financial crisis, including the drastic devaluation of the kip. Lao PDR still needs foreign labor to fill jobs for which domestic labor lacks the necessary knowledge and skills. Through the Labor Department, the Ministry of Labor and Social Welfare, has worked to enhance conditions to facilitate the presence of foreign workers in Lao PDR However, a serious challenge is to stnke a balance between the presence of foreign labor and the need to promote domestic employment. To achieve this goal, an important requirement is to develop domestic workers' skills, through training and other means. Tfraining sponsored by the Government is limited. The Ministry of Labor and Social Welfare was established six years ago, and operates only one vocational training center in Vientiane Municipality, with a training capacity of about 600 persons per year. Currently, vocational training is offered only by the private sector. CONCLUSIONS Despite economic progress in recent years, the economy of Lao PDR is mainly based on subsistence agnculture. This situation has been compounded by the effects of the financial crisis in Asia. The result is low incomes and difficult living conditions for the population The country has responded to the economic difficulties in part by exporting labor to neighbonng countries. This practice can provide employment and improve the skills of Lao N Indavong Migration and Regional Interdependencies In the Labor Market 29 workers. Further, Lao PDR has taken steps to become more fully integrated into international markets. The country is a full ASEAN member and has enacted various laws and regulations promoting foreign investment and a free market economy In addition, the govemment is studying intemational labor markets to develop specialized vocational training programs for workers. It is hoped such measures will increase employment and contribute to economic development in the future 30 Chapter 22. Labor Markets and Employment SOCIAL PRIORITIES AND THE LABOR MARKET IN UZBEKISTAN13 INTRODUCTION The purpose of all reforms in Uzbekistan is to create the necessary conditions to provide opportunities for all citizens to make their lives better, both economically and spiritually. To this end, measures to create a socially focused market economy include a strong system of social protection and firm guarantees of individual employment rights The experience of countnes carrying out similar transition reforms suggests that success depends on broad- based support of the reforms' objectives The population of young independent states such as Uzbekistan needs to share in the benefits of the social reforms if they are to result in successful development. Rather than creating a capitalist society the Uzbekistan government's goal, since independence, has been to build a socially responsible market economy. The basis of the model is found in the principles formulated by Islam Karamov, the president of Uzbekistan. These include: * maintenance of the well-being of all members of society as a guarantee of political stability and public consent; * recognition of the leading role of the state in the initiation and organization of economic reforms; * predominance of the law, assuring the equality of all citizens and state and public structures before the law; * achievement of an evolutionary transition to a market economy, without revolutionary jumps and "shock' measures; and * formulation of a strong social policy that takes into consideration the traditions, customs, mentality, and image of the people of the Republic. Right after independence in 1 991, reforms in Uzbekistan aimed at offering citizens real opportunities to provide a decent standard of living for themselves and their families. Broad choice of labor activity assured opportunities in various enterprises, as well as offering additional income through secondary employment and self-employment. The years of transformation established a reliable legal basis to regulate processes in the social and economic spheres. They created mechanisms that have ensured an effective system of social protection The core of this system is its emphasis on the family as the foundation of society. The system of social support in Uzbekistan provides for families, especially the needy, and assures reliable income maintenance for the most socially vulnerable groups - families with many children and the unemployed INCOME MAINTENANCE AND SOCIAL PROTECTION POLICY Active transformation and privatization have resulted in the creation of new sources of income for the population At the same time, they allowed wider differentiation of income among different segments of the population. As a result, the Govemment's income policy also changed. 3 This paper was wntten by Aleksandr S Navotniy Mr Navotnmy is the Head of the Department of Monitoring and Social Development in the Ministry of Labor In Uzbekistan A Navotniy Social Priorities and the Labor Market In Uzbekistan 31 Income Policy Between 1991 and 1994, against a background of soft credit policy, the program was characterized by a high share of consumer grants and by various kinds of direct and indirect social transfers and privileges. These softened the losses resulting from the liberalization of prices. Since the second half of 1994, when the most painful social consequences of inflation began to diminish, more rigid money-credit and budget policies were applied. As a result, since 1995, the number of necessary wage increases has been reduced to no more than two a year, consumer grants were reduced and were kept only for an insignificant number of municipal services; and grants and privileges were eliminated and replaced by social protection targeted to specific groups in the population. By 1996, economic growth and cumulative incomes of the population were precisely defined as to source and activity. The process of providing farmers with lands is the most Important factor contributing to the growth of people's real incomes. Today, more than 650,000 hectares of fertile lands allotted to private small-scale (decan) farmers provide about 30 percent of the country's aggregate income. In addition, Uzbekistan's economy is beginning to create a stronger middle class with rising consumption of goods and services. The Social Protection System With independence, the republic has developed its own system of social protection. In an initial period, Uzbekistan applied a system of anticipatory measures-including direct and indirect subsidies for manufacturers and various consumer market protections, such as prohibiting the export of basic foods. As reform progressed productive social support to needy families was extended to other segments of the population. A major component of social policy in Uzbekistan is the maholla- the traditional association of families working together to address their mnost important problems. No other country has a similar institution although there are comparable structures in southern Kazakhstan and Mongolia. For centuries mahallas have provided self-management and mutual aid. In recent times the mahalla has been given new responsibilities for public social protection and employment generation. Today the maholla is the main provider of state programs for families and social assistance. The open democratic mechanism for making decisions in the mahalla has led to greater support and the avoidance of bureaucratic delays in the payment of grants and better targeting. Labor Market and Employment The growth of economic activity has changed the sectoral distribution of employment. In 1991, the public sector accounted for 60 percent of the workforce. Today the situation is almost completely reversed with 70 percent in the private sector and 30 percent in the public sector. The labor market is defined by demographic factors. Because of high birthrates in recent years, there has been a substantial increase in younger age groups in the Republic. As of 1999 there were 1 0 million people in Uzbekistan under the age of 16 Most of these young people entering the workforce are unqualified and not equipped for the new labor market demands. At the same time, the requirements for labor are increasing, with a growing demand for much thore highly skilled workers. Registered unemployment levels between 1993 and 1998 did not exceed 0 5 percent However, many workers do not register as unemployed due to low unemployment benefits and loss of social secunty entitlements; the number seeking work in 1998 was more than 500,000, or 5 7 percent There are also vast numbers of underemployed from the agricultural sector, bringing the rate of combined un- and underemployed to close to 20 percent. In the 32 Chapter22 LaborMarkets andEmployment past two years more than 340,000 people moved out of agriculture and in the near future another 300,000 will bring further pressure on the labor market. To improve the situation and provide effective employment, Uzbekistan is instituting policies to create new workplaces, especially in areas with high concentrations of unemployed. In addition, training is being provided and special measures for the least skilled are being established Further efforts will be directed toward providing temporary work for the able-bodied actively seeking work and income guarantees for all unemployed. Finally, to better react to the changes in the economy, the country will regularly monitor and track labor movement and changes in labor requirements. TRAINING OF PERSONNEL In 1992, Uzbeklstan adopted its first Education Law. This law provides for obligatory, free general and professional education without distinctions based on sex, age, national, or ethnic ongins Since then, more than 2,000 schools and 543 pre-schools have been established. These educational institutions are supported by the most modem selection and training technologies to ensure the certification of a highly professional staff. The training is directed toward maximizing skills needed to meet the requirements of the new market economy while, at the same time, realizing the potential of the whole person The Education Law was modified in 1997 through the National Program on Training Personnel. This program provides for the following: * preparing experts at all levels and transforming the structure of educational establishments in view of requirements and new directions of development of the Uzbekistan economy; * transition to 12 years of training. Thus the nine-year general average education is basic and obligatory. The next three years of training will take place in professional educational institutions (professional colleges and academic Lyceums); and * development of state standards of professional training according to new requirements of the economy. With this law, by 2005 Uzbekistan wants to have improved the overall skills of the entire 1 5-18 year old population to increase the competitiveness of youth in the new labor market and reduce the economic weakness caused by a large, unskilled labor supply. H Phang Employment Policies in Korea After the Crisis 33 EmPLOYmENT POLICIES IN THE REPUBLIC OF KoREA AFMER THE CRISIS14 INTRODUCTION In the period immediately after the Republic of Korea applied for the IMF bailout loan at the end of 1997, the economy experienced a severe recession fueled by the devaluation of the won and a frantic withdrawal of foreign investments out of Korean firms. Corporate bankruptcies increased as credit was constrained and cash flow has slowed. These pressures resulted in 'structural adjustments" that affected the labor market adversely, including declining working hours, wages and job losses, and increasing labor disputes in industry Total employment was reduced from 21.1 million in the fourth quarter of 1997 to 19.8 million at the end of 1998. The average working hours in the nonagricultural sector declined by 3.3 percent and real wages decreased by 8.1 percent in the first quarter of 1998. The financial crisis resulted in major structural changes in the Korean labor market, such as higher involuntary unemployment; unstable employment structure; increases in long-term unemployment; and high unemployment among youth. The Government took a number of measures to alleviate the problems, which contributed to the country's miraculous recovery in late 1999. This paper reviews several key strategies employed during the height of the 1997-1998 crisis. LABOR MARKET POLICIES AND INlTIATIVES Faced with high and increasing unemployment, the Korean Govemment took diverse measures to alleviate the adverse impact of high unemployment on people's lives These initiatives can be grouped into five main areas: (i) maintaining jobs, (ii) creating employment, (iii) job training, (Iv) job placement, and (v) social safety net development Maintaining Employment The Govemment took two measures to keep workers in their jobs: intervening to prevent firms from going bankrupt and subsidizing firms in order to minimize layoffs and maintain employment levels during recession. Bankruptcy prevention was focused on giving credit to small- and medium-sized firms. The subsidy given to firms who adopt qualitative ratfer than quantitative labor adjustments is funded by the Employment Stabilization Scheme in the form of a wage subsidy (employment maintenance subsidy) to the employers who practice the subsidized plan. The qualitative adjustment methods include: (i) temporary shutdown, (ii) reduction of working hours, (iii) providing training to redundant workers, (iv) providing paid/unpaid leave, and (v) dispatching or reassignment of workers. To be subsidized, firms should be in a situation where employment reduction is inevitable for managerial reasons and should adopt subsidized practices. Subsidies equivalent to one half to two thirds (depending on the size of the firm) of the wages or allowances paid to their workers were paid for a maximum of six months. In 1998,1,896 firms received employment maintenance subsidies, covering a total of almost 800,000 workers However, participation by covered firms in employment subsidy programs in 1998 was less than 1 percent. The Employment Stabilization Scheme has been criticized as being inefficiently managed and was unable to induce the vast majority of firms to participate. It was difficult and costly 4 This paper was written by Hanam 5 Phang Mr Phang is the Director for Research Planning and Coordination of the Korean Labor Institute in the Republic of Korea 34 Chapter 22: Labor Markets and Employment to determine whether a firm applying for wage subsidy was truly in a situation requiring employment reduction Furthermore, for businesses on the brink of bankruptcy, the wage subsidy program was not likely to provide a strong enough incentive to induce firms to maintain employment. Measures to Create jobs and Other Work Opportunities Measures for job creation include creating new jobs by supporting and subsidizing new business start-ups (between W3 million and Ws million, depending on business size and plan, plus exemption from acquisition and registration taxes), and providing temporary work for unemployed workers such as that provided by public works programs. Public works programs are expected to achieve two policy objectives- creation of temporary job opportunities and protection of the basic livelihood of the unemployed. Public works programs are offered through central and local government projects Selection criteria can be different depending on the charactenstics of the projects. For the projects administered by local government, screening is based on scores assigned to the following nine items and scores age (10), householder (10), number of dependents (15), property ownership (20), household income (10), female householder (5), handicapped (5), duration of unemployment (10), and participation in previous public works projects (10). The budget spent on public works projects amounted to Wi tnllion in 1998 and W2.5 trillion in 1999 As of September 1999, about 1 2 million eligible people had participated in the project since it first started in May 1998, exceeding the initially planned number of participants. About 300,000 low-income people were registered and participating in the Public Works Program (November, 1999). The daily wage rate for participants depends on the type and difficulty of work. In 1998, the wages ranged from W22,000 to W35,000 per day. The Public Works Program is among the most direct methods of providing earnings opportunities to the unemployed with low income who urgently need social protection. However, early in the program screening was not adequate and some non-poor people participated, while many poor unemployed people were excluded. This targeting problem was further exacerbated by the fact that the wage rate paid was higher than the market wage in some areas. The Government responded to these criticisms by strengthening the screening mechanisms and lowering the wage rates Currently, the daily wage rate ranges from Wl 9,000 to W29,000, which is still higher than the minimum wage rate. As the unemployment situation is slowly emerging from its state of emergency, the Government is focusing on how to institutionalize the program and to make it more clearly targeted to the most needy people in the long run Also it has been pointed out that public works projects need to be linked to active labor market policies such as vocational training and employment services to avoid the negative lock-in effect. job Trainlng Since the onset of the economic crisis, the Government has set up training programs available to the unemployed. In 1998 about 360,000 unemployed benefited from various Government-sponsored job training programs, about eight times as many as in the preceding year. The budget for vocational training was W738 billion in 1998, about 13 percent of total government expenditure on unemployment measures. Unemployed workers covered by the Employment Insurance Scheme are eligible for reemployment training programs. Participants receive training and allowances in lieu of unemployment benefits. However, training allowances are reduced for each additional training course that is taken, down to zero if a third course is taken. Similar training H Phang Employment Policies In Korea After the Crisis 35 opportunities and benefits are offered to the unemployed not covered by the Employment Insurance Scheme. Government-sponsored job training programs have been criticized because some unqualified training institutions have received govemment funds for inadequate training. Also, some trainees have participated only to receive the allowance and were not interested in developing skills. However, even though reemployment probabilities are not raised significantly with training, some participants gained new skills and used the allowance to alleviate economic difficulties. To enhance the efficiency of the job training schemes, a pilot program of training vouchers was launched in 1998. The objective of the voucher system is to provide the unemployed with more training choices and to promote competition among providing institutions. In addition, vouchers make it easy to monitor course registration and attendance. In 1999, the Ministry of Labor intends to provide job training to 340,000 jobless workers and the training budget has been increased by about 19 percent to W880 billion. job Placement: Public Employment Services and the LMI System To help reduce the unemployment problem, the Government has expanded and reinforced public employment service agencies for Job placement and has created a nationwide network for job information. The number of public employment service agencies managed by the Central Government increased from 52 in February 1997 to 134 in March 1999, and the number of public workers specialized in job placement services also increased from 141 to 2,684 during the same period. Over the last year, to improve the quality of employment services and to create a user- friendly environment, the Government combined the employment insurance department and the employment security department of local labor offices into Employment Security Centers. These centers are based on the concept of "one-stop service" and are designed to provide job seekers with all kinds of information and services, from job vacancy information to vocational training. An important advantage of these centers is that an unemployed worker can receive unemployment benefits and job search assistance at the same place. In addition, the Government in May 1999 launched an electronic labor exchange system called 'Work-Net" using Canada's 'WorkinfoNet" as a standard. Work-Net can be accessed from the Internet at home It provides various information and services such as job vacancies, vocational training, career guidance information, employment policies, employment insurance, labor market statistics, and labor laws. Almost all job vacancies registered in public employment agencies can be searched in Work-Net unless employers refuse to let the information be posted. Currently, more than three million job seekers are registered in Work-Net and 30,000 individuals visit the site per day. Social Protection for the Unemployed Measures that have recently been taken to improve the social safety net for the unemployed include: * extending the application of the Employment Insurance System to all establishments. In 1998 the scheme was extended to cover workers in all firms regardless of size and to include part-time workers (working more than 80 hours a month) and daily workers (employed more than one month at the covered firms); * relaxing the qualifications for unemployment insurance benefits. To provide better protection for temporary workers, the minimum contribution requirements were reduced from 12 out of the last 18 months to six out of 12 months on temporary status; 36 Chapter 22. Labor Markets and Employment extending the coverage of the public aid program for the poor. In 1998 the Temporary Livelihood Protection program was introduced, which provides low-interest long-term loans for livelihood, support for housing, medical, and educational costs, and low-interest loans for self-employment; and providing grants for children's educational expenses and family medical expenses. The Govemment revised the Livelihood Protection Act in July 1999 into the Act on Ensuring People's Basic Living Standards. Through this reform, the Government aims to guarantee a national minimum standard of living for all people regardless of their working capacity The Act will become effective on 1 October 2000. To implement the unemployment policy measures described, the Government has spent about Wi 0 trillion in 1998 and plans to spend W7 7 trillion for 1999 A supplementary budget has been proposed to spend an additional W6 4 trillion to create jobs, Wl 03 billion on vocational training, W721 billion for social safety net interventions, and W1.05 trillion on public works programs. Thus, a total of Wi 6 tnllion, about 4 percent of GDP, has been set aside for unemployment policies in 1999. Table 5: Public Expenditure for Unemployment Measures in the Republic of Korea, 1998 Unemployment Measures Budget Amount Spent Number of (Wl 00 million) (Provisional, Beneficianes Wl 00 million) (1,000 persons) job Creation 38,170 37,666 * Expansion of subsidized business start ups 32,950 32,446 Investment * Support for Venture Enterprises 5,220 5,220 - Employment Security 21,174 20,688 781 * Employment Maintenance Subsidies 1,224 1,125 - * Support for Small- and Medium-sized Firms 19,950 19,563 - Job Training and job Placement Services 9,011 7,607 363 Livelihood Protection for the Unemployed 32,352 30,346 1,843 * Public Works Projects 10,444 9,252 438 * Unemployment Benefits 8,500 8,050 441 * Loans for the Unemployed 7,500 7,153 109 * Livelihood Protection and Others 5,908 5,891 855 TOTAL 100,707 96,307 Source Ministry of Labor, White Book on Labor, 1999 CONCLUSIONS The Republic of Korea economy grew 4 6 percent in the first quarter of 1999. with the economy gradually picking up, the unemployment rate has slowed, dropping to 5.7 percent (1.24 million) in August 1999. Yet the number of temporary and daily workers keeps nsing. And although the Employment Information Scheme has been extended to all employers, a large number of workers remain excluded. The Govemments employment programs have helped to avoid unnecessary mass layoffs, generated jobs, and made the labor force flexible to adjust to the new demands in the sector Further structural adjustments are expected to help bring back the country's economy to its pre-crisis vitality and efficiency However, the Government must deal with the social problems of the new labor market, including a high unemployment rate and lack of social protection for the unemployed An even more systematic and long-term strategy for addressing unemployment and its associated problems must be developed. D Zhang Increasing Urban Employment In Shanghai 37 INCREASING URBAN EMPLOYMENT IN SHANGHAI: AcTIVE LABOR MARKET PROGRAMS AND OTHER INITIATIVES15 INTRODUCTION Over the past 20 years state-owned enterprises (SOEs) in the PRC have been in flux. Steady efforts have been undertaken to minimize the involvement of Govemment in their management and to transform the SOEs into functioning corporate bodies capable of managing themselves and assuming responsibility for the firms' success. The change in operational structure aims to develop a modern enterprise system with clear ownership separate from the Government, clear rights and responsibilities of both owners and State, and to promote efficient management. Reform of SOEs has been the focal point of industrial refonm since 1993. This has led to large scale restructuring of employment. This paper briefly discusses the impact of this restructuring on employment in Shanghai, the PRC. THE STRUCTURE OF EMPLOYMENT DURING THE ECONOMIC TRANSITION In the 1990s, annual GDP growth of the PRC averaged 10 percent, and Shanghai's economic growth rate was even higher, with a per capita GDP of $3,400 in 1998. It is expected that in the early 21 5i century, Shanghai's GDP growth rate will remain stable, and average annual net growth of GDP will be 8-10 percent Rapid growth of Shanghai's economy has increased new job opportunities and labor demands. In the 1990-1998 period, an average of 300,000 new jobs was generated annually. With rapid economic development Shanghai's industrial base has also been restructured, substantially changing the nature of employment in the city From 1990 to 1998, employment in tertiary industries increased by 1.14 million jobs. The ratio of employment of Shanghais primary, secondary, and tertiary industries changed from 11, 59, and 30 percent, respectively, in 1990 to 12,58, and 42 percent in 1998. With changes in ownership structure, the orientation of the working population has become more diversified. Before 1990, about .78 percent of the urban employed worked in the state sector of the economy, and 21 percent in the collective sector. By the late 1990s, the proportion had changed sharply At end 1998, the state sector employed 67.4 percent, and the collective sector 15.7 percent. The employment ratio in other sectors has risen to 16.9 percent. The number of employed has reached 1 68 million, of which 36.3 percent are self-employed sector or engaged in private enterprises. With enterprise restructuring and transition, unemployment also is on the nse. The city government of Shanghai has explored various new means of job creation and active labor market policies These are described below: THE REEMPLOYMENT PROJECT AS AN ACTIVE LABOUR MARKET INTERVENTION The Reemployment Project The Shanghai Reemployment project involves several integrated components, including job placement services, such as vocation recommendation service, career guidance, job training, and small business owners training job placement service. In the 1990-1998 period, 450 employment agencies were established, all of which have been incorporated into the city' labor information netwQrk 5 This paper was written by Zhang Dezhi Mr Zhang Is the Division Chief of the Social Secunty Bureau in Shanghai, the People's Republic of China 38 Chapter22 LaborMarketsandEmployment covering the urban areas. job hunters may obtain information about the city's labor demand and record the vacancies that they are interested in Candidates found to meet the employer's specifications then attend job interviews Career guidance. There are about 2,200 full-time career teachers in Shanghai. Every public employment agency has one or more specialized career teachers to offer job seekers both up-to-date career materials and consulting services. Career guidance has substantially enhanced reemployment. Statistics indicate that each year hundreds of thousands of laid- off personnel or unemployed workers find lobs through these agencies job training In Shanghai, job training, which is often free or very cheap for the laid-off and the unemployed with city government support, works on a computer inforrnation network; and it is closely linked to the employment market. In addition, the city government invites tenders, including from training schools run by private enterpnses, to participate in job training for laid-off personnel. in 1998,110,400 laid-off and unemployed workers received skills upgrading and training in all sorts of job training agencies. After job training, the ratio of reemployment among them reached 54.7 percent. Small business training. To help laid-off personnel and to promote small businesses among the unemployed, the city government has provided free job training. Furthermore, the city government has also launched several policies specially to help self-employed set up their own business. In 1998, three training programs were initiated for 380 students Of the 127 students who graduated, 91 students managed to successfully start businesses, and this created more than 960 new jobs for laid-off personnel and the unemployed. Success of Reemployment Project The Reemployment Project has been largely successful. Between 1991 and 1998, a total of 1.5 million redundant personnel were laid off by Shanghai's state-owned and collective enterprises. However, one million of these have found new jobs through this project At the end of July 1999, there were 308 reemployment service centers funded and built jointly by the city government, society, and enterprises. A total of 730,000 laid-off personnel entered the centers, and 550,000 found new jobs. The labor structure of SOEs has been rationalized and enlarged. The total numbers of staff and workers in the state-owned industrial enterprises have dropped from 1.27 million in 1996 to 780,000 in 1998. As a result, traditional state-owned industnes such as light industry, textiles, and the instrument and electric sectors have made up deficits and increased surpluses. By the end of June 1999, light industry had turned losses of Y720 million into profits of Y850,000. The textiles industry realized an annual profit of Y250 million in 1998. And in 1998, the instrument and electric industry realized a gross output value of Y1 1.7 billion, up 15 percent from the previous year, with its total profit standing at Y370 million (up 13 percent). CREATING ALTERNATIVE EMPLOYMENT OPPORTUNITIES With the population aging, life expectancy rising, housing becoming scarce, and life modernizing, people's demands for social services are expanding rapidly Developing employment in non-regular areas, such as in-home, home maintenance, family handicraft industries and so on can create new jobs Outdated knowledge and simple skills of laid-off personnel have made it difficult to adapt to the needs of new jobs supplied by new- and high-tech industries Instead, employment in non-regular departments is more appropriate for them. The largest obstacle they confront is that it is difficult for them to join the public social insurance programs once they obtain employment from private enterprises Hence, enterprise restructuring and new job-creation must be linked to a substantial social insurance reform. D Zhang Increasing Urban Employment In Shanghai 39 Preferential Policies The city government has introduced a series of preferential policies and measures such as preferential social insurance, reduction and exemption from taxes and fees, and free job training. At the end of August 1998, there were more than 5,300 recognized non- regular organizations, which had absorbed 55,000 laid-off personnel. It is expected that total employment in non-regular departments will exceed 100,000 in the next two years. Preferential social insurance In Shanghai, laid-off personnel in non-regular departments can take regular staff and workers' average monthly wage income and taxable wage in the previous year as the contribution base. The contribution base in 1998 was Y600, and the proportion of individual contributions is 16 percent They cover medical insurance based on a 5.5 percent of the pension insurance's contribution. The city government also establishes special offices in the community to be in charge of handling questions pertinent to the social insurance program. Reduction and exemption of both tax and fee. During the first three years, non-regular organizations are exempted from some local tax such as sales tax and income tax. In addition, they are also exempted from other social fees except for legal contributions, such as pension and medical insurance. Free training When laid-off personnel, who are working in a non-regular department, join the training for a certificate of vocation qualification and skill, they may apply for city government sponsorship and then they enjoy almost free training. Others The city of Shanghai also established a general employment insurance scheme It also developed a fund for employment in non-regular departments (in 1996). The fund may provide a loan with low interest to the non-regular organizations, which are expanding in numbers. Non-Profit Organizations as job Opportunities The city of Shanghai is using nonprofit organizations to place people with special difficulties in employment. In practice, the city govemment always arranges jobs for those who find it hard to get employment and bears the basic living cost of those who lost their jobs At the end of August 1999, there were more than 155 community non-profit service clubs for employment placement. They engaged in activities such as conducting environmental cleaning, maintaining plants and grass, and repainng public utilities. These clubs had absorbed no less than 20,000 laid-off persons. About two thirds of them enjoyed several types of city government sponsorship. CONCLUSION The restructunng of the industrial base towards promoting efficient enterprises has led to significant changes in the structure of employment in Shanghai in a remarkably short time Further, taking a longer-term perspective, it appears that the new arrangements reflect a far more efficient use of personnel and resources in this new setup. This period of economic transition has led to unemployment, but instead of adding these numbers to the poor, alternative avenues for productive employment are being found. 40 Chapter 23. Vulnerability and Exclusion THE CONCEPT OF SociAL EXCLUSION AND VULNERABILITY16 INTRODUCTION The financial and economic crisis in Asia has underscored the vulnerability of economies and societies to changes in the global economic environment The crisis has provided us with an opportunity to deepen our understanding of such vulnerabilities. The issue of vulnerability is, however, not a new phenomenon. Many Asian countries have significant social and institutional barriers preventing large vulnerable segments of population from sharing the benefits from the economic development. Gender disparities and marginalization of the poor and other vulnerable groups remain dominant characteristics of the Asian landscape SOCIAL EXCLUSION The concept of social exclusion is closely linked to the concept of vulnerability and is helpful in understanding social processes that sustain or lead to vulnerability The concept has two distinct advantages compared with the earlier concepts of deprivation and poverty. (i) it makes the multiple, multi-dimensional and cumulative aspects of deprivation central to the analysis, and (ni) it focuses on social processes, institutions, and mechanisms as well as on actors that exclude people (De Haan, 1998; Bhalla and Lapeyre, 1999). In Westem Europe, the discussion has mainly centered on the relationship between labor markets and social exclusion However, in developing countries and countnes in transition the focus must shift to include other factor markets (for example, access to land and credit), processes through which these markets are developing, avenues for popular participation as well as to analysis of various institutions through which the rules goveming exclusionary and inclusionary practices are negotiated, (ILO, 1995) The few country studies on the subject that have been carried out so far indicate that it is important to analyze more closely social institutions, social structures, and socio-cultural values that establish the status and the balance of power between various social groups Societies may have a dominant paradigm or a form of social exclusion, or an 'operational hierarchy" of discnmination that influences the exact practice and outcomes of exclusion. (ILO, 1995) Four paradigms of social exclusion have been identified a solidarity paradigm, a specialization paradigm, a monopoly paradigm, and an organic paradigm. These paradigms are based on various national social policies and ideas about society and social integration A solidanty paradigm sees society as a "moral community" with a core of shared values and rights and interprets exclusion as a breaking of the social ties, a failure of the relationship between the society and the individual. The specialization paradigm sees exclusion resulting from individual behaviors and exchanges. Individuals may exclude themselves by their choices or they may be excluded because of patterns of interest or contractual relationships among other actors, or their exclusion may occur as a result of discnmination of other actors, or their exclusion may result from the market failures or of unenforced nghts The monopoly paradigm views society as hierarchy, with different groups controlling resources. Insiders protect their domains from outsiders, constructing barriers and restricting access to occupations, to cultural resources, to goods and services The organic paradigm sees '' This paper was written by Anita Kelles-Viutanen Ms Kelles-Viitanen is Manager of the Social Development Division of the Asian Development Bank A Kelles-Viltanen: The Concept of Social Exclusion 41 society as an organic system, which can take a variety of forms. It is composed of groups, which may be functional, regional, or ethnic in character. Exclusion in such systems arises where all groups are not equal players in the game, where political or economic power becomes concentrated, and when individuals are not well integrated into the mainstream groups around which society is constructed. (Rodgers, 1995). SOCIAL INCLUSION: TOWARDS A MORE HOLISTIC SOCIAL POLICY The crisis in the region has clearly brought out the need to have adequate social safety nets to strengthen the capacity and elasticity of various sections of society to respond to various shocks, crises, and transitions There is a need to design a wide range of policy responses to minimize negative impacts on the poor and on other vulnerable groups, and to build a better response and resiliency, giving priority to preventing irreversible and long- term losses in human and social conditions, such as long-tenm unemployment, withdrawal of children from school, increase of child labor, trafficking of women and children, prostitution, infant malnutrition and delayed immunization, breakdown of family and social structures, substance abuse, and loss of assets in distress sales. Attention to vulnerable groups should not imply a target groups-oriented charity approach. The prerequisite in this approach would be to enable the excluded and vulnerable groups to enter mainstream society by identifying their needs through participation and consultation and by making the social, cultural, political, physical, and economic infrastructures of society fully accessible to all, and to enable their fullest possible participation in their societies A truly inclusionary social policy is required that reflects the diversity of people and that will mainstream their needs into all sectors including education, health, and social protection. This has been the goal of social development in ADB. This approach is briefly described below. Social development is best described as a process of planned social change designed to promote the well-being of the population as a whole in conjunction with a dynamic process of economic development (Midgley, 1995, 25). Ensuring that people-and their capacities, values, and needs-are placed at the center of the developmental process is the particular contribution of social analysis. Issues of social sensitivity and feasibility are also important. Some of the aspects that are analyzed in the context of the development intervention, relate to (i) Improvement or impoverishment of livelihoods; (ii) access to or exclusion from resources; (iii) expansion or reduction of knowledge; and (iv) participation in or alienation from rights. Social analysts usually look at the total social universe of a development project. They identify the various actors or stakeholders who are involved in, or likely to be affected by aid policies and projects. Social analysts must be alert to and able to interpret the wide range of different perspectives and values held by the different stakeholders. They need to query assumptions based on conventional wisdom that ignore complex social reality and divergent views and, when left unchallenged, may lead to inappropriate action and unintended negative effects. Such knowledge needs to be explained to colleagues coming from other disciplines and the knowledge needs to contribute to practical solutions. Social analysis helps to make projects efficient, effective, realistic, and sustainable. Social analysis, together with economic, technical, institutional, and environmental analyses, contributes to the high quality of the development projects. ADB has introduced a number of social development policies and strategies (on gender, indigenous and ethnic people, involuntary resettlement, poverty reduction, and participation) 42 Chapter 23. Vulnerability and Exclusion as well as processes such as social assessments to identify social risks and to mainstream the concerns of the vulnerable people into ADB's operations. In this, ADB pays attention to the: (i) equity issues (e g, distributional policies, inter-generational transfers and ownership and distribution of income and assets); (ii) poverty eradication efforts, (iii) inclusion of minorities; iv) gender equity; and (iv) rooting of development decisions in local socio-cultural realities. Increasing attention is also being paid to the participatory processes including consultations with various stakeholders Such mainstreaming efforts should be at the core of the social policy in addition to other sector specific socially sensitive efforts. Only multiple efforts will help to change the present disabling environment, in which the vulnerable live, into a more enabling and humane environment and will bring out a society for all. The social policy that is to be considered for Asia needs to reflect the particular paths, or paradigms (as discussed above) and patterns of socio-economic structure and development. It should be broad-based with a balanced set of economic, financial, and social instruments that address social exclusion. Unlike in Europe, social development in Asia cannot be pursued as a sectoral initiative alone In Asia, the poor are constrained by various interlinking barriers. For any sustainable impact, it would be necessary to address this whole gamut of disabling environment to release the poor from their "captivity". We would require a synergy of combined approaches Such an approach should include vanous efforts in order to address the issues of vulnerability, social exclusion, and poverty in all sectors. Such a broad-based approach would make it possible to translate economic gains into improved access to social services and higher standards of living for the whole population; to address non-economic factors such as technological change and environment; as well as improved social organization and social capital and their impacts on the distribution of wealth and opportunity. Diverse social institutions, including market, community, and state would need to be mobilized to promote people's welfare, involving participatory processes. REFERENCES Asian Development Bank. 1997 Emerging Asia Changes and Challenges. Manila, ADB Bhalla, A S., and Frederic Lapeyre 1999. Poverty and Exclusion in a Global World London Macmillan Bourgignon, Francois. 1999. 'Crime, Violence and Inequitable Development." A paper for the World Bank. Bowles, Samuel. 1999. "Wealth Inequality, Market Exclusion, and Economic Performance " A paper presented at the Villa Borsig Workshop Series on Poverty and Development Deutsche Stiftung fur Intemationale Entwicklung. Cohen, Monique, and jennefer Sebstad 1999. "Can Microfinance Reduce the Vulnerability of Clients and their Households?" Paper prepared for World Bank Summer Research Workshop on Poverty and Development, 6-8 July 1999. de Haan, Alan. 1999. "Social Exclusion: Towards a Holistic Understanding of Deprivation." Paper for Villa Borsig Workshop Series 1999 on Poverty and Development Deutsche Stiftung fur Internationale Entwicklung de Haan, Alan. 1998 "Social Exclusion: An Alternative Concept for the Study of Deprivation?" IDS Bulletin, Vol. 29, No.1, 1998 A Kelles-Vlitanen The Concept of Soclal Excluslon 43 Elwan, Ann. 1999. 'Poverty and Disability." A background paper for the World Development Report World Bank. ESCAP. 1998. Asia and the Pacific into the 7wenty-first Century Prospects for Development. New York, ESCAP. Gaventa, John. 1998. "Poverty, Participation and Social Exclusion in North and South." IDS Bulletin, Vol. 29, No 1, 1998. Ghai, Dharam, and Cynthia Hewitt de Alcantara. 1994. Globalization and Social Integration: Patterns and Processes. Occasional Paper No. 2. UNRISD, Geneva. Gore, Charles. 1995. Social Exclusion and Social Change: Insights in the African Literature. In: Rodgers, Gore, Figueiredo. ILO. 1996. Social Exclusion and Anti-Poverty Strategies. Geneva" ILO, International Institute for Labour Studies. ILO. 1998. Child Labour- Targeting the Intolerable. Geneva: ILO Jordan, Bill. 1996. A Theory of Poverty and Social Exclusion. Cambridge: Polity Press. Kautto, Mikko, Matti Heikkila, Juhani Lehto, and Brian Munday.1 997 Social Services in Europe. Facing Financial constraints in Times of Growing Needs In European Social Services-Policies and Prionties to the Year 2000. Saarijarvi, Finland: Stakes. Knowles, James C., Ernesto Pemia, and Mary Racelis.1 999. Social Consequences of the Financial Cnsis in Asia. Manila: ADB. Leyshon, Andrew, and Nigel Thrift. 1997. Money/Space Geographies of Monetary 7iansformation. London and New York: Routledge. Loury, Glenn C 1999. "Social Exclusion and Ethnic Groups: The Challenge to Economies." Paper prepared for the Annual World Bank Conference on Development Economics Washington, DC, 28-30 April 1999. Malmberg, Calvo, and Christina and Louis Pouliquen. 1999. "Empowerment and the Institutional Basis of Antipoverty Policies and Interventions. The Case of Rural Infrastructure." Paper in Villa Borsig Workshop Series on Poverty and Development by Deutsche Stiftung fur Internationale Entwicklung. Midgley, James. 1995. Social Development The Development Perspective in Social Welfare. London: Sage. Morduch, J 1. 1999. "issues of Risk and Poverty." Paper in the Stiglitz Summer Research Workshop on Poverty, Washington D.C., 6-8 July, 1999. World Bank. Phongpaichit, Pasuk, Sungsidh Pinyarangsanan, and Nualnoi Treerat 1995. "Pattems and Processes of Social Exclusion in Thailand." In: Rodgers, Gore, and Figueiredo. Rodgers, Gerry. 1 995. "What is Special about a Social Exclusion Approach?" In: Rodgers, Gore, Figueiredo. Rodgers, Gerry, Charles Gore, and lose Figueiredo. 1995. Social Exclusion. Rhetoric, Reality, Responses. Geneva: ILO Silver, Hillary. 1995. "Reconceptualizing Social Disadvantage: Three Paradigms of Social Exclusion." In: Rodgers, Gore, and Figueiredo. 44 Chapter 23: Vulnerability and Exclusion Thorbecke, Erik. 1999. 'Short Note on Poverty Indices and Indicators." Paper in the Stiglitz Summer Research Workshop, ibid. Tyndale, Wendy 1999. "Ethnicity, Culture, and Discrimination" Paper for the Villa Borsig Workshop Series on Poverty and Development. Deutsche Stiftung fur Internationale Entwicklung UNDP. 1997. Human Development Report New York and Oxford: UNDP. Udry, Chris. 1999 "Poverty, Risk and Household." Paper in the Stiglitz Summer Research Workshop. Ibid. Wolfe, Marshall. 1994. "Social Integration: Institutions and Actors." Occasional Paper No. 4 UNRISD. Geneva P Licuanan: Addressing Gender Concerns In the Asian Economic Crlisis 45 CHALLENGES IN ADDRESSING GENDER CONCERNS IN THE ASIAN ECONOMIC CRISIS17 BACKGROUND The movement toward economic globalization and the Asian crisis have both strongly affected the countries of Asia. The consequences of these phenomena for women and the poor have been especially marked. In many cases, these groups overlap. The Platform for Action that came out of the United Nations Fourth World Conference on Women emphasized the feminization of poverty. It highlighted the fact that the majority of the world's poor are women who have more limited access to economic resources such as credit, land inheritance, education and training, and support services. While poverty affects men, women, and households as a whole, women are affected differently and more seriously because of the gender division of labor. As mothers, household managers and producers, they manage consumption and production of the household and make ends meet with increasingly limited resources. Policies, programs and activities impact differently on men and women because of insufficient attention to gender issues. Recent efforts to bring gender issues into APEC as well as research analyses have called attention to the effects of globalization and the Asian crisis on women. This paper summarizes some of the key findings. THE EFFECTS OF GLOBALIZATION Globalization of the world's economies has had both positive and negative consequences for women in the region. On the positive side, globalization has been credited with the following benefits to women: (i) increased opportunities for education, particularly in computer literacy and other high technology areas; (ii) an increase in the numbers and proportion of women in the labor force; (ii) new occupational choices such as data processing and computing, recreation and tourism, and banking and financial services; (iv) increased incomes contributing to poverty alleviation as well as greater autonomy and participation in household decision-making; (v) more flexible labor arrangements such as subcontracting and homework; and (vi) expansion of opportunities for women-owned small- and medium sized enterprises (SMEs). However, globalization has had a number of decidedly negative consequences for women. Globalization has contributed to * preponderance of low-paying jobs with poor working conditions Globalization has led to a decrease in female-dominated jobs as industry moves toward higher productivity and more technologically sophisticated industries. Subcontracting and homework arrangements that have been heavily used by women are increasingly characterized by lower eamings, reduced access to training opportunities, and limited access to technology, * reduced access to and control of resources by women. Globalization has meant a shift in agricultural production away from traditional crops to cash and export crops. This has reduced female involvement in the production and control of food resources, resulting in declining household food security and disproportionate cuts in food consumption for women and girls; '' This paper was written by Patricia B Ucuanan Ms Ucuanan is the President of Miriam College in Manila, Philippines, and Co-convenor of the Asia Pacific Women Watch 46 Chapter23 VulnerabilityandExclusion * negative impacts of trade on women-owned businesses: Businesses owned by women have suffered due to unequal access to productive resources and increased competition from imports. Also, high tariffs on certain goods have forced industries with heavy female participation such as textiles and garments to cut production costs or close down because of intense competition; and * heightened commodification or objectification of women There has been a distinct feminization of overseas employment, including an expansion of trafficking in women and girls. The UN's Platform for Action also calls attention to the statistical invisibility of women's contributions to their societies' economies. It recognizes that formal accounts systematically underestimate and undervalue women's work. Underestimation occurs in virtually all areas of activity wage labor, subsistence farming and fishing, work in the informal sector, production of goods and services for the market and for household consumption, assisting in family enterprises, and unremunerated domestic and community work. THE IMPACT OF THE FINANCIAL CRISIS The initial effects of the Asian financial cnsis translated into sharp price increases, falling labor demand, and a squeeze on public spending. As the crisis deepened, in some instances it began to erode the very social fabric of communities. Women, in particular, were hit hard in terms of unemployment, loss of pay, and increased family responsibilities Results from recent studies, surveys, and rapid assessments aimed at monitoring the impacts of the crisis give further support to the messages presented above. This research supports the hypothesis that the cnsis has made things worse for women in Asia and highlights the important interplay between economic and socio-cultural factors in development Some of the major findings of studies on the gender impacts of the crisis include the following: * women's labor force participation, employment, and incomes have declined. Assessments indicate a clear deterioration of employment and incomes in some countries, particularly the Republic of Korea and the Philippines, and more mixed results in others including Indonesia and Thailand On the other side, cost cutting strategies employed by firms, means that inexpensive women were hired to replace higher-eaming men; * increased family responsibilities for women: With drops in household income as well as decreased government expenditures on health, education and other social infrastructure, women's traditional responsibility to provide for the family's basic needs has increased, and often became more burdensome, v increased female participation in the informal sector To sustain household income levels, women are leaving their unpaid family work and seek employment in the informal sector, including prostitution. The crisis has also increased child labor participation and has added more children, mostly teenage and pre-teenage girls, to the sex trade; * the informal sector has been negatively affected Homeworkers, traditional artisans, weavers, craft workers, and other informal participants, many of them women, are the biggest losers in the crisis They have suffered because of rising prices when there is less work, lower wages and a drastic decline in the demand for their output. Also, migrant workers are returning home without jobs. Many of these are women serve as domestic workers in Hong Kong, China, Malaysia; and Singapore, entertainers in Japan, and production workers in the Republic of Korea; and P Lkcuanan: Addressing Gender Concems In the Asian Economic Crisis 47 resurgence of social problems and constraints: With heightened economic instability and social unrest, there is a rise in violence against women. In addition, there is a revival of traditional and cultural definitions of women and their roles and a reassertion of patriarchal values in some countnes. These have the effect of making inrtegrated economic participation by women more difficult, as well as complicating the social roles of women CONCLUSIONS AND CHALLENGES While not all the data are in, some conclusions are clear. Womens paid and unpaid work played an important role in the economic boom in Southeast and East Asia, in terms of paid labor in export-related activities and services, remittances of migrant women workers and the immense amounts of unpaid work at home. These contributions were not always visible or valued. The expansion processes of the boom years were not managed properly to ensure that the economic gains were benefiting women. Now, there is great danger that the costs of recession will fall disproportionately upon women. The current crisis affects women differently and more severely than men. The crisis represents a grave threat to the economic and social gains that women have made so far. It is encouraging that there have recently been a number of efforts to analyze the social and gender impact of the Asian financial crisis. But more needs to be done. First, the data has to continue to improve. There is need to institutionalize collection of sex-disaggregated data on employment and work patterns looking at different groups. Documentation of coping strategies of different sectors would be valuable along with action research testing the effectiveness of different approaches to mitigating the impact of the crisis including the role of social safety nets. A second area for further work is the analysis of broader aspects of the crisis; i.e., dealing more deeply with the social fabric in the different countries. There is need to understand more thoroughly the social tensions, to study more directly the relationship between economic factors and such social phenomena as gender relations, womens roles and socialization, as well as violence, prostitution, and trafficking. Along with further research, there is a need to recognize the continuing importance of womens role in economic recovery. Women play a vital part in improving the economic conditions in Asia, in crisis recovery packages, in measures to protect and promote enterprise development, in job creation and distribution, in skills development and upgrading, training and re-training, and in social security and social protection systems. The challenges for Asia are to minimize the negative impact of the crisis on women, removing the remaining barriers to women's participation in the economy and effectively mobilizing women to respond to the cnsis by exploiting emerging opportunities. REFERENCES Asia Pacific Economic Cooperation. 1998. 'Women and Economic Development and Cooperation in APEC" An overview paper prepared for the APEC Ministerial Meeting on Women held 15-16 October 1998 in Makati, Philippines. lo, Jeanne Frances 1. 1999. "Gender and Markets: A Framework for Analyzing the Effects of the Economic Crisis on Women." In Carrying the Burden of the World: Women Reflecting on the Effects of the Crisis on Women and Girls. Illo, Jeanne Frances I and Rosalinda Pineda Ofreneo, eds. Quezon City: University of the Philippines Center for Integrative and Development Studies. 48 Chapter 2 3. Vulnerability and Exclusion ILO 1998. "Social and Gender Dimensions." Unedited working paper prepared under the AIT/ILO Research Project on the Gender Impact of the Economic Crisis in Southeast and East Asia. Karnjanauksorn, Teeranat, and Voravidh Charoenloet 1998. "The Impact of the Economic Cnsis on Women Workers in Thailand Social and Gender Dimensions." Unedited working paper prepared under the AIT/ILO Research Project on the Gender Impact of the Economic Cnsis in Southeast and East Asia Kelkar, Govind, and Man Osawa. 1998. "Gender Disparities in the Asian Economic Cnsis: Women Coping with the Bitter End." Unedited working paper prepared under the AIT/ILO Research Project on the Gender Impact of the Economic Cnsis in Southeast and East Asia. Knowles, James C., Emesto M Pernia, and Mary Racelis. 1999 "Social Consequences of the Financial Crisis in Asia: The Deeper Crisis." ADB EDRC Bnefing Notes, No. 16. Licuanan, Patricia B. 1998. Reaction paper on AIT/ILO Research Project on the Gender Impact of the Economic Cnsis in Southeast and East Asia Bangkok. Oey-Gardiner, Mayling, Nick Dharmaputram, and Insan Hitawasana Sejahtera. 1999. "The Impact of the Economic Crisis on Women Workers in Indonesia" United Nations. 1996 The Beijing Declaration and the Platform for Action. New York United Nations Department of Public Infornmation. UNIFEM and CIDA-SEAGEP. 1998 "Women in a Global Economy Challenge and Opportunity in the Current Asian Economic Crisis " An Information Kit prepared with the collaboration of the ILO Regional Office for the Asia and the Pacific. World Bank. 1999. "Gender Dimensions of the East Asia Cnsis " 224kb PDF File January 1999. East Asia and Pacific Region, The World Bank. http-//www.worldbank.org/poverty/eacrisis/ library/index.htm. S Mu-Lelpe,r Women and Civil Society In Cambodia 49 WOMEN MD CML SOCIETY IN A CRIsIs ENVIRONMENT: EXAmPLES FROM CAMBODIA18 This paper provides a general overview of the crisis and the response of civil society in Cambodia. It then describes briefly how civil society approached the problems. Finally, it proposes what needs to be done to further enhance the role of civil society. CAMBODIA AND THE CRISIS As the economic crisis began to unfold rapidly, many governments in Southeast Asia were confronted with problems on a scale hitherto unimagined. While the governments of the regions and organizations such as the iMF, World Bank, and ADB were struggling to develop appropriate responses, civil society played a key role in analyzing and disseminating information that helped to develop infonmal social safety nets among the poor and vulnerable groups. The three decades of civil strife and social dislocation experienced in Cambodia during the 1 950s through the 1980s have resulted in my country being one of the poorest in the region, with a depleted social and economic infrastructure. Cambodia's social indicators are among the weakest in the world. The health situation in the country is characterized by high mortality, morbidity, and population growth rates. Lack of adequate food and the near non-existence of a basic infrastructure for safe water supply and waste disposal have a negative impact upon the health of the population, especially mothers and children. The 1997 regional economic crisis compounded the effects of Cambodia's political upheavals in that year to further impede our attempts to reconstruct the economy and society. This double crisis called for an extended role of civil society in consolidating the fragile democracy, ensuring stability, and in helping to meet the immediate economic needs of the people. The women and children of Cambodia, who constitute the majority among the poor, bore the brunt of this cnsis. Published reports indicate that the economic crisis significantly reduced the real wages earned by women in the labor force and necessitated their migration to urban centers or neighboring countries in search of livelihood Simultaneously, many analysts noted a feminization of poverty. Public and private investments in health and education, inadequate even before the crisis, were further reduced. THE RESPONSE OF CML SOCIETY Civil society responded to these challenges with a number of activities. A series of forums and debates were convened that explored and defined the rights and responsibilities of individuals and the government on a range of national issues These efforts emphasized that the only way to build a just and sustainable developed society would be to provide equal economic opportunities for all people. This conclusion was both political and economic in nature. Intemational and national NGOs are engaged in a broad range of activities nationwide that include the provision of essential basic services as well as the promotion of democracy and human nghts and the raising of public awareness on various development issues. In * This paper Is a modified version of His Excellency Sochua Mu-Leiper's speech during the Manila Social Forum Ms Mu-Lielper is the Mlnister of WomenS and Veterans Affairs In Cambodia. 50 Chapter 2 3. Vulnerability and Exclusion terms of financial contribution to the country, the NGOs' share has increased from about $75 million in 1995 to $90 million in 1998 The number of local NGOs has increased from 150 in 1995 to almost 400 in early 1999 In addition, nearly 180 international agencies continue to work in Cambodia with little interference on the part of the Govemment in Cambodia, women's organizations have played a particularly influential role in helping women contribute to the development of the society. For example, NGO media outlets, established and managed by the women's media center, assisted in promoting altemate approaches that would strengthen sustainable development in the country. Increased civic activity was evident when 39 political parties took part in the 1998 national elections and more than 90 percent of the eligible voters exercised their franchise, a significant increase in participation compared to the 1993 elections. Women also took a greater role both within the political parties and in exercising their right to vote The 1998 elections saw the formation of the Committee for Free and Fair Elections (COMFREL) and the Coalition for Free and Fair Elections (COFFEL), teams of national NGOs who monitored the electoral process. Both coalitions organized voter's education to increase public awareness on the electoral process and democracy. Their cohesion, political stance, and implementing capacity were tested and established. Also traditional Buddhist institutions were revived, and provided the social glue to overcome challenges. The peace and education campaigns conducted by the Buddhist monks have provided an atmosphere of trust and self-help that enabled many communities to confront the challenges. These efforts supported the gradual growth of Village Development Committees Since early 1995, capacity building at the community level has been promoted particularly through the establishment of the democratically elected Village Development Committees (VDCs), supported by the Ministry of Rural Development The VDCs are viewed as the foundation of a bottom-up rural development structure and the basis for achieving participatory and sustainable rural development. ENHANCING THE ROLE OF CML SOCIETY Despite immense difficulties, civil society in Cambodia has done much to support the reconstruction of economic and social infrastructure that was destroyed during the Khmer Rouge period. However, civil society remains a relatively weak force In addition, weaknesses of the State and large disparities between rich and poor prevent communities from investing in infrastructure How do we increase the involvement and contribution of civil society? It is clear from the Cambodian experience and elsewhere that investment in democracy and in education alone is not enough to promote sustainable development. For true development to take place, the ultimate stakeholders-individuals, communities, villages- should be fully involved in the process of economic development. They must assume a larger advocacy role with respect to national and provincial govemments, international donors, and the pnvate sector. The advocacy role should include demanding a fair share of national resources for their communities. There have been many attempts at participatory rural development in Cambodia and in the region. They have not been problem-free, formidable challenges persist. For civil society to flourish and develop as an influential force, support from the govemment is vital. Many govemments, both in Cambodia and elsewhere, have viewed NGO activities negatively. Further, civil society has initiated programs without adequate financial support and without a strong link to other programs or to a larger national framework Independent, uncoordinated S Mu-Lelper Women and Civil Society In Cambodia 51 initiatives cannot make a substantial overall impact on poverty alleviation and sustainable human development. The most important objective of assisting the civil society's role in promoting sustainable development is to create and maintain an enabling environment for participatory economic growth, political and social development priorities, and emphasis on poverty alleviation efforts at the village level. This highlights the needs to build capacity within local govemments, as well as within the national government, to work with civil society, and to manage development effectively and in an efficient manner. CONCLUSION The model of civil society that is evolving in Cambodia is one where there is a multitude of competent, independent, and self-reflective community-based organizations and individuals. This involvement will ensure that the dangers from the excesses of power, by the State or the market place, are reduced. More people will now have access to resources and decision-making power and will be empowered to correct imbalances when they occur. This approach of building a civil society will help in initiating new institutions and reviving social practices, which will bring people togetherwithin the framework of traditional activities and associations People are being reminded of the values and hopes that they share. They are developing many of the skills needed for community organization and the regeneration of civil society for the 21 SI century. I am confident that the full participation of civil society in development will assist communities and the Govemment of Cambodia to successfully meet the challenges of the future. 52 Chapter 23: Vulnerability and Exclusion VULNERABIITY AND REVERTED GENDER ISSUES IN EDUCAON ANDHEALTH9 INTRODUCTION Mongolia entered the 20th century as a backward former colonial territory of the Manchu Empire in China Its public health and education systems were patently inadequate. The Soviet Union helped to develop health and education systems in Mongolia after 1921. Following dissolution of the Soviet Union and transition from a command economy, Mongolia has faced difficulties in maintaining these systems adequately The resulting social problems affect the entire population, but are particularly onerous for specific vulnerable groups. Two examples are the effects of the economic transition on the condition of child-bearing women in remote communities and on the schooling of young males. MATERNAL MORTALITY IN REMOTE COMMUNITIES Mongolia has a small population and historically had problems maintaining a sufficient population growth rate. Between 1868 and 1918, for example, the population of Mongolia decreased 4 5 percent. During the same penod, the infant mortality rate was very high at 500 per 1,000 live births, the matemal mortality rate was 13 per 100 deliveries and the general mortality rate 30 per 1,000 population. Some early demographers predicted the near biological death of the nation in the 20th century. Since the National Liberation Movement in 1911, the Government has consistently paid great attention to the health and growth of population. The main demographic approach until the late 1980s was characterized by generous financial incentives for women to bear children coupled with drastic restnctions on access to contraceptive methods. In spite of the official efforts to increase the population, fertility began to decline again by the mid 1970s, intensifying during the second half of the 1980s. Also, infant and maternal mortality rates were quite high (70 and 0 1 per 1,000 live births) despite the relatively complete health service coverage available to the population. These developments caused some to criticize the official birth policies, arguing that it sacrificed the health of women. A lifting of social and political restrictions in Mongolia in the late 1 980s under the influence of glasnost in the former Soviet Union made possible a more forceful criticism of the country's birth policies. As one result, in 1989, abortion was legalized. Government administrations after the political changes in 1990 have endorsed a new population policy based on the free choice of couples to have a family, and making family planning methods available to them Largely as a result of this policy, fertility and infant mortality rates have declined impressively. However, contrary to expectations, maternal mortality and abortion rates have actually increased. The existence of a high abortion rate in Mongolia despite the availability of contraceptive methods can be explained partly by the influence of stereotypes of family planning and society formed dunng the past In the past, women relied on illegal abortions to limit births, and this practice continued due to lack of information and limited supply of contraceptive altematives, particularly in remote communities. The remedy of this phenomenon is to increase the awareness of family planning methods and to increase the supply and diversity of contraceptive means Since 1991, successive ' This paper was wntten by Professor Pagbalabyn Nymadawa Mr Nymadawa was the Social Policy Advisor to the President of Mongolia, and is now again the new Minister of Health of his country P Nymadawa: Reverted Gender Issues In Mongolias Education and Health Sectors 53 governments have undertaken initiatives, with the support of bilateral and international donors such as United Nations Populatiqn Fund (UNFPA) and GTZ (German Government Agency for Technical Cooperation-Deutsche Gesellschaft fur Technische Zusammenarbeit). As a result, a recent survey showed that awareness and knowledge of reproductive health and family planning have greatly increased. The increase in maternal mortality has occurred largely because of the reduction in hospital deliveries in rural areas. The quality of prenatal health care has declined in recent years partly because of the dissolution of the matemal rest homes (MRH) system, and partly because the number of emergency vehicles available in rural areas has declined. Access by health providers to vehicles is an important element in the delivery of health care in the sparsely populated areas of rural Mongolia. The service area for a 1 st level Referral Medical Facility (District Hospital) often covers only 2,000-3,000 people in an area with a radius of 100-1 50 kilometers (km) (a population density 0.5 to 1 person per km2). Climate is harsh, and the terrain is very difficult, frequently without adequate roads. An additional factor was the increased workload to women in households due to increased number of privatized livestock. In Mongolia the first MRH was set up in 1957 in the Bayankhongor aimak (province) at the initiative of members of an agricultural cooperative. This initiative was supported by a joint decision of the Supreme Council of the Union of Cooperatives, the Mongolian Women's Federation, the Ministry of Agriculture and the Ministry of Health By the mid 1970s, all somons (districts) had established MRHs. The MRHs are attached to the somon Hospitals and have two to six beds. Pregnant women come to the MRH two weeks prior to delivery for rest, nutrition supplements, medical check-ups, and treatment The costs of housekeeping, food and transportation were provided entirely by the agricultural cooperatives. The MRHs ensured close medical supervision and promoted healthy activities during and after childbirth. A detailed study in Gobi-altai aimak in 1980-1985 revealed a substantial improvement in obstetric care indicators due to the MRHs. The study recommended improving conditions in the MRHs, and planning for an expansion to 3.62 MRH beds per 1,000 rural population. Despite the benefits of the MRHs, during the first privatization exercise of agricultural cooperatives in 1990-1992, most of the privatized MRHs were converted into private business centers or other profit-making enterprises. To prevent this kind of conversion the Ministers of Health and Agriculture, and the President of the Agricultural Cooperators Association have issued a joint order requesting the economic units that acquired MRHs by pnvatization to continue to support the somon hospitals, to run predelivery services to rural women. But the order has not been followed properly. A survey conducted by the Ministry of Health and UNFPA in mid 1993 revealed that only 52 MRHs were functioning out of 371 that existed in 1991. Since 1993, the Government of Mongolia has gradually begun to restore MRHs. This initiative has been strongly supported by international donors through their reproductive health and poverty elimination activities. As a result, almost all somons and some aimak centers have restored MRHs But the increasing maternal mortality trend has not yet been fully reversed. SCHOOL DROP-OUTS AMONG MALES in terms of basic educational skills, Mongolia has a highly educated population Compared to other developing countries, the educational distribution across social groups is relatively egalitarian. In fact, Mongolia's achievements in the education sector during 1950-1990 compare favorably with middle-to-high-income countries. Along with a literacy rate reaching 98 percent for males and 95 percent for females, education increased at all 54 Chapter 23 Vulnerability and Exclusion levels of schooling over the period. By 1989, about 40 percent of the population had completed at least secondary education and about 15 percent of the population were graduates of tertiary educational institutions. Although the literacy and education levels in Mongolia continue to be relatively high, there is evidence that the process of transition, especially in its early stages (1989-1 992), has damaged the education of children According to Ministry of Education, Science and Culture, Mongolia (MESC) data, the number of children dropping out before completing secondary school increased from 6,133 in 1989, to a peak of 48,446 in 1992. The total number of dropouts between 1989 and 1998 was 166,000 Overall, two thirds of dropout children were from grades 1-4 (primary school), and almost 70 percent were boys. The increase in the male drop-out rate is commonly attributed to a combination of three factors: * increasing direct and in-kand household schooling costs, especially in rural areas, and especially in regard to the financial squeeze in boarding schools, which particularly affects households with many young children; * increasing need for male child labor following the privatization of agricultural cooperatives Pnvatization resulted in increased livestock herd sizes, which has placed a larger demand on male labor, and * large travel distances to schools. The more liberalized society has allowed parents to reject sending children to distant boarding schools. Understanding the relative importance of these factors is vital. The first factor applies mostly to children from poor families The second affects primarily children of ncher families, and the third factor is connected to children of families living in more remote areas. Along with the increase in school dropouts, there has been a sharp fall in enrollment across different levels of education. According to the National Statistical Office (NSO), the combined primary and secondary gross enrollment rate was 91.1 percent in 1989,54 percent in 1992, and 75 percent in 1998. On the other hand, more than 70 percent of university students are women. The Government has undertaken a number of measures to alleviate the dropout problem, including organizing special classes for dropout children and providing mobile teams of teachers for children living in remote areas. Several bilateral and intemational donors are also supporting this effort. But with schools already overcrowded and undersupplied, the effectiveness of these measures will be limited. A longer-term problem arises with the large number of children whose stunted or disrupted education will limit their capacities in the future. The cumulative effect of this disruption will create a wave of less literate cohorts passing through Mongolian society over the next 40-50 years. Even assuming that male dropouts will not lose the knowledge acquired dunng their school years, a simulation for the over-15 age group suggests that the literacy rate will drop sharply by 2002, with the greatest damage occurring to males in rural areas. The phenomenon of increasing male dropouts and a poor male literacy rate compared with that of females is creating new social problems in Mongolia. For example, male drop- outs now constitute the bulk of street children and young cnminals. Also, less educated males have a decreased chance of marrying successful women, and if they do marry, are subject to household and societal problems. Yet another problem is caused by the relative oversupply of educated women from rural areas. Many of these women will choose to live in cities, generating an imbalance in the gender ratio in rural areas, which in turn will contribute to the underdevelopment of rural Mongolia. P Nymadawa. Reverted Gender Issues in MongollaS Education and Health Sectors 55 CONCLUSION As Mongolia works to improve its health and education systems, it must pay particular attention to the effects of policy and spending decisions on the most vulnerable groups of the population. What may at first seem to be unobtrusive cuts in funding allocations or simply maintaining the status quo in social policy can have far-reaching economic and social consequences for vulnerable individuals. These consequences are illustrated by the link between spending on MRHs and rural matemal mortality and the link between a stagnant education system and Increasing social problems for young male dropouts. Incorporating the needs of vulnerable groups into social policy is essential if Mongolia Is to create opportunities for its citizens to reap the benefits of the new market economy. REFERENCES: Aday, A L., and R. Anderson. 1974. "A Framework for the Study of Access to Medical Care." Health Services Research, pp. 208-20. Byambaa, R. 1986. "Some Aspects of Organization of Obstetric Care in Rural Areas of the Mongolian People's Republic (on examples of Gobi-altai aimak)." Ph.D. Dissertation, Ulaanbaatar, 120 pp. (in Mongolian). Directions of the Population Policy in Mongolia approved by the Presidential Decree No 115 of 1991, In: Annual Review of Population Law, v.18,1991, UNFPA and Harvard Law School, pp.262-3. Dugarjav, J. 1977. "Health and Social Protection of Mothers and Children." In 55 years of Public Health In the Mongolian Peoples Republic (1921-1976). Ulaanbaatar, pp. 113-135 Farrel, C 1999. "Women in the Workplace Is Parity Finally in Sight?" Business Week, Asian Edition, 9 August 1999, p.39. Human Development Report-Mongolia. 1997. pp. 20-21. Huque, Z., and D. Olonchimeg 1993. "Maternity Rest Homes in Mongolia-Problems of 'l'ansition." Mongolia Safe-motherhood Newsletter, No 1, pp 7-8. Karruters, D. 1914. Mysterious Mongolia. Sankt Petersburg (in Russian). Kozlov, PK. 1905. Mongolia and Kam. Sankt Petersburg (in Russian). National Statistics Office of Mongolia. 1999. Mongolian Statistcal Yearbook 1998. Ulaanbaatar, pp 222. Neupert, R.F 1992. "Mongolia: Recent Demographic Trends and Implications." Asia-Pacific Populabon Joumal, v.7, No 4, pp. 3-24. Nymadawa, P. 1998. Population Dynamics of Mongolia in the Twentieth Century. In: Proceedings-Public Health in Asia, Memorial Conference for Dr. K. R Chen, March 5-6, 1998, National Taiwan University, Taipei, China, pp. 216-222. Nymadawa, P. 1990. "Renewals Expected in the Health Service of the Mongolian People's Republic and Main Directions in the Improvement of the Health Situation of the Population in the Period until 2005." Mongolian Medical Sciences, No 1(77). 3-12 (in Mongolian). Nymadawa, P. 1992. "Problems of Family Planning, Mongolian Medical Sciences," No 1)79): 3-8 (in Mongolian). Tsagaankhuu, D. 1963. "Health Service of the Mongolian People's Republic in 1919-1960." Ph.D. Dissertation, Moscow (in Russian). WHO. 1 996.Matemity WaitingHomes A RevewofExperiences. WHO/RHT/MSM/96.21,Geneva, pp.38. 56 Chapter 23 Vulnerability and Exclusion THE VULNERABILITY OF HOMEWORKERS IN SOUTHEAST AsIA20 WHO ARE THE HOMEWORKERS? There are two types of homeworkers the dependent subcontractor and the independent own account worker. The former is known as the homeworker while the latter is known as the home-based worker. The distinction is important because it denotes the workers' degree of autonomy and it has implications on the workers' level of vulnerability. Both types are considered members of the informal sector. Informal employment often increases when there is a crunch for jobs in the modem sector. The ILO defines homeworkers as those who carry out work at workers' premises of choice, other than the workplace of the employer, for remuneration, which results in a product as specified by the employer, irrespective of who provides the equipment, materials or other inputs used (Homeworkers' Convention of 1996). The homeworker's main contribution is labor in the production of a good or service Homeworkers are usually price-rated. There are many women among the ranks of homeworkers. (this is a worldwide phenomenon). In brief, homeworkers are mostly women earning low incomes either as self-employed or subcontractors They are poor, often marginalized, and vulnerable. THE VULNERABILllY OF HOMEWORKERS Homeworkers are subject to a number of disadvantageous circumstances. These include: (i) Irregulanty of orders resulting in uncertain income; (ii) dependence on intermediaries; (iii) low piece-rates over which homeworkers have no control; (iv) lack of bargaining power; and (v) lack of a contractual employer-employee relationship These disadvantages are interconnected and can be summed up into three strategic disadvantages, namely invisibility, lack of access to productive resources, and lack of socio-legal protection Homeworkers fall in a "gap" between informal and formal sector statistics. Although they are not likely to be included in the list of employees of the formal firms for which they work, they are also often excluded from informal sector surveys. A 1990 ILO review of 70 countries found that only seven countries had a separate category for "homeworkers" in their labor force surveys. The invisibility of homeworkers means that the sector is mostly ignored in national planning and policy making. Access to credit facilities, product development, marketing assistance, technology transfer, and social insurance remain inadequate for homeworkers. These are, however, vital in cultivating micro- and small enterprises as alternatives to homework Formal sector employment remains a dream for many homeworkers since the developing economies of Asia where homework abounds are mostly labor surplus countries Homeworkers are often unable to seek redress in court because of their unclear employer-employee relationship Their ambiguous status as workers makes it difficult to apply existing labor laws, which have been designed mainly for wage workers There are no social insurance provisions for life contingencies. Where the self-employed can be covered under the social security system, in practice they cannot afford to pay the premiums. x This paper was written by Lucita Lazo Ms Lazo is a Tlustee of HOMENET intemational, Philippines, and was Chief Technical Adviser of an ILO subregional technical cooperation project on rural women homeworkers L Lazo: The Vulnerability of Homeworkers in Southeast Asia 57 HOMEWORKERS' CHALLENGE TO ECONOMIC ORTHODOXY The case of homeworkers poses three challenges to economic understanding of the informal sector. Challenge to Official Statistics Research and micro-studies on micro-enterprises, the informal sector, and women's work show the critical importance of homework as a source of employment, especially for women. Homebased work is prevalent in both the rural non-farm sector and the urban informal sector, especially in manufacturing and service activities. This survey found the population of microenterprises to be larger than previously estimated. Challenges to Mainstream Assumptions The case of homeworkers challenges mainstream characterizations of the informal sector in at least three ways. It shows that some subsectors of the informal sector have direct production, trade or service links to the formal sector. Many employers subcontract work to homeworkers as a cost-reducing strategy or in response to the deregulation of labor. Second, the informal sector is of policy relevance. Activities in the informal sector are govemed by and impacted by macroeconomic and sectoral policies and regulations. And third, the informal sector is growth promoting. informal sector workers actually subsidize capitalist growth by providing space, equipment, and by working for below-minimum wages. Challenge to Orthodox Prescriptions in the World Development Report 1995, the World Bank offers various prescriptions to deal with income insecurity for formal labor markets. But, in regard to informal labor markets, after acknowledging that informal sector workers are more vulnerable to income insecurity and loss than formal sector workers, the World Bank states that it is more difficult to provide security through public intervention to the informal sector than to the formal sector. The only policy the Bank recommends to deal with income insecurity in the informal sector is public works. WHAT CAN (AND SHOULD) BE DONE FOR HOMEWORKERS? Reforms In National Statistics There is a move to include homeworkers in national labor force surveys Pilot studies have been completed in Indonesia and the Philippines, under the auspicies of the ILO- Danish Intemational Development Agency (DANIDA) Rural Women Homeworkers Project in 1988-1996. What remains is for these experiments to be adopted and institutionalized in the respective national statistical systems. Redesign Policles Field experiences indicate that informal sector workers can be protected and promoted through public interventions and policies. The concerns of the informal sector workers and entrepreneurs can be (and have been) integrated in macroeconomic, sectoral, and regulatory policies. In different countries, a variety of policies have been introduced. * Market Policies-to increase the demand for goods and services produced in the informal sector, to remove biases against the barriers faced by informal sector workers. * Labor Policies-to provide legal recognition to informal sector enterprises and workers; to enforce labor and safety standards for informal sector workers. 58 Chapter 23: Vulnerability and Exclusion * Urban Policies-to promote protective (remove restrictive) zoning and housing regulations, to incorporate informal sector workers in urban plans * Social Security and Insurance Schemes-to provide health, life, occupational, and property insurance schemes to informal sector workers * Institutional Policies-to promote organizations of informal sector workers and to promote representations of informal sector workers in policy-making bodies. Grassroots Organizing and Networking of Homeworkers Organizing has proven to be an important mechanism for reducing the strategic disadvantages of homeworkers. Through the organization of homeworkers, advocacy for policy reforms has been pursued and direct aid can be channeled in a systematic way. Homeworkers in various countries have organized and linked themselves into national and international networks. In the Philippines, for example, there are 12,000 members of the National Network of Homeworkers known locally as Pambansang Tagapag-ugnay ng Manggagawa sa Bahay (PATAMABA). Similar national networks have been set up in Thailand and Indonesia. In South Asia, the Self-Employed Women's Association (SEWA) and the Working Women's Forum (WWF) have formed a pressure group to organize against exploitation of any kind and increase their bargaining power vis a vis employers. Providing credit at low rates of interest for its members and marketing finished items have been major activities of these organizations.. The intemational network links the national networks in various countries and is known as the Intemational Network of Homeworkers (HOMENET International). HOMENET has lobbied strongly for the passage of the Homeworkers Convention of 1996 at the Intemational Labor Conference A major drawback for homeworkers' organizations is their lack of wherewithal to support their action programs to assist homeworkers. External donors have been willing to fund programs but not the administrative expenses for running such programs. The common view is that homeworkers' equity is their volunteer time. However, this has been found to be untenable of late, due to the increasing demands for women to help tide over their respective households' day to day expenses. In the recent ADB study on the impact of the financial crisis, it was reported that "the crisis appears to have reinforced women's proverbial 'multiple burden'." The study does not make direct reference to homeworkers but one can surmise that the women are engaged in homebased work as a means of coping with the crisis. The emergence of the ILO Homeworkers' Convention is a welcome develop5ment as it is the first intemational treaty that sets labor standards for the informal sector. If ratified and implemented by national governments, the Convention can be a potent means to reduce poverty among homeworkers. it could also change the whole face of the international labor movement given the sheer size of the informal sector. The World Social Summit has also underscored globalization as a trend that will impact significantly on homeworkers and the informal sector. There is a need to look into the impact of globalization and the General Agreement on Tariffs and Trade (GATT) regime on homework and define appropriate actions. Solidarity action and international networking may be necessary for homeworkers to consolidate their disparate forces and influence the architecture of new social and economic policies in the 215' century. Homeworkers' representation may be necessary for this to be a reality. K Piriyarongsan: Children as Losers in Economic Development 59 CHILDREN As LOSERS IN ECONOMIC DEVELOPMENT: STRATEGIES AND POLICIES TO PROMOTE THE BEST INTERESTS OF CHILDREN IN EAST AND SOUTHEAST ASIA21 INTRODUCTION The Manila Social Forum reflects a growing consensus on the need to redress the social consequences of the Asian crisis. As an international NGO that operates around the world, Save the Children welcomes this timely move and the concems of ADB and the World Bank for pro-poor economic growth and social policy challenges. However, we believe that the goals of poverty reduction and social development will be achieved only if children's needs, interests, and their perspectives are placed at the center of the new social agenda, equal to those of adults Whereas the general economic impact of the financial crisis in Southeast Asia and the economic reforms taking place in Asia are covered by various studies, little is known about the specific damage to children caused by the economic crisis and reforms. It is uncertain whether "children of the crisis" will be able to bounce back while the economies and the markets are now heading toward recovery. This brief paper focuses on how children22 were hurt by the Asia crisis and how they are often excluded in the process of economic development The paper also sets forth some recommendations to help include them into a new social agenda. CHILDREN IN CRISIS: iMPACTS OF THE ECONOMIC CRISIS IN THAILAND In Thailand, children make up 33.5 percent of the 60 million population. It is ironic that although the country is a major world food producer, about 58.7 per cent of the six million children of primary school age are undemourished; of this more than one million are critically malnourished (National Youth Bureau, 1999). A Save the Children study of rural communities in two provinces in Northeastern Thailand confirmed that children are critically affected by the crisis. Massive unemployment, rising food pnces, and increasing poverty directly reduce the ability of the family-the fundamental institution of Asian society-to provide care and protection to children (Juntopas, 1998). Other studies have also indicated that the quality of life of marginalized children deteriorated after the crisis. Many child laborers were laid off without dismissal pay, were forced to reduce expenditures by eating less or consuming low-quality food (Foundation for Children Development, 1999). The unemployed in the cities tended to suffer from health problems, many reporting conflicts within the family. Compared to previous years, children of younger ages, both girls and boys, were found to run away from home and be at risk of drug addiction and sex work, and an increasing trend of child sexual and physical abuse was evident (Northeast Development Association). Drug use, crime involvement, and abandoned children are all phenomena associated with the Asian crisis Half of the drugs-related crimes in 1997 were committed by children and young people. Data from 40 Children's Welfare Homes in Thailand and public hospitals 2 This paper was written by Kanchada Plriyarangsan Ms Pilriyarangsan Is the Regional Development Adviser for East Asia and the Pacific of Save the Children UK 22 In this paper a child Is anyone under eight years of age (UN Convention on the Rights of the Child) 60 Chapter 23 Vulnerability and Exclusion indicated that child abandonment in 1998 increased at the rate of 9.7 and 34 percent among children between 0-5 years and between 6-18 years, respectively (National Youth Bureau, 1999) PUTTING CHILDREN AT THE CENTRE OF THE NEW SOCIAL AGENDA It is essential to stress that the damage to children in East and Southeast Asia was not caused only by the immediate economic crisis but their vulnerability existed prior to the crisis and is due inherently to fundamental weaknesses in the growth-led economic development model. What should we do if the damage to children is to be reversed? Short-term sectoral interventions targeting children are essential but not sufficient. Attention to providing a favorable economic environment or waiting for another economic growth spurt is not enough. The Manila Social Forum is aimed toward a new social agenda But whose agenda are we talking about? Who sets the agenda and the priorities-national policy makers, or international donors, or the disadvantaged adults? How can the social agenda ensure the best interests of children and who defines such interests-adults or children? To enable children to become "winners" in economic development, a policy framework needs to be put in place to protect children's rights together with operational strategies and mechanisms to ensure that such a framework functions efficiently. Social Policy Formulation Needs to Prioritize Children' s Rights National governments should be encouraged to avoid promoting economic growth at the cost of inequity and social problems. The severe shortages of resources facing policy- makers in the crisis-hit countries are often cited as constraining the choices that can be made. Nevertheless, there is always some room to spend less on artillery and more on food security, pnmary education and social welfare. This requires a rethinking of public spending priorities Historically, children have been a low priority for social investment The exclusion of children is obvious in both the open economies and transition economies. In open economies such as the Philippines and Thailand, investment in children falls far below investment for items such as defense and debt service. Prior to the crisis, the Philippines and Thailand invested only 7.7 and 14.6 percent of their national budgets, respectively, in basic education, primary health care, and water and sanitation. These social investments are vital for children's survival and development By contrast, the combined allocation for defense and debt service was 40.6 and 15 5 percent. Social underfunding has continued after the crisis. The 1999 budget allocated to Public Welfare Department in Thailand for protection of those "in extreme need' (the poor, neglected children, children with disabilities, acquired immune deficiency syndrome (AIDS) orphans, prostitutes, the elderly, ethnic minorities, and those suffenng from natural disasters) was cut by 14.6 percent The allocation for other preventative social work was slashed by 52.6 percent In the transition economies, economic growth is a higher priority than child protection In PRC, Mongolia, and Viet Nam, economic reforms have been implemented with a reduction of the State's role in terms of both financial deregulation and the provision of education, health care and social safety nets. K Piriyarangsan: Children as Losers in Economic Development 61 Table 6: Budget Allocation to Basic Social Services, Defense, and Debt Service in Selected Countries Basic Social Services Defense Debt Country Year Tbtal Education Health Water & Nutrition Service Sanitation Nepal 1997 13.6 8 3 3.1 2.3 - 4.7 14.9 Philippines 1992 7.7 6 8 0 6 0.3 - 9 9 30.7 Sri Lanka 1996 12.7 3.5 4.5 1.0 3.6 18.5 21.5 Thailand 1997 14.6 10 2 4.4 - - 14.2 1.3 Source: 'Country experiences in assessing the adequacy, equity, and efficiency of public spending on basic social services,' Paper prepared by UNICEF and UNDP for presentation at the Hanoi Meeting on the 20/20 Initiative, 27-29 October 1998 Where social investment is available, it does not automatically assure that the poor benefit proportionally from the service delivery. For example, in Indonesia and Viet Nam the share of benefits going to health spending was much higher among the richest quintile of the population than the poorest (UNICEF/United Nations Development Programme [UNDP] 20/20 Initiative). Table 7: Distribution of Benefits of Public Health Spending in Selected Countries Basic Social Services Primary Hospital Hospital AU Health Facilities Outpatient Inpatlent Poorest Rlchest Poorest Richest Poorest Richest Poorest Richest Indonesia (1990) 18 16 7 41 5 41 12 29 Viet Nam (1 993) 20 10 9 39 13 24 12 29 Colombia (1997) 24 19 - - - - 18 27 Costa Rica (1992) 43 7 25 13 30 15 30 13 South Africa (1994) 18 10 15 17 - - 16 17 Source. 'Country experiences In assessing the adequacy, equity and efficiency of pubiic spending on basic social services," Paper prepared by UNICEF and UNDP for presentation at the Hanoi Meeting on the 20/20 InitiatIve, 27-29 October 1998 Investment in social safety nets should not be used only as a means to stabilize government, nor as a compensation for inequitable economic reform processes. Rather social safety nets need to * focus on the welfare and long-term well-being of children to enable them to develop into a 'healthy future" of the nation; * repair, or substitute for, the support systems, both formal and informal, that protect poor families, children, and communities, in both rural and urban areas, from livelihood (economic, social, and political) insecurities, stresses, child abuse, neglect and exploitation; * strengthen local capacity to manage and plan resources for better care, protection and development of their children; * establish an orn,budsman system, at all administrative levels, to oversee that children's issues/ rights are attended to; and 62 Chapter 23. Vulnerability and Exclusion remove barriers that discriminate against vulnerable children (disabled children, children of human immunodeficiency virus (HIV) positive parents or children orphaned by AIDS, children of ethnic minorities, children of irregular migrants, street children, children at risk of being victimized by sexual abuse) in education, training, economic gains and decision making; gender sensitivity needs to be ensured. Making Children More "Visible" in Economic and Social Policies A number of indicators of child health and well-being are routinely collected and analyzed in most countries. These indicators include birth rate, average birth weight, infant mortality rate, immunization rates, nutritional status, school enrolment and literacy rates. But beyond these basic health and education data, children are absent from social information. They are not included explicitly in unemployment or poverty figures, or in analysis of migration. When children are considered, they are normally viewed as a "cost" to the family and to the state in terms of investment, or as a "commodity" for commercial and exploitation purposes as in the case of trafficked children and child sex workers. Economic planners fail to see children in their strategies because the prevailing economic analysis fails to include children. The Save the Children study in Viet Nam demonstrated that reality changes once children are taken as the unit of poverty analysis. The Viet Nam Living Standards Survey done in 1992/93 reported that after the introduction of doi moi (economic renovation) policy by the end of 1980s the number of people in poverty had gone down from 70 to 50 percent of the population. But when we disaggregate this figure by age, we find that almost 60 percent of children under the age of 18 live below the poverty line while only 45 per cent of adults over the age of 18 live in poverty (Theis, 1999). A joint World Bank/Save the Children study of vulnerable groups in Mongolia in 1992 showed that 49 7 percent of the population living below the "minimum income level" were under the age of 16, while children accounted for 42 percent of the total population, reflecting a disproportionate rate of poverty between adults and children (Harper, 1994). Economic policies and social intervention programs should be informed by child-specific data and indicators National statistics should: * disaggregate poverty-related data by age and gender, * recognize economic values of important non-monetary work especially that undertaken by unpaid family workers (most of whom are women and children); * include the number, distribution, and characteristics of children in exploitative or hazardous labor and monitor their health and nutritional status; * develop measures to regularly monitor micro (economic and social) impacts of macro- economic policies on poor people including children and women particularly the economic restructunng programs and the poverty alleviation so as to identify what are beneficial, what are harmful, and what should be strengthened, and * include child-specific indicators (particularly those which are meaningful to children's nghts) in macro-level policy analysis Promoting Participation of Children as "Social Actors" Not just as "Thrget Recipients" One of the key principles of the UN Convention on Rights of the Child is that children should be participants in policy formulation and implementation. Considering age and maturity, children can and should participate productively in discussing issues that affect them K Piriyarangsan: Children as Losers In Economic Development 63 Promoting children's participation in an international conference has begun to be instrumental in bringing policy makers closer to young people and in getting children's messages across. The presence of children as participants at the World Congress against Commercial Sexual Exploitation of Children (Stockholm, Sweden, August 1996) was productive and impressed policymakers. At the Regional Consultation against the most Intolerable Forms of Child Labour (Bangkok, Thailand, September 1997) working and street children from five countries formulated a statement on what they considered the most unacceptable forms of child labor and a list of short-term actions to deal with the problems. The statement was input into the International Child Labour Conference (Oslo, Norway, October 1997). Children's participation also works well at the programming level. In PRC, Cambodia, Thailand, and Viet Nam, involving children in HIV/AIDS prevention projects at schools and communities has proven to be effective. Our offices in Lao PDR and Viet Nam engaged children in research on child labor and on children's needs. The experience indicated that through special training, children in their teens and youths are able to work as researchers, and through participatory methods many children of younger ages can act as key informants. The findings reflect children's views on their needs, concerns, and interests, many of which are quite different from those described by adults. To encourage children's participation, it is recommended that decisionmakers, program planners, and researchers should * listen to, communicate with, and interpret children's view; * create social space for children to participate in their own protection and undertake their own initiatives; and * develop mechanisms to include children's views in decisions that affect them. What can the ADB and World Bank do as major Intemational donors? Intemational donors such as ADB and the World Bank can help national governments to fulfil their commitments to children. Through lending and technical assistance activities the donors can encourage national governments to involve children, NGOs, and civil society organizations in the formulation and monitoring of assistance programs. Intemational donors can also help to ensure that assistance packages are coordinated with government policies to secure a holistic approach toward children's needs, rights, and perspectives. Finally, donors can help establish reliable, coherent data collection systems to avoid distributional and allocative deficiencies and permit evaluations of crisis-related interventions as they affect children and other vulnerable groups. CONCLUSION Implementation of children's rights is the responsibility of the State as much as the family and community. Children's rights as embodied in the UN Convention on the Rights of the Child should be an obligation of the State and civil society as a whole, at local, national, and international levels. Unless economic and social reforms ensure implementation of the basic rights of children, they will continue to be left behind in the development process. This will hinder the progress of all nations. 64 Chapter 23 Vulnerability and Exclusion REFERENCES Foundation for Children's Development 1999. Bangkok Harper, Caroline 1994 "An Assessment of Vulnerable Groups in Mongolia: Strategies for Social Policy Planning." World Bank discussion paper no.229, World Bank/SCF, Washington Harper, Caroline. 1998 'Children and economics framework." December 1998 London Juntopas, Muanpong. 1998. "Social Impact of the Economic Crisis on Vulnerable Children in Thailand" November 1998 Bangkok Malhotra, Kamal. 1999 "Economic Renovation, User Fees and the Provision of Basic Services to Vulnerable Families: Lessons for Viet Nam." Save the Children Alliance and UNICEF UNICEF Thailand, Master Plan of Operations for Development and Protection of Children in Thailand, 1999-2003. Myers, Williams. 1 999. 'Concepts of Childhood and Approaches to Child-Centered Programming and Policy Work Related to Child Labour Issues." September 1999. National Youth Bureau. 1999. "Situation of Children and Youth in Thailand 1997-1998" September 1999. Bangkok Petty, Celia. 1998,1999 "Senes Papers on Social Policy, Social Welfare" Save the Children UK. 1999. "Position on Children's Rights." January 1999. London Save the Children. 1995 Toward the Children Agenda. London The Notion. 13 August 1999. Thailand Theis, Joachim. 1999. "Children and Poverty in Viet Nam Disaggregating Living Standards Survey Data by Age " Save the Children, January 1999. UNDP and Save the Children UK 1998. "Listening to the Voice of Young People " Vientiane. de Vylder, Stefan. 1996. Development Strategies, Macroeconomic Policies and the Rights of the Child. Radda Barnen. Rural 35 and Urban Faces of Poverty REFORMS OF STATE-OWNED ENTERPRISES AND SOCIAL PROTECTION IN THE PEOPLE'S REPUBLIC OF CHINA23 REFORM OF STATE-OWNED ENTERPRISES Since 1978, the PRC has pursued substantial market and enterprise reforms, with SOEs being targeted since 1993. These enterprise reforms have passed through three distinct legislative stages in the past 20 years. They are discussed briefly below. Extended Rights of SOEs The first stage involved extending the rights of SOEs. The major focus of this stage of reforms was to rebalance the responsibilities and rights between the State and enterprises. The 3rd Plenary Session of the 11th Party Central Committee held in December 1978 gave support for the idea of sharpening the distinction between the Party, the govemment and enterprises, and gave enterprises more discretion in their own management. In 1979, the State Council circulated five documents pertaining to SOE rights, which included the Regulations on Extending Management Rights of State-Owned Industrial Enterpnses. By the end of 1980, more than 6,600 experimental enterprises were implementing the new management style. In 1981, the new management rights were extended to all SOEs Extended Management Responsibilities The second stage of SOE reform was to implement the system of contracted management responsibility and to further mobilize energies from enterprises and their employees for production and management The Decisions on Reforms of the Economic System of the Party Central Committee (Decisions), issued in October 1984, proposed setting up a planned system to develop the commodity economy that is based on the conscious application of an objective value law. The Decisions advanced an economic system with cities as the focal point, relying on the innovations and vigor of large- and middle-sized enterprises. The Decisions, for the first time, codified the distinguishing functions between government and enterprises, and identified proprietary rights with management nghts, e.mphasizing the need for enterprises to make independent managerial decisions. Beginning in March 1 988, the State Council successively issued two important documents, Provisional Regulations on the System of Contracted Management Responsibility in State-owned Industrial Enterprises and the Regulations of Tlansforming the Management Mechanism in State-owned Industrial Enterprises. These documents outlined 14 management rights of SOEs. By the end of 1988, 95 percent of SOEs used the system of contracted responsibility. During the first two reform stages, enterprise management reform was largely experimental Enterprises implemented different reform models, including contracting for a fixed rate of profits, substituting profits with tax reductions, using the system of contracted 3 This paper was wntten by Chen Qunzhou. Mr Chen is the Deputy Department Chief of the Ministry of Labor and Social Security In the Peoples Republic of China 66 Chapter 3 1: Urban Development and Poverty management responsibility, and others. But in practice, enterprises were still fully dependent on the Government. Reforming the Operational Structure The third stage of reform was initiated with Deng Xiaoping's speech during his visit to the PRC's southem provinces in early 1990. The major task at this stage was to implement more fully the system put forward by the 14th Party Congress, and to transform the SOEs into functioning corporate bodies capable of managing themselves and assuming responsibilities for firm success. In November 1993, the 3rd Plenary Session of the 14th Party Central Committee issued the Decisions on Certain Problems in Establishing Socialist Market Economy System (Decisions) The Decisions clearly stated the direction of future reform, to develop a modern enterprise system with clear ownership separate from the Government, clear rights and responsibilities of both ownership and State, and promoting efficient management. The 1 5th Congress of the Party, held in September 1997, formulated specific strategic objectives to carry out reorganization of SOEs, emphasizing ownership structure, and supporting additional models of performance-onented state ownership. According to the plan of the 1 5h Congress, by the end of the 20th century, the Government would complete the reorganization of large- and medium-sized SOEs into market-driven entities. SECURITY FOR THE URBAN POOR Due to the industrial adjustment and enterprise transformation in the 1990s, some enterprises went bankrupt, and there has been an increase in the number of unemployed workers Since most SOEs are located in urban areas, the number of urban residents who have experienced unemployment and poverty has increased The Government has set up three levels of social protection systems for poor urban residents The first level consists of providing basic income to workers laid-off from SOEs The second program is a comprehensive social insurance system for old age pension, unemployment, and worker's disability The third component provides a minimum income level to poor urban residents. in addition, there is a social relief system, which dates back to 1949 The main population segments for which the system was originally designed are urban residents who are old, unemployed, disabled, or young orphans. This system is not appropnate to meet the social challenges at the beginning of the new millennium. With enterpnse restructuring, the social relief system needs to be reformed. Efforts to reform the social protection system through minimum social assistance requirements have been underway for several years For example, in 1993, the Shanghai City government issued minimum living standard requirements after a thorough study of its population. In 1994, the Ministry of Civil Administration required the determination of minimum living requirements in major cities In 1995, 12 cities, including Xiamen, Fuzhou, and Qingdao, conducted studies on the minimum incomes necessary to live at a reasonable standard. The 9t Five-years Plan and the Long-term Plan (2010) for National Economic and Social Development of the People's Republic of China further emphasized the need to set up a social protection system for urban residents based on minimum income requirements. In September 1997, the State Council sent out a Circular on Setting up the Minimum Living Secunty System for Urban Residents in the Whole Country (Circular). This Circular asked model cities to establish the Minimum Living Security System for Urban Residents before the end of 1998. In addition, all cities at county level and county government were requested to implement this system before the end of 1999 The Circular also stipulated that all city residents whose average family income per capita was lower than the minimum Q Chen. Social Protection for the Urban Poor in China 67 living security standard of the city should receive relief At the same time, the State Council held special video telephone meetings to support this work. By the end of June 1999, there were 660 cities and 1,505 towns where county governments have set up the Minimum Living Security System for Urban Residents, which, respectively, accounted for 99 percent and 92 percent of total urban settlements. In the first half of 1999, local government at all levels provided more than Y600 million in relief measures to more than 2.2 million urban poor people Each locality decided and promulgated local minimum living security standards according to the average standard of living, consumption indexes, and financial situation of the locality. The data indicate that the minimum security standard of the whole country is Y70 per month per capita, the maximum Y260; and most cities fall in the Y1 00-150 range In September 1999, Zhu Rongji, the Premier of the State Council, issued the Regulations on Minimum Living Security for Urban Residents (No 271 Command of the State Council) (Regulations). These Regulations determine-based on local actual conditions-(i) requirements of urban residents for enjoying minimum living security support by the Govemment, (ii) resources to be raised under minimum living security funds, (iii) security standards and work procedures, (iv) management and supervision of work, and (v) staffs and social security responsibilities. These Regulations play an important role in helping to accelerate the process of standardizing and systematizing the minimum living standards for the approximately five million urban poor in the PRC. 68 Chapter 3 1 Urban Development and Poverty CITIZENS' NETWORK TO ADDRESS URBAN POVERTY IN THAILAND24 INTRODUCTION A major challenge for national governments and intemational organizations over the last several decades has been to address poverty more effectively. The key is to find mechanisms for poverty reduction on a large scale and make continuous efforts that are administratively manageable as well as cost effective. Expenence shows that conventional government-led approaches alone are not effective and that small adjustments to the public system cannot succeed, given the scale and complexity of urban poverty problems New ways to combat poverty must be found that do not rely solely on the capacity of the existing institutional system and that can work across a wide range of urban populations with sufficient strength, capacity, and authority One important mechanism in Thailand is citizen networks that deal with various development issues through the support of the Urban Poor Development Fund. THE URBAN COMMUNITY DEVELOPMENT OFFICE IN THAILAND Thailand has about 2,000 slum communities, in which about two million urban poor people are living. The number of urban poor in fact is substantially more than two million, since many people live outside the slums. More than 70 percent of the urban poor work in the informal sector, with the majority in small trading businesses and daily wage jobs. Lack of income contnbutes to many problems, among them land and housing insecunty, lack of basic infrastructure, and poor health and education Since 1992, the Urban Community Development Office (UCDO) has experimented with new development processes and techniques to address urban poverty in Thailand The "Urban Poor Development Fund" has been used to generate holistic urban community development processes by and for the urban poor community Through the very basic process of community saving and credit activities, more than 600 urban poor saving and credit groups in more than 40 provinces throughout the country have been organized into community networks located in each city. These networks have created a collaborative development mechanism at community level that provides the urban poor with a politically active voice as well as a link to other civil groups and local organizations in the cities. The Fund is not limited to providing credit to the poor. The savings and credit activities that the Fund promotes are a means for the community's self-determined comprehensive development, linking the urban poor together and to extemal resources. Linking the savings and credit groups within the same city, region, or district reinforces the common interest shared by community members within the network. The Fund consists of a revolving credit pool of Bi 25 billion (about $32 million). The Fund is used to improve the living conditions of urban poor communities by promoting community savings and credit groups and by providing integrated loans at favorable interest rates Networks can be formed in the same geographical area or are established based on the common interest of the constituent groups. The UCDO and the Fund also help to develop managerial capacity of communities by linking and creating vanous development activities such as housing, welfare, environment, community enterprise, etc in such a way that communities are linked to work or to leam together as well as with other local actors. 24 This paper was wntten by Somsook Boonyabancha Ms Boonyabancha is working for the Urban Community Development Office of Thailand's Housing Authonty S Boonyabancha: Clttzens Network to Address Urban Poverty In Thailand 69 THE FORMS AND FUNCTIONS OF COMMUNITY NETWORKS A community network is not difficult to start in Thailand. A gathering of urban poor groups to discuss common problems and issues of importance, if facilitated properly, can lead to community collaboration and networking. Most networks start as a loose gathering of people and gradually develop into an organization. As people understand each other, more communal activities are implemented, both small and large, both simple and sophisticated projects, based on the peoples' needs and the current situation in the poor neighborhood There can be many different types of community networks. The basic idea is to establish linkages and connections that permit the urban poor community to participate in and influence its surroundings. To be effective, the network needs to be organized at the smallest constituent level, which acts as the base from which links to other larger constituencies can be established. In Thailand, this base constituency has been the district or the city, which then links together at the provincial, regional, and national levels. Each network provides a common platform for communities with similar backgrounds or interests to work together to attain their development objectives and to promote related structural or policy changes. Once there is a community network, it can act as a horizontal development mechanism among the urban poor on various development activities. Examples of urban community networks to address urban poverty in Thailand include the following: community networks to address land and housing problems. Serious land and housing problems are common among the urban poor. Disputes over land tenure and the threat of eviction from absentee owners prevent them from establishing a stable residential status. Community networks have helped in several areas: (i) resolving eviction and land disputes; (ii) helping to secure housing rights and improving housing conditions for the poor; and lill) getting involved in residential and commercial planning with government agencies; * community networks to develop savings and credit mechanisms. Developing financial resources within communities increases earning and job creation opportunities at the local level and allows development and poverty alleviation to be managed by the poor themselves. UCDO has recently provided funds for the formation of Network Development Funds that will disburse loans to individuals in member communities; * community networks to develop community enterprise activities. Networks can organize poor individuals with similar skills or professions so that they can develop businesses or compete with established pnvate firms that would otherwise exclude the urban poor from potential economic gain. Examples in Thailand include: (i) networks in Bangkok that subcontract projects directly from the Bangkok Municipal Authority. In 1999, such subcontracts amounted to B30 million ($800,000) and included production of school uniforms, garbage collection, and small-scale repair and construction; (ii) networks that promote and plan for economic development of urban constituencies; and (iii) professional networks that link poor individuals in the same profession to promote policy changes and improved work conditions * development of a welfare system by community networks. The development of local safety nets to assist the very poor and disadvantaged can be crucial in filling gaps in government assistance During 1999, UCDO worked with the Social Investment Fund to develop a welfare program with community networks as the central operators. Through the community networks, urban communities identified disadvantaged groups and planned welfare activities. Most urban community networks in Thailand now have 70 Chapter 3 1 Urban Development and Poverty their own welfare funds with a full range of components, such as funds for school fees, old people, hospitalization, treatment of drug addiction, and revolving credit funds for income generation activities; and development of urban environment activities by community networks. During the period 1996-1999, UCDO coordinated with DANCED to develop the Urban Community Environment Fund The Fund supports environment projects organized by community organizations and networks. The resulting projects are implemented faster and more cheaply than Govemment-initiated activities. About 200 projects were put into action between 1997 and 1999. CONCLUSION Citizen's networks offer an effective mechanism to harness the resources of the urban poor themselves, and can empower them to remove political and structural constraints that hinder growth and development They have proved remarkably successful in Thailand, with support from the Thai Govemment provided through UCDO. H Le. Rural Development Policies for Poverty Reduction in Wet Nam 71 RuRAL DEVELOPMENT POLICES FOR POVERTY ALLEVIATION IN VIET NAM25 For many different reasons, Viet Nam remains an undeveloped country. Per capita GDP is low, the proportion of poverty is high, the life of the people is hard. To overcome this situation, the Government of Viet Nam has promulgated a wide range of measures to develop the economy and alleviate poverty with the aim of raising standards of living. Economic growth and pro-poor govemment policies have reduced the incidence of poverty from more than 40 percent to about 20 percent in the last eight years. Viet Nam is currently said to be the most impressive success story for poverty reduction in Asia. GOVERNMENTAL POLICIES In 1986, the Viet Nam Communist Party's Sixth National Congress ratified a comprehensive economic and social policy with three key objectives: /i) to shift from a centrally-planned regime to a market-oriented economy managed by the State; (il) to democratize the society; and (iii) to strengthen cooperation and relationships with other countries for peace, independence, and development. Viet Nam is an agricultural country with more than 80 percent of the population, over 70 percent of the national workforce, and more than 90 percent of the poor living in the countryside. Therefore, the policies promulgated by the Party and the Govemment give priority to agricultural and rural development. In 1988 the Party Politburo decided to: (i) allocate land to farmers for longer terms so that they would be willing to invest in production; lii) contract out to individual households; and (iII) permit farmers to buy materials and sell their products In a free market. Irrigation After introducing land-use reforms affecting tenure, distribution, and taxation, the State invested a significant proportion of its budget in irTigation and reclamation projects. So far, 743 medium and large ponds and dams and 3,500 small ones have been built. More than 1,000 large draining sewers and more than 1,000 large drainage and irrigating channels have been constructed. The 10,600 large and medium pumping stations have a capacity of 24.8 million m3 per hour. Cooperatives and farmers purchased more than 755,000 small and medium water pumps. In the past 10 years, irrigation capacity has risen by 1.4 million hectares. Reforestation Major Govemment efforts have aimed at reforestation. From 1976 to 1990, forested area was disappearing at an average rate of 190,000 ha per year. In the 1991-1998 period, that rate had dropped to 35,000 hectares. During that period 1.373 million ha of forest were planted, 9.3 million hectares of existing forest protected, and 700,000 ha regenerated. The forest cover ratio rose from 28.2 percent in 1995 to 30.8 percent in 1998. In 1998 the Government approved a project to plant five million ha of forest land. Forestry has changed from an industry biased toward cutting timber to one that is based mainly on sylviculture, with the people regarded as a major work force to protect and develop forests. These programs improve the ecological environment, generate jobs, contribute to the alleviation of poverty in the countryside, and supply materials to the wood-processing industry. This paper was written by Hong Thai Le Mr Le is the Deputy Director of the Department of Agriculture and Rural Development In the Ministry of Planning and Investment in Viet Nam. 72 Chapter 3 2. Rural Development and Poverty Fishing In 1997 a program for offshore fishing was established. Through this program the State provides preferential loans to people who build and re-equip high-powered ships. There are now 71,600 engine-powered ships, of which 4,000 are of large-capacity (90 horsepower or more) and are equipped for offshore fishing. A network of fishing ports has been built and upgraded Machines now perform many hard jobs, simultaneously decreasing manual labor and increasing productivity. The output of fisheries has become a major export for the national economy, accounting for 20 percent of agncultural exports and about 9 percent of national exports In 1998, fisheries produced 1.755 million tons with an export value of $850 million. Support Services, Forward and Backward Linkages, and Infrastructure In conjunction with these policies, the State has implemented many other programs to encourage broad scale economic development, such as the free circulation of goods, eradication of price controls, and ensuring equality for all economic sectors in business including import and export aspects (except some items forbidden or strictly managed by the State). Many large-scale specialized regions that produce agricultural commodities have been developed and closely coordinate their production with processing industries in rubber, cotton, fruit, milk, tea, and sugar. Meanwhile, rural professions have been re-established and expanded to create cottage industnes in rural villages in porcelain, textiles, woodwork, etc Efforts are continuing to create more favorable conditions for attracting foreign investment capital. Internally, domestic investment is being encouraged through tax preferences; programs for preferential loans to develop forest areas and support industrial crops, such as sugar cane, have been established. In addition, the Viet Nam Bank for the Poor was established in 1995 specifically to provide loans to poor households at preferential interest rates Overall, vital infrastructure has been greatly improved. The rural transport system has been developed and/or upgraded. By the end of 1997, 93 percent of communes had roads to their center, nearly 70 percent of communes had electricity, 98 percent of communes had primary schools; 92 percent had health clinics; and nearly 40 percent of the population had safe water to use Many new rural towns were established. ACHIEVEMENTS IN REDUCING POVERTY The national economy has achieved a high growth rate, averaging 8.2 percent for the period 1991-1995 and 7.5 percent for the period 1996-1998. Inflation was pushed back. In the past 10 years, the rural areas of Viet Nam have seen remarkable changes. The most notable achievement is the continuous increase in food production brought about by improved management, transfer of functions from the central to the local level, and by applied scientific and technical advancements As a result, Viet Nam has been transformed from a food-shortage country to one of the primary rice and food exporters in the world Across the spectrum of agricultural activity, there is measurable progress. For example: (i) Leaner pigs and Sindhi hybrid cattle have been introduced; (ii) special aquaculture enterpnses, including shrimp farming and crab farming are underway; and (ini) in crops, hybnd cotton, high-yielding sugar cane, and other hybrid varieties have been extensively planted. Nearly 70 new vaneties of rice have been introduced and rice exports in 2000 are estimated to amount to 4 million tons. H Le: Rural Development Policies for Poverty Reduction In Viet Nam 73 The tremendous increase in production has invigorated communities materially, culturally, and spiritually. Advances in agriculture have played a very important part in leading the country out of crisis and in creating a foundation for social-economic and political stabilization. They have helped the country to participate in regional and international organizations, and have created preconditions for pushing forward with industrialization and modemization Programs are also underway to reclaim waste lands and facilitate the moving of populations to land-plentiful areas or to new economic areas About 800,000 ethnic minority people have been settled permanently; and more than 1.2 million people benefited through projects for settled agnculture and resettlement. Many border areas were stabilized by disarming mines and upgrading the infrastructure. The Govemment has approved a National Program for job generation with the goal of attracting 1 3 million to 1.4 million workers annually, reducing urban unemployment substantially, and increasing the rate of rural working time. The major emphasis of the program is on skills training and occupational capabilities to increase labor productivity. Most important, living conditions have improved materially. The proportion of households that have solid houses, television sets, radios, bicycles, motorbikes, and electric fans is increasing. The proportion of poor households declined from 30 percent in 1992 to about 17 percent in 1998. The number of people who can read and write and who have graduated from universities, training colleges, and secondary schools has increased Cultural affairs, gymnastics and sports, and traditional customs and festivals have been re-established. PERSISTENT PROBLEMS The income of peasants continues to be low, and the proportion living in poverty remains too high. The income gaps between rural and urban areas and between different regions are high and the trend is increasing. Major reasons for this situation include: (i) lack of land for production (100,000 households in the Mekong River Delta are landless); (ii) lack of capital for production and doing business; (iii) lack of experience in production and business; (iv) lack of access to markets; (v) families with a shortage of workers; and (vi) families with disease or bad luck. The Government has identified 1,715 communes with senous problems. Most of these are located in remote or northem mountainous areas In 1998 a major commitment was made to build infrastructure (fresh water system, transportation, irrigation, power system, schools, health clinics), rearrange population, support financial lending, and strengthen agro- forest extension activities. In 1999 the State invested D400 million in each poor commune CONCLUSION Viet Nam has made great progress towards alleviating poverty. Millions of people in Viet Nam are now enjoying more stable and more productive lives with rising standards of living However, despite the many programs that the Government has put in place, the poverty situation continues to be a serious challenge. Therefore, poverty alleviation, especially in the countryside, is one of the most important tasks facing the Government in this period and in the years to come. 74 Chapter 32: Rural Development and Poverty MICROFINANCE AND THE RuRAL POOR: SoM REALrrY CHECKS IN INDONESIA26 REACHING THE POOR The 1 980s witnessed the emergence of a new set of microfinance institutions in Asia. These institutions have brought the finance of microenterprises to unprecedented levels in two important dimensions- scale and financial viability They reach far greater numbers of the poor than their predecessors, and cover more of their costs Among these new organizations are the Grameen Bank in Bangladesh and Bina Swadaya in Indonesia which are pioneers in the field. These organizations, while differing importantly from each other, constitute the foundations of a financial-systems approach to the poor through microenterprise development. They share, in varying degrees, important characteristics that set them apart from the previous generation of microenterpnse programs. Their ability to reach large numbers of the poor on a nearly commercial basis should propel the field of microfinance to a new level of importance. However, the Asian financial crisis also affected these institutions, although they provided during that time a good safety net for many poor. IMPACT OF INDONESIAN ECONOMIC CRISIS ON MICROFINANCE The prolonged economic crisis has brought disorder to the Indonesian economy. Indonesian industnes are still collapsed due to great foreign debts, exports have not been progressing, while banking was unable to provide credit to the real sectors. Banking recapitalization has yet to occur. An estimated more than Rp600 quintillion (or 60 percent of the recent GDP of Indonesia) is needed to recapitalize Indonesia's banking system. But despite these economic shocks, poverty in Indonesia did not increase much between 1996 and 1999. Urban poverty increased by only 900,000 people, after increasing by 6.1 million people in the crisis penod of February 1996 to December 1998, while rural poverty decreased from 21 3 percent (26.5 million people) in 1996 to 20.2 percent (25 1 million) in 1999. That means that many poor people, especially women who earn income from microenterpnses in the informal sector, had effective safety net mechanisms to cope with the economic difficulties of the Asian crisis. Table 8: Poverty in Indonesia, 1996-1999 URBAN RURAL TOTAL Percent Million People Percent Million People Percent Million People Feb 1996 156 115 213 265 192 3800 Dec 1998 21.9 17.6 257 319 242 49.5 Aug1999 151 124 202 251 18.2 375 Source Puguh Irawan & Haning Romdiatl, The Imppoct of Economic Cnsis on Poverty and Its Impibcation for Develop- ing Strategies, Pra-Widya Karya Nasional Pangan dan Gizi VII, ilPI, 23-24 November 1999 With microfinance programs, non-formal financial institutions (such as self-help groups running Savings and Credit) developed by NGOs and rural fonmal financial institutions (like BPRs/rural banks) helped to mitigate the social costs of the Asian crisIs. The rural economy using microfinance to support microenterprise development opened up new working 21 This paper was wntten by Em Haryadi Mr Haryadi is the Director of the Bmna Swadaya Foundation In Indonesia Em Haryadi: Microfinance and the Rural Poor Some Reality Checks In Indonesia 75 opportunities and absorbed a good number of self-employed from the formal industrial- based sector. Data suggest that the rate of credit repayment during the crisis decreased from 96 to 85 percent. Credit repayment of micro-enterprises has risen again to 90 percent. In short, the microcredit programs survived remarkably well through the crisis. Today, the acute economic crisis in Indonesia is largely over, but many people still suffer in poverty Therefore, changes to support a community-based economic development approach are needed to regain economic growth. INTERMEDIATING THE POOR The financial systems approach of these organizations focuses on developing intermediation for the poor. Financial intermediation works only if the cost of raising funds, lending and recovery can be met by fees and interest income. in other words, financial intermediation requires financial self-reliance on the part of the intermediary institutions. Embracing the goal of self-reliance represents a major change in the thinking of those in the field of microfinance. The concept has gained acceptance in large part because an increasing number of successful programs have been developed by a variety of organizations that serve microenterprises. THE BINA SWADAYA EXPERIENCE The Bina Swadaya's approach in promoting microfinance institutions for the poor can be analyzed in terms of four distinct levels of self-reliance. Presenting these levels as a progression is not meant to imply that programs should begin at the bottom and work up. Beginning most of the way up is far preferable to starting at Level One Nevertheless, programs should-be judged less by their current level of achievement than by their demonstrated progress in moving toward higher levels Level One: Microfinance Formation. This level Is associated with traditional, highly- subsidized programs. Bina Swadaya organizes those in greatest need into Self-Help Groups (SHGs) to form microenterprises or to manage income-generating projects. Grants or soft loans cover operating expenses and establish a revolving loan fund. At this stage, Bina Swadaya encourages the SHGs to undertake savings mobilization Each member of an SHG has to save a small amount of money on a regular basis. Bina Swadaya provides training and technical assistance to the group leaders of the SHGs. However, when programs are heavily subsidized and performing poorly, the value of the fund erodes quickly through delinquency and inflation. Revenues fall short of operating expenses, resulting in continuing needs for grants. Level 7Wo- Microfinance Institution When the SHGs savings increase moderately, Bina Swadaya introduces "Solidarity Savings" which each group deposits with Bina Swadaya The Microfinance Programs also create a so-called "solidarity credit," borrowing on terms near, but still below, market rates Interest income covers the cost of funds, and a portion of operating expenses, but grants are still required to finance some aspects of operations. At this level the subsidy required is significantly smaller than at the earlier level. However, the microfinance programs should not remain at this level. Therefore, the SHGs should be consolidated and trained in accountancy, microenterprise management and SHG procedures, as well as savings and deposit mobilization. 76 Chapter 3 2. Rural Development and Poverty … _ ' - _ - - - - ,- - - - - - - - - -_ - - - - I 1able 9: Bina Swadaya Achievements In Indonesia Level 1 Level 2 Level 3 Level 4 Total Savings and Credit Operation Number of 7 6 5 4 22 FOs Bina Sadaya Field Offices * Number of 196 362 611 570 1739 MF-SHGs MF-SHGs Total Savings 56,396,600 301,069,548 446,300,414 230,123,907 1,033,890,469 Mobilized (Rp) * Total Revolving 87,869,600 87 869 600 Fund (Rp) * Total Bank Loan 548,375,000 819,740,373 848,994,280 2,217,109,653 (Rpj * Total Credit 1,058,733,880 819,740,373 848,994,280 2,727,468,533 Disbursed (Rp) Institution & Capacity Building Support Training on: * SHG Principles 196 SHGs 222 SHGs 418 SHGs * Accountancy 222 SHGs 222 SHGs I skills * Microenterpnse 46 SHGs 50 SHGs 96 SHGs Management * Marketing 50 SHGs 50 SHGs management * Partnership 55 SHGs 55 SHGs Management * Production 55 SHGs 55 SHGs Processing and Marketing Technical Assistance on: * SHG By-Laws 196 SHGs 196 SHGs * Bookkeeping 42 SHGs 42 SHGs * SHG Procedures 71 SHGs 71 SHGs * Business 31 SHGs 31 SHGs Accountability * Marketing 31 SHGs 31 SHGs Services * Business 50 SHGs 50 SHGs Networking * Marketing 50 SHGs 50 SHGs Source: Bina Swadaya Level Three. Improved Microfinance Institution Market rate loans are applied by Bina Swadaya Most subsidies are eliminated, but it is difficult to eradicate a persistent depen- dence on some degree of subsidy. Level Three is associated with most of the well-known credit programs, and it is probably necessary to reach at least this point in order to achieve large-scale operations. The Microfinance Programs at this level are rarely required to take the next step, because their sources of support are satisfied with their performance. The Solidanty Savings and Credit Program has eliminated subsidy from Bina Swadaya headquar- ters, but requires some grant support for supervision. At this stage, the eligible SHGs are also Em Haryadi: Microfinance and the Rural Poor Some Reality Checks in Indonesia 77 being linked with banks to receive a market rate loan without collateral under the 'HBK- Scheme' (Central Bank Program on Linking Banks and SHGs). The SHG members should be assisted with business management, marketing, and accountancy to improve performance in running and expanding their microenterprises, and in managing daily savings collection. Level Four Microfinance 71ansformation The final level of self-reliance is reached when the microcredit program is fully financed from the savings of its clients, and funds are raised at commercial rates from formal financial institutions or banks. Fees and interest income cover the real cost of funds, loan loss reserves, operations, and inflation. The Bina Swadaya has reached this level in promoting microfinancial self-help groups and a microenterprise development program by establishing four rural banks in partnership with a number of SHGs and the micro-entrepreneurs. 78 Chapter 3 2* Rural Development and Poverty CREDIT UNIONS AS ALTERNATIVE BANKING INSTITUTIONS: THE EXPERIENCE OF THE KYRGYZ REPUBLIC27 INTRODUCTION Since independence in 1991, the Kyrgyz Republic's transition from a centralized system to a free market economy has come with substantial hardships The collapse of most systems and subsidies under the command economy resulted in supply shortages and rapid price increases. Wages and incomes, at least in the public sector, have remained low. Private sector activities, while increasing, have not yet generated the levels of employment and income necessary to overcome the systemic deficiencies that are the legacy of the previous system. Cuts in govemment subsidies and services have senously hurt the situation of people in rural areas also The disintegration of traditional marketing channels, and declining disposable incomes and savings, have resulted in decreased incomes for farmers, and virtual elimination of managed, subsidized agricultural input supplies and public transfers have resulted in significant declines in productivity. The most pressing impact was the one on poverty, which tripled within just 10 years from 20 percent at independence in 1991 to 63 percent in 1999. After the fall of the Soviet Union, banking services to the rural areas were available through AgroPromBank, which was liquidated in 1994 because of bankruptcy Since then, access to banking services has been minimal for the small- and medium-sized farmers and enterprises both in urban and rural areas due to high risks and administrative costs. In these circumstances, credit is available to them only through loans given by intemational donor institutions such as Mercy Corps, FINCA (Finance and Credit Association, a US based NGOj etc. These usually involve schemes in which money is provided to an informal group and all members bear loint responsibility for the loan However, merely providing credit could not ensure sustained development. The Government, therefore, decided that the best solution was the creation of locally owned financial intermediaries such as credit unions. DEVELOPMENT OF CREDIT UNIONS IN THE KYRGYZ REPUBLIC In August 1996 the National Bank of the Kyrgyz Republic (NBKR) with technical assistance of ADB initiated pilot project on credit unions (CUs) in the Kyrgyz Republic, the Rural Financial Institutions Project Three tnal credit unions were established in different regions, and a special department of the NBKR worked full-time with these CUs. The project itself, approved in November 1997, envisages the development, over a penod of seven years, of a credit union system comprising a network of about 280 individual CUs and an apex institution- Financial Company for Support and Development of Credit Unions (FCSCU). The goal is to mobilize rural savings and provide smaller-sized and generally short-to-medium term loans. CUs are considered as cooperative financial institutions that must be registered as legal entities and licensed by the National Bank. Each CU is expected to have an average of about 100 members. The individual CUs are to offer both savings and lending services to members. The FCSCU is to promote, develop, monitor, and supervise the CUs. As the project goal is not lust to provide loans to people for current needs, but to create institutions that would be permanent financial providers, promotion of the CUs has needed huge efforts Taking into account that credit unions were a new and unknown type of This paperwaswntten byAinura Kyptchakbaeva Ms Kyptchakbaeva istheGeneral Directorofthe SettlementandSavings Company, under the Central Bank of the Kyrgyz Republic A Kyptchakbaeva: Credit Unions In the Kyrgyz Republic 79 institution, FCSCU spent much time explaining to people their objectives and principles, and training them to be managers and accountants of CUs Special regulations on establishing and operating credit unions were prepared and approved by the NBKR. FCSCU has conducted the following activities: (i) assistance in establishment of credit unions; (ii) consulting services and practical assistance to credit unions; (iii) creation of a regulatory and supervisory base for credit unions; and (iv) financial services to credit unions. At the very initial stages of building the system, especially in circumstances of low incomes and savings of the population, credit unions needed additional donor funds. Credit unions are allowed by the legislation to receive an initial matching loan from the FCSCU, if it meets the following criteria: (a) it has a minimum paid in share capital of Som5O,000; and (b) it has established appropriate lending arrangements. The matching loan in this case must be equal to a CU's total paid in share capital. By 1 October 1999, 152 credit unions had been registered all over the republic and licensed as non-commercial financial institutions. They served more than 6,000 people, 68.5 percent of them from rural areas. Total capital is Kyrgyz Som 24,648,000 (equivalent of $587,000). The total loan portfolio is Kyrgyz Som 34,422,000 (equivalent of $819,600). The repayment rate in credit unions is high at 91.5 percent of total loans outstanding. Credit unions are more popular in the rural areas Evidence of the high activity of the population involved in the process of the creation of the CU system is the establishment of the Consultative Committee, which comprises representatives from 10 CUs. The Consultative Committee represents the interests of the CUs and provides operational feedback on the development of the CU network. OBJECTIVES AND ORGANIZATION OF CREDIT UNIONS The objectives and principles of CUs are founded on the philosophy of cooperation and the central values of equality, equity, and mutual self-help. At the heart of these principles is the concept of human development expressed through people working together to achieve a better life for themselves and their children. The objectives of these noncommercial financial institutions are, (i) the promotion of thrift among their members by the accumulation of their savings; (ii) the creation of sources of credit for the benefit of their members at a fair but commercial rate of interest; (iii) the use and control of members' savings for their mutual benefit; and (iv) educating the members to enhance economic, social, and cultural harmony. The membership of CUs consists of persons with certain common bonds including bond of occupation, residence, or employment by a common employer. To establish a CU, not less then 10 persons are needed. Each CU has to have paid-up capital of at least Som3O,000 before being eligible to obtain a license from NBKR to operate. Operating Principles of Credit Unions All CUs operate in accordance with several principles, as follows: Open Membership: Membership in a CU is voluntary and open to all within the accepted common bond who can make use of its services and are willing to accept the corresponding responsibilities. Democratic Control, CU members have equal rights to vote (one member, one vote) and participate in decisions affecting the CU, without regard to their amount of share capital or deposits, or their volume of business. The CU is autonomous, within the framework of law and regulation, and it is recognized as an entity, owned and controlled by its members. 80 Chapter 3 2. Rural Development and Poverty To run a credit union Its members choose a group of at least three persons from among their ranks to serve as a board of directors Also, they choose a group to be a credit committee, and another to be on a supervisory committee General meetings of members of a CU approve interest rates, credit, and budgeting policies. The Board of Directors controls daily operations, the services offered and all major decisions about the CU The Credit committee is responsible for the execution of credit policy, disbursement of loans, and collecting loans. A supervisory committee conducts regular checks of all procedures These bodies report key events at the annual general meeting. Elected offices are voluntary in nature and the holders of these offices do not receive salary for fulfilling their duties. However, their legitimate expenses may be reimbursed. Minimization of nsks To minimize nsks in the activity of a CU. (i) the maximum paid in share capital of any member is not to exceed 10 percent of the total paid in capital of the CU; (ii) the loan to a member of a CU is not to exceed three times the saving share of this member, and not to exceed 15 percent of share capital of the CU; and (iii) every loan to a member must be sanctioned against collateral Member Services and Distribution Specific services and a distribution of profits are provided to members of CUs. Services are provided exclusively to the members of CUs. They are directed towards improving the economic and social well-being of all members rather then towards the maximizing of surpluses At the initial stage credit unions accumulate savings from members only in the form of shares There is a provision in the legislation that only mature credit unions will be allowed to attract deposits, subject to special permission of the NBKR. Credit unions charge affordable loan rates-almost the lowest available. In the Kyrgyz Republic, most members join a CU in order not to save but borrow money Because of this CUs make small, short-term loans. To encourage savings, and thus to provide loans and other services, a fair rate of return is paid on members' savings, within the capacity of the CU. The surplus arising out of the CU's operations, belongs to and benefits all members. This surplus is distnbuted among members at the end of a year as dividends in proportion to their saving shares, or directed towards improved or additional services. Owing to the low cost of CU's business and the high repayment rate, CUs can afford competitive dividends on members' shares. CONCLUSIONS All the necessary conditions for the successful development and operation of a credit union system are present in the Kyrgyz Republic. The temporary Rules on Credit Unions' activity were replaced by the Law on Credit Unions, adopted by the Parliament of the Republic in October 1999. The regulations of the NBKR on CU's activities are being improved according to practical experience and the current situation. Looking to the future development of the credit union system, efforts are being directed now to increasing the size of existing CUs, not expanding the total number This strategy is being implemented because: (i) only large credit unions can be sound and sustainable and can provide appropriate services to their members with lower cost; (ii) large mature CUs will be able to increase a number of services and attract deposits from members, (iii) the training and supervision of large credit unions can be more effective; and (iv) only large CUs can afford the ownership of a cooperative bank, which is necessary for their success. L Zhang Poverty Reduction at the Beginning of the New Millennium In China 81 POVERTY REDUCTION AT THE BEGINNING OF THE NEW MILLENNIUM: CHALLENGES FOR THE PRC28 Over the last several decades, the PRC Government has made unrelenting efforts to reduce rural poverty, and has several achievements in this respect Since the mid-1 980s, chronic food and clothing shortages have been reduced for more than 200 million rural poor people. Further, the living and working conditions of the poorer areas have been matenally improved during this time, along with increased incomes. Social services provided to the poor, including basic education, job training, and health care, have been greatly enhanced. Yet much more effort will be needed as PRC begins the new century. This paper briefly reviews some of the key approaches to reducing poverty and discusses the future of poverty reduction and development in the PRC. POVERTY ALLEVIATION AND DEVELOPMENT STRATEGIES The first step towards formulating development strategies is to define the standards and scope for assistance. This begins with the construction of the operative poverty line. Given the fact that there is still a large proportion of low-income poor, the current poverty line is based on the per capita net income of farmers. The income level thus determined is equivalent to the minimum expenditure needed for subsistence21 Using this poverty line, the number of rural poor who face critical food and clothing problems has been reduced to about 42 million through the new poverty initiatives now in place, as of the end of 1998. The main approaches and strategies adopted by the PRC Govemment In reducing poverty and promoting development include- shifting from a "blood transfer" approach to "blood generation" approach Experience over the past few decades suggests that a general relief approach based on subsidies and hand-outs can only temporarily solve the living difficulties of the poor. It cannot lead to the sustained reduction of poverty. Therefore, our new poverty alleviation initiatives rely more on tapping the capacities and wisdom of local communities and officials. With the essential support from the Central Government, the new approach strives to harness the local natural resources, promote market-oriented production, and enhance the development of local capacity and self-development; * focusing on sustainable development of the poor areas. Poverty reduction initiatives are now closely integrated with the development of education, science and technology, culture, health care, family planning, and ecological improvement. This comprehensive approach is intended to link the reduction of poverty to social progress in a coordinated fashion, * increasing funds for poverty reduction and improving the efficient use of funds The Central Government budget allocated for poverty eradication and human development has increased annually for the past several years. In 1999, the Central Government funds earmarked for poverty alleviation reached Y24 8 billion At the same time, local governments are required to contribute additional proportional funding from their own 28 This paper was written by Zhang Lei Mr Zhang Is the Deputy Director General of the PRC State Council Leading Group Office on Poverty In the Peoples Republic of China "" The rural poverty line In the PRC Is about $0 66 at International standards This compares with Y635 per capita Income in 1998 at 1985 Purchasing Power Parity (PPP) prices The intemational poverty line of $1 a day per capita income compares with Y947 in 1999 at 1985 PPP 82 Chapter 32 Rural Development and Poverty budgets in addition, to ensure the efficiency of fund utilization, the Central Government has formulated 'Management Regulations on the National Poverty Alleviation Funds;" improved targeting of programs to poor households. Development of agriculture and animal husbandry activities are increasingly emphasized as well as agro-processing industries as a means to increase the income of the poor farmers. Two types of programs are targeted to the poor the first entails direct assistance to poor households by local Party members and officials and capable households, the second delivers poverty alleviation funds to the poor through micro-finance mechanisms; * mobilizing domestic social forces to participate in poverty reduction Fully 138 central government ministries and departments have been organized to assist 325 nationally designated poverty counties. Further, under the "East-West Poverty Reduction and Economic Cooperation Program," 13 coastal provinces and municipalities were organized to help 10 poorer hinterland provinces and municipalities. This sort of cross-community support will be important to the poverty eradication effort; and * actively seeking the cooperation of the international community. International organizations or foreign governments have supported scores of poverty reduction programs in the PRC, including projects funded by the World Bank. The Government is currently looking into ways to support poverty projects in collaboration with ADB. The poverty eradication process can clearly be accelerated through international cooperation. The Govemment can also draw on the lessons learned and best practices from successful international expenences to help improve the effectiveness of our efforts. A primary goal of the National 8/7 Poverty Reduction Plan is to eliminate food, clothing, and basic living problems for the rural poor In order to achieve this end, the Government is intensifying program efforts In June 1999, the Central Party Committee and the State Council held a National Working Conference on Poverty Reduction and Development The conference mobilized all social forces to participate in these initiatives As a result of the new initiatives, we are confident that another 20 million rural poor can be lifted out of poverty in the next two years. CONCLUSIONS In the new century, the PRC wants to further intensify the work on poverty eradication and economic development There remain more than 20 million poor who are still faced with serious subsistence living problems. Using the World Bank's more generous dollar-a- day poverty line, there are still 117 million poor rural Chinese. Further, the living and working conditions in the poor areas have not changed fundamentally These populations are so vulnerable to natural disasters that any calamity will cause many people to slip back into extreme poverty. Finally, it will be a long process to change completely the social and economic backwardness of the poor rural areas and minimize the regional disparities in living conditions In view of these factors, the Government believes that the basic solution to the subsistence living problems of the rural poor is merely one step in the poverty reduction and development process. in the new century, poverty reduction endeavors will focus on a level of development beyond the subsistence standard The State Council Leading Office on Poverty is prepanng the poverty alleviation and development programs that will lead the PRC into the new millennium H Morales When Does Agrarian Reforn Work for the Filipino Poor? 83 WHEN DOES AGRARIAN REFORM WORK FOR THE FIUPINO POOR?30 INTRODUCTION Historically, there have been many examples of agrarian and land reform movements led by govemments, such as in PRC, lapan, Republic of Korea, Taipei, China, and Viet Nam. These experiences suggest that agrarian reform works best under an authoritarian state because the State is able to curtail landlord opposition, effectively subsidize increased produictivity, and enable more capital accumulation. Land reform in a democratic setting faces more challenges. This is illustrated by the Philippine experience. Implementation under democracy means a lesser reliance on previous "dirigiste" models of State intervention and greater reliance on fully functioning markets to offset asset and consumption inequalities. International scholarship on agrarian reform clearly spells out the positive effects of redistribution on incomes, health, and education. But these effects were created in less than democratic circumstances, where landlord opposition was suppressed and where redistribution was swiftly undertaken This paper examines recent agrarian reform efforts in the Philippines and discusses shortcomings of those reforms and future plans. It is organized in four sections The first section briefly examines the connection between agrarian reforms and poverty reduction The second section bnefly describes the country's agrarian reform program. The third section discusses the program's impact on rural markets and how it influences the evolution of social capital in rural areas. The final section reviews some opportunity costs of continuance of the agrarian reform program and spill-over effects to other social concerns. THE PHIIUPPINE AGRARIAN REFORM PROGRAM Republic Act 6657 or the Comprehensive Agranan Reform Law operates within a broad context. The Agrarian Reform Program that is being implemented by the Department of Agrarian Reform (DAR) weaves together the three aspects of land tenure improvement, program beneficiary development, and the delivery of agrarian justice. It is in the context of this law that land ownership support services were provided to farmers. The literature on the significance of land redistnbution denves from an analysis of the inverse relationship between farm size and output per unit of land. The advantages of small- scale farming refer mainly to labor-intensive production processes. The inverse relationship tends to break down where the most efficient ways of production require capital intensive technologies that allow large farms to capture economies of scale. The Government has an important role to play in the process of carrying out administrative reforms, such as the formal registration of land titling Such a land reform process results in static and dynamic effects Under the static effects, land transfer is facilitated and the efficiency of land use will increase. With the dynamic effects, since farmers are better assured of reaping the future benefits from their land, they have more incentives to invest in the land and are able to access capital by using their land as collateral. The program mandates that landowners be compensated for their land based upon a price that is either too high for farmers to repay directly or too low for landowners to voluntarily give up their land. A retention limit is set across all crops without consideration 30 This paper was written by Horaclo R Morales Mr Morales is the Secretary of the Department of Agranan Reform in the Phillppines 84 Chapter 32 Rural Development and Poverty of scale economies and beneficiaries are prevented from accessing land markets or to use their land as collateral for the first ten years after land transfer. However, in the Philippine case, agranan reform has been constantly delayed due to landlord opposition and the deferment in coverage of some crops by the Congress. These limitations place an inordinately heavy burden upon the state to provide support services to beneficiaries. PHILIPPINE AGRARIAN REFORM AND POVERTY REDUCTION of the Philippines' total agricultural land, about 8 million ha are covered under the Comprehensive Agrarian Reform Program (CARP) As of June 1998, a total of 4 7 million ha of land had already been transferred by the Department of Agranan Reform (DAR) and the Department of Environment and Natural Resources (DENR) to some 3.2 million rural families. In areas where all or a majonty of lands have been placed under CARP coverage, and where Agrarian Reform Communities (ARCs) have been established, the benefits accruing from government subsidies for infrastructure and directed credit have resulted in income gains. In these communities, new irrigation facilities, farm-to-market roads, and storage facilities, plus the emphasis on matching agnbusiness entrepreneurs and companies with agranan reform beneficiaries, resulted in increased market access and higher off-farm and non-farm incomes. Yet, smaller land holdings are making it more difficult for farm households to depend upon farm incomes alone. Studies for the Belgian Agrarian Reform Support Project show very small land parcels for beneficiaries, amounting to an average of 1 57 ha each This is much less than the 1991 Census of Agriculture national average of 2.14 ha. The 1997-1998 research conducted by NGO Management and Organizational Development for Empowerment, Inc. (MODE) on rice farms showed that economic viability required at least two to three ha of land per household. This may explain why 49 percent of the study's respondents depended on non-farm sources of income, higher than the 45 percent who depended on on-farm income. Six percent were dependent on off-farm income sources. At a national level, aggregate evidence on the direct effects of land redistribution in recent episodes of economic growth is tentative and scarce. Studies conducted by the UN Food and Agriculture Organization's SARC-TSARRD (Agranan Reform Community Technical Assistance Project) program indicate rapid increases in income in selected ARCs that are above the norm, sometimes averaging as much as 200 percent in the advanced ARCs or as low as 20 percent in the less developed ARCs. A more recent survey, conducted by the Institute for Agrarian and Urban Development Studies in 1998 (formerly UP-IAST), found that more than half of Agrarian Reform Beneficiaries. interviewed rated themselves as being better off after CARP, even though a majonty (70 percent) remain below the poverty threshold of P75,000 ($1,900 for a household of six) However, a national data sample of the Institute of Agrarian Studies of the University of the Philippines in Los Banos (UP-LAST), resurveyed by MODE in 1997 to 1998, show that income increased due to nonpayment of rent rather than from an increase in farm investments and productivity. It is also a central task to identify the spillover effects of the program on such indicators as urban poverty, agricultural diversification, and agricultural investments. The World Bank is presently conducting a study of CARP's impact on rural productivity, investments, and other social needs, as part of the impact assessment on agrarian reforms in the Philippines, sponsored by ADB, UNDP, and others. RURAL MARKETS AND SOCIAL CAPITAL One direct effect of the flawed institutional design of CARP is that more barriers to effective functioning of rural markets have been established. A recent study conducted by the DAR Policy Advisory Group shows, for example, how factor share calculations in joint H Morales When Does Agrarian Reformn Work for the Filipino Poor? 85 venture arrangements are determined less by the marginal contribution of land to the production process, but more by the bargaining power and access to information of beneficiaries and their associations, plus the weak fiscal basis of local states. if factor shares are priced high, landowners will be able to secure bigger profits from the sale of land, creating a perverse incentive to sell rather than invest in agricultural modemization. The inflationary result will increase the burden on the agrarian reform beneficiary or the cooperative. On the part of beneficiaries, a high factor share increases their rental streams and equity share in a joint venture enterprise. However, it also increases their renting-in costs and their effective amortization costs. The prohibition on beneficiaries to fully transfer, sell, or convey the titles of their land to buyers or to institutional sources of credit prevent them from accessing the collateral value of their lands in credit markets, or to shift to non-farm employment and livelihood opportunities. These have damaging effects: they drag out the process of land transfer and tenure improvement. The foregoing is also indicative of the problems in social capital formation in agrarian reform communities Instead of evolving trust, the institutional design of the program creates some barners to fulfilling expectations among beneficiaries. In the banana and pineapple plantation sector that is now to be covered by redistribution, intense and often violent conflicts have broken out between various beneficiary groups negotiating leaseback or joint venture arrangements. After the downfall of the Marcos government in the mid 1980s a proposal was made to abolish direct payment schemes and legal ties between landowner and peasant by paying the landlords a one-shot payment equivalent to P600 pesos ($15) per hectare. The absence of any strong contract enforcement mechanism, in the case of contracted prices between producers and traders or end-users, further aggravates the problem, and sets back the aims of agricultural diversification. Strengthening horizontal linkages between beneficianes and between beneficiaries and buyers and other external agents can contribute to mitigating the negative effects of agrarian reform institutions fostered by the State, but they cannot substitute for undertaking agrarian reform as a precondition for market-led growth. Studies have shown that mere improvements in productivity, or increased employment brought about by economic clustenng such as ARCs or agnbusiness investments is insufficient in eradicating poverty in inegalitarian agranan economies. POLICY COHERENCE AND INTERSECTORAL COORDINATION There are at least three important aspects to consider in terms of policy coherence and intersectoral coordination First, is the strategy of the State in bringing together all the rural line agencies and the CARP implementing agencies to focus resources for broad based and sustained agricultural growth and poverty eradication The expectation is that economic clustering within ARCs or within the recently conceptualized Strategic Agricultural and Fisheries Zones will facilitate positive spillover effects on health, education, peoples capabilities, and even on urban poverty Second, is the joint effort of civil society groups, government, and the pnvate sector to shape a coherent strategy for poverty eradication and implement the social reform agenda The National Anti-Poverty Commission (NAPC) is expected to bring about greater formal coordination between initiatives of the Government, the private sector, and the private voluntary sector to eradicate poverty 86 Chapter 3 2. Rural Development and Poverty And third is the coherence of agrarian reform and poverty eradication initiatives with preparations for global competitiveness. This includes government preparations for a new round of multilateral trade talks under the World Trade Organization (WTO), and current government trade positioning within APEC and the ASEAN Free Trade Area (AFTA). The Philippine Govemment's position in these organizations should be informed by the food security and poverty eradication objectives of all stakeholders, including the private sector and civil society groups. In the case of globalization, the effects of the recent economic crisis appear to validate the general unpreparedness of the country for competition. Moreover, continued high levels of protection and subsidies for industry translate into higher redistributive costs. CONCLUSION: THE FUTURE OF PHILIPPINE AGRARIAN REFORM To ensure that market-led strategies actually reach the poor, DAR believes that it can no longer transfer land without integrating the means that will transform beneficiaries into sustainable farmer-entrepreneurs Thus, the department has embarked on an integrated, differentiated, and demand-dnven approach to land tenure improvement and program beneficiary development. Three steps are being taken in this direction First, the DAR has recently launched the MAGKASAKA (Farm Partnerships) Program and is about to launch a Farmers lYust Program that is designed to promote joint venture arrangements and facilitate the flow of agri-agra funds into the countryside. Both projects fall within the framework of averting risks in agncultural production by providing insurance and other fund guarantee schemes, coupled with traditional investments in imgation and rural infrastructure Ultimately the plan is to be able to act as an intermediary between producers and entrepreneurs. Second, the DAR is about to finish the feasibility study and the operational manual for the piloting of a community managed agrarian reform program. This is where local communities are placed in the driver's seat in initiating productive sub-projects in lands secured through the willing seller-willing buyer principle. Building upon community designed and managed activity substantiates, our commitment is to the full blossoming of social capital in both rural and urban areas. Third, the DAR is committed to pursuing an integrated approach to program design and service delivery through a convergent strategy involving DAR, the Department of Agriculture, and DENR The objective is to jointly improve the capabilities of public sector service providers through intensive skills development, reduction in red tape and corruption, and improved transparency and public accountability The World Bank acknowledged in 1997 that an effective state should have the capacity to move from functional and intermediate roles to undertake "activist functions" such as asset redistribution and the fostering of markets. This entails massive institutional capacity on the part of the State, and an understanding of the appropnate relationship between state, market, and civil society. It also underscores the decisive nature of agranan reform as a precondition for a developing country government to eradicate poverty and ensure broad-based and sustainable economic growth. CONCLUSION The paper has argued that agrarian reform works for the poor, in particular the Filipino poor, when it enables market-led growth strategies to reach the poor Reform must continue and be reinforced following the initial reform efforts. The results of initial reform are inherently unstable, and since the rural poor tend to be socially differentiated over time, agrarian reform programs must have both short and long term objectives. H Morales When Does Agrarian Reform Work for the Filipino Poor? 87 REFERENCES Balisacan, Arsenio 1999 "What Do We Really Know or Don't Know about Economic Inequality and Poverty in the Philippines." In. Balisacan and Fujisaki (eds) Causes of Poverty Myths, Facts & Policies. Diliman, Quezon City, University of the Philippines Press. Binswanger, Hans, and Elgin, Miranda. 1998. 'Refl6ctions on Land Reform and Farm Size" Reprinted in:lntemationalAgnculturalDevelopment, Eicher and Staatz (eds), Third Edition Baltimore and London: John Hopkins University Press. Dyer, G. 1996. 'Output per Acre and Size of Holding: The Logic of Peasant Agriculture Under Semi-Feudalism." In. The journal of Peasant Studies, Vol. 24, No 1-2, October 1 996/lanuary 1997 Institute of Agranan and Urban Development Studies, College of Public Affairs, UP Los Banos. 1998 "Current State of Agrarian Reform Beneficiaries: Its Implications to CARP." IARD, UP Los Banos, November 1998. Institute of Agrarian Studies, UP Los Banos. 1998. Final Report: Baseline Survey in 11 Agrarian Reform Communities Covered by BARSP. IAST, UP Los Banos, Apnl 1998. Lara, F., et al. "Agrarian Reform in Rubber Plantation and Development Alternatives." Research paper on Development Management, DESTIN, London School of Economics, London, May 1997. Management and Organizational Development for Empowerment (MODE). 1998. National Re-survey of the 1989 IAST ARB survey. Quezon City: MODE. Monsod, Solita Collas, and Toby Monsod 1999. "International and Intranational Comparisons of Philippine Poverty." In Balisacan and Fujisaki (eds) Causes of Poverty Myths, Facts & Policies. Diliman, Quezon City University of the Philippines Press. Policy Advisory Group. 1999 "Factor Shares in Commercial Croplands." In: Ed Tadem (ed), Compilation of Policy Studies on Agrarian Reform. 1998-1999. PAG-PRIDI, March 1999 Ruttan, Vemon, and Hayami, Yuhiro. "Induced Innovation Model of Agricultural Development." In: Food Research Institute Studies in Agricultural Economics, Trade, and Development 9, No. 2,1972. Reprinted in: international Agncultural Development, Eicher and Staatz (eds), Third Edition. Baltimore and London: John Hopkins University Press. Yuhiro, Hayami, MA. Quisumbing, and L Adriano. 1990. Toward an Alternative Land Reform Paradigm A Philippine Perspective Quezon City: Ateneo de Manila University Press. Social Safety Nets FALLING THROUGH SAFETY NETS AND BUILDING ON PILLARS OF SOCIAL PROTECTION: SUMMARY OF PANEL AND WORKSHOP DISCUSSIONS AT THE MANILA SoCIaL FORUM31 ELEMENTS OF SOCIAL PROTECTION SYSTEMS FOR ASIA The Asian crisis and its aftermath have served to highlight the importance of social safety nets and social protection policies in general as essential components of healthy economies. Most countries in the region invoked some combination of expanding existing safety net programs and hastily implementing new ones to address the increasing oblessness, poverty, and vulnerability resulting from the crisis. However, many of these same countries discovered that implementing piecemeal public programs in reaction to the crisis was unsatisfactory. A key issue for the Asia region is how best to establish country-specific systems of social protection that can lessen the impacts of future shocks. ESTABLISHING THE SOCIAL PROTECTION SYSTEM There is a growing consensus that social protection should be seen as an investment in human capital and as a set of proactive instruments to promote equity and growth. It should not simply be viewed as a reaction to the plight of the most vulnerable in crisis conditions. Publicly provided programs represent only one set of mechanisms to manage social risk. A social protection system also incorporates informal and market based arrangements such as individual household savings, support from relatives, or private insurance. Indeed, throughout much of Asia, pnvate households provide the major share of funding for risk management Care must be taken to design public safety nets and social protection interventions that do not promote dependency on public assistance and do not crowd out private mechanisms. Information is critical for a well functioning system. Systematic information on poverty, on vulnerable groups, and on program costs and expenditures is essential to assess the impact of program interventions on beneficiaries, and is essential in improving and designing new programs. Attention needs to be paid to putting in place the appropriate information gathering and processing institutions to support the social protection system. These institutions exist in places, but too often governments are relying on the analysis of outside institutions to provide the needed information. In order for social protection to be sustainable, countries must be able to design, monitor, evaluate, and implement programs without outside assistance. Social protection should be a participatory process. Evidence indicates that successful interventions are those where communities and civil society are directly involved throughout the process. There is a need to develop innovative mechanisms for providing assistance, including looking to the private sector. The Mahalla program in Uzbekistan provides an 3 This paper was written by )ohn Blomquist As consultant to the ADB, Mr. slomquist helped organize the Manila Social Forum He is now with the World Banks Social Protection Network. 90 Chapter 4 Social Safety Nets interesting example of direct community involvement in the targeting and administration of public benefits ISSUES OF PROGRAM DESIGN AND IMPLEMENTATION The design and implementation of specific programs should occur only after a thorough assessment of the social risks, notably for the population groups primarily vulnerable to those nsks. Experience with existing interventions suggests several aspects of programs and the policy environment that deserve prionty consideration. Among these are program adequacy, benefit targeting, institutional structure, prevailing budget and other constraints, and overall sustainability. Adequacy. Public interventions are costly to manage and administer. Therefore it is essential that program benefits provide significant assistance to recipients to justify the costs Many current programs do not satisfy this most basic criterion. Benefits from pension programs or direct cash transfers are frequently not sufficient to meet minimum consumption needs. The piecemeal implementation of many initiatives has also resulted in a significant overlap of beneficianes and objectives, leading to an unwieldy and inadequate safety net. * Targeting. In keeping with the need for adequacy, limited resources need to be well- targeted to meet the needs of the vulnerable who will benefit most. Examples of interventions in which unintended recipients benefit disproportionately are all too common, including "leakages" of benefits to the nonpoor from public works and other safety net programs Further, many pensions and unemployment insurance mechanisms do not cover vast segments of the needy population, particularly in the informal sector. * Institutional structure Public programs often involve heavy administrative and oversight demands. Emphasis should be placed on developing the necessary institutional capacity to implement programs Developing capacity involves setting up monitoring and evaluation units for programs, training staff to manage and implement interventions, and developing the means to coordinate effectively between government agencies or ministnes involved. * Constraints. Consideration should be given to the financial, infrastructure, political, or cultural constraints that will affect program operation. Design options are available to reduce or circumvent these constraints, including involving the private sector more prominently in the provision of programs, or relying on a more decentralized approach to program management. How countnes deal with these constraints will vary. There is no single best social protection system. * Sustainability. Social protection interventions should be in place pnor to a crisis situation and should be designed to be sustainable. Program sustainability involves ensuring that costs are manageable within the budget framework, that financing and benefit delivery mechanisms are secured for the planned future, and that the program is consistent with the existing policy and regulatory frameworks. it is difficult to create an effective social protection system quickly under cnsis conditions, as illustrated by the experiences of Thailand and Indonesia CONCLUSION: THE WAY FORWARD Individuals and families cannot cope alone with the social nsks inherent in participation in the economy. There is a role for the state in risk management through the provision of social protection programs However, more attention should be paid to assessing the risks, vulnerable groups, and potential interventions in the context of the priorities and constraints faced by society. I Blomquist Social Protection: Failing Through Nets and Building on Pillars 91 Govemments have become increasingly aware of the need for sound policies, highlighted by the interest in social protection raised in regional forums such as APEC. The international community is devoting increasing attention to the value pf effective social protection policies in the fight against poverty. Both the World Bank and the ADB reflect social protection assistance in their planned operational programs. The next step is to work together to utilize the experiences of government, civil society, and intemational institutions to create country-specific social protection systems. 92 Chapter 4 'Social Safety Nets EMERGING LESSONS ON SOCIAL SAFETY NETS32 INTRODUCTION: WHAT, WHY, AND WHY NOT? Social safety net programs were not often discussed in policy circles in the East Asia region even three years ago. It was largely accepted that the tremendous export-onented growth of the Asian Tiger economies would continue, further reducing poverty and improving conditions for the poor as a byproduct. The cnsis changed the discussion, putting poverty alleviation, safety nets and social protection on the policy agenda. This note briefly summarizes experiences with safety nets in Asia and points to emerging lessons for the future. It is useful to begin by highlighting the meaning of safety nets The discussions surrounding this policy area have used a variety of terminology to refer to similar but distinct concepts, including social safety nets, social assistance, welfare, and social protection. In the following discussion, formal safety nets refer to programs that provide or substitute for income. These include. i) cash or cash-like transfers such as family allowances, unemployment allowances, and public works, and ii) in-kind transfers such as food stamps and subsidized public services. Similarly, informal safety nets refer to private mechanisms that provide or substitute for income, including personal assets and assistance from friends or relatives. Why are formal safety nets needed? The traditional view is that they protect consumption and provide support during hard times. An altemative view expands on the traditional to regard safety nets as a social investment. According to this view, safety nets reduce or mitigate social risk, in turn promoting risky but high return investments in human capital and productivity which benefit society. Further, safety nets create a floor for living standards which promotes social cohesion, as well as limiting irreversible losses to vulnerable households. Yet safety nets have costs. First, there are incentive costs in that there is a tendency for recipients of safety net programs to work less than they otherwise would Second, there is the possibility that public safety nets will substitute for, or crowd out informal mechanisms thereby increasing the social cost of providing the programs Finally, there are administrative costs in terms of the institutional capacity, the information, and the management and delivery of programs. SAFETY NETS IN EAST ASIA Throughout much of Asia, formal social safety nets tend to account for only a small part of govemment budgets, reflecting both policy prionties and a strong culture of self-help Chart 2 shows that public spending on social security and welfare is lower in East and South Asia than in either Latin America or OECD countnes. As a consequence of the lower spending, public transfers are a very small part of average household incomes in Asia For example, in both the Thailand and the Philippines, recent data shows that public transfers amount to less than 2 percent of average household incomes. Private transfers, however, amount to 8 and 11 percent of household incomes in the two countries, respectively 32 This paper was wntten by Emmanuel Jimenez and John Blomquist Mr Jimenez is the Sector Director for the Educaton Sector Unit South Asia of the World Bank. Mr Blomquist is now in the World Banks Social Protection Network. As consultant to the ADB, he helped organize the Manila Social Forum E Jimenez Emerging Lessons on Social Security Nets 93 Chart 2: Public Sector Spending on Social Security and Welfare In Asia and other regions Spending as a percent of total gover ment expenditure 12 7 12 . 1 8 4 -3.6 2.2 1.0 0 ~ ~ ~ ~ ... ......_ East Asia Latin South Asia OECD America Slt sa OC Safety net programs in Asian countries tend to be targeted to specific population groups and are aimed at increasing economic participation through work programs and micro- credit schemes Formal insurance mechanisms such as unemployment insurance and pensions typically have lower coverage rates than in other regions. EMERGING LESSONS Based on the experience of safety net programs in Asia and elsewhere, several lessons for the future are emerging, * Spending must increase during cnses. Spending on social safety nets should be countercyclical and should increase during crisis conditions. Informal mechanisms help, but are often insufficient in the face of covariate shocks that affect large groups of the population at the same time In the years immediately following the onset of the crisis, many Asian countries responded with increased spending on safety nets, including Indonesia, Republic of Korea and Malaysia. Conversely, when faced with a similar crisis, safety net spending in Russia actually declined. * Institutional response is limited by country conditions. The ability of governments to scale-up existing programs or to design and implement new programs quickly depends on the prevailing conditions, including the coordination between ministries responsible for programs, the delivery mechanisms in place, and the political will of the govemment * Information is cntical Reliable, timely information on poverty and vulnerability is vital to developing safety nets programs Without it, govemments cannot adjust to changing economic conditions. Country-specific safety nets are key to successful policies. For example, available evidence indicates that urban population groups were more affected by the crisis than others in Indonesia, but this was not the case in Thailand. This information can be used to develop safety nets that target effectively. * Appropriate targeting methods should be used. Several methods are available, including needs-based targeting, geographic targeting, community targeting and self-targeting, with the choice of method depending on available information and administrative cost. In general, needs based cash transfers are preferable to general food subsidies. 94 Chapter 4 Social Safety Nets However, the cost of subsidies can be reduced if linked to other target-related activities such as paricipation in school or public works programs. Labor intensive public works provide both short-term income to participants and improvements in infrastructure, and they are self-targeting The ability to target must be considered when designing programs. CONCLUSIONS Social safety nets can play an important countercyclical role in mitigating the effects of social nsks While informal mechanisms such as family transfers can help in the face of temporary idiosyncratic shocks, they are generally insufficient under widespread crisis conditions. The effectiveness of publicly provided safety nets can be improved with continued advances in information gathering and processing, program targeting, and the development of appropriate institutional mechanisms I Ortiz: Social Protection and the Asian Development Bank 95 SOCIAL PROTECTION AND THE ASIAN DEVELOPMENT BANK33 INTRODUCTION The overarching mission of the ADB is to help its developing member countries (DMCs) achieve accelerated and irreversible reductions in poverty. Social protection, as an analytic concept and lending activity, is an integral component of that mission by making growth more equitable. Recent events underscore the need for greater attention to social protection issues in this region. The crisis countries have discovered that inadequate and under-developed social protection systems have exposed their working populations to excessive risk, increased the incidence of poverty, reduced social welfare and threatened to undermine longer-term human capital investment efforts. Further, many countries in the region that escaped the worst of the crisis have learned from the experience of their neighbors that improvements in social protection are important elements in furthering economic and social development, as urbanization and industrialization gradually undermine the effectiveness of traditional and informal protection systems. Globalization, while increasing the opportunities for growth, will also increase the risks of future macroeconomic shocks. As unemployment and poverty result from economic downtums, issues regarding the adequacy of social protection and social safety nets to maintain progress made to date, and assure future progress in social development are being brought to the forefront in many Asian countries. This paper presents an abbreviated discussion of the increasing importance of social protection in the work of the Asian Development Bank. It begins by descnbing what is meant by social protection, followed by a discussion of the relationship between social protection and the ADB's long-term objectives. Finally, the paper closes with a summary of the operational implications for the ADB. A DEFiNITION OF SOCIAL PROTECTION Social protection is defined as the set of policies and programs designed to promote efficient and effective labor markets, protect individuals from the risks inherent in earning a living either from small-scale agriculture or the labor market, and provide a floor of support to individuals when market-based approaches for supporting themselves fail. The policies and procedures included in social protection can be thought of as involving five major kinds of activities. * labor market policies and programs designed to facilitate labor adjustments and promote the smooth operation of labor markets; * social insurance programs to cushion the risks associated unemployment, disability, work injury, and old age; social assistance and welfare service programs to provide a floor for those with no other means of adequate support; 3 This paper is based on the Asian Development Banks Framework for Operations on Social Protection, written In 1999 by I Ortiz, L Thompson, D Lindeman and 1. Blomqulst Ms Ortiz, Economist {Poverty Reduction) at the Strategy and Pollcy Department of the ADB, is responsible for developing a social protection framework, to become the social protection strategy of the ADB comments may be sent to Isabel Ortiz, SPD, Asian Development Bank, Manila, Phillppines, Tel 0063-2-632-44.44, Fax 0063-2-636-2444, e-mail lortizeadb org 96 Chapter 4: Social Safety Nets * agricultural crop and price insurance to cushion the nsk to agricultural incomes from crop failure or temporary market disruptions, and * social funds and other temporary employment generation programs designed to offer a temporary source of eamed income while enhancing the social infrastructure. This definition recognizes that social protection encompasses activities that span those in both the formal and informal sectors and regardless of whether households derive their incomes from industry, services or agriculture Households in the formal sector will be reached by labor market interventions and structured social insurance, crop insurance and social assistance Those in the informal sector are more likely to be reached by less structured social assistance microinsurance, social funds and other temporary employment programs, as well as price subsidies for food and energy or price supports to farmers. Of the five pillars, the three first (labor markets, social insurance and social assistance) are normally included in any social protection strategy. Given that most of the Asian poor are rural and part of the informal sector, the ADB must take a fresh look at new instruments such as integrated insurance, rural programs and social funds. Agricultural insurance provides the same sort of social protection to small-scale agriculture that the more traditional social insurance programs supply to the urban labor force. TWo areas of critical importance emerge. first, exploring options for simplified integrated insurance programs for rural areas, combining some health, old age and life insurance to sustain livelihoods; second, assessing the trade off between disaster mitigation operations and the possible economic gains from developing comprehensive protection mechanisms in Asia. Social protection issues have become a major concern of the Bank only in the second half of the 1 990s. The first projects consisted of technical assistance for administrative reform and improvement of the Mongolian welfare system and safety nets after the transition from a centrally planned to a market economy The first loan addressing a major social protection issue involved pension reform in Kazakhstan, where assistance was needed for retrenchment and restructunng of an over-extended social protection system..Subsequently, Social Sector Program Loans negotiated with Indonesia and Thailand provided resources for strengthening institutions that had been weakened by the economic crisis, stop-gap measures to alleviate some of the longer-term harm that might have otherwise occurred in health an education, and assistance in creating new approaches to provide social protection As these issues took on a new urgency at the ADB, the need for more effective coordination strategies became clear A first step in achieving this objective is a common vocabulary for discussing social protection issues and a common understanding of their scope. SOCIAL PROTECTION AND ADB'S LONG-TERM STRATEGIC FRAMEWORK Social protection policies and programs, if designed and implemented properly, can make a major contnbution to the ADB's overarching mission of reducing poverty. By focusing on labor markets, social protection is the link between pnvate sector led economic growth and poverty reduction. Effective social protection policies can contribute to economic growth by encouraging farmers and workers to take entrepreneunal risks, helping labor markets to allocate workers to their most productive uses, and facilitating investment in human capital They also increase social welfare by providing a dependable income secunty base Social protection, however, is not a substitute for basic measures that promote economic development and adequate living standards, including core investments in public goods and the development of efficient and transparent markets. Social protection should therefore be seen as one of several measures that work together to promote socially inclusive human development Other kinds programs and prolects contributing to socially inclusive human development include programs designed specifically I Ortiz: Social Protection and the Asian Development Bank 97 to improve education and health, promote gender equity, encourage enterprise, and improve agriculture. There is a need to balance the potential gains from greater social protection with the potential losses from market distortions. This will involve careful review of the conditions under which benefits are provided and the ways in which subsidies are constructed, the relationship between the value of the assistance offered and prevailing wages or prices, the incentives established in the program for delaying taking benefits and/or returning to work as quickly as possible, and the balance between costs and benefits of new regulations. Social protection strategies will vary from one country to another as a result of differences in traditions, institutions, and environments. These include differences in countries' pre- existing institutions and traditions for dealing with social risks, their stage of development, and their cultures and customs. There is no prescription or preferred social protection model. An obvious place to begin is with the ability of the program or proposal to achieve its stated purpose of supplying effective social protection. Such an assessment needs to focus on considerations such as: (i) the sustainability of the program (except, perhaps for certain temporary interventions motivated by an economic crisis), (ii) its likely actual coverage, and (iii) the adequacy and predictability of the support it offers. Investments in program design and development may not be worthwhile where sustainability is open to question, coverage is likely to be limited, and benefits are likely either to be too low or to be unreliable. ADB is researching ways to assess how to expand coverage in its DMCs while maintaining a proper balance between the social gains from improved protection and sustainability of the social protection systems. OPERATIONAL IMPLICATIONS FOR THE ASIAN DEVELOPMENT BANK Within ADB's operations, social protection issues arise in four contexts, (i) developing country strategies, (ii) policy lending to provide broad budget support with social protection conditionalities; (iii) project lending for specific invesment components and capacity building in social protection, and (iv) collateral issues associated with lending where social protection is not the central objective. In the context of country strategies and policy loan conditions around social protection, the key topics will be a country's labor market standards and rigidities, the coverage and sustainability of existing or emerging social insurance (wage replacement) programs, and the cost and effectiveness of its overall safety nets. An ideal relationship with a client country for social protection reform is one in which policy and project lending takes place in a country strategy that advances reforms (e g., liberalizing labor markets or expanding coverage) that the government has taken on in partnership with the ADB, civil society and the IMF, World Bank, and other donors Well- developed social protection systems are large and complex undertakings that can become an integral part of the fabric of a society and have important implications for both social and economic development. To be effective, social protection strategies should be articulated in an integrated manner and discussed with all relevant social players as reforms are an opportunity to rethink the country's social contract This, however, is often not the case, and reforms are precipitated by crises that have exposed or exacerbated flaws in preexisting policies (e.g, the withdrawal from centrally planned economies, the Asian financial crisis). Especially in the latter context, experience suggests that govemments should not be asked to pursue policies that will require a consensus over time or "time consistency" that has not yet formed within the society (e.g., structural pension reform usually demands an "all-party" consensus). A social protection agenda should be framed taking Into account DMCs' national policies and priorities within the ADB's overarching goal of reducing poverty, assuring that 98 Chapter 4 Social Safety Nets social protection is integrated with other development activities and into ongoing country dialogue. This process of consultation indicates that reforms cannot successfully proceed before sufficient analysis, planning and participation has been done, including detailed assessments on whether reforms can be implemented and managed A wide variety of approaches are available for re-structuring and improving social protection programs but there is no single prescribed model or solution given the variety of systems and needs in the area. Future social protection systems in Asia may likely differ from country to country given the multitude of factors involved. Social protection project lending is usually designed to enhance the capacity of govemment institutions to provide social protection benefits or services directly or to regulate interventions mandated through the private sector. Investment projects may include components such as active labor market programs, social/rural funds, and social safety net programs. Common functions in need of strengthening institutional capacity include collection, data processing and service delivery mechanisms needed to operate formal wage replacement programs and labor exchanges, capacity to enforce labor market standards, development of locally-based social assistance agencies and community institutions for those needing permanent or temporary care, and improved ability to develop and enforce sound regulation of financial market institutions and their investment policies. Social protection issues also emerge as important collateral issues in other lending where social protection policy or capacity building is not the direct object of the loan. Typical examples are loans dealing with shifts toward market determined pricing of energy, water, telecommunications, and housing. Ideally these measures should take place after appropriate regulatory institutions have been created and safety nets established. Often, however, interim measures may have to be adopted to ease the effects on households (e.g., tiered pricing of utilities) Addressing these social protection issues in a coordinated and systematic way involves at least two new challenges for the ADB. First, a recognition that social protection involves complex analytical and technical issues, many of which represent new areas of concern for the ADB and its DMCs' governments The ADB will need to invest in its own human capital to acquire the necessary new skills and work capacities Second, social protection policies and programs must often strike a balance among multiple social and economic objectives, equity and sustainability concerns. The various multiple objectives have traditionally been the focus of different units within ADB To assure proper balance among the various objectives, ADB will need to develop new procedures for managing work and coordinating efforts among its various units. R Holzmann: Social Risk Management 99 SociAL RISK MANAGEMENT: THE WORLD BANK'S NEW CONCEPTUAL FRAMEWORK FOR SOC AL PROTECTION34 The recent financial cnsis in East Asia has again demonstrated that individuals, in particular the poor, are vulnerable to economic down-turns and that past high economic growth rates and income levels matter little if appropnate safety nets are not in place. The need for appropriate social risk management instruments to deal with human-caused and natural shocks goes well beyond public interventions to help individuals cope with the effects of shocks once they have occurred. A sustained development process and lasting poverty reduction require a comprehensive set of instruments and public interventions provided by a multiplicity of actors to assist individuals, households, and communities better manage risk before and after it strikes Risk and vulnerability associated with natural disasters, crop failure, war and violence, illness and injury, old age and death, and job loss and business failure have been present in the public policy arena for decades, and the more advanced countries have complex arrangements in place to help manage these risks. Risk and vulnerability have moved more to center stage in recent times for three reasons: * globalization of trade in goods, services and factors of production and the increased inter-connectivity of economies and societies present enormous opportunities for developing countries to prosper. They also bring risks and increased variability in outcomes; * technological change is helping to accelerate the pace of development but at the same time has the potential to widen the inter-country and intra-country gulf between the 'haves" and the "have-nots;" and * increased political openness sets the stage for improved govemance by holding those in power more accountable to larger segments of the population. The poor are finding their voices and asking for help in managing risk. People in all income strata around the world are vulnerable to income and welfare losses associated with shocks, but the poor suffer disproportionately in these situations. They are typically more exposed to adverse risk while they are less able to protect themselves due to their lower asset position and endowments; they typically have little access to formal insurance market arrangements; and downward fluctuations in incomes can be devastating for them and result in permanent welfare loss. The poor, nonetheless, are very aware of the risks they face and have developed elaborate mechanisms of "self-protection" such as asset accumulation (often cattle) in good times, income diversification and informal family and community "pooling" arrangements. These "self-insurance" and "self-protection" arrangements are typically relatively expensive and inefficient, and when shocks -erode productive assets and prevent human capital accumulation (e g., withdrawal of children from school, inadequate nutrition preventing learning), they can send households into a spiraling downward trend, into the so-called "vicious cycle of poverty."As households become poorer and approach extreme poverty and destitution they become very risk averse and fundamentally lose their ability to manage risk at best, they cope. Thus, beyond conventional "handout" programs that help the poor deal with the circumstances of poverty, interventions that act as a springboard, and prevent and mitigate the devastating effects of shocks are clearly preferable. 3 This paper was written by Robert Holzmann Mr Holzmann is the Director for Social Protection of the World Bank In Washington, DC. 1 00 Chapter 4 Social Safety Nets Given the need to go beyond the traditional program definition of Social Protection (SP)-labor market interventions, social security and social safety nets-in order to deal with poverty and vulnerability more effectively in a globalizing world, a new definition of SP based on a conceptual framework of Social Risk Management (SRM) has been developed (Holzmann and Jorgensen, 1999 and 2000) This new framework constitutes the conceptual basis for the StrategyPoperof the SocialProtection Sectorin the World Bahk The final approval process of this strategy document took place early in the year 2000. The SP Strategy Paper is based on regional strategy papers that will be discussed with the client countries and published during late 2000. The proposed definition sees "SP as public interventions to (i) assist individuals, households, and communities better manage risk, and (ii) provide support to the critical poor." This definition and the underlying framework of Social Risk Management: * present SP as a safety net as well as a spring-board for the poor. While a safety net for all should exist, the programs should also provide the poor with the capacity to bounce out of poverty or at least resume gainful work; * view SP not as a cost, but rather, as one type of investment in human capital formation A key element of this concept involves helping the poor keep access to basic social services, avoid social exclusion, and resist coping strategies with irreversible negative effects during adverse shocks; * focus less on the symptoms and more on the causes of poverty by providing the poor with the opportunity to adopt higher nsk-return activities and avoid inefficient and inequitable informal nsk sharing mechanisms; and * take account of reality. Among the world population of six billion, less than a quarter of individuals have access to formal SP programs, and less than 5 percent can rely on their own assets to successfully manage risk. Eliminating the poverty gap through public transfers is beyond the fiscal capacity of most World Bank client countries The main idea behind SRM is that in a world of imperfect markets and asymmetric information (i) the type of shock matters, (ni) there are more risk management than risk coping strategies, and (iii) there are more risk management arrangements than public transfers. * The capacity of individuals, households, or communities to handle risks and the appropriate nsk management instruments to be applied depend on the characteristics of risks: their source, correlation, frequency, and intensity. Most important, while households can often cope with uncorrelated (idiosyncratic) nsks,:such as temporary sickness, though informal arrangements, they are unable to do so when faced with highly correlated (co-vanant) shocks such as floods or financial crisis * Risk can be addressed ex-ante and ex-post. Prevention strategies are introduced before the nsk occurs and include good macroeconomic policy, disaster management, and well functioning labor markets Mitigation strategies also exist ex-ante but attempt to decrease the potential impact of future downside risk that cannot be prevented and include portfolio diversification and insurance. Coping strategies attempt to relieve the impact of a risk once it has occurred. Since each strategy has direct and opportunity costs, no single strategy dominates. However, in the past, too much attention has been given to coping strategies in companson with prevention and mitigation strategies, implying the need for a redistnbution of emphasis. * Each of these strategies can be applied under different arrangements: informal, market- based or public. informal arrangements such as family, mutual community support or R Holzmann. Social Risk Management 101 savings in real assets work well for some risks but can be detrimental for development. Market-based arrangements, such as financial assets and insurance, allow management of a broad range of risks but require well functioning financial market institutions. Finally, public arrangements such as social insurance, transfers and public works become important if the first two arrangements fail but are surrounded by problems of their own. The application of this framework goes well beyond Social Protection since many public interventions such as sound macroeconomic policy, good governance, access to basic education and health care all help to reduce or mitigate risk, and hence vulnerability. It also extends Social Protection as traditionally defined since it goes beyond public provision of risk management instruments and draws attention to informal and market-based arrangements and their effectiveness and impact on development and growth. REFERENCES: R. Holzmann, and S. Jorgensen; 1999. "Social Protection as Social Risk Management. Conceptual Underpinnings for the Social Protection Sector Strategy Paper." Social Protection Discussion Paper No. 9904, The World Bank, Washington, DC, http://www.worldbank org/ sp. R. Holzmann, and S. Jorgensen; 2000. "Social Risk Management. A New Conceptual Framework for Social Protection, and Beyond." Social Protection Discussion Paper No. 0006, The World Bank, Washington, DC, http://www.worldbank.org/sp. Social Protection Sector Strategy Paper, The World Bank Social Protection Sector, Human Development Network, The World Bank, Washington, DC, (in preparation). 102 Chapter 4. Social Safety Nets PUBLIC WORKS PROGRAMS FOR MANAGING THE ECONOMIC CRISIS IN THE REPUBLIC OF KoREA35 INTRODUCTION Unemployment has been a key social consequence of the massive breakdown of the Korean economy that began in November 1997 with the onset of the Asian Cnsis The unemployment rate shot up from a pre-crisis range of 20-2.5 percent to 8.7 percent by February 1999 While the unemployment figures have been stabilizing somewhat in recent months, they remain at a level too high for sustaining the country's socio-economic position. Faced with the huge outpouring of work force from the corporate sector, the Korean govemment introduced several measures aimed either at minimizing the scope and extent of layoffs or addressing the needs of those already laid off. This brief note considers some key aspects of one of the principal crisis measures, the public works program The attributes and shortcomings are examined with a view to drawing lessons for future efforts in the areas of social protection and poverty eradication. PROGRAM CONTEXT AND ATTRIBUTES In the turbulent first few months following the collapse of the Korean economy, the Government initiated thousands of public works projects to provide alternative support to the families of the unemployed and help maintain their work capacities The projects were soon expanded to include the low-income able-bodied unemployed who were not already benefiting from other forms of public assistance The Public Works program therefore consists of two operational modules. The first module is intended for individuals who were formerly employed and who are either not entitled to employment benefits or have exhausted them Together with unemployment insurance and job retraining and placement, this first public works module forms the basic set of social protection programs available to the unemployed The second public works module targets poor marginal workers who have been day laborers or are unsustainably self-employed. The second module, along with the temporary Livelihood Protection Program, compnses temporary public assistance aimed at helping the low-income unemployed. The overall administrative charge of both Public Works program modules rests with the Ministry of Administration and Self Goveming Bodies while the substantive responsibility for program implementation goes to the Ministnes of Labor and Health and Welfare Most of the project activities are camed out at the local government level, although a small number take place under the supervision of central govemment ministries Also, many NGOs have been involved at the operational level, formulating project plans and implementing them under governmental supervision. Payment of the cash benefits to the project participants is also carried out by local governments or NGOs The Public Works budgets are drawn entirely from the government's general revenues In 1998, a total of 1,044 billion won was budgeted for the program, jumping 53 percent in 1999 to 1,600 billion won.36 3 This paper was wntten by Po-hi Pak Ms Pak is the Director of the Korea Institute for Social information and Research in Seoul 16 Source Ministry of Labor P Pak Publc Work Programs in the Republic of Korea 103 PROGRAM EFFICACY What distinguishes public works from other social safety net components in general and public assistance packages in particular is its objective of sustaining the work viability of the jobless and 'down and out." The program in the Republic of Korea is not without shortcomings however. Major issues have been raised, including the questionable value and efficiency of public works project activities and the general inadequacy of the benefits to participants. Cost-effectiveness. In the first year of the program the focus was not on the efficiency of the projects since the intent was to alleviate the urgent subsistence needs of as many of the unemployed as possible in the socio-politically explosive early months of the cnsis. As the program has extended into its second year, the Government as well as the public at large began tuming attention to the program's cost-effectiveness and the need to align its activities with the country's overall development concerns, especially in relation to the needs in the human services and environment fields that had tended to be neglected in the country's growth-oriented development context. The Govemment is reportedly working on measures to improve the productivity aspect of the program in the next implementation phase. Coverage. it has been estimated that the Public Works program has been effective in helping to stabilize the livelihood of a cumulative total of anywhere between 786,000 and 789,000 able-bodied but destitute unemployed and their families between 1998 and 1999. However, determining what sort of coverage for the eligible population is implied by these figures is difficult. Estimates on the number of the unemployed who are eligible for public works participation varies from 480,500 (National Statistical Office) to 1,184,200 (Korea Confederation of Trade Unions). These estimates would imply a coverage rate of the eligible population somewhere between 35 percent and 86 percent. Given that the number of unemployed who were turned away from the program in 1998 was 2.5 times the number accepted while assuming that the majority of rejected applicants were in fact eligible, it is very likely that the coverage rate is closer to 35 percent37 Benefit level. There is a question as to the adequacy of the benefits provided by the public works program. If the current standard of the monthly Minimum Cost of Living (MCL) for the average Korean family of 3.5 is used as a benchmark, then the monthly average eamings available through the program are reasonable-the MCL is 690,000 Won while a participant who works the maximum of 20 days per month would eam 480,000 Won per month.38 Yet, the MCL only accounts for bare subsistence needs and does not necessarily reflect adequate minimum needs for real life in the Republic of Korea. Therefore, program benefits could well be insufficient. Further, the public works benefits are more or less the same for all participants, although their individual needs vary considerably. Compared to the Livelihood Protection program (Korea's standard public assistance program) whose benefits are adjusted to family size and include cash provisions for medical care, children's education and small business loans, the Public Works program is not well-targeted. 3 Korea Institute of Health and social Affairs (KiHASA) and Korea Labor Institute (KU), Report on the Conditions of the Unemployed and their Welfare Needs April 1999, pp 186-187 38 Kim Mi-Gon of KIHASA estimates that the monthly income of family of 3 5 persons where the primary bread-winner is engaged in the public works program would be 676,000 won (480,000 won from participation in the program plus 196,000 won of own disposable income) This total is 98 percent of the amount required for minimum subsistence living 1690,000 won) 104 Chapter 4. Social Safety Nets Yet another issue is the wage level offered to participants of the Public Works program. Wages are significantly below prevailing rate in the labor market, and are even below the minimum wage standard Some rationale exists for the generally low wages, since the public works benefit should not crowd out interest in the Livelihood Protection program, nor should public works become a preferred employment option over the regular labor market. However, public works do have a role as a buffer and mediator in managing fluctuating labor demand conditions and they are not just the employer of last resort. Public works wages should be at least at the level of the prevailing minimum wage to provide adequate resources, a structure which would not reduce the desirability of private sector employment options. Benefit duration Limited benefit duration is a potentially serious problem. An unemployed person is allowed a maximum six work months in the public works program In many cases, six months is not sufficient time to secure work in the regular labor market, and the exposure to the program alone is not sufficient to obtain stable employment. Leaving participants to their own devices at the conclusion of a very short participation penod could be worse for many of them than not having been in the program in the first place Some consideration should be given to complementary provisions such as: i) a built- in job placement service to facilitate the participants' transition from the projects to normal lobs; ii) extendable work period up to at least another six months in the case of the second module public works participants; and iii) transformation of some public works projects into small enterprises that can offer sustainable jobs to participants after participation in the program. CONCLUSIONS iWo observations arise from consideration of the Korean public works experience. The first is that the program is based on the assumption that participants will find independent sources of income and livelihood, either by retuming to jobs from which they were previously laid-off or through an alternative employment option. This assumption may be unrealistic, however, because the currently unemployed do not necessarily have the skills that are in demand and low-skllled opportunities are likely to diminish with the accelerating tempo of automation. The second observation is that the public works program as it exists today in the Republic of Korea is wasteful. it barely permits participants and their family members to survive for short penods without doing much to strengthen long-term economic prospects. Yet the public investment required for such meager support is enormous The Republic of Korea is therefore faced with the challenge of refonmulating the Public Works program or of finding an alternative approach One way of responding to this challenge could be to design and operate the program in such a way as to gradually turn each of its projects into community-based cooperative enterprises, with the project participants and other external supporters (other than the Government) as joint stake-holders or investors 39 3 A pilot project is currently underway along this line based on a tri-partite Government-UNDP-NGO collaboration For more information contact the Korea Institute for Social Information and Research P Pak Public Work Programs In the Republic of Korea 105 Table 1 0: Korean Social Safety Net Components (May 1 999; 1 0,000 persons) Social Safety Net Program Social Risks Target Group Status of Coverage Structure Covered Primary Social Safety Medical Illness All people All permanent Net (Social Insurance) Insurance residents In Korea National Old-Age Wage workers; All Industrial Pension self-employed in workers; Self- agriculture and employed in fisheries (urban Agriculture & self-employed fisheries pending) Industrial Industrial Wage workers Workplaces under 5 Accident Accident employees, Compensation excluding temporary Insurance workers Employment Unemployment Excluding only daily Insurance workers (after October 1998) Secondary Supplemeniaxy Public Works Unemployment The 439 participants (as Social Measures unemployed at the end of 1999) Safety Net Job Training 320 participants (as at the end of 1999) Loan Projects 70 beneficiaries (as at the end of 1999) Livelihood Public Works Poverty Low income 1390 (on-going 770; Protection group temporary. 620) (Including temporary livelihood) Home 530 (on-going: 390 Protection temporary. 140) 106 Chapter 4 Social Safety Nets WHICH POOR TO HELP? COORDINATED POVERTY ALLEVIATION IN THE PHILIPPINES40 WHICH POOR TO HELP An appealing campaign platform for many world leaders, as well as many international aid organizations, has been the eradication of poverty Yet the sheer numbers and diversity of poor people make this goal extremely difficult to achieve Reality is no more forgiving in the Philippines. Poverty figures for December 1 997 indicate that 32.1 percent of total households lived below the poverty line, translating into four million poor families or roughly 24 million poor Filipinos. How do we address poverty given limited public resources? More specifically, how do we decide which poor to help? The approach taken in the Philippines since May 1998 under President Estrada has been to help the poorest of the poor first, recognizing that resources should be concentrated on those individuals who are trying to help themselves This paper briefly reviews an approach to this question reflected in the poverty alleviation program of the National Anti-Poverty Commission (NAPC) TARGETING THE POOREST FAMILES The target set by President Estrada for the poverty eradication program is to bring down the poverty index to only 20 percent by the end of his term41 . This means a reduction of 2 percent per year for six years This is at par with the regional performance for Southeast Asia. Yet resources are limited, so it is essential to know which poor to help before formulating public programs. The National Economic Development Authonty (NEDA) statistics show that in December 1997, about 44 percent of the families living below the poverty line are found in the rural areas. These are the people who lack income as well as basic social and economic services- health, education, housing, electricity, communication, and transportation. Although NEDA statistics report dwindling numbers of poor in the urban areas, they still must be part of the targeted poor of the poverty eradication program. In order to reach the 2 percent reduction target every year, the program is designed to benefit the entire barangay village where the poorest families live. The program will identify the poor in stages, beginning with the 100 poorest families in each of the 78 provinces and 83 cities. Subsequent groups of the 100 poorest families in each of the 1,525 municipalities and eventually in the 40,000 barangays will be identified by NAPC42. In view of the administration's budgetary constraints, the package of minimum assistance has been made available only to these lists of the poorest families nationwide. However, poor families that live in the remotest areas and in poorer municipalities (especially in the fifth and sixth class municipalities), whether or not they are in the list of 100 poorest families, will get services from other govemment programs. 40 This paper was written by Donna Z Gasgonia Ms Gasgonia is the Presidential Assistant for Poverty Eradication, and the Chairperson of the Presidential Commission for the Urban Poor and Vice-Chairperson of the National Anti- Poverty Commission of the Philippines This figure is lower than the target set by the Medium-term Philippine Development Plan, which is 25-28 percent The Estrada Cabinet, led by NEDA, is now studying what changes are needed so that the Plan can meet the lower target of 20 percent 42 NAPC was established by law, Repubiic Act No 8425, effectve 30 June 1998 D Gasgonfa: Which Poor to Help? 107 WHO ARE THE POOREST? The Minimum Basic Needs (MBN) approach is used to determine the poorest families based on a set of 32 socioeconomic indicators. The indicators represent three major areas of family well being-survival, security, and services. Survival indicators relate to water and food intake and basic health, among others. Security includes food security that assures that nutritional requirements for a healthy diet are met and housing security. Enabling services monitored by the MBN include health and education Both the Department of Health and the Department of Education, Culture and Sports have revised their programs to respond better to the needs of the poorer segments of society. NAPC is focusing on their programs intended for the young children of poor families. The United Nation's Human Development Index (HDI) provides a way to compare conditions in the Philippines with other countries. In 1998 the Philippines ranked below many countries in the region, including Brunei Darussalam; Hong Kong, China; Japan, Republic of Korea; Malaysia; Singapore; and Thailand The relatively low ranking on the HDI suggest that more attention should be given to improving life expectancy at birth, adult literacy, and enrollment rates, and real per capita income One of the greatest problems is that the Philippines has the highest annual population growth in the region at 2 3 percent With its insufficient budget for education, the govemment will forever trail behind the ideal ratio of school children per classroom. On the other end, there are many adults who also need assistance to become literate. NAPC has adopted a more culturally sensitive perspective in addressing this problem by enhancing the indigenous culture as against imposing literacy in the national language and alphabet. Livelihood is also severely lacking for the poor. NAPC devised a program to develop microenterprises through the establishment of a trust fund for the capability building of local government units, NGOs and peoples organizations43. POVERTY ERADICATION PROGRAM The poverty program seeks both to alleviate absolute poverty and address relative poverty. Here, "absolute poverty" refers to the number of households below the minimum food threshold level while relative poverty" refers to the resource gap between the rich and the poor. The policy framework of the poverty eradication program stresses five major components: food security, modernization of agriculture and fisheries for sustainable development; low-cost mass housing, and protection of the poor against crime and violence Active participation of local government units in program implementation is sought Food security means that no Filipino should go hungry. This short-term objective is to make sure that the poor families affected by lack of available food receive food through the National Food Authority (NFA) rolling stores. The medium-term goal is for specific regions to produce enough rice and corn, in order to meet their local demand. The long-term goal is to be self-sufficient. Modern technology that supports the agriculture and fisheries industries is being made available to farmers and fisherfolk. Sustainable integrated area development has been declared as the official framework for development of the agriculture and fisheries industries. Low-cost mass housing is an important step towards poverty eradication The National Shelter Program intends to construct 200,000 housing units by the year 2004. The strategy 3 Sec 11 RA. 8425 108 Chapter 4 Social Safety Nets adopted is to build communities, not just houses. Every cluster of 500 families will also have a social area or clubhouse with sports facilities and a livelihood/training center. This strategy is designed to combat drug abuse and violence among poor communities. One approach is to use police officers in drug abuse resistance education in elementary schools. CONVERGENCE OF PROGRAM The Philippines is an agricultural country and 44 percent of the rural population lives below the poverty line Development, therefore, needed to focus on the rural poor In response, three departments-the Department of Agrarian Reform (DAR), the Department of Agriculture (DA), and DENR have formulated a convergence of their respective programs The target poor are the agrarian reform communities, the farmers, the fishesfolk, and the upland and coastal communities. The Department. of Health, Department of Education, Culture and Sports, and the Presidential Commission of the Urban Poor were directed to plan for a convergence of health, education and housing services for the urban poor. A small, P2.5 billion ($50 million) fund called the Lingap para so Mahihirap (poverty alleviation fund) was appropriated for the year 1999 to provide assistance in terms of (i) medical and health services, (ii) food, (iii) housing, (iv) youth and child protection, and (v) grants to cooperatives. The Lingap fund is intended to prop up the poorest families so that they can begin to help themselves in economic activities, preferably using microenterprise development. The bigger and more substantial funds of the national govemment agencies will be the eventual sources of enabling services that will create the economic stimuli for the poorest communities to nse out of their poverty FUNDAMENTAL SERVICES The poor communities lack basic services such as electricity, water, communications, and transportation. Realizing that without these services any help to these communities would be wasted, resource mapping is being done to assess their needs for such services. About one fourth of the barangays have no electricity. Many of them are in the uplands, isolated coasts, and small islands. Connection to on-gnd electricity is impractical In response, The Philippine Energy Plan emphasizes the need for installing isolated power plants utilizing as much renewable energy as possible Updated information and communication are essential to level the playing field for the poor communities so that they can exercise judgment without the obstacle of not knowing what is happening everywhere. This lack of information is what moneylenders, usurers, and middlemen capitalize on. The poor can make decisions to ensure better production With power and communication established, product and service delivery requires particularly upgrading of transportation facilities. In consonance with the major components of the poverty eradication program, the participation of local govemment units is important to ensure that the benefits reach the poorest families. The national government then comes in with sustained training and technology transfer through the Community Empowerment Program at the barangay level The Department of the Interior and Local Government and the Department of Labor and Employment through its attached agency, the Technical Education and Skills Development Authonty (TESDA) lead this barangay-based program. Poor workers also lack access to the latest technology, education, and skills needed to be competitive in the marketplace. TESDA will provide them with a comprehensive, integrated but simple training program in accordance with local abilities and market needs. D. Gasgonla Which Poor to Help? 109 INCREASE PURCHASING POWER OF THE POOR Many economic managers expect miracles to happen through massive national projects, yet these projects treat the poor as mere recipients, not market players. The flaw of this "top-down" approach has already been exposed. Besides, this "top-down" approach shifts the blame to the poor when after a single seminar or training, the poor do not meet the expectation to become successful entrepreneurs or skilled workers with secure jobs. The poor are the best channels for the much-needed stimulus to energize economic activity. As soon as the poor receive money, it moves quickly in local economies stimulating other economic activities. Reversing reliance on the "trickle-down effect," funds are being moved to the poor communities directly to increase their purchasing power. This assures that the poorest of the poor are not left out in the poverty eradication program. Aside from service and fund infusion, the poor will be assisted in evaluating local socioeconomic data. This would generate greater saving among them. Savings by the poorest families can then boost the economy, first at community level, and eventually at the national level. PRO-POOR MARKET DRIVEN PROGRAM The poverty eradication program of the Philippines is pro-poor and market-driven. It enables the poorest families to help themselves. It provides access to market information and the market itself. It provides vital government services to meet the minimum basic needs of the poor. Then it encourages microenterprises through the provision of microfinancing. A pro-poor, market-driven program removes hidden subsidies and market distortions. By focusing on long-term development, artificial and unsustainable short-term gains are avoided. This results in a steady, stable, and paced development that is sensible and fair to the poor. Social Sector Reforms SOCIAL SECTOR REFORMS IN ASIA AFTER THE CRISIS: OPERATIONAL LESSONS44 FIVE LESSONS FROM THE EAST ASIA CRISIS Five key lessons for future social policy stand out from the experience of the 1997-1999 social crisis in East Asia. These lessons represent a distillation of ongoing thinking in the World Bank and other institutions, and reflect conscious efforts to mine 'good practices" and experience gained, especially those which suggest better policy approaches for managing economic and social crises. We need to concentrate attention and action more sharply and more effectively on the key factors that are critical to household welfare in times of cnsis Changes in labor demand have the most direct and crucial short-run impact for households, as crisis impact translates into reduced labor demand. In East Asia, unemployment increased significantly but most of the adjustment appears to have taken place through falling wages and the movement of workers into low-paying/low-productivity informal sector jobs Retums on physical assets and capital gains or losses are a second area of focus inflation has harsh consequences for the poorest segments of society, because they hold a greater proportion of their wealth in cash than the non-poor. A third focal point is public transfers across-the-board budget belt-tightening tends to harm those who rely on public services, thus especially the poor. Relative price changes are another key factor: price increases for food hurt those households in the region that are net consumers of food: in East Asia, especially the urban poor and poor farmers whose food stocks and production dropped sharply because of the El Nnlo drought. There are also highly important community effects: social capital is damaged during crises and some households' rational short-term responses have adverse, sometimes irreversible long-term effects. Safety nets work best when they are planned and set up before a cnsis strikes. Existing safety net mechanisms in the region are still patchy, and serve a small minority of people. Coverage by safety nets is limited, leakage is sometimes high, and assistance available far short of demand during the crisis. Poor communities are too often far removed, even unaware of the programs designed to help them. It is particularly difficult to set up effective safety nets, let alone social insurance mechanisms, during a crisis. Financial resources are by definition not available, there are implementation lags and difficult issues arise on the management and political fronts. Effective safety nets aimed at poor families and communities are a long-term development investment that also address one of the critical issues for poverty: the particular vulnerability of poor households to many kinds of risk. When no crisis is in sight, good safety nets provide the insurance necessary for poor households to make risky choices that increase This overview on the subject discussions during the Manila Social Forum was written by Katherine Marshall Ms Marshall Is the Director for Social Policy and Govemance of the World Banks East Asia and Pacific Region She was the coorganizer of the Manila Social Forum, together with Armin Bauer from ADB 1 1 2 Chapter 5: Social Sector Reforms their productivity and spur growth. Effective safety nets can help ensure that an economic shock or other crisis does not halt development, that essential household investments in health and education are maintained Welfare programs are likely to be a key element of effective safety nets to mitigate the risk of loss of income dunng crisis. There are several good examples in the region and also in Latin America (Argentina, in particular). In economies where the formal sector is dominant, unemployment insurance, or savings-plan unemployment schemes, may be appropriate Targeted transfers of cash or food to specific sub-groups of the poor, such as pregnant women or the elderly, or those who should not work, such as school-age children, can play an important role. Mechanisms to provwde information to monitor the impact of the cnsis and evaluate response are a necessity, not a desirable luxury. Effective action demands a crisis response system built on timely and diverse types of information Adequate and timely information on the impact of the cnsis on various groups and areas helps in design of appropnate policy responses and provides feedback on the impact of policies, which allows for corrections if the desired impact does not materialize. There are good and recent examples of effective crisis response information systems, including the Indonesia Social Monitoring and Emergency Response unit (SMERU). Information can also play a crucial role in national and local politics around design and implementation. For instance, at a local level, providing public infonmation on intended public action can help reduce leakage and corruption. Enhanced social dialogue and civil society participation are key to effective social cnsis management Social conflicts are harmful because they divert resources from economically productive activities and they discourage such activities by the uncertainty they generate Social dialogue between social partners (employees, employers, govemment, civil society) is an effective instrument to limit conflicts and to generate cooperative solutions to major problems. Thus it is advisable to promote dialogue mechanisms, including tripartite dialogue. Civil society participation and empowerment of groups and actors left aside are also an effective means to raise cohesion and to improve the decision-making process The govemance agenda is highlighted by crisis and takes on heightened importance. The last two years have demonstrated the importance of governance issues and their strong links to social policy This was articulated before the crisis, but the cnsis has made the processes of government in East Asia an issue of wide discussion. The participation of civil society in crisis response has underscored the need for greater community involvement in decision making The challenge confronts us to develop better and more diverse mechanisms for intended beneficiaries to participate in delivery of services and in the process of development activities Weak state capacity was evident in poor regulatory systems and financial mechanisms. It is also sometimes reflected in the confusion of roles and lack of coordination between delivery agencies. Many of the key roles of govemment did not change with the crisis, but demands of providing education and health services in a crisis situation were exacerbated by shrinking budgets and increasing uncertainty Programs of public sector reform and strengthening will remain crucial if countries are to be more responsive to shocks in the future. More broadly, government accountability depends upon effective institutions, clear rules, and respect for individual rights. We need to look more closely at how much accountability is in fact affected by reforms such as the decentralization and privatization of functions. No matter what the system of government, the availability of information aids accountability, particularly from an active press and community groups. Many of these threads come together in the imperative of tackling corruption. Corruption thrives in the absence of transparency and accountability. The social and developmental K Marshall: Social Sector Reforrns In Asia After the Crisis: Operational Lessons 113 losses due to corruption are something that countries cannot afford and donors can neither accept nor justify. Anti-corruption efforts are now a central focus of regional governments and donors, and multilateral agencies have taken major steps in this area WITH HINDSIGHT: LESSONS, QUESTIONS AND ISSUES An effective, if sobering, tool for leaming is to hark back to one's words and perceptions of the past. Taking the Bangkok Social Issues Meeting (January 1999) as a reference point, there are some interesting areas of harmony, and some important areas of dissonance or change In Bangkok, the focus of social policy leaders was on the social crisis, its impact, and appropriate responses The widespread fear was of severe and lasting social costs, calling for ambitious new social programs and necessitating large-scale international assistance. The social agenda today is quite different, much less crisis-driven, more hopeful and optimistic. But the crisis focus has, we believe, changed the agenda in fundamental ways. There can and should be no going back. As hope returns and we look forward, the need to be prepared for hard times and unexpected shocks, to build these factors into poverty strategies, and to renew and deepen approaches to poverty issues have emerged as new imperatives. The information issues-lack of clear, operational, policy-linked information systems- already were and remain a critical concern In January 1999, from all quarters, and for all actors, policy-makers and researchers alike, the gaps in knowledge stared forth. But the Bangkok meeting also noted the plethora of remarkable information gathering efforts that were launched, and began to note their results. The basic messages in Manila were threefold. First, diversity. the crisis impact was much more complex, much more varied, by place, time, social group, than the initial reports and assumptions suggested. Second, the resilience of societies in the face of crisis offers a never-ending series of inspirational stories and underscores that new social policies need to take careful note of what are termed traditional coping mechanisms: tailored, culturally sensitive programs that build on the views and wishes of beneficiaries are essential. Third, the suffering of many groups has been enormous. this brings home vividly the human face of globalization, the costs of economic swings, and the need to plan for and prepare for future crises, so that suffering can be reduced and mechanisms are in place to help those in need. CONCLUSION: THE EMERGING SOCIAL AGENDA Social safety nets, social policy, and poverty strategies are related but not the same. The crisis brought home both links and potential contradictions. For a start, clear definitions would be useful, so that we were clear, for example, what is meant by safety nets. We suggest that we appreciate and agree that the social agenda encompasses and grows from poverty reduction strategies, but extends well beyond The need to link social and economic policy stands out and is an imperative. we still can learn much from how this actually worked during the crisis, and where issues of communication and misinformation played a role. There are important lessons to learn from successful crisis programs. Standouts are the programs launched to keep children in school, which in several countnes worked remarkably well It was not only the financial investment in education that counted. It was also spreading the message to parents and communities and coming up with practical solutions to specific problems that arose When the crisis started, a sharp drop in educational attainments was feared. The efforts of governments, civil society, and their partners to keep children in schools, were remarkable 1 14 Chapter 5 Social Sector Reforms The partnerships that are the focus of discussions in Manila offer another vein of lessons to mine Though there are many tales of success, there are also sagas of duplication and missed opportunities We emerge determined to build on the best experience, to use instruments that promise better communication and synergy, and to ensure a broad understanding of the development partnership, which incorporates the array of official agencies and civil society and private sector institutions However, there is a risk that once we have passed the climax of the crisis, we return to business as usual. As we move ahead, it is worth recalling the maxim they that forget history are condemned to repeat it We need to be sure that we do mine the experience of the crisis years as we plan for the future B Dlokno Local Govemments' Expenditures for Social Services Delivery 11 5 LocAL GOVERNMENTS' EXPENDITURES FOR SOCIAL SERVICES DELIVERY* INTRODUCllON In the light of the economic crisis, an important question is whether public spending for social services has deteriorated in response to the need to stabilize the economy of the crisis country. A related issue is how local governments have responded to the need to provide safety nets for the disadvantaged during the crisis. An important conclusion that can be derived from a review of recent fiscal statistics is that government expenditure for social services for the Philippines-both at the local and national level-have not suffered despite the deterioration in fiscal resources as a result of a weaker economy. SOCIAL EXPENDITURES AT THE LOCAL LEVELS With the implementation of the Local Government Code in 1992, the burden of providing basic social services became a shared responsibility between the national and the local governments. With the devolution of some responsibilities including social welfare and health services, the budgetary assistance to local governments-Intemal Revenue Allotment-has increased quite dramatic. As percent of the total budget, the IRA increased from 6.7 percent in 1992 to 20 percent in the year 2000. In absolute terms, the IRA raised from P9.8 billion in 1991 to P121.8 billion in 2000. On the average, IRA has grown by 32 percent between 1991 and 1999 At the local government level, expenditures on social services are made in five major areas: (i) education, culture and sport/human resources development; (ii) health, nutrition, and family planning; (iii) labor and employment; (iv) housing and community development; and (v) social secunty, social services and welfare. Local government spending on these social services expenditures (SSE) grew dramatically following the devolution law. Between 1991 and 1996, for example, SSE increased more than 41 percent. Despite, or perhaps because of the Asian crisis, social services expenditure continue to rise, though at a slower rate than in the immediate past From 1997 to 1998, SSE grew by 1 2.5 percent compared with an increase of only 7.9 percent for total local government budgets. Compared to other social services sectors, expenditure on social services grew the fastest An earlier study also showed that higher per capita IRA tends to be associated with higher per capita social sector expenditures. A look at more recent local fiscal data supports this hypothesis. During the period 1991 to 1997, there appears to be a close association between the growth of IRA and the growth of SSE. In fact, in 1998 the growth of SSE has exceeded that of IRA. CONSOLIDATED SSE: 1991, 1996-1998 Was there an overall growth in social services expenditures after devolution and during the crisis years? The answer is yes. The national government spending for social services grew from P158.9 billion in 1997 to P175.2 billion in 1998, maintaining its ratio to gross national product (GNP) at 6.3 percent This is not to argue that the fiscal response to the growing social demands as a result of the crisis may have been adequate. Arguably, it might have been inadequate. Yet, despite the strong pressure on the Govemment to cut spending because of the deteriorating revenues owing to the weaker economy, it was able to maintain 4 This paper was written by Beniamin E Dlokno Mr. Diokno is the secretary of the Department of Budget and Management (DBM) of the Philippines 11 6 Chapter5 Social Sector Reforms social sector spending as a percent of GNP This was accomplished largely because of the decision of the Estrada administration, immediately after it assumed office in July 1998, to reverse the contractionary fiscal policy of the previous administration and restore the budgetary reserves imposed on basic social services. This is consistent with the commitment of the administration to invest in human capital as part of its pro-poor program. The shift in fiscal policy not only minimized the economic slowdown but it also mitigated the social pain of the economic crisis. Was the growth of SSE at local levels offset by a decline in budget allocation for social services by the national government? There was clearly no substitution effect Higher spending for social services at the local level did not result in lower spending for the same by the national government. In fact, national government spending for social services continues to grow robustly. While this is driven largely by growth in education at all levels, which has remained primarily the responsibility of the national government, yet the national budgets for health and social welfare continues to increase IMPLICATIONS FOR POLICY On a consolidated basis, social expenditures have grown impressively over time and even during the crisis years (1997 and 1998) There are two plausible reasons for this desirable outcome. First, higher local government spending may be attributed to the Local Govemment Code of 1992 Second, the timely reversal in fiscal policy and the Estrada administration's strong commitment to invest in human capital was responsible for the large and rising budgetary allocation for social services. The strong growth of social expenditures at local level may be attnbuted to the devolution of more social services responsibilities, and the corresponding transfer of more unconditional budgetary grant to local governments in 1992. The classic arguments for devolution applies: that local governments are quicker and more able to respond to changing conditions, and that local authonties are more likely to reflect the preferences of citizens in their decision- making functions than the central government CONCLUSIONS Despite the Asian economic crisis, the Philippine national and local government expenditures for social services did not suffer, measured both in terms of their share of the budget and as percent of GNP. There are at least two plausible reasons for this desirable outcome First, with the implementation of the Local Government Code in 1992, which devolved social welfare services and primary health care to local governments, the provision of basic social services to its citizens has become a shared responsibility between the national government and local government units The devolution of new responsibilities was accompanied by a sharp increase in national government fiscal grant to local governments Second, in mid-1998 and at the height of the Asian crisis, the newly installed Estrada administration decided to shift from contractionary to expansionary fiscal policy, thereby allowing the lifting of the 25 percent budgetary reserves on basic social services. H Syarlef Block Grants to Reforn Education and Health Sectors In Indonesia 11 7 BLOCK GRANTS TO REFORM THE EDUCATION AND HEALTH SECTORS IN INDONESIA46 INTRODUCTION At the beginning of the 1990s, very few people could have predicted the economic meltdown that has occurred in Indonesia over the last two years. Indonesia was often cited as a positive example of good economic and social development. Indonesia's universal education, the Pos Yandu, and its family planning program were often cited as good examples of cost effective social programs. Within Indonesia, there was a sense of optimism based on the continuous growth of the economy, and on an increasing perception of well-being for everybody, the rayat of Indonesia. Telephones, electricity, primary schools were all things that the even the poor were used to as a result of continuous socioeconomic development over the space of several decades. Tlraditionally Indonesia has been a centrally controlled government. Overall policy was developed in five-year plans. Goals were set, and the development budget was programmed by the line ministers to meet those objectives. The provincial offices waited for instructions from the national offices, and they informed the district office of the Government Policy. This approach appeared to be working, particularly in the years preceding the meltdown in 1998. However, among some there was a growing sense that the structural elements of the Indonesian economy would not lead to long-term sustainable growth. There was also a growing dissatisfaction about the autocratic nature of the executive branch of government. Nevertheless suggestions for reform were unheeded. Nothing was broken, so why should it be fixed? ESTABLISHING A SOCIAL SAFETY NET IN RESPONSE TO THE CRISIS The economic crisis forced the country to rethink Its policy options in the social sector. The funds to increase the capacity of the educational system, and the health needs of the rising number of poor people that were victims of the economic crisis were no longer available. Concerns were raised that a large number of children would have to leave school, and that utilization of basic health services by the poor would be reduced. There was need for a program that would immediately assist the district level governments with these problems. The Social Safety Net program was created in response. There was a need to get the money out to the field operational level as quickly as possible. A series of block grants in health and education was set up that went out to the sub-district level for health, and scholarships to keep poor children in school. The money for health was sent to various midwives, and health center physicians with oversight/action committees set up among community members at the sub-district level. These funds were earmarked to support nutritional services, family planning, and basic health services among the poorest members of the community. Money for poor children's scholarships was sent directly to the children identified by schools as at risk from dropping out because of their family's new poverty The money sent to each subdistrict was based on estimates of the number of poor within each sub-district. The funds were sent directly through the post office. As funds were disbursed and utilized, additional finance replenished the funds available for assistance. This block grant system was unique and unlike any social program previously implemented in Indonesia. It required some systematic changes in the way in which social e This paperwas wntten byHidayatSyanef.Mr Syarief is the Deputy Chairman of the National Development Planning Agency (Bappenas) of the Republic of indonesia 118 Chapter 5: Social Sector Reforms programs are being implemented. The communities have responded positively to the program, and in most cases have been able to utilize the funds correctly and appropriately. The Indonesian economy now stands poised on the brink of a new economic expansion The block grant system will continue in some form even after the crisis is over. In particular the country would like to apply some of the lessons leamed in meeting the health and educational needs of the population to further improve decentralization efforts within the social sector. Presently many efforts for immediate and long-term reforms to the governments' management of social programs are being made. Some of these changes are general to all social programs, and some are specific to both health and education While we are still leaming about the problems and constraints of the social safety net, several things are fairly obvious at this stage SOCIAL SAFETY NETS: WHAT HAVE WE LEARNED? The first lesson is that the capital absorption of the sub-districts was relatively high. The money that was transferred to the sub-distncts through the post office was utilized, even though the program, and mechanism for funds transfer was very different to anything that the district had seen in the past. The sub-distnct has the capacity to utilize these block grants. The ability of the sub-districts to utilize the funds correctly is, however, less obvious, and they need to be further empowered to take on their new role in the future. The educational sector appears to have a higher capacity to utilize these block grants than the health sector. The educational sector has several decades of experience in decentralization and district officers understand the importance of local involvement The health sector in Indonesia is not decentralized to the same extent as the education sector, except in several provinces where development efforts were oriented toward decentralization This has made the capital absorption in the health sector less than the capital absorption in the educational sector (60 percent as compared to more than 90 percent). It is important, therefore, to continue focusing on decentralization in the health sector to encourage and empower local communities to take responsibility for the management and evaluation of their health programs. One major constraint to successful decentralization is the lack of trained highly motivated staff at the district level. The district health offices need staff that can assess the health problems of their district, develop new innovative approaches toward improving the health status, and evaluate the new programs that they develop. This will require new skills that do not exist in many district health offices. Hence, staff development at the district level is one of the major priorities for continued decentralization in the health sector. To better supervise social sector activities, also, the quality of staff at the district level need to be improved through formal training programs and redeployment of central staff to the peripheral areas. This could be done permanently, or could be done on a part-time basis. District health offices need help in all areas of program development, management, and budgeting. Staff from the central office have skills that are desperately needed in the district offices. Improvement of the managenal capacity of the district and sub-district health offices will require innovated approaches as the additional staff development for the district level is undertaken Exchange programs whereby central staff would spend part of the year in staff development at the district level could be a short-term solution to the transfer of skills and responsibility to the district level. H Syarfef Block Grants to Reform Education and Health Sectors In Indonesia 119 CONCLUSIONS For 30 years, Indonesia made slow but steady progress in improving the education and health sectors. The economic crisis forced the country to move away from its previous paradigm of top-down to a more decentralized model of community empowerment. While it is hoped that the future will bring better economic times and continued improvement in education and health, the country has leamed many valuable lessons from the crisis that will make it better prepared to maintain quality in social services delivery and react flexibly, even in uncertain economic times. We do not need to wait until the next crisis to improve, evaluate, and implement new innovative approaches to improving the performance of the social sector. 1 20 Chapter 5 Social Sector Reforms CAMBODIA'S HEALTH STUATION: POLICY REFORMS AND INVESTMENT IMPLICATIONS47 INTRODUCTION Compared with other Asian countries, the past 20 years of civl war have left Cambodia with poor public services and infrastructure. Although most major frameworks and mechanisms for health development are already in place with significant progress made over the past decade, the health status of Cambodian people remains among the lowest in Asia. The objective of this paper is to pinpoint critical concerns and challenges facing Cambodia's health sector it also provides policy directions for meeting the long-term vision for health development in Cambodia, including the necessary financial means, commitment pledged, and resource gap. PROGRESS IN HEALTH REFORMS Enhancing and strengthening the economy's market orientation is essential for democracy and good govemance in Cambodia. The Government's proactive, dynamic, and catalytic role in achieving socioeconomic growth continues to be "pro-democracy, pro- growth, pro-private sector, pro-poor, and pro-environment" in nature. As part of this mandate, the Royal Government of Cambodia (RGC) has undertaken in the last years a series of health reforms in four main areas fiscal reform, organizational reform, human resource development, and coordination of extemal aid. Each of these key reforms is discussed briefly below. Fiscal Reform for the Health Sector The RGC is implementing fiscal reform programs aimed at enhancing revenue and improving public expenditure management The reforms have yielded some positive results on the revenue side, while public expenditure management has been less encouraging, with a persistent gap between the official budget and actual expenditure. The Ministry of Economy and Finance acknowledges factors contnbuting to underspending in the health sector such as diversion of funds to other sectors and at the provincial levels, budget cuts in the expenditure program, slow release of funds under the payment system, and the complex budgeting procedures. However, the Ministry is committed to enhance allocative and technical efficiency of the budget expenditure process for priority sectors by increasing the health budget by 51 percent in 2000. It has also committed to budgetary reform by taking specific actions, including not cutting the monthly expenditure program in the health sector, developing financial participation schemes (user-fees) for services, improving the efficiency of donor funding through a Sector Wide Approach in health development, and strengthening the Public Investment Management System. Technical inputs are in place and national capacity is being built to develop policies, formulate operational strategies and plans, and to install management mechanisms and monitoring systems Govemment and NGOs shall translate these policies into action and implement the health reforms. Since 1996, the Ministry of Health (MOH) has been undergoing substantial organizational and financial reforms to strengthen the health system. A formula was introduced to improve equity considerations in the health budget allocation process Funds are now being allocated to each health facility according to the degree of service activities and the population served. 4 This paper was wntten by Char Meng Chuor Mr Chuor is the Director for Health Planning and Information of the Miristry of Health in Cambodia C Chuor CambodlaS Health Situation 121 In addition, in 1999, under the Accelerated District Development (ADD) system, a mechanism for the regular release of funds has been expanded to include 25 districts. This system provides more efficient and flexible funding for hospitals and health centers by appropriating a separate envelope of funds for each district. Furthenmore, since 1996, the 'Health Financing Charter" jointly issued by the MOH and the Ministry of Economy and Finance is guiding different models of health financing schemes, particularly through user fees. To date, user charges have been implemented in 82 health centers and hospitals, and innovative mechanisms for contracting in and contracting out health services are being tested in several districts with extemal funding. Organizational Reform: The Health Coverage Plan Recently, the health infrastructure has been reorganized to a system based on population density and accessibility of services. The basic unit of health care is the decentralized "Operational District". In each operational district there is one District Health Office (DHO), one Referral Hospital (RH), and 10-1 5 health centers. These operational districts are organized so as to become the most peripheral management units for the provision of comprehensive services to the population. Social Fund activities make an important contribution to the health infrastructure in the new post-conflict economy. Based on the 1996 health coverage plan, there are 67 referral hospitals, 935 health centers, and eight national hospitals. The planned allocations cover the whole population, and are meant to provide an accessible, comprehensive primary health care package. Human Resource Development for Health Workers The restructuring of the health care system requires health workers to possess new sidlls to manage the change. Priority is being given to improving the health curriculum, training techniques, and a reorientation towards primary health care. For continuing training, emphasis is put on two training packages called the Minimum Package of Activities (MPA) at health center level and the Complementary Package of Activities (CPA) at the referral hospital level. These training packages cover both technical and managerial skills. In addition, basic and postgraduate training are supported, encompassing clinical and para-clinical specialties, public health, epidemiology, and management. Furthermore, a revised staff reward and sanction system is operating guided by the Human Resource Policies of the Ministry of Health. The financial administration capacity of health managers is being strengthened through training on the accounting system and budget expenditure report system. The priority now is to return government budget management to the provincial and district levels in order to ensure existing monthly expenditures and to explore ways to make the current expenditure system more efficient Extemal Aid Coordination Since 1991, the Coordinating Committee for External Aid in the Health Sector (COCOM) has been in existence, chaired by a Secretary of State. The COCOM's primary function is the rehabilitation and future policy development and planning of Cambodia's health services, including determining national health sector needs for financial and staff resources. Its secondary function is the coordination of current and future activities of all international and NGOs and others working in the health sector. Permanent memberships include MOH key senior staff, bilateral and multilateral organizations, and MEDICAM (the coordinating agency for NGOs working in the medical field). COCOM has established 13 technical subcommittees to address specific health issues, and has extended its operations into all provinces, through the Provincial Coordinating Committees for Health. 122 Chapter 5. Social Sector Reforms In addition to the coordinating committees, the MOH is considering new partnership arrangements between extemal donors and the government under a sector-wide approach to planning and financing health services. There would be a single combined budget for the sector that is executed through appropriate systems for common resource management. The sector-wide approach is at the early stage of development, and by January 2001, the partners in the health sector will come together to produce annual Sector Partnership Agreements containing planned budgets and activities for 2002 and future years In the meantime, reforms combining organizational, financial, human resource and external aid coordination are also being explored. The MOH is currently designing a proposal for "Boosting the New Operational District and Coverage Plan' The proposal outlines strategies to address obstacles to the effective implementation of the health coverage plan, discusses alternative financing systems and further development of a best practice package of interventions. NATIONAL HEALTH POLICY AND THE INVESTMENT PROGRAM 2000-2002 The proposed public investment program 2000-2002 has been designed to help attain the Government's health sector objectives through financial and technical support Strategic choices have been made to maximize the sustainability and impact of the investments. Given the reform of the health sector, the program will support both existing public health programs and the rehabilitation of basic health services. The program will also incorporate emerging priorities and the development of medical technology through strengthening hospital services. In addition to the investment components, specific performance goals and objectives have been identified and the programs will be monitored and evaluated Most basic indicators have been defined and will be measured at the program level There will be four areas for investment focus. First, health sector management, planning, and legislation will be strengthened through the sector-wide approach for coordination of AIDS efforts, developing human resource capabilities, and reforming pharmaceutical management Second, existing health programs will be funded and operated through the decentralized Health Coverage Plan focusing on health centers. These programs include control of tuberculosis, malaria, dengue and hemorragic fever, schistosomiasis, leprosy, AIDS/ sexually transmitted diseases (STDs), as well as immunization programs, and women and child health programs Third, responses to emerging priorities will be increased, including strengthening medical specialty training, funding cancer prevention and blindness prevention programs, and strengthening the National Laboratory that tests food and drug safety. Finally, funding will be provided to rehabilitate and upgrade the technological capacity at national and provincial hospitals including an expansion of blood transfusion services at referral hospitals across the country. The total costs of the Public Investment Program for the health sector is estimated at $523 million equivalent. Investment costs are estimated at about 48.1 percent of total costs. This estimation is based on the assumption that the MOH budget will double from 1 percent of GDP in 1999 to 2 percent in 2002. The MOH 2000 budget will be $49.17 million, including operating costs ($33.01 million), investment cost ($14.73 million) and counterpart fund ($1 43 million). However, $145 million has yet to be committed by donors/lending agencies to close the resource gap for the implementation of the 2000-2002 Public Investment Plan. CONCLUSIONS A high burden of disease and a weak health infrastructure remain the two most significant health problems facing Cambodia today. With regional cooperation in the Greater Mekong area strengthening, HIV/AIDS is becoming a new challenge for the country. And despite major reforms, transparency in the health sector remains a key obstacle for effective C Chuor CambodfaM Health SituatHon 123 Table 11: Cambodia's Govemment Budget Devoted to Health Sector 1998 1999 2000 2001 2002 Population (thousands) 11,300 11,600 11,900 12,233 12,575 Nominal GDP (million $) 2,973 3,600 4,094 4,490 4,904 Nominal GDP per Capita 1$) 282 427 450 500 550 Exchange Rate (real per $) 3,700 3,500 3,500 3,500 3,500 Health Budget as percent of GDP 0.57 0 81 1 20 1.56 1 94 Health Budget (in $ per capita) 1.49 2.53 413 5 73 7 55 health services delivery. The Asian economic crisis also impacted the sector resulting in further resources constraints and increased demand for health services. New formidable tasks are expected as Cambodia gains entry into the ASEAN regional grouping. The health system has only one third of the necessary structures in place, staff allocation is still not related to needs, health workers have low skills and are poorly motivated due to low salaries, and the health sector is seriously under-funded. This has led to poor access to and quality of public health care and a rapidly developing but unregulated private sector. But despite these problems, reforms in the health sector since 1993 have put many of the necessary technical inputs and much of the national capacity in place for implementing a more effective health system that will respond to the needs of the poor. The combination of reforms and support of ongoing health programs reflected in the Public Investment Plan will help Cambodia overcome the many challenges faced in the health sector. Implementing the program will require a strong political commitment, a multisectoral response, and a long-term strategy that emphasizes capacity building. There is no universally effective way of preparing and adopting strategies for health development. Situations and fundamentals vary from country to country and from place to place. Choices are particularly difficult in developing countries such as Cambodia that face harsh resource constraints. The best that can be offered is that choices are made rationally on a country-by-country basis, depending on epidemiological causality, national socioeconomic reality, cultural values, and effective use of existing resources. 1 24 Chapter 5 Social Sector Reforms REFORMING SOCIAL SECTORS AND REDUCING POVERTY: Two DIFFERENT ISSUES IN MONGOLIA48 INTRODUCTION Mongolia's transition from a centrally planned totalitanan system to a democratic society with a free market economy has created difficult challenges for the society. However, since 1995, the country has been gradually emerging from its short-term socio-economic problems: GDP and per capita income are growing, inflation is under control, and private sector performance has shown some improvement, particularly in the infonmal sector. Social sector development is lagging somewhat behind, but some positive social trends are evident. Between 1995 and 1998, major health indicators such as maternal and infant mortality, and the incidence of infectious diseases have been declining. Primary school enrollment is rising again and dropout rates are showing signs of improvement The 1998 Living Standard Measurement Survey (LSMS) suggests that employment opportunities among the poor are expanding and poverty is stable-though deepening-at a rate of 36 percent Today, Mongolia is seeking to implement longer-term approaches to social problems, such as governance and economic management, unemployment, poverty, education, health, and social protection. This paper descnbes in broad terms some of the lessons learned from short- term interventions and strategies that Mongolia plans to implement in the near future. POVERTY AND SOCIAL DEVELOPMENT IN MONGOLIA During the initial penod of transition to a more market-oriented economy, financing for social sectors was severely constrained During these years, the government gave priority to short-term interventions in order to maintain social services rather than improving sector reforms This was necessary because of severe poverty, which increased from a quarter of the total population in 1992 to more than 36 percent in 1996. Since then, poverty has remained high, and its severity deepened (according to the most recent [1998] poverty statistics reported by the National Statistical Office and the World Bank) As a result, illiteracy (particularly among boys) increased, access to health services declined, society became more socially unstable, and human development in Mongolia was perceived as a new hurdle to the development of the country. Table 12: Major Indicators of Poverty in Mongolia By Area Head Count Index Deepness Index Difference Index 1995 1998 1995 1998 1995 1998 Urban 38.5 394 12 2 13.9 5.7 7.1 Rural 351 341 104 130 45 74 Total 36.3 35.6 109 117 4.8 56 Source: LSMS 1995,1998 Facing these urgent problems, the Government, with the support of international donors, took emergency measures to alleviate poverty and strengthen social assistance. In 1994, the National Poverty Alleviation Program (NPAP) was initiated, and in 1996 the State Social Assistance Bureau was set up as an independent agency. The NPAP benefited all social sectors including health, education, and social protection for poor (the program has distributed more than $1.4 million in relief assistance). But the Program is due to end in 48 This paper was wntten by Sodov Sonin Mr Sonin is the Minister for Health and Social welfare in Mongoila S Sonin. Reforming Social Sectors and Reducing Poverty 125 2000 and its impact was limited to short-term relief. it did not reduce poverty, particularly in the urban areas, although it prevented more people from descending into misery New poverty reduction programs need to address emerging challenges of urban poverty and migration, severity of poverty, and provide much greater returns on investments. With improved macroeconomic conditions, the Government, in recent years, has increased its social sector spending. While expenditures on health and education decreased or remained steady as a percentage of GDP, expenditures Increased as a percentage of the Govemment budget. These funding levels make it possible to pursue additional social sector initiatives that were precluded in the past Table 13: Changes of Expenditures on Social Subsectors Subsectors 1995 1996 1997 1998 Social Assistance (as percent of previous year) - 8 86.1 55.9 14.9 Social Insurance (as percent of previous year) 64 0 29.5 25.5 19.9 Health (as percentage of GDP) 37 3.6 3.8 3.6 Education (as percentage of GDP) 55 5.3 6.0 5.5 SOCIAL SECTOR STRATEGIES AND ACTIONS The Government of Mongolia is aware of the need to take a longer-term view on social sector development Among its main priorities is the development of a comprehensive and coherent social policy framework within the national development strategy. This will involve consolidating some programs and interventions and making the sector more responsive to the population's needs by instituting decentralized decisionmaking at the community level. Developing an effective social policy framework will require focusing resource allocations to the social sectors on high return areas such as primary health care, reproductive health, primary education, distance education and relevant vocational training. The social framework will also include the private sector, NGOs, and community-based organizations as effective tools of service delivery. Data systems and information dissemination must also be improved to permit effective planning and targeting of resources Some of the planned actions and activities are listed below. * In education: (i) the utilization of community-based approaches with the involvement of parents; (ii) the rationalization of contents and standards/norms for all levels of education, both in formal and distance programs, with controls on implementation; and (iii) the regular payment of the teachers' salaries and the creation of possibilities for continuous skills training and regular renewal of their abilities and skills. * In the employment sector: (i) skills upgrading through reorientation and retraining; (ii) promoting cooperatives, business associations, and credit unions as a means for creating jobs, and (ffi) revising tax structures and labor law disincentives to business establishment and growth. * For poverty alleviation: (i) Improving access to micro-credit and (ii) providing financial and technical support for the self-employed especially in agriculture and livestock. * In the health sector (i) intensifying the implementation of public health refonm programs and primary health care through an integrated approach; (ii) improving the overall management of the health system and quality of personnel; and (iii) creating specialized regional centers with improved distribution of health care services. 126 Chapter 5 . Social Sector Reforrns In social insurance and social assistance: (i) gradually shifting the pension insurance system toward self-financed schemes; (ii) creating additional voluntary insurance schemes for the self-employed and informal sector workers; and (iii) improving the rehabilitation services for disabled people and their integration into society The major challenge is, however, the efficient and effective allocation of scarce financial resources through balancing better social and economic investments, particularly by improving investments in education, health, and social protection. In addition, as poverty remains the major problem of the people, there is a need to target poverty alleviation through the reduction of unemployment, increases in incomes, improvement of social services, and development of social protection CONCLUSIONS Mongolia is now undertaking a longer-term, more comprehensive approach to social sector investment and poverty alleviation As the social situation worsened during transition, short-term interventions were the initial response. However, direct assistance to the poor has not been effective for addressing the longer-term structural problems of human and income poverty. They did not create the proper incentives and contnbuted to a situation were poor were made dependent on the public provision of social benefits With the current economic stabilization in Mongolia, social sector investments with longer-term impacts are a new priority, particularly in the education and public health sectors. However, the unequal distribution of the nation's wealth is increasingly challenging social progress, requiring the Government to take a longer-term perspective on social sector reforms as an engine for economic growth and human development M Satybekov. Labor Market Relevant Education Reforms In the Kyrgyz Republic 1 27 LABOR MARKET RELEVANT EDUCATION REFORMS IN THE KYRGYZ REPUBLIC49 The Kyrgyz Republic, a small country of 198,000 square kilometers bordering the PRC, Kazakhstan, Tajlikistan, and Uzbekistan became independent in 1992. The country has no access to the sea, and only 7 percent of its land is arable, most of it requiring intensive imgation Ninety-four percent is mountainous, 40 percent of the country's territory is above 3,000 meters high, with much of that area permanently snow-covered. The mountain barrier isolates the northern and southern population centers, adding to the geographical remoteness. GDP was estimated to be $9.7 billion in 1997, with a per capita GDP of $2,100. The country relies heavily on its neighbors for trade. In 1996 Russia accounted for 22 percent of the country's imports and 26 percent of exports. The economic crisis that affected Russia in the late 1990s had a devastating effect on the Kyrgyz Republic economy. The most obvious results were a slump in production, an increase in the number of companies forced into bankruptcy, and a substantial loss of jobs and increase of unemployment. The population of the country is 4.9 million, with 40 percent of its labor force in agriculture and forestry, and 19 percent in industry and construction. In 1995, an estimated 35 percent of the labor force was unemployed. The average monthly wage was about $18. Since then, the situation has got worse. The country has a very young labor force, and a considerable number of young people are entering the labor market, but jobs are not available Recent graduates of special schools and institutions of higher learning have further expanded the potential labor force In addition, due to structural reforms such as the World Bank financed Public Sector Management Adjustment Program, many are being released from their positions and need new jobs. Accordingly, in 1997, 44 people competed for every available position. The Kyrgyz Republic is in the process of transferring to a market economy based on the equal development of various forms of ownership, the promotion of entrepreneurship, and increasing pnvatization. Parliament has recently enacted legislation to devise an economic policy affecting land use, entrepreneurship, and banking. Reforms in the educational system will be crucial to the implementation of all the other economic policies. This is the background for education reforms In some respects, the country is in a favorable situation, as 97 percent of the population is literate, and schooling is compulsory for those aged six to 15. Vocational education has the most direct relevance to the labor market. Training and retraining of the adult population is conducted in more than 100 educational establishments. During the period 1991 to 1999, more than 36,000 people received training and retraining courses provided by local employment services, and 10,500 of them (or 32 3 percent) were provided with jobs. Recipients of this training developed skills that allowed them to be more competitive and flexible in reacting to economic demands and the realities of the labor market Education reforms have been supported by investments from Denmark, Germany, Sweden, Turkey, and the United States. This year, new projects are planned with funds allocated from ADB, UNESCO, UNDP, and the Soros Foundation, among others. This foreign assistance is being used to introduce modern educational technologies and explore new relationships between employers and employees. Students of lyceums receive thorough instruction in entrepreneurship, encouraging them to realize their abilities and start their 19 This paper was written by Melisbek Satybekov Mr Satybekov is the Deputy Head for Social-Cultural Development in the Office of the Prime Minister In the Kyrgyz Republic 1 28 Chapter 5: Social Sector Reforms own businesses. As a result, employment training in tounsm, car repairs, public services, traditional craftsmanship, and new skills for starting modern small- and middle-sized businesses are pursued. Self-employment becomes an antidote to unemployment. Structural changes in the system of vocational education are being planned to decentralize management and to transmit additional powers to the local level Educational establishments will be given greater independence in defining the terms and forms of education, possibly with free choice of the professions to be trained, all geared to the economic and social activities of a particular region In the future we plan to create educational- training complexes, which will combine all kinds of training and education, including higher education. One of the major ways to improve the quality of education is to integrate the initial professional and advanced professional education and to create educational-scientific organizations. Such centers will satisfy the educational demands of the population and serve as the guarantor of a democratic education for all people. The experience of the Kyrgyz Republic in the most recent transition years suggests the importance of investing in vocational training for both modem and traditional skills. However, a shortage of funds for equipment and textbooks and a lack of markets in this small landlocked country are preventing strong impact on the labor market In addition, the country does not stimulate enough flexibility to react to the changes in the labor market and the declining quality of personnel training. Despite important labor-market relevant investments in the education sector, the country's future remains challenging. C Chongsatityoo: ThallandS New TWelve Years of Education for All Program 129 THAwLAND's NEW TWELVE YEARs OF EDUCATION FOR ALL PROGRAMS° INTRODUCTION Several international publications have described Thailand's unsatisfactory educational performance. Analyses have indicated that the country's rigid, cumbersome, and centralized bureaucratic structure needs reform. They point to the lack of responsiveness in developing economic competitiveness and the low participation rates at secondary and tertiary levels Mediocre performance in mathematics and science, and low educational attainment compared to our neighboring countries, even during the boom period, have prompted Thai policymakers, administrators, and practitioners to give serious consideration to developing the country's competitive abilities. Thailand's Constitution provided for the creation of a new National Education Act (NEA), which became effective in August 1999. Both the Constitution and the NEA guarantee the right of every citizen to a 12-year free basic education by October 2002. The NEA further extends compulsory education from the current six years to nine years, to be in force by August 2002. CURRENT SITUATION OF BASIC EDUCATION DEVELOPMENT Coverage Six-year compulsory education has been enforced since 1977. The total enrollment rate for the 6-1 1 years age group has reached 92 percent, but about 500,000 students, mostly the disabled and those residing in remote rural areas and urban slums, miss school. At the lower secondary education level {grades 7 to 9) the participation rate has increased impressively from 57 percent in 1993 to 72 percent in 1998, mainly because of extending grades 7 to 9 in existing primary schools. Upper secondary education (grades 10 to 12) offers both general and vocational streams. Enrollment of the relevant 15-17 age group increased from one million in 1993 to 1.67 million in 1998. Table 14: Enrollment by Levels and Enrollment Rates (percent In bracket) Level of Education 1999 2000 2001 2002 Preprimary 2,595 (82) 2,763 (88) 2,939 (94) 3,119 (100) Primary 6,205 (96) 6,304 (98) 6,337 (99) 6,366 (100) Lower Secondary 2,831 (85) 2,969 (90) 3,3107 (95) 3,251 (100) Upper Secondary 2,358 (69) 2,710 (80) 3,056 (91) 3,327 1100) General 1,415 1,626 1,834 1,996 Vocational 943 1,084 1,222 1,331 Total 13,989 14,746 15,439 16,063 Although pre-primary education is neither compulsory nor included in the 12-year basic education, it has been accorded a high priority by Thai authorities and parents. Empincal studies have substantiated the benefits that accrue to students who gain access to kindergarten. Enrollment of the three to five year cohort in kindergarten increased to almost 91 percent in 1997, but dropped to 86 percent in 1998 due to the economic crisis. Apart from formal schooling, the Department of Non-formal Education, which is a key actor in O This paper was written by Chuanchan Chongsatityoo Ms Chongsatityoo is the Senior Adviser for Systems Education In the Office of National Education Commission in Thailand 130 Chapter S: Socda! Sector Reforms delivenng non-formal services, has played a crucial role in providing access to people who missed the opportunity for formal education The services offered include skills training, evening/weekend formal education-equivalency programs, and distance learning. Disparity and Inequality Concerted efforts to expand basic education, especially at the lower secondary level, through both formal and non-fonmal channels have resulted in diminishing the access gap between urban and rural areas However, due to unequal income distribution, there is still a wide dispanty in access For instance, Bangkok had an average yearly household income of B254,611 in 1996 whereas that for Sn-sa-ket, a province in the Northeast, was 13 times lower Data show a high correlation between household earnings and educational attainment. In addition, indicators such as pupil-teacher ratio and students per classroom are also diverse depending on the poverty in the region For example, the average student to teacher ratio in the Northeast is 21:1, whereas it is 14-15:1 in the central and western provinces. Similarly, the students per classroom ratio reveals even greater disparities ranging from 51.7 1 for a province in the south to 25:1 for an area in the north. There are also wide disparities in teacher qualifications. In primary and secondary schools 84 percent and 95 percent of teachers have acquired a bachelor's degree. Teachers in the Northeast have, however, much lower qualifications than in other parts of the country. Qualitative inequality emerges at the expense of rapid quantitative expansion Other factors that adversely affect education quality include conventional rote learning practices, a teacher-centered approach, the inability among teachers to utilize educational and information technology, and inadequate in-service teacher training. Schools often resort to crash training of teachers in other fields in an attempt to redress teacher shortages in mathematics and sciences by redeploying their trained personnel. As a result, many primary school students do not perform well in reading, writing, and mathematics Test scores of those at the lower secondary level in key learning areas such as mathematics and sciences are far below standard, with only 19 percent passing assessment criteria. Performance at the upper secondary level is no better Only 27 percent of the students in mathematics and 32 percent in sciences pass the academic achievement tests Student performance in intemational languages (such as English), essential in this new era, is unsatisfactory. The education system also fails to inculcate desirable attitudes and values such as independent thinking, learning skills and self-discipline. EFFECTS OF THE ECONOMIC CRISIS ON STUDENTS AND INTERVENTION MEASURES Although Government spending was reduced dunng the crisis period due to austerity measures, resources for education were barely cut However, in real terms every school now received a smaller budget share. Rural and smaller schools suffered most as they have fewer students, hence a smaller endowment. Teachers were also affected and demoralized. Their income in real terms diminished after the devaluation of the baht. Some teachers in certain private institutions agreed to cut their salaries so that the entire teaching corps could stay employed However, the cnsis provided an opportunity to rethink and restructure the educational system. In order to cushion the effects on students, the Govemment has provided assistance in various forms, such as free milk and lunch programs and a student loan scheme for students in upper secondary and tertiary levels. In addition, there are loans and technical assistance from international lending and donor agencies such as the Social Sector Program Loan from ADB, the Social Investment Project (World Bank) and Japanese and World Bank supported stimulus packages. The additional financial inputs have to a large extent helped cushion the impact of the crisis on the children of the laid-off and the newly graduated unemployed C Chongsatltyoo ThailandS New 7welve Years of Education for All Program 131 Part of these resources are allocated to assist students directly, such as the establishment of a Scholarship Fund Project. Originally the project targeted students in grades 1 to 9 whose parents were forced to withdraw their children from school. Later on, project beneficiaries were expanded to include poor families and Buddhist novices. Most novices come from poverty-stricken rural families. They enter monkshood as a means to gain access to education and a better life. Ecclesiastical or Dharma-Pa/i schools usually offer primary and secondary equivalency program and religious preaching. STRATEGIES AND MEASURES FOR IMPLEMENTATION To carry out the education reforms in Thailand, the Govemment issued detailed strategies, programs, and guidelines together with operational manuals The following five major refornms have been undertaken in the last years: 1 Reform of the administrative system at the national level Three national agencies-the Ministry of Education, the Ministry of University Affairs, and the Office of the National Education Commission-will be merged into a single entity, the Ministry of Education, Religion and Culture. The new ministry will become more compact as much of the administrative and management work will be decentralized to educational service areas and educational institutions. The newly created ministry will mainly be responsible for the formulation of policy, planning and standards, resource mobilization and allocation, and monitoring and assessing achievements of operating agencies. 2 The NEA mandates a shiftfrom a centralized system of administration and management to decentralization. Powers and duties for basic education and education at lower-than- degree level will be devolved to local entities and schools. The decentralization of authority and decision-making power to the local level closest to the people is instrumental to bureaucratic reform. Red tape pertaining to the existing structure will be reduced. Furthermore, with the reform system in place, student attendance and dropout rates can be tackled more effectively. At the school or institutional level the practice of site-based management will be conducive to reforming the learning process, resulting in the development of a diversified local curriculum that meets the needs of learners and the community. (The NEA mandates a balanced mixture of core and local curriculum.) 3 Concurrent wth the devolution of educational administration and management, the law also mandatesfinancialandbudgetaryrefomms Une item budget allocation to departments and schools will change to general subsidies based on per student expenditure for compulsory and basic education. Schools will enjoy complete freedom in managing their budget and resources. All students taking compulsory and basic education will be supported equitably. However, vulnerable groups with special learning needs will receive additional educational grants. 4 The reform of learning involves three major changes- • Teachers are the threshold factor of qualitative improvement The NEA requires that teachers, administrators, and institutional administrators obtain professional licenses to be issued by either the Professional Organization for Teachers, Educational Administrators, or Educational Institution Administrators. At present, teachers in public schools are on the same pay scale as other government officials. A new pay structure for teachers will also be devised so as to attract highly qualified professionals. In addition, a Fund for Promotion and Development of Teachers was set up to give teachers opportunities for self-development * Pedagogical reforms emphasize a shift from teacher-centered to student-centered learning with due attention to the different needs and capacities of learners. The learning process must integrate knowledge and skills as well as inculcate appropriate values in 132 Chapter 5: Social Sector Reforms a balanced manner in terms of substance, it must be based on core and local curriculum, the former developed at the national level, the latter at the institutional level. Accordingly, performance assessment must be refined to suit the new teaching-learning process. The law requires the setting up of a system for educational quality assurance, which comprises both internal and external evaluation. Evaluation reports are to be disclosed to the public. All schools are subject to external evaluation, which is undertaken by an independent organization every five years 5 Based on the NEA basic education can be provided in vanous forms and models to suit leamers with different needs. The law empowers and gives financial support to individuals, families, communities, community organizations, NGOs, enterprises, and religious organizations in delivering educational services. These entities are also entitled to incentives such as tax rebates or tax exemptions. General public and pnvate schools are allowed to experiment with innovative models of educational provision and management such as Charter Schools. CONDlllONS FOR SUCCESS The economic cnsis in 1997 provided an opportunity for education reform. Passage of the first National Education Act was extraordinarily fast. Almost all sectors of society, especially politicians from every party, participated in and supported its deliberations. They recognized that a major factor contributing to the economic crisis is low educational attainment and competitiveness compared to other countries, in addition to complacency and weak and corrupt financial institutions In order for the country to achieve sustainable growth and development, Thailand must enhance the long-term competitiveness of its people as well as induce in them desirable values, knowledge, skills, and behavior. The NEA, a legal framework for education reform, is only the first step forward. Success depends upon other crucial conditions such as the political stability and the survival of the coalition government. Economic uncertainties surrounding the sustainability of the economic recovery still looms, thus raising doubts about adequate investments in education. In the social sphere, certain population groups do not recognize the importance of education and shy away from enrolling their children in school due to the rising costs. More important, education is regarded as an affair of the State and schools Therefore, few care to get involved seriously Even parents tend to leave everything concerning their children to teachers. Within the education sector, there is some resistance to reform among those who are affected, both deliberately and unintentionally. Furthermore, some personnel are not able to adapt to the new roles and pose serious threats to reform implementation. The Government has initiated crucial steps to address some of the above mentioned problems. * Clear and concrete policy statements on 12 years of basic education Although policies show strong support for reforms of basic education, the administration is still not demonstrating strong enough commitment to education reform * Understanding and participation of the people. Reform issues are complex and affect a large and diverse number of people. Hence, there must be effective communication to emphasize reform needs, seek cooperation, and show that the people's participation is important Designing appropriate communication strategies in relation to each target group is pivotal and resources should be earmarked for this * Readiness of more than 600,000 personnel especially teachers and administrators to perform the new roles and functions effectively Educational personnel must be well C Chongsatltyoo: Thallands New Tvelve Years of Education for All Program 133 prepared to work as a group in order to exercise decision-making power regarding policy implementation, monitonng, and evaluation. They must be trained in school- based management Pilot projects on a small scale should be studied before nationwide implementation. Lessons from other countries undergoing education reform will be used and applied to the situation in Thailand. * Adequacy of resources for both quantitative and qualitative tasks In 1997 and 1999 at least B1 50,000 million per year was allocated for education reforms. In the coming years, cost projections need to be made well in advance, and resources need to be added for other reforms such as training, research and development, communications campaigns, and increases in teachers' salaries It is crucial that some resources are shifted from higher to basic education and cost recovery mechanisms are introduced, such as charging full-cost fees to tertiary students who tend to have higher private benefits upon graduation. It is equally important to explore ways to mobilize new resources, for instance through educational taxes. In order to reduce wastage and losses it is essential to enhance urgently efficiency in education administration and management * It is vital to estimate costs and develop as detailed and concrete a work plan as possible, as well as to set up management information systems, monitoring and evaluation indicators, and mechanisms for timely problem-solving CONCLUSION The Constitution of 1997 has paved the way towards 12 years of basic education while the National Education Act serves as a strategic plan for overall education reform and the provision of basic education The reforms are very challenging, as they require merging three national agencies into one single ministry, decentralizing authority, developing new teaching professionalism, introducing teaching and administrative licensing, promoting new payment structures for teachers, and establishing an intemal and extemal evaluation system. It is expected that the reforms will bring greater efficiency and higher quality However, it is rather idealistic to aim at achieving 12 years of basic education for all by 2002, as this requires both extending equitable access as well as quality of education. Public-Private 6 Interface and Corporate Responsibilities THE ROLE OF THE PRIVATE SECTOR FOR POVERTY REDUCTION AND SociAL DEVELOPMENT IN ASmAS1 POVERTY, GROWTH, AND MARKETS Poverty Alleviation In Asia In the wake of the Asian economic crisis, there has been renewed appreciation of the private sector's role in development as an engine of growth and a necessary ingredient in reducing poverty. Through growth and markets, dramatic strides are possible in poverty reduction In the PRC, for example, rural poverty has fallen from about 75 percent to 10 percent in 20 years attnbutable, inter alia, to the adoption of market policies in 1979 in the rural sector. In Viet Nam, currently the world's most successful poverty reducer, poverty fell from 58 percent to 37 percent in five years through growth and marketization. Forty years ago, the Republic of Korea's per capita income was less than $200, placing it below Bangladesh today The country has successfully transformed into an OECD member with a world-class manufacturing system, and an income distribution that is the envy of many-inside and outside the region. How has this Asian miracle happened? Asia has much to teach the world here. Overall economic strategies make a difference: inward-looking, protectionist policies tend to lead to poor resource use and do not encourage the adoption of new technologies Those countries that have adopted outward looking, market-onented policies have made relatively greater strides in reducing poverty. And, attempts by the state to replace markets have a poor track record, both in the communist world and in those less developing countries that have adopted a dingiste model.52 But, the Asian miracle also attests that one cannot argue for unfettered or unrestrained market forces. Unregulated markets can lead to political instability and income inequality as demonstrated by the failures in Russia. Weak governance can lead to economic crisis, and an effective, and well-governed state is needed to create the right environment for human development and poverty reduction. Growth and Poverty Reduction Growth and markets are necessary (but not sufficient-see below) to poverty reduction because they create jobs that use labor, the main asset of the poor. In a robustly growing economy, private sector employment will become the major source of economic support for workers and their families. Growth depends on productive investments and on poor people making use of their skills. (As outlined below, for the poor to have opportunity and access requires a core of public expenditures focussed on safety nets, building up the human capital of the poor and empowerment-which has both political and economic dimensions). The macro-level and other market-supporting reforms that enable local people to save, " This paper was prepared by Christine Wallich Ms Wallich Is the Director of the Infrastructure, Energy, and Financial Sectors Department, and the Head of the Pnvate sector Group of the Asian Development Bank The assistance of Arlene Tadle is gratefully acknowledged 5W World Bank, 1995 Bureaucrats in Business The Economics and Politics of Govemment Ownership New York Oxford University Press 136 Chapter 6 Public-Pnvate Interface and Corporate Responsibilities invest, and improve their lives, are the same reforms that encourage inward investments. In rural and urban areas, the private sector and market-fnendly policies have a pnmary role in creating improved livelihoods. Growth also increases the tax base that enables government, politically motivated to act on good governance principles, to finance the targeted poverty reduction programs, social safety nets, and basic social services that are directly addressing poverty. Health and education services, in particular, give the poor a better chance to increase their productivity and earning capacity Poverty support programs have a stronger constituency when the economic pie is growing-and may not have a good chance when it is shrinking. Certainly, in Asia, growth and markets-coupled with public expenditures on education and health, especially in East Asia- have been a powerful weapon in the fight against poverty, where the poverty headcount decreased more rapidly than any other region of the world. However, both the level of growth and its pattern-how the benefits of growth are distributed and generated-matter for poverty reduction. In countries such as Malaysia and Indonesia, growth and distribution effects have reinforced each other-the ideal outcome- and have led to a strong impact on poverty reduction But, it is also worth noting-although certainly not an ideal case-that other East Asian countries have shown that growth can lead to a decline in the poverty headcount, even despite a rise in inequality.53 From 1993 to 1998 in Viet Nam, for example, poverty declined substantially due to rapid growth despite a rise in inequality There are also exceptional cases such as in Thailand (1975-1986) where inequality worsened to such a degree that its effects swamped those of growth, and the poverty situation (headcount) worsened. ENSURING THE 'QUALITY OF GROWTH' The Ingredients of Pro-poor Growth While market-led development and growth are key for poverty alleviation, not all growth will be pro-poor What makes growth pro-poor is a complex set of public sector interventions and policies that allow the poor equitable access to (i) income earning opportunities, (ii) resources such as land and credit, and (iii) relevant social, particularly education and health, services. The "three Cs"-human capital, credit, and capital in the form of land and resources- are key to achieving "quality of growth., The 'quality of growth" will also depend on policies aimed at making labor markets function well, allowing opportunity for income generation and employment. Sound macroeconomic policies are also critical, as the poor suffer most from macro instability. Exchange rate policies, for example, can avoid biases against agncultural products or other labor-intensive exports.54 Equally important are transparency and accountability in government to ensure that public spending is effective and reaches the poor. Many studies have shown that corruption- overt or covert-affects the poor because it slows economic growth,55 and through skewing incentive structures, increases income inequality Often, capital intensive (and "bribe-friendly") projects are favored over labor intensive ones. Corruption also inclines public spending towards infrastructure projects and away from social sectors, and affects the targeting of social programs to the truly needy as funds are siphoned from poverty programs by well- Viet Nam Attocking Poverty, Viet Nam Development Report 2000 joint Report of the Govemment of Viet Nam- Donors-NGO Poverty Worlung Group, Consultative Group Meeting for Viet Nam, 14-15 December 1999 '4 Lustig, N 2000 Cnses and the Poor Socially Responsible Macroeconomics Santiago, Chile, October 1999 and World Bank 2000 World Development Report 1999/2000 New York Oxford University Press M Mauro, P 1995 "Corruption and Growth" Quarterly loumal of Economics, 110, 681-712 C Wallich. The Role of the Private Sector for Poverty Reduction 137 connected people. Cross-country regressions show that a one percent increase in the corruption index reduces income growth of the poorest 20 percent of the population by almost 8 percent per annum At the same time, a worsening in the corruption index of a country by one standard deviation is associated with the same increase in the Gini coefficient as a reduction in average secondary schooling of 2.3 years.56 The composition of public spending also determines the quality of public goods and the sustainability of poverty reduction. Ensuring appropriate levels of public spending on education, for example, does not necessarily result in a well-educated labor force allowing for poverty reduction. What is needed is the right kind of spending at the right time to the right income group For example, in the 1960s and early 1 970s, roughly two thirds of the Republic of Koreas education spending went to compulsory basic education.57 In the 1990s, public subsidies to primary students were two to three times those to tertiary students (tertiary education was mainly financed by private spending). The Republic of Korea was able to expand basic education rapidly and reduce educational inequality from a Gini of 0.55 in 1960 to 0.15 in 1995 In some Asian countries, Gini coefficients declined much more slowly. A distribution of education as skewed as that of some Asian countries, implies a huge social loss from the under-utilization of potential human capital. To improve the "quality of growth," public expenditure and policies will have to be allocated following pro-poor priorities. This means, inter alia, promoting the build-up of human capital, especially among the poor, and reducing regressive subsidies benefiting capital and increasing economic opportunity. In sum, the "quality of growth"-its distribution, sustainability, stability, and governance-and how much growth reduces poverty, is largely a matter of public sector governance-the framework within which private sector decisions are made. WHAT THE PRIVATE SECTOR CAN DO TO ALLEVIATE POVERTY The private sector's contribution to poverty reduction will mainly come through growth, employment, and income generation. Whether this growth is pro-poor will depend mainly on good public sector governance. In addition, the private sector can contribute to poverty reduction by (i) freeing up public resources through infrastructure investments; (ii) designing infrastructure privatizations with pro-poor impacts; (iii) pursuing public-private partnerships through creative infrastructure designs; (iv) getting involved directly in social services provision; and (v) promoting public-private-civil society coalitions for corporate social responsibility Public Resource Allocation: The Private Sector and Infrastructure Apart from support to industry, agriculture, and social sectors, investments in infrastructure-power, water, roads, and telecommunication-account for much of the public budget. Increasingly, however, Asian countries are finding that with appropriate regulatory frameworks, the private sector can also provide such services. Private investment in infrastructure projects can relieve pressure on public budgets and thus enable governments to redirect resources to social spending and other priorities. 5" Gupta, s, Davoodi, H., and Alonso-Terme, R 1998 'Does Corruption Affect Income inequality and Poverty?' In IMF Working Paper 98/76, iMF, May 1998 57 World Bank 2000 'rhe Quality of Growth' A background paper for world Development Report 1999/2000 February 2000 138 Chapter 6. Public-Private Interface and Corporate Responsibilities Infrastructure, Privatization, and Pro-poor Impacts Infrastructure pnvatization is often contentious, because it affects vested interests, and may often imply downsizing and therefore a need to mitigate social costs. However, the efficiency gains from privatizing utilities can benefit all income classes by improving access of the poor to services, reducing pnces for all by improving billing and collection, and by ensuring those who get services pay. Subsidies to loss-making public utilities are typically financed by regressive tax systems, and subsidized pncing of electricity, water, and transport often benefits the better off families and farmers, landowners, and the industrial sector more than the poor.58 As the wealthy consume more utilities than the poor, the policy of subsidizing such prices tends to affect the poor negatively Pnvatization with effective regulation to ensure appropriate tariff policy and lifeline tanffs can benefit lower income groups relatively more than the better off. In Argentina, for example, the gains from effective privatization represented 20 percent of spending on utilities by the poorest segments, compared with 17 percent for the richest. By contrast, owners of the pnvatized utilities kept much of the economic benefit when pnvatization took place and regulation was ineffective. On average, the richest income class households' gained equal 59 percent of typical spending on utility services compared with 29 percent for the poorest Public-private Partnerships Public-private partnerships can be used to make infrastructure services increasingly available to the poor. This can be done through concessions that call for bidders to provide public water standpipes to poorer areas or to charge low lifeline tanffs for power supply, with the associated cost to be borne by government in the form of lower concession revenues. Public-pnvate partnerships can help address poverty, as governments recognize that creative concessions must be underwritten by the public budget, and as private companies realize the value of 'collaborative investing" for community relations and financial returns. For example, ADB was recently involved in the pnvatization of Manila's water supply system, where the bidding documents for the concession asked the potential concessionaires to include public faucets in selected slum communities, where poor families had traditionally purchased trucked-in water from unreliable private parties at exorbitant prices While clearly implying lower concession revenues for the Government, this creative bid design resulted in close to 50,000 low-income families-more than 250,000 people-gaining access to potable water. Similarly, the privatized Buenos Aires metro and the Sao Paolo public transport system were concessioned based on performance standards that included keeping open some loss-making lines to poor urban areas. The Government requested bids for the smallest subsidy payment to the concessionaire and fewest years of public subsidy. The cost of this "negative concession" was much less than the projected discounted value of the budgetary hemorrhage of the public company's losses. The additional advantage of explicitly including the pro-poor intervention in the concession's design, is that the subsidy to the non-cost recovering activity becomes transparent and implicit. An altemnative approach would be to opt for cross-subsidies within the system, i e., higher ("excessively" profitable or more-than-cost-recovering) prices for some consumers or transport routes that would offset the losses from the non-cost-recovering areas This would, however, mean "inefficient" pncing for some parts of the system. In addition, such cross-subsidies are not transparent and perhaps not sustainable, as the private concessionaire will have few incentives to provide low-cost services '8 Freund, C, and C Wallich 1995 'Raising Household Energy Prices in Poland Who Gains" Who Loses?" Policy Research Working Paper No 1495, World Bank (August 1995; '9 Chisan, 0, A. Estache, and C Romero 1997 "The Distribution of Gains from Utility Privatization and Regulation in Argentina" Public Policy for the Pnvate Sector 12 (December 19971 33-36 C Wallich The Role of the Private Sector for Poverty Reduction 139 Private Sector Involvement in the Delivery of Social Services The role of private (for profit) enterprises in the social sector is getting increased attention The private sector often supplies "for-profit" social services such as tertiary hospitals, technical and vocational education, and higher education to the higher income groups. As in the case of infrastructure, the impact of private sector involvement is indirect because the reallocation of resources is rarely directly poverty-focused since the poor cannot often pay for such services. However, government resources may be freed up for the sector needs of lower income groups. Another model for private sector participation in the social sector is "private provision with public financing." Under this model, the private sector can be engaged on a contractual basis to operate not-for-profit social facilities, such as schools and health clinics. With proper oversight, private sector management can be more efficient than public administration and can deliver better and more innovative service at a lower cost. Many countries are experimenting with public and insurance-financing health services provided by the private sector. Corporate Social Responsibility Pnvate companies can have a direct effect on poor people through the way they do business-how they deal with social and environmental issues, health and safety, corruption, and the local economy. Calls for "social responsibility" on the part of the private sector have been gaining ground.60 Corporate social responsibility embraces standards of good business practice that can apply to all firms. Large retailers such as Wal-Mart, K-Mart, Sears Roebuck, etc., face calls for action against poor working conditions in foreign plants that produce clothing for them under sub-contracting arrangements, even if the retailer has no equity ownership nor even foreign presence in the country in which the poor labor conditions exist6' In the Philippines, the Philippine Business for Social Progress in the Philippines, was organized some 30 years ago as a social development foundation of private companies. Each member company allocates 1 percent of its pretax profits for social development and poverty alleviation programs The Caux Round Table,62 and the UK's Prince of Wales Business Leaders Forum63 are other examples of business groups addressing broad social responsibility concerns. Expectations about private enterprises, especially the multinationals, are changing because of their expanded role in a globalizing society. A growing number of companies including Nike, Reebok, and Shell, have started adopting individual corporate codes of conduct in response to intense public criticism of labor conditions existing in foreign plants of some of their contractors. Even without direct public criticisms, private companies are taking it "D See also Kinder, P, 5 Lydenberg, and A. Domini 1993 Investing for Good Making Money While Being Socially Responsible Harper Business Publishers Investor Responsibility Research center Report on Global Labor and Environmental Standards l19991, as cited In The Social Responsibility of Transnational Corporations, 1999 World Investment Report 62 The caux Round Table (CRrl is an organization of 250 senior business leaders from 25 countries advocating for the cntical leadership role of business in a global economy CRT has published the Principles for Business the most widely circulated and accepted worldwide standards for ethical and responsible business practice, in 12 languages It has been cooperating with governments, NGOs, and Intemational finance Institutions in pursuing corporate social responsibility activities In several developing countries 63 The Prince of Wales Business Leaders Forum Is an organization consisting of s0 chief executive officers, chairpersons and senior executives from leading intemational companies, working In some 30 emerging and transition economies While promoting corporate social responsibility, the Forum Is active In Bangladesh, India, Pakistan, and Sri Lanka in the fields of health and safety, human rights and security, civil society and cohesion, as well as in enterprise and economic development 140 Chapter 6. Public-Pnvate Interface and Corporate Responsibilities upon themselves to join development banks, NGOs, and various groups of stakeholders in finding ways of doing business which are socially responsible and which benefit the poor. An example in case is Merck Pharmaceutical, which has been providing the medicine Mectizan free of charge for as long as the river blindness in sub-Saharan Africa and Latin America needs to be treated. Responsible business behavior can also bring immediate business benefits. It can build reputation, help business better understand the wider context, build a better environment to tackle issues that could become potential threats, and help motivate staff. This is recognized in the concept of the "triple bottom line"-economically viable, environmentally sound, socially responsible-which many companies have already adopted for themselves The coalition among civil society, private enterprises, international financial institutions, and local communities will benefit private sector partners in terms of improving their market performance by showing that the pnvate sector has social and broader economic interests, and by providing the private sector investment with legitimacy. But, the changes brought about by business responses to calls for corporate social responsibility also drive changes in LDCs that can be locally resented, such as core labor standards being (internationally) market-driven, or that markets are being opened for "Westem values." Developing country practices could differ from those in developed countries, for example in the areas of child labor, labor and trade unions, resettlement, and environmental concems. Some developing countries allege that labor protection practices such as occupational safety legislation may, in the short run, lead employers to substitute capital for labor on the margin, or to move production facilities to countnes with less stringent labor laws. The situation should improve as corporate responsibility becomes more widely accepted. This is an area where foreign assistance agencies and businesses are increasingly working together. For example, UK's Department for Intemational Development (DFID) has provided expertise and financial and administrative support for an 'Ethical Trading Initiative," under which business, trade unions, and NGOs in the retail sector examine supply chains in poorer countries against an agreed code of conduct, which includes key commitments on labor standards. CONCLUSION The private sector needs to play an active role in poverty reduction While it is not in a position to provide non-cost-recovering social services on its own or to engage in not-for- profit activities without compensation, the indirect impacts of growth and markets can be substantial. Growth and markets create jobs, and the pnvate sector has a primary role in creating improved livelihoods However, not all private sector-led development will be pro- poor. Much will depend on public sector interventions and policies that allow access to income and employment opportunities by the poor, as well as good govemance to ensure that social expenditures are effective and actually reach the poor As the private sector cannot be expected to undertake extensive poverty interventions on its own, more public- pnvate partnerships are needed The rapid globalization that opens the Asian developing countries to vanous forms of market-driven changes can also help, if that investment is socially responsible. However, while market-driven changes are the most powerful, they can also be contentious. Recently, there has been a proliferation of groups expounding varying social responsibility concerns, and confronting the international business community, especially transnational companies. And this is where the challenge lies As the economic interdependence of the global community spreads, greater efforts must be made by all the stakeholders-public, private, civil societies, international finance institutions, local communities-to work together in addressing the social, economic, and environmental adlustment costs, especially to the poor, that accompany such globalization. R De Ocampo. Corporate Responsibility for Social Development in the Philippines 141 CoRPoRATE RESPONSIBILITY FOR SocIAL DEVELOPMENT IN THE PHILIPPINES64 INTRODUCTION: SOCIAL AND ECONOMIC COSTS OF THE ASIAN FINANCIAL CRISIS Despite the many advances in the last quarter of this century, poverty continues to rise in many parts of the world. The Asian financial crisis, first seen as an isolated incident affecting Thailand, quickly spread to other parts of Asia, and led to the drying up of pnvate financial flows to emerging markets. Industrial countries, at first largely insulated from the effects of the Asian crisis, began to feel the effects, particularly because of the deepening recession in Japan. Concerns about a global credit crunch and a worldwide economic slowdown were also expressed The East Asia crisis is believed to have produced millions of new poor people, halting progress achieved in the last 20 years. Urban areas account for a rising share of the poor, with Indonesia and the Republic of Korea exhibiting major increases in urban poverty. (Indonesia reflected an increase in incidence of poverty of about 10 percent since 1997). Another important consideration is the transition costs to affected workers, like those affected by downsizing or those whose skills may be industry-specific or outmoded In such cases, companies may need incentives to continuously retrain workers to help them update/ upgrade their skills, so that they can move on to other jobs/responsibilities. RESPONSES TO THE CRISIS The Asian crisis was basically the product of interacting shortcomings in the global system, flawed national financial systems, and deficient corporate and public govemance Responses to the crisis were generally focused on: * macroeconomic policies designed to stabilize the economy and support economic recovery. Monetary policy was used to contain inflation and restore stability in the exchange markets; fiscal policy was aimed at complementing monetary policy, and for the seriously affected, provide for bank restructuring. However, as recession deepened, and social costs escalated, fiscal policies were relaxed, * structural reform, particularly in the financial and corporate sectors, as this was considered essential to address the root causes of the crisis, restore market confidence, and to set the stage for the sustainable resumption of growth. However, structural and social concerns should be treated equally with macroeconomic and financial concerns; and * large official financing packages to complement the macroeconomic and structural policies adopted. These were meant to help break the self-reinforcing cycle of capital outflows, exchange rate depreciation, and financial sector weakness. The collapse of the financial sector, devaluation and retrenchment affect the entire economy with an impact on all segments of society. The most senously affected of these are the poor, wherein small changes in income can easily put them and their households below the subsistence level. Socioeconomic crisis often causes (i) a decline in real income as a result of the loss of employment or the lowering of real wages; (iI) a reduction in essential public services delivery, such as health, nutrition, and education services as a result of i This paper was written by Roberto F de Ocampo Mr de Ocampo is currently the President of the Asian Institute of Management In Manila, Phillppines From 1994 to 1998 he was the Secretary of the Philippines Ministry of Finance 142 Chapter 6. Public-Pnvate Interface and Corporate Responsibilities reduced govemment spending; and (iii) the loss of value of assets through bankruptcy of financial system or public social secunty system, or by a decline in prices of physical assets such as land and stocks The crisis itself may generate a number of "coping strategies" on the part of those affected These could include the sale of assets and use of savings, if any, taking up additional work or having family members join the labor force earlier than normal, i e., when children are taken out of school and forced to work to augment the family's Income. jobs come in the form of overseas employment or migration. Families seek support from extended families, local communities, and institutions Households restructure by having families live together and in some cases, nonworking family members, mostly women, children and the elderly reduce their food intake. Some of these strategies could result in long term effects exacerbating poverty in the future, such as when children are taken out of school when the parent loses a job. CORPORATE RESTRUCTURING AND GOVERNANCE TO ADDRESS THE ASIAN CRISIS The Asian crisis required huge rescue funds from multilateral and bilateral donors particularly for Indonesia, Republic of Korea, and Thailand. Mechanisms were developed to undertake rescheduling or restructunng of private sector liabilities, to restore conditions for rolling over maturing lines of credit, and secure new finance. To involve the pnvate sector, governments needed reforms to make risk taking for the private sector and the behavior in the financial sector rational. Restoring the corporate sectors of affected economies is necessary to fix the banking and financial sector Discussions on corporate governance emphasized the inadequacy of domestic laws to regulate corporate govemance An ADB study noted that in many of the affected economies, standards for corporate governance were defective. Such are the cases when there is a conflict in credit assessment or a failure to impose and enforce proper standards of corporate governance This often causes (i) the corporation to disregard its stakeholders; and (ii) the inadequate use of accounting standards, auditing practices and the absence or disregard of internal financial controls In extreme cases corporate govemance is deemed defective when political and government patronage, cronyism, or corruption affect the management of a corporation or when close family ties influences the objective assessment and management of the financial position of a corporation Corporate restructuring improves performance. However, often, performance effects of restructuring may be a matter of wealth transfer rather than value creation. In such a case, employees, communities, bondholders, and even customers suffer while investors gain. It is therefore important to set standards for corporate govemance. OECD and APEC stressed the need for better govemance practices OECD defines corporate governance as 'involving the set of relationships between a company's management, its board, its shareholders, and stakeholders" Corporate governance is also said to "provide the structure through which the objectives of the companies are set, the means of obtaining those objectives and the monitonng of performance." OECD has listed good govemance practices designed primarily for publicly traded companies, but are also useful for privately held and govemment-owned enterprises. The guidelines include. * nghts of shareholders; * equitable treatment of shareholders (prohibition of insider trading, disclosures by directors and managers on "material interest"); * rights of stakeholders, * disclosure and transparency: Corporations should be required to disclose material R De Ocampo. Corporate Responsibility for Social Development in the Phtlippines 143 information on financial matters, compariy obje'ctives, major share ownership, members of the board of directors and their remuneration, and govemance structures and policies; and responsibilities of the Board of Directors: Traditional fiduciary pnnciples of acting in good faith, with due care and diligence and in the best interest of the country. Monitoring govemance practices, ensuring integrity of accounting and financial reporting systems, overseeing disclosure processes. PROMOTING SOCIAL POLICY IN A GLOBAUZING WORLD The Asian crisis prompted a number of measures to deal with the instabilities in the global and national financial systems that included macroeconomic adjustments. However, these introduced adverse effects on the disadvantaged sectors of the crisis-affected economies. These measures, which may have helped to restore these economies, need to be balanced with measures that will provide "social safety nets" to those least able to bear the burden of economic adjustment. Also, to define the development needs and implement the appropnate programs, governments need to interface and build relationships with the private sector, NGOs, assistance agencies, and organizations of civil society. The following characteristics of good "safety nets" were identified for Latin American countries, and are deemed to equally apply to Asian economies. They should (i) provide sufficient coverage of the population to reach particularly the most vulnerable, or "excluded" groups, as in rural areas; (ii) be well targeted to the poor, with clear criteria for eligibility and termination; (iii) be based on a sound analysis of who is likely to be affected by a crisis, and what kinds of coping mechanisms are normally used by the poor, (iv) be countercyclical and automatic, with well established rules/institutions so that access is simple and predictable; (v) prove fiscally sustainable; (vi) be able to provide benefits quickly, (vii) complement, not substitute for, private safety net programs; (viii) try to use or deal with institutions already in place; and (ix) scale back when the crisis is over. Programs focused on basic health (such as immunizations, disease control and primary health care centers); education (assistance to schools and students in disadvantaged areas and indigenous people, school grants, and scholarships), and nutrition should generally be prioritized. Other areas include social protection such as pensions, subsidized housing and social security. However, given limited resources, it is important that these programs be targeted directly to the poor. 144 Chapter 6. Public-Pnvate Interface and Corporate Responsibilities PUBLIC-PRIVATE PARTNERSHIPS IN HEALTH AND EDUCATION: CONCEPTUAL ISSUES AND OPTIONS65 INTRODUCTION Many developing countries face pressing challenges in the health and education sectors. Constraints in financial resources, coupled with continually nsing demand for equal access to quality health and education services to meet the diverse needs of the individual, leave many governments with few options other than to seek collaboration with the private sector This has resulted in a greater involvement of the private sector, including both for profit and nonprofit organizations, in the financing and management of health and education services. Who are potential players and what are their strengths and weaknesses? How do partners collaborate? What are the key issues involved in building partnerships? These are the questions this paper attempts to answer. RATIONALE FOR PARTNERSHIPS Strong claims for public-private partnerships are built on the belief that all players, their contributions, and their services in promoting health and education services should be recognized, coordinated, and further explored through workable collaboration mechanisms. The partnerships should result in quality health and education services being provided on an equitable basis and with effectiveness and efficiency. There are many ways of defining the public and private sectors In this paper, 'public sector" refers to government-sponsored organizations and public institutions, and "pnvate sector" to nongovemment institutions or groupings. The private sector can be further divided into profit-onented and non-profit organizations. According to this classification, public and private sector institutions providing health and education services are shown in Table 15 Table 15: Actors for Providing Social Services through the Public and Private Sectors P Public Sector Private Sector National Govemment Commercial Enterpnses Provincial/State Government Nongovemment Organizations District/Municipal Administrations Voluntary Groups Local Government Institutions Religious Groups Intemational Agencies Professional Organizations Households in almost all developing countries, the public sector is confronted with a lack of resources and with the need to raise funds required to provide an adequate level of health and education services. For this reason, almost all governments have policies to encourage the nongovernment sector to contribute to health and education As a result, contributions from the private sector in financing of health and education services are substantial. For example, the shares of pnvate financing for the health and education sectors in selected Asian countries range from 40 to 80 percent, In Thailand and India, its share is more than three times that of the public sector (see Rosenthal, G, and W Newbrander 1997 Pnvate Health Sector Growth in Asia issues and Implications New York John Wiley and Sons. 11-24). In all Asian countries household contributions are found to be significant; for example in 65 This paper was written by Yidan Wang Ms Wang is the Training and Leaming Methods Specialist of the Asian Development Bank Institute in Tokyo, Japan Y Wang Public-Private Partnerships in Health and Education 145 Cambodia, households met three quarters of the total costs for social services and in Viet Nam about 50 percent. Private organizations have also been involved in managing and delivering health and education services. Non-profit organizations including communities and NGOs, have been successful in serving the needs of the poor, girls, women, and other disadvantaged groups. The for-profit organizations, such as business and corporations, are known for providing good services particularly in special schools and hospitals as well as social insurance that respond to market needs. In many cases, private services providers have cooperated with governments through effective and efficient management of government subsidized or funded services. In other cases, they address the needs of local communities in extending the services provided by governments. While the private sector's contributions have raised the general level of resources, the issue of ensuring social equity and efficiency in the health and education sectors is becoming pivotal. Exclusive reliance on private services may mean more efficient services delivery, but this often comes at the cost of equity as the needs of certain groups in the society may not be met Public sector activities can also Influence the attainment of govemment objectives in the health and education sectors. To protect the needs of all, the Government needs to coordinate the activities of both the pnvate and the public sector and moderate services delivery through policies, rules, and regulations. Table 16: Distribution of Public-Private Expenditures for Health and Education, 1990 Country Health Expenditures Percentage of Education Expenditures Gross National Product Relative Share for Public Primary Schools Total Public Private Govemment Households I Bangladesh 3.2 1.4 1.8 NA NA Cambodia NA NA NA 24 76 People's Republic of China 3.5 2.1 1 4 78 22 India 6.0 1.3 4 7 NA NA Indonesia 2.0 07 1.3 89 11 Lao PDR 2.5 10 15 75 25 Malaysia 3.0 1.3 1 7 NA NA I Nepal 4.5 2 2 2.3 NA NA Philippines 2.0 1 0 1 0 65 35 Sri Lanka 3.7 1.8 19 NA NA Thailand 5.0 11 3.9 82 18 NA - no data available. Sources. Rosenthal, G and w Newbrander 1997 Fnvate Health Sector Growth in Asia. Issues and Imphcatrons New York John Wiley and Sons, and Bray, M. 1996 Counting the Full Cost Parental and Community Fiaoncing of Education in EastAsia Washington DC The World Bank. UNDERSTANDING THE STRENGTHS AND WEAKNESSES OF THE INSTITUTIONS INVOLVED Forming public and pnvate partnerships is a complicated process, because the public and private sectors, including profit-onented and nonprofit organizations, operate under different approaches and principles Generally, the public sector is concemed with providing health and education to all. Their services generally do not exclude social groups, and are often provided at a minimum cost or even free of charge. However, as public resources are mostly inadequate, the quality and efficiency of social services provided through the public sector are sometimes problematic 146 Chapter 6 . Public-Private Interface and Corporate Responsibilities Nonprofit and public sectors generally share the same goals, but the former is more concerned with the needs of those that are neglected by governments (such as women, the disadvantaged groups, and those in the rural and remote areas). The profit-oriented organizations such as businesses and corporations, on the other hand, are more dynamic in serving market needs. The costs of their services are much higher and their quality better, but more exclusive. However, not all services provided by the private sector are of reasonable quality and efficiently delivered The profit-onented organizations, including business corporations, are not overly concemed about issues such as equal access. They tend to avoid services to those whose payment capacity is limited. "Although often acknowledged by advocates of pnvatization, the potential problems are sometimes treated much too casually, as if they are easy to overcome and are causing only minor inconveniences" (Hatry, H. P. 1989. Introduction. In Allen, 1. et al (ed.) 1989. The Pnvate Sector in State Service Delivery. Washington DC: The Urban Institute Press Page 5) Similarly, NGOs often lack the necessary expertise and specialization for providing adequate health and education services. In Bangladesh, for instance, the for-profit sector, which accounts for about twothirds of the country's health sector expenditures, consists of medical practitioners of whom only 20 percent received training in recognized institutions A large number of non-certified practitioners are self-taught or have gone through only some paramedic training. These non-certified practitioners together with some pharmacy owners, providing the most widely accessible health care to the general population at large, are the source of misuse and abuse of drugs, and cause undue wastage of health expenditures in the country (see Ahmed, M. 1999 Promoting Public-Pnvate Partnership in Health and Education The Case of Bangladesh Paper presented at the Public-Private Partnerships in the Social Sector workshop organized by the Asian Development Bank Institute 5-9 July 1999). In such a situation the government needs to strengthen its role in training, certifying, regulating, and bringing about a coordinated and improved system of health care. Promoting nonprofit organizations, such as NGOs and community-based organizations, as partners of government may have a significant impact on the improvement of equity and access to the poor and those living in underdeveloped areas. Yet there are issues that must be addressed when incorporating NGOs as partners with govemments Green and Mathias show, using the family planning example, that the policies of NGOs may be inconsistent with those of governments (Green, A. and A. Matthias. 1995. Where Do NGOs Fitln7 Developing a Policy Framework for the Health Sector Development in Practice England: Oxfam. 313-323). Furthermore, lack of coordination between NGOs may lead to duplication and inefficient allocation of services. Finally, NGOs may suffer from management problems, resulting in a lack of accountability and quality. KEY ISSUES IN DEVELOPING PARTNERSHIPS Policymakers often do not understand the conditions needed to establish well functioning public-pnvate partnerships. Several key issues must be addressed to create an enabling environment for the good of all. Governance. A well-defined governance structure is essential to effectively distnbute responsibilities to all partners. The role of the public sector at different levels (national, provincial, local) and the respective responsibilities of the for-profit organizations, NGOs, and households need to be clarified. This legal and policy framework is missing in many developing countries. Accountability. Effective partnerships require that all players are held accountable for the delivery of efficient and effective services. The public sector has often been singled Y Wang Public-Private Partnerships In Health and Education 147 out for not being accountable for the quality and equitable services it provides. Private for-profit organizations and NGOs also have weaknesses. Therefore, they have to be made accountable for the outcome of the services they deliver, although individually they are responsible to their own organizations for meeting their organization's own goals. It is often found that communities, when encouraged to monitor project progress, have substantially improved accountability of government sponsored schemes, resulting in raised service standards. Participatory Process. For partnerships to work, it is necessary to involve all stakeholders in the activity planning process as early and as deeply as possible This will encourage all to assume ownership in all phases of the cycle of a program Problems arise when one or more players are excluded at some stages in the process In India, for example, NGOs are reluctant to participate in implementing government programs because they are not consulted during the planning stage Even when they are requested to participate in the implementation phase of the programs, they often decline as they feel the planning process is not participatory. An enabling environment. The government can play an important role in promoting partnerships by creating an enabling environment which includes, inter alia, clear legal, regulatory, and policy frameworks. However, in many developing countries, governments adopt policies that encourage involvement of the private sector in social services, while at the same time, govemment officials are undermining and hindering the private sector's activities. Governments often act as if they were the only providers of services and they often neglect the contributions of other parties. The gaps between public policy statements that encourage the private sector's involvement in providing social services and the actual treatment need to be narrowed. MODELS OF PARTNERSHIPS There is no one model of partnerships for all situations. The nature and extent of the roles of the public and the private sectors are country-specific. Good examples of partnerships include: The public sector assisting the pnvate sector. Thailand supports private sector participation and considers the private sector and NGOs as valuable contributors to meeting citizens' increasing demand for health and education services. A successful example is the partnership between the Ministry of Public Health and the Phya Thai Group; publicfinance and private delivery. The Government of Bangladesh formulated a national policy to achieve health development through partnerships with the private sector. TWo hundred NGOs of varying sizes were given substantial assistance from international agencies to implement the national family planning program, covering maternal and child health. Under this program, some 20 million people, or 15 percent of the population, benefited; public ownership and private management. There are many examples of private schools that are run under public ownership with private management In the PRC, for example, private education has grown rapidly since the early 1 980s. As a result, the unitary public school system broke down, challenging the whole public education system in the PRC. Today, a mix of public and private funded and managed schools has emerged. Commercial corporations are involved in the management of some public schools (a trend particularly evident in the United States); and * multi-level cooperation between Govemment agencies and NGOs The Philippines promotes a national initiative called Literacy and Integrated Program for People 148 Chapter 6 Public-Pnvate Interface and Corporate Responsibilities Empowerment Project (LIFE) that aims at increasing literacy rates in targeted poverty areas through partnerships between national and local governments and NGOs. The role of the national govemment and local agencies is to manage the leaming funds provided through an ADB-assisted project The funds directly support the community- based literacy activities, including the development and production of leaming materials. The actual delivery of literacy services is done by the NGOs at the community level. This initiative proved effective in helping 60,600 adults during the first year of operation in 1998. CONCLUSION Forming partnerships between the public and private sectors will create synergies that could help enhance the delivery of health and education services more efficiently, effectively, and equitably Partnerships can mobilize additional resources and the respective strengths of the vanous parties could be tapped for the benefit of all. Forming public-private partnerships often means breaking down old institutional arrangements and opening up new possibilities to collaborate with stakeholders with different and sometimes conflicting interests and organizational structures For public-private partnerships in the social sectors to work well, policymakers need to understand fully the differences between the players involved, the benefits and costs that partnerships may create, and the objectives that such partnerships are expected to achieve P Dominguez: Promoting Busines for Poverty Reduction in the Philippines 149 PROMOTNG BUSINESS FOR POVERTY REDUCTION: AN ExAMPLE FROM THE PHILIPPINES66 INTRODUCTION Traditional approaches to poverty reduction relied largely on government agencies as delivery mechanisms. Multilateral financial institutions providing official development assistance (ODA) first used government agencies and later expanded to include NGOs as sub-grantees of government agencies. Inclusion of private agencies (NGOs) in the process is a major step. NGOs do well in focusing the delivery of services according to the real needs of the people. Once proven successful in a selected area, NGOs frequently use what they have learned to advocate positive policy changes. But this is not sufficient to stimulate good social development The Asian financial crisis showed that the private corporate sector and the NGOs should be involved in poverty reduction, for they can contribute efficiency to the process and can help optimize results. By working with the private sector, scarce and expensive ODA funds have the potential to be utilized through the most efficient means to yield the best results. This paper briefly discusses a successful private sector-led poverty reduction strategy embodied in the Philippine Business for Social Progress (PBSP) organization. THE PBSP APPROACH TO POVERTY ALLEVIATION PBSP is a social development foundation organized in 1970 as a response of the private corporate sector to the then worsening social and economic conditions in the Philippines Each member company of PBSP allocates 1 percent of pretax profits for social development. A portion of these funds is pooled for PBSP to manage and implement poverty alleviation programs. Aside from establishing one of the very first nonprofit organizations in the country, this group of private companies also brought business management principles and practices to the task of poverty reduction From day one, staff of the foundation had to produce coherent plans, provide measurement indicators, and maintain systems of accountability, particularly on the financial side. Enterprise development is a key to PBSPS approach to poverty alleviation. Social progress in a developing country can only be accelerated if we are able to promote the growth and development of small- and medium-scale enterprises. If people are able to generate surpluses and attain self-reliance by means of some initial assistance from PBSP, then PBSPs work can be extended to other areas in the country, or other groups that need help ("helping people help themselves"). This assumes that the government provides an environment conducive for the development of social programs, including adequate infrastructure facilities, a supportive policy environment, and effective government managers in place at the local levels. PBSP concentrates on implementing focused and integrated grant-making and co- financing programs in rural areas. It also ensures that other systems, like organizational development, technology testing, and environmental sustainability are in place to support the building or financing of enterprise groups. While this is a purely private sector initiative consisting of PBSP and its partner NGOs and organizations, government agencies are also adapting and replicating the structure. The Department of Agrarian Reform, the Department "" This paper was written by Paul Dominguez Mr Dominguez is an entrepreneur and member of the Philippine Business for Social Progress 150 Chapter 6: Public-Private Interface and Corporate Responsibilities of Agriculture, and local government units are incorporating the PBSP approach Cntical to this is the corps of professional staff that PBSP has developed over the years, many of whom have joined the ranks of other NGOs, government agencies and donor institutions. A more recent example in which the PBSP worked closely with private financial intermediaries is the Small and Medium Enterprise Credit (SMEC) program. The program provided a US$2 million loan fund from the United States Agency for International Development (USAID) to lend to small and medium entrepreneurs. Originally, the program was to be administered by the Department of Finance, but PBSP was brought in to manage the fund. PBSP worked with private development and rural banks outside Metro Manila to service the financing needs of entrepreneurs. So far, the fund, lending at regular commercial rates, has been rolled over five times and maintained a repayment rate of 99.9 percent pnor to the financial crisis. PBSPs overhead cost for managing the program is less than 1 percent of the total loan portfolio More important, it has demonstrated to the formal financial sector that lending to SMEs can be done on a viable and sustainable basis. Given these results, PBSP received an offer from the German Development Bank (KfW) to expand the program by infusing additional cash of DM14 million in 1996 and another DM15 million in 1999. As the SMEC program has demonstrated the viability of this approach in enterpnse development and poverty alleviation, a similar approach could be tested in other areas such as natural resource management or the delivery of health services. An important area for further consideration is how to apply this market-based approach in areas that have been traditionally left out by the market system, or those where peace and security remain the primary issue. CONCLUSION In the context of socioeconomic cnsis, pnvate sector organizations such as PBSP are a potentially effective tool in the battle to reduce poverty. They are capable of playing a significant role in areas where government-led service provision is suboptimal. PBSP is an example of a private-sector led approach to poverty reduction. It has effectively used contnbutions from private sector companies to fund the development of new companies and sustainable employment, and it has done so with high repayment rates and low administration costs K Djumamuratova: Impediments to Small Industry Development in Uzbekistan 151 ECONOMIC AND SOCIAL IMPEDIMENTS TO SMALL INDUSTRY DEVELOPMENT IN UZBEKISTAN67 INTRODUCTION Since gaining independence in 1991, Uzbekistan has been working to establish a democratic society. Under the leadership of President Islam Karimov, the country is implementing a phased transition from a command economy to a socially oriented market economy An important priority in this process is continued liberalization of the economy, to be achieved in part by expanding private entrepreneurship through SMEs. Small- and medium-sized businesses hold promise for economic development in that they contribute to the formation of market infrastructure, help create a competitive business environment, provide a significant source of tax revenues, and provide jobs. This paper briefly reviews the state of SMEs in Uzbekistan and discusses key barriers to their development in the context of the experiences of the Feruz-Khorzam joint stock company. SMALL- AND MEDIUM-SIZED BUSINESSES IN UZBEKISTAN There are more than 160,000 small- and medium-sized businesses in Uzbekistan, amounting to about 90 percent of all economic entities registered in the country, and contributing about 13 percent of the country's GDR The Govemment of Uzbekistan has set a goal to raise the share of GDP attributable to SMEs to 25 percent dunng the next two to three years. This will require nearly doubling the number of small enterprises, and particularly increasing the share of SMEs that are engaged in industry. Most companies are engaged in trade, catering, and the manufacture of agricultural products, and the share of industrial production generated from SMEs remains quite small-slightly more than 10 percent. Over the last several years the govemment has helped to create conditions necessary to encourage new business formation and develop SMEs. Access to credit resources has been assured with more than 100 commercial banks having SME schemes. Various off- budget funds promoting entrepreneurship have been established including the Business Fund, the State Fund for Employment Promotion, and the Fund for the Dekhkan and Farmers' Support The state is actively seeking the involvement of foreign investors and intemational financial institutions in small and medium businesses. Tax privileges and State guarantees for collateral have been offered to help attract private investors. Institutions such as ADB, the World Bank, and the International Financial Corporation, have provided loans for SME development. But successful development of SMEs does not depend solely on credit availability. Success strongly depends on the environment for SME development and the entrepreneurs' capabilities to manage the transition successfully To provide training on how to run a business under free market competition, the National Program for Staff Training was adopted in 1997. In all regions of Uzbekistan business schools and professional colleges were set up to provide graduates with the basic knowledge and skills required to run businesses. The capacity of these educational institutions continues to increase. The need to develop SMEs holds particular relevance for the rural areas of Uzbekistan, where more than 65 percent of the country's population lives. The Government is implementing a program of rural infrastructure development that relies critically on the ° This paper was written by Klara Djumamuratova Ms Djumamuratova is Chairperson of the Board of the Feruz- Khorzam loint stock Company of Uzbeldstan, a medium-scale former state-owned textile enterprise near the Aral Sea 152 Chapter 6. Public-Private Interface and Corporate Responsibilities formation of SMEs. In the early years of agricultural reform, farmers were given irrigated lands to build up privatized small-scale farms (dekhan forms), with more than 650,000 ha of fertile land under cultivation However, the rural regions face a new task. Agricultural processing capacity must be increased and improved, if farming communities are to prosper It is hoped that a network of SMEs will become the basis of agricultural processing, help improve agricultural production and provide the region with employment Agricultural and nonagricultural SMEs will help develop social infrastructure in the rural areas through services they provide including construction, social facilities, transportation, and entertainment. AN EXAMPLE: FERUZ-KHORZAM JOINT STOCK COMPANY The Feruz-Khorzam enterprise has undergone a tremendous change that is quite typical for many SMEs in Uzbekistan. The company has been engaged in textile processing and manufacturing since Soviet times. After the collapse of the Soviet economic model the managers of the firm could not break with the command mentality and were not able to create new opportunities, forge new market relationships, or adopt new production techniques. Economic transformation and the incompetence of the former management resulted in near bankruptcy of the company in 1996. However, many employees of the companies wanted to save the firm After the tumover as a joint stock-company, the staff was significantly reduced from 60 engineering and technical workers to 20. This small group contnbuted to almost daily analyses of the problems facing the firm, and helped make collective decisions. Most of the above mentioned financial programs are for bigger SMEs needing credits between $100,000 to $5 million, whereas real SMEs need credit between $1,000 and $100,000. Interest rates are high and collateral often not available. Many bankers are not willing or do not know how to assess initiative and normal market risk. However, low-cost funds are essential for the survival of SMEs, particularly in the initial stages of development In fact, the only way for Feruz-Khorzam to break the cycle of debt payment was through a time bound interest-free loan obtained from the Uzbeklegprom state association. To fully realize its potential, the companyventured into cooperation with a foreign firm in 1998 after six months of intensive search. The joint venture firm, known as Bisintrud-Khorazm, consists of four partners: Pfaff-Singer from Germany, the State Employment Promotion Fund, a regional branch of the Business Fund, and Feruz-Khorazm joint stock company. Having reorganized the company, the firm in 1999 for the first time made a profit, which was distributed to shareholders Today, new market potential is being explored with a Som256 million ($1.4 million) project that will eventually increase output to Som300 million ($1.66 million) and create 140 new jobs. Starting in 2000 establishing profile shops and sites in the rural areas is planned, where an additional 300 women can find employment. THE ROLE OF WOMEN IN SME DEVELOPMENT Women and SME development are closely linked, particularly in rural areas. Many women live in rural regions and are anxious to participate in the new economy. These women are a ready source of labor, and may well not have the impediments to adapting to more flexible work conditions in that are seen among men brought up in the Soviet system of highly protected workplaces. Women are therefore good partners for SMEs. The Government, too, is paying significant attention to the issue of women's participation in the economy President Karimov recently approved the 1999 State Investment Program, which highlights the security and protection of women's social and economic rights. However, female participation in the economy remains low (at standards for transition economies) and more must be done to ensure that women are involved K Djumamuratova: Impediments to Small Industiy Development in Uzbekistan 153 In the Bisintrud-Khorazm firm, most (90 percent) of the employees are women. The problems of female labor supply and social protection for women are crucial. The company, like many other women-dominated SMEs in Uzbekistan, is investing in training and basic health care, in addition to the available state programs. In collaboration with the Uzbekistan Business Womenes Association, a local NGO, a special program for female employees was launched, teaching the principles of the new market economy and new technologies In 1998 four employees undertook a study of the costs of company management and labor utilization methods among leading foreign light industry companies, and more than 50 women completed a course on business planning. At the same time, the company set up a reformed comprehensive social protection system for women as the old (Soviet) system had resulted in substantial negative labor market effects and company losses. Under the Uzbekistan laws, social protection contributions are mainly paid by the enterprise. Hence, social assistance such as maternity leave is a major cost factor in companies where the majority of the employees are women. As wages are low, women often prefer taking paid leave (such as maternity leave) rather than working. To approach this problem, Bisintrud-Khorazm agreed with its labor- shareholders on creative schemes such as li) awareness campaigns among the employees on the economic impact of social leave for the company and the rural community as a whole; (ii) engaging women doctors to better screen claimed maternity and other leave applications; afid (iii) investing in women, children, and family-related social activities. Together with the Uzbekistan Business Women's Association and the American nonprofit organization Mercy Corps, a preventive health clinic for women employees was established. The clinic provides free basic medical services including basic gynecological equipment along with contraceptives and other drugs. Currently, the facility has a gynecologist, a dentist, a physical therapist, several nurses, and gymnastics and tennis trainers. CONCLUSION Uzbekistan is gradually implementing market reforms and is working toward establishing a strong social protection system for the most vulnerable in the population. SMEs have great potential for improving the economy and their development requires above all provision of credit ($1,000-$1 00,0001, educating employees for the new market economy, and reforming the social protection system, which is currently perceived by many SMEs and potential employees as an obstacle to employing more laborers, particularly women. Female entrepreneurship is a fundamental factor in expanding Uzbekistan's economy. The example of the Bisintrud-Khorazm joint stock company in Uzbekistan shows how women can help combat economic impediments faced by SMEs by opening up credit facilities through joint ventures and exports. Costs due to social leave can be reduced by investing in social services for women, particularly family planning, child and health care, and education. 1 54 Chapter 6 Public-Private Interface and Corporate Responsibilities SOCIALLY RESPONSIBLE INVESTMENT: HOW TO MAKE rr POSSIBLE68 INTRODUCTION The Asian financial crisis resulted in a substantial increase in poverty and worsening of social development in the region. However, this affected the social responsibility of international business very little. justice and sustainability are not much spoken of on Wall Street today. But they should be, for it is Wall Street, and its global counterparts, that are fueling the economic engine of the world-corporations. The entrepreneurs on Wall Street frequently forget that corporations are not the work of acts of God. They were created by humans as an efficient means of providing ourselves with food, clothing, shelter, health care, communication, and comforts. Companies provide us with desired goods and services, but they do not exist in a vacuum. They must therefore be encouraged to act in a manner that is socially and ethically responsible to the various stakeholders they interact with. An effective means of such encouragement is active shareholder participation. Socially responsible investment, by creating information on stakeholders impact, has the potential to continually assist in this encouragement. In the United States, the mutual fund is the primary instrument of the socially responsible investment industry. The mutual funds that serve socially responsible investors are committed to integrating into their products the following three processes: screened investment, advocacy and education, and community development investments MAKING SOCIAL INVESTMENTS POSSIBLE Screened Investment At Domini Social Investments our social screening process grew out of both essentially faith-based standards and stakeholders impact analysis. We eliminate alcohol, tobacco, gambling and weapons. Additionally, an early environmental movement led to the screening out of nuclear power. But the exciting work begins as we evaluate each corporation in six basic areas product safety and usefulness, employment practices, diversity initiatives, community initiatives, non-US impact and the environment We collect and analyze data, sort companies that seem to be above average in positive social impact and select a portfolio that meets our requirements. Advocacy and Education The mutual funds serving socially responsible investors file and vote shareholder resolutions, organize letter-writing campaigns, publish articles on our web site, and enter into direct dialogue with the management of the companies in which we hold stock. Direct dialogue is particularly useful as a way of dealing with a tough new emerging issue such as the one we in the United States call the sweatshop issue. Whereas in the South African debate corporations owned the factories in South Africa, today many corporations do not own the factories in which their products are made. For example, Walt Disney World makes a decision as to where to source their T-shirts based on the best price they can get. At least historically, it has not viewed it as its role to care about the circumstances that made those T-shirts available at that price Shareholder advocacy has advanced issues ranging from sweatshops to the environment and even chief executive officer pay. r This paper was written by Amy Domini Ms Domini is the chief Executive Officer of Domini Social Equity Fund, a US-based Investment fund with a socially-onented portfolio A Domint: Socially Responsible Investment 1 55 Community Development Investments For certain segments of society, capitalism has not brought prosperity. Community development investments have emerged as a means of addressing the needs of these constituencies. These investments are generally in the form of loans to or deposits at community-based financial institutions. Funds serving the responsible investor support community development financial institutions. Community economic development has a relatively concrete and immediate Impact. Low-income housing is built, a business providing entry-level jobs and healthcare benefits is supported, a cooperatively owned endeavor finances its expansion. Community development investments are particularly Interesting as we move Into a more complex global environment CONCLUSION With the revenues of global corporations running at levels far in excess of those enjoyed by most of the planet's nations, it has now become impossible to address issues of environmental sustainability and basic human dignity unless corporations enthusiastically endorse these goals. While corporate management teams may be made up of individuals who are personally committed to a better tomorrow, the bifurcation of finance and society has led to a belief on the part of management teams that they are going to be held accountable only for generating high current earnings and that practically any cost for these earnings is acceptable. Socially responsible investors will impact this dangerous perception significantly. By becoming an important ownership base with a new message, we will allow management teams to do what no doubt they would prefer to do: provide solid returns within the standards of improving the future for all. The underlying goal of socially responsible investors is to assist in the creation of a just and sustainable economic system. While we do not argue that such a system is going to come about solely through the efforts of investors, we feel it would be highly unlikely to come about without investors taking a prominent and socially responsible role. 7 Good Governance for Poverty Reduction in Asia GOOD GOVERNANCE FOR POVERTY REDUCTION AN INTRODUCTION69 Governance has been a theme woven through the entire Manila Social Forum. Time and time again two related issues have emerged (i) how best to translate good ideas and policies into action that genuinely helps people; and (ii) how to ensure that public resources and public policy instruments are effectively and honestly used. Governance is essentially about the exercise of political power to manage a nation's affairs, including its economic and social resources. Quality of governance may thus be the single most important factor determining the success of efforts to eliminate poverty and build the foundations for a pro- poor, people-driven, and equitable future society. The discussion has highlighted how strong leadership combined with an array of good technical action and support, and in partnership with civil society, can promote efficient and pro-poor public policies and services. The governance session in the Forum has focused on seven key topics: * the links between quality of govemance and crisis impact, with some comment on the challenges brought about by globalization; * the importance of basic good governance, including strong public administration, legal and judicial capacity, clear and fair incentive systems, transparent public finance, and public accountability; * the vital importance of information: the "sunshine principle" of opening up information and debate; * the crucial role of civil society and the changes that are transforming civil society roles across Asia The Forum has highlighted the powerful potential offered by community monitoring to link anti-corruption and anti-poverty efforts. * the challenges and changes emerging around decentralization; * the role that the media can and should play in promoting good govemance; and * the responsibilities and issues for govemance involving international partners, both at a global level and through the medium of specific development projects lYacing significant links between economic performance (with accountability) and openness of government, several speakers suggested (with echoed support) that, in general, the crisis struck less harshly in countries where a strong institutional framework conducive to development was in place. Several speakers stressed that the efficiency and transparency of the institutions that implement policies and programs, from top to bottom, are at least as important as broad development policies and the level of resources provided. instead of focusing on optimal 9 This paper was written by Katherine Marshall Ms Marshall is the Director for Governance and Social Policy in the East Asian Region of the world Bank. She was also instrumental In organizing the Manila Social Forum in loint cooperation with the Asian Development Bank. 1 58 Chapter 7 Good Govermance for Poverty Reduction in Asia government size, emphasis has tumed towards its quality and transparency: Governments, whatever their form, work best when the policies they pursue are decided openly and implemented uniformly, with active participation of individual citizens and civil society As James D Wolfensohn, the President of the World Bank, observed: "Irrespective of political systems, public decisions must be brought right out into the sunshine of public scrutiny. Not simply to please the markets, but to build the broad social support without which even the best-perceived economic strategies will ultimately fail ACCOUNTABILITY Good governance must, therefore, be grounded on clear accountability, transparency, and the rule of law, including respect for human rights The Forum highlighted an array of practical means to enhance accountability, the common themes being greater participation, competition and decentralization. This in turn requires efforts at all levels to improve the political, institutional, administrative, and technical capacity of the State Even more important is an active effort to open the State to dialogue and participation with all stakeholders, particularly civil society. Increasing government accountability is well illustrated by the cases presented on Mongolia's public sector reform and Thailand's growing focus on project monitoring Promoting good governance is particularly daunting for countries in transition like Mongolia, where addressing the govemance challenge means redefining the role of the State in general and its approach to social sector development in particular. Mongolia has elected to design its reform after the New Zealand model with the objectives of improving efficiency, and ensunng more accountable, participatory, and equitable public management. Reforms begin with a pilot first phase that focuses on key areas such as improving public finance and revenue collection, enhancing strategic planning, and promoting decentralized administrative reform In a second stage, governance and institutional reforms will be mainstreamed in key economic and social sectors. Finally the new public management principles will be extended, where possible, to all sectors. While the reforms are seen as beneficial in the long term, concerns are nonetheless being voiced about their possible adverse social impact: in the short run, primarily because of laid-off civil servants and the squeeze on social sector subsidies. TRANSPARENCY AND CORRUPTION The second component of govemance highlighted in the discussions was transparency. In many countries of the region, corruption (defined as the misuse of public power for private gain) stands out as a major threat to better governance The challenge is to design institutions and systems that cut down on both the incentive for, and the capability of, public officials to engage in corrupt practices. The role and responsibilities of private actors the "bribers", were also stressed Incentives can be addressed, inter alia, through merit-based promotion and better pay, at one end, and tougher penalties-and likelihood that they will be applied- at the other. Capability can be enhanced by constructing institutional checks, including competition in provision of public services. The discussion observed that those countries in the region with poor scores on the Corruption Perception Index by Transparency Intemational were also hit hardest by the crisis Suggestions for further action included increasing pressure on government and parliaments to strengthen their anti-corruption action, developing effective coalitions around the anti-corruption issue, including closer professional relations with anti-corruption institutions, engaging the media, and building anti-corruption issues into education programs (from early years through civil service and business training). Thailand's experience with project monitoring illustrates how both government accountability and project transparency can be effectively and quite quickly enhanced (and K Marshall Good Govemance for Povery Reduction 159 how the two are linked). Thailand is focusing sharply on stronger monitoring and evaluation of both national and foreign funded programs and projects. To ensure maximum cost- effectiveness and poverty impact, governments and international institutions need to work together toward more probing and systematic monitoring systems. Setting appropriate, and well publicized performance indicators, both at the macro and micro level, and disaggregating the poverty definitions and goals for specified vulnerable groups, are important for successful monitoring and ex-post evaluation, and also contribute to greater transparency. PARTICIPATION AND DECENTRALIZATION Participation is a key component of good governance and particularly accountability, and here close involvement of local governments and civil society play a pivotal role. in the Philippines, an aspect of governance reform highlighted in the discussion was increasing the capacity of local governments to fight poverty. The programs of Naga City demonstrate how indispensable the involvement of civil society is, and how and why anti-poverty policies need to be tailored to local conditions. The need to strike a balance between responsibilities at the national and the local level, at the same time that responsibility is pushed towards poor communities themselves, emerged as a central and challenging lesson. Cooperation among cities in the design and implementation of anti-poverty programs has also proved mutually beneficial, with particular benefits from the better tailoring programs to local needs, and concrete ways to make local govemment more responsive to local needs. Better local benefits also build increased citizen support. A further Philippines case shows how important the role of NGOs can be in demanding greater social justice. Demands extend to asset reform (particularly for land and water resources), increased participation (for example improved access to education and health services, elimination of discrimination and greater inclusion of the poor in the decision- making processes), and more effective protection of the rights, security, productivity and livelihood of the vulnerable and poor. ESTABLISHING FEEDBACK MECHANISMS THROUGH CML SOCIETY The role of the media as an important part of civil society deserves special attention in this context The media plays a well-established and critical role in holding govemments accountable and ensuring the transparency of their actions. However, all too often (examples were drawn pnmarily from the Philippines), the media is beset by problems of ownership, including the corporate interests of media propnetors, and insufficient skills training for journalists. While the media thus offers enormous potential for impact on the quality of governance, there are gaps and risks, generally exacerbated by weak cooperation with other segments of society, such as NGOs, the private sector, and citizens and communities Finally, Indonesias experience in increasing the transparency of governance is yielding some remarkable results, illustrating some of the ways through which civil society can be effectively involved at the community level in social programs such as social safety net programs. SAWARUNG, a civil society network was created in response to the lack of transparency and access to information in govemment programs. Based on a bottom-up approach, it created a two-way information channel at community level designed to identify stakeholders within the community. This mechanism is working to monitor how effectively funds are channeled, provide data to groups, obtain concrete results from local authorities on project implementation, and encourage a dialogue with the authorities Printed media (such as announcement posters and boards) as well as electronic media (radio broadcasting and interactive sessions), and particularly community discussion have to date shown the best results in motivating civil society to monitor govemment programs, and thus contribute to greater transparency and accountability in governance. 1 60 Chapter 7: Good Governance for Poverty Reduction in Asia GOVERNANCE AND ANTiCORRUPTION: A HOPEFUL REALISM70 In governance and anti-corruption work, realism is a must; pessimism may be prudent; but fatalism is lethal. Less than 50 years ago, a survey showed that the most corrupt place in Asia was Singapore. Less than 30 years ago, that "honor" had shifted to Hong Kong. Less than 10 years ago, the Italian economy was in the "unbreakable" grip of a closed circle of political- economic privilege and preferential resource allocation on a stupendous scale In all these cases, the conventional wisdom maintained that malgovernance had such deep "cultural" roots that only naive persons could think of improving it in their lifetime. A physicist, it is said, once proved that the bumblebee could not possibly fly; bumblebees, however, dont know that. Lee Kuan Yew, Chns Patten, Antonio di Pietro, although as aware as anyone of the strong influence of culture and ingrained habits, did not accept the inevitability of official theft and pnvate collusion. Supported by society's revulsion, their clear-headed and practical actions revolutionized govemance processes in their countries. Thus, Robert Putnam is utterly right in stressing the fundamental role of social capital for good govemment and vibrant economic activity However, he is wrong in his fatalistic conclusion that centuries are needed to build enough social capital to change behavior and introduce effective accountability systems. I submit therefore that the widespread popular anger at malgovernment and corruption that observers of Asia nghtly sense today is a symptom of the most important achievement of recent years, and the key prerequisite for effective change. Enabled by the fall of the Berlin Wall 10 years ago, introduced by James Wolfensohn's removal of the taboo on use of the "C" word in October 1996, and brought home with a vengeance by the financial storm that hit Asia just nine months later-there has come the realization that corruption is not only inefficient, contagious, and especially bad for the poor, but also that it is not inevitable. just three years later, the shrugging acceptance of "immutable" realities, the respectability of giving and taking illicit favors in exchange for misuse of official position, the "romantic view of corruption" as grease for the machine-all of these perceptions are out or on their way out in most countries. The door to real and concrete progress is open. We can, however, only go through that door and help accomplish real change if we approach these issues in full and open-eyed recognition of their complexity and long-term nature. Governance and anti-corruption are too important to be treated cavalierly or superficially, as "flavor of the month" allowed to become just another item on a statutory checklist- "addressed" with a boilerplate paragraph in an official document and promptly shelved And codes of fiscal transparency or civil service conduct or corporate governance ethics, or international policy papers, or national integrity conferences, and even anti-bribery treaties-as important as they undoubtedly are-constitute key necessary conditions, but are hardly sufficient. Better govemance and reduced corruption will not happen by divine benevolence, nor as a result of prayers, decisions, deliberations, strategies, and conferences. They will require systematic, shoulder-to-the-wheel, sustained efforts, practical improvements of public management processes on the ground, courage, and pressure, pressure, pressure- pnmarily by the people themselves to hold their governments accountable. 7 This paper was wiitten by Salvatore Schiavo-Campo Mr Schiavo-Campo was the ADB Senior Advisor on Govemance and Public Management, and currently occupies a similar position at the World Bank. S Schiavo-Campo: Govemance and Anticorruption: A Hopeful Realism 161 But the people of developing countries, and especially the poor majorities, need the aggressive support of external agencies Intemational financial institutions now fully accept the need to stop playing the 'three monkeys" game; to line up unequivocally on the side of the poor-which requires among other things strengthening transparency, accountability, the rule of law, and effective participation; and to become a major part of the solution rather than (as in Cold War days) part of the governance problems in developing countries. Now we need to put our money (and our sweat) where our mouth is-in pursuit of the core operational challenge to find country-specific ways in which the efforts and pressures of the people themselves and the healthier elements of their governments can be supported effectively and on a practical and sustained basis. This requires leadership; it requires firnness; it requires stamina; it requires resources; it requires knowledgeable staff willing to listen to those who understand country realities from the inside; and it requires a strong intemational partnership of equals. We should have no illusion: we are just at the starting gate. But the payoff in terms of development impact of assistance and of the survival, dignity, and well-being of more than one billion human beings is enormous. 1 62 Chapter 7. Good Govemance for Poverty Reduction in Asia FIGHTING CORRUPTION TO HELP THE POOR71 When Transparency International (TI) was founded in 1993, its mission was to develop effective coalitions to fight corruption in international business transactions. The Asian financial cnsis clearly showed the linkages between bad corporate and state govemance and poverty. Corruption is a crime that hurts the helpless, the disadvantaged, and the poor, as benefits that should accrue to them go somewhere else. World Bank President James Wolfensohn is absolutely right when he says that 'Corruption, by definition, is exclusive. it promotes the interests of the few over the many We must fight it wherever we find it." TRANSPARENCY INTERNATIONAL FIGHTS CORRUPTION Transparency International fights corruption, however grand or petty, realizing early on that one could not fight corruption, especially at the local level, without the support of all sections of society by working closely with the professions, NGOs, academia, religious groups, and, wherever possible, government agencies Thus, it recognizes the importance of developing and strengthening coalitions with institutions like the World Bank, ADB, OECD, and individuals all over the world. The concerns here about corruption are humanitanan, ethical and utilitarian, as corruption widens the already yawning gap between the rich and the poor in many of our countnes, destabilizing societies in social, economic, and political terms Consider also the following totally negative effects of corruption. * Decisions are not taken for public benefit, but for private interests * High cost, complex and prestigious projects are favored over cost-efficient, community based development projects * A 'levy" ranging from 10-20 percent is added to public/aid funded "white elephants" that are a burden on the whole society and worsen national debt. * Human rights abuses flourish. As corruption levels increase, a govemment becomes more secretive, less tolerant of dissent and is quick to resort to draconian laws to force conformity. Social and economic justice and individual rights are threatened. Tiransparency International produces an annual corruption perception index (CPI) that measures the levels of corruption as perceived by the expatriate business community in the countnes in which they conduct business, reflecting the demand side of corruption. A new supply side index, called the Bribe Payers Index (BPI), was developed in 1999 to measure the propensity to bribe by the world's 19 top exporting countnes. CORRUPTION IN ASIA Of the 99 countries surveyed in 1999, several East Asian countries fared as follows. Indonesia 96th; Thailand 68th; Philippines 54th, Republic of Korea 501h; Malaysia 32nd, Japan 25'h, Hong Kong, China 1 5th; and Singapore 7th72 It was observed that countries that have turned in consistently the worst scores in the CPI, such as Indonesia, Republic of Korea, Philippines, and Thailand were those hardest hit by the Asian economic crisis that first turned Thailand's economy upside down in July 1997 These countries had not thought it necessary to develop and put in place strong integrity systems, incorporating universally accepted best practices. Khun Anand Panyarachun, twice appointed prime minister of Thailand, made an interesting observation that it had to take a financial crash to drive home the point that many of the Thai institutions were ill equipped ' This paper was wntten by Tunku Abdul Aziz Mr Aziz is the vice-Chairman of lYansparency Internatlional For a complete list of countnes surveyed, visit the n website http //www transparency de T Aziz Fighting Corruption to Help the Poor 163 to operate effectively in the global economy Thailand's integration into the world economy was far from smooth. While Thais readily adopted Western-style capitalism, they continued to retain their traditional system of patronage networks, a system built on connections to allocate values and resources While he maintained that personal connections could be innocent, he warned that when they became a factor in public affairs, they could be deadly because patronage was not based on merit and tended to breed inefficiency and corruption. He could have been speaking about the rest of Asia Much of Asia was quite simply not ready to cope with the harsh reality of globalization, and succumbed rapidly to the severe sanctions of the market place with terrible consequences for their people. As always, it is the poor that drew the short straw. Without any social welfare scheme to give comfort, the poor and the disadvantaged became early casualties in an unequal struggle for nothing more than their rights to life's basic necessities. The damage caused by corruption to national life is well documented by the World Bank, ADB, and others. But many choose to bear silent witness. The responsibility to fight corruption belongs to everyone. Society as a whole must play its part if corruption is to be truly weeded out. Society must seek ways to empower itself through coalition building and assert its rights to good governance. CORRUPTION AND POVERTY While corruption must be confronted at all levels, the priority should be to protect the poor from being exploited, particularly by bureaucrats at local level. As a starting point, Transparency Intemational offers several suggestions to create awareness, and draw attention to the effects of corruption on the poor, and in the process, hopefully to contain them. * Make representations to parliament, and remind political parties of their election manifestos and promises about strengthening anti-corruption instruments and mechanisms (as in India). * Establish close professional relations with anti-corruption institutions (as in Malaysia, Malawi, Tanzania, and Uganda). * Support the development of codes of ethics for members of parliament and the business community (as in the South Africa, Tanzania, and the United States). * Work on education tools for children (as in Denmark). * Write letters to newspapers on specific issues and generating public debate (as in Malaysia and Tanzania) * And if all else fails, go on a hunger strike (as in India)! There are dozens more examples of what groups of people are doing, with varying degrees of success, in many parts of the world, all with one aim in mind-to develop and strengthen integrity systems in their countries that are capable of sustaining best practices in governance, including increased government accountability. Without public accountability and transparency, without integrity in national life, human development cannot be genuinely achieved. In conclusion, the critical importance in the fight against corruption is to help the poor and to contribute to the development of a national integrity system that puts the interests of the many over those of the few Such a system must embody universally accepted "best practices' consistent with the economic, social, and moral needs of a caring society The twin pillars that support such a society are, without question, transparency and integrity, as without them, we cannot hope to bring about the balanced transformation in people's lives, particularly the poor of this world. 1 64 Chapter 7. Good Govemance for Poverty Reduction in Asia SOCIAL IMPACT OF GOVERNANCE REFORMS IN MONGOLIA73 INTRODUCTION Poverty and Govemance are closely interrelated Reforms in good governance promote efficient public services, thereby improving social development, creating an institutional framework of accountability, transparency, and rule of law, and promoting economic growth while fostering participatory and equitable governmental decision-making. These factors will, over the long term, to reduce poverty and enhance social development. Good governance, or sound development management, is the capacity of a government to maintain an institutional environment appropnate for the public and private sectors to function properly. The following five interlinked crosscutting elements are the key themes of govemance reforms and its institutional building process: accountability, transparency, decentralization, participation, and public-private interface According to the World Bank, "accountability, at its simplest, means holding public officials responsible for their actions." Accountability is the actual translation of public planning into its performance, using mechanisms of monitoring and evaluation. It takes place at the macro, meso, and micro level, in all the public spheres (i.e, budgeting finance, service delivery, and legal functioning). TIransparency of govemment decision-making reduces the opportunity for corruption and enhances predictability, thereby promoting fair and consistent implementation of public policies. The right to information is an essential element of the participatory mechanism, wherein people play a central role in the development process, being both the necessary agents and ultimate beneficiaries. Decentralization is expected to lead to more participatory and accountable systems; it is not only about the devolution of power to the people and its representative agents as civil society, but also about a broad interface between public and private agents. MONGOLIA'S CURRENT SOCIO-ECONOMIC CHALLENGES Since 1990, Mongolia has moved from a central-based economy to a market-led system, and from a communist to a democratic regime This challenging transition saw the elimination of subsidies and aid from the former Soviet Union while exposure to and pressure from global trends increased. In this otherwise well managed transition, fiscal policy and budget planning have been considered as crucial weaknesses of the system, placing the macro- economic stabilization of the country in the late 1990s at risk Economic prospects remain unsound, public debts are worsening, enterprise restructunng processes are still in their initial phase, and unemployment and underemployment in informal sector activities are rapidly increasing To ease the situation, a return to political stability, better use of foreign assistance, and the positive gradual impact of increased fiscal discipline, including raising revenues, is needed. Governance reforms in fiscal planning, institutionalization, and monitonng the core of the agenda, are preconditions for the overall public management reform. Since 1991, various govemments in Mongolia have maintained a strong commitment towards macroeconomic stabilization and structural reforms. The present government is implementing an Enhanced Structural Adjustment Facility program, with assistance of the IMF, aimed at bnnging the double crises of the banking sector and the public finances under control. Like other countries of the former Soviet Union, social development was impressive prior to 1990 coverage of health, education, and social protection was universal with about 7 This paper was written by Davaadoriin Delgertsorgt Mr Delgertsorgt is the Head of the Policy Department of the Cabinet Secretanat in Mongolia D Delgertsorgt Social Impact of Govemance Reforms In Mongolia 165 40 percent of govemment expenditure devoted to social development. As a result, poverty was relatively low (11 percent), absolute poverty was practically unknown, and social living standards and human development indicators were high. With transition and privatization, however, social expenditures (public and private) rapidly declined. Human development worsened, and the incidence of poverty since 1995 remained high and static with increasing depth. During the initial transition years, when development aid and export eamings were high, the Govemment maintained a strong involvement in the social sectors. Since 1997, however, dunng the Asian and Russian economic crises, as well as intemal political turmoil, the need for reforms and to reinforce the social protection system has become more pressing. It is estimated that about 35 percent of the households are now below the poverty line with increasing depths of poverty in the urban areas; the official unemployment rate is about 7 percent and rising. The Government is particularly challenged to generate new jobs whilst labor retrenchment and civil service reforms deepen. At the same time, there is an urgent need for rationalizing social and municipal services and improving social protection PUBLIC SECTOR REFORMS Governance reforms are expected to have strong and positive impact in the long run on poverty reduction and social development. They aim to improve service delivery, enhance transparency and relevance in social public expenditure allocation, increase wages and income of civil servants, and enhance parUcipation in decision making on local and social affairs Mongolia's public sector reform process is pattemed after New Zealand's experience (new public management with output based contract arrangements in the public sector), with a gradual approach towards implementing the reforms. After the preparation phase (1996-1998), the country will complete reforms over a 10-year period in three phases: (i) initial reform as a pilot; (ii) implementation in key sectors; and (iii) reform mainstreaming. The objectives for the "pilot" phase (1999-2002) are (i) to strengthen budgetary discipline and strategic planning at the central Govemment level; and (ii) to gain practical experience on the application of the envisaged administrative reforms at selected entity and local government levels. in addition, specific measures will be taken to address the social impact of the overall reforms and determine their benefits for growth, human development, and poverty reduction. in the second or "mainstreaming" phase, the emphasis will be on implementing govemance reform within sectors best prepared for new administrative and institutional systems. In addition, continued reforms will complement the performance-based budgeting process at the macro level with a budgeting framework for the micro and meso levels, enhancing coordination between the central and local level. The privatization of state-owned enterprises started in the pilot phase will also continue. In the third and final phase, governance reforms will be mainstreamed to include the rest of the public sector, where applicable. For sectors where the reform is less appropriate, only some elements of new public management will be introduced. The scope of the overall reforms involves a new definition of responsibilities of the various entities at the public-private and central-local level. The plan is designed "to be implemented across three layers of public sector: Central Budgetary System, Local Governments, and SOEs covering budgetary discipline and administrative aspects of these layers 1 66 Chapter 7: Good Govemance for Poverty Reduction in Asia EXPECTED BENEFITS FOR GOVERNANCE AND IMPACT ON POVERTY Governance reforms are expected to promote human development and poverty alleviation. The objectives of public reforms are to: (i) improve efficiency; (ii) develop an institutional framework that enables accountable management and contracts as well as stable environment; and (iii) promote a more participatory, socially committed, and equitable government. Benefits to the Social Sector Budget and financial reforms will directly translate into rationalizing public expenditure management and medium-term strategic budgetary planning. This will improve allocation of public resources and efficacy of implementation, resulting in less costly and better targeted dynamic social services provision Privatization and a new interface between public and private services will translate into increased availability and quality of services, particularly, in areas where the private sector is more efficient. The reform will build up a more sustainable institutional framework where accountability, the rule of law, and predictability of the decision-making process prevail. Anti-corruption policies will be strengthened and mechanisms that promote integrity and empowerment of excluded and vulnerable groups will be encouraged. In this context, the role of decentralization is crucial although care must be exercised in its application. By diversifying public responsibilities and capacities to the regional and local areas, management of public services and offices are likely to gain from transparency and responsiveness of government institutions, making development projects more sustainable Without building up strong principles of equal participation, decentralization does not ensure a more fair and accountable system, because there is always the question of who is actually represented in the process and who participates. The improved planning, administration, and monitonng of the public sector are also expected to promote a more stable and investment-friendly environment, thereby enhancing both economic growth and social development The reform process will, however, result in short-term social and economic costs associated with the transition Finally, the reforms are expected to foster a more participatory and equitable govemment policy environment They are expected to help ensure increased access by vulnerable groups of the population to critical public services including health, education, and social protection. However, reforms involving reduction of expenditure and staff bureaucracy must be accompanied by reforms to rationalize the system and increase its efficiency Otherwise reform will only result in deteriorating support for the social services, reducing human development and increasing poverty. Benefits to the Economy The reengineering of the Mongolian public sector is expected to lead to notable economic growth. Management improvements in the public sector will contribute to better economic performance Reducing the transaction costs of doing business will facilitate the flow of investment, enhancing the use of capital. At the same time efficient infrastructure services will lower production costs for firms. in addition, better delivery of social services increases human capital. Based on experience of other countries, benefits are expected to be more than sufficient to cover the required investments. Benefits to Society There are concerns about the possible negative effects of governance reforms on unemployment, deteriorating labor relations and reduced short-term provision of social D Delgertsorgt Social Impact of Govemance Reforms In Mongolia 167 services. Working conditions and labor relations can, however, be expected to improve with institutional reforms, upgrading equipment and technology, and training courses. The shift toward a more performance-based personnel management system should also help in the long-term In order to prevent new patronage and paternalism in work relations, further democratization of the decision process must be fostered, together with the development of appropriate oversight agencies that can resolve employer-employee conflicts. In addition, clarifying the obligations of accountability, establishing proper ownership of enterprises, and emphasizing ethical conduct of public servants will instill in the public confidence in the government and enhance a transparent, organized, and coherent implementation of the reforms. As noted before, governance reforms are expected to have substantial benefits for public service delivery. One crucial aspect of governance reform in Mongolia is to implement the reforms in each sector as the minimum institutional and budgeting requirements are established in the pilot phase. Through this gradual process, the reforms should improve the social status of the population and reduce poverty levels Table 18 provides more details on the social impact of the reforms. CONCLUSIONS In Mongolia, output and performance oriented administrative and public finance reforms will improve service delivery and rationalize public expenditures. improved public expenditure management will contribute to better allocation of scarce funds to social infrastructure and the economy. Social sectors will be .made more accountable for the activities they engage in and the results they are expected to produce At the same time, better decision-making and administration will improve the environment for economic growth. These reforms will all help reduce poverty in the long-term. However, the transformation of these potential benefits into real improvements is not automatic. Ensuring real benefits will require focusing on the potential tradeoff between efficiency and equity. With the introduction of user fees in health clinics, for example, public health care becomes less costly overall; however, this does not guarantee that health care is cheaper for the poorest families. Poor families could even be made worse off if price subsidies or other provisions do not help them afford higher health fees. Without a firm commitment to the goal of reducing poverty, there is no assurance that the benefits of the planned reforms of public management will reach the most disadvantaged and vulnerable segments of society This commitment exists in Mongolia. 168 Chapter 7 Good Govemance for Poverty Reduction in Asia Table 17: Summary of Social Impact of Govenance Reforms in Mongola Pilot Phase Mainstaming In Completion Phase Overall Result (1999- (1999-2002) Sectors (2003-2006) (2004-2009) 2009) Labor market Some addibonal staff Negatve impact on With growth and socio- More flexible labor required for selected the labor market, but economic restructunng, arrangements, higher pilot agencies possibilibes for new lobs and higher wages and income, Increasing income income will be created increased labor opportunites for good for the former public productivity, improved performing staff in the servants However, labor relabons, more public and pnvate unemployment will be at inequity; need for social sectors a higher general level protecUon of those who and needs to be cannot compete in the cushioned through new system social safety nets Services Improved services Improved quality, Improvements in Very positve improved provision delivery in the pilot efficiency, and costs, macroeconomic social services with agencies such as tax of social services, environment will positve implications for administrabon will danger of less provide means for the quality of human benefit everybody. equitable access to further poverty development services, need for reduction, there is a social protecton need for social mechanisms and protecton mechanisms affordable basic social and affordable basic insurance social insurance Social Public Program loan Improved social More needs oriented, More effectve use of Expenditure provides funds for public expenditure sustainable, transparent, available resources for building up a management will and forward-looking central-local and pubbc- sustainable social provide more stabiity budget allocatons, pnvate executing and protection and social for investment and partcularly for social implementing agencies insurance system for current expenditure development mitgabng some decisions neganve impact coming with the second phase Human Improved specialized Enhanced social Improving human Improving human and Development capacibes of pilot services provision, but development social development agencies and staff initally with indicators through tranirng increasing inequality Poverty No impact Increase In poverty Growth, restructunng, General reducton of levels among some improved social services poverty and improved groups delivery, and enhanced formal and informal social protection will social security provide new dynamics for poverty reduction Paricipation and Performance based More transparency More transparency and Higher quality of life, democranzaton rewarding systems and participaton In participaton in general contributon to will increase job employment and employment and further democratizabon satsfaction personnel policies personnel policies. of the country I Robredo: Local Govemments Implementing Poverty Programs In the Philippines 169 LocAL GOVERNMENTS AND NATIONAL POVERTY ALLEVIATION PROGRAMS IN THE PHILIPPINES74 Poverty stalks every city in the world including those in developed countnes. it only differs in magnitude and intensity as one goes from one city to another. The task of alleviating poverty is not the sole concern of the national government. Local governments share this responsibility, probably more so as they are the ones in close contact with the people they govern. Under the Local Government Code of 1991 local govemments in the Philippines have expanded powers and prerogatives to encourage economic growth and transform the Philippine countryside. Under the Code, local govemments can share the task of governance with civil society by entering into partnerships with NGOs and the private sector. Given these powers and prerogatives, local governments are not limited to merely mainstreaming and implementing national poverty alleviation programs but can also initiate their own. Indeed, given the autonomy enjoyed by Philippine local governments, many cities do undertake their own programs. POVERTY IN NAGA CITY Naga City, the biggest urban area in Southern Luzon, exerts a strong pull to the residents of the towns and provinces around it, particularly to those who see no hope in further tilling the soil in the face of low retums and high risks from farming. Early on, Naga was saddled by a growing urban poor population and the attendant ills that go with growth. Squatter shanffes and slums, beggars and vandals are thus nothing new to Naga. and the number of unemployed is growing. The city's growth in the early 1990s exacerbated the problems, fuelled by the opening of new areas for development and the entry of investors that transformed the once moribund city into what it is today. The city government decided to fight poverty by striking a partnership with civil society. Operationalizing this principle are two key programs: (i) Naga Socialized Program for Empowerment and Economic Development (Naga SPEED); and (ii) the Empowerment Ordinance * Naga SPEED. The program formalized channels through which neighborhoods and local communities can participate in identifying development priorities on major policy issues These channels are: (i) neighborhood-level consultations to identify problems and priorities of a small area, (ii) sectoral level dialogues to identify issues specific to a particular sector, (iii) city-wide referenda to find out the sentiments of the entire populace on major policies or projects proposed by the city government; and (iv) field surveys to generate a more impersonal and relatively objective appraisal of the performance and expectations of the city government Naga SPEED resulted in a local govemment highly responsive to the needs of its people, a people highly supportive of their local government. * Empowerment Ordinance The Empowerment Ordinance institutionalized the Naga City People's Council INCPC), a non-partisan body composed of NGOs, people's organizations, and other organized pnvate sector groups. NCPC was granted the sole prerogative of determining the NGO representatives from among its members who will sit in the different boards, councils, committees, task forces and other special bodies of the city government These NGO representatives are authonzed to observe, vote, and participate This paper was written by lesse M Robredo Mr Robredo has previously held posts as the chairman of the Bicoi Regional Development Council, the President of the League of Cities of the Philippines, and the mayor of Naga City 170 Chapter 7 Good Govemance for Poverty Reduction In Asia in the conceptualization and implementation of city government programs Another provision of the ordinance calls for representation in the city legislature of the nonagncultural labor, women and urban poor sectors of Naga These representatives are elected by sector, and hold the same powers and responsibilities as other council members. In essence, the Empowerment Ordinance decentralized political power and shared it with civil society through NGOs and community leaders who participate in the various aspects of local governance. Equally important, it safeguarded public resources from being dissipated in politically attractive but developmentally irrelevant prolects, as civil society, through its representatives within the very innards of the city government, maintains a tight watch on its operations. IMPLEMENTING THE NATIONAL SOCIAL REFORM AGENDA Having forged a strong partnership with civil society, the Naga City government was ready to mainstream and implement national poverty alleviation programs such as the Social Reform Agenda (SRA) of then President Fidel Ramos, and the Lingap Para sa Mahihirap (Care for the Poor) Program of President Joseph Estrada The Philippines has had different poverty alleviation programs in the past but only the Social Reform Agenda made an effort to inject coherence and focus into the programs. The Agenda provided a comprehensive package of doable and high impact interventions targeted at the disadvantaged sectors of Philippine society Most important, the target beneficianes were included in policy formulation and program implementation at both national and local level. SRA focused anti-poverty effort on the population sectors that were deemed the most disadvantaged in Philippine society. These sectors included: farmers and landless workers, small fishermen; urban poor, indigenous people and cultural minorities; workers in the informal sector; women marginalized by poverty; students, children and youths; persons with disabilities; the elderly; and victims of human caused and natural disasters To ensure that limited public resources were not dissipated, SRA further focused the anti-poverty effort of the different national agencies and local governments in specific areas (fittingly called 'convergence areas") within the key population sectors The SRA then applied the Minimum Basic Needs (MBN) approach to identify the unmet needs in each convergence area and to come up with the specific interventions necessary to address these unmet needs. Over and above the area-specific MBN are additional sector- specific flagship programs, which target unmet or undermet needs. Implementation of these flagship programs is in turn orchestrated by a flagship champion who is the secretary of the department catering to that sector. For example, the flagship program for the urban poor was the Socialized Housing Program championed by the Chairman of the Housing and Urban Development Council. For workers in the informal sector, the flagship program is the Workers Welfare and Protection Program championed by the Secretary of Labor and Employment. Implementation of the SRA at the local level basically started with identifying the basic sectors present in one's locality and forming a local social reform council with representation from the basic sectors to carry out the program In the case of Naga City, four basic sectors were identified, namely (i) farmers and landless workers, (ii) urban poor; (Iii) workers in the informal sector; and (iv) disadvantaged groups (marginalized women, youths, persons with disabilities and the elderly). In formulating programs for each basic sector, the city social reform council discovered that there were already locally initiated programs targeting each sector Three city government programs best illustrate approaches tothe urban poor and the workers in the informal sector: the Naga Koantabay sa Kauswagan (Partners in Development) Program and the Metro Naga Development Program for the urban poor, and the Naga LEAPS for the workers and the informal sector. I Robredo: Local Govemments Implementing Poverty Programs in the Philippines 171 Naga Kaantabay sa Kauswagan (Partners in Development) Program The Kaantabay so Kauswagan is a social amelioration program primarily designed to empower squatters and slum dwellers, which comprise some 25 percent of the city population residing in 21 urban villages of Naga City. The program focuses on a fixed menu of interventions, developed creative approaches to facilitate homelot ownership, and forged a tripartite approach that worked wonders in settling tenurlal issues Since its inception, the program has disposed a total of 33 hectares of private and Government-owned lands to a total of 2,017 urban poor families, 617 of them in 1994 alone, which represent around half of the total urban poor population in the city In addition, it has upgraded 27 urban poor communities hosting around 2,700 families and secured, as part of its land banking strategy, a total of 25.4 hectares for future housing projects of the city government More important, it has: (i) institutionalized a functional tripartite mechanism for permanently settling land tenure problems between landowners and land occupants; (ii) raised living conditions of the urban poor through on site area upgrading projects for blighted urban poor communities, (iii) established intra-city relocation sites for victims in extreme cases involving eviction and demolition; and (iv) provided them with livelihood opportunity by introducing a livelihood component to the program to cushion the impacts of urbanization. Metro Naga Development Council A proposed solution for attempting to shelter the large numbers of homeless squatters is to increase opportunities for employment and improve the delivery of basic services in the municipalities surrounding Naga City. This will reduce the incentive of residents of these towns to migrate to Naga City, encourage those already living in Naga City to return to their own municipalities, and make these municipalities altemate destinations for migrants coming from outside these municipalities. To carry out this task, Naga City initiated the formation of the Metro Naga Development Council (MNDC), a partnership between the city and 14 surrounding municipalities to pursue commonly beneficial programs and projects. The partnership was later expanded to include national government agencies and NGOs operating in the Metro Naga area. Again, this was made possible through the expanded powers and prerogatives of Philippine local governments under the Local Govemment Code. Guided by the principles of resource complementation and role definition, the MNDC pools the efforts and resources of 15 local governments, the private sector and national govemment agencies and focuses them on projects and activities that address the immediate needs of the Metro Naga constituency. In the process, it lays the groundwork for a balanced long-term growth of the area by operationalizing a scaled down integrated area development framework capitalizing on strong urban-rural linkage between Naga and its neighboring towns. In pooling efforts and resources together, Metro Naga made the following possible: (i) coordination of development plans among the 1 5 LGUs; (ii) rehabilitation of some 50 kms. of farm-to-market roads; (iii) installation of some 500 Level I water systems; (iv) improvement of health services delivery through medicine and equipment assistance to rural health units and extended surgical, dental, and medical assistance to indigents through periodic medical missions; (v) professionalized rescue and emergency service throughout Metro Naga; (vi) extended socialized credit to rural households, (vii) matching of local lobseekers with local and overseas employment; (viii) accessed development resources for member local governments; and (ix) laid the direction for local government initiatives towards the accelerated and balanced growth of the entire area. For Naga City, the most telling impact 172 Chapter 7. Good Govemance for Poverty Reduction in Asia of the Metro Naga program is the unleashed economic potential of the area triggered by private sector confidence in the once dormant municipalities Naga Local Initiative for Economic Activities and Partnerships (Naga LEAPS) Poverty alleviation, to be meaningful, must go beyond safety nets it must address the fundamental causes that generate poverty in the first place. Local govemments can help set up the local environment for new economic activities, which open up opportunities for entrepreneurship and employment for the disadvantaged sectors. Thus, Naga City launched its Naga Local Initiative for Economic Activities and Partnerships in 1988. Naga LEAPS, as the program is better known, sought to create opportunities for government-private sector partnerships in implementing local development projects, and hamess their combined resources to uplift the quality of life of smal-, medium-, and micro-scale entrepreneurs in the city The program, therefore, sought to institutionalize an economic partnership between the city govemment and the local private sector that will allow the joint implementation of local economic projects that increase the income opportunities of disadvantaged sectors. It also institutionalized a process that would empower the generally neglected and belittled small entrepreneur and workers in Nagas underground economy and restore their dignity as members of the community. Among its major accomplishments, the program established two privately funded satellite markets at the citys periphery and the conversion of a kilometer-long area of idle public land into a commercial strip, likewise using private funds. It also extended managed socialized credit for income generating projects for disadvantaged groups The Program benefited 35 percent of families in Naga City who depend on entrepreneurial activities as their source of income, the majority of whom are small- and micro-scale entrepreneurs (mostly sidewalk, ambulant, or transient vendors) who are largely ignored and oftentimes looked down upon in their communities. It also extended credit to close to 2,000 micro entrepreneurs, facilitated the employment of some 2,500 job-seekers over the last two years alone, and assisted the establishment of 90 new cooperatives LESSONS LEARNED Naga City offers several lessons about the role of local governments in poverty alleviation programs. * The best way for local governments to tackle poverty is to share the task with civil society. This means opening up the process of priority setting, decision-making and resource allocation to representatives of civil society and making them as much responsible as local government officials This ensures support for the programs implemented and acceptance of the inevitable limitations of govemment. * The effectiveness of national poverty alleviation programs rests not on how well they have been crafted at national level, but how well local governments adapt and innovate such programs to suit local conditions Yet local governments cannot be all things to all people and need to focus. To respond effectively to the myriad demands of poverty alleviation, they have to strike a synergy with national govemment agencies, with other local govemments, with the private sector, and with the beneficiaries themselves. * it is best for the national Government to limit its intervention to macroeconomic policies and the transfer of additional resources to local governments, and to the extension of specialized services by its national agencies. Local governments are better positioned to come up with programs that directly address the poverty in their midst, once they are given the needed autonomy and openness to civil society The poor are more than ready to help themselves if only they are involved in the decision-making process. H Sjatfudlan. 71ansparency of Govemment-Sponsored Poverty Projects In Indonesia 173 INCREASING TRANSPARENCY OF GOVERNMENT-SPONSORED POVERTY PROJECTS IN INDONESIA THROUGH COMMUNITY-BASED INFORMATION75 The development process in Indonesia was until very recently characterized by a centralized and nonparticipatory approach. This has stunted Indonesia's ability to deal with the economic crisis at hand, and has bred corruption in govemment-run poverty projects. Indonesia's failure to create an accountable development process stemmed primarily from the government's unwillingness to implement a "bottom up" process. Despite the new government's good intentions, very few people's institutions exist to make information about govemment programs more transparent, and establish a participatory and accountable development process. In theory, the sweeping political change in Indonesia today opens doors for greater people's participation; however, this participation must be assessed in the light of how far and how deep it extends. The community's participation in public affairs should not be limited to the implementation process only, but should include an involvement in both the planning and the oversight/monitoring stages. Furthermore, a good relationship between the State and the community must be characterized by development planning from the bottom up, along with the availability of a transparent and accountable bureaucracy. CREATING TRANSPARENCY: A NEW POLITICAL CHALLENGE IN INDONESIA The centralized development effort under the New Order Government gave the community virtually no opportunity to conduct innovative grassroots movements. This became clear dunng the economic crisis, when the community proved to be unprepared to cope collectively with the social impact of the crisis. The central factor leading to the collapse of a collective community initiative was the Government's unification program, which applied to all community institutions at the regional and national levels Under this centralization, institutions incompatible with Govemmental programs were not recognized-regardless of solid grassroots support. The bureaucratic and military domination of the Government, affecting all aspects of people's lives, left virtually no public forum wherein communities could build their own institutions. Information continues to be monopolized by the elite and middle class groups Ordinary citizens have little opportunity to access accurate and immediate information on public affairs, public policy, and related matters Moreover, the news they obtain has already been distorted in the interests of the authorities. Corruption and misallocation of funds within the development structure, as a consequence, are overlooked until they reach intolerable levels. Policymakers themselves have inadequate information on the situation at grassroots level. For example, the economic cnsis has spotlighted poverty as a critical issue; however, the limited knowledge of the "higher ups" regarding poverty's structure and behavior has deflected the programs and projects aimed at dealing with poverty from their stated target groups. In addition, the inability of the Government to understand the people's interests and capabilities has generated public policy that tends to ignore the opinions, willingness, and dynamics of the general public Programs continue to be implemented with a disregard for social opinion, a scarcity of civilian monitoring, and a lack of openness. As a result, corruption remains a key problem of the country. " This paper was written by Hetffah Slaifudian Ms Slaifudlan is the Chairwoman of SAWARUNG Network on Local Govemance and the Executive Director of AKATIGA Center for Social Analysis In Indonesia. 1 74 Chapter 7. Good Govemance for Poverty Reduction in Asia THE LACK OF TRANSPARENCY IN IMPLEMENTING THE INDONESIAN SOCIAL SAFETY NET PROGRAM Evaluation results of the 1998/1999 Indonesian Social Safety Net program highlight how far there has been insufficient transparency of information Dissemination of information was also very gender-biased, leaving women of lower economic standing unused to formal channels of information with no access to information To amend this for 1999/2000, an Information Center for the Social Safety Net program has been formed (Pusat Informasi Janng Pengaman Sosial), to gather and distribute general information, including reports about funds allocated to help the public and the press monitor the programs To increase the accessibility of information, these reports are available on the Web and in each district-level Planning Development Board (Bappeda DTII). In reality however, the information on the Web and at Bappeda DTg1 cannot be accessed by most communities, as the use of the Internet remains limited The information file for SSN must still be requested directly from Bappeda. The creation of two-way information channels at community level, currently being developed by SAWARUNG, would be an effective civil society response to this situation. SAWARUNG: MONITORING OF GOVERNMENTS SOCIAL PROGRAMS Concern for information transparency has led to the establishment of SAWARUNG, a civil society network that consists of NGOs, universities, professional associations, and mass media SAWARUNG stands for Saresehan Warga Bandung (Saresehan means informal discussion or meeting, Warga can generally be translated as "people," and Bandung is the city wherein the group is based). The vision of SAWARUNG is to facilitate the formation of a policy process that is both participatory and transparent In working toward this goal, a strategic goal of SAWARUNG's is the creation of an equal two-way communication. The word "equal" here stresses both the equality in position and condition of the communicants as well as the balance in information exchange. To increase transparency at community level, SAWARUNG will take the following steps: * identify groups within the community who have a stake in the effective channeling of social safety net funds and motivate them to actively monitor the actions of various social safety net programs in or around their area; * ensure that these groups receive and comprehend the project data that is supposed to be available on the Web and in the Bappeda DTI1; * assist in facilitating a fast response and concrete results from the local social safety net administration after the monitoring reports are made public, and * record all meetings as material for dialogue at the higher level, either regional or national, serving as an input to modify and correct the overall system of SSN administration The Creation of Two-Way Information Channels at the Community Level The community-driven monitoring process requires comprehensive information accessible by every side. The information channels must be open in both directions in order to run an effective poverty alleviation program, wherein both the community and the project administrators are equipped with accurate information. Information here exists not only as data, but also as a means to empowerment At the very least, the Government needs information on (i) the group structure and dynamics of the poor who become the target and beneficianes of the project, including data on their own enterprises, (ii) the local contexts where the projects will run, (iii) feedback from H Slaltfudian liansparency of Govemment-Sponsored Poverty Projects In Indonesia 1 75 people with respect to the project design and its impacts, whether negative or positive; and (iv) whether the project is actually reaching its targeted group The general public also needs information concerning (i) the type and dimension of projects to be carried out, including the project goal, amount of funds, usage of monies, selection of beneficiaries, and planning and decision-making processes; (ii) how the public can participate in the design, enactment, and monitoring of projects; (iii) how complaints can be submitted if any diversion of funds or other problems are discovered; and (iv) any other information conveyed by the community members themselves in democratic forums Behind the development of two-way information channels lie several greater objectives (i) to achieve more balanced information through facilitating both incoming and outgoing information channels in public affairs; (ii) to push for societal participation in public affairs, specifically to advocate for the creation of institutions of community control as a condition for heightened government accountability; (In) to increase the bargaining power of the poor in the running of public affairs; and (iv) to promote shared opinions through public discourse, in order to be a medium for both thought and action. Media Applicable to Community Level Printed media comprises announcement posters and boards that contain information on the current or the forthcoming development projects including the project details type of program, aim, objective, time frame, fund resources, costs, and the names and addresses of its facilitators being developed at municipality level. The information should be continuously updated and easy to read Posters will be distributed at the neighborhood association level while announcement boards will be displayed in public places. Of particular importance is to place them in areas easily accessed by women. A community press is, likewise, published at the administrative unit at the next-to-lowest level in the city. Organized and run by local people, trained in investigative journalism, it functions as a channel to accommodate the people's aspirations, complaints, and opinions Radio broadcasting (especially govemment programs) has so far been oneway. However, radio is changing its programming function to become more interactive. Moreover, it has now moved closer to its audience-the community-by increasing its field-based coverage. The plan is to work with nine local radio stations to host regular broadcast discussions at the subdistrict (kecamatan) level Concurrently, government officials or project heads will be invited to listen in, comment on the discussion, and answer the questions raised. Each subdistrict will be involved in the broadcast discussion, and at the end of the cycle, the progress of the originally discussed problem for each sub-district will be evaluated The information, problems, complaints and other related issues raised at the broadcast radio discussion or in the printed media, will be followed with face-to-face dialogue The dialogue will provide a common meeting point for the community's representatives and the involved government officials, contractors and consultants to hold discussion forums to clarify issues and serve as an advocacy media for the community to voice its aspirations and needs. Additional activities identified to support information at community level include: (i) overseeing the Government's poverty projects through participatory monitoring; (ii) improving the community's capability in conducting investigations, polling, participatory research, and writing; and (iii) improving the effectiveness of local associations. 176 Chapter 7. Good Govemance for Poverty Reduction in Asia WHAT CAN NGOs DO TO ENHANCE ECONOMIC DEVELOPMENT BENEFITING THE POOR IN THE PHILIPPINES76 Economic development benefiting the poor is another way of saying growth with equity, which has been the goal of the Philippines Consultative Group for the past several years. In 1996, when Philippine NGOs were first invited to participate in the Philippine Consultative Group Meeting, we said that economic development (should) be propelled and sustained not only through the promotion of efficiency in the market place but, more important, through the advancement of social equity in terms of asset reforms, the lust shanng of the benefits of growth, and effective participation (of the poor) in the political and economic mainstream77. PRECONDITIONS Economic growth can be sustainable only if it is fundamentally driven by the productive capacities of all sectors of society, who share evenly the fruits of their work. Without a real redistnbution of wealth in the country, any investment in growth-enhancing human capital and physical infrastructure will not be sustainable and future economic progress will be slow Economic development thus puts equity reform at its center. During the implementation of the Social Reform Agenda under the Ramos government (1992-1998), civil society put forward a three-pronged reform debate for govemment on asset reform, participation, and social safety nets. * Asset Reform The distribution of resources would correct the inequitable distnbution of resources in the country and provide the sustainable bases for uplifting the lives of the poor and marginalized. * Equal Representation and Participation The lack of channels for participation in decision- making among the poor hinders the legislation and implementation of crucial reform measures to uplift their lives. This component seeks to address the issue of political equity. it has three aspects: (i) the provision of all required human capital services, particularly basic education and health; (ii) the elimination of all forms of discrimination, and (iii) representation of the poor and marginalized in all decision-making bodies with specific mandates concerning their sector. * Protection of the Secunty of Life, Person, and Livelihood and Fortifying the Rights, especially of the Poor, against the Imposition of Violence: This is an essential requirement of equity reform. Until economic and political equity is achieved, legal and policy safeguards have to be put into place to protect their lives, homes, and livelihoods from violence. ASSET REFORMS Asset reform implementation continues to be the central challenge to sustainable rural development in the Philippines Asset redistnbution often focuses on improving the land tenure security of farmer-beneficiaries of agranan reform. However, it also includes civil society efforts on aquatic reform to ensure the rights of access and control of small fishers over water resources, and towards the full recognition of the rights of indigenous peoples over their ancestral domains This involves People's Organizations (POs) and NGO partnerships with government. However, where the political will is perceived to be weak and govemment is felt to be conspinng with other vested interests to deprive the poor of their rights to these 70 This paper was written by Teresita Quintos Deles Ms Deles is the Executive Director of the Gaston Z Ortigas Peace Institute in the Philippines 7 National Peace conference, "The Basic Sectors' Framework for Social Reforms," (lune 1994, and 1998). T Deles: What Can NGOb Do lb Enhance Economic Development 177 assets, successful implementation of asset reforms means a greater advocacy role of civil society. Advocacy spans from lobbying to non-violent forms of street action and even to land (or other forms of asset) occupation. The final test of asset reform is whether the assets distributed can bring improvement in the quality of life and income of the rural people, as otherwise those with resources will become even richer at the expense of the poor78. To make land use more productive, civil society in the Philippines has provided (i) technical assistance/support; (ii) area development planning; (iii) crop production/trading; (iv) promotion of sustainable agnculture, and (v) development of financial systems for the POs. Asset reforms are not successful without addressing also social reforms. POs/NGOs are strongly involved in building up social infrastructure through social organizing. They organize communities and link them to a national federation or network. At the same time, they engage in partnerships with government and other sectors to implement sponsored programs. There are many examples of civil society efforts in rural development along these lines such as the Thpartite Partnership for Agrarian Reform and Rural Development (iPARRD) as one of the more sustained partnerships for agrarian reform and rural development in the Philippines. TiPARRD involved the participation of three parties: POs, NGOs, and government, particularly the Department of Agrarian Reform (DAR). The program was carried out from 1989 to May, 1998. It involved 63 agrarian reform communities In four provinces. CONCLUSION Asset reform, especially agrarian reform, is the oldest of the advocacy calls of social movements. It is now 20 years since the World Conference on Agrarian Reform and Rural Development (WCARRD) was organized by the UN-Food and Agricultural Organization (FAO) in July 1979, in Rome. In October 1998, a group of agrarian reform advocates in Asia came together in the Philippines to assess the situation. At the end of their conference, they issued a statement expressing deep disappointment that over the past 20 years, little has been achieved, especially on agrarian reform. For POs and NGOs in rural development, the present time constitutes a difficult and perhaps increasingly perilous period. In the rush to achieve economic globalization, it becomes the dangerous task of civil society to exact accountability from government for the full implementation of the laws and policies that embody the States commitment to social equity and redress for its poorest citizens. 7n Philippine Partnership for the Development of Human Resources in Rural Areas (PHILDHRRA), Land, People, Productivity TRIPARRD Report 1994-1998 (Manila, 19991, p 21 1 78 Chapter 7 Good Govemance for Poverty Reduction in Asia MONITORING FOREIGN AID: GOVERNANCE CHALLENGES FOR POVERTY REDUCTION IN THAILAND79 INTRODUCTION National Development Plans in countnes such as Thailand aim to increase national income and reduce poverty. Projects and programs are undertaken to help accomplish this goal, including public works programs, infrastructure projects, and micro-finance schemes. Due to lack of resources in many developing countries, these projects are partially funded from loans and grants from intemational lending organizations and institutions. In Asia, typical external funding sources are ADB, the World Bank, and the Japanese Overseas Economic Cooperation Fund, among others Thailand, in particular, has received significant external funding due to the economic crisis. Dependence on foreign assistance for certain types of projects means that foreign- funded projects should be cost-effective and have as large an impact as possible This paper briefly reviews the role of project monitoring and evaluation in helping to ensure the value of foreign projects. It argues that undertaking the monitoring and evaluation of projects is in the interest not just of lenders but of the governments that borrow. MONITORING AND EVALUATING PROJECTS Monitoring and evaluation is typically encouraged or required by lenders of foreign aid. It is less frequently initiated by national governments. But such analyses should be a priority for national governments because they need to understand how foreign funds contribute to government policies and programs, and because ultimately the country is responsible for paying back the money and accumulated interest Monitonng and evaluation is an increasing priority of the Thai Government At the national govemment level, monitoring and evaluation activities can be categorized both with regard to the source of assistance, and by overall program objectives. For example, all projects funded by ADB were evaluated to determine which projects were succeeding and which were failing, from a national perspective. Such evaluations can help the government to decide the types of project for which donor support is useful and cost effective Monitoring and evaluation is also conducted in relation to the achievement of policy objectives, regardless of funding source. For example, all projects aimed at poverty eradication were evaluated to help focus national poverty policy. No matter what their purpose, evaluations are needed at the level of each project. Project level monitoring and evaluation aims to monitor performance of each project or program to judge whether it meets its objective and gives value for money. The process of monitoring and evaluation occurs at each phase or stage of a project or program: project/ program planning, project implementation, and post-project assessment. Project and Program Planning Any potential project/program must be well studied and planned before implementation. In Thailand, each year the State Auditor has to examine all projects funded by foreign loans to assess whether the projects can successfully accomplish their goals. For instance, many programs address poverty, and we ask whether a particular program benefits rural areas where the poor are concentrated Are other projects targeted toward the same objective9 '9 This paper was wntten by Nonthapon Nimsomboon Mr Nimsomboon is the Auditor General of the Govemment of Thailand N. Nlmsomboon: Monitoring Foreign Aid 179 Have preparations been made to permit monitoring of the project at subsequent stages of development? Has an adequate feasibility study been conducted during the design of the project? A feasibility study is particularly important for projects funded by foreign loans since the funds are interest-bearing and all costs must be incorporated into the prolect. These questions must be answered before a project is judged to have the potential for success. The project plan should also reflect the need for management of the outputs of the project This is particularly true of projects that have significant physical infrastructure components. These projects require planning for management after completing the construction to ensure that the intended population groups receive the benefits-water for poor farmers, hospital access for rural women, etc. Project Implementation it is important to monitor the implementation of a project to determine whether it is being conducted in an efficient manner and whether the target groups are being reached. Are there problems that should be revised? For instance, the "Lunch and Milk" program in Thailand funded by ADB was designed to provide a nutritious lunch to disadvantaged children through Child Development Centers. Most of the disadvantaged children live in rural areas. However, project monitoring determined that children in the towns consumed more milk than children in rural areas The project distributed milk according to a uniform price, without taking into account the fact that the price of milk was higher in rural areas. The children in rural areas therefore received a smaller quantity of milk for a given amount of money The evaluator recommended that more of the project budget should be allocated to rural regions. With this and other small adjustments made possible through monitoring, the milk project is now considered quite successful. A second example of the value of project monitoring is a rural credit program from an agricultural bank in Thailand. The actual lending was carried out by subsidiary branches that considered only the ability of borrowers to repay the loans as the criteria for making loans. The bank ended up providing cheap credit to wealthy farmers as a result The evaluator recommended that the bank reconsider its lending policy for the program Monitoring at the implementation stage is vitally important to ensure the smooth functioning and success of a project. As a result of monitoring, projects are more likely to serve the populations for which they were designed Further, project managers can use the information in monitonng reports to make better implementation decisions Project Evaluation Evaluating a project's outcomes and process helps to determine the success or failure of the project and provides lessons for future projects. All pilot projects should incorporate such evaluations. Many pilot projects get financial and technical assistance from foreign lending institutions that may apply inappropriate implementation models used in the past in other countries For instance, a land reform pilot project in Thailand funded by ADB applied the same implementation model as land reform project previously undertaken in Taipei,China. The post project evaluation indicated that the pilot project was not successful. Therefore, corrective action was taken to ensure that a more appropriate implementation model was put into effect. SELECTING PERFORMANCE INDICATORS FOR POVERTY REDUCTION To determine whether a project has been successful, it is crucial to select and measure appropriate performance indicators. Indicators must be selected both at the level of the 1 80 Chapter 7 Good Govemance for Poverty Reduction in Asia national development plan (the macro level) and at the agency project level (micro level). A simple example is provided by considering programs that address poverty. Macro Level A national poverty line must be established in order to gauge the relative success of poverty alleviation programs at the national level. Projects/programs would be considered successful at the macro level if a significant proportion of individuals or households were raised above the poverty line as a result of the program. In Thailand the poverty line has been established by the Office of the National Economic and Social Development Board (NESDB) with funding from ADB. In 1998, the average poverty line was established at B911 per person per month. Yet, even at the macro level, using changes in the proportion of poor relative to a single poverty line can be a crude measure that does not capture regional effects of programs or effects on special target groups. To measure the performance of government and donor- financed projects of this nature, we need to disaggregate the poverty line by region or group For example, while overall poverty may not have been reduced as a result of a particular program, poverty in a sub-region where the program operated may have been drastically reduced. It is therefore useful to select indicators that will be sensitive to a program's impacts Micro Level Indicators of program success must also be selected at the individual project and activity level Micro-level indicators can be defined by the nature of the project. For example, the income earned should be used as the indicator for a project that aims at increasing the income of a target group. An indicator for a health project designed to reduce malnutrition of a target group should of course be the rate of malnutrition among that group. CONCLUSIONS Who should evaluate the performance of a project-the lender or the borrower7 Some argue that each country should be responsible for monitoring its own budget. On the other hand, especially when a project is funded by a grant or a loan, many contend that the funding agency must also play a significant role Many international lending institutions such as ADB already participate in the evaluation of their funded projects Nevertheless, it is also important for borrowing countries to evaluate projects The recipient country should give twice as much importance to monitonng and operations evaluation since the entire country bears the burden of paying back the foreign loan and its interest. If a foreign-funded project does not meet its objectives, the money must still be repaid to the lender. M Mangahas: The Role of Media 1 81 REFLECTIONS ON THE ROLE OF THE MEDIA IN PROMOTING TRANsPARENT AND PARTICIPATORY SocAL DEVELOPMENT80 In 1986, a people-power revolt restored democracy in the Philippines and mass media regained its spirit and spunk. Today however, Philippine media is also considered one of the most corrupt in all Asia. Democracy's rebirth has not delivered us from the evils of bad govemment, poverty, and corruption in civil society, including the media. Democracy does not always ensure that the press will be fair, honest, and responsible as much as it is free. Media ownership in the Philippines remains a strategic problem. Most media agencies are owned and controlled by big business houses or families with allied or other corporate and political interests, making the pursuit of journalism vulnerable. Quite often, professional and ethical standards are breached. There is also a disconnect between the industry and schools of journalism, which exacerbates the situation. journalism graduates are mostly ill equipped to handle the basics of cultivating sources; conducting good interviews; fact- checking; and tracking the paper trail, the legal trail, and the money trail behind stories The Philippine media may be compromised by the corporate interests of media proprietors, and tamished by the crooked ways of some journalists, but the case for media promoting transparent and participatory social development is not entirely lost. A look at the media does not yield an entirely bright picture, but there are, here and there, bright spots and shining moments. Steeled in the tradition of the media as watchdog or attack dog-some newspapers and broadcast public affairs programs have covered adequately public-interest issues This has bolstered public faith in the media as a positive influence in strengthening democratic institutions and processes, exposing corruption in the public and private sectors, and promoting good government In 1989, seven joumalists founded the Philippine Center for Investigative Joumalism, a nonprofit, non-stock corporation with a modest goal: to help nurture a culture for investigative reporting, which is what all reporting should be at its heart, with the hope that journalists would help write the story of our success as a people A decade later, the Center for investigative journalism has published more than 250 Investigative reports and books on a variety of policy issues, such as governance, public accountability, environment, the administration of justice, corruption in education, public health, women and children, democratization and equity concerns, and exposing crooks and crooked deals with such an output, one would expect to be a bit more confident about the country's future, and more upbeat about the state of media and press freedom today. On the contrary, the Center is even more wary because corruption persists, despite all the exposes A colleague in the Center rues the loss of rage in our hearts to fight against the ills. It seems that through it all, corruption and poverty run on parallel tracks all the time, registering the same rate of progress, or retrogression. Apart from this, what appears problematic is the gain in stature of media agencies, in the public's eyes, as the court of last resort, the final source of rescue. The undeserved and perhaps unfair burden on the joumalist is to serve as society's ultimate wamor, or democracy's avatar. Yet it is a load that joumalists must carry. With increasing frequency this also has come to include citizens, the private sector, NGOs, and even multilateral agencies. This view betrays the shared sense that social institutions are so painfully inept and corrupt, that the rule of law and due process tends to fail more than it succeeds. B This paper was wntten by Malou Mangahas Ms. Mangahas is a member of the Board of Editors of the Philippine Center for Investigative Journalism, Philippines 182 Chapter 7 Good Govemance for Poverty Reduchon in Asia But journalists can only do so much. Exposes, censure, and even catching crooks could never ever deliver justice, nor weed out the roots of corruption. Media alone can never overhaul the political culture of personal friendship, personal gain and patronage that engenders corruption. Even more important, the media cannot-or should not-even suggest that it could supplant all social institutions. The media should not give the President and executive officials, the courts, the legislature, even a hint of a chance to shirk their responsibilities toward the people. Besides, as seen in the example of the Center for Investigative journalism, exposes alone won't do the tnck. Sustained and solid follow through by other civil society groups is imperative. As it is, exposing corruption has proved much too unhealthy for the heart and soul of investigative loumalists. Exposes, without civil society's follow through, leave the journalist in listless combat dnfting back and forth between confidence and gloom, hope and despair. It seems fair for the media to expect other stakeholders in civil society to claim their rightful place in the task of promoting transparent and participatory social development For one, nongovernment and civil society organizations must be conscnpted in the effort Promoting accountability and transparency in governance is a steady though difficult route to pushing the specific programs of NGOs, as well as to enhancing the standards and focus of our politics, democracy, and development agenda The private sector and multilateral agencies are equally important partners. Corruption must be addressed on the supply side as much as on the demand side More kindred allies in the fight against corruption and poverty are more than welcome as many actors and villains perpetuate the monster that is corruption. There should be more vanguards-from the media, NGOs and civil society groups, business and multilateral agencies-who must be tapped to slay it Public funds lost to corrupt deals mean social services in shorter supply, narrower in reach and depth. While corruption rears its ugly head, we must do with fewer public schools and hospitals, fewer teachers and health workers could be hired, public works projects are stalled to etemity, farm-to-market roads and bridges and all other social services remain scant, in varying stages of disrepair, or altogether perpetually inadequate. The time for talk is long over We must all work, to achieve transparent and participatory development, and make freedom and democracy deliver the nght results for all our people 8 The Regional Dimensions of Poverty REGIONAL DIMENSIONS OF THE AsiAN CRIsis: AN OVERVIEW81 The Asian financial crisis has shown that global shocks can spread from any single country over any number of other borders. Within a few days of 1997, a crisis in Thailand spread to whole of Southeast Asia, just as in 1998 the Russian crisis affected Central Asia. No longer is any wealthy country isolated from a neighboring poor one. When a neighbor suddenly becomes impoverished, the immediate neighbor fears a similar fate. The Asian crisis had a global impact. Tension usually builds up when one neighboring country gets progressively richer than the other. (When both countries are equally affected by economic shocks, there is no economic incentive for such tensions). Underdevelopment is often concentrated on the boundaries of states, as these are very often the most remote and poorest areas in a country. Hence, poverty has regional dimensions and cannot be solved in a sustainable way by countries standing alone. Many neighboring countries share common natural resources, which, if not jointly managed, may result in disadvantages to the poor and the environment Across several countries there may be natural comparative advantages that would be better exploited for increasing economic welfare through cooperation on investment and trade and associated harmonization of economic and regulatory policies. Forestry conflicts in the Greater Mekong subregion (GMS) and water conflicts in Central Asia and the Aral Sea area are good examples. In addition, there are global and natural problems of a non-economic nature such as environment, health, HIV/AIDS, drug-trafficking, illegal logging and money laundering, problems to which technical, informational, cost-benefit, and institutional solutions would be best addressed if disaggregated into regional and subregional contexts. However, global institutions and national governments are often not adequately equipped to solve regional problems. There is a need for a more subregional and decentralized approach towards poverty and socioeconomic development in Asia. Sustained, broad-based regional cooperation may significantly reduce the probability of future conflicts It can contribute to poverty reduction and equitable social development. Small less-developed countries face significant supply and demand constraints. Regional cooperation can help countries to realize potential gains in welfare. ADB, the regional Bank for Asians, has a comparative advantage in facilitating regional cooperation and being an honest broker for the interest of the people of Asia and the Pacific. Its interest in regional cooperation is not confined to trade and investment alone. ASIAN MIRACLE AND ASIAN CRISIS Since the 1980s, consistently high rates of economic growth, in many Asian countries equitable and socially responsible public administration, and strong attitudes of self-discipline translated widespread poverty in East Asia into welfare for all, including the poor. The process 8 This paper was written by Shoji Nishimoto Mr Nishimoto is currently Director of the Strategy and Policy Department (SPD) of the Aslan Development Bank As former Director of the Programs Department (East), Mr Nishimoto was the champion for the Manila Social Forum The inputs of Sonya woo (world Bank) and Armin Bauer (ADB) in preparing this paper are acknowledged 184 Chapter 8 The Regional Dimensions of Poverty was accompanied by and rooted in a remarkable improvement in the health and education indicators Between 1980 and 1996, poverty in East Asia was reduced from 60 percent to 20 percent. The Asian miracle found its sudden end with the Asian financial crisis This crisis had financial, political, and economic dimensions. The most severe impact is, however, the long lasting social changes with substantially worsening conditions for inclusive development in Asia, particularly in Southeast Asia Incomes of the urban middle class were falling, absolute poverty and malnutrition in rural and urban areas rising, public services delivery worsening, and pressure on women and social capital increasing. In Central Asia, investments in social development, strong industrialization, and substantial transfers to build up economic and social infrastructure allowed living standards to approach those in Europe in regions that were barely inhabited before. Although there are differences between Central and Southeast Asia, with a Soviet-style command economy on the one side, and a market-based open-exchange economy in the other Asian region, both regions share expenences in having followed a qualitative and equitable growth path with poverty reduction and social policy as major features Both regions also were able to maintain high socioeconomic development for a long time by exchanging products, people, economic approaches, and even social attitudes with their neighbors Japan's, Republic of Korea's, Malaysia's, Singapore's, and Taipei,China's wealth are based on extensive trade with Europe and North America, and substantial regional cooperation in Asia. Similarly, poverty reduction in PRC, Indonesia, and Thailand became possible only when the countries opened to regional trade and allowed exchange of ideas, people, and products. In Central Asia, high living standards were only possible to maintain in the regional cooperation of the former Soviet Union. In contrast to the European Community (EC) and the Northern Amencan Free Trade Association (NAFTA), Asia does not have a powerful organization for regional trade and socioeconomic cooperation However, with the Asian crisis the countries of Asia realize that they need closer cooperation among themselves, and probably more independence in their bilateral ties with countnes in Europe and Northern America Regional programs for capacity building, to pursue sensitive development issues at transborder levels, to translate common political commitments (for example towards good governance) into national action, and to simply learn from each other are sought. Also, development assistance and trade and investment relations are often in pursuit of more favorable terms in the world trade market when strengthened by intensive trade among the Asian neighbors themselves. REGIONAL INITIATIVES IN ASIA A key lesson drawn from the crisis and its social impact, is that there is a shared need for a new social agenda, including new approaches in the regional labor market issues (such as overseas workers), regional health issues (such as HIV/AIDS and child vaccination in the Greater Mekong area), trafficking of women in the GMS as a consequence of regional transport development, and poverty induced seasonal migration. At a regional level, issues of good governance and the rule of law, including the protection of human rights are easier to discuss than before the crisis. Regional cooperation can also help in promoting issues with transboundary implications (such as in the case of East Timor). Regionalism can be helpful in exploring sensitive development issues, mobilizing national political commitment, and translating them into action But regional perspectives should always ensure that such best practices take into consideration the diversity of the region, especially the need for a close tailoring to countries' needs and the participation of civil society. S Nishomoto Regional Dimension of Asian Crisis An Overview 185 The intemational donor community, including the World Bank, ADB, the UN system, Japan Bank of International Cooperation, Australia, and the European Community, all have made special efforts to organize effective support for Asia in the wake of the 1997 crisis. Much financing and other assistance has focused at national level, but there have also been efforts to take a regional approach, working through the major regional organizations and on regional issues (like labor migration), which fall outside the institutional arena. Special attention has gone almost from the outset to the social dimensions of the cnsis. For example, ESCAP convened various high-level meetings to assess the regional social development agenda. These were an Expert Group Meeting on the Agenda for Action on Social Development in the ESCAP Region (May 1999) and a Senior Officials Meeting on the Agenda for Action on Social Development in the ESCAP Region (November 1999). Major efforts have gone to ensure a highly consultative and inclusive process, to bring in the diffenng perspectives of governments, civil society, the private sector, and academics. With the help of Australia and the US, ASEAN is developing an Action Plan on Social Safety Nets. This initiative will (i) develop strategies to provide for sustainable employment in labor intensive manufacturing and a market-based rural economy; (ii) disseminate techniques for social monitoring in Asia; and (iII) analyze appropriate best practice options for the design of social safety net programs. The regional program forges political commitment, enhances harmonization of social protection issues that have clear transboundary context or where there is a high degree of regional integration; and promotes the sharing of experiences on common social development issues in Asia. A good example is the work Australia has sponsored through APEC in highlighting economic and financial management capacity-building needs in crisis-affected economies, and more recently, a study undertaken on the impacts of the Asia Crisis on children. These groundbreaking assessments might well not have proved possible, with the same level of access, efficiency, and understanding outside the APEC context. Europe's socially responsible market economy is often quoted as the root of its development success. Europe offers lessons that could be made applicable to improve and strengthen Asia's social development programs. In 1998, the ASEM (Asia Europe Meeting) Trust Fund was established to help provide grant funds for short-term crisis-induced needs in the region and serves as a tool for technical assistance and policy advice on regional issues. The World Bank manages the ASEM Trust Fund. Ten European countries have made total cash commitments of some EUR42 million In just over a year about 90 percent of the funds has been committed, and more than 60 separate actions are underway, half of them in the social sector. Examples of supported projects include a poverty monitoring system and pilot projects for out-of-school youth in the Philippines, recommendations for health sector reforms in the PRC, school programs for children in Indonesia, adjustments in the labor code and with unemployment benefits in the Republic of Korea, a review of labor market trends and policies in Malaysia, developing a poverty focused social security system in Thailand, and an analysis of the impact of SOE reform on the labor market in Viet Nam. The ASEM's Investment Promotion Action Plan (IPAP) and Trade Facilitation Action Plan (TFAP) of the European Union also demonstrate how government, private sector, and civil society have important roles to play CHALLENGES AND OPPORTUNITIES OF REGIONAL COOPERATION: THE ROLE OF THE ASIAN DEVELOPMENT BANK ADB has active programs of assistance in more than two dozen developing member countries in Asia and the Pacific. Complementary to this work with individual countries and the private sector are the programs that cut across national boundaries and seek to encourage 186 Chapter 8 The Regional Dimensions of Poverty regional cooperation for the benefit of all participants. The very first article of ADUBs Charter states that 'The purpose of the Bank shall be to foster economic growth and cooperation". In 1994, the Board of Directors approved the Bank's Regional Cooperation Policy. To do so, ADB encourages trade and investment among countries, enhances development opportunities, and helps resolve or mitigate cross-border problems, and foster the meeting of common resources and policy needs. Since the 1 990s, ADB has facilitated a number of programs for subregional cooperation, such as the GMS program, the Central Asian regional cooperation initiative (since 1998), and the BIMP-EAGA (Brunei-Darussalam-indonesia-Malaysia-Philippines East ASEAN Growth Area) initiative ADB also promotes regional exchange through the ASEAN network and is spearheading a unit monitonng socio-economic progress in the region and providing daily information on the development in East Asia. The objectives of the Regional Monitoring Unit (REMU) in ADB are to (i) monitor economic policies and financial architecture issues from a regional and subregional perspective and disseminate the results to promote prudential economic management; (ii) strengthen the capacity for economic monitoring at regional and subregional levels through provision of technical assistance and advisory services; and (iii) enhance ADB's relations with other intemational financial institutions, as well as regional and subregional bodies, by providing monitoring inputs to various meetings and discussions. The GMS program has been running since 1992 and comprises Cambodia, Lao PDR, Myanmar, Thailand, Viet Nam, and the Yunnan Province of the PRC. The financial requirements associated w\th subregional economic cooperation are clearly well beyond the capacity of the six countnes, and also well beyond the capacity of ADB. Subregional transport and telecommunications projects alone are estimated to require financing of about $9 billion- $10 billion. So far, ADB has provided $366 million in loans for priority subregional projects in transport, energy, environment, tourism, trade and investments, telecommunication, and human resources development and social sectors. In addition, it had mobilized $230 million of cofinancing and provided 24 technical assistance prolects with $21 million of resources and $10 million from cofinanciers. Some of these technical assistance grants are for the preparation of infrastructure projects and support of GMS meeting and forum/working group activities. Others are to help address vanous nonphysical issues such as trafficking of women, health and education needs of indigenous people, and a regional vaccination initiative. In Central Asia, ADB is encouraging trade cooperation between Southem and Eastem Kazakhstan, Kyrgyz Republic, Tajikistan, Uzbekistan, and the Xinjiang Uygur Autonomous Region of the PRC through a broad-based regional technical assistance project. The five Governments are identifying and prioritizing development and infrastructure projects particularly in the transport and energy sectors that will increase trade and other economic cooperation among themselves and with neighboring trading partners. Several subregional initiatives have paralleled the Bank's initiative on the GMS, such as the ASEAN-Mekong Basin Cooperation initiative, the AEM-MITI (ASEAN Economic Ministers - Japan Ministry of International Trade and Industry) Working Group on Cambodia, Lao PDR, and Myanmar; the Mekong River Commission; the Forum for the Comprehensive Development of Indochina; and subregional activities of the UNDP. Economic cooperation is a long-term process. As indicated earlier, it takes many forms, of which the GMS Program is one. Other forms are to be encouraged, including broadening of ASEAN and membership in APEC and the WTO. GMS countnes are becoming increasingly integrated into the global economy. To help strengthen their ability to meet world competition, the GMS Program will need to move beyond preparing the base for sustained growth. An important new dimension of the GMS Program is expected to be greater attention to S Nishomoto. Regional Dimension of Asian Crisis An Ovenrew 187 intersectoral linkages Reflecting this, GMS countries have launched a study to formulate a long-term framework for subregional cooperation and investment programming. Increasingly, sector initiatives will need to contribute to multiple objectives. Transport corridors, for example, should not only facilitate trade but also rural development and poverty reduction. CONCLUSION Although there is much the international community can offer in both economic and social programs, discipline must be exercised in the process of formulating regional approaches or mechanisms to address the crisis. The Asian crisis showed that people are not always happy with what national governments do and that global organizations are not always effective in addressing socioeconomic problems in Asia People are willing to corporate beyond their borders to address subregional issues At the same time within a country, more problem-specific decentralized approaches often have better chances to operationalize social development in Asia. Concentrating on subregional and provincial levels, i e, disaggregating them regionally so that regional efforts will produce the correct solution for Asia while including externalities outside the region, seems to be emerging as new "Asian solutions' to the Asian crisis. 188 Chapter 8. The Regional Dimensions of Poverty CHALLENGES FOR THE DEVELOPED WORLD IN SUPPORTING REGIONAL SocIAL DEVELOPMENT IN ASIA82 The Australian aid program has had long experience in undertaking development cooperation at a regional level, especially with ASEAN, the Mekong Basin countries and the South Pacific Australia's efforts to help affected countries overcome the economic and social impacts of the Asia crisis have included strong regional components. It is on the basis of this experience that we offer some modest insights into the opportunities that exist at regional level to advance the 'new social agenda" in Asia. Although we are discussing here primarily social development, we emphasize that, as the experience of contagion in 1997 so dramatically illustrated, economic development and reform concerns have perhaps even greater regional-level resonance than social issues. THE ROLE OF THE INTERNATIONAL COMMUNITY There is much the intemational community can do to support social development at regional level in Asia. But the key challenge is to be disciplined in utilizing regional approaches only where they clearly add value. Donors and counterparts alike must look long and hard at what can reasonably be achieved through regional cooperation. Delivering direct social development programs regionally is especially problematic. One key international organization noted in a mid-term review of a regional programs that it is difficult to determine how social development programs at the regional level for disadvantaged and vulnerable groups would add value to national and local programs. Also, our aim should be to use regional mechanisms to build capacity for national solutions, not to be prescriptive or provide blueprints. The donor community can be even more predisposed towards prescriptive behavior when operating at a multicountry level. In particular, donors must recognize that social issues, probably more than any others, require country specific approaches that must be generated domestically. REGIONAL MECHANISMS TO BUILD CAPACMES FOR NATIONAL SOLUTIONS There is substantial scope for including regional approaches in strategies to address policy and capacity building issues. We see three core areas where regional programs can add the most value to these social development efforts: (i) forging political commitment; (ii) promoting joint or harmonized approaches to issues that have clear transboundary context or where there is a high degree of regional integration; and (iii) sharing experience and "best practice" in addressing common social development issues. At the political level, regionalism can be vital in helping to mobilize national political commitment and in translating political commitments into action The ASEAN Hanoi Plan of Action, and the cooperation programs it has motivated, are excellent examples of how regional and intemational efforts can be harnessed to help achieve consensus at the highest political levels and take action on the basis of these priorities The Hanoi Plan of Action may well be seen by history as a private manifesto of recovery-specifically because it represents the collective crisis-response commitments of Southeast Asia We do, however, need to be realistic about how far regionalism can be taken in the political context. Few regional structures are strong enough to adopt a rule or enforcement- "' This paper was wntten by Robert McKinnon Mr McKinnon was the Director for Asia Regional Programs of the Australian Agency for intemational Development based in Australia R Mc Kinnon: Challenges for the Developed World 189 based approach and often the underlying policy coherence among nations is limited. But, in our experience, once a collective position is reached it provides a powerful basis for demand- driven action. Regional structures can also be utilized to pursue sensitive development issues within a framework regional economies are comfortable with. A case in point is the work Australia has sponsored through APEC in highlighting economic and financial management capacity- building needs in crisis-affected economies and our recent study on the impacts of the Asia crisis on children. These ground-breaking assessments could probably not have been undertaken with the same level of access, efficiency, and frankness outside the APEC context- and the results were presented directly to leaders Areas where there is strong regional integration also obviously lend themselves to regional approaches-as do issues that are genuinely transboundary in nature. The growing level of economic and social integration in East Asia is salient In particular, the increasingly- though unofficially-open labor market in the region, combined with the importance of repatriated incomes, means that social developments and labor-migration policies in one country have quickly transmitted implications for others Also, many social development issues have transboundary impacts Disease control, resource use and environment, as well as agricultural pest and disease issues are just a few examples. These are areas where regional responses are an essential component of any development strategy. An example of innovative regional cooperation to address transboundary issues is the recently-commenced, UNDP-coordinated program to reduce trafficking in women and children in the Mekong Basin. This program draws together a wide range of UN, government, private and community organizations to undertake a comprehensive and integrated effort against trafficking. The final but probably most complex area where regional approaches can be important is in sharing experience and "best practice" in addressing common social development issues. Unfortunately, the further removed one's point of view, the more "common" social development issues appear. Nonetheless, there appear to be many genuinely shared aspects of the social challenges facing East Asia. Our goal in working together in these areas should be to utilize regional approaches where they are genuinely most efficient-not merely because they may seem more convenient than national or local level cooperation. The areas that lend themselves most readily to regional approaches include awareness raising, sharing information and experience, and developing and sharing good practices in policy development and program implementation. AUSTRALIA'S ROLE IN REGIONAL DEVELOPMENT IN ASIA To address some of these complex issues Australia has recently introduced a $5 million capacity building facility to help strengthen social protection capabilities in the region. As one of the first initiatives under this facility, we are exploring options for developing joint training programs for practitioners in social monitoring, program design, implementation and management. Our aim is to deliver programs in-country, in local languages, We are also currently designing two important cooperative activities with ASEAN to implement the ASEAN Action Plan on Social Safety Nets. These activities will involve joint development and dissemination of techniques for social monitoring and analysis and identification of appropriate best practice options for design of social safety net programs. These activities have great potential to turn some of our social policy aspirations into something meaningful in practice-and something clearly owned by our ASEAN counterparts. 190 Chapter 8: The Regional Dimensions of Poverty A FINAL OBSERVATION To conclude, it is as important to maintain a balance in pursuing regional approaches as it is with bilateral approaches We should be clear that the very best thing the developed world can do for regional economic and social development in Asia is to promote a return to vigorous growth It has to be pro poor, it has to be more sustainable, but what we hear loudest from our regional counterparts is that restoring strong growth is their highest pnority We are also currently designing two important cooperative activities with ASEAN to implement the ASEAN Action Plan on Social Safety Nets. These activities will involve joint development and dissemination of techniques for social monitonng and analysis and identification of appropriate best practice options for design of social safety net programs These activities have great potential to turn some of our social policy aspirations into something meaningful in practice-and something clearly owned by our ASEAN counterparts In this respect, perhaps the greatest challenge for the international community in its regional cooperation is to resist the temptation to propose blueprints The output of our cooperation should be, in effect, tool boxes and the capacities to use these tools Regional efforts, especially, will only be effective and sustainable if they seek to build local capabilities This is as true for our efforts to advance the social agenda in Asia as it is for any other agenda A MacDonald- Europe, The Asian Economic Crisis & The ASEM fTust Fund 191 EUROPE, THE AsIAN ECONOAIIC CRISIS, AND THE ASEM TRUST FUND83 INTRODUCTION This paper will discuss the role that the EU has played, and will continue to play, in addressing Asia's economic cnsis, including in particular the work being carried out through the ASEM Thust Fund It will also highlight some broader lessons that might be taken from the cnsis itself, and from the international response to the crisis. EUROPEAN RESPONSE TO THE ASIAN CRISIS Europe was as surprised as everyone else when a balance-of-payments crisis in one country rapidly became a generalized recession sweeping the region as a whole. The financial crisis affected the livelihoods of hundreds of millions of people, put basic government services at risk, and led to sweeping political changes in several countries. In responding to the cnsis, it was important that we not overlook the fundamentals of Asia's economic growth and economic potential, nor ignore Asia's resilience and capacity for reform and recovery. This resilience has been amply demonstrated in the past year. But renewed growth is only one part of the story A major lesson to be drawn from the crisis, and its devastating social impact, is the need to focus on the socioeconomic issues as much as the macroeconomic, and to be attentive to the broad issues of political economy, in the classical sense. Europe's direct response to the crisis consisted of three key strands- aid, trade, and policy dialogue. On the aid side, Europe played its full part in the three major rescue packages put together by the international financial institutions. Taking together the direct contributions made by certain European countries to the package in the Republic of Korea, and the indirect contributions made through the international financial institutions, the EU as a whole accounted for some 19 percent of the total funding provided in these three packages (some $118 billion). This was a little less than Japan (20 percent), and a little more than the US (1 6 percent). In addition, Europe continued and intensified its normal ODA flows to the region. However, it very quickly became clear that any conceivable level of bilateral aid funding would be insufficient to address the magnitude of the social problems facing the crisis- affected countries. Substantial and continuing reform efforts were essential to attack the immediate causes of the crisis, while in the medium-tenn the key factor in recovery would be the level of aggregate demand in this medium-term perspective, what was most needed was a demand stimulus, coupled with increasing trade and investment flows in order to stimulate this demand and help rebuild employment. In particular it would be imperative for the EU and other global trading partners to ensure that their markets were kept open for Asian exports, allowing the substantial change in trade flows that would be essential for Asia to recover from the crisis. Besides aid and trade, the third element was the question of policy dialogue, recognizing that the cnsis was not an "Asian" problem, unique or unprecedented Rather it was a problem facing all industrialized and industrializing countries. Therefore It was essential to build a wide-ranging dialogue between Asia and Europe, touching on all relevant aspects of financial, S This paper was written by Alistair MacDonald Mr MacDonald is the Deputy Head of Asia Unit (Honzontal Matters), of the Directorate General for Extemal Relations of the European Commission in Brussels The views and interpretatlons In this paper are the personal views of the author and do not necessarily reflect those of the European Commission 192 Chapter 8 The Regional Dimensions of Poverty economic, and social policy. Sharing ideas and expenences, taking account of policies that had worked, and policies that had not worked, would in itself be an important contribution. THE ASEM SUMMIT INiTIATIVES The ASEM Summit meeting in London in April 1998 allowed a thorough discussion of the crisis and agreed on two new initiatives relating to the crisis. One was the agreement among our heads of govemment on an ASEM trade and investment pledge, expressing their common resolve to resist any protectionist pressures and at least maintain the current level of market access while pursuing further multilateral liberalization. This trade pledge has certainly been kept. The EU's trade balance with the five most- affected countries in 199884 fell by EUR24 billion, reflecting a decline in our exports to these countries (a 40 percent fall in our case, 27 percent for the US, and 20 percent for Japan), coupled with a rise in our imports from Asia (14 percent for the EU, 11 percent for the US, and 4 percent for Japan)85. So Europe has clearly played a key role in helping maintain aggregate demand In addition, it was essential that investment flows be maintained to help protect the long-term growth potential of the countries concerned, and EU foreign direct investment in Asia increased 13 percent in 1998.86 The second initiative was the establishment of an ASEM Trust Fund at the World Bank to help provide the technical assistance required to address the immediate policy issues arising from the crisis, both in terms of financial and corporate sector reform, and in ternms of social policy and social impact issues. The Fund was not viewed as an injection of capital, but as the provision of expertise, and was deliberately limited to a two-year penod Ten ASEM partners have made cash commitments to the TIrust Fund, totaling some EUR42 million. The EC itself has provided EUR1 5 million, with additional contributions from eight EU Member States, and from PRC. In a little over a year about 90 percent of the funds have been committed, and more than 60 separate actions have already commenced, half of them in the social sector. Examples of these efforts include: * in the Philippines, action to enhance poverty monitoring systems, carried out by NEDA, as well as a substantial pilot project for out-of-school youth, in collaboration with DSWD and a number of foundations; * in the PRC, recommendations for strengthening health sector reform; * in Indonesia, support for the preparation of a major program to help keep children in school; * in the Republic of Korea, an evaluation of labor adjustment provisions, including possible extension of unemployment benefits; * in Malaysia, a review of labor market trends and policies; 8 The decline in the European Union trade balance with Asia accounted for almost the entirety of the decline in our global trade surplus from EUR49 billion to EUR20 billion in that year 8 All trade figures are from Eurostat, and relate to EU trade with the five "most-affected' countnes-Indonesia, Re- public of Korea, Malaysia, Philippines, and Thailand Investment figures, also from Eurostat, refer to European Union foreign direct investment in ASEAN plus PRC, lapan and Republic of Korea There was however a considerable vanation among countries, e g a 750 percent increase in Malaysia, 270 percent in Republic of Korea, and 140 percent in Philippines, against an 11 percent decline in Thailand, 44 percent in PRC, and 58 percent in Indonesia A MacDonald: Europe, The Asian Economic Crisis & The ASEM RTust Fund 193 * in Thailand, a review of the social security system generally, with a particular emphasis on poverty alleviation; * in Viet Nam, an analysis of the impact of SOE reform on the labor market; and * at the regional level, a major analysis and exchange of experiences in relation to long- term social policy challenges and options. Full information on the various types of actions is available on the fTrust Fund web site. The World Bank is also placing a considerable emphasis now on drawing together the conclusions arising from these activities, and on sharing this with govemment and non- government partners across the region. The work being carried out by the ASEM Trust Fund exemplifies the kind of rapid response and sharing of experience that is so necessary. It draws on the wide range of skills available across Asia. It draws also on the experience of Europe, experience which has often been gained expensively, leaming from our own mistakes. And it seeks to share this experience across Asia CONCLUSION There are three broad lessons that can be drawn from the experience of the last two years. First, economic growth on its own is no substitute for an appropriate social policy. Growth without equity, growth without attention to distribution, growth without a certain minimum of social security in the broadest sense, is not sustainable. Export demand is essential, but domestic demand, arising from a broad-based mass market, is also crucial. The equity aspect of social policy is therefore not just a social question, but a fundamental prerequisite for sustained growth in the long term. Second, social policy has to be appropriate for the conditions of the country concerned- there is no easy "cut and paste" solution. But at the same time, the commonality of the challenges makes it imperative to share and learn from this experience. The very diversity of Europe's experience and the different models tried over the years around the central theme of a socially responsible market economy, make our successes and failures particularly relevant for Asia. And it will be interesting also to take account of Europe's historical expenence, looking at how some of the same problems have been addressed during Europe's own period of rapid industrialization. Third, it is imperative that all sectors of society should play their full part in addressing these social policy issues. Govemment on its own cannot provide a solution, just as the market economy on its own is not perfect. Government (both national and local), civil society, the business sector, and the political process generally, all have an essential role to play in this process. If one outcome of the crisis has been to promote a stronger dialogue, transparency and participation in relation to economic and social policy, then its impact will not have been entirely negative. 194 Chapter 8 The Regional Dimensions of Poverty JiAPAN's NEW ROLE FOR REGIONAL SocIAL DEVELOPMENT IN AsIA87 LISTENING TO THE REGION The variation in social and economic conditions within the Asian region is wide. On the high side, income levels approach those of developed economies, while others are still categorized as lower income countries While education levels are relatively high throughout the region, the stages of development differ enormously. We observe a wide vanety of development experiences, reflected in the present conditions of each country. To meet the development requirements of each region, we need to have adequate knowledge, experience, resources, funding and time. But there is another factor that is even more important That is information. Accurate information is a key condition for the formulation of successful policies and development strategies. For example, the appropriate policies related to gender might vary depending on the influence of religion. Similarly, generating employment in one region will be different from that in another because industnal structures are almost always different. We have spent much time searching for development wisdom, and we now have a fairly good, though imperfect, understanding of development. We accept readily that there are issues that we may not be able to solve. However, there is a need to emphasize that for every development situation there is always an appropriate policy Where we often fail is in selecting the most suitable policies for each situation. The reasons for such failure might be various, from political games to bureaucratic delays. But in reality, people will generally agree to the best policies if they are provided with accurate information together with good analysis. Particularly when it comes to social problems, each situation is unique and we need to consider each on its ments based upon the best information available. With more accurate information, the likelihood of success in selecting appropriate policies is increased. People may assume that information is free of charge, but it is not true. Once the information is obtained, it can be shared with minimal additional cost, but obtaining information in the first place entails costs The most efficient way to collect information is to listen to the people, listen to the region We should not consider that listening to the region is a cumbersome or unnecessary procedure. We should devote more resources to collecting basic information than to analyzing the situation. THE NEED FOR A BALANCED APPROACH The time factor is often ignored or paid very little attention to in development economics. The market mechanism is supposed to adjust all economic factors instantly and the benefits of economic growth are supposed to be enjoyed by all members of the community at the same time. Of course, this is far from the reality During the 1960s in Japan, the government presented a 10-year plan for economic growth, allocating a large share of resources for productive purposes, while putting little focus on social safety nets. Luckily enough, this strategy was successful, and Japan achieved rapid economic growth, which improved income levels and reduced poverty on a large scale. 87 This paper was written by lunichl Hasegawa Mr Hasegawa is the Deputy Director General of the Development Assistance Strategy Division of the Japan Bank for International Cooperation (JBIC) in Japan I Hasegawa: lapanS New Role for Regional Social Development In Asia 195 In the case of Japan in the 1 960s, social issues were left to wait until the size of the pie grew. Economic growth doubled the income level in less than 10 years As a result of this rapid increase in income, the majority of social problems were resolved. Unemployment disappeared and wages rose, public health conditions were greatly improved, and welfare standards were raised in almost every area. But obviously, in other countries, and even in Japan at an earlier time, social issues cannot wait. In some cases, the issue of poverty might be much more urgent. Although economic growth is the most efficient way to solve poverty, we may need to fulfill urgent needs by diverting economic resources away from growth. This means that economic growth may not necessarily coincide with an appropriate income distribution. And designing changes in income distribution over time represents a set of difficult social and political choices. But in the real world, such choices are often different from what people would choose. Or at least, we rarely see optimal examples of change in income distribution, in contrast to the many examples of problems in income distribution. What are the implications of such inconsistency for ODA? Roughly speaking, there is an increasing tendency to select social projects over economic infrastructure projects. By "social projects" I mean projects to improve the social conditions of poorer people By "economic infrastructure projects," I mean projects to construct economic infrastructure for the purpose of supporting economic growth. Box: POLICIES OF THE NEW IBIC On 1 October 1999, a new Japanese Institution was bom, the Japan Bank for Intemational cooperation (IBiC), merging Overseas Economic Cooperation Fund (OECF) and the Export-Import Bank of Japan (EXIM) The operations on the side of ODA are basically carried over from that of OECF. The basic policies are summarized as follows: IBic provides yen credit in support of self-help efforts and host country ownership; the major counterpart of JBIc Is Asia, where Japan has strong relations geographically, historically, economically and in other every area, - with recognition that sustainable development and continuous effort for poverty alleviation are Important, JBic will continue providing assistance for both Social ProJects and Economic Infra Prolects, - IBIC supports the equitable distribution of the benefits of economic development, putting special importance on gender considerations, - it is crucially important to pay adequate attention to global warming and other environmental considerations; and - as a result of rapid change in the global situation, economic structural change is needed in many countries JBIC supports such structural reform with particular emphasis on social safety nets, legal frameworks, promotion of the market economy, and governance. It is beneficial to select social projects as they have a more direct effect on poorer people The benefits of economic growth through infrastructure construction may not be seen in the short term. Furthermore, the constituencies of aid agencies may favor social projects because the result of such projects can be recognized more easily. However, such selection is based on the short term, but we should not forget the long term. Any kind of poverty alleviation effort without increasing income levels is not sustainable in the long run. To decrease the number of poor people, we need the economy to grow. Particularly at times of economic crisis, people tend to select more social projects, focusing on the present emergency, although the importance of economic infrastructure projects does not decrease. We wish to emphasize the importance of keeping the balance between social projects and economic infrastructure projects. In the yearly plans for IBIC operations in each country, we try to balance social considerations with economic growth. 196 Chapter 8. The Regional Dimensions of Poverty REGIONAL COOPERATION FOR SOCIAL POLICY: THE ESCAP AGENDA88 Since its founding, the United Nation's ESCAP has been concerned with social development in the region In 1994 the countries of the region adopted a regional social development agenda that articulated three goals: the eradication of poverty, the expansion of employment opportunities, and the fostering of social integration. SOCIAL DEVELOPMENT IN THE ESCAP REGION AFTER THE FINANCIAL CRISIS To discuss the social implications of the Asian financial crisis, ESCAP has convened two meetings to assess implementation work on the regional social development Agenda. These were (i) an Expert Group Meeting on the Agenda for Action on Social Development in the ESCAP Region, in Bangkok in May 1999; and (ii) the recently concluded Senior Officials Meeting on the Agenda for Action on Social Development in the ESCAP Region, also in Bangkok in November 1999. The main conclusion from the Senior Officials Meetrng was that social development in the ESCAP Region has been uneven. Problems arising from poverty, lack of employment opportunities, and social conflicts were deeper and more extensive in some countries than in others Despite the notable progress made in poverty reduction in much of the region, the social impact of the financial cnsis was severe Poverty remains profound and endemic, with millions of people in the region still mired in poverty, with little access to health, education and other basic social services. Unemployment remains a critical problem. The goals of social integration stand mostly unachieved. Most governments in the region have gone past the planning stages for social development and protection. Enactment of enabling laws and the establishment of appropriate institutional arrangements has occurred in many countnes, but many are still grappling with limitations of govemance, institutional capabilities, and financial resources. The Senior Officials meeting recommendations, for transmittal to the General Assembly, focused on the continued strengthening of governance. They included, in particular, the improvement of transparency in decisionmaking, accountability among civil servants, the acceleration of the decentralization process to the lowest levels of government, and the continued strengthening of partnerships between the govemment and civil society in the attainment of social development objectives Actions recommended at intemational level included. the provision of technical assistance towards understanding of the social impacts of financial crises and identifying the appropriate social policy and program responses to these cnses; strengthening of social protection systems, including unemployment assistance, education and training, and protection schemes for the informal sector ESCAP'S FOLLOW-UP ACION ON INTERNATIONAL TRANSPARENCY There is clearly a need for Governments to redouble their efforts in implementing the regional social development Agenda. ESCAP is taking the lead role in bringing the countries together, providing them with technical advice and information, and otherwise helping expand their capacity for full implementation of the regional social development Agenda. To this end, ESCAP is taking several actions: 88 This paper was wntten by Gonzalo M lurado Mr lurado is Senior Social Affairs officer, Social Development Division of United Nations Economic and Social commission for Asia and the Pacific G lurado: Regional Cooperation for Social Policy The ESCAP Agenda 197 * motivating govemment partners in development, including NGOs and the private sector, to actively assist governments in implementing social development programs; * transmitting the recommendations of the Senior Official Meetings to the UN General Assembly, monitoring compliance on both sides of the 20/20 initiative, and pursuing other initiatives that would contribute to the full implementation of the Social Development Agenda; and * monitoring the implementation of social safety nets in the countries of the region including undertaking a comparative evaluation of social safety nets in an interregional project. Long Term Implications of Globalization WHY ARE MULTiNATIONAL DEVELOPMENT BANKs IN THE Loop AGAiN?89 In recent discussions at least two major views have emerged regarding the causes of the Asian economic crisis. One view holds that the crisis was caused by panicked speculators who withdrew from the region's capital markets suddenly; the other that there are structural factors that triggered the flight of capital and led to the economic crisis. In exploring this debate, it is important to ask: What are the long-term implications of the Asian economic crisis? It was not an accident that (i) the region registered such spectacular growth for nearly three decades; (ii) it raised the standard of living for its population and reduced poverty; (iii) it competed so successfully in international export markets; and (iv) that it attracted the magnitude of resources that it did. If this is all true, then how did the situation change so suddenly? The answer needs to be given in structural terms as there were institutional features of the East Asian development pattern that needed to be fixed for further economic development to take place in the crisis-affected economies. Moreover, the significance of these developments is not confined only to the cnsis- affected countries but also includes those DMCs that were not affected in the first instance. In other words, the crisis is affecting all DMCs-whether initially involved in the crisis or not. For example, even South Asian economies that were not directly affected by the economic crisis must fix their financial sectors. These economies too need to clean up the portfolios of their banks. Government supported credit allocations will have to stop. Accounting and auditing standards will have to conform to internationally acceptable standards. Without these remedial measures, the chances of these economies attracting significant amounts of FDI are low. The crisis has raised the bar for all DMCs whether directly affected by the crisis or not. It is in this sense that the crisis marks a turning point in development history. To identify the structural factors underlying the crisis, one has to go beyond the crisis- affected countries and focus on the region as a whole, including the PRC and Japan. The changes need to be traced at the global level, for example, the emergence of global Keynesianism. Global policy directives that contributed to the deepening of crisis must also be identified. The Asian economic crisis of 1997 is therefore the culmination of many factors, many of which are outside the immediate control of DMCs. This feature is what marks this cnsis as different from usual cyclical crises. Within the DMC countries in the region there were internal factors that contributed to the crisis in the first place. Capital markets in most of these economies were not well developed. The exchange rates were fixed, pegged to the Us dollar on the one hand yet linked to fluctuations in the value of the yen on the other. Dollar-yen fluctuations had thrown their foreign exchange regimes into disarray. Despite high savings rates, the money was This paper was written by Brahm Prakash Mr Prakash is a Deputy Chief Economist in the Asian Development Bank's Research Department in Manila, Philippines 200 Chapter 9 Long-Term Implications of Globalization sitting in the banks waiting to be utilized. Corporations ended up leveraging a large amount of credit from banks. Banks had neither the will nor the expertise to supervise the corporations Share holding in companies was limited to families and friends and thus stockholder supervision was also weak. These issues were not critical while the going was good. However, as exports started to slow down in 1996, banks realized that they had over-stretched themselves and had large amounts of nonperforming loans on their hands. As 1997 approached, these features of Asian economies were slowly interacting with each other and having a concerted influence on economic conditions. Externally, the international economic system was also changing rapidly. The globalization process had increased the volume and value of trade enormously Information technology applications reduced the time lag in communications. Financial markets became more integrated. With an increase in services and embodied technology, the resource Intensity of produced output declined A glut in supply pushed down commodity prices. Rates of interest were converging to historically low levels throughout the world. The Washington consensus was pushing for exclusive dependence on the rate of interest as a policy tool With all of these changes, the intemal control of economic conditions weakened, and national macroeconomic policies lost a bit of their erstwhile predominance. These global features were, in turn, increasing the need for (i) harmonization of policies and processes; (ii) uniformity in the performance standards of Institutions and countries, including their governments, judicial systems, and banking and corporate sectors; and (iii) rapid globalization of technological processes. These needs were translated into some externally defined and communicated social standards in poorer countries, including standards of governance, labor (core and child labor), gender, health (HIV/AIDS), education (compatible certification), and environmental conservation. To address these needs is a matter of high priority. However, their implementation can not be forced from the outside in haste. Reforms need to be carried out in consultation with developing countries and at their pace In addition, it should be noted that most of the standards for labor, gender, the environment, and the others described above were outcomes of the market economies in the West But these are now appearing as preconditions of development in the case of DMCs. Unless DMCs adopt a particular standard or policy, they are told, foreign direct investment will elude them This transformation of evolutionary outcomes into preconditions should be a matter of concern for the long-term implications of development Because of all these features, the nature of the development agenda is undergoing a major revision. The long-term vision of development is now concentrated on two major institutional changes: (i) a shift in public policy from socio-political institutions to market institutions; and (ii) a shift in focus from wide to narrow and from long-term to short-term. The end result of all these simultaneous changes is that the social overhead costs of realizing development are increasing rapidly. The Asian miracle that was engaging the global economy to finance social investments and eradicate poverty has been reversed. Countries with very low income levels can hardly afford the costs of development. Much of the future know-how, technology, and marketing access is controlled by large global corporations. Declining official development assistance does not help. Infrastructure requirements are tremendous, and declining commodity pnces hinder growth prospects What are the options open to developing countries? One can certainly not believe that the crisis-affected countnes have run out of their factor endowments, or that these market corrections are in some sense signaling the end of their competitive advantages. Four important changes that constrain the long-term development of the Asian DMCs can be B Prakash: Why are Multinational Development Banks In the Loop Again? 201 singled out: (i) the governance of the world economy in which DMCs have little say or input; (ii) policy directives issued from the global few without any provision for proper adaptation of these policies in the DMCs; (iii) the growing importance of finance, including the role of wealth effects, and the implications for resource deployment and broad based employment generation in developing economies; and (iv) the greater influence and control of market institutions relative to socio-political institutions and the consequent narrowing of the development agenda and shortening of the planning horizon. And all this is taking place at a time when the official development assistance is declining. Under these conditions, it is not hard to comprehend why the task of development is becoming more and more difficult for the poor countries. This is true especially with regard to the availability of long-term financing needed for social and economic infrastructure, energy, a healthy and well-educated population, habitat preservation and urban development The recent speech of World Bank president Mr. Wolfensohn, "The Other Crisis," is notable in this regard. The social implications of macroeconomic policies need to be factored into the development agenda. Notwithstanding the predominance of foreign direct investment, it is the need for this comprehensive long-term development that perhaps underlies the renewed role of the multilateral development banks Financing requirements ranging from infrastructure and energy on the one hand, to vaccination efforts on the other, are stupendous. These investments are needed to increase productivity of labor. On a more positive note, and following the comments of Dani Rodrik, the multilateral development banks need to give special emphasis to long term development: investments, macroeconomic stability, human development, and good govemance. In the interest of smooth and peaceful development, it is necessary to build consensus in the developing countries with regard to the long-term features of development Multilateral development banks can play an important role in supporting these features in a country- focused approach. This role would also be in accordance with the historical experience of development as each of the developed countries has devised its own distinct path. 202 Chapter 9. Long-Term Implications of Globalization WHAT DOES POVERTY COST? REFLECTIONS ON PHILIPPINE GOVERNMENT ANTI-POVERTY PROGRAMS90 The cost of poverty is incalculable whether in economic and financial terms, social and political costs, or most important of all, human dimensions. For nearly two decades, the world has been preoccupied with defining and measunng poverty, hoping to eradicate it. The costs of these efforts defy measurement. This paper describes different dimensions of the costs of poverty, based largely on the Philippine experience in light of the recent Asian crisis and increasing globalization. ECONOMIC COSTS One of the heaviest costs that poverty imposes on the economy of any country is the exclusion of poor people from meaningful participation in the market economy. Only those who have goods and services to sell as well as money to buy can be included in the market The poor have little of both and are largely excluded from the economy's operations. At the same time, they constitute a massive burden in terms of social services from government and civil society. In 1997, at the height of the Asian crisis, poverty incidence for the Philippines was estimated at 32 percent. Thus, 4.5 million families, with an average of six members per family, were considered poor That is 27 million individuals who constitute a major cost to the economy. Furthermore, as of Apnl 1999, unemployment shot up to 11 8 percent. In absolute terms, four million workers in the Philippines still have no jobs At the same time, underemployment went up to 22 7 percent. The implication is that more than one fifth of those considered employed are actually underemployed. As of July 1999, the employment picture was somewhat better, with the unemployment at 8.4 percent and underemployment at 22.3 percent. Both poverty and unemployment numbers still give cause for concern. The cost of the huge army of poor, unemployed, and underemployed to society has different dimensions. First, there is the additional burden in terms of social services for them and their families. Second, is the loss in productivity and income, which impacts on the gross national product. Since the social security system of the country is far from comprehensive, the burden of maintaining unemployed people usually falls on their families. FINANCIAL COSTS Financial costs are actually a part of economic costs In public finance, persistent low levels of revenue collections relative to expenditure continue to be a problem. High levels of poverty aggravate the problem of low tax revenues since the poor barely contribute to direct taxation. The most obvious cost of poverty to the Govemment is its impact on the national budget, as well as the expenditures of the government financial institutions (GFIs), government corporations, and local government units. A ranking government official has been quoted as stating that the entire year 2000 budget is an antipoverty budget. This could possibly be true in terms of intentions because any item in the national budget can be described as having an antipoverty component, considering the magnitude of the problem. Implementation, of course, is another matter. GOVERNMENT SPENDING FOR ANTIPOVERTY PROGRAMS The Philippine Government is committed to the 20-20 program initiated by the UNDP, wherein 20 percent of national governments' budgets should go to basic social seMces ' This paper was wntten by Leonor M Bnones Prof Bnones is the Treasurer of the Philippines and Presidential Advisor on Social Development She is also the chairperson of the intemational NGO Asia Watch L Brfones: What Does Poverty Costs' 203 while 20 percent of ODA would likewise go to basic social services. The Philippine Government has created a Task Force 20-20 to assure that its commitment is complied with. The Task Force has identified expenditures in basic education, basic health, and other basic social expenditures as reflected in actual government expenditures for 1 998, the General Appropriations for 1999, and the proposed budget for 2000. Actual expenditures for basic social services and socialized housing constituted 23.4 percent of the budget for 1998, 22.05 percent of the general appropriations for 1999, and 27 percent of the proposed budget for the year 2000. This budget does not include economic services delivered by departments of Government that contain programs intended for the poor. For example, the Food Security Program Fund of the government totals P1,500 billion. Obviously, a good number of the projects in this fund are intended for the very poor. Government programs that create jobs for the very poor can be considered as part of its antipoverty initiatives. In addition to the national government and local govemment units, govemment financial institutions and government owned and controlled corporations likewise have programs targeted for the very poor The three main GFIs, Development Bank of the Philippines, Land Bank of the Philippines, and Philippine National Bank maintain pro-poor financing programs and projects. One can thus conclude that government outlays intended for the poor use substantial public funds. It goes without saying, of course, that while govemment expenditures intended for the poor exceed the 20-20 criterion of UNDP, the need to ensure that these pro-poor programs reach their intended beneficiaries and achieve the desired objective of poverty reduction remains a continuing challenge. In addition to financial costs to government civil society also expends considerable time, effort and money towards poverty reduction. A vast array of international and local NGOs, international and local civic organizations, peoples organizations as well as church organizations, have programs intended for poverty alleviation. At the same time, private business has institutionalized programs directed towards the poor. These are conducted at international and national levels. Finally, a major part of the financial costs of bearing the burdens of poverty falls directly on immediate family members who are often only slightly more fortunate. Both the inadequacy of the social security system as well as deeply entrenched social values obligate family members to help each other. CONCLUSION During the Social Development Summit initiated by the UNDP, three major issues were tackled: poverty, unemployment, and social disintegration. While not all problems of unemployment, and social disintegration can be traced to poverty, clearly these three issues are closely related. Social problems that lead to the disintegration of the social fabric such as criminal activity, drugs, and violence, especially against women and children, are linked to poverty. Poverty also has political costs. Chronic and unresolved poverty problems tend to translate into political issues that threaten stability it is not surprising that the regions in the country identified as among the poorest are also hotbeds of rebellion. But the most damning cost of poverty Is not the considerable economic, financial, social, and political costs it is the waste of human lives. How does one measure the cost of a single human life condemned to a meaningless existence with no education, inadequate health, unemployment, and possibly violence? The utter waste of lives distorted, deformed, and destroyed by poverty is incalculable. 204 Chapter 9 Long-Term Implications of Globalization ASIA's ECONOMIC AND STRucTURAL PoLIcY AGENDA91 The subject "poverty reduction" is a growing industry. The World Bank has been a champion of poverty reduction ADB has recently announced a focus on poverty reduction as its single overarching objective. The IMF is also turning attention to poverty reduction. This type of competition in the area of poverty reduction is healthy and will promote more serious research activities and policy initiatives. The purpose of this presentation is to examine some linkages between macro-structural aspects of the current economic recovery and reform processes, and policy issues related to social sector protection and poverty reduction. MACROECONOMIC DEVELOPMENTS Macro-structural policies are linked to social-poverty policy issues. The East Asian cnsis interrupted three decades of steady growth accompanied by remarkable improvements in social conditions and substantial progress in poverty reduction. The crisis had a large negative effect not only on banks, corporations, and govemments but also on household welfare. Macro-structural policies to amend the troubled bank and corporate sectors have significant fiscal implications for governments, particularly in managing social conflict in the years to come. After the eruption of the crisis in 1997, economic activity rapidly contracted Following macroeconomic stabilization efforts, financial variables such as exchange rates, stock prices, and interest rates began to stabilize in 1998 despite a rapid GDP contraction. In 1999, we have seen a surprisingly rapid recovery of GDP and this recovery is expected to continue into the year 2000. However, risks remain Extemal environments are not certain due to the possibility of the end of the prolonged expansion of the US economy and the continued fragility of Japan's economic recovery. At the same time, the processes of restructunng the domestic banking and corporate sectors in some countries, particularly Indonesia and Thailand, are slow, and there is a risk to the current economic recovery if significant restructuring is not pursued. BANK AND CORPORATE RESTRUCTrURNG Many efforts have been undertaken to minimize financial market distress and to restructure bank and corporate sectors. Let us examine some of those actions in four crisis- affected countries Indonesia, Republic of Korea, Malaysia, and Thailand. In the early phase of the financial crisis, the central banks of these countries injected liquidity into the financial system to rescue troubled commercial banks and financial institutions. Later this central bank liquidity injection was fiscalized, resulting in a hike in public debt. This fire-fighting process also provided blanket guarantees to bank depositors and other creditors, and resolved nonviable financial institutions through closures, mergers, and nationalization Next, the crisis-affected countries moved to recapitalize and rehabilitate weak but viable banks and financial institutions by setting up frameworks to carve out bad assets from their balance sheets and transfer those assets to centralized asset management companies, allowing entry to foreign strategic investors, or providing public support for bank recapitalization. Finally, the countries have now entered the phase of asset resolution and bank reprivatization The market share of assets acquired by the govemment, including state-owned banks, intervened banks and centralized asset management corporations 9 This paper was wntten by Masahiro Kawai Mr Kawai is the Chief Economist for East Asia and Pacific Region of the World Bank, in Washington, DC M Kawat: AslaS Economic and Structural Policy Agenda 205 (AMCs), is large. The share of government-held assets is 78 percent for Indonesia, 58 percent for Republic of Korea, and 45 percent for Thailand. Essentially, the governments socialized a large volume of assets in the process of crisis resolution. The process of asset disposal and reprivatization of intervened banks, or in other words the desocializatlon of assets and banks, has just begun. However, the Indonesian banking system and the Thai banking system, to a lesser extent, are still in distress In the area of corporate sector restructuring, three different approaches have been adopted. The first approach is to strengthen the legal and judiciary system so that court- based bankruptcy, foreclosure, and reorganization procedures can be effectively enforced. If effective, the court-based system can discourage delays in debt resolution negotiations. The second approach is to develop a formal process outside the court, based on the 'London Rules" approach of a voluntary debt negotiation system. Though formal voluntary processes are in place, they have not been sufficiently effective and a large number of strategic defaults has been observed. The third approach is the corporate debt restructunng led by a centralized official AMC, such as the Indonesian Bank Restructuring Authority ([BRA), Korean Asset Management Company (KAMCO), and Danaharta. But this process has just begun and has a long way to go. FISCAL IMPLICATIONS OF THE CRISIS In 1997, the ratio of public debt to GDP in many East Asian countries was quite low due to prudent fiscal management. Although the public debt/GDP ratio for Indonesia was almost 50 percent, for the Republic of Korea it was only about 14 percent As a result of financial sector resolution and fiscal stimulus in the past two years, the public debt/GDP ratio has skyrocketed. In the case of Indonesia it is expected to reach close to 100 percent and in the case of the Republic of Korea it will be close to 30 percent. Other East Asian countries' figures fall between these two countries' ratios. Further costs of financial sector resolution are anticipated and contingent liabilities are not yet accounted for Indonesia is beginning to face large external as well as domestic debt problems and this poses the problem of fiscal sustainability and a trade-off of govemment spending among different priority items SOCIAL SECTOR PROTECTION AND POVERTY REDUCTION The crisis had a large, negative impact on households. Social sector conditions, such as school attendance and health service provision, deteriorated and poverty became more acute throughout the region. However, the social impact of the crisis was less than had originally been feared. The economy was surprisingly flexible in absorbing the consequences of the crises households protected their consumption of some critical items by drawing down on savings; the informal social safety net, provided by extended families and communities, was quite resilient in many countries; the labor market was flexible in securing employment, though real wages had to go down; and governments quickly beefed up safety net programs Nonetheless, the crisis exposed important limitations in the ability of private and public safety nets to cope with large negative shocks, and revealed the need for policies and institutions to assist households in effectively managing risks. East Asian countries must move towards a more formalized social safety net society, particularly in high-income countries such as the Republic of Korea. The fact must be emphasized that a positive correlation exists between economic growth and poverty reduction in the long run. This is why restructuring of the banking and corporate sectors is important to sustain economic recovery and, hence, to ensure poverty reduction. At the same time, we have to focus on micro poverty issues to promote the poors access to markets, more equal income distribution, and broad-based economic development. 206 Chapter 9: Long-Term Implications of Globalization ISSUES AND QUESTIONS Several issues and questions should be considered, and some of these might be controversial and debatable The first question is whether the current economic recovery process encourages or discourages bank and corporate restructuring. One answer is that the current economic recovery process will discourage bank and corporate restructunng because policymakers could become complacent while creditors and debtors wait and see, hoping that economic recovery will solve their problems. Another answer is that vigorous economic recovery will accelerate bank and corporate restructuring because debtor corporations will need credit flows from the banking sector to benefit from the growing market through increases in production and sales, so they will be forced to negotiate with their creditors to restructure their debt Only after debt restructunng, will they start receiving credit and will not miss the opportunity of growth Our analyses show that either the growing-out or wait-and-see strategy is nsky for both Indonesia and Thailand. A second question is that given a large amount of assets transferred to the hands of the government, how should the government and centralized AMCs desocialize and de- nationalize banks and assets acquired One of the clear objectives of the government is to maximize asset recovery in order to reduce the net cost of crisis resolution, thereby maintaining fiscal sustainability The issue is whether or not the government and the AMCs should sell the acquired assets or banks to whoever bids the highest price, even if the bidders come from the same pool of previous owners. Or should the government try to sell the assets to new players, whether foreigners or domestic businesses, even if the sales price may be lower? Another sticky issue is whether or not some ethnic consideration should be made in the asset disposal process if asset redistribution favoring a particular ethnic group is done in a transparent way based on well-prescribed rules, say in Indonesia, would it be a good policy consistent with broad-based growth and poverty reduction9 We don't know the answer. A third question is how the losses due to crisis resolution should be distributed among different groups of people, or how the diminishing fiscal resources should be allocated among different priorities. If we jeopardize fiscal sustainability, we know that macro stability will not be maintained and, hence, long-term poverty reduction will be at risk. Many revenue generating measures would have to be adopted and unnecessary expenditures cut But at the same time, expenditures for poverty reduction and social protection-education and health in particular-would have to be protected. This is another big challenge There is no question that the capacity to manage social risks needs to be strengthened in order for a country to benefit from globalization, which can be a source of shocks and turbulence. The challenge is how to proritize the social and poverty agenda, which is complex and for which the required fiscal resources are potentially large. Countnes need to focus on capacity building and complementary institution strengthening on the part of the govemment and households and then set pnorities among social sector needs and poverty reduction. B Khamidov: Social Benefits of a Gradual Approach 207 SociAL BENEFITS OF A GRADUAL APPROACH: THE EXAMPLE OF UZBEKISTAN92 During the first years of independence, when Uzbekistan had to preserve an increasingly fragile social stability, the country created from the outset the constitutional and legal basis for a democratic state and a market-based economy This foundation was made possible largely by the policies of Mr. Islam Karimov, the President of the Republic of Uzbekistan. The major principle of this model is a gradual approach toward economic transformation combined with strong social protection programs for the most vulnerable in the population. Adopting a gradual reform process is a deliberate policy choice intended to minimize the negative effects of transition that have been so evident in other countnes of the former Soviet Union, including sharp drops in living standards, a decline in social indicators, and the erosion of social capital SOCIAL POLICY PRIORITY Among the key priorities and major achievements of the active social policy followed by the independent Republic are continued development of the legal framework protecting human rights and establishing social protection. Parliament has recently passed several laws dealing with unemployment, pensions, and basic education. A second priority is targeting assistance to the most vulnerable groups of the population, including those who are adjusting to the new market environment The Government is continuing to implement direct social programs that highlight productive social infrastructure, including limited subsidization of gas and utilities, provision of public health and education programs, and extending preferential credit for private housing construction. A third priority is continued privatization of state assets, with a particular focus on the rural population More than 550,000 ha of irrigated land have been transferred into private farms This process reduces rural unemployment, increases incomes, and increases food production. PROGRAM FOCUS The following six areas are of highest priority to the social policy agenda in Uzbekistan. Old Age. Uzbekistan has not undertaken radical reform of its pension system as has occurred in other former Soviet Union countnes. The Government believes that the priority should be to improve the operation of the pension system within the existing framework. Minimizing upheaval in pension provision, which is a fundamental element of social protection, helps to maintain the stability of society. That the system Is feasible is supported by the fact that Uzbekistan has always met the pension liabilities to the 2.5 million pension recipients. Disabilityr The problem of disability is a serious concem for Uzbekistan. Currently, more than 700,000 people suffer from some form of disability, amounting to about 3 percent of the entire population. The national program for rehabilitation covering the period 1996- 2000 contains a number of important initiatives, including disability prevention and medical, social, and productive rehabilitation through special rehabilitation centers. Medical and social assistance will be provided through home care, and rehabilitative devices such as orthopedic and prosthetic limbs will be made available. Special transportation initiatives will also be developed to accommodate the disabled. Finally, training for disabled workers 9 This paper was written by Bakhtiya K Khamidov Mr Khamidov is the Deputy Prime Minister of Uzbekistan and the Govemor of his country to the Asian Development Bank B Khamidov: Social Benefits of a Gradual Approach 209 The country has strong productive resources with a labor force that is growing at more than 2 percent per year. Unemployment is not a serious problem in Uzbekistan and is in fact lower than in other transition economies. Three quarters of the employed workforce is engaged in pnvate sector, and more than 160,000 small and medium enterprises are operating. Between 1993 and 1998 more than 1.5 million new jobs have been created, including one million in the rural areas. In addition, household incomes are more evenly distributed in Uzbekistan than in many other Commonwealth of independent States (CIS) countries. However, the recent economic and social success of the country must not induce complacency. We realize that in the new millennium there is a need for continued development of social policy, particularly with regard to employment policy. Priority areas also include effective social protection, social infrastructure development, and reform of the public health and education systems 210 Chapter 9. Long-Term Implications of Globalization PROMOTION OF SOCIAl. DEVELOPMENT IN ASIA: THE JAPAN BANK FOR INTERNATIONAL COOPERA11ON93 Globalization in the intemational economy has brought about sweeping changes in the extemal circumstances of Japan: deepening interdependence among the economies, currency crises, global environment problems and other issues having global implications. The IBIC was created on 1 October 1999, to implement Japan's economic development response to this changing world economy. This paper describes the new JBIC and its role for intemational development and cooperation in the Asia region. JBIC integrates the functions of two previous organizations: The Overseas Economic Cooperation Fund of Japan and The Export-import Bank of Japan The new organization's operations consist of two distinct components: * ODA operations. Overseas economic cooperation operations support self-reliant development efforts in developing countries, and * non-ODA operations International Financial Operations contribute to the promotion of Japanese exports and imports, as well as Japanese economic activities overseas, and to the stability of intemational financial markets. JBIC's budget in financial year 1999 (April-March) amounts to k(2,946 billion ($27.8 billion)9 Of this budget, Yf920 billion ($8 7 billion) is for ODA operations and Y2,026 billion ($19.1 billion) is for non-ODA operations. The Japan International Cooperation Agency (JICA), which engages in technical cooperation in Japan's ODA, has a budget of Y1 86 billion in the financial year of 1999 ($1.8 billion) STRENGTHENING ORGANIZATIONAL EFFORTS FOR SOCIAL DEVELOPMENT JBIC's ODA operations promote social development projects These include projects such as rural water supply and sanitation, primary and secondary education, social forestry, microfinance, primary health care, and urban/rural community infrastructure An independent Environment and Social Development Office was established in October 1997 to coordinate social development matters. This office strengthens JBIC's responsiveness to environment and social aspects of development projects, and facilitates collaboration with other organizations To strengthen its support for social development prolects, JBIC utilizes the Special Assistance Facility (SAF)95. This includes surveys encompassing social analysis and field surveys for gender and social impact analysis. JBIC PRIORITIES FOR SOCIAL DEVELOPMENT Beneficiary participation is particularly necessary for social development. JBIC has made special efforts to bring about the participation of local residents, taking into account various social considerations 93 This paper was wntten by Rentaro Tamaishl Mr irmaishi is the Director of the Social Development Division in the Environment and social Development Office of the Japan Bank for international Cooperation, in Japan The exchange rate as of 1 October 1999 was Y1 06 - $1 special Assistance Facility is a study carried out by consultants employed and dispatched by IBIC The funds necessary for SAF are provided by IBIC as grant assistance SAF compnses three types of facilities Special Assis- tance for Prolect Formation (SAPROF), Special Assistance for Prolect Implementation (SAPI), and Special Assistance for Prolect Sustainability (SAPS) R Tomaishi. Promotion of Social Development In Asia 211 According to the United Nations, women account for 70 percent of the world's poor. Thus, there is still a very important need to undertake women in development-related projects that focus specifically on women. Although the number of JBIC funded projects whose principal beneficiaries are women is not large, special attention is paid to ensure that IBICts projects benefit women and that project activities do not negatively affect them. IBIC also continues to support microfinance projects as an effective means to address poverty. The Asian currency crisis developed in 1997 and rapidly spread to countries throughout Asia. The Japanese Government announced the New Miyazawa Initiative in October 1998 to deal with the problems of the crisis and to bring about the early recovery of the Asian economies. This program was created as a $30 billion financial assistance scheme: $15 billion in ODA loans and non-ODA tools for medium- to long-term financial assistance, and $15 billion as short-term capital needs prompted by the process of economic reforms The funds focus on the protection of the weaker members of society (through expansion and reinforcement of social safety nets), as well as the stimulation of the economy (implementation of public undertakings to increase employment). To assist socially vulnerable groups in Asian countries, IBIC has provided ODA loans such as the Social Safety Net Loan, and the Economic Recovery and Social Sector Program Loan under the New Miyazawa Initiative. IBIC'S POLICY ON SOCIAL DEVELOPMENT As a result of the recent Asian currency and economic crises, the gap between the rich and the poor is widening. However, a basic principle of IBIC's ODA loans is to assist self-help efforts of developing countries to narrow this gap for more equitable social development. Hence, IBIC intends to respond to the diverse development needs of these countries by balancing the short-term approach to overcome the economic crisis and the long-term approach to secure sustainable development. Due to geographic proximity and close historical and economic ties, IBIC's ODA operations have traditionally focused on the Asian region. JBIC will continue to focus on Asian countries with whom Japan maintains close relations. CONCLUSIONS jBIC will strive to balance assistance for projects that promote economic growth on the one hand, including economic and social infrastructure projects and industrial development projects, and assistance for social development projects, which address poverty directly. It is important to secure gender equality and participation in the development process and in the distribution of benefits from development. Also, IJBC will continue to support the socially vulnerable in Asia under the New Miyazawa Initiative, through the improvement of social safety nets as well as the promotion of employment 212 Chapter 9. Long-Term Implications of Globalization THE NEW IMF ARcHmcTURE IN ASIA96 After almost two years of senous economic disruption, the Asian economies have begun to rebound Growth rates are positive and significantly higher than earlier projected; inflation rates have come down to modest levels, interest rates are far below the peaks experienced in 1997 and 1998, and exports are expanding. Yet the period of crisis was no ordinary cyclical trough. Its emergence was partly the consequence of an absence of the policy reforms necessary to prosper in a global economy with increasingly open capital markets. The costs of the crisis were not small, output declined and remains below trend, and poverty rates increased (although by less than initially feared). Many enterprises were bankrupted or have survived only in a financially weak condition It is important for policymakers in Asia to draw the appropriate lessons from the experience of the last decade and maintain their resolve to implement reforms. indeed, the structural policy reforms that should have been the necessary complements to the growth- oriented policies of the 1990s remain as urgent as before. The IMF firmly believes that a social agenda is vital to the reform initiatives of the Asian region. Reforms in the areas of structural, regulatory, and macroeconomic policy management are now clearly recognized as prerequisites for sustainable growth But reforms must be complemented by a social policy framework, both to ensure a capacity to address the social consequences of inevitable cyclical downturns and to foster a flexible labor market and achieve the investment in human capital necessary for growth. The longer-term issues associated with providing for aging populations must also be addressed THE STRUCTURAL ARCHITECTURAL AGENDA Since the Asian crisis, a consensus has emerged on the priorities for institutional reform. The objective is to support vibrant growing economies that can benefit from global investment capital seeking high retums, while still being resilient to destabilizing pressures that can emerge, whether from contagion, capital movements, or external economic developments. Avoiding steep recessions and providing an environment that facilitates rapid growth in output and employment are the most powerful preventive strategies for reducing poverty. The institution of stronger legal, regulatory, and supervisory frameworks is crucial for sustaining growth. These "second generation reforms" should encompass: new or strengthened bankruptcy and foreclosure laws, judicial procedures that allow for an expeditious resolution of claims; accountancy practices that ensure that the financial position of corporations is transparent to investors; and regulatory and tax reforms that eliminate discretionary exemptions, high rates, and multiple incentives and credits. More flexible labor market policies and adherence to ILO pnnciples are equally relevant. Actions to comply with the Fund's new Codes of fiscal, monetary and financial transparency, to strengthen banking supervision in line with the Easel Core Principles, and to participate fully in the Special or the General Data Dissemination Standards (including greater transparency on external reserve positions) would be important first steps in this direction. THE SOCIAL POLICY AGENDA There are four essential elements of an enhanced social policy agenda: (i) investing in human capital as an essential part of any strategy for growth and poverty reduction; (ii) developing a capacity for targeting the protection of the poor dunng economic shocks, (iii) establishing cost-effective social insurance policies that both reflect prevailing local cultural 9° This paper was wntten by Peter S Heller Mr Heller Is the Deputy Director of the Fiscal Affairs Department of the International Monetary Fund in Washington, DC P Heller The New IMF Architecture In Asia 213 norms and that do not create large disincentive effects in the labor market; and (iv) establishing vehicles for long-term savings in the context of aging populations. Investments in human capital have long been recognized as central to anygrowth strategy. The Asian economic miracle witnessed the achievement of high literacy rates, investments in secondary and higher education, proliferation of networks of primary health care facilities, and the spread of high quality secondary and tertiary medical care. The challenges now faced by many Asian economies are increasingly similar to those encountered by industnal countries-to ensure that social sector spending is efficient, that costs are contained, and that equity in access is achieved. Addressing surges in poverty and income loss A salient lesson of the recent crisis was the lack of preparedness by govemments to respond to the sharp losses in wage income and the large jump in unemployment rates. In part, this failure reflected the lack of monitoring systems. Governments should have the capacity already set up to identify those groups and regions where poverty is particularly a problem, as well as to understand the factors and dynamics responsible for the persistence of such poverty In the recent crisis, governments lacked the institutional capacity to rapidly put in place targeted schemes to cushion the impact of income losses. Public works schemes were slow in getting off the ground and when developed, did not offer much confidence that they could avoid serious governance problems, such as waste and abuse Subsidy schemes proved badly targeted, resulting in income transfers to non-poor groups. Social insurance to address life-cycle contingencies. Throughout the industrial world, formal systems of social insurance are in place to insure against adverse events such as disability, unemployment, death of a household's main income provider, and old age Such systems have begun to develop in some emerging market countries of Asia. The development of public pension systems in some countnes has been the leading edge. But systems are slowly emerging in other spheres. For example, in the Republic of Korea, an unemployment insurance system has progressively been put in place that allows workers some income coverage during periods of unemployment For those Asian economies that are participating in the global economy, it is certain that there will be flux in the industrial and service sectors-as dynamic finms grow and inefficient enterprises shrink and close down. Moving from situations without formal unemployment insurance or only enterprise-specific systems to some form of broader unemployment insurance coverage will become a necessary piece of the social architecture in these countries. Aging populations Asian populations are aging and the capacity for traditional old age support systems to cope with the changing demographics of the next century must certainly be considered problematic. Asian societies have demonstrated a high capacity and willingness to save; in some cases, this has been institutionalized in national provident fund schemes (e.g, in Malaysia and Singapore); in other cases, pension systems have been limited to some segments of the formal sector, civil service, or a selected group of larger enterprises. The challenges in designing a financially viable multi-pillar pension system that can sustain an aging population have been the sublect of much attention, and our understanding of the risks and benefits associated with different approaches-public, private, or mixed, defined benefit and defined contribution-is now quite substantial We understand much about the institutional prerequisites of different systems-in terms of the types of financial products and institutions that need to be developed and the regulatory and governance challenges that are posed it is clear that most Asian countries have much work to do, both in terms of designing systems with broader coverage and in developing an institutional framework that can reliably, and with good governance, deliver on the promises that will be implicit in any scheme. 214 Chapter 9: Long-Term Implications of Globalization THE ROLE OF THE IMF The initiatives unveiled at the 1999 Bank-Fund Annual Meetings sLx have truly placed poverty reduction at the center of the IMF's efforts for Its low-income member countnes The IMF's concessional lending facility, the ESAF, (Enhanced Structural Adjustment Facility) has been transformed into the new Poverty Reduction and Growth Facility (PRGF), which makes poverty reduction a key element of a renewed growth-oriented economic strategy. The cornerstone of the new approach is a nationally owned, comprehensive Poverty Reduction Strategy Paper (the PRSP). This strategy paper will be country driven, prepared by the authorities with assistance from the World Bank and the IMF, and reflecting an open, participatory process involving civil society, relevant international institutions, and donors. It will identify pnorities for public action to achieve the greatest impact on poverty reduction. it will also address the critical and often complex issues related to enhancing good govemance and supporting transparency in policymaking In the necessary division of labor between the IMF and the World Bank, the latter institution, with its sister institutions-the ADB, the other regional development banks, and UN agencies-will be at the forefront of discussions with authorities on the design of policies for poverty reduction In providing financial support, the Fund will place high priority on the key reform measures critical to achieving rapid and sustainable growth that also leads to faster poverty reduction But it is also important to understand the IMF's contribution in the social area for tl'e, many countries of the world that are not implementing Fund-supported programs. This, of course, is particularly relevant for many Asian economies Here the Fund's role principally arises from its surveillance responsibilities-its close working relationship with countries in discussing their macroeconomic policies and the global and regional economic environment within which these policies must function The Fund has paid increased attention to the social implications of its policy advice Some find it controversial that an essentially macroeconomic institution should focus on social issues. However, we have come to recognize that poverty, unemployment, and severe inequalities in income distribution can undermine growth and lead to large welfare transfers that burden the budget For this reason the Fund has emphasized that as part of its surveillance process, its staff should collect and monitor social and poverty indicators as needed. The views of other international agencies with principal responsibility in the social spheres will be sought, taking advantage of their comparative advantage and expertise. CONCLUSION What is apparent is that the crisis in Asia has made us all aware not only of the remarkable strengths and resiliency of the Asian economies, but of the important policy agenda-both in the economic and social spheres that must be tackled in the coming years if these countries are to make the transition to high income economies with low rates of. poverty in a sustainable manner. K Gautam: Weapons or Well-Being in East Asia? 215 WEAPONS OR WELL-BEING? EAST ASIA'S MOST IMPORTANT CHOICE FOR THE NEW MILLENNIUM97 INTRODUCTION The East Asian economic crisis pushed millions of this regionts families into poverty. Thankfully, it is now becoming clear that the region is slowly emerging from this period of economic malaise. Most of the region's currencies are now relatively stable, interest rates are down, foreign exchange reserves are up, consumer spending on the increase, equity markets enjoying gains, and unemployment rates falling. In addition, a new economic discipline is being put into place in many countries to help ensure that this recovery will be sustained and that the possibility of future economic shocks will be minimized. The region's poor have not yet been invited to the recovery banquet. The improving economic conditions have not yet restored their fonmer purchasing power Unemployment rates, though down from their peak, are still unacceptably high. In short, there are still more poor than before the crisis, more people without jobs, and more parents who are seeing their dreams for their children's future die stillborn in the quagmire of poverty. Chart 3: Military Expenditures by Region (percentage change between 1988 and 1997 East Asia South Asia _ Middie East Amencas l World Sub-Sahara. Africa - Europ_ .60 -50 -40 -30 -20 -10 0 1( 20 30 40 50 60 Source. Stockholm Intemational Peace Research institute Yearbook 1998 MIUTARY SPENDING IN EAST ASIA But it is still far from clear how the dividends of the economic recovery will be divided among competing constituencies. will governments allocate increased funding to the basic social service programmes so sorely needed to assist the children and families that have suffered the most from the consequences of the crisis, and by doing so continue to build on the social and economic successes of recent decades? Or will the beneficiaries be the weapons makers and the military that have laid claim to a large and growing share of govemment expenditures? This paper was written by Kul C Gautam. Mr Gautam was the Regional Director of UNICEF for East Asia and the Pacific He Is now the Deputy Executive Dlrector for Alliances and Resources In the UNICEF headquarters in New York 216 Chapter 9 Long-Term implications of Globalization The socioeconomic success of many of this region's countnes prior to the crisis is known around the world, but the fact is that this prosperity brought along with it some of the highest levels of military spending in the world. Between 1988 and 1997, as military expenditures fell by 34 percent for the world as a whole, expenditures in East Asia and Pacific actually increased by 27 percent. (South Asia also increased its expenditures by 22 percent, and the Middle East by 9 percent) PRC and the Republic of Korea have accounted for the majority of the region's overall military spending during the past two decades But less visibly, in ASEAN countries, military expenditures increased by 52 percent in real terms between 1988 and 1997. This increase, which was greater in both absolute and percentage terms than that of any other region, occurred as the world as a whole cut military spending by 34 percent. Chart 4: Military Expenditures of Different Asian Countries (million $, 1995 prices) 4500 4000 _18E1= 3500 3000 2500 - - 2000 1500 - _____l - . 1000- _ - - 500 Fgfi _ 0U Source: Stockholm International Peace Research Institute Yearbook 1998 The high level of military spending in East Asia was somewhat curtailed by the onset of the 1 997 economic crisis, which resulted in overall reductions in central government expenditures as well as currency depreciations that made importation of some armaments prohibitively expensive In addition, some governments began to, or already were, shifting funding pnonties away from the military toward social development programs. Nevertheless, the Stockholm International Peace Research Institute (SIPRI) recently noted that even though the strong growth in military expenditures in Asia slowed as a result of the economic crisis, "they have still not started to decline even in East Asia, which was most affected by the crisis. While the volume of arms procurement has been scaled down significantly due to the reduced purchasing power of their currencies on the world arms market, the domestic burden of their military expenditure is not declining THE NEED FOR INVESTING IN HUMAN SECURITY This resilience in the level of military expenditures should and must be a cause for concern to us all since so many urgent human development challenges still need to be addressed in the region. Today, the East Asia region is still home to about two million children under the age of five who die each year of preventable causes; three million infants who are not immunized against measles; six to 10 million children of pnmary school age who are out of school, 36 million children under the age of five who are malnourished; 100 million people who lack access to safe dnnking water, 200 million illiterate adults, and 300 million people struggling to survive on less than $1 a day. K Gautam. Weapons or Well-Belng in East Asia? 217 Chart 5: Mllitary Expenditures by Organization (percentage change, 1988 to 1997) 60 - SEAN 40fl_____ 20 - . -Q EEC -20 EU -40 cis NATO OECD O -60 CIS OSCE Source Stockholm International Peace Research institute Yearbook 1998 As the countries of this region recover from the crisis and begin to earmark funds for these problems and other pressing social concerns, there will also be strong pressure from other sectors, including the military, for increased funding To ensure that a significant share of available resources goes to basic social services, the "security" of nations needs to be recognized as more than an ability to defend borders and control internal strife It also needs to be seen in terms of guaranteeing "human security" through the provision of adequate health and education for children and their families, the protection of the environment, and continued economic prosperity. in the context of this definition of security, diverting resources from military hardware and staff to basic social services becomes not only a moral imperative but also a strategic necessity. Indeed, recent studies by the IMF have indicated that excessive military spending may retard economic growth over the medium term. Major battles have yet to be waged against deadly foes such as HIV/AIDS and the resurgent threats of old enemies such as tuberculosis and malaria. There is also a need for a stronger focus on the dangers that affect people's daily lives, such as hunger, illness, illiteracy, joblessness, and crime. Even a small percentage reduction in the tens of billions of dollars spent yearly on military programs in the region could free the resources needed for this battle Ensuring all children have improved access to basic services would require only millions-not billions-of dollars. Initiatives such as the 20/20 compact, which calls upon donors and developing countries to ensure that 20 percent of their development and aid budgets go to basic social services, could provide adequate resources to meet the basic needs of all children and vulnerable groups. Some countries that face real or perceived security threats may protest that it is difficult to make reductions in military budgets. But it is clear that many of the weapons and strategies elaborated by governments in this region for "defense" are increasingly irrelevant to the real underlying instabilities and dangers their people face. But every country has an opportunity to explore ways for reducing military expenditures. Donors who provide aid to the region, but also produce and sell arms to it, need to examine their own actions to see if the messages they are giving are consistent ones. But what can the developing countries of this region do for themselves? The Philippines and Viet Nam have made commendable efforts in reducing their own military expenditures during the past decade. In Thailand, where civilian democracy has taken hold, efforts have begun to reduce the large number of generals and other high- 218 Chapter 9. Long-Term Implications of Globalization ranking officers in the military ranks, and we hope these efforts will continue. Cambodia, which is enjoying peace for the first time in 30 years, could also continue encouraging the demobilization of its military Myanmar, which has made peace with its many insurgency movements, could now act to reverse the country's recent trend of increased military spending and declining investments in basic social services. And one could imagine the region's newest state, East Timor, which suffered years of horrific violence before gaining independence, aiming towards one day being a model within East Asia of a peaceful state that does not feel the need for a military, like Costa Rica, with whom it shares the distinction of having Nobel Peace Pnze winners among its leaders. CONCLUSIONS Recently, for the first time in history, all the Nobel Peace Prize laureates signed an appeal to the heads of all the Member States of the United Nations Their appeal was for each of the States, as well as all members of the human community, to promote in the new millennium a culture of nonviolence and peace for all the world's children Our region's goals could be no more noble than encouraging the same. Redirecting public funds towards unmet social needs would enable governments of this region to lead their people in a renewed battle against poverty, hunger, disease, and illiteracy Surely winning that battle would be the most important triumph of any nation, and would ensure the most lasting peace for the region's children. T Jones Sustainable Development New Milestones for Asia 219 SUSTAINABLE DEVELOPMENT: NEW MILESTONES FOR ASIA98 Opportunity is sometimes created out of crisis; and such is everyone's hope for the present discussion of the long-term implications of the Asian financial crisis. While the causes of the crisis are still being debated and its consequences are still unfolding, the present moment-two years from the initial onslaught-does appear to be a propitious time to ensure that the most important lessons learned are in fact applied to encouraging and sustaining appropriate reform measures-to build in fact a culture of prevention into our decisionmaking. One important by-product of the Asian crisis is the emergence of a set of policies and operating principles designed to promote human development in ways that could make the region less vulnerable to socially destructive fallout from future global market fluctuations that are bound to occur. These policy initiatives are aimed at achieving long-term sustainable human development in Asia. COMPLEXITY OF THE CRISIS AND CRISIS RESPONSES Cnses do not affect all sections of the population equally, and crises themselves come in many forms This year is regarded as one of the worst on record for both natural and human made humanitarian crises. Although we are discussing primarily the impact of a financial crisis, the fact that we were found wanting in predicting and managing it should heighten our determination to be better prepared for the next, and the next, since financial crises are historically numerous. The Secretary General of the UN has called for a culture of prevention. To create such a culture we must learn from other crises as we study this financial one. Indeed similar lessons are being leamed when we address environmental concerns, natural disasters, HIV/AIDS, structural and trade adjustments, and conflicts. The relationship of short-term crisis response policies to longer-term reform policies is a very complex one that demands inputs from social and political sectors as well as economic and financial sectors. Thus the complexity of the problems requires a long-term and holistic outlook. UNDP has been supporting countnes in crafting Vision 2020 strategies, in an effort to see beyond the immediate crisis, to better predict and cope with the next one, and to stay on a sustainable human development track These efforts and others such as those of the CDF (Comprehensive Development Framework) of the World Bank should encourage a more preventive approach to dealing with crises. The complex nature of any crisis requires a new social compact for reform over the long-term. Political, social, economic, and financial leaders must be engaged as equals in a process aimed at overcoming constraints to development, of which a crisis is just a part. Is there the political will to forge such a compact? The poor are often voiceless and the most severely affected. Reform is soon forgotten when urgency passes Trade unions, the private sector, and civil society should be vital partners in dealing with a crisis and in providing the necessary reforms. The experience with Structural Adjustment Programs shows the importance of social dialogue and ownership of reform processes. EMPOWERMENT AS THE KEY TO EFFECTIVE PROTECTION Because the social impact of the crisis is varied and uneven, a centralized, top-down, one-size-fits-all approach to mitigating this impact cannot be effective. Communities themselves are best able to grasp their immediate prionties and formulate their long-term 4 This paper was written by Terence Jones Mr lones is United Nations Development Programme Resident Represen- tative in the Philippines 220 Chapter 9 Long-Term Implications of Globalization goals Empowerment of various social groups and communities is essential if they are to cope adequately with any crisis, and so they must be given means and opportunity to deal with crisis on their own terms. Solutions imposed from above to suit all will lead to opposition to change and to ineffective responses or, even worse, to civil unrest. There is need to create appropriate social institutions and instruments to respond to effects of the crisis to ensure equity and justice. Policy and planning methods and indicators should be adjusted to reflect a rights-based approach to development, which in itself will prepare communities better to withstand crises POLICIES AIMED AT PREVENTING CRISIS Investment in social protection must be considered a part of the market Social protection programs make market fluctuations less devastating to those who fall victim to them. They also have the practical effect of increasing the flexibility and range of options for corrective economic policies. Immediate protection of the poor and vulnerable is relatively cheap. Protecting consumption levels is feasible if there is the political will to do so and provided there are well defined targeting instruments and low cost ways of administering them Existing programs should be protected from budget cuts during the cnsis Vulnerable groups should be protected in crises especially from the punitive effects of contractionary fiscal and monetary policies The poor would be benefited by stronger implementation of structural reforms, such as ending monopolistic marketing practices for staple goods Long-term economic and social policies need to take into account both absolute and relative poverty, and should be based on a clear sense of social justice and equity Basic social services, especially for vulnerable and poor groups, should be maintained dunng a crisis by taking a rights-based approach that guarantees minimum services for all. The compact 20/20 provides a basis for achieving this. Employment, of course, is the most effective means of empowering those affected by a crisis. Policies should create social safety nets that mitigate the short-run impact, including: employment insurance, especially in formal and urban areas, public works; retraining employees; addressing the special needs of migrant workers; and adoption of gender-sensitive policies. Budget deficits should be permitted and designed to finance such social and economic protection programs Govemance is a powerful window for opportunity Governance-related issues, criticized as the cause of the crisis, have been the sub)ect of many debates However, these issues also provide a political window of opportunity for instituting long-term solutions. First, communications media should be used to inform public and particular groups about a cnsis and how to deal with it, to ensure a balanced response. The more government is subject to the demands and expectations of a well-informed public, the more likely it is to respond effectively to the social impact of cnses Moreover, crisis management is greatly complicated by false rumors and misinformation, which can lead to panic hoarding, artificial shortages of basic goods, and other kinds of counterproductive behavior If communities are to be empowered to deal with cnses, they must have accurate and timely information. Second, it is important to monitor the human development consequences of the crisis. In the Philippines, UNDP and the World Bank are supporting the implementation of a pilot nationwide Annual Poverty Indicators Survey to improve the timeliness and quality of available information about the country's poverty situation and the effectiveness of the Government's anti-poverty programs. A Community Based Poverty Information System is being put in place in Philippine communities as a tool for community empowerment. T Jones Sustainable Development New Milestones for Asia 221 Third, govemance reform is vital to a long-term and preventive response based on equity and justice. UNDP is emphasizing the need for basic improvements in the following key areas: * judicial reform and the rule of law. In the Philippines, dialogues are being promoted between lustices and civil society, local govemment units, and media; * greater transparency and accountability, both in the public and corporate worlds; * a rights-based approach guaranteeing free participation in the decisionmaking process through elections, trade unions, local government, civil society organizations, and other participatory approaches; and * promotion of global and regional public goods, and ensuring adequate developing country participation in these processes. Appropriate policies, owned by those whose lives they affect, require a governance reform process based on access, participation, transparency and equity. This is the surest way to build a "firewall" against the human devastation such crises cause CONCLUSION UN Secretary General Kofi Annan, while describing 1999 as the worst year ever for natural and human made disasters, also emphasized the possibilities of hope and recovery. As we enter a new century and strive to construct a post-crisis millennium, our greatest obstacle is complacency. The crisis provides us with windows of opportunity. Let us use these windows to instill a culture of prevention and preparedness in moving from debate, into policy, and on to action. I 1 0 The Vision of a Social Partnership in Asia ADB AND THE WORLD BANK'S VISION OF A NEW SOCIAL PARTNERSHIP IN ASIA Peter Sullivan (vice-President for Operations in East Asia and the Pacific, Asian Development Bank) and Mats Karlsson, (Vice-President for External Relations and UN Affairs, the World Bank) NEW PARTNERS}HPS FOR SOCIAL POLICY AND POVERTY REDUCTION This publication on the Manila Social Forum has emerged out of a successful and intensive cooperation between the operational departments of ADB and the World Bank, supported by their respective Training and Research Institutes, the Asian Development Bank Institute (ADBI) and the World Bank institute (WBI). The Forum built on an emerging social policy network in the region that includes the many active external assistance jagencies. The Forum invited the directors and decisionmakers of social programs in Asia as resource speakers so that we could leam from practitioners in govemment, local govemment, NGOs, the private sector, and civil society about approaches to social policy that have worked and can work in the Asian context This provided a forward-looking platform to exchange operationally relevant views and experiences on social policy challenges and opportunities facing Asia. A central conclusion of the Manila Social Forum is that the work of drawing appropriate lessons from the Asian economic crisis and translating them into policy terms has barely begun. In todays fast paced world, the question is when, and not whether, economic shocks will occur. Therefore, the need for govemments and their partners to take stock of the lessons leamed and prepare better for future economic shocks is urgent. The Forum served as an excellent example of close cooperation between two institutions (the World Bank and ADB) that share the same concerns of sustainable and inclusive development as well as the overarching aim of poverty reduction. The collaboration highlighted both similarities and differences: strong common sense of purpose, but also areas of social development where the institutions have different comparative advantages, and where the developing country governments have good reasons to choose between various offers of support. The complexity of poverty, the limited resources available, and the need for developing countries to make the best use of the relatively expensive money they get from our loans, all call for more cooperation and more options and choices. ADB and the World Bank are development institutions, but also banks whose money comes at a cost. By providing loans rather than grants, costs and the impact of our operations have to be considered with care. We need the advice of the people, NGOs, the private sector, and governments (central and local) of our Asian member countries to better design our operations and address more effectively social policy and poverty. During the Forum, ADB and the World Bank heard an array of proposals that will guide future decisions on investments and policy advice. Among the key recommendations are the folloving: (i) encourage pro-poor economic growth and a more inclusive labor market in the Asian and Pacific region; 224 Chapter 10: The Vision of a New Social Partnership in Asia (ii) promote social protection and social insurance; (iii) fascilitate new approaches toward rural and urban development to improve living standards and ensure an income for the poor and middle class; (iv) enhance the role of the pnvate sector and other stakeholders in social policy and problems of enterprise reforms, in social public expenditures, and social sector policy reforms; and (v) strengthen the operational links between govemance and poverty. The Forum also provided an opportunity for both Banks to sharpen key features of their new poverty and social protection strategies Reflecting on the challenges and opportunities presented by globalization and transition, ADB and the World Bank see a new social policy agenda as central to their common goal of reducing poverty on a sustainable basis in Asia and the Pacific. FIGHTING POVERTY TOGETHER The new social policy agenda at the beginning of the new millennium calls for innovative and participatory social development approaches and new forms of working together. We need to take action that will directly and structurally reduce poverty and improve the social well being of people in Asia. In the process, we have to make sure that we do not apply a "one size fits all" approach to poverty reduction, as countries differ in their needs, and so do social groups. There need to be new ways found to maximize the impact of our loans, as like all institutions and people, ADB and the World Bank have only limited resources. The primary responsibility for finding solutions to poverty lies with the countries themselves. However, social development also requires new efforts for partnership in which ADB and the World Bank can play a special role. We cannot afford duplication, redundancies, and conflicts in our work. We will be developing a new level of partnership with member countries-listening before advising, analyzing before acting, and working together instead of pushing alone. Together with our partners in Asia, i.e., national and local governments, the private sector, NGOs and civil society, and external assistance agencies, ADB and World Bank will take action on these new responsibilities Short-term Reaction to the Social Crisis Recent experiences in Asia spotlight three areas needing urgent attention in the short term. These are the organization and targeting of standby public works programs, better mechanisms to monitor social spending and programs, and use of different forms of social funds to reach the most vulnerable groups while hamessing energies of communities and NGOs. The Long-term Implications of Globalization for Social Development in Asia Looking at the longer-term social agenda, there is a need to strengthen the links between macroeconomic policy and the capacity of countnes to meet their social challenges. One example is the large proportion of assets of the banking system owned by govemments in the region. Such expenditure, and subsequent reprivatization of these assets, can have profound effects on government abilities to pursue social objectives. Equally, international financial institutions have flagged the need to embrace the complex task of better integrating social aspects into the consideration of economic matters. We also need to understand more about labor and its links to poverty reduction. The role of the private labor market sector is clearly more than just generating jobs through the formal sector. We need particularly to explore the links between informal sector growth and P SullivaniM Karlsson: New Partnerships for Social Policy & Poverty Reduction 225 reducing urban poverty. Other parts of society need to develop links with the private sector and expand its role in education and training as well as in social welfare But this is not to diminish the role of govemment. We know well that governance is important in responding to and avoiding another crisis. But we need to look at the specific measures that underpin good govemance-in particular the rule of law in promoting human rights, real measures to reduce corruption, and a proper assessment of the benefits of decentralization and devolution for the poor. We need to look further at the issue of how, as a partnership, we can more actively promote social cohesion, and how the promotion and protection of cultures can help foster effective development outcomes. WHAT POVERTY REDUCTION MEANS In late 1999, the World Bank asked 60,000 people around the world what poverty means for them. Teams from the World Bank and from NGOs gathered voices from women and men in 60 countries. The answers in these consultations are compelling. The report concluded: "in today's world there is a hunger among the poor, not only for food, but for freedom, dignity, voice and choice " A steady source of income is needed but also more than that: well being means peace of mind and a sense of community. Three concepts should focus the action for attacking poverty: Social security, opportunity, and empowerment. Security, Insecurity is one of the worst elements of poverty. The reality for many women in the world is constant fear of being beaten in the home The reality for many working people is fear of violence to and from work. The reality in many communities is that what used to be a peaceful place is ruined by crime, by dnnking, by fighting And insecunty is about the fear of tomorrow As an old man in Central Asia said: 'To be well is to know what will happen to me tomorrow." The fear of unemployment has increased insecurity. Our social security systems are not strong enough. Weak health can destroy a household, and trigger a slide down into poverty and social exclusion So we must look at public institutions, fight corruption, use the resources efficiently for what they are meant for, in short, build capacity for better governance. Opportunities: The poor can change their own lives, if they get a chance. They know how to use the creative strength of the market place to increase their income. That is why microcredits can have such tremendous effects. But that is also why, when markets are captured by elite groups who profit, the poor come to distrust the market, when free markets in reality should be their opportunity. To realize the opportunities, there is a need to care for the institutions that underpin a market. And people need to know what the rules are, and to be sure that the rules are respected. The openness revolution going on around the world is therefore tremendously important. Greater transparency in government is essential. Free media creates space for public information and debate. Civic organizations are a critical part of the modern society. And institutions such as ADB and the World Bank must adapt to the growing segments of societies wanting to share in the information and the design of projects and programs that affect them. There is also tremendous hope to women around the world, who organize and demand fairness and equal opportunities. If men were to understand that also they would have to change, because there is so much to win. Empowerment Setting forth the goal of realizing opportunity is to say that people need to be empowered. Education is a key to empowerment: getting all children through school, allowing drop-outs a chance to come back, giving adults a chance to upgrade and retrain. 226 Chapter 10: The Vision of a New Social Partnership In Asia We need to release the tremendous talent treasure of people. The struggle against poverty will not be won in the offices of the world Bank, ADB, or government ministries, but in the communities, in the streets, and in the villages which are the real front lines SETrING THE NEW SOCIAL AGENDA SOME LESSONS FROM MANILA Ang kahiropon ay parang Init Hmndi mo Ito nakikito Nararamdoman mo long ito Para mo mounawaan ang kohirapon, kailangang maranason mo ito. (Poverty is like heat you cannot see it; you can only feel it; so to know poverty you have to go through it.) These were the buming words of a poor woman when participants of the Manila Social Forum met with the Filipino people in Mandaluyong city's Garden of Hope. This voice is a call to understand, to engage, and to change. We must learn to see poverty with the eyes of the poor. Only if we really understand, can we link up and join forces, engage, and fight poverty with passion and professionalism. We are committed to change the way we work and to make a difference. List of IF Participants at the Manila Social Forum AUSTRALIA Ms Julie DELFORCE, Senior Policy Officer, Governance Group, AusAID Mr. Geoffrey MARKS, Head, Nutrition Program, University of Queensland Mr. Christopher McDOWELL, University of Wollongong Mr. Robert McKINNON, Director for Asia Regional Programs, AusAID BELGIUM Mr. Theo MEYERS, First Secretary, International Cooperation, Belgian Embassy, Manila CAMBODIA Mr. Meng Chuor CHAR, Acting Director, Health, Planning and Information, Ministry of Health Mr. Bun Rong CHUM, General Director, Social Fund of the Kingdom of Cambodia Ms. Sochua MU-LEIPER, Minister of Womens and Veterans Affairs Mr. Yeng VIRAK, Deputy Representative, NGO Forum on Cambodia CANADA Ms. Vivien ESCOTT, Head of Aid and Counselor for Development, Canadian Embassy, Manila Ms. Shamika SIRIMANNE, Economist, International Trade and Finance Branch, Department of Finance Mr. Nicolas TOUTOUNGI, Vice-President of Pension Funds, Caisse de Depot et Placement du Quebec Conseil, Inc. Ms. Narcisa UMALU, Senior Program Officer, Canadian Embassy, Manila PEOPLE'S REPUBLIC OF CHINA Mr. Qunzhou CHEN, Deputy Division Chief, Planning and Finance, Ministry of Labor and Social Security Mr. Yifu Justin LIN, Professor, School of Business and Management, Hong Kong/Beijing Mr. Xiaohua LU, Vice-Secretary General, Beijing Promotion Commission of Brilliant Cause Mr. Hua XU, Office of Poverty Alleviation and Development Ms. junmei YANG, Ministry of Finance Mr. Dezhi ZHANG, Deputy Division Chief, Shanghai Bureau of Labor and Social Security Mr Lei ZHANG, Vice-Director General, Leading Group on Poverty Alleviation and Development DENMARK Mr Steffen WESTERGARD, Head, Social and Labor Market Reform, PLS Consult A/S FINLAND Mr. Kyosti SUONOJA, Consultant, Ministry of Foreign Affairs FRANCE Mr. Henri ROUX, Counselor for Social Affairs, French Embassy, Singapore GERMANY Mr. Claude BODART, Project Manager Famus, German Technical Cooperation (GTZ) Mr. Erich T. GEIS, Chief Economist, Asia Region, Kreditanstalt fuer Wiederaufbau 228 Chapter 11 Appendix Mr. Ulrich LEFFLER-FRANKE, Consultant, Luso Consult Mr. Herwig MAYER, Government Advisor, GTZ Manila Mr Juergen MEYER-GOHDE, Head, Social Policy Department, Kreditanstalt fuer Wiederaufbau Mr Hans-Peter PAULENZ, Director, GTZ Manila INDONESIA Mr. Anton Hermanto GUNAWAN, Associate Director, Institute for Economic and Social Research, Faculty of Economics, University of Indonesia Mr Emmanuel HARYADI, Director, NGO Microfinance Consortium Bina Swadaya Ms Hetifah SJAIFUDIAN, Director, ltansparency International, Center for Social Analysis Mr Sudarno SUMARTO, Researcher, SMERU, World Bank Mr. Juari SUTRISNO, Head, Multilateral Cooperation, National Economic Planning Agency Mr. Hidayat SYARIEF, Deputy Chairman, Human Resources Development, BAPPENAS JAPAN Mr. Yasuo FUJITA, Japan Bank for Intemational Cooperation Mr. Junichi HASEGAWA, Deputy Director General, Development Assistance Strategy Department, Japan Bank for Intemational Cooperation Mr Michio KAJIWARA, , Operations Strategy Division, Development Assistance Strategy Department, )apan Bank for International Cooperation Mr. Akira KAMITOMAI, Alternative Executive Director for Japan, The World Bank Mr. Rentaro TAMAISHI, Director, Social Development Division, Environment and Social Development Department, Japan Bank for International Cooperation KAZAKHSTAN Ms. Alma SALYKBAYEVA, Head, Department of Extemal Relations, Ministry of Labor and Social Security Ms Natalya VERBITSKAYA, Chief, Department of Living Standards, Ministry of Finance Ms. Natalia ZAITSEVA, Ministry of Economic Affairs REPUBUC OF KOREA Mr Woo-Hyun CHO, Dean, The Graduate School of Labor and Industrial Relations, Soong Sil University Mr Sang Kyun KIM, Professor, Department of Social Welfare, Seoul National University Mr. Hyeok Chang KWON, Chief Teaching Assistant, Department of Social Welfare, Seoul National University Ms. Po-hi PAK, President, Korean Institute for Social.lnformation and Research Mr. Hanam PHANG, Director, Research Planning and Coordination, Korea Labor Institute KYRGYZ REPUBLIC Ms. Roza AKNAZAROVA, Chairperson, Social Fund Ms. Ainura KYPCHAKBAEVA, Director General Savings and Settlements joint-Stock Co. Mr Melisbek SATYBEKOV, Deputy Head, Organizational Activity Division, Office of the Prime Minister LAO PDR Mr. Ponemek DALALOY, Minister, Ministry of Health Mr Noy INDAVONG, Vice-Minister, Ministry of Labor and Social Welfare Ms Khemphet PHOLSENA, Acting President, Lao Women's Union List of Participants at the Manila Social Forum 229 MALAYSIA Mr. Noor Yacob MUHAMAD, Secretary, Planning and Policy Research Division, Ministry of Human Resources MONGOLIA Mr. Davaadorjiin DELGERTSOGT, Head, Strategic Management, Department Cabinet Secretariat Mr. Pagbajabyn NYMADAWA, Social Policy Advisor to the President, Presidents Office Mr. Sodov SONIN, Minister, Ministry of Health and Social Welfare Ms. Mandal URTNASAN, Project Manager, Save the Children Fund, Mongolia THE NETHERLANDS Mr. Theo ARNOLD, Ambassador, Royal Netherlands Embassy, Manila NEW ZEALAND Mr Tim MCIVOR, Counselor and Deputy Head of Mission, New Zealand Embassy, Manila Ms Guia OLMEDO, Brockman-Tyson International NORWAY Mr. Asblorn LOVBRAEK, Advisor to the Asian Desk, Ministry of Foreign Affairs PHILIPPINES Mr. Florencio ABAD, Chairman, Appropriations Committee, Lower House of the Congress Mr. Benjamin ABALOS, Mayor, City of Mandaluyong Ms. Juanita ARMATONG, Former Undersecretary, Department of Finance Mr. Emesto ARO, Supervisions Labor & Employment Officer, Department of Labor and Employment Ms. joy BENUEZA, Philippine Social Institute Federation Free Workers Mr. Roger BIROSEL, ESM/AUM (Philippine NGO) Ms Leonor BRIONES, Treasurer and Poverty Advisor to the President, Bureau of lTeasury Ms Yolanda BUGARIN, Bureau of Rural Workers, Department of Labor Ms. Lucy CABER, President, Dampa Ms. Mayo Grace CAOILI, National Economic and Development Authority Ms. Erlina M. CAPONES, National Economic & Development Authonty Ms. Tina CLEMENTE, Action for Economic Reforms Mr. Luis Manuel CORRAL, Executive Director for Political Affairs, Trades Union Congress of the Philippines Ms. Karina Constatino DAVID, former Chairperson, Housing and Urban Development Coordinating Council Ms. Corazon DEE, Representative, Institute for Housing and Urban Development Studies Mr. Roberto DE OCAMPO, President, Asian Institute of Management Ms. Teresita Quintos DELES, Executive Director, Gaston Z. Ortigas Peace Institute Mr. Emmanuel DIAZ, SZOPAD Social Fund Mr. Benjamin DIOKNO, Secretary, Department of Budget and Management Ms. Ana Marie DIZON, Research Association, Urban Poor Associates Mr. Paul DOMINGUEZ, Country Director, East ASEAN Business Council Mr. Mauricio DOMOGAN, Mayor of Bagulo City Mr. Elmer DORADO, Officer in Charge, lTansport Division, National Economic and Development Authority Mr. Joseph E. ESTRADA, President, Republic of the Philippines Ms. Donna GASGONIA, Chairperson, National Anti-Poverty Commission 230 Chapter 11. Appendix Ms. Teresita GAVINE, SNC Mr 1. Dominador, Jr. GOMEZ, National Economic and Development Authonty Ms. Ma Lourdes GONZALES, Senior Labor and Employment Officer, Department of Labor and Employment Mr. Roberto JULIAN, Finance Director, Preferred Energy, Inc. Mr. Julius LAINGLET, BATU Mr. Roel LANDINGIN, Financial rTmes Ms Lucita LAZO, Board of lYustee, HOMENET International, Philippines, and Technology and Entrepreneurship Associates, Inc Ms. Cnsanta LEGASPI, Director, Committee on Privatization, Department of Finance Ms. Patricia UCUANAN, President of Miriam College and President of Asia Pacific Women Watch Mr Edward LIM, Executive Director, SZOPAD Social Fund Ms. Gloria MACAPAGAL-ARROYO, Vice-President, Republic of the Philippines Mr. lbarra MALONZO, NFL-ARD Ms. Malou MANGAHAS, Member, Board of Editors, Philippine Center for Investigative Journalism Ms. Grace MERCADO, NGO Forum on the ADB Mr. Horacio MORALES, Secretary, Department of Agrarian Reform Ms. Ana Marie NEMENZO, National Anti-Poverty Commission Ms Maribel ORTIZ, Chief Economist, Social Security System Mr. Aquilino PIMENTEL, Senator, Senate of the Philippines Mr. Leodegardo PRUNA, Professor and Chair, MM Program, Graduate School, Tarlac State University Ms Mary RACELIS, President, Community Organizers Multiversity Ms. Roselle RASAY, Office of Representative Roxas, House of Representatives Ms. Celia REYES, Research Fellow, Philippine Institute of Developmental Studies Mr. Edmundo, Jr REYES, Congressman, House of Congress Mr. Jessy ROBREDO, Chairman of the Bicol Regional Development Council and former Mayor of Naga City Mr. Isagani SERRANO, Senior Vice-President, Philippine Rural Reconstruction Movement Ms. Corazon SOLIMAN, Vice-President, CO-TRAIN (Community Organizers Multidiversity) Ms Karen TANADA, Board Member, Women's Action Network for Development Ms Ofelia TEMPLO, Assistant Director General, National Economic and Development Authonty Ms. Susanita TESIORNA, Informal Sector Coalition of the Philippines Mr. Josefino TORRES, Director, Bureau of Rural Workers, Department of Labor and Employment Ms. Ma. Gisela VELASCO, Philippine Business for Social Progress Ms Luisita VENDIOLA, Advisor, Sama Mr Felizardo, Jr VIRTUCIO, National Economic and Development Authonty SINGAPORE Ms. Chabo CHING, Director, Economic and Social Policy Department, International Conference of Free Trade Unions, Asia Pacific Regional Office (ICFrU-APRO) SOLOMON ISLANDS Mr Abraham NANTOKARI, Department of Development Planning SPAIN Ms. Maite IRURZON, Researcher, Institute of Development Studies List of Participants at the Manila Social Forum 231 SWITZERLAND Ms. Marian BOQUIREN, Program Manager, Swisscontact Mr. Georg CAPOL, Project Manager, Urban Planning Mr. Paul WEIJERS, Resident Representative, Swisscontact TAIIIUSTAN Mr Khoudoberdi KHOUKNAZAROV, Minister, Ministry of Labor Mr. Alisher MIRZOEV, Chief Expert, Department of Economic Reforms and Foreign Investments, President's Office THAILAND Mr. Somsook BOONYABANCHA, Urban Community Development Office Ms. Chuachan CHOONGSAITYO, Senior Advisor on the Systems Education, Office of the National Education Commission Ms. Khun Suwanee KHAMMAN, Director, Social Projects Division, National Economic and Social Development Board Ms. Medhi KRONGKAEW, Director, Institute of East Asian Studies, Thammasat University Mr. Anek NAKABUTARA, Executive Director, Social Fund Office Mr. Nontaphon NIMSOMBOON, Auditor General, Government of Thailand Mr. Narong PETCHPRASERT Ms. Amara PONGSAPICH, Director, Social Research Institute Mr. Siwa SIRISOAWALUK, Director, Bureau of Policy and Planning, Office of Permanent Secretary, Ministry of Interior UNITED KINGDOM Mr. Ian GOUGH, Professor of Social Policy, University of Bath, England Ms. Brenda KILLEN, Senior Economist, Asia Regional Economic Policy Department, Department for Intenational Development UNITED STATES Mr. John BLOMQUIST, Consultant to the Asian Development Bank Mr. David DAWE, International Rice Research Institute Mr. Roland DE MARCELWS, Financial Economist, Bureau of Economic Affairs, US State Department Mr. Gil DY-LIACCO, Program Resources Management Office, USAID Ms Amy DOMINI, Chief Executive Officer, Domini Funds Ms. Nancy KATZ, Intemational Economist, US Treasury Mr. Richard NELSON, US Embassy, Manila Ms. Angelita OBMASCA, Program Director, The Pragma Corporation Ms. Jennifer OBMASCA, Asia Manager, The Pragma Corporation Mr. Hal PANDER, American Center for International Labor Solidarity Ms. Rachel QUERO, Managing Director, DAI Philippines Mr. Paul REID, Director, Office of Development Finance, State Department Mr. Stephen ROOD, Asia Foundation UZBEKISTAN Ms Klara DJUMAMURATOVA, Chairperson, Business Womens Association Mr. Bakhtiyar KHAMIDOV, Deputy Pnme Minister, Cabinet of Ministers Mr. Hayrullo MAUIKOV, Senior Economist, Department for Monitoring and External Debt, Ministry of Finance 232 Chapter 11 AppendLx Mr. Nariman MANNAPBEKOV, Division Chief, Cooperation with International Financial Institutions, Cabinet of Ministers Mr. Aleksandr NAVATONIY, Head, Department of Social Development, Ministry of Labor VIET NAM Mr Nhu Hai HO, Deputy Director, Institute of Labor, Science and Social Affairs, Ministry of Labor, Invalids, and Social Affairs Mr. Hong Thai LEE, Acting Director, Department of Agriculture and Rural Development, Ministry of Planning and Investments Mr. Viet Son NGUYEN, Pnncipal Project Officer, ADB Division, Foreign Department, State Bank of Viet Nam ASSOCIATION OF SOUTHEAST ASIAN NATIONS (ASEAN) Mr. Kah Sin CHO, Assistant Director, ASEAN Secretariat EUROPEAN COMMISSION Mr. Alistair MACDONALD, Deputy Head, Directorate General for External Relations, European Commission (ASEM Donors) EUROPEAN UNION Mr Reynaldo CANCIO, Economist, European Union, Delegation of the European Commission in the Philippines Mr Henrik OSTERBY, Economic Counselor, European Union, Delegation of the European Commission in the Philippines ECONOMIC AND SOCIAL COMMISSION FOR ASIA AND THE PACIFIC Mr. Gonzalo JURADO, Senior Social Development Officer, Social Development Division, ESCAP INTERNATIONAL LABOUR ORGANIZATION Mr lftikhar AHMED, Resident Representative, Intemational Labour Organization - Jakarta Ms Anne DROUIN, Social Security Specialist, International Labour Organization - Bangkok Mr. Moazam MAHMOOD, Labor Market Policy specialist, International Labour Organization, Bangkok INTERNATIONAL MONETARY FUND Mr Peter S. HELLER, Deputy Director for Fiscal Affairs, International Monetary Fund TRANSPARENCY INTERNATIONAL Mr. Tunku Abdul AZIZ, Vice-Chairman, Ttansparency International-Asia, and member of the Kuala Lumpur Society for Transparency and Integrity UNITED NATIONS DEVELOPMENT PROGRAMME Mr Terrence JONES, Resident Representative, United Nations Development Programme, Philippines Mr Clark SORIANO, United Nations Development Programme, Philippines UNITED NATIONS CHILDREN'S FUND Mr. Gamini ABEYSEKERA, Thailand Country Director, UNICEF Office for Thailand Mr Nigel FISHER, Regional Director for South Asia, UNICEF Regional Office, East Asia and Pacific List of Participants at the Manila Social Forum 233 Mr. Kul GAUTAM, Deputy Regional Director, UNICEF Regional Office, East Asia and Pacific Ms. Carroll LONG, UNICEF East Asia and Pacific Mr. Wilfredo NUGUI, Program Officer, UNICEF Philippines Mr. lose A. ONGKIKO, Program Officer, UNICEF Philippines WORLD HEALTH ORGANIZATION Mr. Dorjsuren BAYARSAIKHAN, World Health Organization, Westem Pacific Regional Office, NPRO Mr. Stephen FABRICANT, World Health Organization ASIAN DEVELOPMENT BANK Mr. Armin BAUER, Economist (Poverty Reduction), SPD Mr. John BLOMQUIST, Consultant Ms. Adeluisa BURGOS, Consultant Mr. Tadao CHINE), President, ADB Mr. William FRASER, Manager, AEEH Mr. Kus HARDIANTE, Health Specialist, AEEH Mr. Edward HAUGH, Manager, AWEH Ms. Caroline HEIDER, Poverty Reduction Specialist, SPPR Ms. Fukuko INOUE, Training Officer, BPHR - TD Ms. Josephine JAVIER, Ttaineer/Administrator, BPHR - TD Ms. Anita KELLES-VIITANEN, Manager, SOCD Mr. John LINTJER, Vice-President, Finance and Administration Ms. Zuleikha MULSID, Consultant Mr. Shoji NISHIMOTO, Director, SPD Ms. Isabel ORTIZ, Economist, Planning and Policy, SPPR Mr. Manual PERLAS, Senior Project Economist, AEEH Mr. Ernesto PERNIA, Senior Economist, EDAN Mr. Brahm PRAKASH, Lead Economist, PWOD Ms. Susanna PRICE, Social Development Specialist, SOCD Mr. Karti SANDILYA, Manager, SPPR Mr. Salvatore SCHIlAVO-CAMPO, Senior Advisor for Govemance and Public Management, SPO Mr. K E SEETHARAM, Evaluation Specialist, OEED Mr. Asad SHAH, Manager, AEWU Mr. Myoung-Ho SHIN, Vice-President, West Mr. Hans-Juergen SPRINGER, Deputy Director, AEOD Mr. Peter SULLIVAN, Vice-President, East Ms. Anne SWEETSER, Social Development Specialist, SOCD Mr Geert VAN DER LINDEN, Director, PED Mr. Jan VAN HEESWIJK, Chief, IRM Ms. Madeleine VARKAY, Programs Officer Ms. Christine WALLICH, Director, IWD, and Head of PSG Mr. Clay WESCOTT, Senior Public Administration Specialist ASIAN DEVELOPMENT BANK INSTITUTE Ms. Yidan WANG, Training and Methods Specialist, ADBI THE WORLD BANK Ms. Juanita AMATONG, Consultant, World Bank Office, Manila, WBOM Mr Richard ANSON, Senior Rural Development Specialist, WBOM Mr. Mark BAIRD, Country Director, Indonesia 234 Chapter 11. Appendix Mr. !ayshree BALACHANDER, Senior Human Resources Development Specialist, WBOM Mr. McDonald BENJAMIN, Financial Sector Specialist, WBOM Mr. Vinay BHARGAVA, Country Director, Philippines Mr. Bhuvan BHATNAGAR, Social Scientist, Environmental and Social Development Sector Unit, World Bank, East Asia and Pacific Region, WB-EAP Mr Christopher CHAMBERLAIN, Principal Operations Officer, World Bank Office, Bangkok Mr. John CLARK, Principal Social Scientist, Social Policy Secretariat, WB-EAP Ms. Myla Grace DE GUZMAN, Team Assistant, WBOM Mr. Joseph DELFICO, Senior Pension Specialist, World Bank Institute Mr. Paula DONOVAN, Director, Liaison Office, Singapore Mr Zafer ECEVIT, Director, Environment and Social Development Sector Unit, WB-EAP Ms. Melissa FOSSBERG, Communications Associate, External Affairs Unit, WB-EAP Ms Leonora GONZALES, Extemal Affairs Officer, WBOM Mr. Hongjoo HAHM, Assistant to the Vice-President, WB-EAP Mr Leo HAKIM, Consultant, WBOM Mr. Tornu HASHIMOTO, Urban Planner, WBOM, WB-EAP Mr. Robert HOLZMANN, Chair, Social Protection Sector Board, WB-Human Development Network Mr. Gregorio IMPAVIDO, Financial Analyst Mr. Emmanuel JIMENEZ, Sector Director Mr. Mats KARLSSON, Vice-President, WB-External Affairs Mr. Masahiro KAWAI, Chief Economist, WB-EAP Ms. Fidelis LIM, Team Assistant, WBOM, WB-EAP Mr. Jacques LOUBERT, Sector Manager, Finance, WB-EAP Ms Katherine MARSHALL, Director, Social Policy and Governance, EAP Ms Elena MARTINEZ, Team Assistant, WBOM Mr Alberto MUSALEM, Advisor Ms. May OLALIA, Consultant Ms. Kathrin PLANGEMANN, Young Professional, WB-EAP Mr. Murray PROCTOR, Public Sector Management Specialist, WB-EAP Ms. Ma. Theresa QUINONES, Operations Officer, Philippines Office Mr Michelle RIBOUD, Manager Human Development, WBI Mr. Julian SCHWEITZER, Director, Strategy and Operations, WB-EAP Mr. Jean Michel SEVERINO, Regional Vice-President, WB-EAP Mr. jayasankar SHIVAKUMAR, Country Director for Thailand, WB-EAP Mr Andrew STEER, Country Director for Viet Nam, WB-EAP Ms Araceli TRIA, Team Assistant, WBOM, WB-EAP Mr. Keshav VARMA, Sector Manager, Urban Development, WB-EAP Mr. Louis-Charles VIOSSAT, Senior Governance Expert, WB-EAP Ms. Sonya WOO, junior Associate, WB-EAP I From to 12 November 1999, ADB in cooperation with the World Bank hosted thllManila Social Forum. This special event brought together about 250 F ppeople from niany Asian and other countries. Participants included high- ranking and operatio6hal'members of governments, and leaders from civil society and the p'rifate sector, academia, and the international donoi community. They engaged in an active dialogue at the Forum to help define and set action agendas for a new social policy agenda in Asia. The book is distilled from the presentations and contributions of the practitioners and policymakers who participated in the Forum. It tackles issues such as the long- term implications of globalization in East and Central Asia: the social impact of the Asian financial crisis and its implications for new vulnerable groups: changing conditions of rural and urban poverty: the need for affordable and targeted social safety nets; cha'llenges of social sector reforms particularly those arising from decentralizing public expenditures and management; public-private partnerships and corporate responsibilities for better social policy: good governance for poverty reduction: and the regional dimensions of poverty including the role of institutions such as ADB and the World Bank to reduce poverty in Asia. This book is also about partnership. It results from an important effort of ADB and the World Bank to join forces and work closely together to meet the challenges for human development that face Asia today. The content reflects the rededication of the development community to the new social policy and poverty agenda for East and Central Asia for the 21st century. Close to 900 million Asians live on less than a dollar a day. These people have missed out on Asia's boom years. Their plight is simply unacceptable. We can rid the world of this scourge if we work together. We need to give hope to those who suffer by listening to them, giving them opportunities, and empowering them to help themselves. This is what development is all about. It is what drives the work of ADB and the World Bank. ISBN: 971-561-300-4 Publication Stock No.; 040600 Printed ih the Philippines