[Pen-l] the crisis and Asia

[Martin Hart-Landsberg <marty@xxxxxxxxxx>]

I think the following is interesting on many counts.  The two I want to highlight are:

There is a fear on the part of the UN that the economic crisis will cause not just more poverty in Asia but actual unrest on the streets.

One of the solutions offered is more encouragement for intra-regional trade.  But in the same context the examples used highlight intra-regional competition with one country taking markets from another.  More to the point, most of the intra-regional trade that has been celebrated as showing more regional centered economic activity has been trade in parts and components that are eventually assembled (in China) and then exported for final sale outside the region.  Thus, intra-regional trade does not stand on its own.  This regional production network does mean that China will not bear the full weight of the slowdown.  Since it relies on significant imports of parts and components for its export activity the slowdown consequences in the US, Europe, and Japan will be felt throughout the region and not just in China.  For more on this regionalization see the last part of my article on China at: http://www.solidarity-us.org/node/1940

Marty

U.N. Official Warns Of Social Strife in Asia

By Tim Johnston
Washington Post Foreign Service
Wednesday, November 19, 2008; A14

BANGKOK, Nov. 18 -- A senior U.N. official warned Tuesday of the prospect of social unrest as the export-driven economies of Asia start to slow in response to the fallout from the global financial crisis.

Ajay Chhibber, head of the U.N. Development Program's regional bureau for Asia and the Pacific, said in an interview here that the slowdown in major markets such as the United States and Europe poses fundamental problems for Asian economies that have used exports to fuel their extraordinary growth.

There are still 900 million Asians living below the World Bank poverty line, defined as an income of less than $1.25 a day, Chhibber said, adding, "There are another 300 million who just came out of that group, so they are literally on the margin."

"If you have lower growth, you have rising unemployment, and that makes all these people very, very vulnerable," he said.

Chhibber said it was not just a short-term problem.

"We focus a lot on banks and businesses, but what also happens in crises is that children drop out of school and never go back," he said. "You can have intergenerational effects: Once a girl drops out of school, that is a mother who is illiterate."

Chhibber said governments should concentrate on producing expansionary, job-friendly budgets, but he warned that would not be enough.

"Having stronger safety nets for these people will also be vital because otherwise you will see a lot of unrest on the streets," he said.

He suggested that Asia experiment with conditional cash transfers, in which poor families are paid if the parents ensure their children stay in school and get their shots.

Chhibber, who worked in Asia for the World Bank before joining the United Nations, said the recent drop in commodity prices had created problems as well as opportunities for Southeast Asian nations -- problems because rural incomes have fallen, but also opportunities because inflationary pressure has been reduced.

He said that boosting intra-regional trade will probably be key to reviving the fortunes of Asia's faltering economies and that he sees producers of low-cost goods, such as Vietnam, competing against China's market of home-produced goods, while Thailand and Malaysia carve into Europe's market share of China's luxury sector.

Chhibber said Asian countries should prioritize relieving the pressure on some of the currencies of the region by strengthening the Chiang Mai Initiative, started by Asian nations after the 1997 regional financial crisis. The $80 billion network of bilateral currency swaps is designed to provide exchange-rate support.

"I think that now the G-20 meeting is over, Asia should take some more concrete steps to set up a kind of expanded Chiang Mai agreement," Chhibber said. "There are still plenty of currencies that look vulnerable and need an additional backup facility."

Thailand, which holds the rotating chairmanship of the Association of Southeast Asian Nations, is due to formally propose such an expansion of the agreement when the group meets next month.

 

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