Feature

Health and real economics

The economic crisis in Asia hasn’t just shaken stockmarket confidence—it is also causing long-term harm to the health of millions of people, says Mike Rowson

Over the last 15 months many countries in East and South East Asia have been hit by an economic crisis which has been compared to the Depression of the 1930s.

The speed and geographical scope of the crisis in a region previously extolled for its ‘economic miracle’ has surprised many and has been followed by predictions that global recession is now looming. While Western governments worry about job losses in their own countries, the Asian crisis has been taking a vast human toll in the worst hit countries.

Tigers on top

Before the crisis of mid-1997, the tiger economies of East Asia experienced an unprecedented economic boom. In the space of 25 years (from 1970-1995) life expectancy for the region lengthened by nearly 10 years and infant mortality halved from 76 to 34 per 1,000 live births. In 1975 six out of every 10 East Asians lived in poverty. By 1995 this figure had fallen to two out of every 10.¹

Booming economies with healthier and better educated people were very attractive to foreign investors, who started to pour money into the region. A large proportion of investors’ loans came with short maturity periods, dramatically increasing the ratio of short-term debt to international reserves in some countries. But a mixture of data problems and complacency led banks and governments to ignore the warning signals and assume that the balance of payments problems building up in East Asia were short-term.

But in mid-1997, faced with a developing balance of payments crisis and, in particular, the Thai government’s devaluation of its currency, investors began to panic: at the same time problems internal to several countries (such as the weakness of banking systems and business ‘cronyism’) also came to light. In a vicious spiral of decline, confidence fell still further, and the crisis quickly spread from Thailand to other parts of the region, as investors scrambled to diminish their exposure in East Asia.

South Korea, Indonesia, Thailand, the Philippines, and Malaysia had received capital inflows totalling $93bn in 1996: by the end of 1997 they were experiencing an outflow of $12bn, a reversal of $105bn, or more than 10 per cent of their combined GDP. This figure is higher than the eight per cent shift which occurred at the start of the debt crisis in Latin America 15 years previously.²

Health under threat

Such a fundamental shift in economic well-being has inevitably affected the health and quality of life of millions of Asians. Measuring this type of large-scale change is complicated by the fact that increases in prices of basic foods and in unemployment, and reductions in income and public expenditure on health and education, has differing impacts on people depending on their pre-crisis situation (in terms of income, wealth, occupation, gender, ethnicity and so on). Plus, some changes (such as the effects of nutritional decline) will take years to become apparent.

The economic crisis is throwing the dramatic gains that have been made in poverty reduction in East Asia into reverse. Before the start of the downturn, the number of people in absolute poverty in Malaysia, Thailand, Indonesia and the Philippines was 30 million. According to Joseph Stiglitz, chief economist at the World Bank, this number ‘could easily double to 60 million’ by the year 2000. Millions have already lost their jobs and in Indonesia, South Korea and Thailand unemployment is expected to triple by the end of the year to 6-10 per cent.³

The sudden increase in unemployment will put pressure on wages in the informal sector, as more people drift into casual work. There are also reports from Jakarta and Bangkok that urban to rural migration is increasing, as people return to their home villages. The capacities of village households to cope could be threatened by such a trend, at the same time as their incomes, which are often determined by levels of demand in urban centres, are being squeezed.

Migrant workers (particularly those living in Thailand and Malaysia) are also being sent home (mostly to Indonesia and Burma), adding to the burdens faced by these economies. In South Korea, homelessness among unemployed people is reportedly increasing, because many former construction employees effectively used to live at their places of work.⁴

Women tend to bear the brunt of declining household income, and often have to increase the hours they work both inside and outside the household — with serious implications for their own health and the health of their families.

Of great concern during such large economic upheaval is the general absence of social safety nets (such as unemployment benefit) in many of the countries affected by the crisis, meaning that job loss can often lead to total loss of income.

While many in East Asia have lost their income, households have also had to face rising prices for staple foods such as rice. The rice situation has been particularly catastrophic in Indonesia: according to the World Bank, rice accounts for 30 per cent of household spending for the poorest tenth,¹ but its price has tripled in the last year primarily due to the massive devaluation of the rupiah, the effects of El Niño which has brought drought to the country, and to stockpiling by poor rice farmers and corrupt officials. The government estimates that 17 million households (89 million people)⁵ can only afford one meal a day, and Unicef has warned that millions of children face starvation.

Prices for soybeans and sugar (both Indonesian staples) have also risen, as has the cost of poultry (because poultry farming is heavily dependent on imported feed and medicine). This is particularly important because poultry is an important source of protein. Imported powdered milk has trebled in price since the onset of the crisis, and there are reports of poor families feeding their infants sweetened tea rather than milk.

Social expenditures

When economies are in decline government spending on vital social sectors gets cut. According to Joseph Stiglitz, while the Thai health budget for fiscal year 1998 has been largely unaffected by expenditure cuts, ‘the main programs for the poor and near-poor, the health card schemes, which benefit 35 million people, have been cut by more than 50 percent in nominal terms’. This will lead to both increased financial hardship for the poor and to lower uptake of health services.

Rising prices for essential imports such as pharmaceutical products can mean that the same amount of money buys less for the health sector. Reports from Indonesia (where imports account for 60 per cent or more of the pharmaceuticals used in the country) indicate that drug prices have risen two or threefold. The World Bank notes that ‘this change in relative prices is unlikely to be fully reversed, and will require long-term adjustments in drug consumption patterns’.¹ Such predictions are particularly worrying as far as the spread and treatment of tuberculosis, STDs and HIV/AIDS is concerned.

Private spending on medical care also appears to be falling – this is a bad sign because private contributions finance about half of aggregate health expenditures in East Asia. This will put more pressure on public sector resources.

World Bank focus groups in Indonesia and the Philippines note that children are not being sent to school as households can no longer afford fees, textbooks and other essential items, or daily costs such as bus fares and food costs. Children are also being taken out of school to help boost household income by labouring. There are reports of increasing levels of child prostitution in urban centres. Male bias also leads to girls being taken out of school more frequently than boys, a decision which has long-term consequences for girls’ future and for the next generation: research has found that the single most important determinant of infant mortality is the level of the mother’s education.

Responses

The International Monetary Fund (IMF) responded to the crisis by pouring billions of dollars into the region and telling countries to implement its usual package of raising interest rates and taxes and cutting government spending. However, there has been much criticism of the IMF for deepening the crisis rather than alleviating it. Many commentators have noted that the IMF’s intervention in the crisis economies did little to restore investor confidence.

While international organisations such as Unicef and the World Bank, as well as NGOs struggle to deal with the aftermath of the crisis, it is clear that long-term responses must be developed to deal with future shocks. Medact, whose programme on economic policy and health is attempting to put health concerns at the heart of policy-making is, together with other NGOs, calling for action at international and national levels.

At the macro-economic level there is obviously a need to regulate speculative investment and to question unnecessary financial liberalisation. At the household level, governments and international organisations should work to ensure that swift economic change does not immediately translate into devastation for poor people by ensuring that vulnerable groups are better protected. There is also a pressing need for further studies on the impact of economic crises on health. These need to be long-term as well as short-term, as some changes (such as drops in nutrition or levels of education) can have inter-generational effects. If this body of knowledge builds up, soon it will become impossible for economic policy-makers to ignore the human impact of recession. In the meantime, everything possible must be done to make sure that the poor of Asia do not suffer further, through helping guarantee incomes, stabilising prices for essential sources of calories, protein and micronutrients, and protecting – indeed increasing – social expenditure as the crisis continues.

Medact is the voice of health professionals working to alleviate major threats to health such as violent conflict, poverty and environmental degradation, both globally and locally. It has programmes in violence, conflict and health; nuclear disarmament; economic policy and health; environment and health. Medact, 601 Holloway Road, London N19 4DJ Tel: 0171-272-2020 Fax: 0171-281-5717 email: medact@gn.apc.org