Texte français
  THE SOCIAL IMPACT OF THE ASIAN CRISIS
By John Evans, General Secretary, Trade Union Advisory Committee to the OECD 
  (a French version of this article has been prepared for "Le Monde Diplomatique") 

  In the early summer of 1997 the failure of a bad property loan in Bangkok set off a chain reaction of financial collapses and a stampede of foreign investors to withdraw their funds from the country. In July the Thai government floated the Baht and within three months it had lost 40% of its pre-July value against the dollar. The crisis spread to Malaysia, Hong Kong, Korea and Indonesia as investors withdrew their funds in a wild panic. By the turn of the year, Korea, Thailand and Indonesia, each on the verge of financial default had been forced to turn to the IMF and consortiums of Western banks for emergency credit. In the case of Korea, the twelfth richest economy in the world and a member of the OECD, credit rating agencies downgraded the country's credit rating to "junk bond" status. Economic growth has imploded in a region used to double digit rates of growth for two decades and responsible for 40% of world growth since 1990. At the G8 Finance and Employment Ministers' Conference on February 21 in London the Director General of the International Labour Organisation, Michel Hansenne reported that "the social cost of the Asian crisis is very high and still rising" (1). It is not yet clear when and where the crisis will end.  

 Those who are suffering most from the crisis are not the property speculators, the "crony" capitalists, political elites or industrialised country financiers who flooded to the "emerging markets" with profligate loans and then fled. The real victims are the working urban populations of the main "Tiger" economies on whose backs the "Asian miracle" was built. In no way were these Asian workers to "blame" for the crisis. For two decades rates of labour productivity growth in the countries concerned were extraordinarily high, many of the countries have had double-digit savings ratios and the drive to invest personal income in education has been one of the features of the Asian "miracle" highlighted by the World Bank study of 1993 (2). Yet in the space of nine months, Asian workers have moved from being conspicuous beneficiaries of the global economy to become its most immediate victims. 

The prospect of mass unemployment, unknown after three decades of industrial labour shortage and migration from rural areas to cities is producing a massive social shock. Meaningful employment statistics are hard to come by, but the evidence of mounting job losses in several "Tiger" economies is rapidly becoming apparent as the crisis has spread from the finance and construction sectors to other industrial and service sectors. In Thailand the World Bank has estimated that 800,000 workers had lost their jobs up to January 1998, not counting the new labour market entrants not finding work. The Thai Labour Minister, has warned of unemployment rising to 2 million over 1998 (3). In Korea in January 1998 industrial production was more than 10% down on a year earlier and unemployment had risen to more than 1 million, 4.5% of the labour force, compared with 2.6% in January 1997 (4). In the wake of employment law changes allowing employers to lay-off workers, unions fear unemployment surging to 2.5 million in the months ahead. 

 In Indonesia, the Labour Minister, announced in February 1998 that unemployment had jumped to eight million from 2.5 million in mid-1997. Bomer Pasaribu, the Chairman of the official, i.e. government authorised, trade union confederation, the FSPSI, has said that without special employment measures, "open" unemployment this year will rise to 13.5 million (14.7% of the labour force) (5). But open unemployment is just the tip of the iceberg. In Indonesia anyone having worked an hour in the previous week is classified as employed. Pasaribu estimates that open and disguised unemployment together will reach 40 million - 44% of the labour force this year and that one fully employed worker will have to support 4.7 dependants.  

 Such rates of unemployment, even if they are estimated to double or triple this year, may seem unexceptional when compared with several European countries over the last two decades, however systems of social protection are virtually non-existent in the crisis countries. In many cases the loss of a job means literally being on the street, with the only chance for survival being the informal economy or a return to rural family structures which many workers left a decade before. 

 In the case of Korea, after decades of double digit productivity growth, wage rates by the mid 1990's had risen to the levels of the main OECD countries. Yet social development failed to keep pace with economic development. Korean workers have to pay from their salaries the education for their children, health care costs for themselves and their families and the provision for pension. When the job is lost there is no social safety net, there is no unemployment insurance and little in the way of retraining provision or job placement. If mass lay-offs become the norm a vicious circle of social instability may result.  

In Thailand, as lay-offs and factory closures accelerated towards the end of 1997, it became clear that there was a total failure on management's side to inform or to consult their workforces on what was going on. This broke into violence in January, at the "Thai Summit" auto parts company near Bangkok following the sudden announcement by management of closures. Demonstrations by workers blocking roads was met with a violent response by riot police. Public opinion moved against the government with the majority of those questioned in opinion polls saying that the use of force to quell the dispute was unjustified (6). The government has now responded by establishing a series of tripartite discussions to seek to manage the crisis.  

 But perhaps the most serious threat of social unrest arising from the current crisis, with potentially unpredictable results is in Indonesia, where the scale of the currency collapse has led to spiralling inflation and technical bankruptcy for many firms. After 30 years of authoritarian rule by the Soeharto regime, with no obvious successor in sight, corruption in all channels of public and private life is endemic. The personal wealth of the Soeharto family is estimated to be at around $40 billion. In a twist of irony this is about the same as the amount raised by the international banking consortium's to bale out bad private sector debts. No channels of peaceful opposition have been tolerated in Indonesia, independent trade unionists are imprisoned and the army plays a central and unpredictable role in all levels of the economy and society. Over recent weeks the army has been present in factories where closures have been announced, there are reports of the army itself running protection rackets to which firms have to make large payments. In one textile company visiting foreign trade unionist were told by management that the total wage bill was only 7% of production costs, whereas 30% had to be set aside "special payments" to do business, i.e. bribes. 

 One of the most disturbing features of the crisis in Indonesia is that so far the popular anger at the lay-offs and food price rises has been channelled against the ethnic Chinese minority, responsible for most commerce in the country, with widespread looting and violence throughout the archipelago. This raises grim reminders of the grisly pogroms of 1965.  

It is not just in Indonesia that the social costs of the crisis are being felt in more ways than through unemployment. Across a range of countries the real incomes for those with jobs are falling. The collapse in currency values has now begun to feed through into the domestic economies in the form of surging inflation as import prices rise and some basic foodstuffs become scarce. Workers in many cases are being pressurised to take wage cuts to save their jobs. In addition the measures taken to enforce fiscal austerity in line with the IMF programmes are cutting into real incomes. All of this is leading to rising inequality as the worse off are hit most. According to the Korea Development Institute "The plight of the nation's middle and poor classes, hit by the soaring consumer prices, mounting unemployment and steep wage cuts is rapidly worsening lately, in contrast, however, the cash-rich people are getting ever richer, thanks to the high interest rates and the various government measures to scale down inheritance taxes." (7 )  

 Migrant workers have also become one of the early victims of the crisis. Over the last ten years "South - South" migration has superseded "South-North" migration as the predominant flow of labour in the region. Malaysia, Thailand and Korea have all responded to labour shortages over the last decade by using large numbers of migrant workers from Bangladesh, Sri-Lanka, India, the Philippines and Indochina to fill low skilled jobs in sectors such as construction and services. The main receiving countries have already announced the repatriation of more than 3 million migrant workers, since the crisis began. The loss of foreign currency revenues to the sending countries and the social effects of a mass reversal of migration are spreading the crisis to the rest of Asia including some of the poorest countries in the world, already beset by the effects of drought and "El Nino".  

The other "contagion" effect of the crisis is its overall impact on growth in the industrialised OECD countries. International forecasters have reduced their growth forecasts for 1998 by up to one per cent of GDP as a result of the Asian crisis (8). This is unevenly spread with a clear risk of recession and falling GDP in Japan with smaller effects on Europe, but nevertheless the lowering of forecast growth rates is in many countries enough to make the difference between falling and rising unemployment. Beneath their complacent exterior the G7 Finance Ministers meeting in London on 21 February were deeply worried. The failure of Japan to expand domestic demand was itself a failure of G7 economic policy coordination at a critical juncture.  

The Asian crisis is therefore the most serious crisis that has faced the new "global economy" that has emerged since the 1980's. If there is not to be escalating economic and social crises the key players in the global economy meeting at the Birmingham G8 Summit in May have to learn four major lessons from the current crisis and act quickly:- 

 - the need for a social and democratic dimension to globalisation; 
 - the need to reform the IMF and World Bank; 
 - the need to stop the contagion effect on world growth and the risk of global deflation by coordinated growth policies by the G7; 
 - the need to establish a system of regulation of international financial markets.  

The social dimension of globalisation. It would be mistaken not to recognise the outstanding success of the "Tiger" economies in Asia in moving from underdeveloped agrarian economies to industrialised societies in a little more than one generation. Yet the current crisis is a graphic example of the failure to keep social progress in line with economic development. The South-East Asian miracle years masked the failure to allow, let alone to encourage, democratic trade unions to develop along with other participative institutions reflecting a functioning civil society. Of the countries in the Region only the Philippines has ratified the core Convention N°87 of the ILO on the right to organise. In most of the countries, for sustained periods of time, rights to organise and bargain freely have been suppressed. Organising trade unions has been a risky and hazardous business, with persecution, prison and sometimes death the price that individuals have paid.  

In Indonesia, Muchtar Pakpahan, the leader of the independent and unrecognised trade union confederation, the SBSI was arrested in July 1996 for alleged involvement with the Indonesian pro-democracy movement. He potentially faces a death sentence and, seriously ill, currently remains in a prison hospital. Independent trade union leaders in Malaysia and Korea, have all endured spells of imprisonment in the last ten years for undertaking normal trade union activities.  

 This has both contributed to and been a result of the failings of "crony capitalism". Without independent trade unions there has been no accountability of the business and industrial elites to their workforces or to society as a whole. With a lack of accountability and a lack of transparency corruption has become endemic. Political leaders have hidden behind a veil of "Asian values" to justify human rights abuses and have accused outside critics of neo- colonialism. At the same time outside financiers have been only too happy to lend to dictators if they felt that they could get their money out of the country. At a meeting of union leaders from the Region in Singapore in February (9) an investment banker was asked if private investors would be more careful in the future not to invest to countries where human rights were abused and good governance and transparency were lacking. He truthfully replied that financial institutions were only interested in making profits and they would lend to any country provided they thought they could get their money out. 

Governments therefore have to give leadership to correct this democratic deficit. Governments are extending their systems of national laws governing intellectual property and investor rights to the global level through the World Trade Organisation and the OECD's negotiations on the Multilateral Agreement on Investment. They have not shown the same willingness to guarantee basic labour and human rights worldwide. The Asian crisis has shown the costs of this approach. The Role of the International Labour Organisation must be strengthened but core and domestic labour standards must be guaranteed in an enforceable way in trade and investment agreements including the WTO and any MAI which is eventually agreed by governments.  

Reforming the International Financial Institutions. A debate is raging on the role the IMF has played in the current crisis. This coincides with its demand for renewed funding, which is going to the US Congress. The IMF's failure to forewarn governments of either the current crisis or the Mexico crisis in 1994 as well as criticisms of the appropriateness of the austerity measures and bank closures recommended after the crisis hit has united its critics across the political spectrum. For the weakest countries in the region the IMF is all that stands between themselves and the free for all of financial markets. Yet to warrant increased funding the IMF must reform. There is an urgent need to review the role of the IMF and World Bank, as called for by the UN's Copenhagen Summit for Social Development in 1995, so that programmes of lending to countries in balance of payments difficulty are based on good governance and respect for human rights, increased employment and the reduction of poverty, and not austerity and deregulation. Programmes in cooperation with the ILO must promote the respect of core labour standards and human rights.  

Some change seems to have taken place in the thinking of the IMF and World Bank as to the potential role of unions in averting social and economic catastrophes. For years the IMF has said it would not get involved in union rights issues as they were the internal political affairs of a sovereign country. Meanwhile the austerity conditions attached their lending programmes often implicitly undermined social rights. Yet, in January 1998 the IMF Managing Director, Michel Camdessus after intervention by the international labour movement met the both the legal and non-legal trade union confederations in Korea in an attempt to encourage tripartite agreement on the shape of the economic measures to be taken. The election for the first time of an Opposition leader Kim Dae Jung to power in Korea, who himself has been a very direct victim of past military governments gives hope that the pluralist democracy is at last seen as part of the solution to managing change in Korea. The agreement concluded by union confederations, employers and the government at the Tripartite Commission on February 6, 1998, began to move in the direction of giving union rights to groups of public sector workers and teachers currently denied them, it also harnessed World Bank loans to begin to establish unemployment funds. In return the unions accepted a change in the law to allow mass lay-offs. This was not an easy compromise and rank and file of one union confederations the KCTU rejected the agreement and their leadership resigned. In the months ahead it is essential that the new government moves quickly to guarantee basic unions freedoms and that mass lay-offs are minimised so that workers confidence can be established in the tripartite process.  

At the same time as democratisation action must be taken to establish social safety nets which protect the poorest from the immediate deprivations. The President of the World Bank on a trip to Asia in early February announced that one element of the World Bank's loans should be to protect the poorest from deprivation and establish social safety nets. But beyond this it is necessary to establish functioning systems of unemployment insurance, employment services and training and retraining institutions. All of this cannot be put in place overnight, but action has to start immediately. The OECD could play an important role in this area.  

A global growth strategy. The immediate risk facing the global economy in the wake of the Asian crisis is deflation. Genuine economic coordination is needed to sustain domestic demand and raise growth. The recessionary impact of the current crisis must be contained. What is needed is :- 

- action by the Central Banks of countries with appreciating currencies to restore currency parities which reflect economic fundamentals; 
- fiscal measures in Japan to expand domestic consumption and public investment; 
- the maintenance of an accommodating monetary policy in the United States; 
- concerted action to establish and maintain low real interest rates in Europe and a post EMU framework for growth and employment to be put in place; 
- the G8 to work together to stimulate demand in developing countries and maintain domestic demand in the Asian countries.  

A Framework for Global Financial Markets. The Asian financial crisis has shown that the system for containing instability following the Mexico crisis has failed. A new architecture for the international financial system is needed, before more damage is done to long-term employment growth and the real economy. The G8 should establish an International Commission to report rapidly on the institutional and policy changes needed to establish an effective international regulatory framework. This should cover:- 

- the role of the Bank of International Settlements (BIS), the IMF and the OECD; 
- the certification of financial markets with acceptable risks and prudential controls; 
- the extension of transparency, disclosure and satisfactory reserve requirements for banks; 
- an international tax on foreign exchange transactions; 
- minimum deposit requirements to brake short-term monetary inflows.  

 The social and economic stakes facing international policy makers over the next eighteen months are therefore very high. The Asian crisis has shown that the correct response to globalisation must be to manage change, not to continue the blind deregulation of the 1980's. To fulfil the legitimate aspirations of consumers, employees, and investors, markets require effective governance, whether at a local, national, regional or global level. Fifty years ago governments showed vision and leadership in establishing the Bretton Woods Institutions after the Second World War. Today, the process of globalisation demands that governments show vision and leadership to reestablish mechanisms of governance to make sure that global markets work for all not just the elites. 

 (1) Statement by Mr. Michel Hansenne, Director-General, International Labour Office, To The G8 Conference on Growth, Employability and Inclusion", London, 21 February, 1998. 
(2) "The East Asian Miracle - Economic Growth and Public Policy", The World Bank, Oxford University Press, 1993. 
(3) "Report on The Thai Economic Crisis", The Labour Congress of Thailand (LCT), presented to ICFTU-APRO Trade Union Forum for East and South-East Asia: "Meeting the Challenges of Economic Turmoil", 10-11 February, 1998, Singapore. 
(4) "S. Korea's Production Tumbles, Unemployment Soars" Reuters, 27 February, 1998. 
(5) "Unemployment Explosion and International Debt Crisis", Bomer Pasaribu, presented to ICFTU-APRO Trade Union Forum, op. cit.. 
(6) "Poll: Violent Crackdown Unjustifiable", Bangkok Post, 26 January, 1998. 
(7) "Recession Widens Income Disparity", Korea Herald, 5 March, 1998. 
(8) Supplementary OECD Press Release issued with the OECD Economic Outlook N°62, December 1997, and statement by Mr. Eddie George, Governor of the Bank of England following the G7 Meeting of Finance Ministers and Central Bankers, London, 21 February, 1998. 
(9) Mr. Koh Choy, Winning International Holding Ltd., Singapore, statement made at the ICFTU-APRO Trade Union Forum, op. cit.