It has already been more than a year since the financial crisis which erupted in Thailand developed into the financial collapse in Asia. It has continued to deepen and broaden more than anyone anticipated. Its contagion has now spread to Latin America and Russia and is currently making the global capitalist system come apart at the seams. Also, the financial collapse in Asia was followed by an economic and social collapse. The Asian countries are struggling to escape from the miseries of declining income, rising unemployment, and increasing poverty.
Recently there have been many researches on the causes and the economic impact of the Asian crisis, but its social impacts have been relatively neglected. To fill this discrepancy, this paper assesses the severity of the Asian crisis and its social consequences. For decades, Asian countries have enjoyed high growth, low unemployment rates, equal income distribution, and low crime rates. Therefore, compared with other crisis-hit countries, social impacts of the crisis such as rising unemployment and income inequality have been felt more painfully in Asia and has lead to disastrous social consequences. To make matters worse, most Asian countries have not yet developed a meaningful social safety net. This paper documents the social impact of the crisis in the most affected Asian countries including Indonesia, Korea and Thailand, and tries to draw policy implications.
Section II begins with a general overview of the cause and extent of the Asian crisis and highlights the differences as well as the similarities among Asian countries. The key features of the Asian crisis are large inflows and sudden withdrawals of foreign capital. We review the extent of foreign capital inflows and outflows in the Asian countries and then analyze which factors caused the sudden change in foreign investors’ confidence in these economies. The role of financial liberalization and globalization in the eruption of the crisis is closely examined. We also pay special attention to the role of the IMF adjustment programs in handling the Asian crisis. In order to assess the economic and social impacts of the crisis and predict its future development, it is imperative to understand the IMF conditionality attached to its financial support for the Asian countries. Moreover, the IMF adjustment program in Asia is being severely criticized as the “same old belt-tightening adjustment” or “one-size-fit-all approach.” The frequent emergency IMF Bailouts have also been blamed for contributing to new moral hazards in international lending. To evaluate these criticisms, we review the general characteristics of the IMF programs as well as the specific content of the programs with Indonesia, Korea, and Thailand.
Section III analyzes the social impacts of the Asian crisis. The financial crisis has brought unprecedented social disasters to the Asian economies. We assess the current social impacts of the crisis in Indonesia, Korea and Thailand and then provide a prediction for its long-term development. To make a long-term prediction, the social impacts of the financial crisis are analyzed in a broad historical and international perspective. This paper consults the records of all the countries that have experienced a currency crisis and received conditional financial assistance from the IMF during the period of 1973 to 1994. From this cross-country data we draw some stylized facts about the impacts of the IMF programs on social variables such as unemployment, real wage, poverty, and inequality. Then we compare these stylized facts with the cases of the three most severely affected countries, namely Indonesia, Korea, and Thailand.
Our cross-country analysis shows some stylized patterns of the social impacts of the crisis. For example, we find that employment growth is more sluggish in the recovery process compared with other macroeconomic variables. This implies that unemployment rates can remain at a higher level for a long period after the crisis, even if output growth, inflation rates, etc., are restored to their pre-crisis level. We also find that the burden of the crisis is distributed unequally. It is the marginal groups such as the poor, the less experienced, the less educated, women, and young workers who are most severely affected by the crisis. As a consequence, even though the crisis does not bear a long-term effect on overall income distribution, it definitely aggravates the poverty problem for the victimized core group over a significant period. We think these findings have many important policy implications, especially in building the social safety nets in the Asian countries during the crisis. Section IV and the conclusion of the paper discuss and summarize the policy implications of our study.
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Social Impacts of the Asian Crisis: Policy Challenges and Lessons
