Globalization's shadow.

As they had for several years, East Asia's developing economies were humming along in the first half of 1997. But that would soon end. The Thai baht had come under attack from currency speculators. In July, having depleted its foreign reserves in an unsuccessful effort to defend its currency, the Thai Government devalued the baht. The move called into question the assumption of exchange rule stability in the Phillippines, Malaysia, Indonesia and the Republic of Korea. The "herd instinct" to exit these markets became a self-fulfilling prophecy as banks and investors rushed to the door to avoid being the last.

Carmen Chan reports on the East Asian crisis and the United Nations response.

In Bangkok's scorching heat, an eight-year-old boy spent day after day last summer scouring construction sites for nails. It was a matter of survival. The 10 to 30 baht (US$0.25-0.75) a day he received from junk collectors for the nails helped put food on his family's table. Sua's story, told in a November 1998 field study by Save the Children Fund, is hardly an unusual one in the wake of the Asian financial crash (see page 32).

The havoc wreaked on the economies and populations of the region has pointedly and poignantly called for a reevaluation of the international financial system and, more importantly, the world's approach to development. It has refocused attention on the United Nations vision and standards for people-centered development, equity and social inclusion.

In return for loan commitments to Thailand, the Republic of Korea and Indonesia, the International Monetary Fund (1MF) proposed economic policies based on flexible exchange rates, tight monetary policy through high interest rates, reduction of budgetary deficits, financial reform through closure of non-viable institutions, recapitalization, supervision and improved governance through the severance of links between business and Government. But, as the economic crisis deepened, the high social and human costs of the IMF policy response became apparent. According to the UN Conference on Trade and Development (UNCTAD), the rash of bank closures imposed by the IMF, meant to shore up confidence in the affected economies, only served to undermine confidence throughout the region. The hike in interest rates to stop the downward spiral in exchange rates failed to restore confidence in the currencies and added to the woes of debtors, forcing them to slash their activity and liquidate assets, driving the economies into deeper recession.

The IMF rejected the idea of a standstill on debt, with a view toward rescheduling debt before committing external funds. Instead, it adhered to a strategy of convertibility and free capital flows, leaving the Asian currencies to sink while funds are used to bail out international creditors. Also, the austerity measures imposed by the initial IMF programmes necessitated cutbacks in basic social services at a time when they were most needed, with disproportionate effects on the poor and vulnerable groups.

The evolution of the economic and social crisis in East Asia has resulted in a very uneven distribution of costs. International creditors have come out on top, the debtor countries' corporations and people are staggering under the credit crunch and inflation, and the poor and vulnerable groups are bearing the highest costs and struggling to survive. The inequity of this situation is not lost on the victims of the crisis.

The international development community is confronted with the question posed by UNCTAD in its TDR98: "When a colossal global market failure and measures taken to bail out creditors are paid for at the expense of the living standards of ordinary people, and of stability and development in the debtor developing countries concerned, who is to say that justice has been served?" The social costs:

Poverty: Unemployment has soared across the region, turning back years of advances in eradicating poverty in the region.

Indonesia, the largest of the affected countries and the one with the lowest per capita income to begin with, suffered the deepest recession. Unemployment rose from 7.5 per cent in 1996 to 9.7 per cent the following year and an estimated 16 per cent, or 15.5 million workers, in the last year.

Without unemployment benefit schemes, laid-off workers have turned to informal sector livelihoods, thereby driving down the margins in the informal sector and making the poorest in society even poorer. The need to reabsorb hundreds of thousands of Indonesian workers expelled from Malaysia and Singapore has further increased strain on livelihoods and the social fabric. After 30 years of unrivalled gains in poverty reduction, Indonesia is expected to see an increase in its poverty rate from 10 to 15 per cent. In human terms, this jump means that 30 million Indonesians will live in poverty.

In Thailand, unemployment increased by 50 per cent to 1.5 million in the first six months of the crisis. The unemployment rate increased from 2 per cent in 1996 to 3.6 per cent in 1997, and is estimated at a whopping 9 per cent in 1998. The sector most affected to date has been construction, where 1.1 million workers were laid off in the first 12 months of the crisis. Roughly half of these were from Myanmar and have been expelled from Thailand, while most of the rest were Thais, who have mainly returned to their rural homes to eke out a living. UNCTAD estimates a 33 per cent rise in the proportion of the poor...