Global Policy Forum

By John Berthelsen

While the world has focused on the human tragedy of acquired immune deficiency syndrome (AIDS), the cold fact is that economically it is far more damaging than had been thought earlier, and could result in the outright collapse of some economies if it is not checked, according to two new studies. A new 116-page World Bank study, released in New York this week, says that if AIDS were to continue unchecked, it could wreck a society in three generations. A similar study, prepared by researchers for the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) on Southeast Asia's AIDS problems, states that globally, HIV/AIDS is estimated to reverse annual economic growth by as many as two percentage points in the worst-affected countries. As its prevalence increases in any given society, its effect on economic growth worsens.

The Asia-Pacific region now accounts for one of every five new HIV infections worldwide, the ESCAP researchers say. In 2002, AIDS killed about half a million people in the region and, because the disease grew so fast in the early years, death rates are going up. In the same year, an estimated one million adults, children and young people acquired HIV. In all, over 8 million people were living with the virus in the region by the end of 2002, of whom 2.6 million were young people aged 15 to 24. "Applied to ESCAP countries such as Indonesia, Malaysia or Thailand, such scenarios imply losses of billions of dollars," their report states. Malaysia, Thailand and Indonesia, however, have considerably advanced anti-AIDS programs compared to parts of India, China, Burma and most of Africa.

The World Bank researchers go much further. AIDS' impact is more pernicious than thought, they say, because by killing most young adults, it sets in motion a three-generation cycle that can result in economic collapse. It weakens the mechanisms by which knowledge and abilities are transmitted from one generation to another, the World Bank researchers write. " The children of AIDS victims will be left with no one to love, raise and educate them." In addition, they write, the formation of human capital, which should be thought of as the entire stock of a given population's knowledge and abilities, general and specific, plays a crucial role in promoting economic growth over the long run. AIDS, they say, destroys human capital selectively, wrecking the health of the most productive members of society. Not only do they become sick and weak, it kills them in their prime at a time when they should be getting a formal education, rearing children and learning their careers.

They are unable to care for their children, meaning that the quality of child-rearing falls and the human capital that is to succeed them also begins to collapse. If one or both parents die, the transmission of knowledge to the second generation is broken and the potential productive capacity of the next generation is weakened as well. At the same time, the loss of income due to disability and early death reduces the lifetime resources available to the family. Children spend less time in school, if any at all, and may well contract the disease themselves. Thus, these second-generation children become adults with little formal education and limited practical knowledge that they should be gaining from their parents. The cycle is now complete. The survivors of the third generation, raised without parents and the continuity with society that parents provide, do not have the skills to move the society forward.

The World Bank study was produced by researchers Clive Bell, Shantayanan Devarajan and Hans Gersbach. The 116-page document is clearly aimed at South Africa and the country's president, Thabo Mbeki, who publicly insists that AIDS is not caused by the human immunodeficiency virus (HIV) and has refused to allow government programs to care for AIDS patients. While Asia has the second-biggest population of people living with HIV/AIDS in the world, its magnitude doesn't come near Africa's. Nonetheless, there are still major, growing pockets of the disease throughout Asia, and they pose a serious economic problem, according to an official with ESCAP in Bangkok.

"The situation isn't remotely comparable to Africa. Africa is a disaster," said the official, who declined to be named. "In Botswana, life expectancy is dropping from 54 years in the mid 1980s to 32 by 2005-2010. In Asia, we don't expect anything like that." Nonetheless, "Partly because the populations in Asia are huge, the percentages are deceiving," he said. "There are pockets in Asia where it is going to get as bad as in Africa. In parts of India - in Maharashtra, they have prevalency rates as high as in Thailand 10 years ago. But it won't be reflected in the national statistics, because even if you have 10 million people with AIDS, India's population is so big that it won't be reflected in the national figures." In China and India alone, an estimated 5 million people were already living with HIV/AIDS at the end of 2002. Official estimates predict a tenfold increase in China by 2010 - a reminder that even a minute rise in national HIV prevalence in populous countries translates into many millions more acquiring the virus, the researchers found.

"India, and particularly rural India, are inevitably going to be hit hard economically by AIDS," the official said. "Part of that stems from the fact that the development indicators are very low, and also the Indian government on a national level has been in denial. They dispute all the figures. UNAID [United Nations Program on HIV/AIDS] says India has three million cases. The Indian government challenges that. They don't tell how many there are, but they immediately any figures that are announced are wrong." Surprisingly, rural areas with few or only rudimentary health programs are not going to be hit as hard by AIDS as relatively better-off areas with more sophisticated health systems. Rural areas suffer less from intravenous drug use and from liberal attitudes about sex. Thus, the ESCAP official says, Maharashtra, in India, which encompasses Mumbai, is suffering more than Bihar, India's poorest state.

When AIDS does hit poor areas, the effect is devastating. Usually, the families are shunned and children are discouraged by their peers from going to school, which cuts into their economic well-being even more. If the father is first to die, the family is threatened by starvation. Even in areas like Thailand, with one of the most successful anti-AIDS programs in the world, The ESCAP study points out that the expense of caring for an AIDS patient can be devastating. In Thailand's Chiang Mai province, families report spending an average US$1,000 a year in direct medical care costs - the equivalent of half the average annual household income in the region. In the Chiang Mai study, a third of AIDS-hit households reported that their incomes fell by 48 percent. By the time the AIDS patients had died, 60 percent of families had used up their savings, 44 percent had sold land, 42 percent had cut down on their food consumption, 28 percent had sold a vehicle and 11 percent had borrowed an average of US$1,700 each.

In Cambodia, expenditures were often several times even an extended family's annual income. In rural parts of Cambodia, the high cost of medicine and the rural credit system combined to make HIV/AIDS a significant cause of landlessness, the ESCAP study found. Typically, the study found, "Households tended to respond by delving into their savings, borrowing money from friends and relatives, taking on high-interest debt from moneylenders, augmenting wage incomes (sometimes by dispatching children into the labor market), diverting expenditures from other essential areas, disposing of non-productive assets (a reversible strategy), and, eventually, disposing of productive assets such as land, animals and equipment (a non-reversible strategy which can lead to pauperization)." The poorer the household, the greater the proportion of available expenditures absorbed by HIV/AIDS - and the more severe the relative economic impact.

If AIDS gets out of control, the effects are felt at sub-national and even national levels, the ESCAP researchers found, particularly by affecting the labor supply. Had the epidemic's growth not been arrested, Thailand's working-age population would have been about 10 million smaller by 2015, reducing average GDP per capita growth between 1990 and 2015 by about 0.65 percentage points. That would have meant 2015 per capita GDP would have been US$1,272 lower than the projected $8,500. Losing skilled and experienced workers through HIV/AIDS thus severely cuts into labor productivity and threatens prosperity. The informal sector is particularly vulnerable, according to the International Labor Organization (ILO). They are workers without medical benefits or any form of social protection. Their job security is fragile at best. In such circumstances, illness can be disastrous, as a study of female traders in Uganda showed. When women fell ill or had to care for their kin, their perishable stock went to waste and financial reserves were quickly depleted, leaving them unable to replace their stocks, forcing them to forfeit their stalls and watch their enterprises collapse. Ultimately, the women were forced to sell or barter sexual services in an effort to regain financial security - which in turn made both them and their customers more vulnerable to the possibility of HIV infection.

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