Global Policy Forum

Asia-Pacific economies are in recovery, but must learn the lessons of the financial crisis by relying on domestic roots for growth, diversifying exports and deepening social safety nets, says the United Nations Economic and Social Survey of Asia-Pacific report, released Monday.

The report, issued by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) here, confirms a trend noted by many other multilateral financial and development institutions, that the region has made an impressive recovery.

''The broad-based nature of improved growth pulled up the average growth rate of developing economies of the ESCAP region to 5.6 percent in 1999, in sharp contrast to the rate of close to zero percent in the preceding year,'' the 248-page report said.

''The major contribution to the dramatic upturn in gross domestic product (GDP) growth for developing economies of the region came from the economies of East and South-east Asia that had been hit by the crisis,'' it explained.

For this year, average GDP growth in the Asia-Pacific, which for ESCAP ranges from Armenia to Thailand and on to American Samoa, is expected to reach 6.2 percent. The rate is projected to rise to 6.4 percent in 2001 and 6.5 percent the year after.

For 2000 the GDP growth of South-east Asia, badly hit by the crisis, stood at 4.5 percent, far from the negative 6.9 percent average figure it had for 1998. For East and North-east Asia, growth picked up from 1.6 percent in 1998 and is expected to reach 7.5 percent this year.

The report also notes there are other signs of economic health in the region, but ''the region is not free from some downside risks which pose a number of policy challenges,'' it observed.

These risks range from the uncertainty that corporate reform brings to the job picture, to the continued high amounts of non-performing loans, which remain a problem but which have been reduced significantly in Indonesia, Malaysia and Thailand amid the return of some market confidence and external capital.

There are also policy lessons to keep in mind, including the fact that diversified exports and reliance on domestic stimulus make for deeper-based growth. These are better than reliance on a few goods that put countries at more risk due to external factors, and dependence on non- productive investments like portfolio investments.

''It will be recalled that one of the crucial factors that caused the 1997 crisis was the dramatic deceleration in export growth suffered by the countries of East and South-east Asia in 1996,'' the report explained.

''The reliance on external demand as a primary stimulus for growth is thus always fraught with some degree of risk. In this context, enhancing export competitiveness assumes critical significance,'' it added, noting that some low-income developing countries have succeeded in diversifying into low-end, labour-intensive manufactured exports, such as textiles.

The report also encourages countries to pay attention to agriculture, since it is a key source of employment, raw materials and exports that are crucial for the Asia-Pacific.

Agriculture has also been a big boost in recovery efforts and as an alternative to countries hit hard by the crisis.

''The crisis in East and South-east Asia also brought to the fore the importance of this sector as a social safety net mechanism,'' the ESCAP report said. ''Most countries of the region will therefore have to pay greater attention to improvements in agricultural productivity.''

The lack of adequate social measures to protect people, especially those with least economic power and resources, during the Asian crisis was also confirmed by ESCAP, which undertook a study of these in the region.

''The review shows that large segments of populations, especially in the unorganised sector of both rural and urban sectors, remain virtually excluded from social security coverage,'' the report found.

In fact, it says that the combined coverage under publicly mandated private sector and government employee schemes has been estimated at less than 30 percent of the total labour force in several Asian countries.

Countries also need to do more to develop systems for unemployment benefits and involuntary dismissal, the report added.

While many countries remain short of these schemes -- owing partly to the fact that in Asia many workers are in agriculture and the informal sector which do not have organised benefits -- some like South Korea have expanded its insurance schemes after unemployment shot up after the crisis.

At their worst, unemployment rates in crisis-hit Asia reached 6.8 percent in South Korea, which used to be a labour-short economy, to 5.3 percent in Thailand.

The importance of social security protection is clear but this ''will probably require additional public expenditure at a time when government budgets are already under severe pressure to provide the resources required to solve financial sector problems'', the report concluded.

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