Asian-Trends-Monitoring-Bulletin-3 by hedongchenchen


									ASIAN TRENDS                                                                          Bulletin 3
                                                                                      May 2010

MONITORING BULLETIN                                                                   ISSN 2010-1198

        Supported by the Rockefeller Foundation, the Centre for Strategic Futures, Singapore and
        the Lee Kuan Yew School of Public Policy, National University of Singapore
AT A GLANCE                                                                                                                                                                                           1

EXECUTIVE SUMMARY                                                                                                                                                                                     2

GOOD INTENTIONS WITH COSTLY CONSEQUENCES.                                                                                                                                                             3
A call to reform fossil fuel subsidies.

MORE COSTLY THAN IT NEEDS TO BE.                                                                                                                                                                      9
Trade financing for SMEs.

WHAT DOESN’T KILL YOU MAKES YOU STRONGER.                                                                                                                                                             13
Health systems emerge stronger from economic crises.

EDITORIAL TEAM                                                                                                                                                                                        19

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pro-poor policy and policy development.                                Phua Kai Hong
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               The World Bank’s East Asia and                  Cambodia Prime Minister                          The Philippine Chamber of
               Pacific Region released their                   Hun Sen and Malaysia Prime                       Commerce and Industry held
               Winds of Change: East Asia’s                    Minister Najib Razak met in                      its first health financing sum-
               Sustainable Energy Future                       early May to strengthen ties                     mit with the country’s top uni-
report. They project that a sustainable energy   between the two ASEAN countries. The in-       versities and discussed the need for reforms
path will require additional investment in the   vestors and businessmen who accompanied        in health financing and delivery. Universal
region of US$80 billion a year through 2030.     PM Najib signed new deals worth US$1           coverage remains below 50% and the
                                                 billion covering IT, education and training,   average household spends P5,874 a month
Vietnam’s Ministry of Natural Resources
                                                 agriculture and halal food processing.         for hospitalisation expenses, way beyond the
and Environment has been urged to closely
                                                                                                poverty threshold of P4,835. Health experts
monitor hydropower development proj-             Singapore and India launched a review of       challenged their future leaders to search for
ects for environmental impacts. Some             the India-Singapore Comprehensive Eco-         efficient and sustainable financing instru-
developers were flouting environmental           nomic Cooperation Agreement signed in          ments, incentives structures for doctors and
impact assessment requirements.                  2005. They aim to double bilateral trade to    high quality infrastructure.
                                                 US$32 billion by 2015.
Initiated by the country’s National Devel-                                                      Jakarta’s city council will revise the 2009 by-
opment Planning Agency, Indonesia’s              Ministers of the Association of Southeast
                                                                                                law to increase the city’s minimum budget
Climate Change Sectoral Roadmap was              Asian Nations (ASEAN) and the Office of
                                                                                                allocation for healthcare from 8% to 15%.
released and provides policy guidance for        the United States Trade Representative
                                                                                                Delayed payments to hospitals by the
mainstreaming climate change into na-            (USTR) met to discuss the US-ASEAN Trade
                                                                                                city council’s health agency has led to re-
tional development plans.                        and Investment Framework Arrangement
                                                                                                luctance to treat patients from low-income
                                                 (TIFA). Among the TIFA areas under review
                                                                                                families, said the deputy council speaker.
At the Non-Proliferation Treaty Review Con-      to expand trade and investment between
ference in New York, Indonesia’s Foreign         ASEAN and US, are initiatives on customs       Hospitals in Ho Chi Minh City and surround-
Minister Natalegawa again committed the          and trade facilitation, trade finance, trade   ing provinces will be upgraded via a VND
country to ratifying the Comprehensive           and the environment, and standards.            4.5 trillion (US$236 million) project. Serious
Test Ban Treaty which would bring the            They are also working to develop a business-   patient overload has prompted this invest-
treaty closer to entering into force.            government dialogue, with a focus on small     ment, where each hospital will raise ca-
                                                 and medium-sized enterprises.                  pacity to 1,000 beds. Doctors will also be
The US pledged more than US$44 million in
                                                                                                rotated from district to city areas for training
support of clean energy development in the       The Asia Pacific Economic Cooperation          and expertise sharing.
ASEAN region at the ASEAN Clean Energy,          Business Advisory Council (ABAC) will
Trade, Technology and Investment Forum.          meet in Taipei in May. ABAC is made up         Nurses in remote areas of Indonesia have
                                                 of executives who advise leaders of the        called for legislative change to allow them
Malaysia’s Deputy Minister of Energy indi-
                                                 21-member economy Asia Pacific Economic        to assume the roles of doctor and pharma-
cated a final decision on nuclear energy for
                                                 Cooperation forum.                             cist for prescribing drugs and diagnosing
the country will be made in 2012. PM Najib’s
                                                                                                illness, functions they already perform in
blog remains open to public comments on          The Asian Development Bank held its 43rd       distant provinces. The Indonesian Nurses
the issue.                                       Annual Meeting in Uzbekistan, where they       Association brought the case to the Consti-
The Electricity Generating Authority of          signed a Memorandum of Understanding           tutional Court after a nurse was sentenced
Thailand has expressed concern about the         (MOU) with the World Customs Organisa-         to three years in prison when unlicensed
country’s narrow power reserves margin           tion. Going forward, both institutions will    prescription drugs were found in his clinic.
because of the delay of four independent         cooperate more closely in areas relating to    Absolute doctor shortages in Indonesia are
power projects held up by health impact as-      customs modernisation and reform, ca-          among the world’s highest, forcing nurses
sessment requirements.                           pacity building, and research and analy-       to double-up as doctors and midwives
                                                 sis. The MOU will also boost information       across the archipelago.
Two controversial dam projects under             and knowledge sharing, staff cooperation,
construction were attacked in Myanmar in         and production of joint publications and       Brunei’s Health Ministry has been holding
April. There were no reported deaths, but        other knowledge products.                      dialogue sessions with the local media to
several workers were injured.                                                                   promote healthy lifestyles in the king-
                                                 Malaysia and India are working on a bilat-     dom. Following a two day “Health Seminar
A concentrating solar power project has          eral free trade agreement to be signed this    for Deejays and Media Presenters”, the
been proposed for construction in Bohol,         year. This is on top of the India-ASEAN free   Ministry have been meeting with media
Philippines by a Utah-based renewables           trade agreement that became effective 1st      presenters to disseminate health facts and
company. If approved, the plant could begin      Jan 2010. Policymakers from these areas        messages. Health promotion efforts are be-
operations before the end of next year.          target US$70 billion in trade between the      ing stepped up in the face of high chronic
                                                 two blocs over the next two years.             disease risk; WHO estimates a staggering
                                                                                                59.8% of adults aged 15 and over are over-
                                                                                                weight in the kingdom.
                                                                                                             EXECUTIVE SUMMARY | 2

Welcome to the third issue of the Asian Trends Monitoring Bul-     in this Bulletin, this has the potential to stress and over-tax do-
letin! The Asian Trends Monitoring Bulletin (ATM) focuses on       mestic capacities and resources in the management of what
three areas of strategic importance to Asia’s policy landscape:    are increasingly complex regional policy issues.

1. Trade and investment facilitation;                              In the first section we address the issue of fossil fuel subsidy
                                                                   programmes and their effects in recession bound contexts. En-
2. Health systems; and                                             ergy subsidies can have severe social, environmental, and eco-
3. Energy security                                                 nomic spillovers, many of them un-costed and little analyzed.
                                                                   Reforming energy subsidies remains an important objective if
As Asia rebounds from a series of external shocks occasioned       energy efficiency and environmental outcomes are to be en-
by the global financial crisis, we explore the increasing func-    hanced, yet the political realities that operate in Asia and the
tional linkages emerging between health sector outcomes,           sensitive issue of energy prices make reform problematic. Two
energy security and trade and investment performance. In           case studies, however, show the way forward and how appro-
Asia, vastly dissimilar levels of development and divergent        priately designed, sequenced and implemented subsidy reform
policy processes and administrative capacities, have magni-        programmes can have beneficial outcomes for all.
fied the impact of the global financial crisis in some countries
                                                                   In the second section, the ATM Bulletin addresses these
while limiting it in others. In Singapore, for example, year-on-
                                                                   broader issues in the context of small and medium sized en-
year declines in trade volumes of 20% in 2008-09 reflected an
                                                                   terprises (SMEs) in Asia. While SMEs constitute over 90% of
economy immersed in the global trade system and highly ex-
                                                                   all businesses in Asia and provide one of the largest sources
posed to external shocks. By contrast, in Indonesia, Southeast
                                                                   of employment, collectively they contribute only 20%-30%
Asia’s largest economy, the shocks reverberating around the
                                                                   of economic output. Clearly, developing the SME sector is a
globe from interruptions to demand drivers, trade and invest-
                                                                   key to Asia’s growth and employment prospects. Yet the sec-
ment regimes, went largely unnoticed — a consequence of
                                                                   tor has historically had little access to adequate financial or
Indonesia attracting relatively small volumes of foreign direct
                                                                   risk management instruments to help bolster its resilience or
investment and generating only small export volumes.
                                                                   undergird its growth. In this issue, we explore these problems
Asia’s response to the global financial crisis has thus been       by looking at trade finance and how access to trade finance
calibrated mostly through national programmes, reflecting          for SMEs can help bolster the sector by mitigating trade risks
the unequal impact of the crisis in the region. As this issue of   and facilitating export growth.
the ATM Bulletin observes, however, the functional linkages
                                                                   In the third section, we address the impact of the economic
emerging between health sector outcomes, energy security
                                                                   recession on the health sector and explore the implications
and trade and investment increasingly demand policy rec-
                                                                   of economic recession on poor and vulnerable populations.
ognition and regional coordination. As Asia transitions and
                                                                   Specifically, we address two case studies to see how innova-
effectively begins to “decouple” from Western economies, in-
                                                                   tive micro-policy reforms have resulted in enhanced health
creasing economic integration in Asia itself is not being met
                                                                   outcomes, the development of improved social protection
by enhanced regional coordination in areas such as health,
                                                                   systems, and better social resilience.
trade and energy. Indeed, the regional policy architecture and
institutional mechanisms necessary to effect greater levels of     We hope you enjoy the third issue of the ATM bulletin and
coordination appear stalled, caught between blocs such as          as always, welcome your feedback and suggestions for
ASEAN + 3, APEC, and assorted other forums. As we observe          future issues.

                                                                   Phua Kai Hong & Darryl S.L. Jarvis
                                                                   Lee Kuan Yew School of Public Policy
                                                                   National University of Singapore
                                                                                        Subsidised fuel in Malaysia continues to lure drivers.


                            This bulletin addresses the issue of       or indirectly through public provision of infrastructure. Price
                            fossil fuel subsidy programmes and         controls are the most visible and especially used in countries
                            their effects. We restrict our discus-     with strong state-owned oil and gas companies whose op-
                            sion here to fossil fuel subsidies and     erations may entail a social component. Developed countries
                            not nuclear, hydro, or renewable           typically employ producer-oriented subsidy policies, whereas
                            energy subsidies, as they comprise         developing countries primarily subsidise consumption.
                            the lion’s share of this region’s energy
                                                                       Collectively, the Organisation for Economic Cooperation and
                            subsidies. While most of these pro-
                                                                       Development (OECD) identifies them as “any measure that
grammes were instituted to improve access and affordability to
                                                                       keeps prices for consumers below market levels, or for produc-
energy — a key ingredient of economic growth — their broad-
                                                                       ers above markets levels, or that reduces costs for consumers
based design fails to differentiate those who can afford to pay
                                                                       and producers.” As a result, producers and consumers make
the full price from those who cannot. In an analysis conducted in
                                                                       decisions based on biased price signals that inevitably lead to
2008, the Far Eastern Economic Review calculated that Indonesia’s
                                                                       excessive production and consumption. This can have severe
wealthy have absorbed most of the benefits of fuel subsidies.
                                                                       social, environmental, and economic spillovers depending
The richest 10% consumed 45% of the subsidy, whereas the bot-
                                                                       on the scale and scope of the subsidy. The following are just
tom 10% saw only 1%. Though subsidies are frequently couched
                                                                       some of the negative effects frequently seen in countries with
as pro-poor policies, they are just as often exploited for political
                                                                       significant subsidy regimes.
gain. More efficacious policies exist, and at lower costs, to sup-
port pro-poor development and energy access.                           Social impacts

The basics of fossil fuel subsidies                                    • Divert spending away from more effective social develop-
                                                                       ment sectors like health, education, and infrastructure;
Energy subsidies are usually classified according to whether
they benefit producers or consumers. Producers may benefit             • Discourage households from responding to energy price
from preferential regulatory treatment, tax and royalty breaks,        increases by improving efficiency or conserving energy,
                                                                                                               ENERGY SECURITY | 4

drawing avoidable expenses on the government and pre-                Economic impacts
venting the creation of jobs in new industries; and
                                                                     • Decrease in attractiveness to investors who are uncertain
• Inefficient resource use today leaves fewer resources for fu-      about their ability to recover their investment costs;
ture generations and translates into reduced long-term welfare.
                                                                     • For energy producing countries, inefficient domestic use
Environmental impacts                                                means reduced availability for exports, impacting a country’s
                                                                     ability to raise foreign currency reserves;
• Favor incumbent energy sources and makes it more dif-
ficult for new energy sources to attain cost-competitiveness;        • Erode country competitiveness and will increase eco-
                                                                     nomic vulnerability if a global climate deal imposing carbon
• Can contribute to other forms of environmental degrada-            costs is passed; and
tion, like in Pakistan Punjab and India where free or cheap
                                                                     • May contribute to fuel smuggling where borders are porous.
electricity has greatly accelerated the depletion of ground-
water aquifers; and                                                  Additionally, subsidised rates undercut an electric utility’s
                                                                     revenue base and therefore its ability to perform necessary
• Contribute to climate change and the release of global, re-        maintenance on existing facilities or to expand service to
gional, and local air pollutants. An OECD/IEA report suggests        non-coverage areas. Chronically neglected utilities are more
that a global phase-out of fossil fuel subsidies would reduce        likely to suffer from unscheduled power outages or rolling
greenhouse gas emissions by 10% or more by 2050.                     blackouts with consequent social and economic impacts.

                         Various subsidy interventions and their effects on costs and prices

                                          Source: Morgan (2007), adapted from UNEP/IEA (2002)

Indonesia’s kerosene-LPG conversion programme

Before 2007, kerosene had been Indonesia’s most heavily sub-            government partnered with the private sector to lay down
sidised fuel, generating an annual bill of up to US$3 billion           an infrastructure network of LPG filling stations, storage, skid
and bloated with subsidy abuse. Industry was ineligible for             tanks, and LPG trucks to shorten delivery times and improve
the subsidy and purchased kerosene at Rp. 7,500 (US$0.96) a             refilling access.
litre, three times the price for households. Incentivised by the
                                                                        While many kerosene sellers converted to LPG sales with
spread, an estimated 20% of subsidised kerosene sales were
                                                                        Pertamina’s support, small-scale kerosene stove produc-
smuggled or adulterated.
                                                                        ers were largely neglected and went out of business. With
With the projection that deep reforms could save up to US$2.2           LPG stoves primarily imported from China, the conversion
billion a year, the government in May 2007 launched a kero-             programme left little room for these producers to maintain
sene-to-LPG (Liquified Petroleum Gas) conversion programme              a similar line of work. Though a direct cash assistance pro-
to encourage households and small businesses to switch to               gramme was also instituted to help poor households, some
LPG for cooking. Conversion to LPG presented other benefits             were still unable to afford the 3-kg gas refills and claimed
besides reduced costs for the government (smaller subsidy               they would have to resort to fuelwood.
bill than kerosene) and households (with projected monthly
savings of US$2-11). LPG is cleaner burning, does not require           Originally launched in East, West, and Central Java provinces,
daily refilling, and can be sourced from the country’s abundant         the programme will soon be rolled out across all of Java, the
gas fields. Additionally, kerosene displaced by the programme           country’s most populous island. Expansion to Aceh, Sulawesi
could be refined into more profitable products like aviation            and Kalimantan will take place later this year. The programme
fuel.                                                                   has been considered highly successful and LPG consumption
                                                                        for 2010 is projected to reach three million metric tonnes, nearly
The programme aimed and achieved its target to distribute 42
                                                                        140 times the volume of just three years prior. As of February
million packages consisting of a stove set and a 3-kg gas-filled
                                                                        2010, 44 million packages had already been distributed, leaving
cylinder throughout the country by the end of 2009. Subsidised
                                                                        ten million to be distributed before the upwards-revised target
kerosene in locations where the programme was implemented
                                                                        is met and the programme concluded. Through it, the country
would subsequently be withdrawn from retail sales, though
                                                                        has transformed into a net kerosene exporter which has created
households would still have access at the unsubsidised price.
                                                                        the unforeseen problem of excess inventory. As of February,
Celebrities, politicians, religious leaders, and other cultural icons
                                                                        kerosene stocks were double the government’s targeted level
were enlisted early on to help raise awareness of LPG’s benefits
                                                                        with willing buyers difficult to attract. An additional success has
which soon became self-apparent to the Indonesian public.
                                                                        appeared in the possibility of exporting their model overseas. In
However, the programme has not been without its imple-                  September 2009, Nigeria expressed interest to the Indonesian
mentation problems which contributed to the delay in                    government in studying the kerosene-to-LPG conversion pro-
achieving the distribution target. Various episodes temporar-           gramme for possible domestic implementation.
ily eroded public confidence
in Pertamina, the country’s
state-owned oil and gas com-
pany, and its ability to reli-
ably manage the LPG supply
chain. As the sole distributor
of subsidised fuels, Pertamina
was singularly blamed for
stove shortages, and the sup-
ply shortages caused by refin-
ery maintenance, extended
docking delays experienced
by gas-carrying vessels, and a
fuel oil depot fire in North Ja-
karta. These incidents collec-
tively resulted in occasional
kerosene price spikes and
LPG scarcity. In response, the                                                                     Cheap kerosene — Get it while it lasts.
                                                                                                                           ENERGY SECURITY | 6

Subsidy reform (and its discontents)                                      markup on natural gas which sent the food and essential
                                                                          goods prices soaring.
Subsidy reform is considered a “win-win” action that reaps
social, environmental, and economic benefits, but the suc-                In electoral democracies, a lack of popular support for re-
cess of such depends on political realities. Recent events                form is reason enough for politicians to steer clear when a
in Southeast Asia are compelling evidence that subsidy                    re-election is at stake. Voters may not understand the long-
reform, especially of the “socially sensitive” fuels of diesel,           term economic and social benefits of reform and may remain
LPG, and kerosene, will incite public outrage, especially if              unconvinced despite their policymakers’ best efforts. Opposi-
conducted suddenly and without public awareness-raising                   tion candidates are likely to accuse the incumbent of raising
or involvement efforts.                                                   the cost of living without having to publicly propose viable
                                                                          alternatives. Some special interest groups, such as taxi and
For instance, gasoline price hikes contributed to Su-                     lorry unions, stand to lose immensely from reform measures
harto’s fall as Indonesian President in 1998 and likewise                 and may exert disproportionate influence depending on their
threatened Megawati Sukarnoputri’s presidency when                        level of political connectedness. Unfortunately, there may
a 2003 measure to link domestic fuel prices with global                   be situations where no alternative means of satisfying such
prices drew mass protests. The policy, along with price                   groups exists. Reforms may also reduce employment in the
hikes for various utilities, was soon retracted. Manila is                domestic energy sector, but should be compared against the
frequently the site of demonstrations against electricity                 jobs that innovation-stifling subsidies fail(ed) to create.
and fuel prices, such as in June 2008 when hundreds of
trucks blocked roads leading to the presidential palace                   Policy recommendations
in protest of the fuel products sales tax. Myanmar’s erup-                The case studies from Indonesia and Malaysia prove that
tion of violence in September 2007 was largely ignited by                 fossil fuel subsidy reform is possible, but requires strong
price hikes, not from subsidy reform, but from the 500%                   leadership, an appropriate timeframe for implementation,

                                 Fossil fuel subsidy expenditures across Southeast Asia

                        Source: Sovacool (2010), “A Comparative Analysis of Renewable Electricity Support Mechanisms for
                                                    Southeast Asia,” Energy 35(4), pp. 1779-1793

                                                                               gods must be crazy.
                                                                 The oil priceRocketing oil prices put fuel subsidies under pressure.

and clear two-way communications channels with the pub-          declines merit it. Middle- and upper-income consumers will ac-
lic so that they are aware of the contents of reform and the     climate to spending more and will find ways of coping through
government can respond to their concerns. Numerous case          efficiency improvements, behavioral changes, or the adoption
studies have been developed through the Global Subsidies         of new technologies. Ensure that mechanisms to protect the
Initiative, the United Nations Environment Programme, and        poor are in place before the floor is imposed; and
the International Energy Agency to help guide policymakers
                                                                 • Recognise that the reform process is iterative and gradual.
through the reform process.
                                                                 Countries that first embarked on reforms decades ago are still
The following recommendations will improve the chances of        in the process of rooting out subsidies.
reform success, or at a minimum lay down the foundation for
future reform efforts.
                                                                 Policymakers must remain aware of the social, economic,
• Plan subsidy revocation in stages with a delayed activation    and environmental trade-offs embodied in fossil fuel subsi-
date. This gives policymakers the opportunity to educate the     dies and have a medium-term plan for adjusting them when
public, publicise how the foregone spending will be used, and    the policy environment shifts (e.g., international energy
defuse criticism before the reform has been implemented;         prices spike, or the country faces a budget deficit). The evi-
• Utilise alternative instruments for reaching the poor, but     dence points overwhelmingly in favor of reform and either
research their unintended downsides. Voucher systems or          diverting the funds directly to social development projects
coupon programmes are one way, but are subject to gaming         or reducing overall taxation.
and entail high transaction costs which may make these op-       Reform may at first glance appear politically unpalatable, but
tions prohibitive. Use appropriate media outlets for advertis-   creativity and persistence will yield dividends. Allowing the
ing these programmes;                                            situation to be dichotomously painted as two scenarios, one
                                                                 with cheap energy and the other without, allows special inter-
• If a subsidy is to be implemented, signals should be sent
                                                                 est groups and opposition leaders to gain avoidable clout. The
to the marketplace for how and when it will be phased out
                                                                 reality of it must instead be framed as a choice between cheap
so that innovators can respond accordingly. Consumers and
                                                                 energy and a society which is more productive, more innova-
firms can then incorporate expected costs into their long-
                                                                 tive, healthier, and enjoying greater welfare. Subsidy reform
term planning and purchasing decisions;
                                                                 does not need to be about sacrifice, but about all the gains that
• When subsidies are lifted in response to a spike in global     had been forsaken because of an addiction to cheap fossil fu-
prices (e.g., Malaysia’s fuel price hike in 2008), implement a   els. With such a message, public support will be just around the
price floor that will not be lowered unless production cost      bend when a thorough and rational plan is proposed.
                                                                                                                       ENERGY SECURITY | 8

Malaysia’s fuel subsidy reform of June 2008

The summer of 2008 prompted numerous countries to re-                 How this move would impact the poor was a central element of
visit their fuel subsidy policies when oil prices staged a me-        discussion as subsidies had long been implemented with their
teoric ascent. For Malaysia, the price tag for subsidy inaction       benefit in mind. Some advocated a shift towards means-testing
was estimated at US$16 billion, from both direct cash trans-          to identify those who need compensation the most, but the
fers and foregone revenue from natural gas sold to power              government instead distributed cash and road tax rebates of up
generators at a discount. This bill was exacerbated by cross-         to US$200 to all vehicle owners to help offset the fuel premium.
border fuel smuggling and owners of foreign-registered
                                                                      Criticism of the country continues, from both private and non-
vehicles from neighboring Thailand and Singapore taking
                                                                      governmental quarters, for its failure to aggressively pursue a
advantage of cheaper fuel.
                                                                      subsidy removal programme. The 30 sen per litre subsidy for 95
In June, right before crude prices rose to their historic peak, the   octane is still in place and 97 octane and diesel are subsidised
Malaysian government announced subsidy cuts that would                at 16.5 and 32 sen per litre respectively. With lower oil prices in
raise the price of petrol (then RM1.92 or US$0.60 per litre) and      2009, the year’s fuel subsidy totaled RM5.3 billion, but will bal-
diesel (RM1.58 or US$0.49) by 41% and 63% respectively, con-          loon again in 2010 from bullish prices. As the country works to-
sidered low by regional standards. A monthly price review was         wards improving fiscal discipline and reining in a budget deficit
to be introduced in September that would link retail prices to        which reached 7.4% in 2009, subsidy restructuring continues
market levels with a constant 30 sen per litre subsidy.               to be a policy proposal that has yet to gain traction.

This announcement predictably drew different reactions from           While reform figures prominently in Prime Minister Najib Razak’s
different quarters. Street protests erupted in Kuala Lumpur           recently unveiled New Economic Model which aims to confer
and Ipoh with critics calling for Prime Minister Badawi’s resig-      ‘developed country’ status to Malaysia by 2020, several policy
nation, with many considering the subsidy a rightful transfer         flip-flops on the issue have undermined confidence in its actuali-
from swelling export revenues. Analysts were skeptical and            sation. In January 2010, a two-tier fuel pricing structure was pro-
feared higher-than-anticipated inflation levels that might            posed that would charge foreigners and owners of vehicles with
command an interest rate hike, worsening the country’s in-            engines of 2,000cc and above at the full price. The policy’s plug
vestment climate. Others welcomed the news and pointed                was pulled in March when the Prime Minister explained that “the
to the fact that the fuel subsidy bill, traditionally amounting       rakyat (people) does not want it to be done.” With elections pos-
to about 15% of the government budget, exceeded develop-              sibly being called as early as 2011, chances are slim there will be
ment spending on education, health, agriculture and rural             any movement on this issue before 2012-2013 barring another
development, and transport combined.                                  major upswing in energy prices.

                                                                                   A Malaysian petrol pump sticks to its old-school roots.
                                                                                                   Not so easy to find what you need.

Two interdependent trends on private sector growth

                           While one of the most visible          of economic output in ASEAN, and contribute 10%-20% of
                           trends has been and will continue      export earnings. Going forward, increasing attention will be
                           to be the movement of rural poor       needed to monitor how SMEs succeed in international trade.
                           to urban centres in developing         Although there is a wealth of research on the linkages be-
                           countries — with an estimated 60       tween SMEs’ development, economic growth and poverty
                           per cent of global population liv-     alleviation, it is necessary to draw attention to a particular
                           ing in cities by 2030 — less appar-    form of business facilitation tool. For SMEs to export to ex-
                           ent is how urban labour markets        ternal markets and import factor inputs and capital equip-
can absorb these massive inflows. Together with the pres-         ment, they need trade finance and other trade facilitation
sures of globalisation and the historically large size of the     instruments. Trade finance refers to financial intermediation
agricultural sector, the number of full-time jobs in the formal   between importers and exporters, including the provision of
sector (with labour protection and stable wage income) is         capital to firms engaged in trade transactions, services used
quite low in Southeast Asia. To provide stable income for the     to manage risks in transactions and international payment
poor in the formal sector, private enterprises — mainly small     mechanisms throughout the trade cycle. As the International
and medium enterprises (SMEs) — need a supportive envi-           Chamber of Commerce (ICC) notes, 90% of the US$15 trillion
ronment to do business.                                           of trade is secured by some form of trade finance, though
The growth and success of SMEs will play an important role        in ASEAN, a large share of transactions are done on a open
in improving the lives of the poor in Southeast Asia. A recent    account (cash) basis. This is considered a high-risk scheme
report found that on average, SMEs constitute over 90% of         for exporters since they assume non-payment risk and this
businesses in the ASEAN region and employ 75%-90% of the          potentially reduces trade.
non-agrarian workforce. Despite the size of the sector, their     SMEs in ASEAN face high barriers to accessing better forms of
current contribution to economic output remains limited.          trade finance, such as letters of credit and low interest loans,
Estimates are that SMEs contribute anywhere from 20%-30%          because of their lower collateral and often opaque financial
                                                                                                TRADE & INVESTMENT FACILITATION | 10

statements. Since transactions are typically small, banks are           Main reasons leading to the trade financing
hesitant to allocate scarce capital towards multiple accounts.            problem (survey of APEC economies)
Early evidence suggests SMEs in developing Asia were hit par-
ticularly hard by the Global Financial Crisis as banks became
more risk averse amid fears that demand would fall, and that
companies would go bankrupt. In the Asia-Pacific Economic
Cooperation (APEC) region, higher risk aversion of financial
institutions towards companies and higher perceived coun-
terparty risks ranked number one and two as reasons for trade
financing problems in November 2009.

Also, early evidence from the ICC reports that under capital
constraints, banks pay greater attention to their top custom-
ers. In the poorer ASEAN countries, government-backed ex-
port-import banks, credit insurance and guarantee agencies
are insufficiently capitalised to pick up the slack when private
capital markets dry up. The impacts are severe. The United
Nations Economic and Social Commission for Asia and the
Pacific (UNESCAP) in 2009 estimated that a 10% decline in the
amount of trade finance may lead to a drop of 4.6% of total
merchandise trade in developing Asia.

Global responses
                                                                                  Source: APEC’s senior officials’ meeting
At the G-20 Leaders’ Summit on Financial Markets and the World                         chair office (Oct/Nov 2009)

Economy, held in London in April 2009, heads of state of the
largest economies agreed that international trade was central
                                                                   clientele. This is due primarily to tougher capital requirements
to fighting against a global recession and driving the engine of
                                                                   and tightened liquidity, both because of heightened percep-
global growth. Among measures to support trade, they agreed
                                                                   tions of the riskiness of trade finance.
that trade finance was an important lubricant for trade flows.
In response, they agreed to provide US$250 billion in financing    This misperception is found in Basel II and the proposed Ba-
over two years to be distributed by multilateral organisations     sel III accord put forward by The Basel Committee on Bank-
(such as the World Bank’s International Finance Corporation),      ing Supervision. The proposed Basel III accord would treat
export credit agencies and investment houses. The ICC’s recent     letters of credit, the most common form of trade finance,
report titled Rethinking Trade Finance 2010 claimed that banks     as off-balance sheet transactions that require banks to set
are still unable to meet the need of their importer and exporter   aside 100% capital allocation. If trade business is placed into

Buzzing around

An interesting example on providing trade finance to sup-          loans equivalent to 70% of
port the poor comes from the YES Bank in India. Small bee-         the collateral value of the
keeping nomadic farmers traditionally have had little access       honey produced. By 2007,
to formal credit and have relied on rural money lenders            this scheme helped over
who normally charge high interest rates. The bank created          2,000 farmers and won the
a structured trade finance scheme of US$3.5 million where          Euromoney Trade Finance
small honey farmers in Northern India deposit their produce        “Deal of The Year award for
to a warehouse and they receive a deposit receipt. The ware-       facilitating financial inclusion
house is managed by a recognised collateral management             in the state of Jammu & Kash-
agency. YES Bank also received a purchase commitment from          mir”. While this example is
                                                                                                               Deal of the Year.
Kashmir Apiaries Exports (KAE), a large-scale honey processer      drawn from the rural sector,
and exporter with base price for the honey. After submitting       its lessons on the importance of financial intermediation for
the warehouse deposit receipts to KAE, farmers can receive         trade remain relevant for pro-poor development.

a higher risk bucket, banks will be discouraged from extend-           • Standard Chartered Bank provided its first microfinance
ing trade credit to businesses, and will be forced to charge           loan in Southeast Asia to CARD Bank, Philippines in February
higher fees for services.                                              2010. The P75 million (US$1.5 million) loan will help Card Bank
                                                                       to provide banking services for landless rural workers and of-
Work is currently underway with the ADB and major trade
                                                                       fer non-collateralised loans to projects that are not funded by
finance banks to establish a Trade Finance Default Registry
                                                                       the traditional banking sector;
to demonstrate to regulators the very short-term, self-liqui-
dating and low risk nature of trade finance. Once banking              • Taking advantage of cheap mobile phone technology, the
standards are revised, this will strengthen incentives for             WING group, a subsidiary of the Australian and New Zealand
banks to extend services for trade. Given the growing value            Banking group (ANZ), opened up and offered banking services
and volume of intra-regional trade in developing South-                in Cambodia using mobile phone technology. The number of
east Asia, international banks will be particularly attracted          cell phone users far exceeds the number of people with bank
to supporting these changing trade patterns. With more                 accounts. The service allows workers who have moved to urban
capital directed towards supporting intra-regional trade, the          areas to remit money to their relatives in rural-areas, allowing
poor will benefit directly through increased employment                their family and friends to pay for education and health; and
opportunities and stable income.
                                                                       • The Japanese Bank for International Cooperation (JBIC)
Recent initiatives in trade finance at the macro bilateral and         provided US$100 million in loans to both Malaysia’s Export-
regional level may facilitate SME growth, create jobs and raise        Import bank (MEXIM) and to Indonesia’s Eximbank (IEB). The
income security for the poor:                                          capital injection at low interest rates allows the Eximbanks to
                                                                       extend local currency loans at lower costs to domestic export-
• In the Philippines, the government passed an amendment
                                                                       ers, helping them expand their businesses or import goods
to the Magna Carta for Micro, Small and Medium Enterprises
                                                                       and materials from overseas (eg., finance the purchase of Jap-
(MSME) Law, requiring banks to reserve up to 10% of their
                                                                       anese exports). In particular, Indonesian Exim Bank’s CEO, Ma-
loans for MSMEs. This is important because SMEs employ 77%
                                                                       hendra Siregar, said that the Eximbank would focus support
of those working in manufacturing sector;
                                                                       on micro- to medium-sized exporters. Together with financial
• The Philippines also launched the SULONG programme —                 support, JBIC also signed a memorandum of understanding
the SME Unified Lending Opportunities for National Growth              (MOU) with Indonesia Eximbank to cooperate on capacity
Programme in 2003. Under the programme, seven government               building to support Indonesia EximBank’s operations. Indo-
financial institutions provide uniform and standardised lending        nesia’s EXIM Bank, formerly Bank Ekspor Indonesia, became
procedures for SMEs, including simplified fees, interest rates and     a dedicated trade finance provider in September 2009. The
application forms. From 2004 to the end of 2009, banks under           government injected Rp. 4 trillion (roughly US$400 million) as
SULONG have lent out P187 billion (US$4.2 billion) to SMEs;            initial working capital.

                                                The Asian Development Bank has championed several trade finance initiatives to help SMEs.
                                                                                                        TRADE & INVESTMENT FACILITATION | 12

                                                    The heads of states agreed that trade finance was an important lubricant for trade flows.

Multilateral initiatives                                                • The World Bank’s private sector arm, the International
                                                                        Finance Corporation, has followed up on the G20 commit-
• The Asian Development Bank’s (ADB’s) Trade Finance Fa-
                                                                        ment in London by establishing the Global Trade Liquidity
cilitation Programme (TFFP), established in 2004, supports de-
                                                                        Programme in July 2009. Funds are targeted towards SMEs
veloping country banks in Asia to extend credit to businesses
                                                                        in developing countries and distributed through qualifying
involved in trade. It also provides guarantees for confirming
                                                                        domestic banks. The Asia-Pacific region has utilised 15% of
banks (banks that fulfill letters of credit obligations should the
                                                                        the US$1 billion dispersed and the programme has had zero
issuing bank fail to make payment). Since its establishment,
                                                                        losses so far.
it has signed agreements in ASEAN with credit issuing banks
in Cambodia, Indonesia, Philippines and Vietnam. The TFFP is            Intervention points for the next one to five years
supported by the Regional Capacity Development Technical                • Support regional forums for multilaterals, trade finance
Assistance project that looks at current capacity gaps in pro-          banks, trade and finance ministers to discuss financial barriers
viding financing for trade at developing ADB member country             for ASEAN-based SMEs to trade;
banks. The TFFP has proven successful; roughly half of the pro-
                                                                        • Strengthen network of Export-Import banks in Southeast
gramme’s portfolio is SMEs, the turnaround time on loan ap-
                                                                        Asia (export credit agencies): better cooperation and coordi-
proval is fast, and the programme is supporting private sector
                                                                        nation to finance intra-regional trade; and
financial development in developing ASEAN markets;
                                                                        • Consider establishing a network or platform for institu-
• The ADB is investing up to US$25 million in a new fund (The
                                                                        tional investors in developed countries to underwrite trade
ASEAN China Investment Fund II) designed to support the
                                                                        risks through loans to trade finance issuing banks in ASEAN.
growth of SMEs in ASEAN countries to do business with China;
                                                                        The idea here is to expand trade finance institutions (gov-
• The ADB and Commerzbank AG, signed a risk-sharing                     ernment-backed EXIM banks) in poorer ASEAN countries
agreement in May 2010 to support ADB’s trade finance fa-                by supplying capital while sharing credit and country risks
cilitation programme. The ADB has signed similar agreements             among many investors.
with FMO (Holland’s Development Bank), Citibank, JP Morgan
and SMBC Bank; and
                                                                                     The view from the Thainakarin Hospital in Thailand.

More resilient this time around, but more can be done

                           The recessions of 1997–98 and           services, as consumers switch from private to subsidised or
                           2008 have both impacted health in       free public providers. Implications for health system response
                           multiple ways, but this time better     and management during financial crisis are profound when
                           social safety nets across Southeast     the poor bear the brunt of economic downturns. The poor
                           Asia have meant that the poor           spend a higher proportion of their incomes on food and fuel,
                           are slightly better off than before.    typically averaging 60% in this region. Additionally, pro-poor
                           Nonetheless, it is the most vulner-     social and welfare programmes that need pro-cyclical invest-
                           able in Southeast Asia, a population    ment by governments are often the first to go as budgets
of 264 million living on less on US$2 a day, who are suffering     tighten during recessions.
the most during the global financial crisis. Past financial cri-
                                                                   How can health service utilisation and access for the poor be
ses have exposed the tight interconnectedness of trade and
                                                                   safeguarded? This bulletin highlights how economic crises
health in Southeast Asia, and hence the need for pro-poor
                                                                   hurt the poor in Southeast Asia at the micro-level. Policy rec-
policies in both areas. The 1997–98 Asian economic crisis led
                                                                   ommendations for macro- and micro-level pro-poor interven-
to weaker demand for exports, with high unemployment and
                                                                   tions are offered. Case studies of innovative conditional cash
lingering underemployment as after effects. Whilst the 2008
                                                                   transfer programmes and a micro finance cum health initia-
crisis had less severe impact on Southeast Asian economies,
                                                                   tive in the Philippines showcase pro-poor policies adopted by
poor people have been suffering the effects of higher food
                                                                   both governments and non-profit players in the region.
and fuel prices this time, which put a strain on small business
operations and household budgets. The rice price crisis led to     What happens to health systems in an economic crisis?
rioting in the Philippines in summer 2008. There have been
widespread job losses in manufacturing in Indonesia. Most          During economic recession, safeguarding health financing
obviously, income losses stemming from unemployment                and access to essential services by poor people via exten-
translate to inability to afford essential medicines and ser-      sion of social safety nets (e.g., scaling up universal coverage,
vices. The crisis has impacted consumption patterns of health      investing in primary health infrastructure and conditional cash
                                                                                                                  HEALTH SYSTEMS | 14

transfers) is crucial to buffer the negative impacts recession       real wages fall and unemployment rises, and small business
has on individuals and families affected by unemployment,            owners also suffer as the relative price of goods and services
falls in household income and higher prices for food and fuel.       produced falls, negatively affecting their incomes. So demand
                                                                     for and utilisation of health services may fall during recessions.
During economic crises, health service consumption patterns
of rich and poor tend to change; both switch to cheaper pub-         Evidence suggests a strong association between economic
lic provision. Consequently, private sector demand reductions        downturns, a decline in health utilisation and negative health
prompt doctors to switch to public sector employment. In             outcomes, as was observed in Indonesia during the 1997-98
Thailand, demand for outpatient services in private hospitals        crisis. Here, severe shortages of drugs and essential medical
fell from 70% to 20% in 1998, and the number of doctors in           supplies to public facilities led to decreased utilisation. A
district hospitals increased from 1,653 in 1997 to 2,725 in 2001.    RAND study in 1999 showed that between 1997 and 1998,
Crises can also change the direction of trends like health work-     use of posyandu’s (community health posts) by children un-
er migration — rural–urban and international migration of            der five halved from 50% to 25%. Prevalence of micro-nutrient
health workers declines as they switch to or stay in the public      deficiencies (especially vitamin A) were observed in children
sector. Arguably this benefits the poor until the economy picks      and women of reproductive age, as well as lower body mass
up and health personnel move again. But crises further affects       index (BMI) for poorer women . An empirical gap on health
the ability of the poor to afford health services and drugs;         impacts for lower income countries persists, but it is generally

                                          Economic recession and health linkages

                                                    Source: Kwon SM (2009) UNESCAP

Conditional cash transfers in Indonesia and the Philippines        observed that pro-poor social expenditures are scrapped in
                                                                   favour of pro-rich expenditures, as seen services that are per-
Having realised the devastating effects cutting social spend-
                                                                   ceived to be less critical than hospital care, like preventative
ing can have on nutrition and school enrolment during and
                                                                   primary care, are cut first.
after the 1997–98 crisis, governments in the region are wisely
scaling up social spending this time around. According to the      Fiscal restriction is the usual policy response in any economic
Asia Pacific ILO office, Indonesia and the Philippines have im-    crisis, where public spending cuts typically start with social wel-
plemented the most innovative social spending programmes           fare and health programmes. Vulnerable groups almost always
since 2007. Both programmes integrate conditional cash             lose out, with adverse effects on health status. What can be
transfers (CCTs) to provide families with extra income, incen-     done to mitigate the adverse effects of recession on the poor?
tivising them to keep their children in school.
                                                                   Governments are better off now than in 1997-98
• Indonesia’s “Hopeful family programme”
                                                                   In Southeast Asia, the economic impact of the US linked
Implemented in 2007 and expanded in 2009, to cover more            2008 crisis is less severe than the one that originated from
families following the export sector job losses across the         the region in 1997–98. Lessons learnt from that time have
country, families earning under US$15 a month receive CCTs         convinced Southeast Asian countries to lower their debt-to-
as well as targeted aid for health and education. This financial   equity ratios, strengthen regulation of the banking sector,
assistance is conditional on expectant mothers undergoing          and accumulate larger foreign currency reserves to prevent
at least four medical check ups during pregnancy. An ILO           currency speculation. In short, reduced public debt to GDP
study assessing the impact of the global economic crisis in        ratios, as well as current account surpluses (unlike in 1997),
Asia found that “families with children need to take them to       allow governments more fiscal space for social spending.
local community health centres to receive vaccinations and
ensure they complete up to junior high school. A minimum           Social safety nets have expanded significantly since the 1997–
attendance requirement is also set at 85% each year”.              98 recession. For example, Indonesia introduced a health card
                                                                   for the poor in 1998 to protect their consumption of services
• Philippines’ “Pantawid Pamilyang Pilipino Programme”             during the crisis. By early 1999, 22 million people had received
A similar programme has                                            a health card. Thailand introduced universal coverage in 2002.
been scaled up in the Phil-                                        Today there seems to be no obvious adverse effect of recession
ippines for 699,016 families                                       on the general population. But this general observed outcome
that satisfy means tests in                                        can mask the impact of the crises on the poor / vulnerable
the poorest 20 provinces.                                          groups (children, older people, disabled people). Disaggre-
Families received specific                                         gated research into the impact on these groups is essential to
CCTs for health and nutri-                                         make policy recommendations relevant and effective.
tion (P500 a month), educa-
                                                                   Health financing cuts: past lessons, future policies
tional expenses and school
fees (P300 per month per                                           Health financing faced shortfalls during the last economic
child), and extra subsidies                                        crises in 1997–98, due to public spending cuts and a fall in
for families with more than                                        real terms of per capita government expenditure, even where
                                       She benefited from CCT.
three children (P1400 per                                          health spending levels were maintained as a share of the bud-
month). Again CCTs are conditional on pregnant women receiv-       get, like Thailand. Shortfalls usually spell bad news as budgets
ing pre- and post-natal care at local health clinics and parents   are squeezed, but crisis can also spell opportunity for reform
attending parenthood seminars. Children under five must also       in the health sector as seen in Thailand, where USAID found
attend regular preventative health check ups and vaccines, at-     that policy response had no major impact on health status.
tend school at least 85% of the time, and take deworming pills     Social welfare programmes were protected and actually in-
every five months.                                                 creased as a percentage of budget expenditures, as the Thai
                                                                   government allocated most funds towards extending univer-
Whilst government spending on social protection averages
                                                                   sal coverage via the free medical care card scheme. Sound
1% of GDP in Indonesia and less than 0.4% in the Philippines,
                                                                   health infrastructure and social insurance policies provided a
both countries have announced that 4% of their US$6 billion
                                                                   health care safety net in the 1997-98 crisis. Malaysia too suf-
stimulus packages will be used for social protection pro-
                                                                   fered budget cuts across the board in public expenditure but
grammes. Generally, this signals that both country govern-
                                                                   the public health services were spared.
ments envisage a future where social protection for the poor
is the norm; a welcome shift from a decade ago.
                                                                                                                   HEALTH SYSTEMS | 16

In Cambodia and Laos, fiscal restriction and inflationary pres-     on health crisis. During the 2008 crisis, the Indonesian govern-
sures appeared to lower service quality in health facilities, and   ment helped the poor to access health services via commu-
the prices of drugs rose beyond the reach of poorer families.       nity health insurance provision (Jamkesmas), but some poor
The shift of the healthcare workforce from the private to pub-      families still don’t have access to the card. A recent study, for
lic sector followed in many countries, as was seen in Thailand      example, found that some workers in the formal sector who
during the last crisis. Weaknesses in health financing and social   were covered by the employer linked social security scheme
security nets are revealed when budgets are squeezed. Singa-        (Jamsostek) did not know how to access benefits — high-
pore’s health system proved resilient during the last crisis, with  lighting broader issues about accessing health services such
a strong currency, active government intervention in social         as information asymmetries and insurance literacy problems
protection and greater health financing capacity (from medical      which appear endemic across Southeast Asia. Information
savings accounts) compared to other Southeast Asian countries.      gaps must be mitigated with information campaigns, and
Indonesia reduced spending on health but attempted to main- simplification of how to access insurance benefits.
tain primary healthcare spending for the poor with limited suc-
                                                                    Job losses and income insecurity
cess on health outcomes. Malnutrition and infectious diseases
rose as reflected in infant mortality rates, with cuts in child im- Household incomes were squeezed by high unemployment
munisation programmes. Financing from overseas develop- and the consequent loss of job-linked health insurance / ability
ment assistance, however, mitigated even more serious knocks to pay for health services. Immediate victims of retrenchment

Food insecurity, part I

In Cambodia and Vietnam, rising food prices have negatively          term health effects of inadequate nutritious food intake (e.g.
impacted the poor, especially the health status of women,            stunting, immunity, higher mortality risk) are most serious
children, the elderly and the poor due to their lesser control       for this group. Prevalence of micro-nutrient deficiencies in
over resources. An ITRAK survey of urban households re-              women and children in Indonesia increased during the crisis
vealed that household incomes had fallen by 75% in Cambo-            period, as did low BMI incidence from inadequate calorie
dia and 49% in Vietnam from June 2008–09, with over 50%              intake. Based on data from the last crisis, UNICEF predicts
of households in both countries reporting that most foods            serious potential health and nutritional impacts during this
were becoming unaffordable. Rising food prices linked to             crisis if these are not targeted and addressed now; maternal
this recession are significant in a region where poorer fami-        anaemia rates could increase 10%–20%, childhood stunt-
lies spend around 40%–60% of household income on food                ing by 3%-7%, wasting by 8%–16% and under five-years
alone. USAID evidence from Laos during 1997–98 suggests              old child mortality rate from 3%–11%. Such insights should
that high annual inflation and price increases for commodi-          serve as a warning for policymakers to step up targeted in-
ties reduced incomes and purchasing power. Consequently,             terventions for women and children in Southeast Asia.
people changed their diets and
began to grow their own food.
Mitigating risk from crop failure
is crucial for low income families,
especially so during recession.
During the last crisis in Cambo-
dia, drought coupled with illegal
rice exports led to severe food
shortages in some provinces.

Adverse effects of economic crisis
on nutrition were observed dur-
ing 1997-98. Children are most at
risk; they are often the first to be
sacrificed in household resource
allocation, such as nutritious
food, which usually goes to adult
males. Younger children are often
unable to complain, but the long                                                        Rising food prices are hurting the Vietnamese.

include foreign workers and                                                                            population, contribute 11% of
dependents, and older and                                                                              the country’s GDP via remit-
lower-skilled workers. Whilst                                                                          tances, which totaled US$15.8
World Bank evidence in 2009                                                                            billion in 2009. Higher demand
showed that migration out-                                                                             for publicly provided services
flows from developing coun-                                                                            comes at a time when govern-
tries were declining, with re-                                                                         ments are contracting public
turn migration on the increase,                                                                        spending on facilities. Health
these trends are less prevalent                                                                        expenditures (mostly out of
for Southeast Asian migrants                                                                           pocket payments) gener-
overseas. But, South Asian mi-                                                                         ally decreased in the last crisis,
grants, especially to Malaysia,                                                                        denoting lower healthcare
have been returning in large                                                                           consumption, particularly for
                                        Returning Filippino workers are calling for social protection.
numbers. Reverse urban–rural                                                                           poorer groups who delay or
return migration linked to the 1997–98 recession took place in        forgo care seeking. Consequent shifts from the private to pub-
Indonesia, Thailand, and Cambodia, but international migra-           licly subsidised providers including NGOs was evident in most
tion appeared to increase. Migration is a household survival          countries during the 1997–98 crisis, except Indonesia, where
strategy for many families in the region. From Filipino nurses,       the inverse occurred as a result of severe shortages of medical
doctors and engineers and Thai service sector workers in Sin-         supplies in public providers and lower quality of care. During
gapore, Indonesian construction workers in Malaysia, inter            the current crisis, poorer people in Indonesia are self medicat-
country migration is a strong regional trend that looks set to        ing and buying medicines from pharmacies, avoiding costly
continue despite the crisis.                                          diagnosis and treatment in health centres.

There is anecdotal evidence from the Philippines that return-         Preliminary evidence from 2009 shows that in ASEAN, econo-
ing migrant workers are calling for social protection, due to         mies that rely more on manufactured trade experienced sharper
their perceived contributions to national development via             contractions. For example, Laos posted growth of 6.5%, driven
remittances. Overseas Filipino foreign workers, 10% of the            by mineral exports to neighbouring countries, while Malaysia

Microfinance and health protection in the Philippines

Microfinance has been touted as a tool to reduce income pov-          In the Philippines, CARD bank is integrating health protection
erty, via extension of micro loans, savings and other financial       with microfinance services via:
products that help the poor to set up small businesses, gener-
                                                                      • Health education and financial planning for better health,
ate income and plan for the future. Microfinance institutions
                                                                      rational use of available services and on preventing and man-
(MFIs) have witnessed the negative impact that health labour
                                                                      aging dengue fever;
market shocks can have on family incomes, and thus a client’s
ability to repay, invest and save — this is all too common in         • Loans for health insurance to pay PhilHealth premiums, the
the Philippines, where out of pocket payments were 84% in             national health insurance programme that provides hospital
2006 and universal health coverage remains below 50%.                 coverage to CARD clients; and

The Microfinance and Health Protection (MAHP) initiative              • Health provider networks in rural and semi-rural areas
seeks to integrate both financial and health programmes               where CARD is linked with heathcare providers to increase
within MFI operations. Funded by the Bill and Melinda Gates           access to affordable primary care providers. Clients receive
Foundation, the MAHP programme partners lead internation-             discounts on treatments from these providers. CARD is also
al NGO Freedom From Hunger with MFIs in Asia and Africa,              exploring a drugs franchise network link to increase access
including CARD bank in the Philippines. Freedom From Hun-             to affordable drugs.
ger provides partner MFIs with technical assistance and train-        Right now 240, 819 of CARD’s clients are receiving health educa-
ing to conduct research into health interventions suitable for        tion, loans, and discounted treatment. Impact assessments have
local clients, so that they can design innovative packages of         yet to be carried out. However, this programme shows that by ex-
financial and health services. These packages are being tested        tending credit to cash strapped individual and small to medium
and evaluated to assess what can be scaled up with the big-           enterprises during economic crises with a health component,
gest impact. Since December 2009 the successful innovations           dual positive outcomes can be achieved; income security and
are being scaled up in further locations globally.                    health prevention / planning in times of economic uncertainty.
                                                                                                                   HEALTH SYSTEMS | 18

contracted by 1.7%, due to weak demand for electronic exports         eligibility criteria for CCTs will ensure the benefits are not
and lower government and private spending. Across ASEAN in            leaked to the non-poor;
2009, there was a clear divergence in the magnitude of expan-
                                                                      • Low cost, high impact interventions delivered through
sionary fiscal and monetary policy and their effect on private
                                                                      primary health infrastructure can mitigate or even reverse
spending and national economies. As such, the effect of the
                                                                      negative health and nutritional impacts of the crisis. These in-
global economic crisis on full-time manufacturing jobs and
                                                                      clude deworming, promotion of breastfeeding amongst new
hence poverty varies throughout the region, with Cambodia be-
                                                                      mothers, and providing food / vitamin supplements;
ing hit particularly hard.
                                                                      • Decreasing information asymmetries between food manu-
Recession depression
                                                                      facturers and consumers, via legislation mandating them
Health effects from job losses and resulting income insecurity        to display nutritional content on food packaging. Informa-
are generally negative, as changes in economic security are           tion campaigns by other actors to raise awareness of cheap,
associated with psychosocial stress (e.g., acute stress is linked     healthy food options;
to death due to heart disease, hypertension, ulcers, cirrhosis,
                                                                      • Regulation of advertising of processed food, especially
mental illness and suicides). Rising unemployment may induce
                                                                      those directed at children, such as public nutrition educa-
risky behaviours such as higher alcohol and drug consumption,
                                                                      tion by the Singapore Health Promotion Board (see Bulletin
plus mental illness and “recession depression”, with increased
                                                                      issue 1); and
demand for mental health services by the working class. Fam-
ily relations are traditionally strong in Southeast Asia, but state   • Investing in domestic agricultural infrastructure, sub-
support for mental health must be ensured. Singapore’s Medi-          sidies for fertiliser and equipment, scaling up production
cal Savings Accounts can now be used for outpatient mental            for domestic consumption and export as an alternative to
health services, a recent change in wake of the financial crisis.     selling farmland.
Targeted financial subsidies for mental health services may en-
sure that those suffering from recession-induced mental illness       Conclusion
can access the services they need.                                    Maintaining strong primary healthcare policies and specific
Pro-poor policy responses during an economic recession                targeting of subsidies (e.g. CCTs) and services (e.g. rural health
                                                                      infrastructure) for vulnerable groups would be beneficial to
• Monitor / evaluate the impact on vulnerable groups using
                                                                      improve / maintain health status, especially during economic
disaggregated data, like nutritional data and access to health
                                                                      crises. Expansion and introduction of safety nets (e.g. social
services. Local research institutes are best suited to provide
                                                                      insurance) as well as maintenance of government health
timely and on the ground evidence;
                                                                      spending in real terms, complete the policy prescriptions of-
• Specific targeting of poor / vulnerable groups to mitigate          fered. Crises typically have a time lag health outcomes; moni-
adverse effects on health status, via a combination of sus-           toring and evaluation of effects on poor / vulnerable groups
tained financing in real terms of primary health infrastructure,      could be carried out by local research institutes in partnership
with direct transfers, like CCTs specifically to ensure adequate      with local health providers, to assess what actually works and
food intake. Developing administrative capacity and clear             what doesn’t to safeguard health status.

Food security, part II: land grabbing in Laos

The future food security, defined as “when all                                           land, or 15% of total farmland to various
people at all times have access to sufficient,                                           countries. Desperate for capital during a
safe and nutritious food to maintain a healthy                                           recession and unaware of its true market
and active life”, and thus health, of some pop-                                          value in a post socialist transition, govern-
ulations in this region is being compromised                                             ment officials sold farm land well below its
by mass sales of farmland to foreign countries.                                          market value at between US$3–9 per hect-
This phenomena is linked to the current economic recession            are, shortchanging small farmers and turfing them off their
and food insecurity fears. The UK Guardian newspaper report-          land. The Philippines and Indonesia have also been targeted
ed in mid 2008 (the height of the food price crisis), the signing     for land sales. When these countries cannot guarantee food
away of farm land with long leases (up to 70 years) in Africa         security for their own populations, it is dubious that they will
and Asia to the highest bidders, including the governments of         achieve this if foreign purchases continue without regulation
South Korea and the UAE and private investors in Saudi Arabia.        or adequate foresight into the consequences for the domestic
Laos has to date signed away two to three million hectares of         population, especially the poor, by policymakers.

                      Darryl Jarvis is an Associate Professor at the Lee Kuan Yew School of Public Policy. He specialises in risk analysis and the study of po-
                      litical and economic risk in Asia, including investment, regulatory and institutional risk analysis. He is an author and editor of several
                      books and has contributed articles to leading international journals. He has been a consultant to various government bodies and busi-
                      ness organisations, and for two years was a member of the investigating team and then chief researcher on the Building Institutional
                      Capacity in Asia project commissioned by the Ministry of Finance, Japan.
                      His current research is a large cross-national study of risk causality in four of Asia’s most dynamic industry sectors. He teaches courses
                      on risk analysis, markets and international governance, and international political economy.
                      His email is

                      Noah Richmond is a research associate at the Lee Kuan Yew School of Public Policy.
                      Prior to joining the CAG, Noah worked for an investment management firm in Vancouver as a regional sales representative. He has also
                      co-instructed an inter-disciplinary and interactive web-based course at the University of British Columbia (UBC) on Global Citizenship
                      and has worked as an international liaison for a neighbourhood revitalisation project in Yokohama, Japan.
                      His current research projects are 1) Trends Monitoring: Trade and Investment Facilitation and 2) A Comparative Study of Nanotechol-
                      ogy Oversight in Asia and Europe with the London School of Economics.
                      His email address is

                      Phua Kai Hong is a tenured professor at the Lee Kuan Yew School of Public Policy and formerly held a joint appointment as Associate
                      Professor and Head, Health Services Research Unit in the Faculty of Medicine.
                      He is frequently consulted by governments within the region and international organisations, including the Red Cross, UNESCAP,
                      WHO and World Bank. He has lectured and published widely on policy issues of population aging, health care management and
                      comparative health systems in the emerging economies of Asia. He is the current Chair of the Asia-Pacific Health Economics Network
                      (APHEN), founder member of the Asian Health Systems Reform Network (DRAGONET), Editorial Advisory Board Member of Research
                      in Healthcare Financial Management and an Associate Editor of the Singapore Economic Review.
                      His email address is

                      Nicola Pocock is a research associate at the Lee Kuan School of Public Policy.
                      Prior to joining the school, she worked as general manager at aidha, a financial education organisation that offers money manage-
                      ment and entrepreneurship training for migrant domestic workers in Singapore. She was also a research volunteer at Amnesty Inter-
                      national, has carried out social work in Marseille, France, and has done communication work for the Race Equality Unit in the UK civil
                      Her research interests span health and social care issues, health systems financing, gender, migration and financial behaviours.
                      Her email is

                      Benjamin K. Sovacool is an Assistant Professor at the Lee Kuan Yew School of Public Policy. He is also a Research Fellow in the Energy
                      Governance Programme at the Centre on Asia and Globalisation.
                      Dr Sovacool has worked as a researcher, professor, and consultant on issues pertaining to energy policy, the environment, and science
                      and technology policy. He has served in advisory and research capacities at the U.S. National Science Foundation’s Electric Power
                      Networks Efficiency and Security Programme, Virginia Tech Consortium on Energy Restructuring, Virginia Centre for Coal and Energy
                      Research, New York State Energy Research and Development Authority, Oak Ridge National Laboratory, Semiconductor Materials and
                      Equipment International, U.S. Department of Energy’s Climate Change Technology Programme, and the International Institute for Ap-
                      plied Systems and Analysis near Vienna, Austria.
                      Dr Sovacool has published four books, more than 80 academic articles, and presented at more than 30 international conferences and
                      symposia. His email address is

                      Anthony D’Agostino is a research associate at the Centre on Asia and Globalisation (CAG) with research interests in energy policy,
                      climate change adaptation, and environmental decision analysis. Prior to joining CAG, Anthony worked with the Institute of Water
                      Policy at the Lee Kuan Yew School of Public Policy, using system dynamics to address public policy and water policy challenges. He
                      has worked with the Greenhouse Gas Protocol at the World Resources Institute and at UNEP-ROAP, respectively focusing on corporate
                      GHG emissions and sustainable buildings. In addition to consultation work on transportation and corporate environmental reporting,
                      Anthony has worked for organisations in India, Australia, New Zealand, and the US on rural development and sustainable agriculture
                      His email is and you can follow his work on the Southeast Asian energy sector on Twitter, @seasiaenergy.
The Lee Kuan Yew School of Public Policy is an autonomous, professional graduate school of the National University of Singapore.
Its mission is to help educate and train the next generation of Asian policymakers and leaders, with the objective of raising the
standards of governance throughout the region, improving the lives of its people and, in so doing, contribute to the transformation
of Asia. For more details on the LKY School, please visit

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