Poverty and Security in Asia

Liquin Jin
Vice President (Operations 1)
Asian Development Bank

Washington, DC, March 30, 2004

I would like to thank the Asia Society for this opportunity to share my views on the development issues of Asia, and the role of the Asian Development Bank in promoting peace and security, as well as economic and social development in this region.

As the largest continent in the world, Asia represents one of the most important components of the world economy, with 56% of the world population, 26% of the world GDP, and a quarter of the world’s trade. In the two decades leading up to the mid 1990s, the remarkable achievements of Asian economies have contributed significantly to global economic development. The Asian economic miracle, led by Japan starting from the 1960s, and quickly followed by other South East Asian countries and economies in the ensuing decades - more recently by India and China, has been the focus of many economists over the years. Asia is vibrant. Its leading growth rate among the emerging market economies is unparalleled and has made it the most attractive region in the world. Asia is resilient. Most of the countries did not take long to re-emerge from the financial crisis that broke out in 1997 and regain growth momentum. Asia is dynamic. Turning into the new Millennium, Asia has once again become one of the locomotives of growth and economic globalization through further opening up and integration with the world economy.

Asia has achieved an impressive record in reducing income poverty on the strength of sustained rapid growth. Poverty incidence declined from 32% in 1990 to 22% in 2000. The absolute number of poor also dropped by around 180 million, from 900 million in 1990 to 720 million by the end of the decade. Asia’s development experience, especially over the last 50 years, provides important insights into the effectiveness of different development paradigms and strategies in different economic and social contexts.

However, the development agenda in the Asian region is far from accomplished. Asia is facing a number of daunting challenges. There are three areas that deserve our special attention.

(1) Poverty reduction remains a serious challenge.

Asia is still home to two thirds of the world’s poor. Although as a whole the region has achieved solid progress in poverty reduction, this performance was driven largely by most East Asian economies, particularly China and more recently India. The rest of the region did not witness a decline in the number of poor over the last decade, which remains at about 127 million. The South Asia region alone has more poor people than the total population in Sub-Saharan Africa. The region as a whole has made much less progress in the non-income dimension of poverty.

(2) Some countries have been marginalized in the process of globalization, and trail the rest of the region in terms of economic development and poverty reduction.

With economic globalization intensifying in the 1990s, the gaps within the region have become more pronounced. A number of countries are quickly climbing up the rung on the wealth ladder, while others are grappling with many complicated issues, which have seriously impacted their economic development. The development gap within the region is enlarging. Asia is a dichotomy of a most impressive modern urban landscape and dire poverty in rural and marginal areas.

(3) Regional conflicts and unstable geopolitical situations have severely hampered the economic development.

Part of the Asian region has been ravaged by prolonged conflict. The extreme poverty and social disorder sowed seeds of terrorism and this has in turn exacerbated the economic development in these countries.

I need hardly emphasize that the events of the last few years have made the international community rethink the linkages between poverty, terrorism, and security concerns. There is considerable consensus now that to make the world a safer place to in which to live, the international community needs to lay adequate emphasis on the ‘fight against poverty’ in the course of the ‘fight against terrorism’. The linkages between pervasive poverty and terrorism are indeed complex, but there is no denying that depravation, hunger, and lack of opportunities are likely to create the breeding ground for terror and sympathy for terrorism. Asia’s experience suggests that the underlying causes of ethnic and social conflict are invariably chronic poverty, lack of opportunities, and a general sense of depravation and hopelessness. At the same time, conflict and security concerns undermine development efforts, further aggravating the problem of poverty.

Notwithstanding all the problems, some recent developments suggest that there are good opportunities for the region to achieve fast development and enduring stability and peace:

First, there is emerging political consensus between India and Pakistan on the peaceful development of the two countries. The South Asian region as a whole can benefit from the shared view of stressing economic development.

Secondly, the external environment has been improving as the global economy strongly recovers, which is mainly driven by the accelerated growth of major developed countries and the return of international capital to emerging and developing countries.

Thirdly, most countries that were in the throws of conflict have achieved political stability and their legal framework and governance are improving. This has certainly paved the way for these countries to concentrate on economic development and poverty reduction.

Last but not the least, the intensifying regional economic cooperation in East Asia has demonstrated how regional cooperation can contribute significantly to the economic development of participating members. And this momentum can inspire the rest of the region to further integrate with the global economy. The emergence of regional cooperation involving post-conflict countries means a lot for peace and stability in the region: all parties have a great stake in reconstruction and rehabilitation.

Let me now focus on the South Asia and the Greater Mekong Sub-region.

South Asia

South Asia confronts some of the most difficult development challenges. The sub-continent has a population of about 1.45 billion people, which is approximately 24% of the world’s population. South Asia experienced sluggish growth over the three decades leading up to the 1990s, with per capita income growth averaging about 2% per annum, a mere 2% of global GDP. The per capita income of South Asia is about $ 460, virtually the same level as that of Sub-Sahara Africa. The number of poor in South Asia, measured on a dollar-a-day adjusted for purchasing power parity, is estimated at 425 million people, or 32% of the population. The social indicators are also generally low. The region is also less integrated with the global economy with a mere 1% of global exports, compared to East and Southeast Asia’s share of 9.5% of global exports. There is a long way to go before poverty is eliminated in this region.

South Asia has also witnessed periodic natural calamities, internal political frictions and disputes, and long-standing misunderstandings, disagreements and conflict between some countries. South Asia was directly affected as a result of the September 11, 2001 events as the war against terror was fought in Afghanistan and in border areas of Pakistan.

Since the early 1990s, the South Asian economies have embarked on comprehensive economic reforms. The major economic reforms include reducing the level and dispersion of trade tariffs, removing regulations on foreign investment, industrial deregulation, removing the barriers to entry, agriculture price reforms, reduction in subsidies, privatisation of some state monopolies, and fiscal consolidation. With liberalization of economic policies, the regional economic growth picked up and South Asia was able to sustain a growth rate of about 5.3% per annum in the 1990s – the second fastest regional growth rate after East and Southeast Asia. While South Asia’s growth rate declined in the first three years of the current decade, due largely to a slow down in the global economy, Afghan and Iraq wars, oil price hikes, failure of monsoons, and threats of terrorism, the economic outlook since the last year has been looking positive. The average growth rate of the region was 6.3% in 2003, and is likely to average 6.5% in 2004 and 2005. Provided appropriate policies are followed, South Asia should be able to maintain average growth rates of 6-7% per annum for the rest of this decade. At these growth rates, South Asia should be able to meet the Millennium Development Goal (MDG) of halving the poverty incidence by the year 2015 (from the current level of 32% to 16%).

Compared to income poverty, South Asia’s success has been much less pronounced in reducing non-income dimensions of poverty, especially relating to health and education. Infant mortality and under-5 mortality have declined very slowly in South Asia, and its progress in reducing the proportion of undernourished children, immunization, births attended by skilled health staff, and combating HIV/AIDS also remains slow. Some of these problems are linked to the poor status of women in the sub-region. As in the case of health, South Asia’s progress on education MDGs has also been slow. And little progress has been made in achieving gender equality with the ratio of literate females to males rising from 0.72 to 0.80 in the 1990s. The track record in meeting the MDG relating to environmental sustainability, especially halving the proportion of people without access to safe drinking water and a significant improvement in the lives of slum dwellers, has also been mixed.

The recent summit meeting of the South Asian Association of Regional Cooperation (SAARC), held in Islamabad in January 2004, has opened up new avenues of cooperation and political reconciliation between the South Asian countries. The Islamabad Declaration has considerably enhanced the prospects of improved relations between India and Pakistan. It is expected that the on-going initiatives will lead to further normalization of relations in the sub-continent and an improved economic climate.

ADB’s Poverty Reduction Strategy offers an effective approach to tackling poverty in South Asia. This strategy focuses on pro-poor economic growth, social development, and good governance. Public policy in South Asian countries should aim for sustained economic growth, with specific policy measures adopted to restrict the deterioration in income distribution within set limits. Well functioning markets, a strong legal and regulatory framework, improving infrastructure, agricultural development, and reforms of the financial sector will contribute towards pro-poor growth. However, human capital formation would need to be given high priority along with better targeting of poverty related expenditures in education, health and social services. Acceleration of economic growth, together with improvements in fiscal management and prioritization of expenditures, is necessary to generate resources for social sector investments. Public policy simultaneously needs to ensure that programs, especially in health and education, are well targeted and effectively delivered.

The Greater Mekong Sub-region (GMS)

The Greater Mekong sub-region covers a landmass the size of Western Europe, and its population is almost as large as that of the US. Yet its economies still remain at the low level of development. Excluding Thailand and the Yunnan Province of PRC, the per capita income is generally around $400 or less.

The GMS program seeks to improve the livelihood of 255 million people who live in the five countries and one province of PRC. About three-fourths of these people live in rural areas, where subsistence or semi-subsistence agricultural lifestyles continue unabated, and where modern changes seem a remote dream. In the more marginal areas, their lives are even tougher. The people in the GMS sub-region still have to draw heavily on natural resources such as agriculture, fishery, and forestry to make a living. For instance, agriculture accounts for about 70-80% of employment in most countries in this sub-region. It goes without saying that failure to maintain a healthy balance in ecosystems will lead to serious consequences in poverty reduction, and economic and social development. It is of paramount importance to forestall the vicious circle of poverty and environmental degradation.

The GMS vision of growth, equity and prosperity for the subregion is reflected in the universal aspiration of a “better world for all” that prompted the UN Millennium Summit in September 2000, to commit to a set of millennium development goals.

The GMS summit Declaration by the GMS Leaders in November 2002 enunciated a vision of freeing their people from poverty and providing sustainable development opportunities for all their citizens. For this to happen the sub-region needs to be increasingly integrated in order to be more competitive in a globalized world.

After decades of war and isolation, there has been wide recognition of the substantial economic opportunities available in the rich natural resources in the GMS. “Turning battlefields into market places” has become the catch-cry for the new era of cordial relations among the governments and between countries and MDBs in the GMS. Multilateral financial institutions such as the ADB have been promoting economic development as a driving force behind most of their involvement in the region and as a platform for the realization of their strategic objectives.

Since 1992, the ADB’s approach to the GMS has been largely shaped by an ambitious program of development, broadly identified as the Greater Mekong Subregion (GMS) Initiative. With the assistance of ADB, the six members (Cambodia, Laos, Myanmar, Thailand, Viet Nam, and Yunnan Province in PRC) entered into a program of subregional economic cooperation. The program has contributed to the development of infrastructure to enable the development and sharing of the resource base, and promote a freer flow of goods and people in the subregion. It has also led to the international recognition of the subregion as a growth area.

At the individual country level, I will briefly touch on ADB’s efforts in dealing with the security and reconstruction challenges in three South Asian countries - Afghanistan, Sri Lanka, and Nepal. The focus of these efforts has been to address the damage done by the conflict, and at the same time, to ensure that the affected communities gain from the ‘peace dividend’.

ADB’s operations in Afghanistan, focusing on reconstruction and rehabilitation, began soon after the end of the war in 2002. After an initial needs assessment, ADB pledged $500 million at the International Conference on Reconstruction Assistance to Afghanistan in Tokyo in January 2002. The assistance entails loans and grants for reconstruction of social and physical infrastructure, revitalizing agriculture, private sector development and capacity building. ADB is focusing its assistance on the transport (roads and civil aviation), energy (power, petroleum and gas) and natural resource management (agriculture, irrigation and environment) sectors. To supplement investment projects, ADB’s technical assistance program is focusing on governance reforms, capacity building, policy reforms and pilot projects in the transport, energy, natural resource management, and financial sectors. Although Afghanistan is making progress in post-conflict recovery and rehabilitation, reconstruction and development of the economy will take a considerable amount of time, and the country will require sustained assistance. ADB is committed to remain engaged in the long-term development of the country.

In Sri Lanka, over the last two decades, the internal conflict has wreaked havoc with the economy and caused countless injuries and major damage to infrastructure. ADB began rehabilitation operations in the conflict-affected areas prior to the ceasefire agreement in February 2002. ADB’s North East Community Restoration Development (NECORD) project covers all eight districts of the North and East, which bore the brunt of the country’s 20-year ethnic conflict. It includes a range of complementary activities that are aimed at improving the living conditions and ensuring the well being of people residing in these areas. Based on the needs assessment jointly undertaken by ADB, the World Bank and the United Nations, ADB also provided the Conflict-Affected Areas Rehabilitation Project (CAARP) in 2003 to support an extensive rehabilitation program for the conflict-affected areas with emphasis on infrastructure rehabilitation and basic needs at the community level as well as emerging gender and health issues in these areas. ADB is continuing to support the government in meeting the rehabilitation requirements while carefully balancing the development efforts in the Southern region of the country.

Nepal has been facing internal insurgency since 1996. The conflict, which is partly due to deep-seated geographic, social and ethnic inequalities within the society, continues to impose serious constraints on Nepal’s economy, rural livelihoods, and development activities. Despite the security challenges posed by the insurgency, ADB has remained engaged, in close cooperation with other development partners, in fostering the socio-economic development of Nepal—including the conflict-affected areas. To contribute to poverty reduction and to address some of the underlying causes of the ongoing conflict, ADB is supporting the government’s reform programs, as outlined in Nepal’s Tenth Five Year Plan. ADB’s program aims to help the government make the development process more inclusive by spreading the benefits of development beyond the Kathmandu Valley. ADB is supporting initiatives aimed at rural development, infrastructure development, and helping foster public-private partnerships in economic development. In addition, assistance would be provided to improve governance, capacity building, and improving the delivery of social services.

Before concluding, I would like to once again emphasize the role of ADB both at the individual country and regional levels.

At the individual country level, ADB’s approach to dealing with complex social problems, which can often assume serious international dimensions, is to attack the root cause underlying the problem, i.e. work closely with the governments, other development partners, and civil society to fight poverty, promote social cohesion, inclusion and justice. In practical terms, this means creating an environment in which the poor get opportunities for gainful employment, access to education, health care, and basic services such as water, sanitation and power. ADB has also encouraged the regional governments to involve the poor in the decision-making process, especially in areas, which most directly affect their lives. We have followed this approach in several post-conflict countries, and also in countries that are undergoing the turmoil of conflict. And while our success has varied in different countries, there is general recognition that this approach offers the only durable solution to complex social problems. In tandem, ADB has taken additional measures to combat terrorism. In 2003, ADB’s Board approved a policy paper on ‘Enhancing ADB’s Role in Combating Money Laundering and the Financing of Terrorism’. ADB is working closely with other development partners and regional government to combat money laundering and financing of terrorism by establishing and implementing effective systems through enhanced policy dialogue and provision of loans (or inclusion of loan components) and technical assistance, as appropriate.

In facing the challenges, regional cooperation offers a unique opportunity for Asia to form solidarity in pursuit of prosperity in the region. ADB is mandated by its Charter to foster regional cooperation in the Asia and Pacific region and contribute to the acceleration of economic development. ADB has considerable experience in promoting sub-regional cooperation initiatives in Southeast and Central Asia. These initiatives include the Greater Mekong Sub-region (GMS) Cooperation, Central Asian Regional Economic Cooperation (CAREC), Indonesia-Malaysia-Thailand Growth Triangle, and Brunei, Indonesia, Malaysia, Philippines East ASEAN Growth Area Program. While ADB’s experience in promoting sub-regional cooperation has differed across regions due to varying socio-political factors, the main lessons learnt are that regional cooperation initiatives result in better allocation and utilization of existing resources through trade liberalization, better connectivity and knowledge sharing, and creating opportunities for increased levels of productive investments. Regional cooperation also enhances social development by facilitating joint delivery of essential public services and by reducing the negative externalities, particularly through reducing conflicts and military expenditures. Improved mutual understanding and trust through cooperation can also contribute to peace and stability in the region.

ADB’s achievements have been the result of concerted efforts of its major shareholders, such as US, Japan (its two largest shareholders) and other regional and non-regional developed members, as well as its developing member countries. Continued strong support of its major shareholders is critical for the next phase of its intervention for development, peace, and security in this region.

Thank you.