EDEN Regional Project on the Social Impact of the Asian Financial Crisis

Introduction

While analysts and observers focussed on the effects of the crisis on economic and financial indicators, an equal but pressing problem that was not been given prominent attention was the social effects of the crisis. Yet, the Asian crisis was more than a financial crisis, it was also a social crisis. The increase in prices of goods and services, company and bank lay-offs and cuts in social expenditures, severely affected society in general, especially from the poorest sectors of the region. In the Philippines, as during the previous rounds of recessions in the economy, the marginalized sectors usually shouldered the cost of the restructuring. Thus, the recession may further affect the levels of long-term social and human development and increase the levels of poverty and inequality. Also, a major feature of the crisis was the number of company closures, bankruptcies, and consequent lay-offs. The labour sector was therefore, one of the most affected sectors. This paper focuses on this particular aspect of the crisis ± labour markets - and will examine the channels through which the labour sector was affected by the slowdown in the economy. More specifically, the effects of the crisis on the various dimensions of the Philippine labour market, including the levels of labour utilization, productivity and wages will be examined. Finally, the paper will trace the responses of the government, business and trade unions to the crisis, and make an assessment of the sufficiency of these responses. A review of the macroeconomic and social effects of the crisis will precede the discussion of the effects of the crisis on labour markets in order to provide the context for the situation in the country.

Brief Review of the Macroeconomic and Social Effects of the Crisis

Although the Philippines was not as badly affected by the Asian financial crisis in comparison to other countries like Thailand, Indonesia and South Korea, the crisis came at an inopportune time. The regional economic laggard for the past two decades, the country was experiencing moderate 5 to 6 per cent GDP (Gross Domestic Product) growth during the few years before the crisis and hoped to sustain that level well into the next century. Structural reforms in the areas of trade and investments were being implemented, while the deregulation of the goods and services market ( including the financial, telecommunications and transport sectors) and the privatization of state-owned corporations was being carried out. Prudent macroeconomic policies resulted in fiscal surpluses for the first time in two decades. Significant strides were being made to reduce poverty and the poverty incidence had declined from 40 per cent in 1991 to 32 per cent in 1997. The implementation of a comprehensive poverty alleviation programme and increasing opportunities for employment provided a foundation for the continued reduction in the number of poor households download