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ASIA: As Economy Turns, Turning Off Stimulus Tap Is a Challenge

Marwaan Macan-Markar

BANGKOK, Jan 26 2010 (IPS) - As the global financial crisis triggered alarms across Asia, Singapore responded with a government programme to aid its vulnerable workforce. The affluent city- state pumped in three billion U.S. dollars in an employment protection programme.

Under the Jobs Credit scheme, which was unveiled as part of the country’s stimulus package to respond to the crisis, businesses were encouraged to retain their employees through training programmes aimed to improve their skills.

This across-the-board initiative, where the government offered employers “wage support” for each employee, included small and medium enterprises and the larger companies. After all, the city-state was among the worst affected of Asian countries, with its economic growth dropping from 6.7 percent to minus11.5 percent as the global crisis intensified in 2009.

“The Singapore government used the crisis as an opportunity to train its workforce and provide better skills to improve competition in the medium term,” said Gyorgy Szirackzi, a senior economist at the International Labour Organisation’s (ILO) Asia-Pacific office, in Bangkok. “This will also help in the post-crisis stage.”

This aid package, in fact, accounted for a third of the 10.6 billion dollars that the city-state’s government spent as its stimulus package to soften the blow from the global crisis, which began in the United States in 2008.

Other East Asian countries followed this pattern of enhancing the quality of their local workforces affected by the crisis, albeit through different initiatives, Szirackzi told IPS. “Malaysia improved training of graduates who were about to enter the workforce. They concentrated on developing their IT (information technology) skills.”

South Korea, on the other hand, gave a helping hand to its threatened workers to enhance their foreign language skills. “The government implemented a programme for young graduates to go abroad and learn a language to improve their fluency,” said the ILO official.

Such assistance to help skilled workers was with reason. These Asian countries had economies more integrated to U.S. markets. South Korea and Singapore “were affected from the outset,” states the ILO in a 2009 study. “In these economies, job losses in the financial sector took place immediately.”

But as the crisis spread, its impacts were felt in other developing countries, with “millions of workers in key export industries in the region (having) been retrenched,” the ILO notes. “Sales of labour-intensive manufacturing products, including toys and games, footwear and clothing are down sharply in the United states and Europe as are higher value-added goods such as computers and related equipment and automobiles.”

Countries like Thailand came to the rescue of some workers. Bangkok’s financial package to boost its heavily export-dependent economy had allocated funds to provide “skills training for retrenched workers,” the ILO states.

The financial stimulus packages opened up jobs in other areas, too, as government money for infrastructure programmes, ranging from road building to improving drainage systems in urban centres, ensured more labour-intensive jobs.

These packages varied across East Asia. Indonesia and the Philippines had 7.1 billion dollars and 7 billion dollars, respectively, followed by Malaysia with 12.1 billion dollars, Thailand with 39 billion dollars and South Korea with 53.4 billion dollars, according to a new United Nations report, ‘World Economic Situation and Prospects 2010’.

Meanwhile China, the region’s economic powerhouse, dwarfed other countries with its stimulus package, which was 585.3 billion dollars, or nearly 13.3 percent of the gross domestic product (GDP).

Such government-led measures to expand “government expenditure on consumption and investment” has helped countries in East Asia reap some rewards, the U.N. report states. “The East Asian economies rebounded in the course of 2009 after suffering severe downturns in the aftermath of the (U.S.-based) Lehman Brothers bankruptcy, when exports, industrial production and domestic investments weakened sharply.”

The U.N. is consequently upbeat about its economic forecast for East Asia, predicting that the sub-region’s economic growth will hit 6.7 percent in 2010, making it “the highest among all regions of the world.”

During recession-hit 2009, the sub-region’s economic growth was 4.1 percent, down from 6.2 percent in 2008 and 9.3 percent in 2007, reveals the 180-page U.N. report. “In fact much of East Asia’s growth in 2009 is accounted for by China, where GDP expanded by 8.1 percent compared to 9.0 percent in 2008.”

Yet such a recovery has also given rise to a worrying question: When should governments turn off the stimulus package tap?

An early or untimely end to the stimulus packages could undermine the emerging signs of an economic recovery, the U.N. warns. “While the overall outlook for East Asia is favourable, the region faces several major policy challenges and downward risks, including a premature exit or sharp reversal of the expansionary monetary and fiscal policy measures that were put in place over the past year.”

Particularly worrying is the spectre of a double-dip recession, according to the U.N. report.

The labour market will feel the heat of such an early end to the financial packages, said Tiziana Bonapace, chief of the macroeconomic policy section at the Economic and Social Commission for Asia and the Pacific (ESCAP), a Bangkok-based U.N. regional body. “An early withdrawal of the stimulus packages could see some of the special programmmes implemented in the region that ensured employment being unwound.”

Yet at the same time governments will come under pressure “from growing public discontent about the expanding public debt and that constant spending by governments is crowding out the private sector,” she told IPS. “It is not an easy decision for governments to make. Much depends on the circumstances of each country.”

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