2. Thailand and Mekong River Basin Countries: Prospects and Challenges for Asian Agriculture in the 21st Century, Experience and Perspectives from Thailand and Mekong River Basin Countries by Dr. Nipon Poapongsakorn, Vice President, Thailand Development Research Institute (TDRI)
6. China (i): Performance, Prospects and Challenges for China’s Agriculture by Dr. Jikun Huang, Professor and Director, Center for Chinese Agricultural Policy (CCAP), Chinese Academy of Agricultural Sciences (CAAS)
11. China (ii): China’s Agriculture in Transition: Recent Developments, Agricultural Growth, Policy Issues and Impact for Asian Crisis by Dr. Feng Lu, Associate Professor in Economics, China Center for Economic Research (CCER), Peking University
14. India: Agricultural Policy Reforms in India: Scope and Limits by Dr. Vijay S. Vyas, Chairman, Policy Research and Action Group (PRAG), India
19. Indonesia: Indonesian Crisis, Agricultural Performances and Reform Measures by Dr. Delima H. Azahari Darmawan, Deputy Assistant Minister for Agriculture, Office of the Coordinating Minister for Economy, Finance and Industry
28. Republic of Korea: Economic Crisis and its Impact on the Agricultural Sector by Dr. Kyeong-Duk Kim, Research Fellow, Korea Rural Economic Institute (KREI)
33. Malaysia: Sustainable Agricultural Development and Poverty Alleviation in Malaysia: Retrospect and Prospect by Dr. Abdul Aziz Abdul Rahman, Professor and Director, Center for Policy Studies (CPS), Universiti Putra Malaysia
39. Pakistan: The Asian Crisis, Reform Measures and Agriculture: The Case of Pakistan by Dr. Sarfraz Khan Qureshi, Director, Pakistan Institute of Development Economics (PIDE)
46. Philippines: Constraints to Food Security: The Philippine Case by Dr. Cristina C. David, Research Fellow, Philippine Institute for Development Studies (PIDS)
59. Indochina and Myanmar: Asian Crisis, Reform Measures and Agriculture Performance: Indochina and Myanmar by Dr. Mya Than, Senior Research Fellow & Coordinator, ASEAN Transitional Economics Programme, Institute of Southeast Asian Studies (ISEAS)
1. The country policy papers were presented and discussed by policy institutes/centres on 15 June 1999 as a follow-up to the Ministerial “Roundtable on Beyond the Asian Crisis: Sustainable Agricultural Development and Poverty Alleviation in the Next Millennium”. The following are summaries of the country papers.[1]
3. In the mid-1980’s, the socialist countries in the Mekong River Basin (or the so-called Greater Mekong Sub-region or GMS) embarked upon a process of reform which was intended to transform the controlled or command economic system into a market oriented one. Since then, the economies of Cambodia, Laos, Myanmar and Viet Nam have become increasingly integrated into the world economies, especially their economic interrelations with Thailand, Malaysia and Singapore. They have engaged in a process of greater opening to international trade and foreign investment.
4. The reforms and the increased integration among the GMS countries have brought about substantial economic benefits for the people of the sub-region, particularly, a higher standard of living, a reduction in poverty incidence, and a higher quality of life as indicated by the improved social indicators. However, globalization has made them increasingly vulnerable to international economic forces as evidenced by the contagion effects of the Asian crisis of 1997. The impact of the crisis is now threatening to offset much of the benefits and progress that had been made possible by the decade-long process of market liberalization, reform and improved economic cooperation.
5. The paper briefly summarizes the economic reforms, particularly macroeconomic management and agricultural development polices, and the consequent macroeconomic performance. It, then, analyses the impact of the Asian crisis and the responses of the agricultural sector. Finally, some development challenges in the next millennium and policy implications were discussed.
7. International communities have long recognized China’s effort to produce enough food to feed its growing population. China’s food self-sufficiency is high considering that it feeds over a fifth of the world’s population with only one-fifteenth of the world’s arable land. China’s future food security, however, is a source of growing concern for several reasons. Although China’s food production grew over the last several decades, year-to-year fluctuations of food supply and prices are significant. Farmers’ incomes in the central and eastern regions of China continue to grow more rapidly than that in the west and southwest areas. Income inequality among regions, between rural and urban areas and within regions continues to grow. In the early 1980s, tremendous progress was made in addressing China’s poverty problem due mainly to the government’s rural reform program. However, this progress has slowed over the past ten years.
8. A number of recent studies conducted by both domestic and international organizations have led to a consensus that while the increases in China’s grain imports will be marginal and the nation will remain at a high level of food self-sufficiency in the coming decades, China’s long term food security is an issue of both national and international significance.
9. China will face greater challenges in feeding its growing population in the next millennium (Huang and Chen, 1999). Food supply availability in China is important not only because it concerns a large proportion of the world’s population and increasing demand for agricultural and food products resulting from income growth, but also because rapid industrialization and urbanization will lead to competition for resources between agricultural and non-agricultural sectors. The impacts of trade liberalization and China’s access to the WTO on China’s domestic agricultural production, price, trade balance and on farmers’ income are also becoming a serious concern of both policy makers and farmers.
10. The goal of the paper is to review the performance of the food and agricultural sector; consider the role of agricultural policies in improving the food situation; project food demand, supply and trade for major agricultural commodities in the 21st century; and identify the challenges and key issues related to agricultural development and food security that require further intervention. The paper will also review the macroeconomic and agricultural development of the country and sources of growth in agricultural production, analyse current policies and programmes of government and predict the shape of China’s food economy in the early part of 21st century, with focus on the impact of trade liberalization on China’s economy and agriculture. Major challenges and constraints to agricultural development in the next millennium, the measures and options towards sustainable agricultural development are also discussed in the paper.
12. During the last two decades, an economic and social transformation has unfolded in China, the extent and nature of which could hardly have been anticipated. The transition process is in essence the combination of unprecedented market oriented reforms and industrialization. Growth and structural changes witnessed in the agricultural or rural sector have played a primary role in supporting the dynamic process of transition. Enormous increases in food and agricultural production, rapid income growth for the rural population, structural changes in the agricultural sector as well as the rural economy have made great contributions to the overall economic transformation of China over the last decades.
13. The paper reviews the path and experiences of China’s agricultural growth since the 1980s and especially in recent years. It also presents an assessment of the impact of the Asian crisis on Chinese agriculture and includes a review of China’s macroeconomic situation in recent years, an overview of growth in China’s agricultural sector and rural economy and an analysis of the driving forces behind the growth process. Succeeding sections discuss major policy issues in recent years relating to agricultural market integration, foreign investment in the agricultural sector and grain price and marketing policy as well as recent developments in China-US WTO negotiations and their impact on agriculture.
15. Several developing countries in Asia are going through a series of economic reforms known by their generic name, the Structural Adjustment Programme (SAP). The paths taken by these countries vary but basic elements are common. The more important aspects include stabilization of the economy by reducing budgetary deficit as well as gap in balance of payment. These reforms also aim at a change in structure of the economy by emphasizing the role of the market as the major instrument for the allocation of resources and transfer of incomes. Another principle followed is the integration of the country’s economy with the global economy. Following these objectives a number of policy measures are taken in areas such as pricing, trade, finance and taxation. The paper is an attempt to examine a few important tenets of the reforms as they impact agriculture, keeping in view the structural and institutional setting of India. It is recognized at the outset that exogenous factors and non-price, endogenous factors are at times more important than the policy interventions.
16. India is a large and poor country with a population of nearly 900 million and a per capita income (GDP) of less than US$500. Agriculture accounts for over 60 percent of employment and contributes nearly a third of national output. Food expenditures claim around half of the income of the households and income elasticity of food is high. On the production side, an important factor to contend with is the closure of the land frontiers. This suggests that agricultural output can be expanded only by improving the productivity of the factors of production, principally land. Employment growth in non-farm sector is sluggish. Above all, nearly 40 percent of population lives below the poverty line. Economic reforms in agriculture have to be viewed against this backdrop.
17. The impact of economic reforms on agriculture in a country like India can be discussed at two levels. First, one may try to understand the impact of the macro policy reforms, especially attempts to remove industry protection and the bias against agriculture, curtail budgetary deficits and realign the value of domestic currency. Second, one may discuss sectoral policies in agriculture generally pursued under SAP. These may include fiscal policies, agricultural price and subsidy policies, trade policies, credit policies and institutional reforms. The paper focuses mainly on the second set of issues, commenting only on the policies pertaining to output prices, input subsidies and trade policy. It comments, however, on the major institutional changes in land relations and delivery systems and discusses the implications of the declining share of public investment in agriculture. The paper concludes by highlighting the critical role of the government in fulfilling the objective of equitable and sustainable agricultural growth.
18. The paper traces the genesis and salient features of the new economic policies in India, provides reasons for a cautionary approach to reform in agricultural sector as well as discusses the experience with policies on agricultural prices and input subsidies and the needed reforms. It also deals with various aspects of globalization and external trade in agriculture and outlines the role of the state in a market-oriented growth strategy and comments on the institutional reforms and public investment in agriculture.
20. The events of 1997-1998 have imposed an unprecedented series of challenges to the Indonesian Government and its people: the worst drought in over 50 years, severe forest fires and a financial crisis that eroded confidence and sent national output to a plunge. Output was forecast to decline by approximately 15 percent in 1998. It was feared that the rate of inflation, which was always kept below 10 percent, would approach 80 percent that year. Purchasing power has dropped while prices of staple commodities have rocketed. This has created problems in the industrial sector as the market for its products has shrunk. Many companies have gone bankrupt resulting in widespread layoffs. Open unemployment was estimated to reach as much as 20 million persons. The exchange rate devalued by close to 400 percent by July 1998 but started to recover by October that year when the value of the rupiah strengthened to RP7.000 to a dollar although still 60 percent lower than its value before crisis (RP2.400 to a dollar).
21. The combination of the economic crisis, political weakness and drought in crop year 1997-98 has brought into question the ability of Indonesia to adequately feed its population. Food prices have risen dramatically and adequate quantities of food are out of reach for the poorest quarter of the population. While there are selected in which food supplies are inadequate, the main problem is inadequate purchasing power. The economic crisis has devastated the incomes of many Indonesians. It is estimated that as many as 70 million people have an income below the poverty line. A significant share of the poverty is found in per-urban areas where poor laborers have been laid off from their jobs in the construction, manufacturing and service sectors.
22. The events of 1997 and 1998 have propelled agriculture into the spotlight. Historically, agriculture has been the main engine of rural economic growth. In the 1980s, agricultural growth averaged 3.8 percent per annum or approximately 2 percent higher than the rate of rural population growth. Between 1990 and 1995, the rate of agricultural growth slowed to 2.9 percent. During the period 1996 to 1998, agricultural output declined. Indonesia’s agriculture is still dominated by food crops as indicated by its 52.8 percent share in 1997 agricultural GDP.
23. Recent economic reforms undertaken in Indonesia have focused more on structural adjustments. Because Indonesia has recognized the importance of economic stabilization, components of the stabilization program had already been undertaken in the distant past. There are at least three important reasons for this. First, inflation distorts the price incentives that are at the core of structural adjustment. Second, crises that abounded in an unstable economy drew the attention of policy makers and economic managers away from the arduous tasks of steering reforms through the political and economic system. Third, many of the features of a stabilization program are also essential for structural adjustment.
24. In July of 1998, the Indonesian Government introduced a targeted food subsidy programme called the special operation’s food relief effort. Under this programme, eligible households are allowed to purchase 10 kilograms of rice per month at a price of RP1,000 per kilogram, a price that is approximately 25 percent of the prevailing market price. Poverty estimates provided by the Family Planning Agency are used to identify the numbers of beneficiaries. Local governments use these poverty estimates as starting points and identify needy beneficiaries based on their local understanding of food insecurity. As of September 15 1999, more than 3 million households (representing approximately 15 million people) participated in this food relief program.
25. Restoring growth is now an urgent priority. Efforts to restart production cannot succeed if Indonesia does not restore confidence in its financial system. One lesson that Indonesia has learned from the economic crisis is that a weak financial system greatly increases its vulnerability to economic shocks. Therefore, Indonesia is giving the highest priority to the task of rebuilding its financial system. Given current state of the economy, Indonesia has to rely on exports to restore growth. A number of factors, however, impede a return of rapid export growth.
26. Equally important is Indonesia’s commitment to a series of broadly based structural reforms. These reforms are aimed at reducing the degree of government intervention in the economy, especially in areas where market forces provide greater efficiency. Indonesia, for instance, is in the process of privatizing public enterprises. The reforms also address the issues of corruption and seek to improve governance in both the private and public sectors. The country is introducing laws to make its central banks independent and to ensure fair competition. Although the benefits of these reforms will be felt in the long term, once in place, the structural reforms serve to ensure that growth is sustained and that risks of disruptive changes in investor confidence are reduced. Finally, the political situation is stabilizing with a clear timetable in place for the transition to a democratically elected parliament and the election of the President.
27. Policy reforms in agriculture will help enhance food security and restore agricultural growth and development. However, these reforms must be complemented by a stable macroeconomic environment and by improvements in other sectors. Over time, continued investment in economic infrastructure, human resources and core public sector institutions will be required to foster rural development, increase farm incomes and maintain the agricultural growth momentum.
29. Since the late 1980s, the Korean Government has increased investments in the agricultural sector in order to improve its productivity and efficiency. It has emphasized large-scale farming and established and implemented a programme for restructuring the agriculture and rural sector especially after 1992, which deserves to be recorded as a golden era for agriculture of the country.
30. In 1992, the government set up funds worth 42 trillion won to pursue the above programme within the 7 years (1992-98). In 1995, it also established special funds (15 trillion won) for further improvement of the welfare of the rural people through investments in social infrastructures in rural areas within 10 years (1995-2004). These development programmes have not only improved the productivity of the agriculture and rural sector but also the wellbeing of Koreans.
31. In late 1997, however, the country suffered from the financial crisis, which had spread from Southeast Asian countries. The Korean Government had to seek emergency loans from the International Monetary Fund (IMF). Since the introduction of the IMF bailout programme, there have been a lot of difficulties in the economy such as bankruptcies in private firms and dramatic increases in unemployment that induced the unemployed in urban centres to move to rural areas and impelled them to take jobs in the agricultural sector.
32. In the paper, the recent trends of government expenditure on the agricultural sector and its performance and the impact of the economic crisis on the agriculture sector are analysed. The paper also discusses the direction of growth, budget trends of the central government, the structure of loans and subsidies in the agricultural sector and the performance of the structural adjustment policy in the agricultural sector under the IMF bailout programme. A brief summary of the impact of the economic crisis on the agriculture sector is likewise given.
34. Poverty eradication and restructuring of society is an important agenda in Malaysia’s development plans. The New Economic Policy (NEP) which was introduced in the aftermath of racial disturbances aimed to eradicate poverty irrespective of race as a means to attain national unity and racial harmony. The objective of the First Outline Perspective Plan (OPP1) 1971-90 was to reduce the overall incidence of poverty from 49.3 percent to 16.7 percent. The incidence of rural poverty, meanwhile, was targeted to fall from 58.7 per cent to 23.0 per cent during the period.
35. The National Development Policy (NDP) introduced in 1991 continued to build upon the achievements during the OPP1 to accelerate the poverty alleviation process and hasten the restructuring of society. The Second Outline Perspective Plan (OPP2) covering the period 1991-2000 has also been formulated to provide strategic directions in the area of poverty alleviation. Under the OPP2, the overall incidence of poverty has to be lowered from the 17.1 percent actually achieved in 1990 to 7.2 percent in 2000. In terms of rural poverty, this requires a reduction from 21.8 percent in 1990 to 11.2 percent. This implies that the total number of poor rural households must be pruned from 530,300 in 1990 to 293,600 by 2000.
36. Given the fact that a large proportion of the rural population is depends on agriculture, the thrust of rural poverty alleviation during the tenure of the NEP and the NDP has always been agricultural development. Sustained growth of agriculture is aimed not only at ensuring continued contribution to the national product and industrialization, but also at generating returns to the producers. Agricultural progress will be attained through judicious allocation of operating and development budgets as well as concerted provision of agricultural support services.
37. Six “agricultural poverty groups” have been targeted for poverty alleviation programmes. These are rubber smallholders (with a poverty rate of 65 percent in 1971), paddy farmers (88 percent), plantation workers ((40 percent), fishermen (73 percent), coconut smallholders (53 percent) and other agriculturists (89 percent).
38. Agricultural development efforts for alleviating rural poverty have been based on two distinctive approaches. The first is “new” land development while the second involves in-situ development. The latter approach in turn comprises four programmes: rubber re-planting, land rehabilitation and consolidation, integrated agriculture development projects (IADPs) and agricultural support services. One prominent strategy employed to alleviate agricultural and rural poverty is commodity diversification. In addition, a number of indirect strategies have also been implemented to alleviate agricultural and rural poverty, mostly in the form of agricultural support services.
40. The crisis in Asia provides a sobering perspective on the importance of good economic governance. Financial capital flows into a well managed had been acknowledged as facilitating factor in most countries. The East Asian crisis, however, has demonstrated that capital outflows can occur rapidly when confidence in economy’s governance is shaken.
41. Pakistan was in a position to weather the Asian crisis. The direct impact of the crisis on the local economy was not expected not to be large, as the trade linkage of Pakistan with the East and Southeast Asia was not high. At the worst, a mild adverse impact on trade prospects as well as access to foreign funds to finance the current account imbalance was predicted for the Pakistan economy. The indirect impact of the crisis on the Pakistan economy depended largely on the domestic policy environment.
41. The paper examines the nature of the changing domestic policy environment facing agricultural sector in Pakistan and what it has meant for agricultural performance. The process of economic liberalization began in the early 1980s with the gradual depreciation in the value of the rupee, relaxation of controls on investment and progressive linkage with the world economy via a liberalization of imports. These reforms were deepened and enlarged in scope beginning in 1988-89. However, these reforms were sidetracked in 1998 in the wake of external shocks. The policy response to the shocks also had a negative impact on agricultural incentives as the rupee became overvalued because of the imposition of a multiple exchange rate system. The growth in the agricultural sector of Pakistan over the past 40 years has been relatively high and has exceeded the equally rapid population growth rate of about 3 percent per year. Growth performance has been erratic, showing large fluctuations over different decades.
42. The overall agricultural sector has grown at a rate of 4.12 percent in the recent decade of reforms. However, growth has come mainly from the livestock sub-sector for which data are not reliable. The major crops have grown at an annual rate of just 1.74 percent. This stagnation is a worrisome phenomenon: Past growth has derived merely from increases in inputs and total factor productivity in the sector has been declining over time. The adjustment package for accelerated agricultural development pursued in Pakistan comprises both economy-wide policies as well as policies tailored specifically for the agricultural sector which, taken together, had reduced the bias against agriculture over time. The implicit taxation of agriculture has been drastically diminished. Prices of some of the agricultural crops that had been kept low by price policies have been allowed to approximate rates in the market. Yet, despite these improvements in agricultural incentives, there has been no commensurate increase in the growth rate of the crop sub-sector. The answer to the policy puzzle is advanced in terms of deterioration in the non-price regime facing agricultural sector during 1990s or, specifically, a falling trend in capital formation in agriculture.
43. Investment in agriculture as a percent of total capital formation in the economy has fallen during the 1990s compared to the 1980s, a reduction that is evident in private and public investment. Agricultural investment as a share of GDP has similarly dropped. As the share of agriculture in total economy falls with time, not much can be read into the declining share of agriculture in total investment. It is worth noting, however, that the share of agriculture in investment has fallen more rapidly than the share of agricultural GDP in total output for the economy. The declining trend in capital formation can traced to lower budgets for development due to fiscal constraints and to a decreasing share of the agriculture sector in total credit due mainly to the linkage of rural credit disbursement to a recovery of past dues of agricultural financial institutions. It seems that the non-price factors so important for growth in agriculture were not given the importance due such policy instruments in the adjustment programmes.
44. At least three policy areas require urgent attention to speed up agricultural growth. First, equitable and enhanced access to credit must be provided without endangering the financial health of the agricultural lending institutions. In restructuring the rural credit market, it is important to ensure the viability of credit institutions. The failings of rural credit institutions in Pakistan have largely been a consequence of subsidized credit and unpaid loan balances, the benefits of which have accrued mostly to prosperous and influential farmers. Cheap credit is at once a cause of non-viability of such institutions and inefficiency in resource allocation. A major casualty of a deteriorating portfolio and indiscriminate loan write-offs is the availability of future credit, the losers being the current as well as prospective borrowers. Improved viability of credit institutions should be the first item on the policy agenda in the interest of growth, equity and efficiency. Second, the decline in capital formation in agricultural sector needs to be arrested. The improved viability of credit institutions will be helpful in providing greater credit that can increase private investment in agriculture. In addition, public sector development spending for agriculture must also be increased in a cost-effective manner also to boost private investment in agriculture. Lastly, poverty alleviation and environmental protection issues should be suitably highlighted in future policy debates.
45. The experience of Pakistan indicates that instituting direct poverty alleviation programmes and social safety nets for the vulnerable groups in the context of declining public expenditure is difficult if not impossible. The rollback of state spending during the adjustment period in Pakistan implies a current need for non-government initiatives in poverty alleviation and provision of social services. It is also important to emphasize that the government’s role in the provision of social and physical infrastructure is crucial. The role of participatory community-based organizations in reducing poverty and improving natural resource management needs also to be emphasized. The policy response to the recent crisis consisted of an adoption of a multiple exchange rate system as well as direct controls on imports. This resembled the system adopted in 1950s, which had resulted in an overvaluation of the rupee and a transfer of resources away from agriculture. The policy choice made in the wake of the 1998 shock only worsened incentives for the export sector including agriculture. This and the declining level of capital formation in agriculture distorted the policy stance against agriculture.
47. Two years into the Asian financial crisis, fears that economic recession in the region will be prolonged have abated. A recent OECD report now projects a higher growth of the global economy in 1999 than was previously predicted, the US economy continues to surge, the threat of the Asian crisis spilling into Latin America did not materialize, Asian countries’ economic growth recovered earlier than expected, and Japan has embarked on an ambitious fiscal stimulus package as reforms in the financial sector are being adopted.
48. Economic indicators for the first quarter of 1999 economic also point to a Philippine recovery. Better than average weather conditions usually expected after a severe drought caused by El Niño has led to the strong performance of the agriculture sector. This was especially the case for rice, corn and other annual crops which benefited from the unusually rainy dry season which raised both yields and cropping intensities. Remittances from abroad accelerated which may indicate greater confidence in the economy. The declining trend of gross value added in manufacturing has slowed to -1 percent from the previous quarter’s -3.5 percent. Imports particularly of raw materials and capital equipment rose suggesting that producers were gearing up for domestic economic activities as the exchange rate stabilized at levels below 40 to US$ 1. Inflation rates also remained manageable while interest rates have declined.
49. The 1998 economic recession in the Philippines which reduced gross domestic product (GDP) by -0.5 percent (GNP increased by 0.13 percent) was not as severe as those experienced in South Korea (-5.5 percent), Malaysia (-6 percent), Thailand (-8 percent), Indonesia (-13.7 percent) and Hong Kong (-5 percent). The country actually suffered deeper economic recessions in 1984 (-7.4 percent), 1985 (-7.2 percent) and 1991 (-0.6 percent) due to unsustainable imbalances in macroeconomic fundamentals and to the political turmoil leading to the downfall of the Marcos regime in the early 1980’s.
50. As in the other East Asian economies, structural weaknesses in the financial sector - including inadequate policies in handling large surges of mainly short-term capital flows - as well as subsequent “contagion” effects in the region have been important factors contributing to the recent Philippine economic recession. Were it not for the severe drought due to the El Niño, gross domestic product could have managed to grow, albeit at a much lower pace than in 1997. Gross value added in agriculture declined by 6.5 percent in 1998, the sharpest fall in the economic performance of the sector on record. Crop production as a whole dropped, especially those of the four leading crops -- rice (-24 percent), corn (-12 percent), coconut (-13 percent), and sugar (-14 percent).
51. Over the past two decades, Philippine economic growth has been erratic and lower than most developing countries in Asia. Indeed, a slowdown of the manufacturing sector was already evident in early 1997 before the Asian financial crisis actually began. The agricultural sector, which continues to account for more than 20 percent of gross domestic product and over 40 percent of employment, has not performed very well since the 1980s. The slower growth of Philippine agriculture compared to other Asian countries suggests that the country has been losing its competitive advantage in the sector. Indeed, the ratio of agricultural imports to agricultural exports have increased from 30 percent to 160 percent by 1996 (i.e. the sector has shifted from being a net earner to a net importer of foreign exchange). The measures of revealed comparative advantage in agriculture as a whole and for all major agricultural exports have also declined sharply.
52. In the late 1980s, serious attempts were made to reform the policy and institutional distortions introduced during the two decades of the Marcos regime. Removed were undesired policies in the form of export taxes, the copra export ban, import controls on fertilizers and government monopoly control over international trade in coconut oil, corn, soybeans, soybean meal as well as the marketing of sugar. All the agriculture-related agencies placed under the Office of the President, such as the National Food Authority (NFA), the National Sugar Trading Authority (NASUTRA) now the Sugar Regulatory Office (SRA) and the Philippine Coconut Authority (PCA), which were responsible for the most destructive policy distortions, were transferred to the Department of Agriculture to facilitate the necessary streamlining of the agricultural bureaucracy. To ensure a more equitable distribution of benefits from agriculture and natural resource development, the Comprehensive Agrarian Reform Program (CARP) was launched encompassing both private and designated public lands. To address the serious threat posed by forest and watershed denudation and dwindling fishery resources on the sustainability of agriculture and ecosystems in general, the government raised forest charges, limited logging and embarked on an aggressive expenditure program for the rehabilitation and improved management of forest and fishery resources.
53. Unfortunately, institutional reforms to raise efficiency of the agricultural bureaucracy proved difficult to fully implement, unintended negative effects resulted in some reform measures and new policy initiatives, and price distortions were exacerbated by efforts to circumvent the spirit of agricultural trade policy reforms under the GATT-UR Agreement. The Congressional Commission on Agricultural Modernization has recently passed or the Agricultural and Fisheries Modernization Act (AFMA) that spells out the necessary policy and institutional reforms and public expenditure program to achieve food security. At the beginning of the Estrada administration in 1998, the attainment of food security was declared as the central program of the new government.
54. Food security is often confused with rice and corn self-sufficiency, forgetting that the goal of food security is for the benefit of all Filipinos, particularly the poor. Also, the production of rice and corn is not the only - and often not even the dominant - source of current and potential income of farm households who grow these crops. It should also be emphasized that food security as a goal is meaningful only at the household level. This goal aims to ensure that for all households, particularly the rural and urban poor households, food is available at prices that they can afford.
55. Rapid, sustainable, and equitable agricultural growth is a necessary condition for the attainment of food security because a large proportion of the poor are based in the rural sector. Increasing agricultural price protection will not lead to overall food security. High food prices hurt the food security of the large majority of the poor (including fisherfolk, non-rice and corn farmers, landless rural households and urban households who are net buyers of food) and lead to lower agricultural income for the sector as a whole. Instead, appropriate policies are required to address market failures pervasive in the agricultural sector, which arise from instability of domestic and world markets, the public good nature and strong economies of scale of certain inputs and technologies, imperfect information and externalities in agricultural production and consumption.
56. A year after the start of the Estrada Administration and no coherent agenda for action and reforms to address the accumulation of policy and institutional failures have been articulated. Public expenditure for agriculture is supposed to increase, but this will largely go to waste without reforms in trade and financial market policies, improvements in the quality of government programs, reallocation of expenditures across programs, major changes in the budgetary and program planning process, rationalization and streamlining of the bureaucracy, and so forth.
57. With few exceptions, there is little evidence that agricultural policies and institutions are moving in the right direction. To the contrary, a number of major policy actions are definitely in the wrong direction such as the transfer from the Department of Agriculture to the Office of the President of the NFA and NAFC. Attempts to do these also for other agencies and programs such as the NABCOR, SRA and the Competitive Enhancement Fund will only further centralize the distribution of corrupting rents and dispensation of political favours, perpetuate ineffective government programs and prevent the necessary rationalization and streamlining of the agricultural bureaucracy. Plans for the government to invest or provide loan or price guarantees in agricultural joint ventures or build-operate-transfer projects in what are properly private enterprise operations such as agricultural production or processing are very disturbing. This suggests that the current administration does not seem to understand the appropriate role of the public versus the private sector nor learned from the costly mistakes of providing loan guarantees in past industrial ventures.
58. It is therefore imperative that the constraints to attaining food security be properly analysed. The paper examines how trade and price policies, public expenditure programs and structure of property rights have hindered the achievement of a sustainable agricultural development and thus food security for all households.
60. Much ground has been covered on the causes, impacts, implications and the general lessons of the regional financial crises articulated by academics, politicians, business analysts and journalists. The current regional crisis started with a currency crisis, which later turned into a financial turmoil and now has become a regional dilemma. As a result, some new trends are emerging in political, economic and social spheres. Politically, there is now a rise in nationalism and patriotism, implying growing support protectionism. Campaigns initiated by the governments and some non-government organizations (NGOs) to buy domestic produce can be seen in Thailand, Malaysia and some other nations in the region due to current account deficits and shortages in foreign exchange. This trend will continue until the economies recover but is unlikely to last in the long term. In short, countries in the region are generally becoming more inward looking.
61. Along with the crises, there has been social and political unrest resulting in a change in political leadership in some states in the region. The unrest is likely to go on as long as present political systems are ineffective in curbing corruption, collusion and nepotism and in enforcing transparency. Furthermore, regional cooperation such as that fostered by the ASEAN has been tested by the crises. It is expected that questions regarding the success of such cooperation will be raised in future regional forums. In short, the financial crisis is a security issue that affects individual well being, national prosperity, regime and system stability and indirectly regional and international relations.
64. Meanwhile, in the economic sphere, it is sad to witness how in less than one year, East Asia has been transformed from the world’s fastest growing region into its slowest growing area. In general, economic growth in the region slowed down as a result of stagnation in foreign direct investment and reduction in regional and domestic demand for local products. Even economies such as Singapore and Hong Kong are losing global competitiveness as productivity has not been improving. Recently, however, there has been a rapid improvement in trade positions in East Asia. Foreign exchange markets have stabilized and some currencies have strengthened since the middle of October 1998. Furthermore, according to IMF, the aggregate current account balance of Indonesia, Korea, Malaysia, the Philippines and Thailand is forecast to be US$ 20 billion in surplus for 1998 as a whole compared with deficits of US$27 billion in 1997 and US$54 billion in 1996.
65. Because of the financial turmoil, Asian economies are shrinking. The output of Japan, for example, shrunk by 2.8 percent in 1998; Hong Kong, by 5.1 percent; Malaysia, by 6.7 percent; Korea, by 5.6 percent; Thailand, by 7.8 percent; and Indonesia, by 13.7 percent. Singapore also fell into a recession with a GDP growth rate of only 1.5 percent during that period. Asian economies are bottoming out will take at least 6 months to a year to recover. Even after recovery, they may not be able to catch up with their pre-crises high growth. In short, the region is still not out of the woods.
66. Impacts of the regional crisis on the social sector are more visible than any other sectors. This can be seen in terms of unemployment or retrenchment rates, deterioration in the quality of life (i.e. increase in the number of people under the poverty line), social unrest, ethnic tensions, and a contagious pessimism and lack of confidence in the ability of the state and the capitalist system to deliver the social goods.
66. One unfortunate consequence of the financial turmoil is the management of environmental hazards (e.g. the haze problem in Indonesia). As governments tighten their belts by cutting budgets, environmental protection may be given low priority and this may worsen the already deteriorating environment in the region. To make matters worse, decreases in household income will force the poor to exploit natural resources more intensively.
67. One can also argue that some established social relations are starting to deteriorate in the region. The first is the relationship between employer and employees. In some parts of East Asia, the social contract of lifetime job guarantees from employers and extreme loyalty of employees for their employer is no longer practised due to the crisis such that retrenchments and job-hopping can be witnessed in these states. The second relationship is the unwritten social contract between the ruling regime and the citizens. In some countries, regime legitimacy had been based on the ability to improve people’s living standards, but political authority has been challenged severely because of the economic crisis.
68. Are these social trends likely to continue in the future? Some may and some may not. Reduction in workers’ income and wages, for example, will continue for some time. The impact of the crises on social policies in terms of constraints to the capacity of affected nations to implement much needed social reforms, however, will continue to be felt.
69. Unlike their Asian neighbours, transitional economies of Southeast Asia such as Cambodia, Laos, Myanmar and Viet Nam are experiencing only limited effects from the current regional crisis. This is because their currencies are not convertible, they do not have stock markets, the size of capital inflows is small compared to other countries and capital outflow is almost non-existent. Moreover, these countries remain relatively distant from global financial markets - although not from the real economies to which these economies are attached - and host relatively simple domestic financial systems. These provide the countries in Indochina with some degree of cushioning and lead-time in which to prepare for inevitable ripple affects across economies. However, impacts on economic and social sectors to some extent exist although political impacts on these economies are negligible.
70. The objective of the paper is to explore and analyse the impacts of the regional financial crisis on each of the transition countries in Southeast Asia, their agricultural sectors in particular, in terms of development indicators and to draw lessons from their experiences. Overall macroeconomic and agricultural sector performances will be briefly highlighted while general economic reforms and policies specific to agriculture will be explored and analysed. Impacts of the Asian crisis and responses of the agricultural sector are also tackled and are capped by a discussion of the prospects and lessons for agricultural and rural development and the implications on development policy.
