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84 ECONOMIC OUTLOOK INCOME INEQUALITIES IN SOUTHEAST ASIA: POTENTIAL FOR MICROFINANCE By Aparna Bhagirathy Krishnan Southeast Asian countries have made significant achievements in reducing poverty, particularly extreme poverty. The region is well on track, and is an early achiever in attaining the first Millennium Development Goal (MDG) target of halving extreme poverty1 by 2015. However, despite this achievement, inequalities persist and are indeed on the rise in the region. The Gini coefficient2 in most of the countries in the region is over 30 per cent, implying high levels of inequality between the rich and the poor. The only two countries that saw a decline in the Gini index over the past few years are Thailand and Malaysia, though the inequality coefficient in these countries remains over 30 per cent (ESCAP 2007). Another measure, the share of the poor as measured by the poorest quartile in national consumption, has also been declining over the last • Southeast Asia, as a region, has made tremendous progress in reducing extreme poverty. However, inequalities are on the rise, both intra-region, and intra-country. In the absence of specific measures to address poverty and inequality, the gap is only expected to widen. • In recent years, there has been a lot of attention on microfinance both as a poverty alleviation tool, and as a commercially viable means of delivering financial services to the poor. • In Southeast Asia, there exists a variety of experiences with microfinance: in some countries, there is a long history of commercial microfinance institutions (such as Indonesia and the Philippines); while in others, the movement is recent, and emerged more by way of a social activity (such as Cambodia and Vietnam). There is scope for further growth and expansion as there is still a lot of unmet potential in the region. • Recent developments in the sector and challenges imposed by the global financial crisis this year may accelerate the trend of commercialization of the microfinance sector in the region. 1 Extreme poverty refers to percentage of population living under $1/day. 2 A comprehensive measure of income inequality, ranging from 0 (absolute equality) to 100 (absolute inequality). 02a EcoOutlk.indd 84 12/10/08 11:55:22 AM 85 REGIONAL ECONOMIC OUTLOOK decade in the Philippines, Lao PDR, Cambodia and Malaysia. This means that as these countries grow, the gap between the rich and the poor widens and the poor have a smaller share every year in the national consumption. There are also differences in achievements between countries within the region. While the average poverty rate of countries in Southeast Asia is about 8 per cent, the poverty rate among the least developed countries of the region is about 34 per cent (Asia-Pacific MDG Study Series 2007). Vicious cycles of inequality when reinforced, could lead to social and/or political instability, and undermine future achievements of goals such as universal education, health, sanitation, etc. (Asia-Pacific MDG Study Series 2007). Poverty reinforces vulnerabilities, and these in turn, lead to other types of disparities — inequalities in access to health facilities, to safe drinking water and sanitation, to formal financial markets, etc. The global food crisis earlier this year, particularly soaring rice prices has adversely affected the well being of the poor in most developing countries, and could reverse some of the progress made in reducing poverty levels. The United Nations World Food Programme (WFP) characterized the soaring food prices as the “silent tsunami” threatening to push an additional 100 million people worldwide into hunger. Some have pointed to the other side of the argument, which is that rising food prices also mean that they are beneficial for farmers in the long run. The problem however, is that in most developing countries given the majority of small farmers, and given the shortage of investments in agriculture and infrastructure, it is questionable if these farmers would be in a position to take advantage of the short-term price rises. Poor people when exposed to shocks in the short or long run — of income, consumption, health, or weather — often have limited mechanisms to cope with them. They often use ex post mechanisms, such as borrowing and informal social transfers, which are inadequate when shocks are aggregate (such as a flood), or are of a large scale. Yet, they often do not have access to ex ante mechanisms, such as insurance, savings, or other financial instruments, which can help to manage risks better because they are excluded from formal financial markets. Recently...

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