Sustainable Growth, Regional Balance, & Social Development for Poverty Reduction in Thailand

1. Sustainable Growth, Regional Balance, & Social Development for Poverty Reduction in Thailand Preparation for implementation of the 10th National Economic and Social Development Plan October 27, 2006

2. Presentation Outline • What is Social Protection (SP)? • Does Thailand Need SP? • Impact of Key SP Programs in Thailand • Risk and Vulnerability Trends • Policy Implications/Instruments

3. What is Social Protection? • Social protection (SP) is a set of actions to: • Provide support to the critically poor and vulnerable • Assist individuals, households, and communities to bettermanage risks • SP comprises both public interventions and private mechanisms • SP is an integral part of countries’ growth and poverty reduction strategies • Safety nets are opportunity-enhancing for the poor • Can help societies embark on reforms with high equity and political costs • Can encourage prudent risk taking by households, firms and workers

4. What is Social Protection? • SP focuses attention on: • Social assistance and welfare programs: to provide subsistence to individuals and households with no other means of support • Social insurance programs:to provide assistance to individuals and households who temporarily fall below socially accepted indicators of welfare (e.g. unemployment, pensions, work injury, illness) • Labor market policies and programsto facilitate employment, and protect workers (not jobs)

5. Does Thailand Need SP? • Labor reallocation plays a critical role in productivity growth. Not just unavoidable but desirable. • Asian economies perform better than others in terms of efficiency of allocation of labor (Bartelsman, Haltiwanger and Scarpetta, 2004) • Growing economies show more dynamic processes of ‘creative destruction’ and high job turnover • High job turnover is good for growth but can have transitory adverse effects on those affected • Protect workers not jobs e.g. need policies that facilitate exit out of old jobs and entry into new ones

6. Does Thailand Need SP? • Poverty has declined but vulnerability to poverty is high: • 44% and 51.8% of rural households were vulnerable to poverty in 2002 or 2004, and 35% in both years • Ex-post coping strategies of vulnerable households: • increasing working hours, borrowing money outside HH, and drawing down savings by selling assets

7. Does Thailand Need SP? • Risk-focused SP programs can help vulnerable HHs reduce costly ex-ante risk management and avoid ex-post excessive asset decapitalization • Thailand spends less on SP: 3.7% of total gov’t expenditure (Taiwan 20.7%, Korea 9.6%, Malaysia 4.5%) • Need a more balanced strategy with adequate public and market mechanisms to complement family- and community-based coping strategies

8. Thailand’s Context Population = 65 m Labor Force = 35-39 m Popn aged 15 and above = 49 m Non-Labor Force ~ 26 m Informal ~ 26m Formal ~ 13m • Unemployed • Children and Youth • Elderly and Old-aged • People with Disabilities • Beggars and Destitute • Other Economically Inactive Groups • Agriculture Sector: 14.5m • Manufacturing: 1.8m • Construction: 0.97m • Commerce&Utility: 6.4m • Services: 2.9m • Government Employees:1.2m • State Enterprise Employees: 0.2m • Private Employees and Employers in Non-Agriculture Sector: 11m • Agri’ Sector: 1.4m Labor Market Mechanisms/Policies

9. SP Schemes/Programs Labor Force Non-Labor Force Informal Sector Formal Sector • Social Assistance Programs • Village Funds, School-meal Programs • Social Development • Informal Mechanisms • Universal Health Coverage • Community-Based Savings • Informal Mechanisms • Gov’t welfare scheme: 1.2 m • CSMBS: 5.7 m (inc. dependants) • GPF/SOE: 1.4 m • SSS/WCF/PF: 8 m Labor Market (ES, UI)

10. Impact of Key SP Programs • Workers in informal sector are typically not covered by any SP schemes, except Universal Health Coverage. • Formal sector schemes generally include following benefits: • illness, death, invalidity, child allowance, old-aged (all schemes), survivors (all except Private School Teachers’ Fund), child education support (all except SSS), unemployment insurance (only SSS) • Government officers benefit the most from SP without direct contribution • Non-agri private employees and private school teachers and are required contribution to social insurance funds • Issues of SP programs in Thailand include: • Coverage of Target Groups, Equity, Targeting Mechanism, Coverage of Social Problems, Service Delivery, Budget Allocation, Personnel Issues

11. สูงสุด ต่ำสุด Impact of Key SP Programs Free School Lunch Program and Government Scholarship Program 2004 (Chandoevwit 2006 and Deolalikar 2006) • School Lunch: Despite arbitrary nature of beneficiary selection process, the program appears to be very regressive, with 65-70% of bottom two quintiles receiving benefits • Scholarship Program: Coverage issue

12. สูงสุด ต่ำสุด Impact of Key SP Programs Social Pension for Elderly Program 2004 (Chandoevwit 2006 and Deolalikar 2006) • …. • The program has very low coverage • It targets only those aged 60 years and older who live by themselves

13. Impact of Key SP Programs One Million Baht Village and People’s Bank Programs 2004 (Chandoevwit 2006 and Deolalikar 2006) • Coverage rate of around 10-15%, but never meant to assist everyone in every village – only the neediest • No progressivity at all: arbitrary mechanism of fund allocation and little attention paid to poverty status of household’s need for funds

14. Impact of Key SP Programs Percent of Individuals having health insurance coverage 2002 (Deolalikar 2006) • Coverage from all schemes other than UC are low (UC coverage 2004 is 94%) • Regressivity of SS and CSMBS is to be expected since they cover better-educated and higher-wage earners

15. Impact of Key SP Programs • Unemployment Insurance launched January 1, 2004. • Own-account and unpaid family workers and employees with less than 10 employees are excluded (a large majority of workers) • Share of bottom two per capita monthly wage quintiles in UI contributions is likely to be much greater than their share in claims or payouts (15% versus 4%), for top wage quintile (59% versus 44%) • Government assistance appears progressive, but makes little difference to poverty incidence • GA amounts: 2.6-5% of pre-assistance household income • Without the government assistance payments, the poverty head-count ratio in 2002 would have been 1.4 percentage points greater (19.1 instead of 17.7 percent) in the Northeast and 0.7 percentage points greater in the North (Deolalikar 2006)

16. Risk/Vulnerability Trends • Poverty and Vulnerability: are, for the most part, similar • Concentrated areas: 3/4 of the ‘vulnerable’ population is located in NE (1/2), N and C (1/4) • Vulnerability and Informality: 77 per cent of ‘vulnerable’ population is located in agriculture, Trade, services, and manufacturing • Vulnerability and Old-age: 28 per cent of vulnerable HHs headed by elderly • Vulnerability and Education:81 per cent of the vulnerable population is headed by a person who has some primary schooling • Another 13 per cent are headed by a person having no formal schooling

17. Policy Implications • Many formal programs of MOL and MSDHS can be improved and selectively and gradually expanded • Ensure effective and efficient implementation: • good programs, policies and strategies can be compromised by poor admin arrangements (including decentralization) • Need to address issues of informality with HD/SP integrated strategy: • Thailand: informal is 53% of total employment (Philippines 43%, Malaysia 31%, Indonesia 19%, Vietnam 16%) – Doing Business 2006 • Its impact on productivity and growth? exacerbated by low education and skills? • Need to consider risks and vulnerability caused by increased urbanization, changing economic structure (through bilateral trade agreements and increased migration flows), climate change, emerging (zoonotic) diseases, globalization, etc.

18. Policy Instruments • Asset decapitalization to cope with a shock can create irreversibilities on education, health and nutrition spending among vulnerable HHs • Conditional Cash Transfers as integrated HD/SP approach have emerged in many countries with the common goals of: • Reducing current poverty and inequality • Via cash transfers to the poor • Reducing future poverty and inequality • By linking transfers to incentives for investments in human capital (via health/education conditionalities)

19. Policy Instruments • Formal old-aged pensions: low coverage and low replacement ratio today mean most elderly will have limited or no pensions. This leads to several problems: • Heavy reliance on family support, growing number of “aged deserving poor”, increased disparity between the elderly haves (with pensions) and have nots, increased political pressure for universal coverage • Informal pension: possibility for voluntary participation in defined contribution (DC) schemes that are properly regulated and invested • Do not repeat mistakes of the past • Avoid creating large unfunded liabilities • Should expand coverage in a sustainable manner: • Pressures to expand public defined benefit (DB) schemes can create large unfunded liabilities. • Attempts to expand contribution mandates could distort labor markets and increase informality.