UNITED NATIONS

Economic andESCAP Social Commission for Asia and the Paci c

i ii FOREWORD

Building resilience to multiple shocks is one of the most pressing contemporary development challenges faced by Asia and the Pacific. Economic crises and natural disasters are on the rise and know no boundaries; they straddle wide geographic areas, spread across all sectors of economic activity, and endanger our communities. For communities still living in fragile and conflict-affected States, each shock erodes their capacity to cope with the next disaster or crisis on the horizon. They are twice as likely to be undernourished and their children three times as likely to be out of school, while they receive less than half the amount that Governments in other countries spend on education, health and security. These communities are stuck in life-long vulnerability traps from which it is very difficult to break out.

Five years ago, global economies plunged into deep crises as they struggled under the weight of the most severe economic slowdown since the 1930s. In Asia and the Pacific, the financial crisis converged with the food and fuel crises, which compounded the damage inflicted on the livelihoods of millions of people across the region. Furthermore, in the past few years devastating earthquakes, floods, typhoons, droughts and other natural disasters have wreaked havoc throughout the region, causing enormous loss of lives, and widespread damage to livelihoods, property and local economies. In its wake, climate change has the potential to result in even more disasters among our most vulnerable communities.

iii Increased connectivity and interdependence through trade and financial flows, dense transport networks and speed of communications, while creating unprecedented opportunities, have also amplified the effects of these multiple shocks. Floods in Thailand, for example, triggered supply chain disruptions across the region, and severe droughts that covered large swathes of China and Central Asia led to higher food prices for millions of people. Meanwhile, turmoil in major financial markets continued to adversely affect people living in far-flung villages in our region who have never even visited a bank.

Although most economies in the region have been fortunate enough to recover relatively quickly from recent economic crises and stabilize towards long-term growth rates, this seemingly visible evidence of economic resilience masks the underlying vulnerabilities of poor and disadvantaged communities. For poor families who struggle daily under the reality of permanently higher food and fuel prices, who are unable to replace the loss of income from jobs that have disappeared and who have inadequate access to systems of social protection, the crises and disasters of years past are not distant memories. The lasting legacy of multiple shocks - food insecurity and rising maternal and child malnutrition, reduced public expenditures on health and education, compromised livelihood opportunities and underemployment - all affect the quality of human development long after GDP growth rates and per capita income have regained their footing. The gap between visible resilience and hidden forms of vulnerability among the “bottom billion” remains very large.

The lessons of the past five years have led to this new normal. The global financial crisis, food and fuel crises, and the consequences of natural disasters may seem to be unrelated, but they are the result of shocks applied to complex systems that interlink social, economic and environmental factors. They highlight the increasing interrelation of economies that have been brought together by globalization, which binds systems and economic activities in locations that were previously unconnected.

Experiences from the region and around the world have proven that disaster prevention and preparedness is far more effective and less costly than recovery and relief efforts. Despite this fact, policymakers are largely in uncharted territory when it comes to integrating crisis mitigation and disaster risk reduction measures into macroeconomic policy planning. As policymakers turn to building resilience as a key pillar of sustainable development for the Asia-Pacific century, they must factor in the impacts of natural disasters, balance short-term macroeconomic stability with long- term development and build capacity across all sectors and levels of government, if they are to successfully manage simultaneous shocks of unknown origin and

iv magnitude. These are not easy tasks. They call for systems thinking, applying new and more sophisticated decision-making tools and above all, overcoming inherent limitations in addressing risks and uncertainties.

It is my hope that this report will provide a significant contribution to the regional policy dialogue that addresses the pressing question of how people, organizations, institutions and policymakers can work together to weave resilience into the everyday fabric of our social and economic lives. A range of complex factors have impacts on levels of resilience and risks sown by economic crises and natural disasters, including health and education levels, political conflict and the legacy of violence in conflict- affected States. The focus on resilience is crucial in the current environment because multiple shocks are increasingly becoming the new normal for the region. The threats of tomorrow will come at anytime, from anywhere, without warning, and with increasing frequency. Countries that build systems of resilience to withstand, adapt to, and recover from major economic crises and natural disasters are investing in the security of our region’s most valuable resource – its people.

Noeleen Heyzer Under-Secretary-General of the United Nations and Executive Secretary, United Nations Economic and Social Commission for Asia and the Pacific

APRIL 2013

v ACKNOWLEDGEMENTS

Under the overall direction of Noeleen Heyzer, Executive Secretary of ESCAP, this report was prepared by a team led by Shamika Sirimanne, Director of the Information and Communications Technology and Disaster Risk Reduction Division. The core team consisted of Masato Abe, Patrik Andersson, Witada Anukoonwattaka, Derek Atkinson, Tiziana Bonapace, Clovis Freire, Shaina Hasan, Kelly Hayden, Rémi Lang, Dominic Leong, Manuel Mejido, Linda Vega Orozco, Teemu Puutio, Nokeo Ratanavong, Madan B. Regmi, Mari Sawai, Ermina Sokou and Sanjay Kumar Srivastava.

The team appreciates the valuable support provided by the Senior Management Team of ESCAP, with special thanks to Shun-ichi Murata, Deputy Executive Secretary of ESCAP, Anisuzzaman Chowdhury, Director of the Macroeconomic Policy and Development Division, Dong-Woo Ha, Director of the Transport Division, Nanda Krairiksh, Director of the Social Development Division and Ravi Ratnayake, Director of the Trade and Investment Division who made substantive contributions to the report.

The following ESCAP staff members provided inputs, comments and suggestions: Shuvojit Banerjee, Alf Blikberg, Ksenia Glebova, Eric Hermouet, Alberto Isgut, Beverly Jones, Nagesh Kumar, Daniel Jeongdae Lee, Timothy Wai Leong Loh, Hongpeng Liu, Laura Lopez, Mia Mikic, Oliver Paddison, Hitomi Rankine, Isabel Pereira Rodrigues, Marco Roncarati, Maria Semenova, Harumi Shibata, Robert Spaull, Donovan Storey, Yusuke Tateno, Ram Tiwaree, Keran Wang, Natalja Wehmer and Jenny Yamamoto. The following individuals also provided inputs: Linghe Ye, Nitin Kumar Tripathi, Associate Dean of the Asian Institute of Technology (AIT), and Lal Samarakoon, Director, Geoinformatics Center, AIT.

The following experts prepared technical background papers for the Study: Benigno Balgos, Center for Disaster Preparedness, Philippines, and M.G. Quibria, Professor, Department of Economics, Morgan State University.

The following individuals provided research support: Han Du, Wei Jei, Iris Lim, Francisco Morino, Chitrini Mozumder, Jonghyo Nam, Suhyon Oh, Yuzuru Sato, Shweta Sinha, Zulfiya Suleimenova, Guibo Sun, Kento Yoshimura, Xun Zhang and Ruilin Zhu.

The report benefitted from the comments and suggestions of an external peer review meeting held in Bangkok on 26 and 27 February 2013. Participants in the meeting were a group of policymakers and scholars: Debapriya Bhattacharya, Distinguished Fellow, Centre for Policy Dialogue, Bangladesh; Wisit Chaisrisawatsuk, Assistant Professor, School of Development Economics, National Institute Development Administration, Thailand; Karin Fernando, Senior Professional, Centre for Poverty Analysis, Sri Lanka; Santosh Kumar, Professor and Head, Policy, Planning and Cross-Cutting Issues Division, National Institute of Disaster Management, India; Louis Lebel, Director, Unit for Social and Environmental Research, Chiang Mai University, Thailand; Antonio Limuaco Fernandez, Expert, Earthquakes and Megacities Initiatives, Philippines; Tetsuo Miyairi, General Manager, SOMA Construction Office, Tohoku Branch, East Nippon Expressway Company Limited, Japan; Thusitha Pilapitiya, Policy Advisor, Democratic Governance, Asia-Pacific Region, United Nations Development Programme, Thailand; and German Velasquez, Senior Regional Coordinator, United Nations Office for Disaster Risk Reduction, Thailand. The report also benefited from review and comments by Surya Raj Acharya, Senior Research

vi Fellow, Institute for Transport Policy Studies, Tokyo, and Shinya Hanaoka, Associate Professor, Tokyo Institute of Technology.

Asia-Pacific Research and Training Network on Trade (ARTNeT) advisors, John Gilbert, Sisira Jayasuriya, and Debaphrya Bhattacharya provided comments and suggestions on various chapters of the report.

Logistical support in processing and administration was provided by Suraphong Chuachamsai and Narada Kalra. Support from Patricia Budiyanto, Tarnkamon Chantarawat, Preyawan Chobpanich, Sukanitt Jaruveshsuti, Pradtana Limkrailassiri, Kanjana Sibunnanon on proofreading is much appreciated.

Substantive editing of the manuscript was undertaken by Peter Stalker. The graphic concept , design and layout was created by Marie-Ange Sylvain-Holmgren, assisted by Paula Simone do Amaral Praxedes, and printing services were provided by PK Printers.

Francyne Harrigan, Chief Strategic Communications and Advocacy Services, coordinated media communications.

vii CONTENTS

FOREWORD III ACKNOWLEDGEMENTS VI CONTENTS VIII BOXES XI FIGURES XIII TABLES XV ABBREVIATIONS XVI EXPLANATORY NOTES XIX EXECUTIVE SUMMARY XXI

resilience to shocks DEFINING RESILIENCE 5 PREDICTABLE AND UNPREDICTABLE SHOCKS 6 apter 1 c h apter WHY RESILIENCE IS IMPORTANT 7 WHO IS MOST VULNERABLE TO MULTIPLE SHOCKS? 19 SYSTEMIC RESPONSES 21 APPENDIX: MEASURING RESILIENCE 23

THE macroeconomics of resilience IMPACTS OF NATURAL DISASTERS ON THE ECONOMY 36 MACROECONOMIC TRANSMISSION CHANNELS OF NATURAL DISASTERS 38 apter 2 c h apter DIFFERENT IMPACTS OF ECONOMIC CRISES AND NATURAL DISASTERS 40 ADDRESSING NATURAL DISASTERS 41 DISASTER RISK REDUCTION IS COST EFFECTIVE 43 POST-DISASTER RESPONSE: FINANCING VERSUS ADJUSTMENT 48 BUILDING A MORE RESILIENT MACROECONOMIC FRAMEWORK 51 REGIONAL COOPERATION CAN HELP BUILD ECONOMIC RESILIENCE 59

viii building resilient communities THE VULNERABLE POOR 64 EXCLUDED GROUPS 67 apter 3 c h apter COPING WITH SHOCKS 68 SUPPORTING COMMUNITIES 70

THE LAND, WATER, ENERGY NEXUS – AVOIDING CATASTROPHIC FAILURE GROWING LAND CONSTRAINTS 90 apter 4 c h apter WATER SCARCITY 92 REACHING ENERGY THRESHOLDS 94 SCARCER MINERALS 96 IMPLICATIONS OF CROSSING THRESHOLDS 97 RESPONDING TO THE CONVERGING NEXUS 101 ADAPTIVE GOVERNANCE 106

PROTECTING CRITICAL SECTORS 108 1. FINANCIAL SECTOR 110 PREVENTING FINANCIAL CRISES 113 apter 5 c h apter RESPONDING TO FINANCIAL CRISES 117

2. CRITICAL INFRASTRUCTURE 118 EXPOSURE OF INFRASTRUCTURE TO NATURAL DISASTERS 118 MAKING SOCIAL INFRASTRUCTURE RESILIENT 122 MAKING PHYSICAL INFRASTRUCTURE RESILIENT 125 INTERDEPENDENCIES AMONG CRITICAL SECTORS 131 FINANCIAL STRATEGY AGAINST DISASTERS 131 COSTING RESILIENCE 133 DISASTER RISK MANAGEMENT FOR PROTECTING CRITICAL INFRASTRUCTURE 136

ix strengthening supply chains 6 STRENGTHENING SUPPLY CHAINSASIA-PACIFIC SUPPLY CHAINS 146 VULNERABILITIES OF GLOBAL SUPPLY CHAINS 153

apter 6 c h apter JAPAN EARTHQUAKE, 2011 154 O T P PH O ESC A THAILAND FLOODS, 2011 157 AUSTRALIA FLOODS, 2010-2011 162 LESSONS FOR BUILDING RESILIENT SUPPLY CHAINS 166 POLICY RECOMMENDATIONS 168

mutual support through regional cooperation

7 MUTUAL SUPPORT THROUGH REGIONAL COOPERATIONCOORDINATED MANAGEMENT DURING ECONOMIC CRISES 174 LAND, WATER AND ENERGY LINKAGES 178

apter 7 c h apter COOPERATION ON DISASTER RISK MANAGEMENT 179 O T P PH O ESC A A REGIONAL FRAMEWORK FOR BUILDING RESILIENCE 188

REFERENCES 196

x BOXES

Box I-1 Resilience within the United Nations development agenda Box I-2 Policymaker blind spots Box I-3 Definitions of resilience Box I-4 Disasters triggering high commodity prices Box II-1 Impact of natural disasters on economic growth in Pakistan Box II-2 Creative destruction in Sichuan, China Box II-3 Pacific island countries – limitations in disaster risk management Box II-4 Indonesia – national and provincial disaster management responsibilities Box II-5 Indonesia – Law on Natural Disaster Management Box II-6 Pacific island countries – facing multiple shocks Box II-7 Development assistance for addressing shocks in low-income countries Box III-1 Myanmar – the impact of cyclones on poverty Box III-2 The Philippines – coping mechanisms during the 1991 Mount Pinatubo Eruption Box III-3 Coping with disasters – erosive and non-erosive strategies Box III-4 Coping with shocks Box III-5 Bangladesh – resilient women during the 2008 crisis Box III-6 Viet Nam – The National Target Programme for Poverty Reduction Box III-7 Indonesia – social protection response to the 1997 financial crisis Box III-8 Russian Federation – response to the 2008 global financial crisis Box III-9 Samoa – combining formal and informal social protection Box III-10 India – microinsurance schemes after the 2001 earthquake Box III-11 Tajikistan – disaster risk reduction through community endowment funds Box III-12 Solomon Islands – developing community resilience Box III-13 Pakistan – disaster risk insurance for low-income communities Box III-14 Thailand – multiple community strategies Box IV-1 Viet Nam – restoring mangrove forests Box IV-2 Energy and climate change Box IV-3 Nepal – climate change impacts

xi Box IV-4 Afghanistan – the 2007/08 drought Box IV-5 Viet Nam – protecting the rice supply chain Box IV-6 Maldives – climate change impacts Box IV-7 The Philippines – building resilience to disasters in Metro Manila Box IV-8 Bangladesh – regional early warning system Box IV-9 Maldives – climate resilient development Box IV-10 The Philippines – legal enforcement of environmental rights Box IV-11 The Philippines – resolving water supply disputes Box V-1 Pakistan – earthquake-resilient housing Box V-2 China – Wenchuan earthquake triggers construction of safe schools Box V-3 Thailand – flood action plan Box V-4 ICT infrastructure: last mile connectivity Box V-5 Ten essentials for making cities disaster resilient Box V-6 Republic of Korea – protecting critical infrastructure in disaster-prone areas Box V-7 Turkey – Catastrophe Insurance Pool Box V-8 Asia-Pacific countries to increase private-sector participation in infrastructure development Box V-9 Japan – earthquake and tsunami in 2011, damage to infrastructure Box V-10 The Philippines – disaster resilience across sectors and scales in Makati City Box VI-1 The impact of natural disasters on supply chains Box VI-2 Supply chain disruption at the Renesas Electronics Corporation Box VI-3 Toyota’s assistance to suppliers Box VI-4 Business continuity plans Box VII-1 The 1997 financial crisis: lessons in economic policy management Box VII-2 The Chiang Mai Initiative Box VII-3 The Asian Bond Fund Box VII-4 The 2008 financial crisis: visible resilience and hidden vulnerabilities Box VII-5 ESCAP Trust Fund for Tsunami, Disaster and Climate Preparedness Box VII-6 RIMES: the cost effectiveness of regional cooperation Box VII-7 The Asia-Pacific Gateway for Disaster Risk Management and Development Box VII-8 The Caribbean Catastrophe Risk Insurance Facility Box VII-9 Social protection coordination in the European Union

xii Figures

Figure I-1 What is resilience? Figure I-2 Different scales and levels Figure I-3 Number of financial crises starting in a given year, 1971-2012 Figure I-4 Growth of GDP and exports of developing Asia-Pacific economies, 2006-2012 Figure I-5 Capital inflows to selected Asia-Pacific economies, 2005-2011 Figure I-6 Share and average relative costs from systemic banking crises in Asia and the Pacific, 1970-2011 Figure I-7 High and volatile prices of commodities, 1981-2012 Figure I-8 Prices of commodities have become more correlated, 2006-2012 Figure I-9 Higher bilateral trade-value partners participating in 75 per cent of global trade Figure I-10 Increasing share of trade in intermediate goods, 1998-2010 Figure I-11 The number of reported natural disasters has increased, particularly in Asia and the Pacific, 1980-2011 Figure I-12 Risk of being killed or being affected by natural disasters, 2000-2012 Figure I-13 Global economic losses and damage are on the rise, 1980-2010 Figure I-14 Impact is higher in poorer countries: Asia-Pacific average annual impact by income classification Figure I-15 Small island countries, economic damage as a percentage of GDP Figure I-16 Samoa, real GDP growth percentage, 1983-2011 Figure I-17 Persistent losses caused by shocks Figure I-18 Mapping vulnerability to economic crises and natural disasters Figure A-1 Intrinsic resilience, 2010 Figure A-2 Overall resilience index, selected global regions, 1993-2010 Figure A-3 Index of intrinsic resilience, Asia-Pacific subregions, 1993-2010 Figure A-4 Association between intrinsic resilience and the economic vulnerability index Figure A-5 High risk countries are also less resilient Figure A-6 Global economic crisis, 2008-2009 Figure A-7 Asian financial crisis Figure II-1 A disaster risk management framework Figure II-2 India, evolution of dedicated and embedded schemes for disaster management, 2005-2012

xiii Figure II-3 Indonesia, investment in disaster risk reduction, 2006-2012 Figure II-4 Debt-to-GDP ratios in Asia and the Pacific, 1990-2008 Figure II-5 Stimulus expenditures in selected economies Figure III-1 The community resilience-building process Figure III-2 Total deaths due to large- and small-scale disasters Figure IV-1 Potential arable land available for agriculture by region, 2009 Figure IV-2 Potential global gap between water supply and withdrawals by 2030 Figure IV-3 The net energy cliff – energy ratios for different technologies

Figure IV-4 Asia-Pacific energy demand, with and without CO2 mitigation, 1990-2035 Figure IV-5 Rare earth element requirements as a percentage of available supply by 2035 Figure V-1 Exposure and coping capacities in Asia and the Pacific Figure V-2 Samoa – hazard, exposure and losses Figure V-3 Damage and losses to physical and social infrastructure in recent disasters Figure V-4 Bangladesh cyclone shelters save lives, 1970-2010 Figure V-5 A three-tier financial strategy against natural disasters Figure V-6 Damage to economic sectors due to major disasters in Bangladesh, 1998-2009 Figure V-7 China – Tangjiashan lake formed after the Wenchuan earthquake, 2008 Figure VI-1 Toyota’s production network Figure VI-2 World trade flows of intermediate goods, 2008 Figure VI-3 Shares of selected partners in intermediate-goods trade, 1988-2011 Figure VI-4 Intra-industry trade intensity of the Asia-Pacific industrial sector, 2002-2011 Figure VI-5 An illustration of agricultural supply chains Figure VI-6 Intraregional trade intensity of Asia-Pacific agriculture trade, 2002 and 2011 Figure VI-7 Intra-industry trade intensity of Asia-Pacific agriculture, 2002-2011 Figure VI-8 Automobile production in ASEAN countries after the Japanese earthquake, 2011 Figure VI-9 Electrical components production after the Japanese earthquake, 2011 Figure VI-10 Key industrial exports from Thailand, 2011 Figure VI-11 Japan, monthly growth rates of automobile exports Figure VI-12 Global supply chains of a hard disk drive made in Thailand Figure VI-13 Movements of selected agro-product prices, 2007-2011 Figure VII-1 Benefits of risk pooling in the Pacific Figure VII-2 A regional framework for building resilience

xiv Tables

Table A-1 Intrinsic resilience of Asia-Pacific countries, 2010 Table A-2 List of MDG indicators considered to calculate the social resilience component Table IV-1 Consumption of water and population without access to improved water Table V-1 Critical infrastructure in Asia and the Pacific Table V-2 Damage to critical infrastructure from some recent disasters Table V-3 Infrastructure investment in the stimulus packages of major Asian economies Table VI-1 Australia’s 2010-2011 floods timeline Table VII-1 Major transboundary river basins in Asia

xv ABBREVIATIONS

ACEDRR Advanced Centre for Enabling Disaster Risk Reduction ADB Asian Development Bank ADBI Asian Development Bank Institute ADPC Asian Disaster Preparedness Center AMRO ASEAN+3 Macroeconomic Research Office APEC Asia-Pacific Economic Cooperation ASEAN Association of Southeast Asian Nations ASEAN+3 ASEAN plus China, Japan and the Republic of Korea BNPB Badan Nasional Penanggulangan Bencana (National Agency for Disaster Management) BRACE Building Resilience and Awareness of Metro Manila Communities to Natural Disaster and Climate Change Impacts BRICS Brazil, Russian Federation, India, China and South Africa C3 Makati Command, Control and Communications Centre CCRIF Caribbean Catastrophe Risk Insurance Facility CMI Chiang Mai Initiative CMIM Chiang Mai Initiative Multilateralization CRA Contingent Reserve Arrangement CRED Center for Research on the Epidemiology of Disasters CSIRO Commonwealth Scientific and Industrial Research Organisation DAFF Department of Agriculture, Fisheries and Forestry DESA Department of Economic and Social Affairs DFID Department for International Development DRM disaster risk management DRR disaster risk reduction D-SIBs domestic systemically important banks EC European Commission ECAFE Economic Commission for Asia and the Far East ECLAC Economic Commission for Latin America and the Caribbean EM-DAT Emergency Events Database ERN-AL Evaluación de Riesgos Naturales - América Latina EROI Energy return on investment ESCAP Economic and Social Commission for Asia and the Pacific

xvi ETIC Entrepreneurial Training for Innovative Communities ERRA Earthquake Reconstruction and Rehabilitation Authority EU European Union FAO Food and Agriculture Organization of the United Nations FDI Foreign direct investment FSB Financial Stability Board GDP gross domestic product GFDRR Global Facility for Disaster Reduction and Recovery GIZ Deutsche Gesellschaft fur Internationale Zusammenarbeit GMS Greater Mekong Subregion G-SIBs global systemically important banks GVC global value vhains HDD hard disk drives HFA Hyogo Framework for Action ICIMOD International Centre for Integrated Mountain Development ICT Information and Communications Technology IDB Islamic Development Bank IEA International Energy Agency IEC Information, education and communication IFRC International Federation of Red Cross and Red Crescent Societies IMF International Monetary Fund IOC Intergovernmental Oceanographic Commission IPCC Intergovernmental Panel on Climate Change ISDR International Strategy for Disaster Reduction ITU International Telecommunication Union KA Kahua Association LDCs least developed countries LECReD Low Emission Climate Resilient Development LLDCs landlocked developing countries MDG Millennium Development Goals MIMU Myanmar Information Management Unit NDRRMC National Disaster Risk Reduction and Management Council NEMA National Emergency Management Agency NGO non-governmental organization NRCNA National Research Council of the National Academies NREGA Mahatma Gandhi National Rural Employment Guarantee Act OCHA Office for the Coordination of Humanitarian Affairs

xvii OECD Organization for Economic Co-operation and Development OFDA Office of United States Foreign Disaster Assistance OMC open method of coordination PICs Pacific island countries PNPM Program Nasional Pemberdayaan Masyarakat (National Program for Community Empowerment) PPP public-private partnership RCEP Regional Comprehensive Economic Partnership RESAP Regional Space Applications Programme for Sustainable Development RIO+20 United Nations Conference on Sustainable Development RIMES Regional Integrated Multi-Hazard Early Warning System for Africa and Asia SAARC South Asian Association for Regional Cooperation SIDS small island developing States SMEs small- and medium-sized enterprises SOPAC Applied Geoscience and Technology Division, Secretariat of the Pacific Community TASIM Trans-Eurasian Information Super Highway TCIP Turkish Catastrophe Insurance Pool TEEB The Economics of Ecosystems and Biodiversity TNC transnational corporation UNDP United Nations Development Programme UNEP United Nations Environment Programme UNESCO United Nations Educational, Scientific and Cultural Organization UNFCCC United Nations Framework Convention on Climate Change UN-HABITAT United Nations Human Settlements Programme UNICEF United Nations Children’s Fund UNCTAD United Nations Conference on Trade and Development UNISDR United Nations Office for Disaster Risk Reduction UNITAR United Nations Institute for Training and Research UNU United Nations University USAID United States Agency for International Development WB World Bank WEF World Economic Forum WHO World Health Organization WMO World Meteorological Organization WTO World Trade Organization

xviii Explanatory notes

The designations employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries.

The boundaries and names shown and the designations used on the maps in this publication do not imply official endorsement or acceptance by the United Nations.

Mention of firm names and commercial products does not imply the endorsement of the United Nations.

The term “ESCAP region” in this publication refers to the group of countries and territories/areas comprising: Afghanistan; American Samoa; Armenia; Australia; Azerbaijan; Bangladesh; Bhutan; Brunei Darussalam; Cambodia; China; Cook Islands; Democratic People’s Republic of Korea; Fiji; French Polynesia; Georgia; Guam; Hong Kong, China; India; Indonesia; Iran (Islamic Republic of); Japan; Kazakhstan; Kiribati; Kyrgyzstan; Lao People’s Democratic Republic; Macao, China; Malaysia; Maldives; Marshall Islands; Micronesia (Federated States of); Mongolia; Myanmar; Nauru; Nepal; New Caledonia; New Zealand; Niue; Northern Mariana Islands; Pakistan; Palau; Papua New Guinea; Philippines; Republic of Korea; Russian Federation; Samoa; Singapore; Solomon Islands; Sri Lanka; Tajikistan; Thailand; Timor-Leste; Tonga; Turkey; Turkmenistan; Tuvalu; Uzbekistan; Vanuatu; and Viet Nam.

The term “developing ESCAP region” in this publication excludes Australia, Japan, New Zealand and North and Central Asian economies from the above-mentioned grouping. Non-regional members of ESCAP are France, the Netherlands, the United Kingdom of Great Britain and Northern Ireland and the United States of America.

The term “East and North-East Asia” in this publication refers collectively to: China; Hong Kong, China; Democratic People’s Republic of Korea; Japan; Macao, China; Mongolia; and Republic of Korea.

The term “North and Central Asia” in this publication refers collectively to Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Russian Federation, Tajikistan, Turkmenistan and Uz- bekistan.

The term “Central Asian countries” in this publication refers collectively to Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan.

xix The term “Pacific” in this publication refers collectively to American Samoa, Australia, Cook Islands, Fiji, French Polynesia, Guam, Kiribati, Marshall Islands, Micronesia (Federat- ed States of), Nauru, New Caledonia, New Zealand, Niue, Northern Mariana Islands, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu.

The term “South and South-West Asia” in this publication refers collectively to Afghanistan, Ban- gladesh, Bhutan, India, the Islamic Republic of Iran, Maldives, Nepal, Pakistan, Sri Lanka and Turkey.

The term “South-East Asia” in this publication refers collectively to Brunei Darussalam, Cambodia, Indonesia, the Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Timor-Leste and Viet Nam.

The term “countries with special needs” in this publication refers collectively to least developed countries, landlocked developing countries and small island developing States in the Asia-Pacific region as indicated below.

13 least developed countries:

Afghanistan,* Bangladesh, Bhutan,* Cambodia, Kiribati,** Lao People’s Democratic Republic,* Myanmar, Nepal,* Samoa,** Solomon Islands,** Timor-Leste, ** Tuvalu** and Vanuatu** (*also a landlocked developing country, **also a small island developing State);

12 landlocked developing countries:

Afghanistan,* Armenia, Azerbaijan, Bhutan,* Kazakhstan, Kyrgyzstan, Lao People’s Democratic Republic,* Mongolia, Nepal,* Tajikistan, Turkmenistan and Uzbekistan. (*also a least developed country)

16 small island developing States:

Cook Islands, Fiji, Kiribati,* Maldives, Marshall Islands, Micronesia (Federated States of ), Nauru, Niue, Palau, Papua New Guinea, Samoa,* Solomon Islands,* Timor-Leste,* Tonga, Tuvalu* and Vanuatu.* (*also a least developed country)

Values are in United States dollars unless specified otherwise.

The term “billion” signifies a thousand million. The term “trillion” signifies a million million. Reference to “tons” indicates metric tons.

In the tables, two dots (..) indicate that data are not available or are not separately reported, a dash (–) indicates that the amount is nil or negligible, and a blank indicates that the item is not applicable. In dates, a hyphen (-) is used to signify the full period involved, including the beginning and end years, and a stroke (/) indicates a crop year, fiscal year or plan year. Bibliographical and other references have, wherever possible, been verified. The United Nations bears no responsibility for the functioning of links to uniform resource locators (URLs) contained in bibliographical or other references to the work of external organizations.

xx EXECUTIVE SUMMARY

AN ERA OF OVERLAPPING SHOCKS

A COMPREHENSIVE RESPONSE TO NATURAL DISASTERS AND ECONOMIC CRISES IN ASIA AND THE PACIFIC

The Asia-Pacific region has been battered in recent years by a relentless series of shocks. Some have been related to natural disasters, such as earthquakes or droughts or floods. Others, such as the 2008 financial crisis, have been caused by convulsions in global markets. Still others, such as rocketing food and energy prices, have been the result of a complex combination of shocks.

The traditional approach has been to consider such events individually. This is increasingly unrealistic. Governments across the region often find themselves dealing with overlapping shocks that demand a more comprehensive and systemic approach to building resilience. Resilience in this sense means the capacity of countries to withstand, adapt to, and recover from natural disasters and major economic crises – so that their people can continue to lead the kind of life they value.

For many policymakers this is new territory: they are more accustomed to focusing on problems in particular economic or social sectors rather than treating them as systemic wholes. Even more difficult, they have to take decisive action now about events that may or may not take place. By definition, this is a step into the unknown. On the whole, human beings are not very good at assessing the likelihood of what might happen in the future. Moreover, politicians know that they will be blamed for any such decisions that work out badly while receiving little credit for low-key actions that quietly avert disaster.

The risks they find easiest to identify are those from events that occur fairly regularly. Bangladesh, for example, is accustomed to coping with floods and cyclones and has invested in disaster risk reduction – in flood monitoring, for example, and forecasting and early warning systems. Other natural hazards, such as earthquakes and tsunamis, are far less predictable. Economic shocks may also come as a bolt out of the blue: the collapse of a United States investment bank that helped trigger the 2008 global financial crisis had been considered highly improbable.

xxi To add to the uncertainty, a single event that, in isolation, might seem manageable within national borders can nevertheless provoke multiple and interrelated global shocks. The 2010 floods in Pakistan and the droughts in the Russian Federation were together translated by global financial and trade systems into higher food prices. And massive floods in Thailand in 2011 triggered a cascade of failures – bringing production to a halt in factories around the world.

These possibilities are of increasing concern in Asia and the Pacific because of the rising number of natural disasters. This is the world’s most disaster-prone region: in the past decade, about 2.5 million people in Asia and the Pacific have been affected by disasters and almost 800,000 have been killed. At the same time, the economic damage caused by disasters has grown.

The countries that are most at risk to both natural disasters and economic crises are the small island developing States including Solomon Islands, Tonga and Vanuatu. Bangladesh, Cambodia, Fiji, Papua New Guinea and the Philippines, for example, also face high risks of natural disasters, while landlocked developing countries, such as Kyrgyzstan, the Lao People’s Democratic Republic, and Tajikistan, are highly susceptible to economic crises. But not all are equally vulnerable. For example, a hazard only triggers a disaster when it encounters exposed and vulnerable communities. Thus, Bangladesh, Japan, Indonesia and the Philippines, even though highly exposed to disasters, have taken positive steps to mitigate the adverse effects.

For people living in fragile and conflict-affected States, the journey from fragility to resilience is often both long and arduous. With the additional threats to lives and livelihoods posed by climate change, natural disasters and economic crises, establishing human security is the most fundamental requirement of development. While this issue is not taken up in this report, what matters most for fragile States is good governance, strong institutions, accountable management of natural, human and financial resources and, above all, enlightened leadership.

THE MACROECONOMICS OF RESILIENCE

Despite the frequency of simultaneous shocks, economic literature offers little guidance on how to respond. Should countries faced with multiple crises maintain conventional macroeconomic stabilization objectives and targets – on inflation or fiscal deficits, or on liquidity norms or debt sustainability? And faced with the prospect of slower growth should they uphold their central bank’s objective of low inflation?

From the macroeconomic perspective, a natural disaster generally reduces output and employment. Disasters can also affect trade balances, fiscal balances and public debt. But these outcomes are not automatic; much will depend on government policies, and private sector expectations and responses. Also critical is the nature of the shock. While a natural disaster can deliver a supply shock that increases inflation, an economic crisis can deliver a

xxii demand shock that is likely to be deflationary. Natural disasters and economic crises that occur together can thus mitigate each other’s impact on the price level. So getting policies right will mean considering both impacts.

Pre-disaster risk management

When preparing for disaster, Governments need to identify risks and social vulnerabilities and take steps to mitigate them – strengthening building codes, for example, or retrofitting existing buildings, while ensuring that they have systems of social protection that they can scale up to meet emergency needs. But it is also important to make financial preparations, by accumulating savings and foreign reserves, for example, or by transferring some risks through commercial insurance.

All these measures require up-front investments. Some governments may not consider this worthwhile. Moreover, there are risks of moral hazard: low-income countries, for example, may be tempted to underinvest in prevention if they believe they will always be rescued by foreign aid. Today’s policymakers may therefore prefer to defer expenditure until a disaster happens, preferably on someone else’s watch.

Even the most conscientious policymaker, however, will struggle to make a rigorous cost- benefit analysis if there are too many unknown factors. For assistance, they might turn to emerging sophisticated decision-making tools and methodologies based on scenario analysis, which can help them analyse unpredictable events for which there is very little information. Arriving at the best solution will always be difficult, but ultimately these are issues of public choice, so determining public priorities in disaster risk reduction will benefit from extensive stakeholder participation.

Post-disaster response: financing versus adjustment

Faced with the cost of a natural disaster, governments can draw on reserves or seek new finance – or embark on a programme of macroeconomic adjustment. Indeed, a well-accepted tenet in macromanagement of disasters is: “Finance if you can, adjust if you must”.

Where can the finance come from? Some countries will be able to draw on reserves, or they may be able to pay the costs out of current budgets. They can also establish with lenders “contingent” credit lines that would enable them to borrow in the event of a disaster. The poorer developing countries should be able to rely on concessional aid or grants from international donors. In addition, they might assume that workers’ remittances to families would increase in times of distress.

Governments and private individuals and corporations can also take out insurance. Governments can also become involved in insurance themselves, either providing it directly or working with the private sector. For some small island economies in the Pacific, disasters

xxiii could be on such a scale as to overwhelm the economy – yet, insurance would be prohibitively expensive. In this case, it might be possible to pool the risk with other countries that find themselves in similar positions.

In principle, the Government could also increase commercial borrowing. But this may be difficult. Even countries that have access to international capital markets will find foreign borrowing expensive, especially after a disaster. If so, they may have to adjust through fiscal policy – by redirecting funding from planned projects, by cutting discretionary expenditure or by raising taxes on high-income earners. The choices will depend on the current state of the economy: if it is overheated with a risk of inflation, the Government might impose a temporary tax on high-income citizens in the form of a reconstruction levy.

Monetary policy after a natural disaster presents a classic dilemma: how to use the same policy to reconcile two competing objectives – maintaining price stability while restoring pre- disaster levels of output and employment. Some policymakers would give priority to price stability and therefore tighten the money supply, but this could worsen unemployment and poverty. In fact, many economies are operating far below optimum levels of output, so fears of inflation may be unfounded.

Generally speaking, the midst of a crisis or disaster is not the best time to mechanically pursue prudential norms of macroeconomic stabilization. Instead, the overarching aim should be to arrest the spread of the shock to the real economy, to labour markets and, above all, to the poorest and most vulnerable. Moreover, even in “good times”, there is no unique threshold of stability for each macroeconomic variable – growth, inflation, the fiscal deficit, the current account deficit, or the level of public debt. Rather, there is a continuum of thresholds for various combinations of these key variables. Developing countries should thus not have an overly mechanical interpretation of macroeconomic prudence. While maintaining short-run stability, they should instead be guided by the goals of long-run economic development and poverty reduction. This will require striking a balance between development and stability.

BUILDING RESILIENT COMMUNITIES

Those most exposed to economic crises and disasters are the poor. Without savings and living in precarious circumstances, they have few buffers against shocks. Already disadvantaged by social and economic imbalances, they can thus be further marginalized into vicious cycles of chronic hardship, sometimes for generations.

The poor tend to be more exposed to natural disasters because they tend to live on hazardous land - on earthquake fault lines, floodplains, or coastal areas that are highly exposed to cyclones and typhoons. The poor are also likely to be hardest hit by an economic crisis: most will be low-skilled, casual, seasonal or contract labourers with precarious or irregular work

xxiv and low earnings. And among the poor, the most vulnerable to disasters are “excluded” individuals – those who are outside many societal bonds and relationships. Among these are older persons, ethnic minorities and those with disabilities or living with HIV and AIDS. They have less access to networks and fewer relationships of support that they can turn to. They can also be disadvantaged when it comes to emergency relief.

Nevertheless, people facing disasters are rarely passive victims. Most will try to cope by drawing on all their economic, social and natural resources. Unfortunately, under pressure, they can also be forced into “erosive” strategies that lead to a vicious cycle of poverty. They might sell their livestock or agricultural or fishing equipment. Or they may take out high- interest loans. They can also reduce the quantity or quality of food, forego medical treatment, or overexploit natural resources. As a last resort, they may withdraw children from school. All these measures can perpetuate poverty and reduce the welfare of future generations.

The more resilient groups or households, on the other hand, can respond with “non-erosive” strategies that do not endanger their future livelihoods. They might be able to draw on their savings, sell non-essential possessions, or consume less expensive food. They could also seek additional work, either locally or by migrating to a nearby city. In addition, they might draw on family or social solidarity networks for food supplies or informal loans, or engage in reciprocal labour exchange.

Governments can support these forms of community resilience in a number of ways. They can, for example, strengthen systems of social protection – including old age and disability pensions, unemployment pay, maternity and child benefits, and universal access to essential health care. It is crucial to provide a basic social protection floor based on the understanding that all citizens have the right to benefits and that the State has a vital role in ensuring access, if not in the actual delivery of programmes. These systems cannot be set up overnight, and crises and disaster interventions should build on existing mechanisms. It is important, therefore, to ensure that the financing systems are sufficiently flexible so that they can be scaled up for episodic shocks. Ideally, the strategy should be one of “adaptive social protection” – integrating social protection with disaster risk reduction and climate change adaptation.

In the absence of formal social protection, most people rely on traditional or informal protection systems within households, groups and social networks. Generally, in many developing countries, social protection is likely to involve a combination of informal and formal channels – taking advantage of informal connections and systems but supporting these with formal mechanisms where appropriate.

Governments can also help communities with various forms of risk transfer. While richer individuals can take out their own insurance, poorer households cannot afford such coverage. An alternative is “microinsurance” which pools the risks and resources of whole groups. Some of the most effective microinsurance schemes are index based – for example,

xxv assessing the exposure of a group of farmers within a specific area to extreme weather events and compensating them for the associated loss of income without their having to make individual claims.

Some of the most effective public support, especially for more frequent disasters, is likely to come from local governments. They can support community responses, engage vulnerable groups in decision-making and help them become more resilient. To do so, they need to involve those groups in every step of the development process – from vision setting, planning, and implementation to monitoring and evaluation. An important contribution to greater local resilience is effective decentralization which can improve the delivery of key public services. However, decentralization can only be effective if local governments have the necessary capacity, resources, accountability and transparency. In the absence of these conditions, decentralization can lead to rent seeking and capture by local elites.

Responding rapidly to a disaster requires timely and reliable data. The starting point should be extensive pre-disaster vulnerability assessments. Until recently, governments and development partners would have been daunted by this prospect, feeling that they lacked the necessary resources or skills. Nowadays, however, they can take advantage of new technologies. A number of governments, including Indonesia and the Philippines, have, for example, been using satellite-based data and geographic information systems to produce multi-hazard maps showing where the poor are at greatest risk.

During the crisis, both governments and community leaders will need to produce accurate up-to-date information and disseminate it quickly. Fortunately, they can now do this effectively in a variety of ways – print, radio, television, the Internet and mobile phones. Social media platforms are also proving invaluable.

THE LAND, WATER, ENERGY NEXUS – AVOIDING CATASTROPHIC FAILURE

Rapidly rising production and consumption of goods and services could push countries of Asia and the Pacific towards a catastrophic ecosystem collapse. Though natural systems have large absorption capacities, once tipping points are reached, they could suddenly crash, with devastating consequences for other economic and social systems. Building resilience will mean addressing this nexus of converging threats.

Land for agricultural production is becoming ever scarcer. Of the world’s remaining arable land that could be used for cultivation, most is in Latin America and sub-Saharan Africa. There is also some in East and South-East Asia, but virtually none to spare in South and West Asia. Moreover, in South Asia, about 45 per cent of land with crop production potential is currently used for human settlements; and urban areas could encroach on the remainder. In addition, much of the land currently under cultivation in the region is becoming degraded: Asia has the largest amount of land affected by desertification, and when land is no longer productive, those cultivating it are often pushed into ecologically fragile areas, such as forests and wetlands.

xxvi Freshwater systems are also coming under increasing pressure as a result of over- exploitation and pollution. Most of this is due to cultivation. Unless water is used more efficiently, the world will need, by 2050, 40 per cent more than will be available. In Asia and the Pacific, only about 9 per cent of water withdrawal is for domestic consumption. Even so, about 380 million people in the region do not have access to clean water. About 12 per cent of water is used for industrial production and a number of enterprises are becoming concerned about supplies. Water is also needed for the production of energy – as well as for transport and processing of primary fuels: in 2010, about 15 per cent of the world’s total water withdrawals were for energy purposes.

All these processes will be exacerbated by climate change, which is already reducing crop yields in some places and adding to water stress. However, the impact will vary according to location, with some areas suffering more droughts and others experiencing more floods.

Rising consumption is also leading to greater use of energy, whether for industrial processes, transport, or households for cooking and heating. Some energy sources, such as coal, are still relatively abundant, and other fossil fuel reserves, shale oil and gas, seem to be increasing. But these new reserves are more difficult to exploit – demanding significant amounts of energy for extraction. Using more fossil fuels will also increase CO2 emissions, with serious implications for climate change.

Another concern is the future availability of minerals, some of which are becoming uneconomical to extract. These include the “rare earth” elements that are critical for many industries: electronic equipment, vehicle parts and batteries as well as renewable energy technologies.

Governments and societies that recognize the limits to the natural resource base can take some incremental steps to use resources more efficiently, but ultimately they will have to adapt and diversify their systems of production. The best results will come from involving stakeholders and communities who often have extensive knowledge of how to make the best use of scarce resources. It will also be important to place a true value on natural resources, for, if not properly priced and regulated, these are likely to be inefficiently used and rapidly exhausted.

A good starting point for making better use of energy is to remove fuel subsidies. But there are also many options for boosting water and energy efficiency. Good land use planning can reduce the initial and ongoing costs of resource consumption. The way a city is designed and built locks the population into consumption and production patterns for generations. Good urban planning therefore allows for sustainable city growth – considering the needs of its inhabitants yet also allowing more efficient use of resources. Likewise, sustainable land management, particularly for agriculture, will help reduce land degradation and strengthen food security, while also protecting against some natural disasters, such as floods and drought.

xxvii All of this will require strong policies that integrate national development priorities in a cross-sectoral manner, recognizing the true value of natural resources. They can only be effective if supported by strong and effective administration, monitoring and enforcement.

PROTECTING CRITICAL SECTORS

All sectors of the economy need to become more resilient to external shocks, but it is especially important to strengthen certain critical sectors for which any failure is likely to cascade across the whole society. Principal among these are the financial sector, and parts of the physical and social infrastructure.

Financial infrastructure

There are four main types of financial shock: banking crises; the bursting of speculative bubbles; currency or exchange rate crises; and sovereign debt defaults. In reality, financial crises often mutate from one type to another or show multiple symptoms. Banking crises typically result from a loss in confidence in one or two banks. In some cases, this can be contained, but, if not, the shock soon cascades to the real economy in the form of a widespread credit crunch. Speculative bubbles, however, are often consequences of herd behaviour and are particularly dangerous if they affect commodities, such as food or fuel, whose prices are of major significance to vulnerable people.

Governments and financial regulators have taken measures to make financial markets more stable and reduce the potential for future crises. They have, for example, increased surveillance by regulatory authorities, and reinstated controls on the riskiest behaviour, notably taming large-scale, speculative capital flows. In doing so, they need to strike a fine balance: on the one hand, they want to make the financial system less volatile and vulnerable; on the other hand, they do not want to excessively limit the capacity of capital markets to allocate funds to finance legitimate risk-taking that encourages innovation and productivity, and boosts economic growth.

As a result of the experience of the 1997 crisis, many countries in the region have aimed to become more resilient by building up large foreign-exchange reserves. However, they have effectively parked much of this in United States Treasury bonds with very low yields. They could use these funds more productively by investing them in the region. One option, recommended by ESCAP, would be to establish a fund to finance cross-border infrastructure projects and other regional public goods.

Another concern is that governments and investors find it difficult to assess risk exposure – hampered by a lack of transparency, poor accounting standards and weak understanding of financial instruments. This underlines the importance of better market surveillance – with accurate data on international financial interconnections, and assessments of the vulnerability of domestic economies. The Asia-Pacific region has already made progress in this

xxviii direction. In 2011, ASEAN established the ASEAN+3 Macroeconomic Research Office (AMRO). A truly Asia-Pacific system of resilience would mean expanding AMRO’s membership and the scope of its surveillance. Overall, one of the most important principles should be global harmonization of banking and financial market regulations. Unless similar regulations apply everywhere, the more footloose institutions will be tempted to migrate to laxer jurisdictions.

Many Asia-Pacific developing countries, in particular the least developed countries, depend on exports of a small number of commodities while also relying on commodity imports, especially of food and fuel. All countries are thus concerned about the recent volatility of commodity prices. A number of measures have been proposed to dampen price volatility. One way to address this would be by taxing the trade in commodity derivatives to reduce the number and speed of speculative transactions.

Critical infrastructure

Even infrastructure that is well designed, constructed and maintained will not always withstand natural disasters. Governments will therefore need to identify “critical infrastructure” for which they need higher than usual margins of safety. Critical infrastructure includes not just “hard” infrastructure in terms of buildings or networks, but also the “soft” infrastructure that supports this – the institutions, users, regulations and legislation. Taken together, they should constitute a resilient system.

As regards social infrastructure, the greatest damage is typically to housing, schools and hospitals. Planning authorities generally try to ensure that high-rise “engineered” buildings follow stringent building codes – as a result, they often survive earthquakes. Those planning authorities now need to pay greater attention to houses and other non-engineered buildings using an interdisciplinary approach that includes both engineering and social sciences. They also need to ensure that builders and homeowners comply with these codes.

It is particularly important to secure school buildings. Over recent decades, the death toll of schoolchildren from natural disasters has increased significantly. Had their schools been built to be more resilient, the losses could have been substantially reduced. This means not just building safer structures but also preparing for emergencies and instilling a general culture of safety. Many schools can also serve as disaster shelters, but people living in vulnerable areas may need other forms of dedicated shelters integrated with early warning systems.

Storms, cyclones, floods and earthquakes frequently disrupt community power supplies and cause tremendous damage to transport infrastructure, telecommunications, wastewater and water supplies. Moreover, the various forms of infrastructure are becoming increasingly interdependent, so that a fault in one system can significantly affect many others – triggering a cascade of failures. It has been argued that “lifeline” systems, including power, water, wastewater, communication and transportation, need to be restored within four hours to support emergency response operations. Improving overall resilience thus involves recognizing and managing these interdependencies.

xxix All these forms of infrastructure can be made more resilient. Power transmission lines can, in some cases, be moved underground, and coastal sections of roads and railways can be moved to higher ground or given protective walls or embankments. And in mountainous areas, roadside slopes can be made more stable through bioengineering. To keep transport links open for disaster relief operations, planners should incorporate some redundancy – building extra routes in case one is damaged. Similarly for ICT systems, submarine data cables can be complemented with terrestrial cables and communication satellites.

Making infrastructure more resilient requires significant investment. Although governments in most developing countries are aware of the benefits of disaster risk reduction, they may not feel able to justify such measures. If so, they can consider using some emerging methodologies to evaluate potential benefits and integrate disaster risk reduction and adaptation in planning processes. Adapting high design standards for critical infrastructure increases serviceability and lifespan of costly structures.

In some cases, Governments should be able to seek support from international financing institutions, such as the multilateral development banks. Many banks already incorporate disaster risk reduction into project assessment cycles and are often involved in financing rehabilitation and reconstruction after a disaster.

Some shocks themselves present financing opportunities. In normal circumstances, strict budgetary regulations preclude a high level of investment in new infrastructure. But these restrictions can be relaxed during a financial crisis, opening up opportunities for building more resilient facilities through economic stimulus packages. Another potential source of financing could be the private sector – via public-private partnerships (PPPs); engaging the private sector in infrastructure development should not only provide extra resources but also help improve project design.

Developing resilient infrastructure will demand coordination among many sectors and levels of administration. The focus should be not only on physical infrastructure but also on the associated policies, guidelines and by-laws. It is also imperative to engage communities and different stakeholders: the community can identify the necessary infrastructure while engineers can come up with solutions.

STRENGTHENING SUPPLY CHAINS

As well as protecting physical and social infrastructure, countries will also want to make their supply chains more resilient. Many goods are now provided through complex global chains of production and distribution. An increasing proportion of this trade is South-South. China in particular has now emerged as a “global assembly centre”.

A similar trend is evident in agriculture. Modern agricultural supply chains increasingly rely on imports and multi-tiered systems of supply management. Such chains encompass

xxx inputs, production, post-harvest, storage, processing, marketing and distribution, as well as retailing and final consumption.

While these systems can be very efficient, they are also vulnerable to external shocks. If just one node is damaged the whole chain can be broken. Particularly exposed are enterprises that rely on inputs or intermediate goods from a single source – one which might be located on a tectonic fault line or in an area subject to frequent storms and hurricanes. Supply chains are also vulnerable to sudden changes in demand: faced with an economic downturn or recession in a major market, a highly complex supply chain might find it difficult and costly to react.

Most vulnerable are the small and medium-sized enterprises (SMEs). Generally, they work as subcontractors, supplying basic services or labour-intensive parts and components. Few SMEs are prepared for natural disasters. Typically, they lack insurance and do not carry out risk assessments or have business continuity plans. This makes it difficult to recover from disasters and heightens supply chain disruption.

Enterprises that want to build in greater resilience to natural disasters can take a number of measures. They can: (a) invest more in each location to enhance resilience to natural disasters; (b) spatially diversify the locations of both production and supply; (c) hold larger inventories or stocks; and (d) consider acquiring proper insurance. All these options incur extra costs. In addition to facing direct costs, enterprises building greater redundancy into their systems may also have to forego some economies of scale or opportunities for lower factor costs.

Devising the optimal strategy is not easy, particularly when allowing for rare events. Nevertheless, firms will need to assess risks and find ways to control them – and ensure that they have robust business continuity plans. Particularly important in this are the global value chain (GVC) anchors, the transnational corporations around which these chains work; they can help their smaller business partners become more resilient and, if necessary, help with reconstruction.

Governments can also support these efforts – improving the overall regulatory framework, providing better risk information and modelling systems and subsidizing private insurance. They can also foster the development of business continuity plans, for example by imposing legal requirements for such plans or by offering tax incentives or providing technical support. Governments can also temporarily relax labour movement restrictions to enable GVC anchors to send in people to assist in overseas subsidiaries.

MUTUAL SUPPORT THROUGH REGIONAL COOPERATION

Many of today’s shocks are transboundary, so they will need transnational responses. By working together, Asia-Pacific governments can produce solutions that are greater than

xxxi the sum of individual country responses. The Asia-Pacific region has some regional cooperation mechanisms that deal with natural disasters and economic shocks. However, they are at various stages of development and, in most cases, do not have resilience built in.

What is needed now is a new regional framework for resilience-building – one that rebalances economic, social and environmental systems. The regional framework proposed in this report consists of three pillars, three enablers and an integrator.

Pillars

Coordinated economic management – In fiscal policy, for example, countries can work together to prioritize public investments in regional infrastructure, improving disaster preparedness, and adapting to climate change. Countries can also coordinate monetary and exchange rate policies and harmonize their banking and financial market regulations, while strengthening regional monetary and financial monitoring and surveillance. At the same time, Asia-Pacific economies can rationalize their preferential trading agreements to facilitate regional trade.

Coordinated investment in social protection and inclusive development – Inclusive development will involve greater investment in social infrastructure, particularly in education and health services. Similarly, all countries need to establish social protection floors – not as a handout but as an investment in building resilience. If countries cooperate on these issues, they can build synergies in the planning, coordination and tracking of such systems, which could ultimately lead to the establishment of a regional social protection fund. Such a fund, built on the principles of regional solidarity, could go a long way towards building resilience, especially for least developed countries, which have the largest portions of the population vulnerable to multiple shocks. Apart from the political groundswell that builds up from regional solidarity, there are numerous synergies from enhanced economic and social security, not least of which is the mitigation of push factors in economic migration and the huge expenditures of high-income countries on border protection. ESCAP could provide the platform for a further dialogue on this issue.

Cooperation on food security and sustainable resource management – Governments need to strengthen existing integrated river basin management frameworks by tapping into the new dynamism of South-South cooperation. Comprehensive frameworks can help countries sustainably manage shared water, energy and land resources – all of which are critical for food security.

Enablers

Investing in technological innovation – Governments need to manage the overall impacts of innovation – ensuring that the benefits spread to everyone, especially vulnerable

xxxii groups, while also taking measures to minimize potential risks, both for people and the environment. This will require collaboration between the public and private sectors both within and between countries.

Monitoring and early warning – Governments should continue to strengthen regional monetary and financial monitoring and surveillance. Similarly, in disaster-prone areas, they will need to generate and share people-centred risk knowledge, and strengthen regional multi-hazard monitoring and early warning systems. For this, they can work more effectively through regional cooperation – which would enable them to pool scientific knowledge and technical expertise and take advantage of economies of scale.

Pooling resources for better preparedness – For this purpose, ESCAP could serve as a bridge – bringing together regional cooperative mechanisms that have similar expertise and mandates. Cooperative mechanisms, such as RESAP and Sentinel Asia, for example, can provide satellite-based data and products. Supply chains could also be made more resilient through joint regional supply chain risk assessments.

The integrator

Synergizing regional efforts – All these pillars and enablers would need to be integrated into a comprehensive whole. For this purpose, ESCAP, as the main economic and social development centre of the United Nations system for the Asian and Pacific region, can provide the regional platform for mutual cooperation, sharing experience and building the region’s resilience to withstand, adapt to, and recover from overlapping shocks.

The Asia-Pacific region has become the driving force in the global economy and has made significant progress in reducing poverty. Nevertheless, the region still faces considerable risks – most countries are regularly exposed to shocks that could jeopardize future economic and social progress. Countries across the region need, therefore, to work together to consolidate and extend their achievements by ensuring that their economic and social systems are sufficiently robust, flexible and resilient to deal with what lies ahead.

xxxiii ESESCAPCAP P PHHOTOOTO 1 R SHO ESILIEN C C K E T S O 1

RESILIENCE TO SHOCKS O T O H P A ES C Building Resilience to Natural Disasters and Major Economic Crises

CHAPTER 1

RESILIENCE TO SHOCKS

The world has been subject to a series of shocks – from economic crises in rich countries, to natural disasters in developing countries, along with floods or droughts in key food producing regions. In a complex global economy, these crises have become increasingly interrelated. If the countries of Asia and the Pacific are to become more resilient to these regular, overlapping shocks, they will need to address them in a more comprehensive and systemic manner.

In early 2011, the people of Dhamuirhat, a This would have been difficult enough to rural community in Bangladesh, were taken by cope with on its own. But people were surprise by high food prices. The shop prices already under pressure from another shock: the of key items such as rice, flour, soybean oil and 2008 global financial crisis. The collapse of the chicken were 30 per cent higher than a couple American investment bank Lehman Brothers in of months earlier. As one agricultural worker September 2008 had eventually triggered a said: “I am often afraid to ask the price.” 1 freeze in the global financial system. In Asia and the Pacific, this was felt primarily through The people of Dhamuirhat did not know that a dramatic decline in trade. Within a couple of these high prices had their origins in distant plac- months, Asia-Pacific exports had collapsed – es. In the Russian Federation, for example, in threatening the jobs of millions of workers. June 2010, an abnormal heat wave had hit the wheat fields, causing fires and leading to the worst “Why should something that happens ten drought in nearly 40 years. Added to this were his- thousand miles away affect me?” asked a female torically severe floods in Pakistan. These and other worker in the India state of Karnataka, as jobs events were restricting global food supplies. started to disappear in early 2009. She had lost her employment in a small-scale business News of such shortages was transmitted exporting handmade dolls.2 instantly to the trading floor of the Chicago Mercantile Exchange where buyers and In an increasingly globalized economy, natural sellers match orders and haggle over futures and disasters can also be linked to employment in options contracts for agricultural commodities. more oblique ways. In the Compostela Valley Tight global supply coupled with financializa- in the southern island of Mindanao in the tion of commodity markets drove prices up. By Philippines, for example, small-scale gold February 2011, the global prices of wheat and miners had benefited from the high price of gold other cereals had soared to record highs – which – an attractive alternative investment in times of were soon reflected in local markets around the uncertainty. Between 2008 and 2012, the price world. This was the beginning of a ‘new normal’ more than doubled. This, combined with the of high food prices. discovery of rich deposits, had lured thousands

2 destruction withtheglobaleconomicdestruction crisis. would have ithard found tolinkthat survivors catastrophic. was The effect But here too Typhoon Pablo madeinMindanao. landfall an endat4:45amon 4December2012, when sites intheCompostela Valley. came to That all inthemountainousandlandslide-proneluck their fromof poormigrants otherislandstotry to disasters,accordingtheir owncircumstancesandcapacities.” predictable resourcesfordisaster riskreductioninordertoenhancetheresilienceofcities andcommunities as wellrelevantsubregional, regionalandinternationalorganizations,tocommit adequate,timelyand levels andconsideredwithinrelevantfutureframeworks.” Anditfurtherinvites“governmentsatalllevels, poverty eradication,andasappropriate,tobeintegratedinto policies,plans,programmesandbudgetsatall to disastersbeaddressedwitharenewedsenseofurgency inthecontextofsustainabledevelopmentand spheres. In particular, the outcome document calls for “disaster risk reductionandthebuilding of resilience We Want’,whichemphasizestheneedforbuildingresilience inseveraleconomic,socialandenvironmental Some contemporarythoughtsonresiliencehavebeencaptured intheRio+20outcomedocument,‘TheFuture and uncertainty. emphasizes astrategyforempoweringpeopletomakesustainable choicesduringaperiodofglobalvolatility development through inclusive economic growth, environmental development and social equity. It also People,ResilientPlanet–AFutureWorthChoosing’.Itoutlinesavision towardssustainable ‘Resilient In 2012,theSecretary-General’sHigh-LevelPanelonGlobalSustainabilitybroughtoutreport for acceleratingprogresstowardstheMillenniumDevelopmentGoals. Secretary-General emphasizedthatreducingdisasterandothersocialeconomicriskswouldbecrucial Bali OutcomeDocumentinaddressingthefood,fuelandfinancialcrises.Subsequently,areportof crises, restoregrowthandavoidfutureglobalshocks–inresolution65/1ontheimplementationof in buildingtheircapacitytomakeappropriatepolicyresponsesthatmitigatetheimpactofeconomic The ESCAPCommissionin2008requestedtheExecutiveSecretarytocontinueassistmembercountries International StrategyforDisasterReduction. Resilience withintheUnitedNationsdevelopmentagenda least developedcountries. emerging challenges’asoneoftheeightinterlinkedpriorityareasforsustainabledevelopment Action fortheLeastDevelopedCountriesDecade2011-2020,identified‘multiplecrisesandother The FourthUnitedNationsConferenceontheLeastDevelopedCountries,inadoptingProgrammeof earthquake. World ConferenceonDisasterReductioninKobe,Japan,2005–onlydaysafterthe2004IndianOcean Building theResilienceofNationsandCommunitiestoDisasters.ThiswasadoptedatUnited The crucialneedtobuildresiliencewasrecognizedintheHyogoFrameworkforAction2005-2015(HFA): Box I-1 4 TheHFAwassubsequentlyendorsedbytheGeneralAssemblyinitsresolution60/195on 6

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such combined crises (Box combinedsuch crises I-1). istobuildresiliencedevelopment challenges to management. One of the most pressing move aggressively towards comprehensive risk together –anddemandingthatcountries closely more ever isbindingthesesystems globalization systems.applied tocomplex interlinked And are thesecrises theresultAll ofshocks 7

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CHAPTER 1 Building Resilience to Natural Disasters and Major Economic Crises

Why have they not done so already? There are responses rather than rational analysis (Box I-2). many reasons – some of which are common And generally policymakers are more to many human activities. One is that human accustomed to breaking down complex issues beings are not very good at assessing risks, into supposedly distinct parts than relying more on immediate instinctive dealing with a systemic whole.

Box I-2 Policymaker blind spots

Most policymakers agree that prevention is better than cure. Faced with multiple and increasingly frequent shocks, why do they not then invest more in risk prevention and preparedness? There are many factors at play. Some will be linked to immediate political problems and budget pressures. But research on behavioural economics, notably the work of Nobel Prize winner Daniel Kahneman, suggests that when it comes to evaluating risks there are basic limitations in the human mind.8

People are, for example, likely to be more concerned about an event that has recently happened. Thus, immediately after an earthquake, they will take more anti-earthquake precautions by building up emergency food supplies, but then become steadily less diligent as the memory fades – though clearly the risk is unchanged. On the other hand, people overestimate the probability of unlikely events and underestimate the probability of relatively common risks. One US study found, for example, that tornados were thought to kill more people than asthma – which actually causes 20 times more deaths.

Then there is myopic behaviour – simple short-sightedness. Thus people tend to postpone buying insurance or building up savings for old age. And when taking decisions they seldom give sufficient weight to the needs of future generations.9

Individual decisions are also easily swayed by the ways in which issues are framed. A patient who is asked whether they want to risk surgery is likely to be encouraged by the statement “the one-month survival rate is 90 per cent” but discouraged by the statement “there is 10 per cent mortality in the first month”, though they both say the same thing.

And in general people tend to underestimate the extent of their ignorance and the uncertainty of the world in which they live. They thus assume they understand what happened in the past, and are overconfident in their ability to predict the future.

Policymakers in particular are likely to fall victim to the wisdom of hindsight. They know they will be blamed for decisions that work out badly, but get little credit for successful outcomes. As a result they tend to be reluctant to take risks, or are likely to underestimate them. They are thus likely to produce plans and forecasts that are unrealistically close to best-case scenarios, overestimating benefits and underestimating costs.

How can these constraints be overcome? First, policymakers need to be conscious of the potential illusions of the human mind and their consequent decision-making blind spots. Second, they need to know more about risks and how to measure them. For this purpose they can take advantage of more sophisticated decision-making methodologies. For example, for assessing the likely outcomes of risky projects they might use ‘reference class forecasting’ – using large databases that have information on both plans and outcomes of hundreds of similar projects all over the world.10

4 takes will depend on the system that suffers thatsuffers dependontakes will thesystem from shocks. that this form The resilience associatedwithrecovering Resilience isusually Defining new one,whilepreservingthe continuityofitsoperations.” contexts, 2)withstandsudden shocksand3)recovertoadesiredequilibrium,either the previousoneora “The workingdefinitionofa resilient country(…)isonethathasthecapabilityto 1)adapttochanging conflict –withoutcompromisingtheirlong-termprospects.” or transforminglivingstandardsinthefaceofshocks stresses -suchasearthquakes,droughtorviolent “Disaster resilienceistheabilityofcountries,communities andhouseholdstomanagechange,bymaintaining “The abilitytodealwithchangeandcontinuedevelop.” from shocksandstressesinamannerthatreduceschronic vulnerabilityandfacilitatesinclusivegrowth.” “The abilityofpeople,households,communities,countries, andsystemstomitigate,adaptrecover ” (retain thesamebasicstructureandwaysoffunctioning). Itincludestheabilitytolearnfromdisturbance. “The abilitytoabsorbdisturbances,bechangedandthenre-organizestillhavethesameidentity and waysoffunctioning,thecapacityforselforganizationtoadaptstresschange.” “The abilityofasocialorecologicalsystemtoabsorbdisturbanceswhileretainingthesamebasicstructure maintain thesamerelationshipsbetweenpopulationsorstatevariables.” “A measureofthepersistencesystemsandtheirabilitytoabsorbchangedisturbancestill restoration ofitsessentialbasicstructuresandfunctions.” recover fromtheeffectsofahazardintimelyandefficientmanner,includingthroughpreservation “The ability of a system, community or society exposed to hazards to resist, absorb, accommodate to and Definitions ofresilience analysis they might instead use scenario analysis. For low-probability,high-impactcatastropheswhicharedifficulttoassessusingthetraditionalcost-benefit risks directly,theymaybeinabetterpositiontounderstandthem–andhavefewercognitiveillusions. When takingdecisionsitisalsocrucialtoinvolvethosethatmaybemostaffected.Astheyexperiencethese quantify theconsequencesofclimatechangedisastersandrisks. multiple shocks.Integratingrisk-basedmethodologiesintocost-benefitanalysiscanenablepolicymakersto alternative outcomesandfavoursolutionsthatareflexible,adaptivehencecanbeusedtosafeguardfrom Box I-3 15 resilience 11

This will consider future events based on a range of absorb and adapt to shocks (Box andadapt toshocks I-3).absorb environment requires towithstand, thecapacity changing ina definitions istheideathat recovery However, acommon elementofthedifferent andthefunctions thatneedto recover.the shock 17 19 12 18 13 16 14

5

CHAPTER 1 Building Resilience to Natural Disasters and Major Economic Crises

This report concerns resilience of countries Predictable and to multiple crises. Ultimately, what matters, unpredictable shocks however, is the effect of such shocks on people’s lives – both in current and future generations. Therefore, the working definition of resilience If countries are to be resilient to multiple shocks in this report is: they need to deal with them as they arise. In some cases the risks are predictable and the The capacity of countries to withstand, adapt forms of mitigation and response are fairly well to, and recover from natural disasters and developed. Bangladesh, for example, is regularly major economic crises – so that their people can exposed to floods and cyclones and, as a result, continue to lead the kind of life they value. has invested in disaster risk reduction – in flood monitoring, for example, and forecasting and Building resilience to a wide range of potential early warning systems, all of which have proved shocks is a complex task involving a large effective in the aftermath of the two most number of interconnected systems: economic, recent cyclones Sidr in 2007 and Alia in 2009.20 social and environmental. It demands that people, organizations and institutions develop Other recent shocks in the region have been the ability to reconfigure and redesign their more surprising and unexpected. Of the natural systems to be able to cope with multiple shocks disasters, earthquakes are less common, (Figure I-1). Although there are a number especially when combined with tsunamis. of measures of exposure and vulnerability to Economic crises too are less predictable. For either economic crises or natural disasters, example, the collapse of Lehman Brothers, there are only a few tentative measures of one of the biggest United States investment resilience. One suggestion on how such a banks, which helped trigger the 2008 global measure of the combined effects of these financial crisis, would have been considered shocks is shown in Appendix 1. highly improbable.

Figure I-1 What is resilience?

Resilience is the ability to

Quickly bounce back and Mitigate disruption and Reorganize and transform in restore a stable equilibrium reconfigure from shocks so order to respond to crises, after stresses, ensuring as to maintain a functioning absorb their impact and reduced risks and system. maintain the system’s core disturbances from shocks. purpose.

Objects Systems Complex systems

Source: ESCAP based on Breen and Anderies, 2011.

6 exposure ofminerstodisasters. ofgold andincreasedbetween theprice 1. Recognizingpotentialinteractions – as three challenges: I-2). (Figure scales jurisdictional This presents cross-cut multiple geographical, and temporal difficult to address that shocks It is particularly as awholewasstable.” thatthesystem assurance assessed theirown risk, there would beno financial crisis: ifbanks perfectly “(...)even the2008global by following Joseph Stiglitz imperfect. highly often Asaresult, asargued be self-correcting; inpractice markets are conveyedinformation by prices, markets should inmarket even systems: with is true inprinciple toact. are of thesystem likely participants This istoanticipatehow of themainchallenges all theresult crisis, isalarge systemic When one events. difficult tocopewith multiple overlapping prepared individualcrises, for may they findit accident.a nuclear have Even when countries Fukushima power plant, athird crisis, triggering Japananddamaged the that hitnorth-eastern in 2011, followed by a10-metre hightsunami inJapan theearthquake happened following failures. ofsystem acascade that itcauses This disasterisonascale thenatural such because In othercases, hasemerged acomplex crisis and sometimes confused agents. then beamplified by theinteractions offallible financial andtradesystems. can Thedamage complex crises, were which by transmitted the droughts Federation intheRussian triggered asthe2010floodsin disasters such Pakistan and assess potentialresponses. For example, natural hard and toenvisage thepossiblescenarios all multiple and interrelated shocks. This makes it provoke nevertheless not seemcatastrophic can Moreover, one thatinisolation event might 21

natural disasters. natural shocks, economicand crises particularly simultaneous, suffering is regularly multiple Asia and the Pacific because Resilience is crucial have different interests andviews. change whendifferent countries as withclimate 3. Addressing different perceptions andvalues – markets. moves incommodity price sudden disasters triggering – as with natural 2. Dealing withdifferent ofinteractions levels Why resilience is important 22

UN PHOTO

7

CHAPTER 1 Figure 1-2

Cross-scales and cross-levels Interactions

Building Resilience to Natural Disasters and Major Economic Crises

Figure I-2 Figure 1-2 Different scales and levels

Spatial Temporal Jurisdictional Cross-scales and cross-levels Areas Rates, Durations Administrations Interactions and frequencies

Slow Long

Inter- Globe Decades governmental

Regions Annual National

Countries Seasonal Provincial

Cities Daily Localities

Fast Short

Source: ESCAP based on Cash and others, 2001.

Contagion from financial crisis Asia and the Pacific. Indeed over the past The Asia-Pacific region has been affected in Spatial40 years only Temporalone crisis in Jurisdictionalfour started in the recent years by a number of financial crises. region; and none in the five years preceding the Areas Rates, Durations Administrations However, most of these have originated outside 2008 global financialand frequencies crisis (Figure I-3). Figure 1-3

Slow Long

Figure I-3 Inter- Globe Decades governmental Number of financial crises starting in a given year, 1971-2012

40 Regions Annual National Asia-Pacific Other regions

30 Countries Seasonal Provincial

20 Cities Daily Localities

Fast Short

10

0 1 9 7 1 9 7 3 1 9 7 6 1 9 7 8 1 9 8 0 1 9 8 2 1 9 8 4 1 9 8 6 1 9 8 1 9 0 1 9 2 1 9 4 1 9 6 1 9 8 2 0 2 0 2 0 4 2 0 7 2 0 9 2 0 1

Source: ESCAP based on data from Laeven and Valencia, 2012. Note: Financial crises include systemic banking crises, currency crises, and sovereign debt crises. Source: Laeven and Valencia (2012) Indicator : Financial crises frequency (Asia Pacific and other regions)

8 Kazakhstan; Malaysia; Pakistan; Philippines; Federation; Russian Singapore; Thailand and Turkey. Note: Asia-Pacific Selected economies include: Australia; Bangladesh; Hong Kong, China; Georgia; India; Indonesia; Japan; 2013). (accessed January ESCAPSource: Statistics. basedon IMFInternational Financial Available from http://www.imf.org/external/data.htm Capital inflowstoselectedAsia-Pacificeconomies,2005-2011 Growth ofGDPandexportsdevelopingAsia-Pacificeconomies,2006-2012 index (accessed November 2012). Sources: ESCAP, 2012cand2012dESCAP annualcore online database. indicators Available from: www.unescap.org/stat/data/ cent, I-4). (Figure thelowest adecade for rate 5.7per growth Asiawasonly in developing economic outlook intheUnitedStates. In2012, andtheuncertain the eurodebtcrisis zone this tailedoffasa fromresult ofspillovers had managed a V-shaped –though recovery oftheregionby countries 2010thedeveloping growth by more than one quarter. Nevertheless, reduced insome –which cases exports falling economies thefirst felt round ofthisthrough economic in2008. crisis The region’s emerging event wastheglobal The mostsevere external Fi Fi gure I-5 gure I-4

Millions of US dollars per cent -30 -20 -10 10 20 30 0

-150,000 -100,000 $ Millions 100,000 250,000 150,000 200,000

-50,000 50,000 0 2006 2005 Q1 2007 GDP 2006 Q1 Portfolio Investment 2007 Q1 exports services 2008 2008 Q1 23

2009 market capitalization. the degree oftradeopennessandthestock on arange offactors, GDPgrowth, including depend, will The impact of volatility however, by flows. caused suddenstopsofcapital shocks ofcross-borderpotential risks transmission of integrated. integration increases the Such are financialsystems the extenttowhich The contagion from illustrated the2008crisis shocks of transmission cross-border of risk integration increases Financial 2009 Q1 Other investment exports merchandise 2010 2010 Q1 20 201 1 1 1 Q1 2012 (p)

9

CHAPTER 1 Building Resilience to Natural Disasters and Major Economic Crises

Emerging Asian economies account for over And they may also suffer contagion from other 70 per cent of the total portfolio investment networks.29 For example, political and social inflows in emerging markets.24 Asian emerging networks can spread rumours that lead to herd markets attract a significant share of shorter behaviour in networks that otherwise might term and more volatile investment. This is have been unaffected. Indeed the risks of illustrated in Figure I-5 which shows a sharp economic and financial shocks increase when drop in portfolio flows during the 2008 people believe they are likely to happen – financial crisis. self-fulfilling prophecies. For example, investors around the world now believe global shocks are Interconnected financial markets create the all too plausible and may want to reduce their potential for systemic failures risk exposure at the same time. Since 2007, these ‘risk-off ’ episodes have become more Financial systems based on a large number frequent.30 Analysing a single network may of competing banks should in principle be thus miss a broader systemic risk. buffered against shocks: if one bank fails, others can take over the released demand and continue Systemic banking crises can result in major to supply the market with credit. But much will losses and fiscal distress. In the developed depend on the structure, or “topology” of the 25 countries these usually take the form of large banking network. If these banks are closely interconnected they may be susceptible to losses in output and increases in public debt. financial contagion.26 The United States for Developing countries, on the other hand, which example, has a few hub banks, while most banks have weak institutional capacity and limited deal only with a few other banks.27 Such access to global markets, tend to experience networks are more robust to random failures.28 higher fiscal costs associated with financial If a non-hub bank fails at random, this will sector restructuring. Over the past four decades, have only a small effect on the system as a Asia-Pacific economies have experienced 24 whole. episodes of systemic banking crises. On average, these have resulted in losses amounting to a quarter These networks are, however, still vulnerable of the country’s GDP, and 10 per cent increases in to failures of hub banks, or to targeted attacks. both fiscal costs and public debt (Figure I- 6). Figure I-6 Share and average relative costs from systemic banking crises in Asia and the Pacific, 1970-2011

25

20

Systemic Banking Crisis 15 )

29% P D G

t

Currency Crisis n

10 c e

64% r e p

Sovereign (

Debt Crisis 5 7%

0 Output loss Fiscal Costs Increase in Public Debt

Source: ESCAP based on Laeven and Valencia, 2012.

10 Prices ofcommoditieshavebecomemorecorrelated,2000-2012 (accessed January 2013) (accessed January BasedonSource: datafrom World Markets, BankCommodity availablefrom http//go.worldbank.org/4ROCCIEQ50 understandable since high fuel prices drive up drive understandable sincehighfuelprices I-8). (Figure prices coupled withenergy This is have been recently prices some commodity food I-7). (Figure prices commodity Inaddition, speculation hasledtohighandvolatile coupledwithfinancial globalsupply Tight prices High commodity andvolatile (accessed January 2013) (accessed January BasedonSource: datafrom World Markets availablefrom BankCommodity http//go.worldbank.org/4ROCCIEQ50 Fi High andvolatilepricesofcommodities,1981-2012 Fi gure I-8 gure I-7 Price Correlation

- - -

0 0 0 Monthly indices based on current US dollars 0 0 0 0 .6 .4 .2 . . . . 2 4 6 8 0 1 ( 2000=100) 1 1 2 2 0 5 0 5 5 Indicator : monthly series - Commodity prices (oil& wheat, oil and Maize, oil and soybean) - Correlation calculated by ESCAP J 0 0 Nov-00 0 0 0 0 a n Indicator :monthlyseries-Commodityprices(foodandenergy) Source: WorldBankCommodityPriceData(PinkSheet) - 8 1

Nov-01 E J n a e n r g - 8 y Nov-02 5 J F Nov-03 a n o - o 8 d 9 O i l

& Nov-04 W J h a e n a - t Figure 1-7 Figure 1-8 9 3 Nov-05

O i l & seem unrelated. futures markets; thosewithoutfutures markets among there those commodities which for are suggested by theextent ofco-movements prices away fromprices the fundamentals. someinvestments commodity have shifted fertilizers. Butitmay alsobethatspeculative as inputssuch ofagricultural well astheprices the costsofproduction andtransportation, as M J a a Nov-06 n i - z 9 e 7

O Nov-07 i l & J a S n o - y 0 b 1 e a

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Nov-10 J a n - 0 9

Nov-11 31 This is This

Nov-12

11

CHAPTER 1 Building Resilience to Natural Disasters and Major Economic Crises

High prices of food and fuel threaten food from sharp drops in oil and mineral prices security, increase inflation and slow the rate resulting in a decline in output.34 In 2008, the of poverty reduction. In countries that are net plunge of oil prices helped trigger banking importers, high prices of food and fuel can also crises in Kazakhstan and the Russian Federation put pressure on the exchange rate, leading to and a currency crisis in Turkmenistan. The least higher prices for other imports. Some local developed countries are particularly vulnerable food producers may gain, but high food prices to declining terms of trade and external demand generally hurt the poor who are net buyers shocks. Between 2007 and 2009, in countries of food thus have less to spend on other such as Bhutan and Lao People’s Democratic priorities including health and education Republic, GDP growth was reduced by more (Box I-4). In 2010, across Asia and the than 10 percentage points.35 Pacific the combination of high prices of food and oil is thought to have Increased interconnection of trade, while prevented some 15.6 million people escaping promoting economic growth, makes the region from poverty and pushed another 3.7 million vulnerable to external shocks below the poverty line.32 Another hallmark of the current wave of Sudden price moves can also cause a globalization is the increasing movement of deterioration in the terms of trade, with high goods and services across borders. In the past 33 output losses. For example, in the aftermath 10 years, world trade has almost tripled,37 and of the 2008 global financial crisis, commodity the majority of this growth was driven by the exporters in North and Central Asia suffered emergence of developing countries. This higher

Box I-4 Disasters triggering high commodity prices

In Pakistan in 2010, the monsoon rains caused massive floods which killed nearly two thousand people, affected more than 20 million and made at least 7.8 million people food insecure. There was also serious economic damage. Agriculture accounts for 21 per cent of Pakistan’s GDP, 45 per cent of employment and 60 per cent of exports. This disaster resulted in a loss of 7.5 million tons of sugarcane, 2.5 million tons of rice, 0.7 million tons of cotton and 0.3 million tons of maize.36

The floods also damaged infrastructure, destroyed storage facilities, roads and constrained food access for many communities – in a country where almost 20 per cent of the total population were already undernourished. The wheat price increased about 10 per cent in the three months following the disaster. According to the World Food Programme, between July and August 2010, the wheat price increased 82 per cent in one local market in the Khyber Pakhtunkhwa mountainous area. The floods impacted livelihoods and income-generating opportunities for the poor including farmers and unskilled labourers.

The floods reduced food production and generated rises in international prices. Between July and December 2010 the rice price increased from 465.8 to 563.8 rupees, and between 2009 and 2010 reduced rice exports from 13 to 9 per cent.

Sources: Pakistan, NDMA 2010; FAO, 2011b; WFP, 2010a.

12 Higher bilateraltrade-valuepartnersparticipatingin75percentofglobaltrade Figure I-9 bilateral trade.bilateral The linksbetween nodes represent trade, bilateral thelinkhighervaluetraded. andthethicker Note: ofthegroup responsible thatispart theworld’s thetop75percentinvalue ofall for represents circle Each small acountry ESCAPSource: basedon COMTRADE. Available from http://comtrade.un.org/db/default.aspx (accessed November 2012). should be less exposed to any crisis in export inexport should belessexposedtoany crisis thathave moreExporters tradingpartners Malaysia, theRepublicofKorea andSingapore. asChina, such and emergingcountries India, been joined by in Europe other countries Kingdom andFrance. Butby 2010thesehad the United States, Japan, Germany, the United had trade linkswithmany othercountries, were six toeight. Previously themainhubs, which trade relations withinthatgroup increased from same period, theaverage numberofbilateral increased from I-9). 53to74(Figure the Over theworld’sper centinvalueofall trade bilateral thatwerecountries responsible thetop75 for Between 1993and2010, thenumberof value oftradewasalsomore interconnected. 1993

Between 2002and2010, thetotaltradein capital and consumptionof final goods. theproduction for chains used inglobalsupply in AsiaandthePacific isinintermediate goods networks. Nowadays, a high proportion of trade partners, are they theirproduction integrating Not are tradingwithmore only countries supply chainsDisasters disrupt reduced exposure todemandshocks. necessarily hasthusnot the numberoftradepartners the maintradinghubsin West. Increasing of low economic demandin growth andexport correlated. are oftheirtradingpartners the economic cycles demand. have will less protection But they if 38 case asa theresult This iscurrently 2010

13

CHAPTER 1 Building Resilience to Natural Disasters and Major Economic Crises

Figure I-10 Increasing share of trade in intermediate goods, 1998-2010

World exports of merchandise goods

16

14

12

r s 10 a l l o d S U

8 f o

s n o i l l

r i 6 t

4

2

0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

capital goods consumption goods intermediate goods other goods

Source: ESCAP based on Basu and others 2013 and COMTRADE. Available from http://comtrade.un.org/db/default.aspx (accessed November 2012). intermediate goods in current terms increased 3.7 per cent in the fourth quarter of 2011. from about $3.2 trillion to more than $7.5 Thailand’s flooding also reduced the region’s trillion. This increasing integration of trade in agricultural production.39 parts and components has helped boost output, but can also make the system more vulnerable Asia and the Pacific is the world most to disasters: when one node collapses, the entire disaster-prone region supply chain succumbs (Figure I-10). Over the past three decades, the incidence of Natural disasters have indeed been disrupting natural disasters has increased globally but production and supply chains. In March the sharpest increase has been in Asia and the 2011, following the earthquake, Japanese Pacific (Figure I-11).40 In the past decade, automobile production fell by 47.7 per cent a person living in Asia and the Pacific was and electrical component production by 8.3 almost twice as likely to be affected by a per cent. The effects were soon felt elsewhere. natural disaster as a person living in Africa; Between April and May 2011, the production almost six times more likely than someone in of automobiles and electrical goods slowed Latin America and the Caribbean, and almost significantly in Thailand, the Philippines, 30 times more likely than a person living in Malaysia and Indonesia. There were similar effects following the 2011 floods in Thailand North America or Europe. In total, during which disrupted production not only in Thailand that period, around 2.5 million people in Asia but also in other countries, notably Japan and the Pacific were affected by disasters and where electrical component production fell almost 800,000 were killed (Figure I-12).

14 the Pacific, 1980-2011 the Pacific,1980-2011 The numberofreportednaturaldisastershasincreased,particularlyinAsiaand Risks ofbeingkilledoraffectedbynaturaldisasters,2000-2012 http://www.emdat.be/ (accessed November 2012). ESCAPSource: basedon datafrom EM-DAT: The OFDA/CRED InternationalDisasterDatabase. Available from http://www.emdat.be/ (accessed November 2012). ESCAPSource: basedon datafrom EM-DAT: The OFDA/CRED InternationalDisasterDatabase. Available from Fi Fi gure I-11 gureI-12 0.6 0.6 Asia Pacific P P e e 0.5 0.5 opl opl e e

Number of disasters by region (1980-2011) 100 150 200 Killed a 50 f 0 f and Caribbean Latin America e 0.4 0.4 c t

e 1980 ( d pe ( pe r Africa 1982 1 0.3 0.3 North Asia Pacific r , 0

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1994

0 0 1996 Latin 1998 America andCaribbean 2000 0 0

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and Caribbean 2004 Latin America Africa Europe Africa 500,000 2006 200,000 2008 300,000

1,000,000 2010 P P e opl e opl 400,000 e

e a

f Killed 1,500,000 f e c 500,000 t e d 600,000 2,000,000 Asia Pacific Asia Pacific 700,000 2,500,000 800,000 15

CHAPTER 1 Building Resilience to Natural Disasters and Major Economic Crises

Losses and damage have been rising

At the same time disasters have been causing of disasters as a percentage of GDP was almost greater economic damage. And over the past 20 twice as high in low-income countries as in years the pattern of losses has been dominated lower middle-income countries, and more than by the increasing frequency of large events 10 times higher than in upper middle-income (Figure I-13). In absolute terms, disasters and high-income countries (Figure I-14). may cause greater economic damage in richer countries that have more developed infrastructure. The impact can be particularly severe in small island countries, in many cases causing damage But in relative terms the low-income countries and losses that represent multiples of the are much harder hit. 41 In Asia and the Pacific, country’s total annual output (Figure I-15). in the past five years, the average annual impact

Figure I-13 Global economic losses and damage are on the rise, 1980-2010

350 Economic damage (Billions of 2005 US dollars) Japan: Great East Trend Japan Earthquake 300

250 United States: Katrina Storm

200 Japan: Japan: Kobe Earthquake China: Sichuan Chūetsu Earthquake Turkey: Earthquake 150 Earthquake China: China: Algeria: Floods Drought 100 El Asnam Earthquake Iran: Manjil-Rudbar Earthquake Spain: Floods 50

0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Source: ESCAP based on data from EM-DAT: The OFDA/CRED International Disaster Database. Available from http://www.emdat.be/ (accessed November 2012). Notes: Labels in the figure show major disasters that contributed to high damage and loss in selected years.

16 Asia-Pacific averageannualimpactbyincomeclassification,2006-2010 Impact ishigherinpoorercountries: Available from http://www.emdat.be/ 2013). (accessed February ESCAPSource: basedon datafrom EM-DAT: The OFDA/CRED InternationalDisasterDatabase. Small islandcountries,economicdamageasapercentageofGDP Available from http://www.emdat.be/ 2013). (accessed January 2013)andEM-DAT: (accessed January log/world-development-indicators theOFDA/CRED InternationalDisasterDatabase. ESCAPSource: basedon the World Bank’s World- availablefrom Development Indicators http://data.worldbamk.org/data-cata Fi Fi gure I-14 gure I-15 0.0 0 High income Upper middleincome 0.2 5 V P 0 a a n T p u o u Lower middleincome a n a t

g u N a Economic damage(percentofGDP)

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CHAPTER 1 Building Resilience to Natural Disasters and Major Economic Crises

Shocks make growth volatile growth in many least developed countries is still below the pre-crisis trend.43 In low-income Developing economies, and the small ones in countries, droughts, floods, storms and extreme particular, are also vulnerable to natural and temperature events can lead to declines in real per other disasters because of structural weaknesses. capita GDP of around 2 per cent. 44 Often they do not have very diverse exports and can be highly dependent on primary A major disaster causes suffering and loss of commodities. They can also be quite remote life, but in a poor country it also damages the and have high concentrations of poverty. As a limited stock of capital goods and can lead to result they have less capacity to absorb shocks a long-term decline in productive capacity. As and their economic growth is likely to be more economic activity declines, fiscal revenues also volatile. This is evident in Samoa, for example shrink. The sudden and large demand for cash which in 1990 was hit by major storm Val and and foreign currency adds to the macroeconomic in 2009 by a tsunami, both of which caused challenges. Likewise, financial and economic significant losses in output (Figure I-16). crises generate output losses that result in

Figure I-16 Samoa, real GDP growth percentage, 1983 – 2011

8

Storm Val Tsunami 6

4 per cent) ( 2 e t a r

h t 0

o w 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 r g

P -2 D G -4

-6

Source: ESCAP based on World Bank’s World Development Indicators. Available from http://data.worldbank.org/data-catalog/ world-development-indicators (accessed January 2013).

Large shocks can cause permanent economic loss economic slowdowns, create unemployment and threaten poverty reduction. All this distress Severe shocks can also knock countries off their can easily derail the economy and send it to a growth trajectories and lead to a permanent lower path of growth. loss in output. For example, a banking crisis in developing and emerging economies may If a country suffers a series of shocks this can reduce total output by 4.5 per cent after eight also have a cumulative effect, as illustrated by years.42 As a result of the 2008 crisis, GDP the 2003 cyclone Ami in Fiji and the 2004

18 Persistent lossescausedbyshocks Note: For more and detailsseeLaeven Valencia, 2012. 2013) aspx (accessed January ESCAPSource: basedon Annual core online database. indicators Available from www.unescap.org/stat/data/statdb/DataExplorer. Fi quantity and quality ofeducation. andquality quantity damaged facilities education –reducing the enrolment. school primary events These net affected and the 2010 floodsall cyclone example,for the 2005 earthquake, the 2007 Development Goals.Millennium InPakistan, ofthe the alsoaffect achievement large shocks In addition lossesinoutput, tothepermanent I-17). (Figure financial crisis werewhich coupledwiththe2008global Indian OceantsunamiinMaldives, bothof countries. economic crises, andhasbeencomputed 37 for tocopewith exposure andcapacity country’s assesseseach indexwhich vulnerability using two indices. The firstis the ESCAP behighlighted disasters can andnatural crises to economic mostvulnerable The countries multiple shocks? Who is most vulnerable to GDP (constant 2005 $ Billion) gure I-17 2. 2. 2. 3. 3. 3. 3. 5 7 9 1 3 5 7 19 9 1997: AsianCrisis 46 P A The second is the world risk index The second isthe world r c 20 e t u - c Tropical Cyclone a r l 1 i si G s DP t r e n 2003: d 20 3 F i j i 20 5 20 7 45 2008: Global FinancialCrisis 20 9

lose 2to15percentofGDPannually. countries,developing globally which lose mostasaresult disastersare ofnatural the As aproportion ofGDP, that thecountries diverse economies.areas anddonothave very coastal populations concentrated inlow-lying Islands, Tonga and Vanuatu have –which the Solomon including States developing quadrant.top-right These are island thesmall lieinthe ofshock tobothtypes most vulnerable two indicesagainsteachother. The countries developing States.developing Bangladesh, Cambodia, islands andsmall countries developed region where are the most vulnerable the least A similartrend emerges intheAsia-Pacific States.developing island andsmall countries developing countries,the leastdeveloped landlocked Among these, are themostvulnerable and adaptive capacity. indicators:four exposure, susceptibility, coping disastersusing tonatural assessestherisk which GDP (constant 2005 $ Billion) 0. 0. 0. 1. 1. 1. 5 70 85 0 15 30 20 0 20 1997: AsianCrisis P A 1 r c e t Indian OceanTsunami u - 20 c a r l i si G 2 s DP t r 20 e n d 3 2004: 20 47 M 4 Figure I-18plotsthese Figure al 20 di ve 5 s 20 6 20 7 20 2008: Global FinancialCrisis 8 20 9 201 0 48

19

CHAPTER 1 Building Resilience to Natural Disasters and Major Economic Crises

Figure I-18 Mapping vulnerability to economic crises and natural disasters

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0 0 5 10 15 20 25 30 35 World Risk Index (natural disasters) Source: ESCAP, 2010; UNU, 2011. Papua New Guinea, the Philippines, Solomon at relatively higher risk have taken positive Islands, Tonga and Vanuatu are the most at steps to mitigate the adverse effects. risk to natural disasters due to their high exposure and susceptibility to damage. The The map of vulnerability in Asia-Pacific follows, landlocked developing countries such as to a great extent, the contours of the region’s Tajikistan, Kyrgyzstan, Mongolia and poverty map which shows the most vulnerable Lao People’s Democratic Republic are the most people to be those living in the most populous susceptible to economic shocks; these countries, least developed countries. being relatively more dependent on primary products, suffer most from commodity market From fragility to resilience volatility. For people living in fragile and conflict-affected However, not all are equally vulnerable. A hazard States, the journey from fragility to resilience is only becomes a disaster when it encounters often both long and arduous. One quarter of exposed and vulnerable communities. the people in the world still live in areas plagued Vulnerability is also determined therefore by high levels of criminal and political violence. by social, economic and environmental They are twice as likely to be undernourished factors as well as the capacity to respond. and their children three times as likely to be Countries such as Bangladesh, Japan, out of school.49 With the additional threats to Indonesia and the Philippines, even though lives and livelihoods of climate change, natural

20 communities, from learn can so that they therefore themostvulnerable tosupport people themost.vulnerable Itisimportant poor and Economic anddisastershurt crises economies. andlessdiversified andinsmall countries developed difficult intheleast is particularly of macroeconomic have. they instruments This disastersusingthelimitednumber of natural theadded challenge dilemma ofhow tohandle economic slowdown, face the policymakers macroeconomic environment asaresult ofan Confronted withanalready weakened consider how mightaddress they them: multiple crises. ofthis chapters Subsequent region whendealingwith facechallenges key In pursuingthesepolicies, ofthe policymakers system.have tobeaddressed ofanoverall asparts environment separately, andsociety will they than dealing with problems in the economy, inadifferent way.to makepolicy Rather environment. To need will thisthey achieve in anunpredictablethrive and shock-prone need tobuildtheirresilience toadapt and In future, will thatmany countries itisclear enlightened leadership matterthemost. and financial resources, accountable management ofnatural, human states, good governance, strong institutions, issue isnottakenupinthisreport, fragile for requirement ofdevelopment. this While isthemostfundamental human security disasters, andeconomic crises, establishing Systemic responses

Chapter 2– resilience The macroeconomics of Chapter communities 3–Buildingresilient andabove all,

growth. sustained, andequitableeconomic inclusive regeneration and restoration while promoting have conservation, tofacilitate ecosystem failure. not be easy.This will Policymakers ofanecosystem intheevent on thesesystems environmental resources andlimittheimpacts so astoreduce dependenceon individual economic meandiversifying this will activities re Building resilience involves usingenvironmental failure catastrophic avoiding increased exports. However, thisalsoincreases strong basesand benefitfrom manufacturing many Asia-Pacific economies toestablish has enabled Integration into global value chains exposure andvulnerability. their that minimize governance structures mean designing legal,This will regulatory, and disasters. natural donotfailduring so thatthey communication lines, and crucial water systems buildings, roads, majorsupply bridges, power, asschools,such hospitalsandcommunity social infrastructure, tosafeguard critical important and prone crisis.shocks to systemic It is also example, thefinancial sectorissensitive to toalarger system. crisis of alocalized For oract astransmitters acrisis eithercause can So resilience. tobuildcommunity government levels local measures neededatnational, provincial and however, requires abetterunderstandingofthe and better-prepared future for shocks. This, past adversities stronger and bounce back

urces as efficiently aspossible.sources asefficiently Inparticular Chapter 4– The land,water, nexus: energy me sectors are and vulnerable inherently Chapter 6 – Strengthening supply chainsChapter 6–Strengthening Chapter 5 – Protecting critical sectors critical Chapter 5 – Protecting

21

CHAPTER 1 Building Resilience to Natural Disasters and Major Economic Crises

their vulnerability, directly and indirectly, to build resilience, and share lessons, practical natural disasters. Policymakers also therefore knowledge and experience across countries and need to devise mechanisms for boosting subregions. The Asia-Pacific region has some resilience throughout the chains. regional cooperation mechanisms that deal with natural disasters and economic shocks. Chapter 7 – Mutual support through regional However, they are at different stages of cooperation development and, in most cases, they do not Countries are increasingly faced with economic incorporate resilience. How to build on these crises and natural disasters that have cross- mechanisms and fill up the gaps in regional border impacts. They can benefit, therefore, cooperation is a key question for the from mutually reinforcing strategies to governments of the region. ME D IA CPA P H OTO

22 of its exports (see technical annex). (seetechnical of itsexports uses ameasurereport based on the characteristics ofits productioncomplexity this structure ashock.productive jobsafter To assessthe keep theeconomy functioning andgenerate recombiningfor itsproductive to capabilities greatereconomy offer will opportunities which resilient ifithasacomplex anddiversified be more will the assumption that a country Resilient economies relevant data. to investigate of thisatpresent duetoascarcity related totheenvironment, butitisnotpossible that mightbeusedare those characteristics andadapt toshocks.absorb Another setof empoweredsufficiently tobebetterable of crises. And it considers whether people are to continue functioning at times organize adapt tochanged circumstancescan andself- It considers therefore whethertheeconomy withstand, andadapt toshocks. absorb that creates theenvironment peopleto for of theeconomy and thesociety characteristics here astheresilience thatemerges from intrinsic to adapt to shocks,countries is defined which society. focus is The on theintrinsic resilience of ofboth theeconomyon and the characteristics based each country initial attempt to do so for combined shocks. This appendixmakesan tomeasure efforts resilience tothese fewer anddisasters,crises thusfarthere have been exposure, to economic and risk vulnerability there are anumberofmeasures of While Measuring Appendix resilience – This measure is based on

others may suffer dramatic loss and never lossandnever others maydramatic recover. suffer benefit fromto change and even it, while some regions may be better prepared to adapt between regionsbe variation ineacheconomy: this isanational average to andthere islikely development. However, itshouldbenotedthat of relatedindicators to the inclusiveness have relatively inthe social highachievement region’s totaloutput. also These countries and are responsible alarge for share ofthe (Table A-1). haveThey diversified economies Malaysia, the Republic of Korea, and Thailand as well asemergingeconomies asChina, such Japan,these include Australia, andNewZealand, resilient.intrinsically In Asia and the Pacific average inbothmeasures, soare more quadrant arethe upper-right above theglobal averages ofeachcomponent. in Countries quadrants based ondivided into four the global registers itssocialcomponent. The figure is economic component; axis thehorizontal A-1.Figure axis registers the The vertical in isillustrated The result ofthisanalysis and protectannex). theirchildren (seetechnical liveif they insocietiesthatempower women needed to respondthe capabilities to disasters, beinastrongerpeople will position todevelop andtheassumption that toshocks vulnerability on women andchildren reflects theirpersistent Goals related togender and children. focus The infive Development achievement Millennium theseisthroughOne way of ofmeasuring levels andadapt toshocks.to bebetterableabsorb in more equitable societies that empower them Resilient societies – People bemore will resilient

23

CHAPTER 1 Building Resilience to Natural Disasters and Major Economic Crises

Figure A-1 Intrinsic resilience, 2010

3 Moderate resilience Higher resilience

JPN 2 CHN

t IND

n AUS ) KOR e x n o d e TUR THA

p MYS n

i RUSN ZL

m y IDN t o i

c 1 x PHL

e VNM e l c p n PAK m e

i IRN l o

i LKA c s

e c i r 0 NPL m c BGD KAZ i GEO o UZB ARM m n AFG AZE FJI o o KHM c n MMR KGZ o E PNG MNG ( BRN c LAOT JK E BTN MDNVIU C OK SLB WSMMH LV UT -1 TLS KIR TON TUV PLW Lower resilience Moderate resilience -2 -3 -2 -1 0 1 2 Social resilience component (social context index)

table A-1 Intrinsic resilience of Asia-Pacific countries, 2010

Higher

ENEA China, Japan, Republic of Korea NCA Russian Federation PAC Australia, New Zealand SEA Malaysia, Philippines, Thailand, Viet Nam SSWA Sri Lanka, Turkey

Moderate

Higher social component ENEA Mongolia NCA Armenia, Georgia, Kazakhstan, Kyrgyzstan PAC Cook Islands, Fiji, Marshall Islands, Niue, Palau, Samoa, Tonga, Vanuatu SEA Brunei Darussalam SSWA Maldives Higher economic component SEA Indonesia SSWA India, Iran (Islamic Republic of), Pakistan

Lower

NCA Azerbaijan, Tajikistan, Uzbekistan PAC Kiribati, Papua New Guinea, Solomon Islands, Tuvalu SEA Cambodia, Lao People's Democratic Republic, Myanmar, Timor-Leste SSWA Afghanistan, Bangladesh, Bhutan, Nepal

24 Overall resilienceindex,selectedglobalregions,1993-2010 economic progress, relatively unequal isstill India which, althoughithasmade rapid resilience. These include Pakistan, andalso economic resilience butbelow-average social resiliencemoderate –withabove-average quadrant have intheupper-left Countries f ones aresmaller which less diversified and have the economies thatare leastresilient are the a relatively lower resilience. intrinsic Ingeneral, difficult process ofnation has buildingandstill hasalsobeeninvolved ina Timor-Leste toadapt tosuddenandmajorshocks.capacity inrecentindicators years hasalow still despite progress inmany socialandeconomic and Timor-Leste. Afghanistan, example, for People’sLao Republic, Democratic Nepal countries: Afghanistan, Bangladesh, Cambodia, some oftheregion’sinclude leastdeveloped have alower combinedchart resilience. These quadrantofthe inthelower-left Countries intrinsic resilienceintrinsic isequalto1. Notes: Inthegraph, marks zero the globalaverage. overall The standard oftheindex oftheglobaldistribution deviation Databseavailablefrom Indicators http://mdgs.un.org/mdg/Default.aspxand MDG (accessed November 2012). BasedonSource: datafrom COMTRADE availablefrom http://comtrade.un.org/db/default.aspx (accessed November 2012) Fi ewer productiveewer capacities. ------gure A-2 1 1 1 0 0 0 0 0 0 0 0 ...... 4 2 0 8 6 4 2 6 4 2 0 1 9 9 3 S A s u 1 i b a 9 - - 9 S P 4 a a h c a i 1 f i r 9 c a 9 n 5

A f r 1 i 9 c 9 a 6 1 9 9 7 1 9 9 8 1 9 9 9 W L 2 a es 0 ti 0 n t 0

A A m s 2 i

a er 0 0 i 1 c a This shows the region’s intrinsic resiliencetobe PacificFigure asawholeare A-2. shown in composite index. The for Asiaandthe results combined with equal weights to produce a The economic andsocialcomponentscanbe A composite resilience of index economic disaster. ornatural by –whethercaused an ofamajorshock in case and forthemtoadapt it toodifficult reorganize have narrowly basedeconomies making but often socialresilience, bolstertheirintrinsic links which have they strong community countries; typically economic resilience. Mostare island small average social resilience and below-average resilience,moderate withabove- butinthiscase inthelower-right quadrantalsohave Countries Islamic RepublicofIran are borderline. children. Onthesemeasures, Indonesia andthe thewelfarewhen considering ofwomen and

a 2 n 0 d 0 2

C a 2 r i 0 b 0 b 3 ea n 2 0 0 4 2 0 0 5 2 N Eu 0 o 0 r r 6 o th p

e A 2 f 0 i r n 0 i c

7 tr a a n 2 s 0 i 0 ti 8 o n 2 0 0 9 2 0 1 0 25

CHAPTER 1 Building Resilience to Natural Disasters and Major Economic Crises

similar to the global average but lower than in and, in the aftermath of shocks, new connections Latin America and the Caribbean, West Asia are more likely to be established in the network or the transition countries in Europe. Moreover, of business and resources located in cities than the region has made scarcely any progress, and in rural areas. the gap with some other regions has widened. Higher resilience also goes hand in hand with The regional average hides differences in better standards of governance – this would performance across and within Asia-Pacific include better public services and a high quality subregions. This is illustrated in Figure A-3 civil service that is independent of political which shows the resilience to be greatest in the pressures. Also important is the quality of East and North-East subregions. Resilience is policy formulation and implementation, and lower in other subregions but has been rising, the government’s commitment to such policies in North and Central Asia, for example, and including those that promote private-sector particularly in South and South-West Asia. development – which contributes to a dynamic The Pacific, on the other hand, has become less economy that is more likely to self-organize resilient over the years, even when considering and heal itself in the aftermath of a crisis. the relatively higher resilience of its developed countries, Australia and New Zealand. Known risks and vulnerabilities

Overall, the higher resilience is generally found The analysis of the relationship between in countries with higher per capita income. resilience and the vulnerabilities associated to Resilience is also greater in countries that are known risks provide important information more urbanized. Cities concentrate the largest about the challenges that countries face in share of the economic complexity of countries dealing with more predictable crises. Figure A-3 Index of intrinsic resilience, Asia-Pacific subregions ,1993-2010

1.25 1.00 0.75 0.50 0.25 0.00 -0.25 -0.50 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

North and Central Asia Pacific South-East Asia South and South-West Asia East and North-East Asia

Source: Based on data from COMTRADE available from http://comtrade.un.org/db/default.aspx (accessed November 2012) and MDG Indicators Databse available from http://mdgs.un.org/mdg/Default.aspx (accessed November 2012). Notes: In the graph, zero marks the global average. The standard deviation of the global distribution of the index of overall intrinsic resilience is equal to 1.

26 Association betweenintrinsicresilienceandtheeconomicvulnerabilityindex Fi MDG Indicators Databaseavailablefrom Indicators http://mdgs.un.org/unsd/mdg/Default.aspxMDG (accessed November 2012). BasedonSource: datafrom COMTRADE avalable from http://comtrade.un.org/db/default.aspx (accessed November 2012)and EVI. quadrant have inthetop-left The countries global averages oftheindexresilience and resilience. markThe the red lineschart on the the highervulnerability, thelower the index hasaninverse association withtheEVI: resilience A-4shows thattheintrinsic Figure trade shocks and natural disasters. andnatural trade shocks ofpreviousshocks,and theeffects including economic andenvironmental structure factors, indices ofexposure, size, include which location, byweighted is calculated combining equally by exogenous andunexpectedshocks. The EVI economic development beingaffected country’s Nations measures ofa indexwhich therisk index(EVI).vulnerability The EVI isaUnited the resilience indexwiththeeconomic Figure A-4, in This isillustrated compares which

Intrinsic Resilience gure A-4 - - - 0 1 2 3 2 1 0 Low vulnerability&Highresilience Low vulnerability&resilience 1 0 TU R I

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components related toknown disasters: exposure, Development Alliance Works. The WRIfour has by theUnitedNations andthe University developed index(WRI) risk using theworld disaster.natural risk ofdisastersisestimated The resilienceof to theirintrinsic andtherisks Similarly, according beclassified can countries Kiribati,are Tongaand Tuvalu. islandcountries.small on thisbasis Mostatrisk oftheregion, countries least developed andthe shocks.to external the This quadrant includes have lower resilience andare more vulnerable hand, quadrant in the bottom-right countries to adapt andrecover from them. Ontheother tobeaffected by crises,likely andmore likely vulnerability. People are inthese countries less high resilience andlower values ofeconomic S R E D

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27

CHAPTER 1 Building Resilience to Natural Disasters and Major Economic Crises

susceptibility, coping capacities and adaptive global averages of the index of resilience and capacities. The exposure component refers to the the WRI. Globally, among the countries with physical exposure to earthquakes, storms, floods high levels of resilience, Japan is the country and droughts. The susceptibility component that faces the higher risk of natural disasters. includes indicators of public infrastructure, The resilience of those that face lower risk economic capacity, distribution of income, varies from low levels as in the case of Kiribati, poverty, dependency ratios of youth and of Mongolia, Nepal, and Lao People’s Democratic elderly, and nutrition. The coping capacity Republic, to high resilience such as for Australia element assesses the capacity of government and the Republic of Korea. On the other hand, and authorities, medical services and material except for the Philippines, countries that face coverage or insurances, while the adaptive higher risk are associated with lower resilience. capacity element covers education and research, gender equity, environmental status and The countries that are particularly at risk are investment. Solomon Islands, Tonga and Vanuatu. These small island countries face many structural As indicated in Figure A–5, the intrinsic and geographical challenges in increasing resilience index shows a less pronounced linkage resilience. Their small populations may create the with the WRI. The two red lines mark the conditions for more equitable societies but Figure A-5 High risk countries are also less resilient

3 Low risk & High High risk & High resilience resilience

2 FDREAU G BR CHE ITA NLD JPN SWEC ANE BSEP L DNK FIN AUT AUS ISR KIROLR CHN NOR PPORLT NZL HUN SVN THA ESTL TU BRA MYS UKR MEGX RC LVAHA RAVGR E BLR BGR TUR ROU e 1 ISL SRB CHL c CYP ZAF COL VNM PHL n SAU URY PEPRA N IDN BIH LKA CRI e TUN IND i EGY MUS l QAT BHR LBN ECU SLV i BROBM N KWKTA Z VEN MLT IRN CUBT ATGROEM O HND s SYC JOR SYR ALB DOM JAM GTM BHS BWA MAR e MNG FJI PRY DZA BRN NIC R 0 GRD LBY BLZ UZB BGD NAM KEN KHM c BOL AZE SUR i NPL SWPZA K VUT WSM GUCYP V TON s GHA MTMZRA MDG

n BTN

i STP RWA ZWE SLB r KIR LAO UGAE THM WI t IRQG AB LSO SEN NGA TLS

n ERI BFA GMB PNG I -1 COG TGO CAF AGO CMR DJI MOZ NER YEM MRT SLE AFG LBR MBDLII COM GIN BEN GNQ -2 GNB TCD

Low risk & Low resilience High risk & Low resilience -3 0 5 10 15 20 25 30 35 World Risk Index

Source: Based on data from COMTRADE available from http://comtrade.un.org/db/default.aspx (accessed November 2012) and MDG Indicators Database available from http://mdgs.un.org/unsd/mdg/Default.aspx (accessed November 2012).

28 Global economiccrisis,2008-2009 dicators (accessed Novemberdicators 2012). the World Bank’s World- availablefrom Development Indicators http://data.worldbank.org/data-catalog/world-development-in Databaseavailable from Indicators http://mdgs.un.org/unsd/mdg/Default.aspxand MDG (accessed November 2012) and BasedonSource: datafrom COMTRADE availablefrom http://comtrade.un.org/db/default.aspx (accessed November 2012) Fi after the global economic crisis (Figure A–6). theglobaleconomic (Figure crisis after resilienceintrinsic indexrecovered bestin2009 in2008withhigherscoresCountries on the disasters –toprevent hazardsbecoming disasters. reduce tonatural theirexposure andsensitivity reductionto takedisasterrisk measures that economies to safeguard theirdevelopment is adapt to shocks.that can The best wayfor these limit the development ofdiverse economies Resilience to economic crises gure A-6

D ifference in G D P grow th rate, 2009 m inus 2008 - - 1 2 3 1 2 0 0 0 0 0 0 - 2 . 5 G TC N y B D

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29

CHAPTER 1 Building Resilience to Natural Disasters and Major Economic Crises

Figure A-7 Asian financial crisis

20

KOR THA

1 9 7 IDN 15 MYS s

u RUS n i m 10 FJI KHM PNG MMR KAZ NZL 1 9 8

, 5 LAO BRN PHL e IND t BTN JPN NPL KGZ a PAK TON

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Source: Based on data from COMTRADE available from http://comtrade.un.org/db/default.aspx (accessed November 2012) and MDG Indicators Database available from http://mdgs.un.org/unsd/mdg/Default.aspx (accessed November 2012) and the World Bank’s World Development Indicators available from http://data.worldbank.org/data-catalog/world-development-in- dicators (accessed November 2012). Technical Annex

Economic complexity index Data is data from United Nations COMTRADE using SITC rev2 (5-digit level). The value The analysis presented in this Study applies traded is not used in the analysis, only the unit the method of reflections proposed by Hidalgo value is considered to further classify products 51 and Hausmann to quantify the set of by price range. productive capabilities available in a country’s economy based on the structure of a bipartite The method represents the network connecting network connecting countries to the products countries to products using the adjacent matrix that they export. The method of reflections Mcp, where Mcp is 1 if the country produces the assumes that products require specific product and 0 otherwise. The method is defined combinations of capabilities to be produced; as the recursive set of observables: countries have some capabilities but not others; 1 Kc,N = ∑ M cp K p,N −1 and countries will produce goods as long as K c,0 p they have all the required capabilities.52 This analysis infers the set of capabilities available in and the countries by analysing the association and implied relationships that connect countries to 1 K p,N = ∑ M cp Kc,N −1 products. The method uses trade data to infer K p,0 c the products that the country is able to produce.

30 ( identified withanordered listof ofitsproduct-mix,and ubiquity be can which ofthediversification interms of thecountry ofproductive ing thecomplexity structure produces, c each country for product representing thatexport thenumberofcountries of products exported by country c byof products country exported value of such limitnumber(N value ofsuch in relevantvaluestoproduce theranking. The limit tothe number of iterations that result to thesamenumber. There is, therefore,a the higher order tend to converge variables number of iterationsthemethodreflections. Asthe on theattainmentoffive Millennium themethodofreflections toinformation applying by socialresilience eachcountry intrinsic for createsThis a quantitativereport measure of For List ofMDGindicatorsconsideredtocalculate thesocialresiliencecomponent T its meananddividingby thestandard deviation. K however, approximates thisreport thelimitby connected). themethodconverges Since quickly, of countries, products, andhoware they ofthenetworkthe structure (i.e. thenumber Social context index K Reduce childmortality Promote genderequalityandempowerwomen AB c , c, 12 0 N ,K . The measureby subtracting isnormalized LE A-2 c, ≥ 1 N 0 ,K p ofiterations ofthemethodincreases, , withK . The methodof reflections thus c, 2 , … , K MDG c, c, 0 N representing thenumber ), where

, a vector represent N L N is the number is the number ) dependson real numbers andK Children 1yearoldimmunized against measles,percentage Infant mortalityrate(0-1year)per 1,000livebirths Children underfivemortalityrateper1,000livebirths Share ofwomeninwageemploymentthenon-agriculturalsector Gender Parity Indexinsecondarylevelenrolment p , 0

adjacent M matrix toproductsconnecting countries usingthe complexity, themethodrepresents thenetwork withtheestimation ofeconomic Similarly related togender andchildren (Table A–2). indicatorsDevelopment Goal(MDGs) standard deviation. by subtractingitsmeananddividingby the ofattainment.level The measure isnormalized that thelower numberrepresents thehighest mortality, isreversed toreflect thescale thefact For as infant and under-5 such indicators the nearest available data/year the country. for available were imputedby replacing themwith thelatestdata orafter years before theearliest method and missingdatain interpolation yearsreporting were imputedusingsimple between two dataset of acountry the MDG product.a different MDG Missingvalues on percentage ofattainmentas pointinthelevel isdisaggregatedeach indicator by takingeach toreach alargelikely numberofgoals. Dataon are equitable countries morethat more socially byachieved alarger numberofcountries, and tobe ofattainmentarelevels lesslikely The assumption isthatmorechallenging produces the product and 0 otherwise.country Indicator cp , where M cp is1ifthe

31

CHAPTER 1 Building Resilience to Natural Disasters and Major Economic Crises

Endnotes

1 Hossain and Green, 2011. 27 Soremaki and others, 2006. 2 Narasimhan, 2009. 28 Albert and others, 2000; Crucitti and others, 2004. 3 Philippines, NDRRMC, 2012. 29 May and others, 2008. 4 united Nations, 2005a. 30 De Bock and Carvalho Filho, 2013. 5 united Nations, 2010. 31 eSCAP, 2012c. 6 united Nations, 2011. 32 eSCAP, 2011b. 7 united Nations, 2012b. 33 Becker and Mauro, 2006. 8 Kahneman and others, 2011. 34 eSCAP, 2012c. 9 World Bank, 2012b. 35 Bhattacharya and Dasgupta, 2012. 10 Flyvbjerg, 2006. 36 ADB and World Bank, 2010. 11 Weitzman, 2009. 37 uNCTAD, 2013. 12 uNISDR Terminology on Disaster Risk Reduction. 38 Jansen and others, 2009. 13 Holling, 1973. 39 eSCAP, 2012c. 14 IPCC, 2007. 40 In this study natural disasters are droughts, floods,

15 storms, extreme temperatures, and wildfires, as resilience Alliance, further information from well as mass movements such as landslides, http://www.resalliance.org/index.php/glossary. volcanoes, earthquakes and tsunamis. 16 uSAID, further information is available from 41 Noy, 2009. http://www.usaid.gov/resilience 42 Furceri and Zdzienicka, 2012. 17 Stockholm Resilience Centre, further information is available from http://www.stockholmresilience. 43 Bhattacharya and Dasgupta, 2012. org/21/research/what-is-resilience.html. 44 raddatz, 2007; Hochrainer, 2009. 18 uK DFID, 2011. 45 eSCAP and UNISDR, 2012. 19 WEF, 2013. 46 eSCAP and others, 2010. 20 For further information, refer to www.usaid.gov/ 47 resilience. uNU, 2011. 48 21 Stiglitz, 2009. uNISDR, 2011. 49 22 Cash and others, 2006. World Bank, 2011c. 50 23 eSCAP, 2012c and 2012d. Cariolle, Joel and Patrick Guilaumont, 2011. 51 24 ADB, 2011b. Hidalgo and Hausmann, 2009. 52 25 Fornanri and Stracca, 2012. Hausmann and Hidalgo, 2010. 26 grilli and others, 2012.

32 33

CHAPTER 1 2

THE MACROECONOMICS OF RESILIENCE C MSN B

F RT ES Y O U CO 2

THE MACROECONOMICS OF RESILIENCE C MSN B

F RT ES Y O U CO Building Resilience to Natural Disasters and Major Economic Crises

CHAPTER 2

The macroeconomics of resilience

Countries in Asia and the Pacific regularly face multiple shocks – from both economic crises and natural disasters. As well as causing human suffering, these shocks also affect national economies. Policymakers now have to respond with careful choices that address inflationary pressures, fiscal deficits and the prospect of rising debt.

Countries in the Asia-Pacific region are It is also important to consider the inter- vulnerable to many kinds of shock – resulting connections between policy choices made before from financial crises, for example, or declines in and after disasters. The options for restoring the the terms of trade, as well as political or social economy to its long-run, pre-disaster growth upheaval, health pandemics, or natural disasters. will depend to a certain extent on previous And many of these shocks may be experienced policy choices on prevention and preparedness. at the same time: indeed in Asia and the Pacific simultaneous multiple shocks have become the This chapter attempts to shed light on some ‘new normal’ – particularly the combination of of these unresolved issues, and puts forward natural disasters and economic crises. some pragmatic general principles for a macroeconomic framework that promotes Despite the frequency of simultaneous crises, resilience to both economic shocks and natural the economic literature offers little guidance disasters – helping countries mitigate their on how to respond. To what extent should inherent vulnerability to shocks while countries faced with multiple shocks, uphold enhancing their ability to recover. conventional macroeconomic stabilization objectives and targets – on inflation or fiscal Impact of natural disasters on deficits, or on liquidity norms or debt the economy sustainability? And faced with the prospects of slower growth should they uphold the central Natural disasters not only lead to loss of life bank’s objective of low inflation? and human suffering, they also destroy private and public capital – productive assets, property There are also unanswered questions on how and infrastructure. This soon affects the to prepare for disasters. Conventional wisdom overall economy – slowing down manufacturing will argue for investing in risk reduction – in and agricultural production and increasing the order to reduce subsequent expenditure on prices of essential goods. relief and rehabilitation. Nevertheless, the economic literature offers little guidance At the same time disasters erode human capa- on how to integrate disaster risk reduction bilities. Households faced with rising prices can into macroeconomic policymaking. suffer from hunger and malnutrition and may

36 that same-year by GDPgrowth fell anaverage study looked at21majordisastersandfound Source: reduction of1.7percentage points. inthatyear,GDP growth fell withamedian that in 28 was cases 3 per cent of GDP found mediandamage which for of35events survey contractionterm ineconomic output. One Natural disasters lead toanimmediate, short- violence. andlead toincreases and the society incrime alsohave broader can effects on of scarcity on the social sectors. This environmentgeneral greater pressureeven fiscal reduce expenditure arewhich compounded ifgovernments under towork –problemshave adiminishedcapacity Impact ofnaturaldisastersoneconomicgrowthinPakistan factors otherthannaturaldisasters thatmighthaveaffectedgrowthrates. It should be emphasized, however, that these projections are only illustrative and do not take into account indicating anoveralldampeningeffectontheeconomy. cumulative effectontheeconomy.Thefigurebelowshowswhatgrowthmightotherwisehavebeen, magnitude earthquake.Andin2010and2011,therewassevereflooding.Thedisastershadamassive In recentyearsthecountryhasbeenhitbyaseriesofnaturaldisasters.October2005,therewas7.6 Box II-1 ESCAP andUNISDR, 2012.

Billions of 2000 US dollars 140 150 110 120 130 100 80 90 06/2004 Variations betweenPakistan’sactualobservedGDPandprojected 06/2005 Projected GDPintheeventofthreedisasters (Sep_2005, May2007andJune_2010) GDP1: ProjectedGDPintheeventofonedisaster(Sep_2005) GDP2: ProjectedGDPintheeventoftwodisasters(Sep_2005andMay_2007) RGDP: ObservedGDP NGDP: ProjectedGDPinthecaseofnodisaster 1 06/2006 Another without disasters,2004-2011

06/2007

first year. percentage-point drop inGDPgrowth inthe estimated thatdisastersproduce anaverage 0.7 of 3.1percentage points. suffered long-term declines ingrowth. suffered long-term declines disaster followed by upheaval then political that had a natural thatcountries has found evidence, cross-country empirical butone study Pakistan. For there thelong-term effects isless disasters mighthave reduced growth in coping capacities. Boxshows how II-1 natural space and increase debt, while eroding people’s toreduce fiscal ofdisastersislikely a series low-income where for countries risk particular There are alsolong-term implications. Thisisa 06/2008 3 06/2009

06/2010 06/2011 2 Other studieshave Other 4

37

CHAPTER 2 Building Resilience to Natural Disasters and Major Economic Crises

The long-run impact of a disaster on any country employment. This supply shock is transmitted will depend on the economic, social and to the real sector through a number of channels. institutional conditions – and the subsequent response. Sometimes the outcome can be External sector – Natural disasters usually positive. The May 2008 earthquake in Sichuan, lead to a sharp deterioration in the trade China, for example, resulted in a wholesale balance. Import bills rise for food, raw materials capital stock replacement which helped boost and reconstruction materials, while exports tend productivity and growth (Box II-2). to decline due to the destruction of productive capacity and market infrastructure or the Macroeconomic transmission reallocation of labour to disaster relief and rehabilitation. One study for Latin America and channels of natural disasters the Caribbean, for example, considered 42 large natural disasters and found that these were, on From the macroeconomic perspective, a natural average, associated with a deterioration in the disaster delivers a shock to the aggregate supply balance of payments by an amount equal to curve, resulting in a decline in real output and one-third of the estimated damage.5 Another

Box II-2 Creative destruction in Sichuan, China

The earthquake that struck Sichuan Province in May 2008 left behind scenes of almost apocalyptic devastation: mountaintops sheared off into valleys, cities reduced to rubble and dust, cracked dams, collapsed bridges and at least 80,000 dead.

But the earthquake also did something else: it helped the Chinese economy. A little over a month after the quake, the State Information Centre, a Chinese Government research body, announced that the massive rebuilding effort, and the billions of dollars it would pump into the Chinese economy, would far outweigh the economic losses from the quake. The benefits, the centre said, would be enough to raise national economic growth by 0.3 per cent, a small but not insignificant part of a growth rate for 2008.

Rebuilding efforts provide a short-term boost by attracting resources to the region, economists say. By destroying old factories and roads, airports and bridges, the disasters allowed new and more efficient infrastructure to be built, forcing the transition to a sleeker, more productive economy in the long term. In this instance, a disaster performed the economic service of clearing out outdated infrastructure to make way for more efficient replacements. It might be seen as Mother Nature’s contribution to what the Austrian-born Harvard economist Joseph Schumpeter famously called capitalism’s “creative destruction.”

As the recent evidence suggests, the Sichuan economy has actually become more productive than before, as was predicted by many economists. With rebuilding nearly complete, there has been an on-going economic boom in Sichuan. In the last four years, its income has doubled, with per capita GDP exceeding $4,000; in economic terms, it now ranks number one among provinces in Western China. It has also attracted a large volume of foreign investments, and now hosts 200 of the Fortune 500 firms.

Sources: New York Times, 2008. China Daily, 2012.

38 foreign assistance. increase in anobservable disaster causes natural alarge-scale thatonly have concluded foreign aid. Butnotnecessarily. studies Some disasterswouldnatural result inasurge in subsequent years. by adecrease indevelopment assistancein tobeoffset assistance is likely emergency country’s dependence on agricultural exports. dependenceon agricultural country’s inthetradebalancewas of thedeterioration indicator thatanimportant concluded review effect isambiguous. effect growth alsofosters –sothenet which capacity by restoringinfrastructure, add toproductive Even ifithasthiseffect, however,foreigncan, aid competitiveness andslows economic growth. in thereal exchange thaterodes rate export disease’the spectre of ‘Dutch –anincrease decreased by 4to7per cent. wages andnon‐agricultural agricultural fromone-foot deviation floodlevel, thenormal the 1998floodofcentury,for each Bangladesh estimatedthat, five years after both employment andwages. Onestudyon aswell asagricultureandthusreduce facturing to disrupt areand destruction likely a lesserextent, areduction inexports. owing growth to anincrease and, in import to to an average worsening of the trade balance, disastersled that21majornatural study found

economies ortheeconomic damage. inrelationoftheaffected small tothesize disaster,a natural thesurges are typically although foreign assistanceincreases after geological one.geological a disasteranddecrease after aclimatic after of disaster: foreign aid tends to increasethe type also beensuggested depends thattheeffect on some circumstances wages couldrise. Adisaster

Formal labour market Foreign aid–Itmightbethought that 11 Asurge inaidalsoraises 8 9 And otherssuggest thatthis Still others contend that, Still – Large-scale damage – Large-scale 12 However, in 6 Another 10 Ithas manu- 7

reduce revenue from taxes andduties. And even public affect revenues. to islikely inoutput Afall debt. At also thesametimedisasterswill this purpose, there beanincrease will in public financial institutions. have Ifthey toborrowfor businessesandto toaffected financial support social welfare the poor. for may They also offer more relief, on emergency reconstruction and disasters,of natural spend governments will balancesandpublicdebt.on fiscal Asa result the labourmarket. andledtoreadjustmentsin manufacturing in different. enhancedproductivity Reconstruction activities. However, theoutcome here was the publicreconstruction andrehabilitation and manufacturing between private this case China alsosawareallocation ofworkers –in sectors. eroded thecompetitiveness ofthetradable reduced thegrowth inagriculture and andnon-tradable sectors.services This tothe and manufacturing agriculture encouraged workers tomove from communities and wages torise caused 2007. intheaffected Reconstruction between 2000and Indonesian earthquakes ofthe what happenedintheaftermath Thereevidence thatthisisindeed issome economic recovery. onof thetradablesectorsandacting asadrag workersunskilled – eroding the competitiveness Wages or semi-skilled for even thenrise can move tothebooming reconstruction sector. orifthey force andproperty to secure family example, if workers from withdraw the labour tighten significantly. canalsohappen, This for labour markets to certain cause can loss of life reduce thelabourforce;seriously alimited even that leads tohighmortality, example, for could

Public finances Public 13 Sichuan, in The 2008earthquake – There isalsoanimpact

39

CHAPTER 2 Building Resilience to Natural Disasters and Major Economic Crises

a rise in imports of emergency-related goods is As a result they have different impacts on unlikely to generate much revenue as most of inflation. A supply shock from a natural these tend to be exempt from duty. disaster will increase inflationary pressure, while a demand shock from an economic crisis The net effect on the budget will depend on is likely to be deflationary. Natural disasters and the particular circumstances, but generally the economic crises that are simultaneous may thus budget effect is likely to be lower in developed mitigate each other’s impact on the price level. economies – which have stronger financial So getting policies right will mean considering sectors and extensive disaster insurance. In both impacts. this case a larger chunk of the output loss will be absorbed by the private sector, so the fiscal Adverse aggregate demand and aggregate impact is lower. In most developing countries, supply shocks both reduce GDP, which in on the other hand, the brunt of the responsibility for rehabilitation and turn exacerbates fiscal imbalances. If a natural reconstruction falls on the government which disaster follows in the wake of an economic can see its budget deficit increase. One survey crisis, it will compound the fiscal imbalance. of middle- and upper-income countries found that natural disasters led to an increase in While both types of shocks can wreak havoc government expenditure by 15 per cent and a on any developing country, some countries will decrease in government revenue by 10 per cent, take longer to recover. One study covering the increasing the budget deficit by 25 per cent. As period from 1970 to 2001, found that the costs the budget deficit increases, there may be an were greater, and the recovery period longer, in increase in public debt.14 the world’s poorer developing countries.15 On average, both emerging market economies and When a natural disaster leads to a sharp the poorer developing countries experienced a increase in the fiscal and current account drop in output every 16 years. But while the deficits, there is likely to be an increase in prices emerging economies suffered a cumulative loss and interest rates. The impacts on the exchange of 40 per cent of GDP, and took six years to rate, however, are less clear. But none of these return to the pre-crisis per capita output, the outcomes are automatic; much will depend low-income countries had twice the losses and on government policies, and private-sector took twice as long to recover. It was also found expectations and responses. that some countries were more susceptible to particular types of shock. While the emerging Different impacts of economic economies were more vulnerable to shocks crises and natural disasters relating to financial flows, the low-income countries were more susceptible to adverse Natural disasters and economic crises both terms-of-trade movements. affect the economy, but in different ways. Natural disasters destroy property and However, such studies are more suggestive productive capacity and deliver adverse shocks than definitive and indicate the need for more to the aggregate supply curve. Economic crises, empirical research. Indeed they do not on the other hand, do not destroy anything necessarily accord with the experiences of many directly but do deliver adverse shocks to the Asian economies. In Bangladesh, Indonesia, aggregate demand curve. and the Philippines where natural disasters are

40 exacerbated byexacerbated disasters. natural simultaneous infinance, crises food, fueland Nam –looking of and at the effects Viet Bangladesh,– including Cambodia, Thailand fromperiod 2008to2011in17countries work. studycovers the Onesociological Nevertheless, there hasbeensome qualitative unpredictable processes. from arise they fundamentally because perhaps crises,comes interlinked to dealing with such whenit atitsinfancy isstill Economic analysis compound eachother’s adverse impacts. have seenmultiple, simultaneous which crises happen separately. Recent years, however, macroeconomic disasters andnatural crisis farthissection hasconsidered when So cases doesstemfrom disasters. natural variability frequent andsevere, alarge measure ofoutput that whatever the shock thosehithardest theshock that whatever 16

17 This found This

– To ensure sustainablelong-term growth. – To and ininequality; avoid arise andinfrastructure; – To restore damaged orlostproperty, capital core consumption; – To can preserve ensure thatthoseaffected response: needaneffective macroeconomicGovernments response.much less on theappropriate policy of literature on themacroeconomic impact, but For disasters, natural large body there isafairly being –asubjectaddressed inChapter3. impacts ondevastating theirlong-term well- were thepoorest andmostvulnerable, with Addressing natural disasters

PHOTO courtesy of MSNBC 41

CHAPTER 2 Building Resilience to Natural Disasters and Major Economic Crises

The appropriate response will depend on Participation of stakeholders – This should the nature of the damage. A disaster that has involve community leaders, civil society, and demolished key roads and power plants will the private sectors. This has been achieved in have a different economic impact from one Indonesia for example. The Government based that has destroyed subsistence agriculture the National Disaster Management Plan of or an island’s fishing boats. But in all cases, 2010-2014 and the National Action Plan countries will need an appropriate macro- for disasters on the experiences of the 2004 economic framework, including both annual tsunami that hit Aceh and Nias and the 2006 budgets and longer-term investment plans. earthquake that hit Yogyakarta. These plans engage all key stakeholders and operate Country experiences suggest that such a frame- horizontally across line ministries, as well as work would include the following elements. vertically down to provincial and district levels. They also have a strong legal foundation An explicit disaster strategy – This should – the Disaster Management Law 2007.19 be well integrated into national development strategies, such as on poverty reduction, and also Measures for disaster risk reduction – connect with cross-cutting concerns such as Successful disaster strategies require investment environmental protection. The disaster strategy in disaster risk reduction as well as financial thus needs to be incorporated into national protection against disasters. Such investments development planning – in all relevant sectoral would include making school buildings and other strategies and at all levels of government. structures disaster resilient. Such measures not The ways of doing this were detailed in the only reduce risk, they are good for development. Hyogo Framework of Action 2005-2015. This considered disaster risk reduction within the Across the region, many countries, particular- management of environmental and natural ly those in disaster-prone areas, now realize the resources, social and economic development importance of including disaster risk manage- practices, and land use planning, building codes ment in their macroeconomic frameworks. Over and other technical measures. In this regard, the past 25 years, Bangladesh, for example, has however, Asia and the Pacific, and especially invested more than $10 billion in disaster risk the least developed countries are falling behind management – which has contributed to the 18 global performance. current decline in disaster losses. Indonesia, between 2006 and 2012, increased the Nevertheless, the region does offer examples of proportion of the budget going to disaster good practice. The Philippines’ Development risk management from 0.6 to 1 per cent. Plan 2011-2016, for example, treats disaster China in 2011 created a Comprehensive risk reduction as a component of the Disaster Prevention and Reduction Plan (2011- development process. The plan is then integrated 2015) which envisages wide-ranging investments into public-sector management functions of in early warning, risk assessment, communi- planning, investment programming, budgeting, ty-based disaster risk management, and education implementation, monitoring and evaluation. and awareness.The aim is to reduce annual disaster losses from 8 to 1.5 per cent of GDP. 20

42 Source: World Bank, 2011a. to face disasterthanthosewithout. anatural netsare better preparedadequate socialsafety studiessuggest thatsocietieswith Empirical dimensions. It is essential to identify both. andsocial hasboth structural to notethatrisk andsocialvulnerabilities.risks Itisimportant 1. Riskidentification distinctcomponents II-1): four (Figure Pre-disaster management shouldhave risk totheeconomy.least disruption pre-disaster growth path with the long-run reconstruction –torestore theeconomy toits The second concerns post-disaster relief and related topre-disastermanagement. risk dimensions. choices The firstpolicy concerns Macroeconomic has two management of crises A disasterriskmanagementframework is cost effective Disaster risk reduction FI GURE II-1 Ex-post, post-disasterplanning – This involves identifying Post-disaster reliefandconstruction A DisasterRiskManagementFramework

discussed inChapter5. markets andinvestors. Catastrophe is insurance tocapital externally risks thattransfers insurance commercial – buying preparation transfer is risk and socialinfrastructure. of form The other reduce will physical thoseavailablefor reserves growth since using scarce resources to build disaster.a natural can This reduceeconomic down of timestodraw in theevent normal in accumulating savingsandforeign reserves mean will which ofself-insurance the form 4. preparation Financial prevention. onpublic training risk systems,warning planningand contingency 3. Riskpreparedness dams indrought-prone areas. retrofitting existingbuildings, andconstructing land planning, strengthening buildingcodes, 2. Riskmitigation Ex-ante, pre-disasterplanning and risk-transfer,budgetappropriation Risk identification:riskmappingand Financial protection:self-insurance system andcontingencyplanning structural work,infrastructureand Risk-preparedness: earlywarning Risk mitigation:physicaland land useplanningetc. hazard assessment and execution – reforming can include This – This includes early – early This includes – Part take of this will

43

CHAPTER 2 Building Resilience to Natural Disasters and Major Economic Crises

While it is well understood that prevention Policymakers who do attempt to assess the is better than cure, in practice there are many comparative costs of prevention and rehabilitation obstacles to this approach. As suggested in will face a number of problems. Apart from Chapter 1, human societies seem to have the difficulty in estimating future costs, there innate problems in assessing risk. But countries can also be the issue of attaching a monetary may not consider risk prevention an efficient value to a human life. This is standard practice investment. This is indeed the case when the for insurance companies, but for governments effects of disasters are relatively small and can there are significant moral and ethical easily be coped with. But there can also be implications. Risk reduction investments are situations of ‘moral hazard’: low-income also likely to have distributional consequences as countries may be tempted to underinvest in well as opportunity costs. Investing in the more vulnerable areas will divert resources from prevention if they believe they will always elsewhere. This may also transfer risks – for receive external post-disaster assistance. example, a dam that protects one group can increase the flood risks to another. Probably the biggest hurdle, however, is the difficulty in comparing the immediate and real Many developing countries may also lack the costs of prevention with the potential costs of institutional capacity (Box II-3). Often the rehabilitation. If the disaster does not happen budgetary and planning processes are rigid and then the country will appear to have lost funds clogged with red tape, and afford little flexibility that could instead have been used for other in transferring and reallocating funds across important investments. Risk avoidance today expenditure categories. Even if the framework also appears to have no tangible financial or includes various disaster-related expenditures, political return. Today’s policymakers may it may be non-transparent, uncoordinated and therefore be tempted to defer expenditure scattered across ministries. until a disaster happens, preferably on someone else’s watch.

Box II-3 Pacific island countries - limitations in disaster risk management

Inefficient risk management in the Pacific island countries is eroding development gains and incurring large costs for national and local governments. The existing macroeconomic framework tends to underemphasize risk reduction and overemphasize support for relief operations – which have higher political payoffs for politicians.

This subregion is highly dependent on foreign aid which funds much disaster relief. Progress in reducing vulnerability has been slow, in part because of problems with coordination and cooperation among relevant actors, including donors. There is also a disjunction between policy frameworks and the stakeholders’ responsibility in carrying out disaster risk reduction and climate change adaptation. In short, significant improvements are needed in coordination between the diverse stakeholders.

Source: World Bank, 2012a.

44 and recovery. todisasterresponseof thebudget wasallocated management. Incomparison, 27percent only management, andwatershed soilconservation projects on flood These included control, forest reduced the exposure of population and assets. projectswas setasidefor andprogrammes that to 2011, 70percentoftheannualDRR budget reduction.to disasterrisk Onaverage from 2009 of fire’, Philippines alsogives highpriority the be giving greater priority to risk reduction. torisk be givinggreater priority Nevertheless, appearto athighrisk countries processes.national planningandbudgetary from in extensive stakeholderparticipation reductionin disasterrisk therefore will benefit public choice. publicpriorities Determining is noteasy. issuesofThese are ultimately investment reduction inrisk orinrehabilitation atthebestbalancebetweenArriving over 1percent. research receives alittle andtechnology Science plans, andexercises. and conducting drills communication systems, preparing evacuation prevention and preparedness, as enhancing such coastal conservation. goes to Another quarter control, containment river and soil and projects,land conservation assoilerosion such Around tonational halfthebudget isallocated cent wasspenton mitigation andpreparedness. funds inthenational budget, 75per ofwhich each year –representing 5percentofgeneral 2004, $50billion allocated the Government and rehabilitation. land conservation; andpost-disasterrecovery disaster prevention andpreparedness; national research; scientifictechnology and recovery: reduction broad ofrisk four for categories oflife.part are allocations made Budgetary

The Philippines Japan –Here disastersare aninevitable 22

– Located on the Pacific– Located ‘ring 21 Onaverage, from 1995to expenditure on disastermanagement. of is possibletoidentifytwo categories to estimatethereal amountinvested. Butit bedifficult soitcan ministries sectoral reductionrisk isnotwell codedacross the risk reduction.risk of theseexpenditures todisaster contributed to 3.38percentofGDP. Around 80percent allocations,of totalbudgetary andequivalent a totalof$79billion, amountingto32percent sponsored by or departments, 75 ministries for 12, were 85embedded schemes identified, monitor. Nevertheless, fiscal year 2011- for areEmbedded schemes more difficult to II-2). (Figure schemes from toembedded dedicated balance isshifting strategies. India’s Increasingly expenditure programmes thushave ‘embedded’ DRR watersheds.and developing NREGA and waterconservation, buildingembankments, out works on soil by employing people to carry Act reduction (NREGA) torisk contributes Gandhi NationalEmployment Guarantee Rural to thisobjective. For example, theMahatma nevertheless,but which substantially contribute risk for disaster reduction formulated specifically ‘embedded’ schemes: programmes not and relief. comprises category The second are disasterresponsecent oftheallocations for governmental programmes where 100per areto track the ‘dedicated’ schemes: those • cent ofthetotal$1.02billion. and prevention, accountingalmost80 per for investment to disastermitigation isdedicated II-3).cent ofGDP(Figure Mostnational-level from 0.58to 1.02 percent, reaching 0.12 per reduction disaster risk for increased allocated government budgetproportion of the central

India Indonesia – Budgetary allocation for disaster for allocation – Budgetary – Between 2006and2012the 24 23 Simplest Simplest

45

CHAPTER 2 Building Resilience to Natural Disasters and Major Economic Crises

FIGURE II-2 India, evolution of dedicated and embedded schemes for disaster management, 2005-2012.

220 Total Dedicated Total Embedded 200

180

1 0 ) 160

140 2 0 5 = (

x

d e 120 n I

100

80

60 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Source: Based on the data from Chakrabarti, 2013

FIGURE II-3 Indonesia, investment in disaster risk reduction, 2006-2012

600 1.2

500 1

400 0.8

300 0.6

200 0.4 Millions of 2005 US dollars

100 0.2 % Central Government Budget

0 0 2006 2007 2008 2009 2010 2011 2012

Budget for Disaster Management

Budget for DRM (% of Central Government Budget)

Source: ESCAP based on the data from Disaster Risk Reduction Investment Tracking: Case Study Indonesia – draft submitted to UNISDR and ADB, 2013.

46 indicated inBoxindicated II-4. andprovincialof central governments are and coastguards. The different responsibilities of thedisposableresources floodcontrol for to inundation, floods and tsunamis, uses most Java,of Central example, for isexposed which acrossrisks itsconstituent districts. The province resourcesallocate according totheexposure to decentralized. to choose Each province can investment in Indonesia isincreasingly this vastarchipelago. risk-sensitive, So smart across considerably risk ofdisastervaries The Indonesia,Source: 2007. Indonesia –nationalandprovincialdisastermanagementresponsibilities • Provideassistancetocommunities • response Disaster Protectcommunitiesandreducedisasterrisksbyutilizingthefundsallocated intheRegional • Allocatefundsfordisasterriskmanagementinlocalbudgets • Integratedisasterriskmanagementwithinlocaldevelopmentplanning reduction • risk Disaster Local Government Transfersufficientfunds,basedonrequestsfromlocalgovernments, totheprovincial • Providesupport tocommunitiesandrefugees • response Disaster Developand enforcebuildingcodesthroughlineministries • Developand enforcelanduseplanningthroughlineministries • Ensureadequate ‘oncall’fundsareavailabletoalllineministriesforemergencyresponseefforts • Transfersufficient fundstostatebudgetsexecuteriskmitigationactivities • Integratedisaster riskmanagementwithinthenationaldevelopmentprogramme reduction • risk Disaster Central government provinces anddistricts.Thedistributionoffunctionsisasfollows: hazard variesfromonepartofthecountrytoanother.Theseriskscanbemoreefficientlymanagedby Indonesia isavastarchipelago.Althoughmanyprovincesareatriskofdisaster,thenature Box II-4 Central Governmentfunds. Reallocate budgetresources foremergencyandr-ecoveryefforts–priortothereceipt of Revenue andExpenditureBudget governments whothentransfertolocal for recovery/reconstruction.

Government promotes safety netprogrammes promotes Government safety Programme. Indisaster-prone areas the the Comprehensive Disaster Management under coordinate theirefforts and departments reduction. At ministries thenational 12key level andstrategies on poverty development efforts damages. This approach is built into national in thenumberofdisaster-induceddeathsand hasresulted– which reduction inadramatic disaster reliefreduction torisk andresilience itsdisastermanagement from focus shifted

Bangladesh – Over time,– Over Bangladesh has 47

CHAPTER 2 Building Resilience to Natural Disasters and Major Economic Crises

and food security measures to protect the most watershed development, coastal management, vulnerable, especially women, children and early warning systems, and reducing risks the elderly. For the 2012-13 financial year, for for vulnerable populations. These issues are example, the social protection programme discussed in subsequent chapters. accounted for 15 per cent of the total budget – almost 2.5 per cent of GDP. Post-disaster response: The Government also supports community financing versus adjustment action. This includes community activities for risk assessment and reduction, hazard assessment, and contingency planning. The Government The typical macroeconomic policy response assists with training of community-based to a natural disaster is a combination of volunteers, as in the successful Cyclone drawing down reserves, seeking new finance, Preparedness Programme through which and macroeconomic adjustment. Indeed, a cyclone forecasts are followed up by thousands well-accepted tenet in macro management of disasters is: “Finance if you can, adjust if you of volunteers who disseminate the messages 26 to all affected villages. Disaster risk reduction must”. is also incorporated in the climate change Where can the finance come from? One option adaptation strategy – which includes developing is to set aside contingency funds for various drought- and saline-resistant crops, raising emergencies, and calamity funds especially for the levels of houses, building multi-purpose disasters. To avoid moral hazard, such funds cyclone shelters, dredging major river systems, should only cover risks that cannot be absorbed and reforesting coastlines, along with by private insurance – such as disaster-related interventions for community-based health and damage affecting small farmers and the urban preventing disease. poor who are unable to afford private insurance, along with social assistance for disaster victims. Bangladesh has invested more than $10 billion during the past 35 years: setting up networks The poorer developing countries should also of early warning systems; raising agricultural be able to rely on concessional aid or grants productivity in low-lying areas: improving from international donors. In addition they flood protection and drainage in urban areas, might see an increase in workers’ remittances installing irrigation schemes to enable dry- to families in distress; remittances tend to be season crops; and implementing a coastal green counter cyclical and counter disaster.27 belt project. These investments resulted in a 25 significant decline in disaster losses. In principle the government could also increase commercial borrowing. But this may be A number of Asia-Pacific countries are thus difficult. Many low-income countries do not shifting the emphasis from disaster response to have access to the international capital markets disaster risk reduction. And while the priority and will struggle to borrow commercially. Even areas depend very much on country emerging economies that have access to these circumstances, there are some common elements markets will find foreign borrowing expensive, – soil and water conservation, flood control, especially after a disaster. They may also find

48 floods in Queensland. floods in the2010-11 following used thiskindoflevy finance neededreconstruction.much Australia reduce demand,only private but also help of a form ‘reconstruction levy’. not This will inthe taxon high-income citizens temporary inflation mightimposea makers fear they of theeconomy. andpolicy Ifitisoverheated depend choices will on thecurrentThe state taxes3) raising on high-income earners. expenditure;cutting existingdiscretionary 2) or 1) redirecting fundingfrom plannedprojects; policy. There are three options: need to financing will adjust through fiscal thatdonothaveGovernments access todebt needtoadjustwill tothe ‘new normal’. Asia andthePacific for be thecase –thecountry to bepermanent, however increasingly –aswill borrowing. Ifthedisasteroritsimpact islikely to financetheimpact throughforeign aidor If thedisasterisaone-off shock, itmakessense financing. orpermanent; temporary financing depends on many factors including: choice between domestic The andexternal difficult toborrow system.from thebanking the1998floods.after Thismakes it more much savings–ashappenedinBangladesh private amassive of trigger withdrawal disaster can be underdeveloped, anatural butalsobecause to debtmarket islikely thelocal because partly raisefunds it difficultto domestically. Thisis

The availability ofdomestic andexternal The availability balanceandtheexchangerate;The external and position; fiscal The country’s The nature of the disaster-whether it is

employment. restoring pre-disaster and ofoutput levels while stability objectives –maintainingprice toreconcileuse one instrument two competing dilemma: policy how to monetary a classical while Natural toincrease disasters are prices likely is, however, thesubjectofsome controversy. disasters natural after policy The role ofmonetary exchange appreciation. rate pressurecause real or inflationary not exert implications, then large inflows ofaidshould exchange asreserves, itsmonetary andsterilizes banksavescentral much oftheavailableforeign economy. spendingissluggishorthe If fiscal foreignwhich aidflows areintothe absorbed is ambiguous. dependson Much theway in of aid But the effect on the real exchangerate theexchange toappreciate. rate also cause constrained. An upsurge offoreign aidmay increase is aggregate demandwhilesupply a suddeninflowforeign of aid. Thiscould Thererisk ofinflation ifthere isalsothe is to prevent spiral. awage-price policy may needtotightenmonetary authorities impact.inflationary circumstances, Insuch the higher wageswould –which have asecond-round hikes, price disaster causes workers may demand this dilemmamay notexist. Nevertheless, ifthe inflation. Insum,for many low-income countries stoke will policy monetary an expansionary circumstancesIn such therethat islessrisk worsen unemployment andpoverty. further will employment. tightening monetary In thiscase people are engagedandinformal invulnerable is some way below itspotentialandmany where countries economicdeveloping output supply. in Butthismay notbethebestpolicy stability. This would meantighteningthemoney shouldbeprice arguethatthepriority Some lowering economic output. This presents 28

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CHAPTER 2 Building Resilience to Natural Disasters and Major Economic Crises

It should be noted that much will also will come from the traditional development depend on the country’s institutional capacity to partners, but a large proportion of disaster formulate efficient macroeconomic policy and relief also comes through individual, private, carry out efficient disaster management. This and non-government organizations. This raises requires robust institutions and analytical many issues of coordination and information capabilities that low-income countries may sharing – a major concern, for example, in the lack. If so, the recovery process could be delayed. aftermath of the 2004 Indian Ocean tsunami.

One of the most difficult tasks is coping with To address this issue and help governments the sudden arrival of large amounts of aid. In prepare their regulatory systems for international the past some fiscal authorities have found such disaster response, the International Red Cross flows difficult to absorb. To address this issue, and Red Crescent at its 2007 International Indonesia, for example, in 2007 introduced a Conference adopted a set of recommendations Law on Natural Disaster Management which – ‘Guidelines for the domestic facilitation and enables the fiscal system to be more flexible regulation of international disaster relief and and accommodative while responding to the initial recovery assistance’.29 These guidelines, needs for post-disaster response and recovery which have since been widely endorsed, (Box II-5). suggest how governments can prepare their disaster laws and plans for common regulatory Another problem with aid is the need to problems. They also indicate minimum quality deal with multiple donors. Some assistance standards for humanitarian assistance.

Box II-5 Indonesia – Law on Natural Disaster Management

Indonesia previously had an ad hoc inter-ministerial council for dealing with disasters. The Law on Natural Disaster Management passed in 2007, however, established a dedicated body – the national disaster management agency, BNPB. It has a strong mandate to coordinate line ministries in imple- menting preventive measures and leading recovery. In line with the law, all 33 provinces and 306 of 450+ districts have established disaster management agencies. Subsequently, Indonesia formulated a national action plan for disaster risk reduction along with a national disaster risk financing strategy that includes budget reserve funds and disaster risk transfer instruments.

The financial responsibility of central and local governments is defined by law. Major disasters are financed with support from the central budget through exceptional transfers to the provincial budgets. Post-disaster financing of minor disasters is generally from local and provincial governments. The source of emergency response funds, covering the first weeks after a disaster, depends on whether the event is declared a national disaster or a disaster of national significance. If so, the Central Government takes responsibility through the BNPB with line ministries and the BNPB disbursing resources through their ‘on call’ funds for emergency response. On call funds are a separate line of the budget that can be engaged to support post-disaster early recovery activities while emergency status is still in effect. If not declared a National Disaster, local governments provide financing through their contingency budgets. The Law also addresses the issues related to managing donor assistance.

Source: Indonesia, 2007

50 its objectives istoinspire business confidence. end in itself-it is a means to an end. One of Moreover, macroeconomic isnotan stability befinancedsustainably. can they compatible witheconomic stability, provided deficits orsurpluses,for example, are quite inbalance.precisely andcurrent account Fiscal Nevertheless, the relationships all need not be exchange and smootherbusiness cycles. rates debt,internal inflation, moderate realistic and manageable ofexternal levels also include Most definitions ofmacroeconomic stability concerned aboutthebalanceofpayments. and investment. alsobe The will government andexpenditure,fiscal revenues andsavings example, between domestic demand andoutput, economic relationships are inbalance–for Macroeconomic existswhenkey stability a meanstoanend as Macroeconomic stabilization AsiaandthePacific.for amorefor resilient macroeconomic framework follows isasetofguidelines What efficiently? and recover and from multiplequickly shocks and theireconomieswithstand, can adapt to, so that their people areframeworks protected governments strengthen their macroeconomic Faced crises, withmultiple overlapping how can disasters, save lives, andprotect property. by caused natural lessen the disruption can risk atdisaster reduction.efforts Risk reduction previous macroeconomic and choices policy macroeconomic options dependon will policy In summary, the range of post-disaster Building macroeconomic framework a more resilient

30

some subregional difference. as well ascountries. following highlights The acrossmask substantialvariations subregions public debt. Nevertheless, aggregate figures without generatingexplosive increases in financetheir budgets position to efficiently exchange reserves. Mostgovernments were ina andtheaccumulationprudence oflarge foreign ofthisstrengthMuch wasbasedon fiscal to protect thepoorandmostvulnerable. employment –andmostimportantly, were able lasting damage totheirreal economies and stimulus packages. Asa result, avoided they large launching economic by activity swiftly stronger positions. This enabled them to sustain they wereto theglobalfinancialcrisis in much environment. However, by 2008intherun-up confronted itinaweakened macroeconomic manyimpact oftheregion’s because economies 1997, had asevere theAsian financialcrisis recent in Asia and the Pacific. experience In environment hasbeendemonstrated by the The valueof a stable macroeconomic needed toconfront suddenshocks. theflexibility space offer thatwill a policy macroeconomicshould aimfor stability, creating the good times,During therefore, countries all autonomy. policy – andthushelpspreserve and buildgreater resilience toeconomic shocks that ithelpsgovernments createspace fiscal Another benefitofmacroeconomic is stability the affect welfarewhich ofthepoor. efficient investment andsteady growth,all of environment conducive tohighsavings, of credit.availability This helps create an rates, interest rates, thetaxburden andthe levels, in price a degree of certainty exchange Businesses are to invest more ifthere likely is 31

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CHAPTER 2 Building Resilience to Natural Disasters and Major Economic Crises

Fiscal balances – These were generally positive cross-country variations. At the beginning of the though there were small deficits. The deficits global economic crisis, public debt in the Marshall were somewhat larger in the Pacific and South Islands, Fiji, Tuvalu and Tonga, already exceeded Asia where they exceeded 5 per cent of GDP. the 40 per cent threshold.

Primary fiscal balances – These are the fiscal Because public debt was relatively low and balances minus interest payments on public fiscal accounts were healthy, countries across debt. The position varied significantly across the the region were able to respond to the recession region. South-East Asia was the only subregion with large stimulus packages. The average that ran a relatively large primary surplus. South stimulus was equal to 7.5 per cent of GDP, Asia had large and persistent primary deficits. compared with 2.8 per cent for packages in the G7 countries (Figure II-5). The stimulus Government spending and revenues – In package of China amounted to a sizeable 13 per Asia and the Pacific these tend to be relatively cent of GDP. Even low-income countries such low, at around 20-25 per cent of GDP, which is as Cambodia and Lao People’s Democratic below the average for many parts of the world, Republic implemented programmes through particularly Europe. domestic sources. Among the Pacific island countries, Papua New Guinea, which benefited Public debt-to-GDP ratios – On average these from commodity price increase and had some were below 40 to 50 per cent of GDP. But they fiscal space, increased spending by about 5 per varied considerably across the region: In South- cent of non-oil GDP. The structure of the stimuli East Asia 50 to 60 per cent of GDP; in South Asia differed across countries-but common to all more than 60 per cent, and in the Pacific around were the efforts to minimize the social 40 per cent (Figure II-4). There are also significant consequences of the crisis by bolstering social

FIGURE II-4 Debt-to-GDP ratios in Asia and the Pacific, 1990-2008

Debt/GDP Ratio by Subregions and Periods Debt/GDP Ratio by Subregions and Periods (mean values, per cent) (median values, per cent)

Central Asia Central Asia East Asia East Asia The Pacific The Pacific Southeast Asia Southeast Asia South Asia South Asia 1990-1997 1990-1997

Central Asia Central Asia East Asia East Asia The Pacific The Pacific Southeast Asia Southeast Asia South Asia 1998-1999 South Asia 1998-1999

Central Asia Central Asia East Asia East Asia The Pacific The Pacific Southeast Asia Southeast Asia

2000-2008 South Asia 2000-2008 South Asia 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70

Source: Adams and others, 2010.

52 Stimulus expendituresinselectedeconomies slowdown and steered region’s the recovery. mitigated adverse the impact of global the operations, along expansion, with fiscal have kept low them since. These monetary quarter of 2008and, inmost economies, interest rates sequentially from last the money and credit. in most economies there was an increase of forespecially sectors affected and SME includedalso direct injections of liquidity, efforts wentbeyond cutting rates;policy they These expansionary policies. monetary economy, most Asian countries adopted T andhumancapital. physical long-terminvestments strategic in undertaking nets andothersocialsectorspending;safety and BasedonSource: ADB, 2010. FI o maintain adequate liquidity for the GURE T United Statesof aiwan ProvinceofChina II-5 Hong Kong,China Republic ofKorea United Kingdom Bangladesh Kazakhstan Philippines Philippines Singapore Indonesia Sri Lanka Germany V Malaysia Thailand America Geor Canada iet Nam France Japan G China India Italy overnments cut policy gia 0 | | | | | | | | | | | | | | Average 5 s. As | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Average % of2008GDP

10 the stimuli aswell astheadverse ofthe effects public debt to GDP. This reflected the cost of ratios of increasedeficitsandthe in fiscal sharp developments: was followed by anumberofmacroeconomic role intheregion’s V-shaped recovery, this Though theeconomic stimulus played amajor II-6). (Box economic system was hit by natural disasters in Samoa wherealso already the weakened economies. R crisis more slowly than Asian the low-income recovered from recent the financial global The Pacific island countries, however, generally

Fiscal deficits and public debt deficits Fiscal 15 ecovery was slowerecovery inFiji and 20 – There wasa 25

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CHAPTER 2 Building Resilience to Natural Disasters and Major Economic Crises

Box II-6 Pacific island countries – facing multiple shocks

Compared to the rest of the region, the Pacific island countries were in general on a slower path to recovery from the recent global financial crisis. However, there were significant variations in the recovery process. These partly reflected their different economic structures and macroeconomic imbalances but also the natural disasters they faced. The recovery was slower in Fiji due to floods in 2012 and in Samoa due to an earthquake and tsunami in 2009. Except for commodity exporting economies (Papua New Guinea and Solomon Islands), economic growth remained low in all Pacific island countries.

Fiscal space remains limited in Pacific island countries, particularly in microstates such as the Marshall Islands, Tuvalu and Tonga. Since the beginning of the global economic crisis, fiscal balances have deteriorated in Vanuatu, Samoa and Tonga. Public debt and external debt ratios remain relatively high for a number of countries. For Samoa, public debt and external debt exceed the prudential limits prescribed by the IMF. Several island economies such as Fiji, Papua New Guinea, Tonga and Vanuatu have accumulated comfortable levels of reserves that could provide temporary buffers against external shocks. Pacific island countries remain highly dependent on foreign aid which is equivalent to 20 per cent of GDP.

crisis on GDP and tax revenues. In some cases, economy or employment.32 Macroeconomic additional support and guarantees to financial stabilization is thus important, but experience and industrial sectors also played a part. shows that it should not be considered an end in itself. Inflation – A number of economies saw an increase in inflationary pressures. These were A continuum of thresholds partly the result of rises in food and fuel prices. But they also reflected expansionary monetary International financial institutions and academia policies, as in China, India, and most ASEAN have recently been giving greater attention to countries. Central banks in these economies macroeconomic resilience, but there have been kept interest rates low and soaked their few empirical studies of the determinants of economies with liquidity so as to sustain the resilience, particularly for developing economies. recovery. One such study was the World Economic Outlook 2012.33 However, this largely addressed eco- All in all, even in the midst of a global recession nomic shocks and did not include natural the region has so far avoided accelerated fiscal disasters. Moreover, its policy prescriptions, which did not have a rigorous empirical consolidation and monetary tightening. This foundation, were largely mechanical one-size-fits again contrasts with the response to the 1997 all measures. These were: Asian financial crisis when most of the affected countries tightened fiscal and monetary policy, – Monetary policy – Whether the central bank without giving much consideration, especially has adopted inflation targeting and achieved an at the beginning, to the impact on the real inflation rate below 10 per cent.

54 provide generalguidelines. should Butthey macroeconomic prudential parameters Such flows,capital along withincome inequality. openness and a change in the composition of openness anddiversification; increased financial policies.structural increased trade These include The IMFstudyalsohighlightedasetof toGDP.international reserves or below 40percent), orahighlowof ratio debtto GDP (above or lowof external ratio has acurrent or deficit; account surplus ahigh sector theeconomy– External policy – Whether policiesifrequired. counter-cyclical run space to thegovernment hasfiscal Whether high public debt being defined at 50 per cent. has had ahighpublicdebt, thethreshold of ordeficit; surplus afiscal whetherit running thegovernment is policy – – Fiscal Whether PHOTO FALLIDA for each macroeconomicfor – growth, variable that there isnouniquethreshold ofstability Moreover, in even ‘good times’, shows evidence to recover than GDP. wages, reduction takemuch longer andpoverty poorest andmostvulnerable. Employment, real economy, labourmarkets tothe andabove all to arrest thespread tothereal oftheshock stabilization. overarchingThe aimshouldbe ofmacroeconomic norms pursue prudential disaster isnotthebesttimetomechanically ora themidstofacrisis This isbecause circumstances. based on national flexibly to beinterpreted –rather, asiron-clad rules not beinterpreted levels until several years after that. years untilseveral after levels employment growth doesnotregain pre-crisis an average ofthree years upagain, topick while thatreal found wages in80countries take crises 34 A review of financial A review 35

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CHAPTER 2 Building Resilience to Natural Disasters and Major Economic Crises

inflation, the fiscal deficit, the current account Province of China avoided borrowing abroad, deficit, international reserves. Rather, there while the Republic of Korea and Indonesia is a continuum of thresholds for various relied on substantial foreign borrowing during combinations of these key variables which the 1980s and 1990s. could indicate a degree of macroeconomic instability. It may be relatively easy to identify It should also be emphasized that prudential a country in a state of macroeconomic parameters simply represent policy outcomes. instability – for example, one with large They do not indicate policy content or quality. current account deficits financed by short-term The same outcomes can be achieved in many borrowing, high and rising levels of public different ways using different institutional debt, double-digit inflation and stagnant or designs and policies that are sensitive to 37 declining GDP. And it is relatively easy to local constraints. In the absence of other identify at the other end of the spectrum the complementary conditions, particularly those contributors to macroeconomic stability – related to governance, mere adherence to macroeconomics norms will not always yield current account and fiscal balances consistent 38 with low and declining debt levels, inflation the best outcomes. in low single digits and rising per capita GDP. But there is also a substantial grey area: indeed Nor are these norms likely to take the form this is where most developing countries operate of specific ‘safe levels’. How high is too high in reality. for inflation? Or, how high is too high for the budget deficit? Much will depend on local circumstances. For example, if an economy This has been the case, for example, in the is growing briskly, the government can sustain high-performing Asian ‘miracle’ economies. In a fairly large budget deficit. What matters general they have had a history of fiscal prudence more in this case, is how the expenditure is being and discipline, but not all have achieved the financed and what it is being used for. If the same degree of macroeconomic stability. Take deficit is large and financed by monetization, it inflation. Between 1961 and 1991, Malaysia may lead to inflation; if it relies on heavy domestic and Singapore consistently maintained low, borrowing, it may lead to an increase in the interest single-digit inflation – around 3.5 per cent. rate and crowd out private investment; and if it But the Republic of Korea and Indonesia, on relies on large external borrowing, it may build up the other hand, regularly posted double-digit an unsustainable debt burden. inflation rates – around 12 per cent.36 There is a similar diversity in budget deficits. In the Also important is the purpose of the expenditure. 1980s, Singapore always maintained a budget If it is for physical infrastructure that relieves surplus and the Republic of Korea’s deficit at a critical constraint on economic growth, the 1.9 per cent was below the OECD average. On budget deficit may have little adverse impact the other hand the average deficit in Thailand on the debt burden in the medium term. Many was 6 per cent of GDP and in Malaysia 11 possible combinations can work. It should also per cent. These economies also took different be borne in mind that while investors or rating approaches to foreign borrowing. Singapore agencies and international financial institutions along with Hong Kong, China and Taiwan do care about public debt and inflation, they

56 loans. with non-performing that it deals effectively regulation ofthefinancialsectorand ensure alsoimprove can prudential Governments and manufacturing, especiall provide affordable credit toagriculture attracts investment. expenditure, andcreating anenvironment that partnerships, ofpublic enhancingtheefficiency resource mobilization, expanding public-private space example, –for by improving domestic needtoincrease probably will fiscal countries and preparedness. For low-income thispurpose identification, disasterrisk including mitigation, investment infrastructure, insocialandphysical to include some elements. ofthefollowing to include depend on national circumstances, butislikely economic ornatural. The exact balancewill against futureself-insurance shocks, external creating macroeconomic thatwill actas buffers itefficiently.allocating mean will Stabilization meanmobilizingpublicinvestmentwill and and stability. Promoting economic development require a balance between development striking reduction.development andpoverty This may be guidedby economic thegoals oflong-run should they stability maintaining short-run macroeconomic prudence. Instead, while interpretation of mechanical an overly shouldthusnothave countries Developing and development Macroeconomic stabilization for policies make macroeconomic policiespro-cyclical. an excessive may onwhich focus stabilization prospects. Therefore, must avoid policymakers long-term growth aboutacountry’s also worry

Monetary policy Monetary policy Fiscal – public This should support – This should aim to y toSMEs.

growth thatareGovernments aimingtoaccelerate of the public finance law. programmessuch as part by introducing guidelinestoprotect necessary protecting spendingthatbenefitspoorpeople, if including social safety nets. socialsafety including also need to stren absorbers,gthen existing shock this assistance can beimprovedthis assistancecan (Box II-7). shocks.external There are anumber of ways and otherdonors assistcountr Currently, international financialinstitutions assistance from theinternational community. island countries, require will continued external countries,least developed andsome Pacific through theirownsolely efforts. Many ofthe sufficient progress in macroeconomic resilience Moreover, tomake are some countries unlikely healthandeducation.spending for production, diversify exports, andincrease reforms toboost alsoneedstructural will macroeconomic andfinancial reforms. They however, through going thissimply toachieve becomes more robust. account untilthefinancialsector the capital competitiveness,export while regulating industries. banksand asbailing outstruggling such emplo For too, financialcrises tendto countries spend more on response andreconstruction. Nevertheless, still many countries developing Investing reduction indisasterrisk off. pays risks complex Upgrading macro kitstomanage tool

Poverty-sensitive response Poverty-sensitive Macroeconomic policy buffers Exchange rate policy – This should support y vigorous ad hoc and arbitrary measures,y vigorous ad hocandarbitrary and human development are not, – mean This will – Governments – Governments ies affected ies affected by

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CHAPTER 2 Building Resilience to Natural Disasters and Major Economic Crises

Box II-7 Development assistance for addressing shocks in low-income countries

Development assistance can help developing countries which have been affected by shocks.

– In many cases assistance should be concessional. However, some heavily indebted countries would have trouble servicing even highly concessional loans, so the only option would be grants.

– Aid is at its most effective immediately after a shock so the international community should avoid delays in response. One way of achieving this might be to bring forward existing commitments, and temporarily reallocating these to help counter the effects of a shock.

– Large and highly visible natural disasters tend to attract more foreign assistance, while smaller disasters or silent crises from terms-of-trade shocks are largely ignored. Donors need to make sure they allocate external assistance in accordance with real needs.

– If a country knows that external assistance will be readily available if it is hit by a shock, it may lose the incentive to take preventive measures. To overcome such ‘moral hazard’ the international donor community can direct some of its assistance to risk reduction; this would benefit both donors and recipients by introducing predictability in their respective financial plans. Furthermore, donors may link their external assistance to efforts by recipient countries to reduce their economic vulnerability to shocks. International financial institutions can also provide technical assistance to develop domestic insurance markets.

– Recent years have seen the emergence of innovative capital market-based risk financing mechanisms. These include catastrophe bonds, contingent credit and regional catastrophe insurance pools. International financial institutions can help countries gain access to such mechanisms. They can also assist with the development of an Asia-Pacific catastrophe risk pool.

This short-sighted behaviour is partly the result In some cases even the most conscientious of human cognitive failures in understanding policymakers will struggle to act. The necessary and internalizing risks. But politicians are also information may not exist, or there could be reluctant to invest either financial or political deep uncertainties about a model’s underlying capital in preparing for events that might not assumptions – key variables, for example, and occur. In addition it is the difficulty in applying probability distributions. In such circumstances systems thinking to complex and inter- traditional cost-benefit analysis may offer connected challenges posed by multiple shocks. little guidance. Instead they may need to turn to some of the emerging, highly sophisticated To overcome such constraints, governments decision making tools and methodologies need to develop risk management frameworks. based on scenario analysis and vulnerability These should develop greater understanding identification.39 These can accommodate of nature of the risks, wider dissemination of different assumptions and stakeholder value the necessary information and knowledge, systems, and provide a more balanced analysis and making resources available to poorer on unpredictable events for which there is very households for risk reduction and management. little knowledge.

58 would alsobenefitfrom bettercoordination of the regional level. across Countries theregion reforms, butthere at are opportunities still ofglobalfinancialarchitecture arethey part management, succeedunless may notfully thecoordination ofexchange rate particularly exchange anddialogue. oftheseinitiatives, Some have remained ofinformation atthelevel policies.rate far, So however, mostactivities macroeconomic management andexchange potentialareas cooperation areOther for stages ofimplementation.various Asia,concentrated inSouth-East andare at initiative –thoughtheseinitiatives are largely and there hasalsobeenaregional bond market to members, liquidity provide emergency can Mai Initiative Multilateralization, example, for ofeconomicterms cooperation. The Chiang hasalreadyThis principle beenestablishedin action, regional cooperation. especially issues alsoneedtobeaddressed by collective international implications. Nowadays such borders have andwherever occurcan they Natural crossdisasters too frequently national now havecrises trans-border implications. economic shocks. such world Inaglobalized National dealwith alone cannot authorities build Regional cooperation economic resilience can help

Financing and Insurance Programme. andInsurance Financing pooling facility,insurance the Pacific Disaster the Pacific tocreate islandcountries a regional There is,for example, an on-going initiative by istoestablishregional insurance.possibility risk address related disasters. risks to natural One Similarly, work can together to countries building resilience toeconomic shocks. flows, coordination andbetterfiscal for financial policies in thefacecapital of volatile needed now is the political will tomove forward. will needed now isthepolitical from learnt is pastcrises. successfully What optimism.for across Countries theregion have work together more closely. Therecause is much economic frameworks. alsoneedto will They intomacro- risks toincorporate and models decision-making tools risks, new andapply measures toprepare andmitigate shocks for making,rethink macroeconomic policy take needtofundamentally will Governments automatically. nothappen But thiswill greater economic resilience against shocks. needtobuild gainswill development extend and Asia and the Pacific that wish to preserve In theface ofmultiple shocks,across countries addresses regional cooperation indepth. warning. andearly monitoring for Chapter7 resources disasterpreparedness for andsystems of limitedpublicresourcespooling include areas makeefficientuse where can countries 40 Other Other

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CHAPTER 2 Building Resilience to Natural Disasters and Major Economic Crises

Endnotes

1 Charveriat, 2000. 21 Phaup and Kirschner, 2010.

2 Crowards, 2000. 22 Philippines, 2012.

3 raddatz, 2009; Fomby and others, 2009. 23 Chakrabarti, 2013.

4 Cavallo and others, 2010. 24 understanding existing methodologies for allocating and tracking DRR resources – 5 eCLAC and IDB, 2000. A Case Study from Indonesia, 2013.

6 Crowards, 2000. 25 Bangladesh, 2012; World Bank, 2012a.

7 Benson and Clay, 2001. 26 Adam, 2013.

8 Benson and Clay, 2004. 27 Yang, 2008.

9 World Bank and United Nations, 2010. 28 Adam, 2013.

10 Becerra and others, 2010. 29 IFRC, 2011.

11 raddatz, 2007. 30 Ames and others, 2001.

12 Mueller and Quisumbing, 2010. 31 economic and Social Survey of Asia and the Pacific, UNESCAP, various issues. 13 Kirchberger, 2011. 32 Sirimanne, 2009. 14 Melecky and Raddatz, 2011. 33 IMF, 2012. 15 Becker and Mauro, 2006. 34 ravallion and Lokshin, 2005. 16 Biggs and others, 2011. 35 uNDP, 1999. 17 Heltberg and others, 2012. 36 World Bank, 1993. 18 unless cited otherwise, all information related to national policy and practice provided in this 37 rodrik, 2005. chapter is taken from the 2009-2011 and 2011‐2013 cycle of HFA progress reporting, 38 Quibria, 2006. available from http://www.preventionweb. 39 net/english/hyogo/progress/reports Weitzman, 2009.

40 19 Yudhoyono Susilo Bambang, 2013. linnerooth-Bayer and others, 2012.

20 China, 2012; ESCAP and UNISDR, 2012.

60 61

CHAPTER 2 3

BUILDING RESILIENT COMMUNITIES O T O H P A ES C 3

BUILDING RESILIENT COMMUNITIES O T O H P A ES C Building Resilience to Natural Disasters and Major Economic Crises

CHAPTER 3

Building resilient communities

Those most exposed to economic crises and disasters are the poor. With few savings and living in precarious circumstances, they have few buffers against shocks. Nevertheless, poor communities and their most vulnerable members can learn from past adversity and can even bounce back stronger and better prepared for future shocks – especially if they can rely on social protection schemes and inclusive and adaptive governance.

People who are already disadvantaged are likely even bounce back stronger and better prepared to be hit hardest by economic crises and natural for future shocks. This Chapter examines the disasters. Rural communities, for example, rely potential for building community resilience. heavily on natural resources for their livelihoods It reviews the capacities and strategies that and are at greater risks from droughts and allow communities to recover, showing the floods. Poor urban communities in precarious importance of equitable and sustainable housing, such as slum dwellers and those living economic development, of ensuring strong on riverbanks, are also more exposed to hazards. social capital, and of empowering communities. And the poor who will generally be working in It also considers further ways of enhancing informal employment also have fewer and less resilience to disasters and economic shocks. effective economic buffers, so at times of crisis may resort to high-interest loans, postpone health-related expenditure or withdraw children The vulnerable poor from school. In both natural disasters and economic crises Within poor communities, some people are those who are most vulnerable are the poor (Box especially vulnerable. These would include III-1). Without the safety net of savings, property children, older persons, ethnic minorities, and and other buffers – they have less capacity to those with disabilities or living with HIV and cope and often experience multiple and repeated AIDS. Such excluded groups often lack the shocks that further erode their capacity to cope.1 social buffers to protect them from extreme Already disadvantaged by social and economic weather events or economic downturns. In imbalances, the poor can thus be further many societies, in times of difficulty girls are marginalized into vicious cycles of chronic the first to be taken out of school. hardship, sometimes for generations.

Nevertheless, despite tremendous hardships, The poor tend to be more exposed to natural communities and their most vulnerable disasters because they live on hazardous land – on members can learn from past adversity and can earthquake fault lines, floodplains, and in coastal

64 UNU,Sources: 2012; Management Myanmar Information Unit, 2013; UNDP, 2013. Myanmar –theimpactofcyclonesonpoverty III-1 Box floods, affecting500,000people,andtwomajorearthquakes, affecting20,000people. Yangon, AyeyarwadiandRakhine,whicharethosemostexposed tocyclones. devastating cyclone,Nargisin2008,povertylevelsrose foursouthernandwesterncoastalstates:Kayin, Although itisnotpossibletocorrelatepovertylevelswith disasters,itisnoticablethatfollowingthemost are theeasternandsoutherncoastalregions(seemap). ‘most atrisk’. Myanmar isexposedtomanynaturalhazards.In 2012 itwasrankedtheAsia-Pacificcountry

Between 2002and2012,itexperiencedthreecyclones, affecting2.6millionpeople,three Myanmar: NaturalDisasters2002-2012 LEGEND R AKH 6.8 Earthquake2012 6.8 Earthquake201 Cyclone Giri2010 Cyclone Nargis2008 Floods 2012 Floods Magway201 Floods Rakhine2010 I N E CHI N A YEY 1 1 SAGAIN M A Map providedbyOCHA AGW M R A W NDA A A G D Y Y L Y A ANGON Y BAGO T A M KACHI K N O AYA I N N T H H N K A A R S YIN Y H I A N

Particularlyexposed

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CHAPTER 3 Building Resilience to Natural Disasters and Major Economic Crises

areas that are highly exposed to cyclones and The poor are also likely to be hardest hit by typhoons. In the Asia-Pacific region, more economic crises. Most will be low-skilled, people are living in coastal areas and cities, casual, seasonal or contract labourers with especially in the megacities that have more than precarious or irregular work and low earnings. 10 million inhabitants. In 2011, ten of the world’s In Nepal, India and Pakistan, around 80 per twenty largest megacities were located in Asia.2 cent of non-agricultural workers are engaged Within these cities many people are packed into in informal employment. In Indonesia, the informal housing areas with poor infrastructure Philippines and Viet Nam, the proportion is where they are particularly vulnerable to natural around 70 per cent. Those in the informal sector disasters. Thus when severe tropical storm are often hit hardest by external shocks; lacking Washi (Sendong) hit Mindanao in the effective social protection coverage, they rely on Philippines in 2011, it was informal communities the flexibility of shifting between different, if living in poorly constructed houses that suffered low-paid, tasks. most of the damage; within the formal housing zones, however, only 5 per cent of homes were In addition to those living below the poverty damaged.3 line there are millions more who can easily fall GRE N M OL VAIN-H L GE SY : MA R I E AN OTO PH

66 in 2008. Nargis Cyclone in total Myanmar deaths during Women alsoaccounted61percentof for ofthosewhodiedwere women.the majority 1991, Gorky inBangladesh cyclone following Lanka,cent ofthoseinSri were women. In fatalities inBandaAceh, Indonesia, and 80per 2004 IndianOceantsunami, 70percentof more suffer in disasters.who often the After overlooked intherelief distribution,overlooked orwere in Pakistan, example, for women were either relief operations. Following the2010floods below just 1.5timesthisvalue. line,poverty official 40percentlive butnearly cent ofthenational population live below the prevent minorities fromprevent minorities accessing aid. tosexualviolence,vulnerable orinadvertently persons with disabilities,exclude make women also can shelters orcamps designed emergency andpersons withdisabilities.the elderly Poorly supplies, example, for theyoung, exclude can relief.to emergency Airdrops delivering can alsobedisadvantaged whenitcomesThey access tonetworks andrelationships ofsupport. are they more strikes adversity isolated, with less many societalbonds andrelationships. When ‘excluded’ individuals–whoare outside todisastersare vulnerable Also particularly to poverty.to be vulnerable considered non-poor, 13percentare estimated whilst 65percentofthepopulation are into poverty. vulnerable non-poor.vulnerable resilience thusalsoneedtoconsider the designing policiesaimedatgenerating propelcan themintopoverty. Governments Women Excluded – groupThe largest are excluded women, 9 Women are also disadvantaged during 4 InIndonesia, example, for 12per groups 7

6 Even small shocks Even shocks small 5 InKazakhstan, 8

5-9 years. aged 0-5years, thoseaged and23.7percentfor those for rate 31.8 percentofthetotalmortality Lanka: among children inSri high mortality multiple shocks. caused The Indian Ocean tsunami under threat. crises, children’s come can healthandeducation being forced intosexwork. disasters, face the additional and can hazard of arethey thefirsttodrop after outofschool vulnerable: are especially inmanyGirls countries restricted theirmobility. that ofsocialnorms because distributed unable toreach places where relief wasbeing recognized. building communityresilience are rarely seen aspassive in victimsandtheircapacities stages of adisaster, women continue tobe andchildren.elderly Althoughactive inall the for traditional responsibilities caring for in female-headedhouseholds, oftheir because pressure,come under further those particularly incidences ofmeasles, anddiarrhoea. malaria among thepoor,particularly aswell ashigher proportion babies, oflow birth-weight and there malnourished was a higher became financial crisis, many more schoolchildren per cent of older persons suffered greatly after per centofolderpersons suffered after greatly Wenchuan inChina2008, earthquake 70 an estimated1.3billion. persons inAsiaandthePacific –to triple will personsOlder –By2050, thenumberofolder Children their jobsandincomes. Korea andIndonesia were tolose more likely financial crisis, olderpersons intheRepublicof more toshocks. vulnerable Following the1997 cent ofthosebecoming sexworkers. children increased by 43percent, with30per the 1997financialcrisis, thenumberofstreet 12 – Children are to alsovulnerable Furthermore, at times of economic 11

13 In the1997 Thailand during 10 17 After disasters women disasterswomen After 18 Older peopleare also Older Andthe following 15 In Indonesia after InIndonesia after 16

14

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CHAPTER 3 Building Resilience to Natural Disasters and Major Economic Crises

losing the support of their children.19 In the all their economic, social and natural resources. 2011 Japan earthquake, for example, while only In many cases they can ‘bounce back better’. representing 31 per cent of the population in But under pressure they can also be forced into the three most affected prefectures (Iwate, ‘erosive’ strategies that lead to a vicious cycle of Fukushima and Miyagi), 65 per cent of victims poverty (Box III-3). were aged 60 or over – because they were less mobile their evacuation was delayed. Erosive strategies

Persons with disabilities – During certain Sometimes people take actions that offer disasters, people with disabilities are more likely immediate relief but can undermine their to die.20 They can be additionally vulnerable livelihoods in the long run. For example, they because of poorly designed physical infrastructure might sell their working or breeding animals or inadequate emergency information.21 Following or agricultural or fishing equipment. Or they the 2011 Japan earthquake and tsunami, more may take out high-interest loans. As a last than 2 per cent of persons with disabilities resort they may pull children out of school.23 were killed or missing compared with 1 per They can also reduce the quantity or quality of cent of those without a disability.22 food, forego medical treatment, or overexploit natural resources.24 All these measures can perpetuate poverty and reduce the incomes of Coping with shocks future generations.

At times of crisis and disaster, some groups and Following crises, access to finance typically individuals are more vulnerable. However, they becomes even more difficult. In Cambodia, are rarely passive victims. Different groups and the Philippines and Thailand, for instance, individuals react differently (Box III-2). Most during the 2007-2008 economic crisis, many will try to cope with adversity by drawing on people pawned assets such as jewellery or sold

Box III-2 The Philippines – coping mechanisms during the 1991 Mount Pinatubo eruption

In 1991 in the Philippines, one of the world’s largest volcanic eruptions took place at Mount Pinatubo. Different communities in the surrounding areas coped in different ways. Some felt they could not rely on the Government or anyone else and a feeling of mutual distrust emerged, so they resorted to the kanya-kanya syndrome – everyone for themselves. The alternative was pakikipagkapwa, that is, being in har- mony with another person, helping or connecting with them: by talking to a companion they could give vent to their feelings and help ease and relieve their pain. The disaster affected various ethnic groups, which had different coping responses based on their own cultural norms and values. In some cases the disaster eroded social cohesion whereas in others it strengthened community resilience.

Source: Guss and Pangan, 2004; Jocano, 1997.

68 and could wait for the prices torecover. theprices and couldwaitfor onrely savingsandothersources ofincome of animalswhilethewealthier herders could ofcashmerehad alarger tosell number prices world herders affected severely by declining production, beyond sustainablelimits. often on resources natural and extracted more forest Nam,Viet communities had rural more torely into commercial sex. betrafficked toekeoutalivingcan are trying in Asia,countries unsuspecting women who III-4). (Box of humantrafficking Inmany oppression, body organsorbecome sell victims may work under even severe migrants as illegal In themostextreme circumstances, people houses, andcars. cattle boats. Similarly, inKazakhstan, peoplesold productive or equipmentasmotorbikes such Heltberg andothers, Heltberg Source: 2012. loans to moneylenders orbanks.loans tomoneylenders repay cannot of Indiawhenindebted farmers is suicide–arecurrent tragedy insome parts Coping withdisasters–erosiveandnon-erosivestrategies III-3 Box Over-exploitingnaturalresources • Borrowingmoneyatveryhighinterestrates • Mortgagingorsellingland • Sellingagriculturalorfishingequipment • inlessphysicalhealth Eatingverylittleorunpleasantfoodresulting • breedinganimals Sellingproductivelivestocksuchasworkingor • 28 For afew, thefinal resort Erosive 25 InMongolia, poor 26 27 In

Drawingonexistingsavings • Casuallocalworkortemporarymigration • Migrationandremittances • reciprocallabourexchange Drawingonkinshiptransfersoffoodormoney, • orgatheringwildfoods. Consumingless-expensiveorless-preferredfood, • Sellingexcessanimals • (Box III-5). alsoberesilient absorbers can shock they adisaster, during seenasvulnerable are often showed though women great andflexibility; skill the2008crisis,During women inBangladesh loans, orengage inreciprocal labourexchange. suppliesorinformal networks food for solidarity People orsocial on alsodraw family can nearby city. orby toanotherarea migrating ora locally might also seek They additional work, either or consume less-expensive orless-preferred food. existing savings, non-essential sell possessions, might,They for example, beabletodraw on that donotendanger theirfuture livelihoods. households respond with non-erosive strategies On theotherhand, themore resilient groups or Non-erosive strategies Non-erosive

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Some households will have diversified their SUPPORTING CommunitIES sources of income through international migration – and benefit from remittances Many vulnerable communities, faced with from family members overseas. In 2011, perennial disasters and weak government countries in South Asia, South-East support have organized themselves to prepare Asia and the Pacific received almost better against disasters and crises by undertaking half the world’s remittances and the 31 community-based disaster risk reduction. volume continued to increase in 2012.29 Indeed Supporting community resilience involves remittances are now on such a scale that they focussing on what communities can do for exceed government social expenditure or official themselves and enabling them to strengthen development assistance. In the year ending June their capacities. This process is illustrated 2012 Bangladeshis sent home $13 billion, more schematically in a model in Figure III-1. This than all the Government’s social protection has two levels: the first identifies the necessary programmes put together.30 Remittances have adaptive capacities; the second identifies the the advantage that they are often counter- required mechanisms or strategies. cyclical, rising during economic downturns and natural disasters as migrants send more cash to meet their families’ emergency needs.

Figure III-1 The community resilience-building process

Strategies Social Protection

Strategies

Adaptive Risk Communications Capacities Transfer Economic Social Capital Capital COMMUNITY RESILIENCE Strategies Adaptive Strategies Capacities Adaptive Capacities Natural Capital

Partnerships Governance

Strategies

70 Heltberg andothers, Heltberg Source: 2012. Hong Kong, attheInternational Women’s Day, Bangkok, 8March 2013. FromSource: ofMs. thespeech Andayani Adi, EniLestari oftheAssociation founder ofIndonesian Migrant Workers in sources oflivelihoodsforthemselves andtheirfamilies. is oftenpricedlowerthan market rates,showedgreatresilienceandinitiativein findingalternative vegetables rejected by localwholesalemarkets. Overall in Bangladesh, women and girlswhose labour kitchens ormanagingmarketstalls.Onenewniche livelihoodinvolvedthegatheringandsaleof Others tookjobspreviouslyconsideredtabooforMuslim women,suchasworkingpubliclyinrestaurant of income. Someparticipated in the Government’s new 100 Days Employment Guarantee schemes. resourcefulness. Inresponsetothespikeinfoodprices, manyruralwomendiversifiedtheirsources During the2008financialandfoodcrisis,poorBangladeshi womendemonstratedgreatresilienceand Bangladesh –resilientwomenduringthe2008 crisis III-5 Box gender discrimination,througheducation,awareness,andpromotionofprotectionrights. committed tohelpothermillionsoffemalemigrantworkerswhoarevulnerableexternalshocksand Now, asthe founder oftheAssociationIndonesian Migrant Workers in HongKong,she is strongly but alsointheformofstructuralabuse.Governmentpoliciesfailtotreatwomenasequalmen.” Ms. Eni says, “I have learnt that discrimination is not only in the form of employment or physical abuse faced similarfate.Sherealizedthatshesufferedmainlyonaccountofbeingafemalemigrantworker. a migrantworkerandfoundsolaceinthecompanyofotherwomendifferentnationalitieswhohad and takerefugeinashelterfordomesticworkersHongKong.Thereshelearntaboutherrightsas When shecouldnotbearthesufferingsanylonger,managedtoescapefromheremployer’shouse an abusive employer. Yet she stayed because she was the main breadwinner for her family back home. given noholidays.Shefoundherselftrappedwithsupportnetwork,livinginaforeigncountry short-lived. She was denied wages for the first few months, cut off from the outside world, and was Ms. Eniwasrelieved when shefound a jobinHongKongasdomestichelper, but her happiness was and rapeofmyfriends.Ihadnoaccesstofamilyfriendsjusthopedleavethisplacesoon.” made tosleeponthefloorwithhundredsofotherwomen,verballyabused,andevenwitnessedtorture says, “Therecruitmentagencyforcedmeintoconfinementinatrainingcampforfivemonths.Iwas As a female domestic migrant worker, she faced unbearable injustice and gender discrimination. She support herfamily,Ms.EnidecidedtoleaveIndonesiabecomeadomesticmigrantworkerabroad. became trappedindebt,unabletomakealiving.Tornbetweenherdreams,andtheresponsibility her family lost their small business in the wake of the Asian financial crisis in 1997. The family then dreams ofpursuingcollegeandbecomingaprofessional.However,herwereshatteredwhen Ms. EniLestariAndayaniAdicamefromasmalltowninIndonesia,andlikeothergirlsherage,hadbig Coping withshocks III-4 Box 71

CHAPTER 3 Building Resilience to Natural Disasters and Major Economic Crises

To build resilience, communities can draw on three types of capital: economic, natural and social. Economic capital provides economic and material capacities, and natural capital provides them with ecosystem goods and services that are essential for survival and well-being. But people can also be vulnerable to disasters because they lack bonds of solidarity and cohesiveness. They also therefore need sufficient social capital – in the form of durable networks of trust and solidarity that enable collective action.

To enhance these three adaptive capacities there are five main strategies: strengthening social protection; fostering mechanisms for risk transfer; enhancing local governance; promoting partnerships; and using information and communications technology. P H OTO

Strengthening social protection ESCAP

Resilient communities are built on sustainable Providing a strong social protection floor that and inclusive development. For this they will guarantees certain basic rights for all citizens need economic resources, decent employment is critical. The State plays a pivotal role in the and access to social services, including health development of integrated approaches to social and education. And over their lifetime they protection rooted in universalism and a rights- need economic security. Most of this they based framework. Building a social protection should be able to provide themselves directly, floor must be seen as an investment in human but they should also be able to take advantage capacity and capabilities. Once established by of more formal systems of social protection. offering a minimum level of access to essential This can take the form of old age and disability services and income security for all, social pensions, unemployment pay, maternity and child protection programmes can be built incrementally, benefits, and universal access to essential health with the capacity for extension according to the care. In many developing countries, however, needs and aspirations of countries, and the level such systems fall short. Some are poorly of economic development. designed or offer scant benefits – and often fail to address the particular vulnerabilities of those Effective social protection programmes should who need protection the most. As a result, be all inclusive and maintained or enhanced people tend to rely primarily on their families in times of crisis. Viet Nam, for example, has or communities. a wide range of programmes (Box III-6). And

72 community livelihoods andinfrastructure. rebuilding for mechanism delivery central able tostrengthen tomakeita thesystem Aceh province in2004, was theGovernment transfers.linked cash whenatsunamihit So ofcommunity- asystem Indonesia started For example, in1998, thefinancialcrisis after buildonif they pre-existing mechanisms. overnight, are more effective interventions so crisis besetup protection cannot Social systems comprehensive response (Box toacrisis III-7). Indonesia hasdemonstrated thevalueofa ILO,Source: 2010. were inthelowlandareas. Of these,1,938(1.1millionhouseholds)wereinmountainousareas,while472(over6people) The first phase ofthe Programme from1998to 2005 covered 2,410 ofViet Nam’s poorestcommunities. sanitation, andassetssuchashousingland. 4. Improvesocio-culturallivelihoodsbyprovidingsocialservices,whichincludessafewaterand investments. 3. Capacitybuildingforlocalofficialsandcommunitiestobetterplan,manage,implementmonitor well asincreasedeconomicopportunities. 2. Community infrastructure development to improve access by the poor to various social services as improve householdincome. 1. Market-oriented agricultural production, providing agricultural extension and marketing services to those inmountainousareas,andhasfourprimarycomponents: Minority Areasor‘Programme135’.Thistargetscommunitiesandvillagesofethnicminorities In addition,theGovernmenthasdevelopedSocio-EconomicDevelopmentProgrammeforEthnic agricultural andresidentialland,includinghousingwatersupply. The Programmealsoofferssubsidiestopoorcommunitiesinmountainousareassupporttheir wide rangeofinstruments, including preferential credit topoorhouseholds and subsidies for education. programmes. Oneistheall-inclusiveNationalTargetProgrammeforPovertyReduction.Thishasa Arising outofthecountry’ssocialistlegacy,VietNamhasawiderangesocialpolicyandprotection Viet Nam–TheNationalTargetProgrammeforPovertyReduction III-6 Box 32

elements of contingent targeting. episodic shocks, upfor bescaled and can with to ensure are thatthefinancingsystems flexible are seekingassistance. therefore Itisimportant protection may decrease just when more people social for revenues andcontributions reserved funding. economic crises, During thetax protection also need reliableSocial systems scale disasters. scale todealwithmore frequent small- of reserves funds–withanannualpool maintain calamity managed to have successfully the Philippines 34 33 India and

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Dealing with multiple shocks is, however, best support to vulnerable groups such as young achieved in a more comprehensive way through professionals, persons with disabilities and ‘adaptive social protection’. This involves mothers with small children. These measures integrating social protection with disaster risk are expected to generate over 14,000 jobs reduction and climate change adaptation.35 annually between 2013 and 2015 (Box III-8). Thus far these fields have largely developed in silos – within ministries of the economy, Informal social protection environment, interior or civil protection, and social affairs – leading to duplication, In the absence of formal social protection, inefficiency and competition. many people rely on a variety of traditional or informal protection within households, groups In the Philippines, Samoa and Maldives, and networks. People can use such networks, governments have introduced legal frameworks for example, to find jobs through friends, and national action plans to integrate disaster relatives, neighbours and communities – or risk reduction and climate change. They are through other workers in the same occupational building on existing systems by ensuring the group. They may exchange meals and small programmes are sufficiently flexible.36 Households loans and receive emotional support. For many can then cope with higher levels of everyday risk people, such as excluded groups or migrants – regardless of the source: disasters, economic from other countries, this support may be all crisis or changes in average climate conditions. that is available.

To achieve long-lasting results, social protection If the crisis is prolonged, however, with high systems need to be accompanied by longer-term levels of stress, solidarity mechanisms can start measures for poverty reduction. These could to weaken. They are unlikely to be completely include social assistance programmes to protect destroyed but will have less capacity, perhaps the vulnerable as well as child-care facilities providing aid to only the neediest or to older to enable women to join the workforce. After persons.37 Reports from Cambodia showed that the 2008 global financial crisis, the Russian during the economic crisis of 2008-2009, Federation, for example, provided livelihood although stretched and weakened by the shock,

Box III-7 Indonesia – social protection response to the 1997 financial crisis

During the 1997 financial crisis, Indonesia’s poverty rate doubled within a year. The Government responded quickly with a National Safety Net Programme which between 1998 and 2000 helped reduce the poverty rate from 33 to 12 per cent. The programme is also thought to have contributed significantly to the country’s wider economic recovery. The success of this programme also encouraged the Government to set more ambitious social objectives, as demonstrated by the launch of an unconditional direct cash transfer programme in 2005, and a conditional cash transfer programme in 2007.

Sources: Davies and McGregor, 2009; Prichett, Sumarro and Suryahadi, 2003.

74 eventually collapse.eventually netsmay community-basedsafety informal in theface ofmultiple, shocks, covariate even Source: Russian The Federation, 2013. incities. migrants ones rural for poorhouseholds, rural nets for andtheonly safety offeredmutual the most important support and mediumenterprises encourageindividualstosetuptheirownbusinesses. their professionalqualification topotentialemployers.Therewerealsoprogrammes tosupportsmall training andinternshipprogrammes.Attheendofthis training,workersobtainedacertificatetoprove Young people,includingthoseunemployedandatrisk ofdismissal,wereassistedthroughvocational offering subsidies. and organizedactivitiesaimedatprovidinglivelihood supportbyimprovingsocialsecurityand disabilities andtheirparents,motherswithyoung children.TheGovernmentcoordinated measures foremploymentgeneration.Theseprojects targetedyoungprofessionals,personswith The NationalGovernmentoftheRussianFederationresponded tothe2008globalfinancialcrisiswith The RussianFederation–responsetothe2008globalfinancialcrisis III-8 Box 38 Nevertheless,

mechanisms to be incorporated inmore tobeincorporated mechanisms Indeed there are traditional for increasing calls whereby mechanisms appropriate. formal these connections but supporting and systems -takingadvantage channels ofinformal informal toinvolve acombinationand likely offormal countries,In developing adequate coverage is

ESCAP PHOTO

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CHAPTER 3 Building Resilience to Natural Disasters and Major Economic Crises

formal programmes.39 In Samoa, informal addition, there may be donations for health systems work alongside formal systems to treatment, or purchase of household commodities. reinforce social protection and enhance community resilience (Box III-9). Most microinsurance mechanisms involve a small premium. Some schemes are linked to Fostering risk transfer loans and allow lenders to stop their repayments when a disaster strikes.41 Some boxes in this While richer individuals might be able to take Chapter illustrate the recent experiences of out their own insurance against disaster, poorer India (Box III-10), Tajikistan (Box III-11), households cannot afford such coverage. One Solomon Islands (Box III-12), and Pakistan (Box III-13). They describe how these schemes alternative is ‘microinsurance’ which pools the have evolved to respond to frequent disasters risks and resources of whole groups. Micro- and form part of resilience-building strategies. insurance is valuable for people who are excluded from social protection schemes, particularly However, one of the biggest challenges in informal workers and their families. It can offer microfinance is debt management. In Cambodia, protection against a variety of shocks, including for example, prior to the 2008 crisis a number illness, old age, natural calamities, death of of communities had taken significant amounts the family bread-winner, and theft or damage of credit from microfinance institutions. Some 40 to assets or means of production. Coverage villagers resorted to borrowing from informal may include: repair of damaged assets, funeral moneylenders to service their debts, but interest services, cash transfers, concessionary credit, rates were high and many ended up losing their and the provision of permanent shelter. In houses and their sources of income.42

Box III-9 Samoa – combining formal and informal social protection

As a small island country, Samoa is highly vulnerable to disasters and global economic crises. It is one of the five most vulnerable states on the Commonwealth Vulnerability Index. To address such vulnerabilities, Samoa has both formal and informal mechanisms for social protection. For those in formal employment the Government provides a National Provident Fund and a worker’s compensation scheme – with voluntary participation by those working in the informal sector. The Government also provides a pension for everyone older than 65.

But Samoa also provides support through traditional and customary practices: ‘fa’a Samoa’. This is based on matai system of heads of families and the traditional obligations of the extended family to provide both social and financial security and protect the vulnerable. Communities collect cash and food which the matais allocate according to individual needs or for village enterprises, the church and ceremonial activities. Finance is primarily received from wages and remittances.

The matai system is also embedded within national politics and government. Matais take almost all the parliamentary seats. This facilitates a strong combination of formal and informal social protection mechanisms.

Source: Amosa and Samson, 2012.

76 UNISDRandUNDP,Sources: 2007; andothers, Mechler 2006; ESCAP, ADBandUNEP, 2012. mainly in health and life insurance. inhealthandlife mainly markets, products, themtooffer encouraging have alsoseenthepotentialinlow-income floods andstorms. In recent years, insurers formal astyphoons, disasterssuch natural to cover all is programme.disaster insurance The intention programmedisaster insurance andafisheries acrop hasstarted Forestry andFisheries Korea, ofFood, theMinistry Agriculture, to makeindividualclaims. IntheRepublicof associated lossofincome withoutpeoplehaving and compensategroups vulnerable the for assess theexposure toextreme weather events haveschemes been index based. These schemes ofthemosteffective microinsurance Some calculated index,theyalsoreduce moralhazardandthepotentialformanipulating claims. Index-based microinsurance policieshavealsobeenpilot-testedinIndia.Asthey useanobjectively savings, asisthecaseinSwayamkrushi,asavingandcredit cooperativeinAndhraPradesh. Box III-10 Box debtors. and savingsoperations,theseinstitutionshavestarted tooffermicroinsuranceschemestheir Another channelformicroinsuranceisthroughmicrofinance institutions.Toprotecttheirmicrocredit number oflow-incomeclients. microinsurance schemeshavebeenspreading.Forexample, insurersarenowrequiredtoincreasetheir related events, as well as other disasters. Thanks to a favourable regulatory environment, Insurance schemeshavenowevolvedintoaneffective meansofreducingvulnerabilitytoclimate- training, seismic-safeconstructionpracticesandbusinessdevelopmentservices. of lessthan$5(afour-daywage)andissupportedwithmicro-mitigationmeasures,suchasfire-safety individual to the community or inter-community levels. The policy is available for an annual premium locations thatarenotequallyexposedtodisasterrisks.Throughthescheme,riskistransferredfrom schemes, AfatVimocovers19disasterrisksandincludesgroupsbasedindifferentgeographic programme, AfatVimo,formenandwomeninGujaratrunningmicroenterprises.Unlikeotherinsurance limited. Inresponse,theAllIndiaDisasterMitigationInstitutecreatedanall-hazardinsurance million. AspeopleturnedtotheGovernmentforfinancialsupport,itbecameclearthatfundingwas The 2001earthquakeinGujaratleftover12,000peopledeadandcauseddamageofapproximately$2.5 India –microinsuranceschemesafterthe2001earthquake

Sometimes microfinanceclientsarerequiredtohave insurancealongsidetheirloansand 43

supplies at times when international prices aresupplies attimeswheninternational prices tomaintainfood farmers ofsmall capacities functions would betoimprove theproductive areas one of the most In important rural implementation andevaluation. tomonitoring process –from vision setting, planning, and stepofthedevelopment stakeholders in every involve communities vulnerable andother and resilient. For need to they this purpose help thembecome self-reliant, independent, groupsvulnerable indecision-making and local responses,can support They engage toplay in enhancingcommunityresilience.part governance institutions have animportant Local Enhancing local governance

44

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CHAPTER 3 Building Resilience to Natural Disasters and Major Economic Crises

Box III-11 Tajikistan – disaster risk reduction through community endowment funds

The Disaster Preparedness Action Plan focuses on community mobilization, disaster mitigation, and capacity building. Launched by CARE International in 2003, the project has sought to reduce disaster risk through better preparedness among vulnerable people. Sixty-four community-based organizations have been formed. Each organization establishes an endowment fund to enable the community to tackle and finance problems locally using its own resources.

Source: UNISDR and UNDP, 2007.

Box III-12 Solomon Islands – developing community resilience

Kahua region, on the eastern Solomon Island of Makira, has been facing rapid changes through population growth and economic development. The region, with 4,500 people, is relatively isolated; it has little government presence and receives little assistance from external institutions. In 2000, community leaders established the Kahua Association (KA). KA acts as a bridging organization both between communities as well as externally with development organizations.

Despite having no formal controlling authority, KA has stimulated cross-community discussion and more equitable decision-making, with a horizontally structured hierarchy that limits the potential for power imbalances. The organization has been helping communities learn more about external market forces and appreciate the risks they face, while helping them enter into partnerships with development agencies.

Sources: Schuett and Fazey, 2010; Schwartz and others, 2011.

Box III-13 Pakistan – disaster risk insurance for low-income communities

Traditional insurance cover for low-income communities would require an extensive network of trained people to assess the value of the asset being insured as well as claims for individual losses. In addition to the cost, this would be time consuming and involve long pay-out times. An alternative is index or ‘parametric’ insurance. Such contracts are written against a physical trigger such as an earthquake of a predetermined magnitude. Each time there is an earthquake of the magnitude above the agreed level the people of the area would become eligible for certain amount irrespective of their actual losses. In the case of weather derivatives, farmers collect an insurance payment if the index reaches a trigger level – for example a certain measure of rainfall.

In Pakistan, index-based crop insurance schemes are promoted and distributed by microfinance institutions, with technical assistance from the World Bank. The risk is borne by commercial or public insurers.

Source: Pakistan, 2013.

78 inequitable distribution ofgrants. inequitable distribution basis.on acase-by-case can This result inan to thepanchayats dependingon theproject and anddisbursefunds allocate governments often manner. For example inIndia, thestate are inanad hocanddiscretionary distributed The problem whenthegrants isexacerbated regionsthe rich may get more thanthepoor. thus fail to address regional inequalities; indeed tion area. orthegeographical transfers Fiscal – beingbasedmore ofthe popula- on thesize orvulnerability little weight ofpoverty tolevels disasters. give generally transfers such Inreality through transfers, fiscal for natural especially ineachregion andvulnerability the poverty In principle, the government should address lead tocaptureby elites. can local decentralization transparency. Intheabsenceoftheseconditions, capacity,necessary resources, and accountability havegovernments be effective the if local only can effective. isnot always ization Decentralization better respond toemerging needs.- Butdecentral conditionscomplete understandingoflocal and have amore can authorities Regional andlocal publicservices. ofkey improve thedelivery can resilience which iseffective decentralization contributiontogreaterAn local important intimesofemergency.successful collaboration also governmentsfor areand local important and public expenditure tracking surveys – which –which and publicexpenditure surveys tracking the poor. incidence studies fiscal These include to inproviding basicservices decentralization offiscal the efficacy analyzing tools for levels.local There are anumber of important toaccounttheflow for offundstothe carefully tomonitor expenditureIt isalsoimportant fertilizers. andimproved accesssupport toseedsand high. oftechnological form This couldtakethe 45 Strong linksbetween communities 46

natural disasters: natural greater resilience toeconomic and shocks governments have helpedcommunities build A asUganda,such Peru andZambia. inmany countries have beenusedsuccessfully understanding ofthecity’s vulnerability. stakeholders toensure acomprehensive with different and collaborated partnered participation. Also, government thelocal increasingland useplanningandfor public reduction by disaster risk risk integrating in managingflood for government –inparticular andwork into thestructures ofthelocal reduction disasterrisk integrating and for itsexcellent performance for recognized Matara, on coast, thesouthern acity was management. disaster risk including In 2009, governments workhow local on many issues, pradeshiyasabas to gauge – using 78 indicators municipal councils, councilsand urban for appraisal out an annual performance Government and Provincial Councilscarries local governments istopromote local public-private bothnational for and activity An important partnerships Promoting communities.and local officials thegapbetween high-level – bridging managementprovided on training disasterrisk re-engage communities withurban and governance.good city officials It hashelped city management projectsbased disasterrisk into of Manila. community- This seekstointegrate DisasterPreparednessfor inDagupan, north ance programme is implemented by the Centre - Govern Disaster Risk Management and Local

cross Asia and the Pacific many local – The Ministry of Local Local Lanka– Sri of The Ministry The Community-Based The Philippines– 47

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CHAPTER 3 Building Resilience to Natural Disasters and Major Economic Crises

partnerships (PPPs). An Asia Pacific Economic Indonesia – East Nusa Tenggara has an Cooperation workshop on PPPs and disaster annual drought season that lasts nine months, resilience in 2010 pointed out that the private and the province regularly experiences food sector has much to offer in terms of resources shortages. A local NGO Yayasan Pikul in and expertise and essential services. In many 2005 started working with rural farmers on a economies, the private sector operates critical community-based disaster risk management infrastructure.48 initiative in Sikka district. The community now has its own monitoring system for food security Governments can also work closely with civil and a food early warning system, and is now society organizations – which can help in a stronger position to adapt and respond to communities to organize themselves more climatic variations.53 effectively to prepare for disasters and crises.49 There are many examples of successful Using information and communications collaboration: technology

Bangladesh – Practical Action Bangladesh Community resilience and response to disasters and its local partner NGOs have an ongoing demands rapid production and dissemination of project with marginal farmers, fishermen, information between communities, governments daily-wage labourers, local elected bodies, local and supporting organizations. Fortunately this educational institutions and government service can now be done more effectively through a providers. These projects have strengthened variety of information and communication community capacity in livelihood-centred technologies – print, radio, television, the disaster management and awareness.50 internet, and mobile and smart phones. Social media platforms are also proving invaluable Cambodia – The Asian Disaster Preparedness in facilitating the exchange of information in Centre has embarked on community-based times of crises. flood mitigation and preparedness with 23 communities – based on partnerships with Early warning systems are usually managed international organizations. Community members nationally, but the onus lies on communities contributed money and labour as well as their to receive this information and respond knowledge and expertise on which projects accordingly. In addition, communities need to be would be most effective.51 The exercise resulted prepared to react to disasters such as flash floods in the construction of emergency evacuation or earthquakes that can occur without warning. routes, elevated roads and more bridges. A variety of programmes within the Asia- Pacific region seek to inform, encourage India – The NGO Gram Vikas has been consultation, and empower communities to working in Samiapalli village which lies five respond during times of crisis. kilometres from the coast of the Bay of Bengal – one of the world’s most cyclone-prone regions. Lao People’s Democratic Republic – The The NGO has helped the community raise Mekong River Commission and the Asian a bank loan to buy additional land for the Disaster Preparedness Center have implemented construction of disaster-proof homes.52 a project called Flood Emergency Management

80 2010 claimed 302lives. 2010 claimed of 3.5years. The most in recent eruption to havebelieved span an average eruption most active volcano,the country’s is which threatenedare by continually MountMerapi, refurbishing early warning devices. warning refurbishing early Mount Merapi. The has also been government about the conditionthe peakofvolcano of communities withina7-kilometre radiusof providing to information government started and community members. andgamestoengageplaying students, parents in Nongbok areas andXebangfai usedrole Program. Safety Flood Through this, 40schools astheSchool such engagement campaigns and public awareness, and initiated various Strengthening. focused This has on community fictional remote village. droughts andfloodsthrough setina drama issuesconcerning earthquakes,– exploring programme called Home,‘New NewLife’ linesofasuccessful intothestory integrated reduction. reduction Disasterrisk messages were disasterrisk for at strengtheningcapacity local NGO Tearfund produced aimed radio dramas the BBC World Service, theinternational had reached 165,000–receiving arecord 39 2011,on 10January thenumberof followers Lockyerhours oftheflashflood inthe Valley information.and authoritative 24 Within phones withreal-time, centrally-coordinated whohad accessandsmart totheInternet followers Facebook and Twitter, provided theservice media platform. Using thesocialmedia, Police the Queensland social for new Service’s and 2011 proved testing ground a significant

Indonesia Afghanistan Australia Australia – Queensland floodsof2010 The – In the city of In thecity Yogyakarta, – people – In2006, with inpartnership 54 55 In2010, the local 56

National office staff have the statistical may nothave theappropriatetraining. of thenational disastermanagement agency different relief organizations. In addition, staff bycomplicated theinvolvement ofmany – and is data collection is not a high priority In mostcountries, whenadisasterstrikes, interventions.necessary picture design the a clearer of the gaps and can the country. Asaresult, has theGovernment programmes, resources across and beneficiaries poverty ofall keepstrack which system Data aremanagement intoaninformation fed empowerment programmes: Mandiri. PNPM onefor ofitsmainanti-poverty, community asthebasis techniques has beenusingsuch poor are atgreatest risk. Indonesia, example, for produce multi-hazard maps showing where the to data andgeographic systems information and thePhilippines, have beenusingsatellite A numberofgovernments, Indonesia including advantage andinnovative technology. ofnew or skills. Nowadays, however, take can they task, resources the necessary lacked they feeling would have beendauntedbyment partners this Until recently,- bothgovernments anddevelop assessment. vulnerability should beafull poor and most vulnerable. point The starting onaccurate information the situation of the and reliable data. Inparticular, need they disasters, andrespond rapidly, needtimely they If governments are to preparefor effectively for disasterThe need statistics the developing crisis. the developing information, bekeptabreast of andgenerally press conferences phones, on theirsmart share bycars floodwaters were live abletowatch per second. Inaddition, residents in stranded views,million story theequivalentof450hits 57

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CHAPTER 3 Building Resilience to Natural Disasters and Major Economic Crises

skills but may not be involved in collecting this issue, a number of countries in the region disaster-related data.58 Governments should have been building national disaster databases therefore prepare in advance the systems and to analyze the effects of low-severity, protocols for collecting data during emergencies, high-frequency events. Data from Nepal and aiming to ensure consistency in reporting and the Islamic Republic of Iran, for example, show methodology. that similar numbers of people die in a large number of smaller-scale disasters as in a few Another concern is that international data large-scale ones (Figure III-2). systems for disasters do not cover low-severity, high-frequency events. The leading publicly available international database, the Emergency Ultimately, when faced with natural disasters or Events Database (EM-DAT), has many economic shocks communities have to fall back advantages but its unique methodology means on their own resources, especially in the least that it only covers disasters where ten or more developed countries. But many governments are people have been reported killed or 100 or more now discovering ways of helping communities have been affected. become more resilient (Box III-14). Policy makers now have many more options. Some However, even small-scale disasters can have of them are opening up as a result of new a wide economic, social and environmental technology, but the most effective methods impact particularly among the poor as each are those that engage local people themselves, shock further erodes their coping capacity and capitalizing on their knowledge and enabling traps them in a cycle of poverty.59 To address them to build more resilient communities.

82 net/DesInventar/profiletab.jsp?countrycode=or (accessed 20May 2012). UNISDRfromSource: Desinventar Project Team, Database. System DisasterInformation Available from http://www.desinventar. Total deathsduetolarge-andsmall-scaledisasters Figure III-2

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1999 1999 2000 2000 Low-severity, high-frequencyevents High-severity, low-frequencyevents 2001 Low-severity, high-frequencyevents High-severity, low-frequencyevents 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 83

CHAPTER 3 Building Resilience to Natural Disasters and Major Economic Crises

Box III-14 Thailand – multiple community strategies

Over the past two decades, Thailand has felt severe impacts from both disasters and economic crises. But it has also capitalized on these experiences to achieve greater community resilience by building on social capital, strengthening partnerships, empowering women and enhancing the use of ICT while expanding the coverage of social protection. Activities have included:

Early warning systems – An important consideration was the development of early warning systems, including the erection of tsunami warning towers, with strong linkages to the community level. However, local communities have been long been able to detect environmental abnormalities and changes – often as fast as high technology equipment.

Civil society partnerships – Civil society entities, including the Save Andaman Network, helped more vulnerable groups, such as fishermen, rebuild their traditional capacities while focusing on long-term livelihood security. Community-based revolving funds helped ensuring equal access to resources and improve sustainable livelihoods.60

Private partnerships – Following the 2004 tsunami, resort owners in Phang Nga province on the Andaman coast of southern Thailand worked with long-established European partnerships to revive tourism in the main resort area. Small resort owners reached independent travellers, through locally- controlled websites and through exposure in guidebooks.

Rebuilding ecosystems – Replanting native trees and grasses helped increase biophysical resilience and prevent further erosion by creating a natural barrier against the impact of tsunamis or storm surges.61

Communications –Civil Defence Volunteer Units have been trained to inform communities of emergency operations, rules, directions, procedures, evacuation and emergency responses, and shelters. They have also disseminated information through hotlines and amateur radio networks. The Department of Mineral Resources and the National Disaster Warning Centre has provided a toolkit along with pocket books to schools to educate children in disaster risks and responses.62

Social protection – The 2003 Social Welfare Promotion Act provides social insurance for workers in key areas, including benefits for unemployment, sickness, disability, maternity and old age.63 As a result, when the 2007/2008 economic crisis struck, the social protection response was considerably more effective, helping households to receive government support so that there was no significant reduction in consumption.

Countercyclical policies – The Government managed to quickly implement countercyclical policies to avert the most severe social impacts, which in turn restored domestic demand and maintained short- term productivity and thus promoted the country’s competitive edge for the future. People could also borrow from relatives and friends to purchase food and basic products on credit, while assistance was given to the poorest from local temples.

Cash transfers – Through ‘Help the Nation’ the Government’s direct cash transfer programme for low-income earners, one-time payments of 2,000 Thai baht (THB) ($67) were made to workers earning less than THB 15,000 ($500) per month, and contributions were made to the social security fund. However, these only reached civil servants and formal-sector workers, while around two-thirds of the workforce is in the informal sector. In 2011 therefore the Government proposed to expand the

84 12 11 10 9 8 7 6 5 4 3 2 1 Endnotes

Ibid. logistics support. Crisis ResponseTeamhaveworkedtoestablishthetechnologyinfrastructure,technicalservicesand and Communication Technology, the Ministry of Justice, the ThaiRed Cross Society and IBM’s as thatofApril2012,weremetwithrapidevacuationsfromlow-lyingareastheAndamancoast. by RooSuFlood(“knowandcombattheflood”)videospostedonYouTube.Recenttsunamiwarnings,such providing GPS-locatedinformation.Inaddition,easilyaccessibleinformationonthefloodswasprovided mobilized resourcesanddrewupdailyplanstocookfeedhouseholds. postings toFacebookandTwitter. provided onthewebsitesofotherrelevantministriesordepartmentsaswellfromindependent Governance Governance ICT networks Community informal workers. social protectionfundtoinitially20millioninformalworkersandlaterextendcoverageall flood relief activities. had beenaffected.Thesefundsandothersweretobemanagedbycommunitynetworksworkingon low-income community organizations each agreed to contribute THB 30 ($1) to assist those who food centres,andprovidedemergencysupplies,toolsfood.Membersofthenationalnetwork ESCAP andUNISDR, 2012. Yogyakarta Declaration, Gender Annex, 2012. Caňeda, 2012. DESA, 2011. andothers,Heltberg 2012. ESCAP and UNISDR, 2012. andothers,Klynman 2007. and Kumar,Abraham 2008. Jha andDang, 2008. Alatas, and Wai-Poi, Purnamasari 2013. Dercon, 2005.

– The newly independent and volunteer-run ThaiFlood.com served as a clearinghouse for information – Thenewlyindependentandvolunteer-runThaiFlood.comservedasaclearinghouseforinformation – Partnerships,whichincludetheMinistryofPublicHealth,Information 67 64

65 –Whenthe2011floodsstruck,communitynetworksorganizedreliefand Committees of community leaders, many involving women in leadership roles, 66 This was supplemented by a mobile crowdsourcing application Thiswassupplementedbyamobilecrowdsourcingapplication 24 23 22 21 20 19 18 17 16 15 14 13

Heltberg andothers,Heltberg 2012. Fujii, 2012. ESCAP, 2012c. ESCAP, 2012b. ESCAP and UNISDR, 2010. Pennay, 2000. Sirimanne, 2009. Pasteur, 2011. Knowles andothers, 1999. ESCAP, 2012a. Cutler andothers, 2002. World Bank, 2009b.

85

CHAPTER 3 Building Resilience to Natural Disasters and Major Economic Crises

25 Schlossar, 2012. 47 Jayakody and Karunaratne, 2007.

26 Heltberg and others, 2012. 48 APEC, 2002.

27 Völker and Waibel, 2010. 49 UNISDR and UNDP, 2007.

28 Mukherjee, 2012. 50 Ibid.

29 ADB, 2012. 51 ADPC, 2013.

30 The Economist, 2012. 52 Gram Vikas, undated.

31 Velasquez, 2008. 53 UNISDR and UNDP, 2007. 32 World Bank, 2011b. 54 Ibid. 33 World Bank, 2010b. 55 Lavigne and others, 2008. 34 Gurenko and Lester, 2004. 56 Balgos, 2010. 35 World Bank, 2010b. 57 Larkin, 2011. 36 World Bank, 2011b. 58 ESCAP, 2011a. 37 Global Pulse and UKDFID 2010. 59 Ibid. 38 World Bank, 2012. 60 United Nations, 2005. 39 Scott, 2012. 61 Calgaro and Lloyd, 2008. 40 Malagardis, 2009. 62 Kamolvej, 2006. 41 ACEDRR, 2007. 63 42 Krongkaew, 2007. Heltberg and others, 2012.

64 43 Pierro, 2007. Heltberg and others, 2012.

65 44 Cuthill and Fien, 2005. Boonyabancha and Archer, 2011.

66 45 Upadhyay and Palanivel, 2011. Winijkulchai, 2012.

67 46 Braun and Grote, 2000. Bernhard and others, 2006.

86 87

CHAPTER 3 4 LAND, WATER, ENERGY NEXUS: PREVENTING CATASTROPHIC FAILURE LI N WI T

Y A R | O T O H P

N U 4 LAND, WATER, ENERGY NEXUS: PREVENTING CATASTROPHIC FAILURE LI N WI T

Y A R | O T O H P

N U Building Resilience to Natural Disasters and Major Economic Crises

CHAPTER 4

THE LAND, WATER, ENERGY NEXUS AVOIDING CATASTROPHIC FAILURE

Constantly producing more goods and services is pushing the countries of Asia and the Pacific towards catastrophic ecosystem collapse. Much of the land is facing serious degradation, water resources are being used wastefully or polluted, and it is becoming increasingly difficult to find sufficient energy. Economic planning needs to incorporate the true value of ecosystem services, while reducing the use of resources and preparing for climate change.

Though natural ecosystems have large capacities In addition, much of the land currently under to absorb and respond to many pressures, cultivation is becoming degraded – reducing once tipping points are reached, there could productivity and threatening persistent crop be a rapid collapse that would cascade across failure. Globally, almost 2 billion hectares our economic and social systems, threatening of land – an area twice the size of China – development gains. Building resilience for Asia are already seriously degraded; in some and the Pacific means considering the long-term instances irreversibly.2 In Asia, this is the implications of our actions and addressing this result of erosion, nutrient depletion, chemical nexus of converging threats. contamination or encroaching salinity (among other things) – which have degraded Growing land constraints vast areas of cropland, grassland, woodland and forest. In South and South-East Asia, Land for agricultural production is becoming around 74 per cent of agricultural land has increasingly scarce. Of the world’s remaining been severely affected by wind or water arable land that could be brought into erosion or has been polluted to the extent that it agricultural production, most is in Latin is no longer productive. China alone has lost 3.5 America and Sub-Saharan Africa. While million square kilometres of topsoil to water some is available in East and South-East and wind erosion.3 Asia, there is virtually none to spare in South and West Asia (Figure IV-1). Moreover, Asia has the largest amount of land affected in South Asia around 45 per cent of land by desertification – around 1,400 million with crop production potential is currently hectares. Millions of people rely on this land for used for human settlements and there is survival: in India, 26 per cent of the population; concern that urban areas will encroach on in China, 17 per cent; and in the remainder the remainder. 1 of the region, 18.3 per cent.4 People living in

90 Bokor National Park provides water purification watershed the in Cambodia, catchment of the agricultural practices. agricultural toadjust their andtechnology the capacity tocope–lacking areasthese fragile struggle Potential arablelandavailableforagriculturebyregion,2009 and attenuation worth around services year. hectareworth per $1,907per yearper and generates flood attenuation benefits treatment worth an estimated hectare $654 per for example, is responsible for wastewater IV-1). The Muthurajawela wetland inL Sri for water purifying and attenuating (Box floods Forests and wetlands, inparticular, are important against changing environmental conditions. complex and diverse ecosystems as buffers act long-term consequences. ecological These strainextra on areas these could have major areas such as forests and wetlands. people are often pushed into fragile ecologically When land their is no longer productive, Fischer,Source: Gandothers, 2010. Fi

Million hectares gureIV-1 1 1 1 0 2 2 4 6 8 4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6 Similarly 5 Putting anka,

domestic security. food competition for farmers and local threathening Asia-Pacific countries, creatingpossible further buying land developed and inboth developing ‘land grabbing’, many large companies food are resource. basic this In what dubbed has been investing in land in other countries to secure absorb and rainfall riverssediment.with fill ecosystem changes: is soil the less able to becomesthen drier, inturn which accelerates and thus climate rainfall. decreases The local reduces cloud-forming evapotranspiration impeding water the cycle. Deforestation forests have destroyed already been –seriously A substantial proportion of earth’s the natural Kamchay Hydropower Scheme. $2 million annually for downstream the L f particular concern is loss the Of particular of forests. and degradation to led many has also countries 9

p p p o o o t t t e e e n n n t t t i i i a a a l l l 7

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91

CHAPTER 4 Building Resilience to Natural Disasters and Major Economic Crises

Box IV-1 Viet Nam – restoring mangrove forests

Since 1994, the Viet Nam Red Cross, along with other donors, has initiated a project of restoration, rehabilitation and management of coastal mangrove forests. Mangrove and wetland ecosystems help protect coastal communities from storm surges and erosion, and mitigate climate change by absorbing carbon dioxide.

A recent analysis of the costs and benefits of this restoration activity found that the mangrove forests had a substantial impact on reducing disaster risk and had enhanced community livelihoods. The overall cost of the project, spanning 17 years, was approximately $8.8 million, but the benefits were felt by approximately 350,000 people directly, with another 2 million protected indirectly through the afforestation efforts. Savings from dyke maintenance was estimated to be around $80,000, but in addition, avoided damage to communities were approximately $15 million. Also, the mangrove forests were able to provide additional income for coastal communities through an increased yield in aquaculture products, and other economic activities such as honeybee farming.

Source: IFRC, undated.

Water scarcity

Only 2 per cent of the planet’s water can be used for drinking or agriculture. But these freshwater systems are coming under increasing pressure as a result of over exploitation and pollution. Most of this is due to cultivation. Almost 80 per cent of the region’s freshwater is used for agriculture, though the proportion varies by country: 20 per cent in the Russian Federation, for example, but up to 90 per cent in many least developed countries as well as India.10

This water usage is likely to increase. Agricultural water consumption could grow by around 19 per cent per year by 2050,11 but without using water more efficiently, the world will need 40 per cent more than will actually be available (Figure IV-2).

In Asia and the Pacific only around 9 per cent of PARK water withdrawal is for domestic consumption.

Even so, almost 380 million people in the KIBAE region do not have access to clean water (Table IV-1). P H OTO

92 aspx (accessed, 2013). February ESCAPSource: Annual core online database. indicators Available from: www.unescap.org/stat/data/statdb/DataExplorer. Consumption ofwaterandpopulationwithoutaccesstoimproved Tab Potential globalgapbetweenwatersupplyandwithdrawalsby2030 BasedonSource: UNESCO, 2012. Fi gureIV-2 10 20 30 40 50 60 70 80 E A S S N P W leIV-1

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93

CHAPTER 4 Building Resilience to Natural Disasters and Major Economic Crises

Around 12 per cent of water in the region are discovered. However, these new reserves is used for industrial production. The most are more difficult to exploit – demanding water-intensive industries include electronics significant amounts of energy for extraction. manufacturing, pulp and paper production, This can be assessed through the energy return textile production, food and beverage production, on investment (EROI) – the amount of energy metal mining, chemical manufacturing and required to extract a unit of energy. At one end refining. A number of enterprises are becoming of the spectrum are oil and gas reserves that concerned about supplies: corporations such historically have been easily accessible. At the as Coca-Cola and Nestle now take into other end are fuels derived from tar sands or account future water availability when choosing corn. As illustrated in Figure IV-3 EROI can manufacturing locations. 12 fall exponentially – disappearing over what has been called the ‘net energy cliff ’. These new extraction and energy production methods Water is also needed for the production of could thus lead to more price shocks. energy – as well as for transport and processing of primary fuels. In 2010, around 15 per cent Beyond the availability of fossil fuels there is of the world’s total water withdrawals were for 13 the even greater concern for climate change energy purposes. Water is also used in the since fossil fuel combustion is one of the production of biofuel crops. Several Asia-Pacific primary sources of CO2 emissions. Figure IV-4 countries are expanding their production of projects Asia-Pacific energy demand according biofuels – for purposes of energy security, to two scenarios – one based on business as climate change mitigation, foreign exchange usual, the other assuming effective efforts at savings and rural development. This also adds mitigation which are detailed in Box IV-2. pressure to the land and water requirements; one litre of ethanol from sugarcane uses enough water to produce food for one person’s dai- ly consumption.14 To a limited extent, energy can also be used to increase freshwater supplies through desalination – though this is extremely energy intensive.

Reaching energy thresholds

Across the world, energy consumption has been growing rapidly whether for industrial processes, for transport, or for households for cooking and heating. This has given rise to increasing concerns about future availability. Some energy sources such as coal, are still relatively abundant. And fossil fuel sources, such as shale oil and gas, seem to be increasing as further reserves

94 Asia-Pacific energydemand,withandwithoutCO The netenergycliff–ratiosfordifferenttechnologies Note: Asianotrepresented. Central from Derived Source: IEA, 2012. Lambert,Source: andothers, Jessica 2012. Fi Fi Million tonnes of oil equivalent 1 1 1 1 gureIV-4 gureIV-3 2 4 6 8 0 2 4 6 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 9 9 0 B E ioen n e rgy er g 2

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3 0 r e n ew a b l es 2 0 3 5 95

CHAPTER 4 Building Resilience to Natural Disasters and Major Economic Crises

Box IV-2 Energy and climate change

The International Energy Agency has developed a number of scenarios including current energy policies (current policies scenario), and the energy policy requirements to limit carbon dioxide levels in the atmosphere to 450 parts per million, which could stabilize the average global temperature rise to 2°C (the 450 scenario). This modest temperature rise is already likely to happen; as the temperature rises further, the impacts will become more extreme. The chart below shows the potential outcomes.

Source: IEA, 2012.

Scarcer minerals important industries, including the manufacture of renewable energy technologies, electronic Another concern is the future availability equipment, vehicle parts, batteries, components of minerals. Between 1970 and 2008, the for power stations, semiconductors and computer 17 use of metals and minerals for industry and chips. Such has been the pace of consumption construction, grew on average by 7 per cent that for some elements mineral reserves are 18 per year. Much of this was extracted from likely to last only 4 to 20 years. within the region: in fact, in 2008, Asia-Pacific countries extracted over 1,100 per cent more These elements are also vital for the production minerals and metals than in 1970.15 Both of clean energy technologies such as wind within the region and beyond, however, some turbines, hybrid vehicles and energy-efficient of these minerals are becoming uneconomical light bulbs. One estimate suggests that by 2035 to extract.16 the demand for these elements will be between 600 and 2,600 per cent of the amount known to be Of particular concern are the ‘rare earth’ extractable – economically or non-economically elements such as cerium, lanthanum and (Figure IV-5).19 This has serious implications dysprosium. These are critical for several for climate change mitigation.

96 Rare earthelementrequirementsasapercentageofavailablesupplyby2035 2050 theAsia-Pacific population isexpected beon supplies.will food Between 2012and Social which has instigated strict export quotas. export hasinstigated strict which around 95percentofextraction isinChina in2011:rose significantly for some ofthese upward trend. minerals rare of earth The prices being felt. are prices volatile but on an Energy Economic have andwidespread dramatic impacts: thresholds ofland, would waterandenergy Crossing one ormore of the converging from Derived Source: Alonso, Elisa, 2012. Fi thresolds Implications of crossing gureIV-5

– Oneofthemostimmediate impacts Per cent of resource required by 2035

1000 100 200 300 400 500 600 700 800 900 0 – Some of the effects are oftheeffects already– Some Used inoilrefineries, glass, ceramics Cerium (Ce) storage, camera Lanthanum lenses, oil Batteries, hydrogen refineries (La) Dysprosium Used inwindturbines& (Dy) electric vehicles

Praseodymium 20 (Pr) Continues to

2630%

available -100% Total resource Used ineletric Samarium and lasers vehicles (Sm) climate change.climate This isalready reducing crop by beexacerbated theseissues will All of climate effect changeThe compounding difficult toensure universal access. Table IV-I, anditmay become increasingly in earlier wateras indicated access toclean pressure. 380million people have no Some Water come suppliestoowill underincreasing becoming available, to soar. are prices likely undernourishment. And, land withlittleextra people inAsiaandthePacific suffer from 70 percentby 2050. by food demand for 50percentby 2030andby diets,with changing toincrease the islikely to rise fromto rise 4to5billion. Fluorescent T lamps, LCDs, lasers erbium (Tb) mitigation (IEA450scenario)% TVs, superconductors,

energy efficient Used inlasers,

light bulbs Yttrium Minerals requiredfor

energy technologies for greenhousegas production ofclean (Y) 22 Lasers, computer medical imaging Already, over 510million memories, Gadolinium (Gd) 21 This, combined LCDs, mercury- vapour lamps, Used inTVs, Europium (Eu) lasers

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CHAPTER 4 Building Resilience to Natural Disasters and Major Economic Crises

yields in some places and affecting glaciers Rising temperatures will lead to rapid thawing which for several countries are important sources of permafrost, triggering landslides, and will of water (Box IV-3).23 Rising temperatures and also degrade forest ecosystems. In addition, a extreme weather events are affecting production 2ºC to 4ºC increase in sea surface temperature of rice, maize and wheat (Box IV-4 and Box is projected to increase tropical cyclone IV-5). By 2020 crop yields could fall by between intensities by 10 to 20 per cent in East Asia, 2.5 and 10 per cent and by 2050 by between 5 South-East Asia and South Asia.26 and 30 per cent. On this basis, by 2020 some 49 million people could be at risk of hunger, Australia and New Zealand are already coming rising by 2050 to 132 million. By the end of the under greater water and agricultural stress, twenty-first century, rice production in Asia is with changed natural ecosystems and reduced projected to decline by 3.8 per cent – due to a seasonal snow cover. Some areas are experiencing combination of the fertilization effect, thermal extreme events, such as wildfires, heat waves, stress and water scarcity.24 cyclones, droughts and flooding.27 But the most vulnerable countries in the Pacific are the small Climate change will also add to water stress. The island States (Box IV-6). Here sea level rise projected increase in air temperature in north- will affect coral reef and fisheries and reduce western China, for example, will likely result in a water supplies. Moreover, most infrastructure 27 per cent decline in glacier area, a 10 to 15 per and settlements are along the coasts and thus cent decline in frozen soil area, and an increase vulnerable to storm surges and extreme weather in flood and debris flow. In parts of China, events. Climate change is also likely to alter the temperature rise and declines in precipitation distribution of vector-borne diseases.28 have already resulted in dried-up lakes and rivers. By 2025 the population exposed to However, the impact will vary according to increased water stress could increase to 120 location, with some areas suffering more million-1.2 billion people.25 droughts and others experiencing more floods.

Box IV-3 Nepal – climate change impacts

A recent social survey of climate change impacts in Nepal indicate that many people have seen a reduction in rainfall, an increase in temperature, more frequent extreme weather events, and a lower agricultural productivity over the past 10 years. Though many have enough information to know about the impacts of climate change, those currently most affected do not think they have the right information to be able to respond to the impacts. They recognize the need to make changes to their livelihoods, yet are unable to do so due to lack of resources, access to information, and limited government support.

Source: BBC, 2013.

98 United States Department ofAgriculture, Department UnitedStates Source: 2008. number butare becoming more intense. In both Bengal andPersian have decreased Gulf in decades, intheBay of whereas thecyclones in thePacific have increasedoverfew thelast cyclones oftropical andintensity The frequency Afghanistan –the2007/08drought frequency oflowrain-andsnowfallseemstobeincreasing. rivers fromsnowmelt.Lowsnowfallin2008/09causedthemajorityofgrainlosses,andthere cent ofoutput,andisnearlytotallyreliantonthesurfacewaterflowthroughmountainstreams the nextwintercroppingseason.IrrigatedwheatproductioninAfghanistanaccountsforroughly70per sizable wheat import and food aid needs for the 4.5 million Afghans affected, as well as to prepare for United Nationsin2008issuedanemergencyappealfordonationsofupto$400millioncoverthe In recognition of the severity of the grain production shortfall, the Government of Afghanistan and the grain marketduringthe2008/09marketingyear. grain productionweresubstantialenoughtohaveseriousramificationsinthedomesticfoodandfeed production in Afghanistan was 1.5 million tons, down 60 per cent from the year before. Losses to winter precipitous declineingrainproductionresultinganacutefoodsupplycrisis.In2008/09wheat well belownormalandledtotheworstdroughtforadecade.Severein2008/09caused Rainfall and winter snowfall across the majority of Afghanistan during late 2007 and early 2008 were BoxIV-4 Mar 23,2007 Central Afghanistan: Winter SnowPackCentral Afghanistan:Winter Comparison Snow Pack Mar 23,2008 the IslamicRepublicofIran. Philippines, Japan, Nam, Viet Cambodiaand significantly, inIndia, notably China, the cases, hasrisen by thedamage caused cyclones 29

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Box IV-5 Viet Nam – protecting the rice supply chain

In Viet Nam, rice production not only ensures national food security but also accounts for around 20 per cent of global rice exports. Now the paddy fields are being affected by climate change and sea level rise. In response, in June 2012 the Ministry of Industry and Commerce embarked on a new project: “Protecting the rice supply chain of Viet Nam in response to climate change and sea level rise.”

This initiative integrates the protection of rice supply chains into national development strategies and planning. It addresses the impact of climate change on the current rice supply infrastructure, establishes standards for businesses and enterprises that make up part of the rice supply and export chains, and provides incentives for construction works and projects that deal with climate change response and supply chain protection.

Source: Viet Nam, 2013.

Box IV-6 Maldives – climate change impacts

The average height above sea level in the Maldives is 1.5 metres, with over 80 per cent of land area less than 1 metre above sea level. Even a slight sea level rise would have devastating consequences, including land loss and beach erosion, and damage to infrastructure and coral reefs. The 2007 IPCC report suggested that by the end of this century sea levels could rise by between 190 and 590 mm. The two figures below graphically represent the inundation of Male, the capital, in 2100 based on IPCC best- and worst-case scenarios.

Best case scenario: 50 per cent inundated Worst case scenario: completely inundated A number of adaptation measures have already been implemented, including protecting the Male’ International Airport, building breakwater walls around islands, constructing safe shelters, and facilitating migratory movements of the population.

Source: Maldives, 2012

100 food andwater.food as droughts disasters of such and shortages responding for strategies tolonger-term to immediateshocks. chapter considersThis ofAsiaandthe Pacificcountries can respond consider in this report howchapters the Other adapt ofproduction. and diversify theirsystems more efficiently, need to will but ultimately takesome incrementalcan stepstouseresources economic separately. andsocialsystems They collapse.ecosystem can nolonger view They the potentialtippingpointsthatcouldlead to resourcethe limits to the natural base and andsocietiesneedtorecognize Governments

Responding to the co nverging nexus

less exposedtoshocks. livelihoodsdiversifying sothathouseholds are soil, land and watermanagement whilealso of restoration out a series measures including the Watershed Organization Trust, tocarry communitieslocal are working withanNGO, inIndia, State of Maharashtra example, for organizations.civil society region Inasemi-arid intoactions feed bycan government and peoplehave extensivelocal knowledge that areas where inrural important is particularly use ofwaterorenergy. Popular involvement appliances according as labelling such to their orspecificmeasurespublic mediacampaigns publicawarenessto raise –eitherthrough broad stakeholders andcommunities. The firststepis The best comeresults will from involving participation widespread Ensure 1. 30

ESCAP PHOTO

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2. Place value on natural resources development on clean energy technology, and pilot studies and demonstration projects.36 One reason why natural resources can rapidly China too has been encouraging enterprises be exhausted is that they are not properly to become more energy efficient: since 2010, priced and are consequently used inefficiently. the Government has offered tax exemptions Changing this would require significant and other financial benefits for enterprises that investment: globally, the cost of introducing the sign contracts with energy service companies to technology to use energy more efficiently has improve their efficiency.37 been estimated at $11.8 trillion, but this would be more than offset by the reduction in fuel Water and other natural resources can also be expenditures of $17.5 trillion and of supply-side undervalued and wasted. Some countries have investment of $5.9 trillion. It has been estimated therefore been making efforts to use water more that more efficient energy use could increase efficiently. Since the 1980s, Singapore has had economic output through to 2035 by $18 trillion. a comprehensive water management system Some of the greatest gains in GDP would be in which includes carefully designed water pricing China, 2.1 per cent, and in India, 3 per cent. 31 structures. As a result, between 1994 and 2008, In Mongolia, for example, it has been Singapore reduced the proportion of water that estimated that retrofitting buildings could was imported from 50 to 33 per cent, and by reduce energy costs by 60 per cent – which 2061 aims for self-sufficiency. Strategic long- could save half a million tonnes of coal per year, term investment in national water projects has worth almost $6.5 million.32 also spawned a thriving water industry; more than 50 international and local companies are A good starting point for more efficient energy active in the Singapore water market.38 use is to remove fuel subsidies. Indonesia, for example, was by 2008 providing subsidies 3. Make better use of urban space that cost 20 per cent of the government budget – more than its spending on housing, Roads and bridges usually last for decades. education, law and order and health combined.33 Indeed, the way cities are built generally locks Moreover, the subsidy was badly targeted – societies into fixed consumption patterns for only 15 per cent reaching the lowest-quartile generations. Cities also suffer from a legacy income households.34 The Government has of underinvestment in public transport. Faced reduced some of the subsidies, triggering with inefficient transport systems, people will widespread protests; even so, Indonesian prefer to use their own vehicles – heightening energy prices are still heavily subsidized.35 traffic congestion, polluting the air and adding to greenhouse gas emissions. Many cities also Energy efficiency measures can be paid for by lack effective controls that improve energy levies on energy use. Thailand, for example, has efficiency: buildings contribute around 35 per since 1992 applied a small levy on petroleum cent of greenhouse gas emissions.39 sales for its Energy Conservation Fund which generates between $67 million and $168 million Instead, city planners can take account of both per year – for activities such as revolving loans, current and future demands. Good urban subsidies for renewable energy, research and planning allows for city growth – considering the

102 that meetbasichousehold needs. technologies up businessestoproduce otherclean received set entrepreneurial can sothey training manufacture ofsolarcooking stoves andhave have in the been trained access to electricity example,for some pilotvillageswithout and usethemmore efficiently. InCambodia, to diversify sources resources, ofnatural government support, now opportunities offer technologies,Many new with some initially technology Exploit new 4. Australia,Source: 2012. parkland network along thecoasttoenhance as railways. also They rehabilitated awaterand systems such transport efficientpublic installed towns arose. quickly authorities The city achieved. Asthepopulation grew, satellite new be in Japanhasdemonstratedhow thiscan efficient use of resources (Box IV-7). Yokohama needs ofitsinhabitantsyet alsoallowingmore The Philippines–buildingresiliencetodisastersinMetroManila livelihood supportforupto1,800vulnerablefamilieslivinginhazard-proneareas. and climatechangeadaptation into urbanlanduseplanning,andprovidessafersettlement and and tostrengthencommunity-based disaster risk management. It integratesdisaster risk reduction The BRACE project builds the Government’s capacity to understand and map the risks from disasters poor communities. a social housing model that builds safer disaster resilient settlements by addressing the needs of urban reduce vulnerabilityandenhanceresiliencetorisksposedbydisastersclimatechange.Itdeveloped Climate ChangeImpacts’(BRACE)wasestablished.StartingasapilotinTaguigcity,thisprojectaimedto the project‘BuildingResilienceandAwarenessofMetroManilaCommunitiestoNaturalDisaster Reducing theexposureofpeopleandassetstodisastersrequiresgoodlanduseplanning.In2011, BoxIV-7 41

economically viable. economically extreme extraction may techniques become term,though intheshort rise, asprices more use ofalternative andmore abundant resources, advances thatallowthe offset by technological ofThe shortage ‘rare earth’ could be minerals Box IV-9). and automatic weather stations (Box IV-8 and and communication systems, space technologies, systems. warning early information These include impactsdisaster andfor climate monitoring areNew technologies alsoavailablefor wishing to construct greenwishing toconstruct houses. loans were made house owners available for theassessment costs.subsidies for Low-interest with buildingcertification requiring mandatory area. houseswere promoted, Energy-saving as recreational and serve sustainability ecological areas to minimize environmentalareas tominimize harm. has alsobeenretrofitting buildingsinindustrial 42 40 The city city The

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Box IV-8 Bangladesh – regional early warning system

The international community has been helping Bangladesh – one of the world’s most disaster-prone nations – to strengthen its early warning systems. The ESCAP Trust Fund for Tsunami, Disaster and Climate Preparedness, in collaboration with the Asian Disaster Preparedness Centre has supported the establishment of the Regional Integrated Early Warning System for Africa and Asia (RIMES). RIMES helped Bangladesh develop long-lead flood forecasting and concurrent monitoring of depressions and cyclones in the Bay of Bengal. It has developed and transferred technology to the Bangladesh Meteorological Department and Flood Forecasting and Warning Centre and is providing back-up support to both institutions until new technology is fully integrated into their operations.

RIMES has also been working with Bangladesh user agencies such as the Disaster Management Bureau and the Department of Agricultural Extension so that they can better interpret forecasts and translate these into impact outlooks and response options for resource and disaster risk management. The Government of Bangladesh has mobilized $28 million from the Climate Resilient Fund for a comprehensive early warning system improvement project, of which $4 million is budgeted for technical inputs for RIMES.

Source: ESCAP, 2012b.

Box IV-9 Maldives – climate resilient development

Maldives is working with the UN country team and RIMES to apply global climate change models at the national level. As part of a “Low Emission Climate Resilient Development” (LECReD) programme this aims to ‘statistically downscale’ the models using historical data and satellite imagery.

For one pilot atoll the LECReD Programme takes a climate-resilient, low-carbon development approach in order to visibly reduce its vulnerability. The programme integrates approaches related to energy security, rising sea levels, water, sanitation, livelihoods, food security, human health, governance, disaster risk reduction and natural resources. By demonstrating integrated climate resilient development in one atoll, the aim is to generate a robust climate resilient development model that can be replicated in all atolls.

Photo: Satellite imagery of a Maldives atoll Source: : ISLES provincial information management system, Government of Maldives, http://isles.egov.mv

104 UNDP,Source: 2012. number of sectors including government,number ofsectorsincluding specifies which responsibilities across a example,for has a Circular Economy 2008 Law implemented inamore manner. sectoral China, approach,integrated iftheregulations even are National benefitfrom policieswill level an Green Growth. Act andPresidential Carbon Decree on Low the RepublicofKorea’s National Framework on Promotion (2001)and ofCircular Society (2009),Development Blueprint Law Japan’s approach Sustainable astheSingapore such (2010).Plan takeamore Others integrated PolicyNational Energy andAction Renewable these are –aswiththeMalaysian sectoral economic development. Insome instances and decouplingresource consumption from resources toolsaimedatconserving statutory haveMany policies, countries regulations and Integrate policies5. andregulation The Philippines–Legalenforcementofenvironmentalrights particularly forjudgesandother stakeholders. that thelawworks in practice, a number of initiatives and capacity building programmes were developed, inexpensive procedurefortheenforcementofenvironmental rightsunderPhilippineslaw.Toensure rights of people to health and to a balanced, healthy ecosystem, by providing a simplified, speedy and environmental cases.Theultimatepurposeistorecognize theconstitutional regarding trials all in established in2010,layingdowntheproceduresgoverning thecivil,criminalandspecialcivilactions After muchmulti-sectoralconsultation,newRules ofProcedureforEnvironmentalCaseswere and thepromotionofpublicawarenesstopreventenvironmental damage. Philippines to ensure accountability for resource management, enforcement of environmental laws, consumption patternshaveresultedinaprogramme betweenUNDPandtheSupremeCourtof Serious concerns over environmental degradation, exploitation of the environment and unsustainable BoxIV-10

monitoring andenforcementmonitoring (Box IV-10). by strongsupported andeffective administration, corruption. beeffective if only Regulations can and institutions, bureaucratic inefficienciesor planning, conflicts priorities between sectoral ofresources, ofalack may bebecause poor policies but do not implement them. This Unfortunately, develop governments often of waste. andreuseencourages actions recycling for resources perunitofeconomic and output encourages theefficientuseof environmental a National Environmental Policy (2006)which ofwastefulproducts.import has Indiasimilarly along with restrictions on theproduction or resourcesupport efficiency, reuseand recycling, conservation,material policiesto andpricing tax incentives topromote water, and energy business, and consumers. industry This includes

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Adaptive governance President has announced that the savings from cuts in fuel subsidies would be redirected to other programmes for food security, social Adaptive governance involves integrated protection and education.44 and forward-looking analysis, along with regular policy review. It also demands active consultation with all stakeholders but Adaptive governance should consider all particularly with disadvantaged groups stakeholders, including local communities that who are vulnerable to economic shocks and have shown great flexibility in the face of a natural disasters. crisis. The most effective programmes at the community level have involved governments Institutions need to be well informed and at various levels working to establish strategies sufficiently flexible in the face of complexity with communities and other key stakeholders and change to recover from shocks. And (Box IV-11). given the cross-cutting nature of threats some of these institutions will need to Building resilience means recognizing the operate at the highest levels. For climate significance of natural resources and ecosystem change, for example, such institutions services in economic and social development include the National Development and and recognizing the full cost of consumption. Reform Commission in China, the Prime Governments need to integrate the true value Minister’s Council on Climate of ecosystem services in their national economic Change in India, and the Office strategies while preparing for resource of the President in Indonesia.43 constraints and climate change. Adaptive These institutions are in a strong position strategies that are inclusive and flexible will to assess the threats and develop integrated lead to better systems of governance and more responses. In Indonesia, for example, the resilient societies.

Box IV-11 The Philippines – resolving water supply disputes

Disputes over access to water resources already occur in some regions of the Philippines. In one example, an important water source in the south of the Philippines was located within the ancestral lands of an indigenous community. With some mediation, an agreement was reached between the municipal government and the local community for the construction of a reservoir, with piping for the indigenous community for free, while both parties agreed to maintain the water source to ensure good quality water for all users.

In another case, a local authority established a pipeline to a privately owned water source. The land owner then cut the distribution line. Through mediation, an agreement was reached: the land owner received a regular honorarium to maintain and secure the water source, as well as a free supply of drinking water in exchange for building a reservoir and a water distribution system.

Source: UNDP, 2012.

106 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1

accessed February 2013. accessed February

Endnotes

International Water Management Institute, 2007. UNESCO, 2012. 2013. accessed February ESCAP, Annual core online database, indicators Brennan, Elliot, 2013. Alonso, Elisa, 2012. Cohen, David, 2007. Cohen, David, 2007. IEA, 2012. 2013. accessed January CSIRO/UNEP flows databaseon material Hoogeveen andothers, 2009. IEA, 2012. UNESCO, 2012. ESCAP, Annual core online database, indicators ESCAP, 2013b. UNESCO, 2012. Cross, Katharine, 2012. (TEEB), 2010. The Economics andBiodiversity ofEcosystems ESCAP, 2009b. UNESCO, 2012. ESCAP, 2009b. FAO, 2008. FAO, 2011a. 30 30 29 27 26 25 24 23 44 43 42 41 40 39 38 37 36 35 34 33 32 31 Ibid. Ibid. Ibid. Ibid. Ibid. Ibid.

Development, 2003. Sustainable International Institute for IPCC, 2007. Indonesia, 2008. ESCAP, ADB andUNEP, 2012. Buerk 2010; Dillow, 2013; Rincon, 2013. ESCAP, 2012f. ESCAP, 2012f. UNEP, 2009. ESCAP, 2012f. Xiaoliang andothers,Sun 2011. Thailand, 2010. GIZ, 2012. Indonesia, 2008. IEA, 2008. GIZ, 2007. IEA, 2012. 107

CHAPTER 4 PHOTO COURTESY OF PROMETHEUS

courtesy of prometheus 5 CRITICAL PROT ECT

SECTORS ING 55

protectingPROTECTING criticalCRITICA Lsectors SECTORS PROMETHEUS F ES Y O UR T PHOTO C O Building Resilience to Natural Disasters and Major Economic Crises

CHAPTER 5

PROTECTING CRITICAL SECTORS

All sectors of the economy need to become more resilient to external shocks, but it is especially important to strengthen certain critical sectors in which any failure is likely to cascade across the whole society. Principal among these are the financial sector, and parts of the physical and social infrastructure.

In recent years, the financial sector has been systems and communications lines. Social subject to moral hazard and reckless behaviour infrastructure too is vulnerable, including with serious ramifications for the entire economy. schools, hospitals and community buildings. Similarly, physical infrastructure has been This Chapter identifies the critical sectors exposed to natural disasters which affect major that need safeguarding, and outlines what is supply roads, bridges, and power and water required to minimize their exposure.

1. Financial sector

The financial sector is an essential channel of remain stable in aggregate. But financial economic development. It transmits money systems are also susceptible to herd behaviour. from where it is available to where it is needed Individuals may, for example, collectively move – enabling lenders of capital to be remunerated into the same or similar investments largely for taking risks while enabling the borrowing because many others are investing in those institutions and individuals to make important stocks or property – famously characterized by investments. This intermediation function is former United States Treasury Secretary Alan critical for developing the private sector and for Greenspan as ‘irrational exuberance’. Then, reducing poverty. also on the basis of little evidence, they may all become more risk averse and start to sell A national financial system can be unstable. simultaneously. Such mass sell-offs may lead This is partly because it is sensitive to shocks, to a sudden crisis of confidence. Banks become either generated within the domestic economy more risk averse and both raise interest rates or transmitted through international markets. and limit lending – triggering credit crunches, Moreover, it is different from other sectors declines in production, higher unemployment, in that it is sustained largely by trust and declining asset prices and spiralling debt. The confidence. Normally this functions fairly well: circles of contagion can steadily widen and rational behaviour by individuals, despite their eventually envelop whole economies – with gains and losses, allows the whole system to devastating consequences.

110 Bubbles are particularly damaging if they affect affect damagingifthey Bubbles are particularly and amplifieddownward correction. price aspossible, asquickly sell resulting inarapid change,expectations suddenly assetholders keepheadingwill upwards. market When thecommonrather expectation thatitsprice being nottheasset’s real ofreturn rate but subsequently –themaindriver overpriced on specificassetsthatsoonmay become seize relativelyand easy to obtain, cheap investors consequences ofherd behaviour. Ifcredit is multiple symptoms. toanotherorshow from evolve one type often sovereign debtdefaultcrises. Inreality, crises bubbles; orexchange crises; currency rate and shock: bankingcrises; theburstingofspeculative offinancial types There arefour main roughly Types financialshock of crunch. economy ofawidespread intheform credit toreal the entireandcascades bankingsystem but, ifnot, through soon reverberates theshock becontained, inone ortwo bankscan a crisis deposits.are short-term largely Insome cases, long-term loans,generally whiletheirliabilities mismatches:maturity thebanks’ assetsare These problems compounded are further by unable torefund depositsorhonour debts. that thebankis massive such withdrawals An ensuingdropcan lead inconfidenceto their debts. borrowersaffected cannot service distressed asreal assetsuch estate, andthe of banks are over-exposed toone category ifone event ormore ofanexternal or because in one bank, asthrough such rogue trading, banks. failureThis couldbeduetoaninternal several a lossinconfidence thataffects oneor

Speculative bubbles – – Banking crises These typically result from typically These These are often These are often

are of major significance to vulnerable people.are tovulnerable ofmajorsignificance orfuelwhoseprices commodities asfood such Asia. South-East in had itsorigins The 1997crisis the affected which region, butindifferent ways. andtheglobalrecessioncrisis of2008–both Pacific –the1997 Asian financial experiences bedemonstrated by can two Asia- collapse The economic andsocialimpact offinancial Economic andsocial impact rise ininflation. rise rise,costs ofimports tobea there isalsolikely maintain pegged exchange rates. And asthe to forcountries difficult ormakeitvery rate intheexchange acollapse alsotrigger can capital.of portfolio crisis Abalanceofpayments ifthere alsoarise isamassive outflow can crisis reduces aneconomy’s toexport. capacity A or civil conflict that suddenly or political disasters asnatural more such immediateshocks incompetitiveness,due tolong-termdeclines or costs in international and national capital markets.costs ininternationalandnational capital face will higher borrowingcosts: the country revenues. There are alsolong-term reputational to thereal reduces economy tax further –which measures thatdeliver ashock austerity drastic social unrest. Often, introduce governments will tax hikes, provoking frequently and political in steepcutsgovernment expenditure and repercussions. results this often Domestically default hassevere economic andsocial adjustment.default orforced structural A lead to a sovereignsovereign debt and eventually accumulation of ofunsustainablelevels liberalize capital accounts, capital liberalize residents it found 1990sto ofmeasuresand aseries intheearly

– Balance-of-payments crises These may be crises Debt 2 After a long period ofeconomic along period growth, After – These occur after prolongedThese occurafter 1

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relatively easy to borrow in foreign currencies. also had to accept precarious employment in And since a number of countries pegged local the informal sector. In Thailand, job losses were currencies at relatively high rates against the particularly severe in construction. Previously, dollar such borrowing was also cheap. The poor farmers had migrated seasonally to earn consequence was large capital inflows which extra income on construction sites but now in turn fuelled bubbles in real estate and stock they and other low-skilled workers had to return markets. Furthermore, in the period immediately to rural areas.5 preceding the crisis, South-East Asian countries experienced large deteriorations in The 2008 global recession was very different. their balances of payments. Initially, this did This had its origins in the United States where not cause alarm as inflation was low and capital from the late-1990s to the mid-2000s, home inflows were high which seemed to make these prices had risen rapidly. Much of this increase deficits sustainable. was driven by an expansion of risky lending to sub-prime borrowers. Encouraged by financial However, in early 1997 there was a sudden deregulation and low interest rates, agencies large correction in real estate prices in Thailand. started lending heavily to borrowers who had This triggered a massive capital outflow. The limited capacity to repay, while the financial Central Bank initially attempted to defend the industry repackaged these low-quality loans Thai baht but on 2 July 1997 it removed the as complex mortgage-based securities. Though peg and allowed it to float. The baht went into many of the underlying loans were risky, the free fall, and as interest rates rose, many banks rating agencies rated the securities highly,6 and financial institutions faced bankruptcy. encouraging banks and funds to acquire large Having borrowed in dollars, after the exchange quantities of these assets. In 2006 however, real rate depreciation they could no longer honour estate market started experiencing a downturn much more expensive repayments. The crisis and more homeowners started to default. This rapidly enveloped the real economy, and spread forced the banks to write down large amounts throughout the region. In 1998 growth in the of assets – rapidly undermining confidence in developing economies of the region as a whole financial institutions, pushing up interest rates sank to 0.4 per cent. And a number of countries for inter-bank loans and causing a sudden saw their economies contract: -13.1 per cent crisis in liquidity.7 In the autumn of 2008 this in Indonesia; -6.9 per cent in the Republic of led to a succession of bankruptcies, culminating Korea; -10.5 per cent in Thailand.3 The IMF in the collapse of Lehman Brothers. Many and other external lenders intervened with banks had to be either nationalized or bought massive assistance to contain the spread. by other banks.

Worst affected were the most vulnerable groups The sub-prime crisis in the United States – poor women and girls, young people, and turned into a debt crisis in the European Union. low-skilled urban workers. In the aftermath of the Investors became wary of the quality of shock, many affected households started sovereign bonds and doubted the capacity of to reduce expenditures on health and some some European Union member states, which withdrew children, particularly girls, from had high levels of debt and ageing societies, school.4 Many women who had lost formal jobs to finance their fiscal deficits. A number of

112 taken measures tomakefinancial markets more and financial Governments regulators have resistant?but alsocrisis notjust crisis resilient make financialsystems asawhole andtheworld individual countries impetus of reflection and discussion.can How rise toanew gives Each financialcrisis growth. ofworld drivers and were of stability soonanchors seen as the international investors. became Indeedthey maintained the confidence of countries the1997crisis,after Asia-Pacific developing widespread financialsector implemented reforms stimulus packages. Moreover, as a result of and couldsustaintheireconomies withlarge positions withsoundfiscal period into thecrisis manywent countries because This waslargely a whole managed an average of 4.7 per cent. 8.0 per cent, as countries while the developing economy grewby 9.1percentandIndia’s by whole proved resilient. rather In2009China’s growth. Nevertheless, the region overall as a in suffered a5.5per cent decline countries of2008.the lastquarter And in2009developed by around decline 10percentin their exports in exports. demandsaw inworld fall Asharp of AsiaandthePacific through afall primarily countries felt inthedeveloping was The crisis deepintorecession.pushed thesecountries which,activity demand, atatimeofshrinking reforms. depressed economicThis further austerity hadthey toundergofiscal drastic Union countries, theIMF, andinsome cases markets. ofotherEuropean thesupport With itdifficulttoborrowfound oninternational Greece, Italy, Spain, Portugal andIreland, European Union member states, inparticular Preventing finacial crises

outside theregion. investment, 84percentin2009, wasinvested systems are over-exposed to risks that originate are thatoriginate systems over-exposed to risks reached $6trillion. across Asiaandtheofficial reserves Pacific had currencies from speculative attack. By2011, toprotect their foreign-exchange reserves intheregionmany countries tobuildlarge encouraged ofthe 1997crisis The experience to absorbinvestment capacity regional financialdepthand Increasing boosts economic growth. and encourages innovation andproductivity risk-taking that funds and finance legitimate toallocate markets andlimittheircapacity restrain donotwanttoexcessively capital they less volatile andvulnerable. Ontheotherhand wanttomakethefinancialsystem hand they a fine balance. need to strike they Onthe one make markets more transparent. Indoingso, At the same time, have they been aiming to flows. capital speculativelarge-scale short-term ofbehaviours,on the riskiest taming notably authorities,regulatory andreinstated controls havefor example,They by increased surveillance stable andreduce future thepotentialfor crises. Pacific region. cent of theirtotal assets outside the Asia- wealthy individuals had invested upto 94 per region, soare funds. private In2008, Asian are heldoutsidethe Just asofficial reserves cost. opportunity significant being puttolittleproductive usesothere isa represent thatare large amountsofcapital low ofreturn. rates Second, they because bondsoffer which foreign government treasury a cost. are they often because ‘parked’ First in large swingsinexchange rates, come they at against buffers and offer provide some safety 9 Likewise, thebulkofportfolio 10 8 Asaresult, Asianfinancial While these reserves may these reserves While

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outside the region and over which they have hampered by a lack of transparency, poor little control. accounting standards and weak understanding of financial instruments. This led to inaccurate Asia-Pacific financial systems would be more assessments of the quality of private-sector resilient if more of their reserves and savings debt during the 1997 Asian financial crisis, were invested in the region. There are a number and of the real levels of sovereign debt levels of ways of achieving this. One, recommended in a number of European Union countries in by ESCAP in 2012, would be to establish a fund 2011, and the over-optimistic assessments of which would finance cross-border infrastructure sub-prime-based securities in 2008. projects and other regional public goods. This would provide intermediation between the This underlines the importance of increased region’s large savings and its vast unmet market surveillance, especially in a globalized investment needs in infrastructure. economy where institutions may be investing in distant markets about which they have Such a facility would also offer investors higher relatively little information. To address this returns than those from foreign treasury bonds. issue the IMF and the Financial Stability Board It would help accelerate economic and social (FSB) have identified major data gaps that the 13 progress, making sustainable use of resources. international financial community should fill. It could also make development more self- These include: financial soundness indicators that reliant and reduce the region’s exposure to assess levels of risk in the financial sector; data external financial shocks. Moreover, it would on international financial interconnections; and serve as a counter-cyclical tool that would assessments of the vulnerability of domestic promote regional growth at times of economic economies to shocks. Their report also called turbulence.11 for more countries, including developing ones, to develop and disseminate such data. On 27 March 2013 in Durban, South Africa, the fifth Summit of the BRICS countries The Asia-Pacific region has already made agreed on the creation of a New Development progress in this direction. In 2011, ASEAN Bank that would mobilize resources for established the ASEAN+3 Macroeconomic infrastructure and sustainable development Research Office (AMRO) to serve as the projects in BRICS and other emerging economies regional macroeconomic surveillance unit of and developing countries. The intention is to the Chiang Mai Initiative Multilateralization supplement the existing efforts of multilateral (CMIM). AMRO will monitor and analyse and regional financial institutions for global economic situations in countries under its growth and development and this institution purview and thus help governments detect risks and take remedial action, and generally could actively contribute to redirecting some 14 of the regional savings into regional investment make CMIM decision-making more effective. projects.12 However, a truly Asia-Pacific system of resilience would mean expanding AMRO’s Greater transparency and better regulation membership and the scope of its surveillance.

Currently governments and investors find At the global level, the key institution for it difficult to assess risk exposure. They are regulating the international financial sector is

114 ‘global systemically important banks’ important ‘global systemically (G-SIBs). world’s are financialsystems whatare termed ofthe tothe stability importance Of particular be.effective thiswill shadow-banking, itremains tobeseenhow but, of anddiversity given thecomplexity particularly inreal estate,particularly leading tobubbles. growth ofinvestment infinancialassets, unsustainable banking mightbeencouraging therecountries are concernsthatshadow mismatches. maturity often In some Asian funding, short-term raises largely there are increase andmonitoring transparency regulationsis developing that would To reduce risks, systemic the FSB rules. the sameprudential banking system, withoutbeingsubjectto institutions outside the regular that operate creditthis case intermediation is provided by is theemergence of ‘shadow banking’. In One issuethathascome underincreased scrutiny investments.of assetstouseassafe term, theregion hasarelatively limitedrange investment.funds for Moreover, intheshort- of to theirbankscouldreduce theavailability the pros andcons. constraints further Applying frameworks, weigh should carefully but they these measures into their regulatory incorporate Basel Accords. non-members mightalso Other are ofthe Asiancountries signatories Several behaviour. thecostsofrisky into internalizing pushbanks thatwill and bankingsectorlevels measures atboththeindividualbank prudential fromscheduled 2013to2019. This includes was agreed in2011withimplementation ofBaselAccords,a series thethird of which Through theBIS, havegovernments reached (BIS). International Settlements the Bankfor the globalfinancialsystem. accounts 24 per cent of the assets held by for 16 Asshadow banking 15 Shadow banking Shadow 18 17

banks theworld’sare essentially largest multinational The FSBhasidentified28ofthese–which sound compensation. andguidelinesfor has issuedasetofprinciples countries has led to surges in capital flows hasledtosurges to incapital countries volatile.highly glutindeveloped The liquidity 2013,As ofearly markets remained capital inthefinancialsector. profitability short-term achieved, entailhighercostsandlower itwill lending andinvestment. balanceis Whatever againsttheneedtoencouragebank stability greater –settingtheneedfor frameworks inherent tensions in tightening the regulatory These developments have highlightedthe tolaxermigrate jurisdictions. institutions be temptedto footloose will themore regulations everywhere apply and financial market regulations. Unlesssimilar ofbanking should beglobalharmonization principles one ofthemostimportant Overall excessive risk-taking. by tothe2008crisis encouraging contributed Remuneration basedon structures large bonuses about remuneration andincentives inbanks. Finally, there have beenmajorconcerns identified asD-SIBs. theserequirementshave toapply tobanks framework,G-SIB will national authorities banks’ (D-SIBs). From 2016, inlinewiththe addressing important ‘domestic systemically principles-based, minimum for framework Asia andthePacific, a theFSBhasfinalized ofmoreand perhaps immediaterelevance to collection, controls. and internal Furthermore, meet higherstandards management, ofrisk data through BaselIII. areThe G-SIBs expected to financialshocks toabsorb crease theircapacity 19 – andisproposing measures toin- 20 21 22

In response, theFSB

115

CHAPTER 5 Building Resilience to Natural Disasters and Major Economic Crises

Asia-Pacific countries causing fluctuations in estimated that in some Asia-Pacific countries exchange rates. Some countries have responded high energy prices alone could lead to a loss of by accumulating more foreign exchange while GDP growth of up to 1.0 per cent. 27 Likewise, introducing direct capital account management high food prices not only contribute to inflationary measures. In 2010, Indonesia, the Republic pressures, they also affect the urban poor, and of Korea, and Thailand, for example, imposed the most vulnerable, aggravating their poverty some capital account regulation measures23 and suffering. In this regard, ESCAP has with some success, but may need to do more by estimated that due to increased food prices in targeting speculative flows. Overall, there is a need 2010 an additional 19.4 million people may to tailor capital control instruments to the type of have remained in poverty.28 flows that are likely to affect a given economy, usually by restraining short term inflows while A number of measures have been proposed to promoting investment in the real economy.24 Asian dampen commodity price volatility.29 30 countries and a few other developing countries are now in a position to exchange experience and best Greater market transparency – So that practices on how to encourage productive foreign market fundamentals can function more investment while reducing cross-border volatility efficiently in setting prices. This could include and vulnerability. publishing information on stockpiles.

Limiting commodity-based speculation More information on derivative markets – Notably on categories of market participants Many Asia-Pacific developing countries, and and on the positions they take. in particular least developed countries, depend on exports of a small number of commodities. Stabilization measures – This might involve But they, and others, also rely on commodity direct government or multilateral interventions imports, especially of food and fuel. All to stabilize markets in specific commodities. countries are thus concerned about the levels of commodity prices. Transaction taxes – Taxes on trading in commodity derivatives to reduce the number In recent years, food and fuel prices have been and speed of speculative transactions. high and volatile. In the case of food this partly reflects rising global demand, but also inadequate Increasing agricultural production – To supply as a result of under-investment in reverse the long-term neglect of agriculture and agriculture, and growing use of some food rural development, so as to boost supplies and commodities as biofuels. On top of this the ease prices. financialization of commodity markets offers greater opportunities for speculation.25 Ensuring robust social protection

Higher prices for food and fuels have serious At times of economic contraction social macroeconomic repercussions – heightening protection systems provide useful counter- inflation and causing deterioration in balances cyclical measures. In addition to protecting of payments and in fiscal balances.26 ESCAP has the most vulnerable people by supporting

116 equitable economic development. inclusiveness, andon acommitment to andsocial a solidfoundation ofhumanrights plan, socio-economicterm security basedon and thePacific, ofalong- part form thisshould ofgains andlosses.equitable sharing InAsia sector resilience on rely increasingly amore will losses.’ Infuture economic growth andfinancial wrong – ‘privatizing profits while socializing while seekingpublicassistancewhenthingsgo make excessive profits whentimesare good social expenditures. Thus banksare allowed to amounts of public funds at the expense of largelikelihood thatbankrescues absorb will Moreover, systems, withoutsuch there isthe regulatory or fiscal controls orfiscal attimesofshocks.regulatory flows,for example, suspending by temporarily shocks. Policymakers couldfacilitate such accelerate attimesofemergencies oreconomic remittances from workers. migrant These transfers more istoencourage flows indirectly of measure social protection that offers A further corruption. for and theopportunities mobile moneytransfers. This reduces leakages withtheoption of technology using biometric systems information based on computerized and automation. Payment be can schemes advantage ofinnovationsincomputerization Nowadays, also take can systems such should therefore be designed to be scalable. beexpandedattimesofemergency.can They they development strategies; thenifnecessary arethey already intonational integrated protection measures are mosteffective if responsehoc post-crisis measures. Butsocial To some extentsocialprotection involve ad can impact of financialcrises. consumption, helpsmoothetheeconomic they 31

32

through the creation of a Contingent Reserve net financial safety anew attempting todevelop instruments. BRICSare countries alsocurrently nets financial(CMI) developed safety crises.payment The ChiangMaiInitiative orbalanceof nets atthetimeofliquidity A numberofglobalfacilities provide safety crisis. remarkable resistance tothe2008financial lessons from and showed the 1997 financial crisis Pacific incorporated havefor themostpart to have beenrealized. BanksinAsiaandthe risks. Intheevent, donotseem thesefears rescued mightbetemptedtotakegreater hazard; would banksthatassumedthey be collapse,almost certain alsocreated they moral these measures saved thefinancialsectorfrom troubled assetsby creating banks’.‘bad While investments out foreign and separated equity institutions by opening up the sector to with public funds, example, for recapitalized ‘too bigtofail.’ liabilities guaranteed They save banksthatwere considered domestically ofmeasures took aseries to countries affected 1997 financialcrisis, ofthe governments worst- in torescue thebankingsector. the During the worst whengovernments are forced tostep Ultimately, regulators alsoneedtoprepare for disruptive.systemically of1997and2008,scale on theotherhand, are by financial actors.Financial meltdowns on the corrections shouldpromote behaviour prudent –asabrupt todosoentirely not bedesirable couldbeeliminated.that they Indeeditmight been financialcrises. Itisunreasonable toexpect As long asthere hasbeenfinance, there have Responding to finacial crises

117

CHAPTER 5 Building Resilience to Natural Disasters and Major Economic Crises

Arrangement (CRA). Such regional safety nets transparency measures, including for shadow can have beneficial precautionary effects and banking. They can also use social protection further strengthen financial stability.systems not just to protect the vulnerable Nevertheless, despite recent progress, there and sustain consumption but also to allow a remain limitations on their use. This is further more equitable sharing of gains and profits. discussed in Chapter 7. Finally, facilitating intra-regional investments could increase the self-reliance of the Asia- The banking sector has an inherent tendency to Pacific financial sector, limit its cross-border fluctuate between boom and bust. Nevertheless, vulnerability and facilitate economic growth policymakers can encourage greater stability through the promotion of regional public goods through appropriate regulations and and infrastructure.

2. Critical infrastructure

Even infrastructure that is well designed, cyclone shelters, while Turkey might prefer to constructed and maintained cannot always invest in resilient hospitals that are needed to withstand natural disasters. Governments will treat crushed limbs when buildings collapse in therefore need to identify ‘critical infrastructure’ earthquakes. Taking into account the practices for which they need higher than usual margins across the region Table V-1 summarizes critical of safety. infrastructure in Asia and the Pacific.

What is considered ‘critical’ may differ from one Exposure of infrastructure to country to another, but generally governments natural disasters will try to keep the list as short as possible. Resilient infrastructure includes not just ‘hard’ While many countries are exposed to similar infrastructure in terms of buildings or networks, natural phenomena, some have greater capacity but also the ‘soft’ infrastructure that supports to cope. This is illustrated in Figure V-1 which this – the institutions, users, regulations, and compares exposure to disaster with coping legislation. All of these together should constitute capacity. The coping capacity measures the a resilient system. An ASEAN Technical ability to reduce the negative consequences Working Group on Pandemic Preparedness during a disaster. Japan and Brunei, for and Response considers critical infrastructure example, are highly exposed but also have to be that concerned with health, food, water high coping capacities so are resilient. On the and sanitation, energy, public security and other hand, countries such as the Philippines, order, finance, telecommunications, and transport. Solomon Islands, Vanuatu and Tonga, are also highly exposed but have less coping capacity so Each country will have its own specific priorities, are very vulnerable. depending on local circumstances. Bangladesh, for example, will want schools to be especially As a result of rapid development across Asia robust so they can serve as community and the Pacific, much more infrastructure is

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CHAPTER 5 Building Resilience to Natural Disasters and Major Economic Crises

exposed to disasters. The greatest exposure is In addition to damage to infrastructure there usually on marginal land such as floodplains, are also losses. Both contribute to the overall drought-prone areas, seismic locations and economic impact. The damages refer to the multi-hazard areas. This is illustrated for Samoa monetary value of the completely or partially in Figure V-2. Although the whole country is destroyed social, physical and economic infra- exposed to hazards, the losses are concentrated structure. Losses arise from a change in the flow in the more developed areas. Even countries of goods and services and other economic flows with high coping capacities will suffer resulting from the damaged infrastructure.34 considerable losses – as demonstrated by the recent experiences in Japan and Thailand. This is illustrated in Figure V-3. The damages Overall in 2011, the region’s total losses came to physical and social infrastructure were much to $294 billion.33 higher than the losses in most of the recent disasters. The losses were significant or higher The damages can be assessed, and the losses in the case of the 2011 Typhoon in the Lao can be estimated, for both social and physical People’s Democratic Republic, and the Pakistan infrastructure. As indicated in Table V-2 the floods in 2010 and 2011. damages are among the greatest in the housing and transport and communications sectors.

Figure V-2 Samoa – hazard, exposure and losses

Hazard

Exposure

Loss

Source: Mahul, Olivier, 2012.

120 Source: World Bank, GFDRR, 2012, availablefrom www.gfdrr.org/PDNA (accessed November 2012) Damage andlossestophysicalsocialinfrastructureinrecentdisasters Damage tocriticalinfrastructurefromsomerecentdisasters Source: Fi Tab (percentage of total disaster effects) gureV-3 10 10 20 30 40 50 60 70 80 90 0% 0% leV-2 % % % % % % % % % World Bank, GFDRR, 2012, availablefrom www.gfdrr.org/PDNA (accessed November 2012)

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CHAPTER 5 Building Resilience to Natural Disasters and Major Economic Crises

Making social infrastructure resilient Much more attention is now needed for houses and other non-engineered buildings35 – using Housing an interdisciplinary approach that includes both engineering and social sciences. A number The greatest damage for social infrastructure of Asia-Pacific countries have been looking is typically to housing and public buildings. at housing resilience. In the Islamic Republic Housing in informal settlements is unlikely to of Iran, for example, the building code for resist a severe disaster and even formal houses unreinforced masonry buildings now limits and other low-rise buildings generally with these to two storeys and a height of 8 metres masonry structures are susceptible to damage and includes provisions for seismic design.36 by earthquakes, or the shear or wind loads due Bangladesh, with the support of the Climate to storms, cyclones and hurricanes. Housing Investment Fund, is planning to develop is vulnerable even in developed countries. low-cost, storm and cyclone proof housing.37 High-rise ‘engineered’ buildings have to follow For Myanmar, there are now illustrated practical stringent building codes, but the requirements guidelines for retrofitting rural houses.38 for housing tend to be lower. In the United States the majority of the houses damaged While codes and guidelines are essential, by superstorm Sandy in 2012, for example, national and local authorities also have to were private houses while most commercial ensure that builders and homeowners comply high-rises were not much affected. with these. It should also be noted that good P H OTO ESCAP

122 all too often theseare notdisasterresilient. toooften all building,to halftheirwakinghours inschool fire hazards.children Althoughthese spendup regular floods, landslides, extreme windsand andhundredszones ofmillionsmore face Of these, 875 million live inseismichigh-risk schools. andsecondary are enrolled inprimary Worldwide, approximately 1.2billionstudents Schools re in a remote and 2005 mountainous earthquake a code, the asshown intherebuilding after befostered without even building practicescan UnitedNationsSource: and World Bank, 2011. gion ofPakistan (Box V-1). Pakistan –earthquake-resilienthousing and thatitispossibleevenwithartisanmaterialslocalconstructiontechniques. generation ofbuilders. Pakistan’s experienceshowthatgoodbuildingpracticesensure safer structures, boosted theunderstandingofskilledcraftsmen,whowillbeabletopasstheirskillsonnext but alsobecamemoreawareaboutpreventionmethods.Earthquake-resistantconstruction families, whoearlierpreferredtraditionalconstructiontechniquesnotonlyrebuiltwithgreatersafety Most familieshadchosenreinforcedmasonryusingcementblockstobuildtheirhomes.Thusmany with safeconstructionguidelines,andmorethan30percentusedvernaculararchitecture. after theearthquake,ERRAreportedthatmorethan90percentof400,000rebuilthousescomplied and seismically-resistantconstructiontechniquesthatincludedvernaculararchitecture.Fouryears Disaster Reduction and other partners, imparted a unique mix of community-based artisan training Citizen’s Foundation,aPakistaniNGO,alongwiththeUnitedNation’sInternationalStrategyfor The National Society of Earthquake Technology, a Nepalese NGO of earthquake engineers, and the it impartedknowledgeonquake-resistantdesignandconstructionto300,000workers. also trained construction workers, engineers and Pakistani architects and technicians. Over three years, grants directly to the affected families, conditional on houses being built to acceptable standards. ERRA The GovernmentcreatedtheEarthquakeReconstructionandRehabilitationAuthority(ERRA)toprovide financial assistanceandtechnicaladvice. The Governmentquicklydecidedthatpeopleshouldbetrustedtorebuildtheirownhouses,thoughwith precariously on hillsides. Of the estimated $3.5 billion reconstruction cost, almost half was for housing. private homeswerecompletelydestroyed and another99,300wereseverely damaged, manyperched killed 73,300people,seriouslyinjured62,400,anddisplaced3.5millionfromtheirhomes.Some462,000 The 7.6magnitudeearthquakethatstruckthenorthernmountainouspartsofPakistaninOctober2005 Box V-1 Box 39

40

– 2,900 schools were– 2,900schools damaged ordestroyed. increased sharply. thepastdecades,Over has thedeathtoll 4,500 classrooms were4,500 classrooms destroyed. 5,400 children died or went missing when bycaused floods. 200 studentswere alive inmudslides buried schools.died under10,000collapsed

China, 2008 Wenchun earthquake Philippines, island – 2006Leyte Indonesia, in Yogyakarta 2006earthquake Pakistan, 2005earthquake 41

– 17,000 students 17,000 students 42 More than – Almost Almost

123

CHAPTER 5 Building Resilience to Natural Disasters and Major Economic Crises P H OTO ESCAP

Japan, 2011 earthquake and tsunami – 7,735 Culture of safety – Education should be a school buildings were damaged or destroyed. platform for increasing student, and thereby community, resilience and lead to generational Had the schools been built more disaster change towards a culture of safety. resilient, the losses could have been substantially reduced. ‘Safe schools’ have three essential The ‘One Million Safe Schools and Hospitals elements.43 Campaign’ is a global advocacy initiative as part of the World Disaster Risk Reduction Safe construction – This should be based Campaign in 2010-2011.44 And for all countries, on legislation, policy, building codes and guidelines and manuals are now available standards, site location, hazard and risk mapping, for building earthquake-resistant schools. verification, inspection, certification and Disasters have also triggered the construction retrofitting of educational infrastructure, of safe schools in individual countries (Box V-2). whether in public or private facilities. Disaster shelters Emergency preparedness – Plans and policies are needed to reduce risks to students’ Disaster shelters have contributed immensely lives as well as measures to enable resumption towards saving lives in several countries. In of education during and after an emergency. Bangladesh in 2007, 15 per cent of the affected

124 against rising sea levels.against rising Japan also has disaster network of embankments of thecountry’s part sheltersas needs5,000such that thecountry of Food andDisasterManagement estimates orofficespaces. schools primary TheMinistry overhead waterstorage, alsodouble as thatcan shelters, and space livestock for withelevated disaster sheltersto multi-purpose cyclone to 3,000. Bangladesh hasalsobeenconverting sheltershad gone up Aila thenumberofcyclone By 2009, by cyclone whenBangladesh wasstruck saved which thousandsoflives (Figure V-4). population took shelters, refuge incyclone UNISDR,Source: 2011. preparedness andresponseinkindergartenspreschoolstheearthquake-affectedareas. and floods. As part of the Build Back Better project, a study is assessing the status of emergency of localgovernments,andincollaborationwithconcernedsectors,particularlyonlandslides,mudslides In SichuanProvince, annual risksassessment are conducted during thefloodseason under theguidance implemented bytheMinistryofEducationwassupportedUNICEF. middle schools, primary schools, and kindergartens. In 2009, a nationwide school safety assessment providing adviceaboutemergencypreparednessandresponse,aswelldisasterreductionin commissions andeducationbureausaboutpossiblenaturaldisastersothersafetyrisks.Itisalso The Ministry of Educationisimplementing a monitoringandwarning system toalertlocal education Capacitybuilding indisasterpreventionandreduction. • Enhancededucation ondisasterpreventionandrelief; • TheNational PrimaryandSecondarySchoolSafeBuildingProgramme; • Successfulschool reconstructioninquake-affectedareas; • Newstandardsandcodesonschoolconstruction; • China –Wenchuanearthquaketriggersconstructionofsafeschools Prioritization • due to: prevention, riskreduction,andpost-earthquakereconstruction.Asaresult,progresshasbeenachieved After theWenchuanearthquakeof2008,Chineseeducationsectorgainedknowledgeindisaster Box V-2 Box reconstruction programme; of the education sector in the disaster

They can damage electricity transformers,can damage electricity They communitypower supplies. disrupt frequently Storms, cyclones, floods and earthquakes andpower Energy strategies. reduction of national disasterrisk part form and systems warning withearly be integrated community centres. sheltersneedto such All buildings and of school shelters in the form infrastructre resilie nt Making prevention, physical reduction and

post-earthquake

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CHAPTER 5 Building Resilience to Natural Disasters and Major Economic Crises

Figure V-4 Bangladesh – cyclone shelters save lives, 1970–2010

3500 3000 3000 2500 2500

2000

1500

1000 500 500 300 138.666 12 4.234 0.01 0 1970 1991 2007 2009

Number of Shelters Number of deaths (in thousands)

Source: World Bank 2012b.

pylons and poles, not only cutting supplies but Transport also exposing people to live transmission cables. In addition, extreme weather can damage power Recent disasters have caused tremendous generation facilities, including hydroelectric damage to transport infrastructure and power stations, canals and tunnels. Flooding operations. The Thailand floods in 2011 and rises in sea level could affect fuel storage submerged many roads while the 2011 Japan tanks and substations in coastal areas as well as earthquake damaged roads, railways and offshore oil rigs and refineries. airports. Transport can also be interrupted: in coastal areas of Bangladesh, the Maldives, the One of the best ways to safeguard transmission Pacific islands and Viet Nam, roads will be lines is to move them underground through highly vulnerable to rises in sea levels. ducts or tunnels. This is expensive but it is now happening in many countries. Singapore, for Transport systems can be designed to be more example, recently awarded contracts worth $2 resilient. Generally, this will mean enhancing billion to construct 35 kilometres of underground the capacity of officials and the planning process tunnels for transmission cables.45 In Nepal, in by incorporating higher design standards. This Salleri and Chitawan and Chapali, high-voltage would also increase the service ability and life underground connections are being built from of costly structures.48 49 50 For example, in the substations to distribution systems.46 In Australia, United States after Hurricane Katrina, the the Government recommends that consideration clearance height of bridges was increased51 and should be given to undergrounding the in Canada the design of the Confederation electrical infrastructure, while accepting this is Bridge allows for a one-metre sea level rise.52 an expensive option.47

126 solutions. cost effective andenvironmentally friendly measures provide civil engineering thesecan using livingplants, asinNepal. Combined with made more stablethrough bioengineering In mountainous areas, roadside be slopes can Bipartisan PolicyBipartisan alist of options. Centeroffers surges for inwaterflow. tocater capacity The 1.0 metres toprotect theroads from floods. roadviable toraise embankmentsfrom 0.5to study inBangladeshthatitwaseconomically found theembankmentslopes.evacuation stairsfor A lives. The projectreconstruction envisages evacuationIt alsooffered an space, savingmany coast protected theinlandsidefrom inundation. embankment section oftheexpressway along the and the subsequent tsunami,earthquake the orembankments.walls the2011Japan During moved tohigherground orgiven protective be can Coastal sections ofroads andrailways 54 Drains can also be built with extra alsobebuiltwithextra can Drains 53

55

not just of increasing the capacity of canals and ofcanals not justofincreasing thecapacity of experience Thailand hasshown theimportance structural and non-structural measures. andnon-structural structural employ management can both risk Flood Flood control roads. national andfeeder highways important roadof strategic networks include which upgrading andmaintenance for accords priority roads,district roads. andrural Nepal example, for roads, trunk primary national highways, and feeder networks,functional hierarchy oftransport as such shouldalsoreflect the Planning routes. water differentrailways, options as –such roads, and among networks isdistributed sothattraffic damaged. can also consider They multi-modal routes one –building extra is redundancy in case some planners shouldincorporate transport disasterrelieffor operations. For thispurpose, links open to keep transport It is important 56 The

ESCAP PHOTO

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CHAPTER 5 Building Resilience to Natural Disasters and Major Economic Crises

pumps but also of ensuring good coordination Water supplies among various agencies (Box V-3). While planning new infrastructure – including irrigation At times of disaster, it is vital to maintain canals, reservoirs and waste water treatment – it adequate water supplies. This can be especially is important to consider demographic trends difficult in small island developing States which and likely future demand. It is also imperative generally have limited supplies of freshwater to enhance flood protection along rivers. and inadequate drainage.60 In areas with frequent floods it is thus important to protect Climate change will be a major consideration. water and sewerage treatment plants and In Bangladesh, for example, the Climate ensure that they have adequate energy Investment Fund is now planning to improve supplies for treatment and pumping. water supply and sanitation, construct Piped distribution networks also need embankments and undertake reforestation to protection from contamination.61 When protect 12 vulnerable coastal communities from available, it may be possible to include cyclones and floods.57 tube wells as a resilient supply. Other options include using recycled water, and Much will also depend on community efforts. supplementing supplies through rainwater In Nepal, for example, communities have harvesting. When the water distribution system constructed flood barriers with stones, bamboo is affected, contingency measures such as and wood using traditional techniques. 58 In Khulna, supply through tankers to the communities Bangladesh, the aim is to make 80 per cent should be in place. of each ward free from damaging floods by re-excavating drains and building new ones.59

Box V-3 Thailand – flood action plan

In response to the disastrous floods in 2011, the Government has prepared a master plan on water resources management. In addition to measures for water management during emergencies there is a plan for flood mitigation in the Chao Phraya floodplain. The aim is to increase the efficiency of water control buildings and dykes, as well as that of water drainage systems such as pipes, canals, water gates, and pumping stations.

In order to improve the capacity of the Bangkok drainage system, the Government has built a 5-kilometre underground tunnel, 5 metres in diameter, linking Rama IX and Ramkhamhaeng Roads, along with six smaller tunnels with a total length of 14 kilometres. There are also plans to construct three more tunnels at Khlong Bang Sue, Bung Nong Bon and Don Muang districts to divert storm and flood waters into the Chao Phraya River. In addition, there is a vision for a double-deck, 100-kilometre storm water management and road tunnel linking Ayutthaya and Samut Prakhan provinces. This would be similar to one in Kuala Lumpur.

Source: Thailand, 2012.

128 of China inDecember 2006, theregion’s devastated of earthquake, near struck which Taiwan Province natural disasters, sabotage. even The Hengchun are to vulnerable voice anddataservices carrying Bothinterrupted. undersea and terrestrialdepend on power alsobe suppliescan cables may mobile affect phone signals. that Services telephone poles, density and changes in rain down bring can High windsandstorms However, are themselves vulnerable. ICTsystems relief operations (Box V-4). disasters whilecommunications guide systems give of impending accurate warnings can navigation along systems, withothermonitoring remotesatellite sensing, positioning and Applications ofspace technologies, as such andcommunicationsinformation technology. dependenton response nowadays isalsovery gaps inlast-mileconnectivity. Effective disaster communities andpeople, the andbridging are helpingimprove thedisaster resilience of technologies. Advances inthesetechnologies or anotherby andcommunication information billion peopleare now connected inone way Almost 90percentoftheworld’s 7 Telecommunications ESCAPSource: andISDR, 2012. ICT infrastructure:lastmileconnectivity save about1,000livesevery yearforthenext100years. the IndianOcean,whichwent liveinOctober2011–aconservativeestimateofwhich isthatitwillhelp The ESCAPTrustFundsupportedtheestablishmentof theTsunamiWarningandMitigationSystemfor imagery, crowdsourcing,andsocialmedia,totheuseof indigenousknowledge. demonstrated theeffectiveuseofinnovativetechnologies. Theserangedfromnearreal-timesatellite While respondingtothehistoricfloods2011inThailand, theGovernmentandaffectedcommunities Box V-4 Box

occurring one yearoccurring in15. flooding –witha ‘1-in-50 years’ flood now maychange they alsoface more frequent rise. andsealevel cyclones Asaresult ofclimate astropical disasterssuch to climate-related areas basins. andriver This alsoexposesthem have aroundlinks they tendedtodevelop coastal Moreover, totakeadvantage oftransportation economic assets, infrastructure. particularly densities butalsohighconcentrations of have highpopulation notonly they because Urban areas are from athighrisk disasters Urban infrastructure with terrestrial cables, aswell assatellites. interest incomplementing cables submarine redundancy. For there theinternet isagrowing throughout thenetworks andbuildinsufficient designers needtoensure robust construction In ordermore tomakeICTsystems resilient, Asia aswell asinChina, IndiaandJapan. South-East affected voice anddatatraffic across andadversely damaged cables 10submarine and thesubsequentunderseaearthquake, to fix thedamage. In 2009,typhoon Morakot, repair ittook 11cable ships49days services; 62

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CHAPTER 5 Building Resilience to Natural Disasters and Major Economic Crises

A study of nine Asian coastal cities considered in disaster-prone areas in the Republic of five types of resilience: natural, physical, social, Korea. Guidelines for local government leaders economic and institutional, using a climate in this area are developed and available.64 disaster resilient index.63 The results showed various levels of vulnerability in Banda Aceh, The challenge for municipal authorities will be Bangkok, Colombo, Danang, Hue, Iloilo, to meet realistic and effective standards and Mumbai, San Fernando and Yokohama. The acquire the necessary construction skills. A study underlined the need to build community number of guidelines are available, for example, resilience for climate-related disasters. including a step-by-step approach for appraising a project for hazard-risk reduction.65 Some cities Ten essentials for making cities disaster will benefit from greater levels of de- resilient are outlined in Box V-5. However, centralization. If they have greater these guidelines focus more on disaster risk responsibilities for self-management they may reduction rather than on developing resilient be able to raise the necessary funds in domestic infrastructure. Box V-6 provides a comprehensive capital markets.66 strategy for protection of critical infrastructure

Box V-5 Ten essentials for making cities disaster resilient

1. Institutional and administrative framework 2. Financing and resources 3. Multi-hazard-risk assessment : know your risk 4. Infrastructure protection, upgrading and resilience 5. Protecting vital facilities: education and health 6. Building regulations and land use planning 7. Training, education and public awareness 8. Environmental protection and strengthening ecosystems 9. Effective preparedness, early warning and responses 10. Recovery and rebuilding communities

Implementing these essentials

1. Organizing and preparing to apply the ten essentials 2. Diagnosis and assessment of the city’s risk 3. Developing a safe and resilient city action plan 4. Implementing the plan 5. Monitoring and follow-up

Source: UNISDR, 2012.

130 emergency responseemergency operations. to berestored the hourstosupport withinfour ter, need communication andtransportation power, thatincludes systems water,- wastewa service. It has been estimated that ‘lifeline’ unabletoprovidebe operational butstill a connected road withastrategic route, itmight hospital is not ofadisasterstrategic aftermath of energy. becritical. Road linkstoocan Ifin dependenton supplies sanitation –are critically and – from towater supply transportation supply.food And ofinfrastructure many forms electricity, communications, and watersupply require transport, for well-functioning systems effects on others. For example, relief operations a breakdown hasknock-on inone system failure, ofcascade others –withtherisk where many affect significantly can in one system managing theseinterdependencies. thusinvolves resiliency recognizingoverall and RepublicofKorea,Source: 2012. becoming interdependent. increasingly are of infrastructure forms the various All critical sectors Interdependencies among Republic ofKorea–protectingcriticalinfrastructureindisaster-proneareas collapse andisolation.Underthisplan,$141billionhasbeeninvestedin488areas. For thispurpose,NEMAhasidentified537disaster-proneareasthataremostsusceptibletoinundation, This includesarecoveryprogrammeforrestoringfacilitiestotheiroriginalfunctionsorimprovingthem. With theoperatingsysteminplace,NEMAisintegratingdisasterriskreductionintosustainabledevelopment. helped protectcriticalinfrastructure. programme; iii) a reinforcement project for disaster-prone areas; and iv) special disaster zoning, which has system foraddressingdisasters.Thisincludes:i)pre-disasterimpactassessments;ii)adisasterinsurance The NationalEmergencyManagementAgency(NEMA)oftheGovernmentRepublicKoreahasa Box V-6 Box

69 Improving 67 68

Failure

(Figure (Figure V-5). For lower-cost such smaller risks with this kind of strategy ASEAN countries potential disaster. The Bankishelping World options according tothenature ofthe takea can ‘layered’ approach, usingdifferent thathave moreCountries flexibility, however, finditdifficulttoindebted will get credit. andifalready tohave are reserves they unlikely longer-term reconstruction. andfor immediaterelief– bothfor andrecovery ations anddefacto post-disasterreallocations region on annualbudget appropri- heavily rely In practice, ofthe countries thedeveloping and corporations, takeoutinsurance. can ofdisaster.event they, Or individuals andprivate credit’ linesthatenablethemtoborrow inthe can also establish with lenders’ They ‘contingent pay thecostsoutofcurrent can or they budgets. in anumberofways. can buildup reserves,They finance the cost of disasters can Governments disasters Finacial strategy

against 70 This is because This isbecause

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CHAPTER 5 Building Resilience to Natural Disasters and Major Economic Crises

Figure V-5 A three-tier financial strategy against natural disasters

Disaster Risk Financing Disaster Risks Instruments Low Major

High risk layer Disaster risk insurance (e.g. major earthquake, (e.g. parametric insurance, major tropical cyclone) cat bonds)

Medium risk layer Contingent credit (e.g. floods, small earthquake) requency of event Severity of impact F Low risk layer Contigency budget, reserves, (e.g. localized flood, landslide) annual budget allocation

High Minor

Source: World Bank, 2010d.

as localized floods the government retains the to disaster risk. In this case a loan is disbursed risks and assumes that it can pay for this out of quickly upon the occurrence of a natural disaster reserves or the current budget. But for more ex- in order to provide immediate liquidity. pensive events it aims for a degree of risk trans- fer by paying for contingent credit or taking out Governments can also become involved in insurance. providing insurance or acting as reinsurers. They can also regulate the private insurance market. For some small island economies in the This involves difficult choices, particularly Pacific the disaster could be on such a scale as to when setting premiums. If the premiums are overwhelm the economy. In this case it may be too high this will discourage buyers, or overly possible to pool the risk with other countries in favour insurance companies. But if they are too a similar position, since a disaster is only likely low they will encourage risk taking – as with to hit one or two of them at the same time. The construction in hazard-prone areas. Caribbean Catastrophe Risk Insurance Facility, for example, pools disaster risks regionally, and The region has several innovative practices in helps countries in such circumstances purchase insurance. Turkey, for example, has a pooled insurance cheaper than otherwise (see Chapter 7). homeowner’s catastrophe insurance programme. The Government worked with a number of Developing countries may also be able to get partners, including the World Bank to establish relatively inexpensive contingent credit through a compulsory earthquake insurance scheme: the World Bank’s Catastrophe Risk Deferred the Turkish Catastrophe Insurance Pool Drawdown Option. This is a new financial (TCIP). The aim was to increase the uptake of instrument available to countries that take a insurance while building the capacity of the proactive stand towards reducing their exposure domestic insurance market to underwrite

132 be approached usingacost-benefitanalysis, investment.significant thisshould Generally moreMaking infrastructure resilient requires AdaptedSource: from World Bank, 2012. anddonorsthe Government (Box V-7). from theinternationalreinsurance community, by capital risk onto issupported the poolwhich catastrophe risk,insurers underwrite butpassit from anextremeof insolvency event. Domestic risk,earthquake and isolating it from the risk Costing while coverageisvoluntary forhomeownersinruralareas. legal frameworkfortheprogramme envisagescompulsoryenforcementmechanisms inurbansettings, made earthquakeinsurance compulsory forhome-ownersonregistered land inurban centres. The To achievethislevel of penetration, the Government investedheavily in awareness campaigns and by 2009,aconsiderableadvanceonthe600,000households coveredwhenthepoolwasestablished. TCIP has sold over 3 million policies at market-based premium rates – achieving 23 per cent penetration zone. a concretereinforcedhouseinlow-riskzoneto0.60 percentforahouselocatedinthehighest-risk rates arebasedontheconstructiontypeandpropertylocation andvaryfromlessthan0.05percentfor $65,000, anannualaveragepremiumrateof$46anda 2percentofsuminsureddeductible.Premium The TCIP policy is a stand-alone property earthquake policy with a maximum sum insured per policy of billion) anditsownsurpluscapital(about$0.5billion). full capitalriskrequirementsforTCIParefundedbycommercialreinsurance(currentlyinexcessof$1 Government actsasacatastrophereinsureroflastresortforclaimsarisingoutanearthquake.The operational functions outsourced to the private sector. TCIP purchases commercial reinsurance and the insurance principles. The pool operates as a genuine public-private partnership with most, if not all, TCIP is a public-sector insurance company which is managed on sound technical and commercial markets, therebyreducingpressuretoprovidepost-disasterhousingsubsidies. affordable and cost-effective earthquake coverage. This transfers risk to the international reinsurance the Governmenttoensurethatownerswhopaypropertytaxesondomesticdwellingscanpurchase exposure throughtheestablishmentofTurkishCatastropheInsurancePool(TCIP).Thispoolenables In theaftermathofMarmaraearthquakein2000,Governmentworkedtolimititsfinancial to provideadequatecover.ThislefttheGovernmentwithasignificantcontingentfinancialexposure. Turkey ishighlyexposedtosevereearthquakesyetitsprivateinsurancemarketwaspreviouslyunable Turkey –CatastropheInsurancePool Box V-7 Box resilience

savings. on mitigation generateson average $4infuture awareness, ithasbeenestimatedthat$1spent mitigation, retrofitting andcreating public reduction disaster risk investments asstructural In theUnitedStates, example, for such for failure.the costsofsubsequentinfrastructure different of investmentcomparing levels with benefits seem unclear and can only be realized be can realized only and benefits seemunclear measuresnot beabletojustifysuch ifthe although aware of the benefits ofDRR, may countries,The inmostdeveloping governments 71

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CHAPTER 5 Building Resilience to Natural Disasters and Major Economic Crises

in the medium to long-term. Estimating the because poor construction could cost lives. potential benefits may be difficult. This requires Furthermore, the multilateral development gathering historic data on disasters, assessing banks are often involved in financing rehabili- the probability that a disaster will occur, and tation and reconstruction after a disaster. then costing the potential damage. A study in Colombia, using a comprehensive and Nowadays much of their investment is closely long-term risk management approach, suggests related to climate change mitigation and that governments should concentrate on adaptation. The Asian Development Bank, for retrofitting the most vulnerable and critical example, is introducing climate adaptation to infrastructure rather than spreading their funds its projects and programmes.76 There are also widely over many risk-prone assets.72 a number of sources of finance for climate change adaptation that governments could tap. Pilot projects in India and Bangladesh have These include: the Global Facility for Disaster used the Opportunities and Risks of Climate Reduction and Recovery, managed by the World Change and Disasters methodology to help Bank; the Climate Investment Fund; the Green development organizations and their partners Climate Fund; the multi-donor programme of to integrate disaster risk reduction and adaptation the Global Climate Change Alliance; and the processes into their programmes.73 UNDP Climate Change Fund.77 There is also funding and other organizations have developed for projects in developing countries through methodologies for investments for climate- the Global Environment Facility, the Special proofing infrastructure; these include economic Climate Change Fund, the Least Developed analysis through market valuation as well as Country Fund and the Adaptation Fund estimates of the cost of risks to human health.74 within the framework of UNFCCC and the Kyoto Protocol. The United Kingdom Department for International Development has argued that more Investing in infrastructure through research is needed on the complementarities stimulus packages between strengthening disaster resilience and other development goals and the cost - In normal circumstances strict budgetary effectiveness of individual investments.75 At regulations governing ordinary capital expen- present few developing country governments ditures preclude a high level of investment in have the capacity for such analyses, especially at new infrastructure. But these restrictions can subnational levels. be relaxed during a financial crisis, opening up opportunities for building more resilient In some cases they should be able to seek facilities. Thus during the most recent financial support from international financing institutions crises, many countries have created large such as the multilateral development banks. economic stimulus packages which include Many banks already incorporate disaster risk investment in major infrastructure projects reduction into project assessment cycles – not (Table V-3). just to protect the infrastructure but also

134 reaffirmed theirinterest inthisoption andthe in November 2012, inthe region countries development in infrastructure for Tehran conference partnerships ministerial on public-private Indonesia andthePhilippines. At arecent Turkey, Federation, theRussian Thailand, as China, such of countries India, Malaysia, Most investment wasconcentrated inahandful sector.with thelargest share intheenergy 1990to2011wasaroundperiod $823billion, Total investment intheregion PPP over the (PPPs). partnerships sector –viapublic-private resilient couldbetheprivate infrastructure Another potentialsourcefor offinancing Private-sector funding Bhattacharya,Source: 2010. Infrastructure investmentinthestimuluspackagesofmajorAsianeconomies Tab

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135

CHAPTER 5 Building Resilience to Natural Disasters and Major Economic Crises

Box V-8 Asia-Pacific countries to increase private-sector participation in infrastructure development

In November 2012, the Third Asia Pacific Ministerial Conference on Public Private Partnerships for Infrastructure Development was organised by the Government of the Islamic Republic of Iran with support from the ESCAP secretariat. The Conference, the third in a series following similar ministerial meetings organized in Jakarta in 2010 and Seoul in 2007, was attended by senior officials from 25 countries of the region. The Conference served as a regional platform for representatives of public-sector agencies involved in the development of PPPs for infrastructure development, to share knowledge and discuss new ideas on how to build their capacities in PPP projects.

The Tehran Declaration on Public-Private Partnerships for Infrastructure Development, adopted by the Conference, includes concrete actions for both governments and their development partners to ensure that such PPPs contribute to sustainable development.

amount of the risk. For example, one of the Disaster risk management largest PPPs in the world, the Victorian for protecting critical Desalination Plant in Australia, was approved in 2007 because the Government believed infrastructure that the State would soon face permanent Developing resilient infrastructure will demand water shortages. But this did not happen. By coordination among many sectors and levels of the time the project was completed in 2012, the administration. The focus should be not only on local reservoirs were more than 80 per cent full physical infrastructure but also on the associated and the plant was immediately put on standby. policies, guidelines and by-laws. It is also Nevertheless, the 30 year contract guarantees imperative to engage communities and different the private operating company a holding stakeholders. The community can identify the charge for building the plant and being ready to infrastructure that is needed while engineers produce water. This has given the Government can come up with solutions. Strategies for of Victoria an unexpected fiscal burden. disaster risk management should include the following elements: A PPP will often leave the asset in private hands – which can be disadvantageous at times of 1. Reducing exposure disaster. Special clauses may therefore be required in PPP contracts to allow governments One of the most difficult tasks is to reduce to use critical infrastructure, such as roads, for the exposure of critical infrastructure. Even disaster response operations – if necessary Bangladesh, which has good record of addressing compensating the enterprise for loss of revenues. disaster risks, has not been able to reduce

136 Damage toeconomicsectorsduemajordisastersinBangladesh,1998-2009 Bangladesh,Source: 2012. billions ofdollars. imagesThe satellite enabled andeconomic infrastructure assetsworth more than 1.3million people, along with critical of water. Downstream, there were citieswith image andcontained 200millioncubicmetres was thebiggest discovered ever from asatellite largest, the Tangjiashan quakelake(Figure V-7) had lakesthey created.slides andeightnew The earthquake, images satellite revealed 56land- in Sichuan, China. the after Immediately the2008earthquake demonstrated following risks was for mapping The potential infrastructure Mapping critical 2. exposure inothercountries. (Figure V-6). There are similarconcerns about of totallossrose from 51percentto84 cent 2009, lossasapercentage buttheinfrastructure floods, Ailain cyclone to0.31percentduring from the 1998 disasters fell 5.7 per cent during exposure. The percentage ofGDP loss during Fi gureV-6

per cent of GDP 0% 1% 2% 3% 4% 5% 6% 1998 per centofGDP Floods 2004

Infrastructure loss(percentoftotalloss) 2007

such asdykesandembankments.such prevention, through ofworks theconstruction towards areprimarily oriented interventions conditions, as flooding orlandslides, such structural dependmore hazardswhoseeffects for on local towards relocation orrestrictions on landuse. Third, hazards, areprimarily oriented theinterventions as tsunami,such surges storm or volcanic the exposedcomponents. Second, hazards for of to reduce the vulnerability primarily oriented winds,hurricane-force mitigation measures are First, or asearthquakes hazardssuch for disposal: prospective, corrective and compensatory. attheir management instruments disaster risk have three strategic typically Governments frastructure in- critical of buildingresilience Strategies for 3. save many lives andprotect economic assets. response –helping early andarrangefor warnings decision makerstoassesstherisk, issueurgent Sidr 2007 Cyclone Aila 2009 0% 15% 30% 45% 60% 75% 90%

Infrastructure loss (per cent of total loss)

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CHAPTER 5 Building Resilience to Natural Disasters and Major Economic Crises

Figure V-7 China – Tangjiashan lake formed after Wenchuan earthquake, 2008

Quake lake 200 Million M3 Land Slides

Land Slides 30m deep

Land Slides

10m high Quake Lake

800 meter

TANGJASHAN River

Land Slides Land Slides

Source: China Centre for Resources Satellite Data and Application.

4. Using existing knowledge and floods or heavy precipitation, parts of roads can enhancing awareness be seriously damaged or washed away.

For this purpose there is a large body of Incorporating new standards is easier during research and many technical manuals. These the planning stage rather than retrofitting include guidelines on resilient building construction, after construction. There are many examples of manuals on flash flood risk management, and projects in highly vulnerable locations that have guidelines for developing safer urban commu- adopted higher design standards.79 Countries nities. Many were produced by the ProVention like Japan provide incentives for retrofitting Consortium, a global coalition of govern- buildings in high-risk areas. But even what ments, international organizations, academic seems like resilient structures may not suffice institutions, the private sector and civil society under extreme conditions (Box V-9). organizations. Many universities have also initiated academic programme and research on Many development banks have also realized resilient infrastructure.78 the importance of climate change resilience and hence provide guidelines on a range of 5. Review of standards, codes and guidelines engineering solutions.80 They and bilateral donors are also integrating disaster risk reduction into One major problem is inadequate design standards. their environmental and social impact assess- During earthquakes inadequate standards in ments of infrastructure projects. These include road construction can result in the collapse of structural measures as well as public awareness, elevated highways. In the case of large-scale and land use planning. Many countries have

138 United States are planningtooutlaw even United States secure locations. in the authorities local Some consideration should be given to identifying planninginfrastructure,While careful hazards. cases, ofknowledge lack about potential andlanduseregulations,zoning andinsome planningpractices,urban enforced poorly compounded byis further theabsenceofsound disasters.to natural This exposurerisk to areas,low-lying vulnerable are which naturally Many Asiancitiesareincoastaland located useplanning Land 6. hazards. assessmentsofnatural risk change impacts andincorporate cover climate ments. These guidelinesshouldbeextendedto environmentalguidelines and strategic assess- environmentaldeveloped impact assessment

that responds needs. tolocal resilient anddevelop infrastructure strategy reductionimplement andmanage disasterrisk therefore toplan, be given greater capacity efforts.in therelief andrecovery should They reduction,should takethelead indisasterrisk government unitsandcommunities Local local resilient communities Developing 7. across (Box different sectorsandscales V-10). provides a good example of land use planning rescue routes. inthePhilippines Makati City signs,warning anddesignateemergency locations. shouldalsoprovide authorities Local to realign coastalroads ormove themtohigher vulnerable coastalareas.vulnerable development in and infrastructure transport managing various critical infrastructure sectors. infrastructure critical managing various agencies aswell aslocal authorities and local greater ofcoordination level between national 81 Butitisalsopossible 82 There shouldbe

ESCAP PHOTO

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CHAPTER 5 Building Resilience to Natural Disasters and Major Economic Crises

Box V-9 Japan – earthquake and tsunami in 2011, damage to infrastructure

One of the world’s biggest breakwaters was in Kamaishi City – 8 metres high and 63 metres deep. However, in 2011 the breakwater collapsed and the tsunami reached 6.9 to 9 metres. The general belief that a three-storey building would serve as evacuation centre also did not hold as tsunami waves reached as high as the fourth floor at several locations.

The earthquake and tsunami also damaged 190 of the 300 kilometres of coastal structures. In some areas they did delay the arrival of the waves, giving extra minutes for people to evacuate. A structural assessment concluded that construction standards and stability performance under worst-case scenarios should be further investigated. As a result of strict and rigorously enforced building codes, reinforced infrastructure and buildings were not seriously damaged.

Following the structural damage of elevated expressways by the 1995 Hanshin earthquake, Japan reviewed and increased the standards for bridge construction. Most of the bridges constructed applying these new standards were not damaged in 2011.

Source: ADRC and IRP, 2011.

Box V-10 The Philippines – disaster resilience across sectors and scales in Makati City

Makati City has a sophisticated and efficient disaster risk management system, in which disaster risk reduction, preparedness and emergency management are fully institutionalized, with dedicated organizations and direct funding for disaster risk management at the local government level. Disaster risk reduction is integrated into a number of sectors: urban planning, health, disaster response and risk governance, at different governance levels.

Urban planning – The Urban Development Department implements the Comprehensive Land Use Plan and Zoning Ordinance to ensure that new and existing facilities are compliant. The zoning ordinance requires, for example, engineering, geological and geophysical assessment reports for high-risk areas, although enforcement can be a challenge. Compliance with safe building codes is overseen by the Office of the Building Official, in cooperation with the private sector and professional ‘watchdog’ organizations that conduct annual inspections, provide training and support in risk-sensitive planning and construction, and manage a certification mechanism.

Health – The Makati Emergency Medical Services System coordinates mass casualty operations. The Emergency Department of Ospital ng Makati serves as the pilot agency for mobilizing the flow of medical services, supported by Barangay health centres, which provide extension services. These have been assessed as ‘relatively safe’, meaning they will continue to function in case of disaster, and have contingency plans and trained personnel.

140 to sustain the others at times ofdisaster.to sustaintheothersattimes asasource ofstrength –helping instead serves take ensuremeasures can thateach sector they collapse. Butthere are alsomany cost-effective to othersystems andcause the wholecountry acrosssectors whosefailure reverberate can needtodirect tocritical will theirattention aiming to promote greater resilience to shocks hasdemonstrated,As thischapter governments AdaptedSource: from ISDR, 2012. disaster riskmanagementissues. languages andconductsregularBarangayUgnayan(communitydialogues)todiscuss monthly publications,brochures,andposterswithriskmanagementmessages in local preparedness andemergencymanagementtrainingcourses.Inaddition,thecitypublishes collaboration withtheMakatiBranchofPhilippinesRedCross,C3deliverscommunity (IEC) campaignshavebeencombinedwithregulardrillsandsimulationexercises.In people andenvironmentalwomen’sgroups.Information,EducationCommunication particularly theBarangayDisasterRiskReductionandManagementCommitteeswhichincludeyoung Risk governanceatallscales–AkeyfactorinMakati’sresilienceistheinvolvementofsectorssociety, technical rescueresponses. times ofdisaster,italsoissueswarningstocommunities,andcoordinatesmedical,publicsafety, as thecityliaisonamongnationalgovernmentagencies,NGOs,privateentitiesandcommunitiesin Centre (C3)isresponsibleforcentralcoordinationofearlywarningsandemergencyresponse.C3acts Coordination ofdisasterresponseacrosssectors–TheMakatiCommand,ControlandCommunications

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CHAPTER 5 Building Resilience to Natural Disasters and Major Economic Crises

25 Endnotes UNCTAD, 2012. 26 ESCAP, 2012c. 1 Borensztein and Panizza, 2008. 27 ESCAP, 2011b. 2 ESCAP, 1998. 28 Ibid. 3 Ibid. 29 Ibid. 4 Pernia and Knowles, 1998. 30 UNCTAD and Abeiterkammer Wien, 2011. 5 Bresciani and others, 2002. 31 IMF and World Bank, 2012. 6 DESA, 2013. 32 ESCAP and others, 2010. 7 Furceri and Mourougane, 2009. 33 ESCAP and ISDR, 2012 8 ESCAP, 2012c. 34 GFDRR, 2010. 9 Ibid. 35 Green, 2007 10 Ibid. 36 Islamic Republic of Iran, 2007. 11 Ibid. 37 Climate Investment Fund, 2013. 12 South Africa, 2013. 38 UN-HABITAT, 2013. 13 FSB and IMF, 2009. 39 United Nations and World Bank, 2011 14 Further information is available from http://www. 40 World Bank, 2009. amro-asia.org/about-amro/overview/what-we-do/. 41 Gijzen, 2012. 15 FSB, 2011. 42 16 Available from http://news.cctv.com/China/ DESA, 2013. 20090507/108604.shtml

17 FSB, 2011. 43 UNISDR, 2011.

18 Ibid. 44 Further information is available from http://www. safe-schools-hospitals.net/en/Home.aspx 19 FSB, 2012. 45 Further information is available from http://www. 20 DESA 2013. channelnewsasia.com/stories/singaporebusi nessnews/view/1226463/1/.html 21 Cihak and others, 2013. 46 Nepal Electricity Authority, 2011-12. 22 FSB, 2009. 47 Queensland Government, 2011. 23 DESA, 2012. 48 Regmi and Hanaoka, 2011. 24 ESCAP, 2012c. 49 Wooller, 2003.

142 75 74 73 72 71 70 69 68 67 66 proventionconsortium.org/ 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50

UK DFID, 2011 UNDP, 2011. Tanner andothers., 2007 ERN-AL., 2011. Multihazard Mitigation Council, 2005. United Nations and World Bank, 2011 Poland, C. D., 2009. Royal Academy ofEngineers, 2011. NRCNA, 2009 World Bank, 2008. Further isavailable from information http://www. UNISDR, 2012. andothers,Shaw 2009. World BankandUnitedNations, 2010. WHO, 2009. IPCC, 2012. ADB, 2011a. UKDFID, 2011. ICIMOD, 2012. PolicyBipartisan Center, 2009. Howell, 1999. Tanner andothers, 2007 Andrey andMills, 2003. NRCNA, 2008. Climate Investment Funds, 2010. Meyer, 2008.

climate-change adb.org/print/sectors/transport/key-priorities/ 77 76 82 81 80 79 78

retrospective: 2007-20011, GFDRR reduction: disasterrisk for partnerships Afive year are availablefrom regional Strengthening andglobal making CitiesResilientcampaigns. Further details School, ofSafe andlaunch platform Hospitaland safe establishment ofPrevention Web- aknowledge AsiaDisasterKnowledge Network,South response,Disaster management andEmergency implementation ofASEANAgreement on shelters. inadaptation GFDRR and supported and JICA development ofcyclone hassupported resilience of coastal communities in Bangladesh, Climate Investment Fund toimprove issupporting Further isavailablefrom information http://www. Rogers, 2012. NRCNA, 2008. ADB, 2012. Wooller, S., 2003. ofIllinois. sity Programmeable andResilientSystem oftheUniver Programme attheClemson University, andSustain of Leeds, and Resilient Infrastructure Sustainable oftheUniversity ResilientInfrastructure Institute for

143

CHAPTER 5 6

STRENGTHENING SUPPLY CHAINS KIBAE PARK O

HO T P 6

STRENGTHENING SUPPLY CHAINS KIBAE PARK O

HO T P Building Resilience to Natural Disasters and Major Economic Crises

CHAPTER 6

Strengthening supply chains

Supply of many goods now takes place through complex global supply chains connecting production and distribution centres in multiple countries. While these systems can be very efficient, they are also vulnerable to external shocks, particularly natural disasters. If just one node is damaged, the whole chain can be broken. In future, enterprises and governments will need to find ways of making supply chains more resilient to shocks.

Asia and the Pacific has seen a rapid expansion the effects can soon ripple across the whole of global supply chains – using offshore activities network, both within and across national and outsourcing to supply, manufacture and borders (Box VI-1). distribute goods across national boundaries. These enable firms to allocate scarce resources It is important, therefore, that global supply more efficiently and gain better access to chains become more disaster resilient – with foreign markets.1 Such arrangements are now greater ‘buffer capacity’ that enables them to widespread in various industries such as absorb such perturbations.4 This Chapter explores automobiles, electronics, office equipment and the potential for this, drawing lessons from the apparel.2 Toyota, for example, conducts its response to Japan’s earthquake and tsunami business in 26 countries with 50 overseas in 2011, Thailand’s floods in 2011-2012, and manufacturing operations, which supply vehicles Australia’s floods in 2010-2011. to more than 170 countries and regions (Figure VI-1).3 Agriculture too, is increasingly reliant on imports of inputs and multi-tiered Asia-Pacific supply chains supply chain management. Since the 1990s, global supply chains have These supply chains have made it possible for created a new division of labour among many Asia-Pacific businesses, including small Asia-Pacific economies, especially in North- and medium enterprises, to establish strong East and South-East Asia. manufacturing bases – and also enable developing countries to benefit from foreign direct Manufacturing investment and increase their exports. But these chains also embody risks. If a natural disaster, In the 1970s, Japanese Transnational Corporations such as an earthquake, flood or fire, damage a (TNCs) in particular responded to high tariff production or distribution node in the chain, protection in South-East Asia by investing in

146 Toyota,Source: 2012. Toyota’s productionnetwork Figure VI-1 countries. productionduplicated facilities inASEAN of regional toconsolidate trade liberalization automobile assemblersare now takingadvantage a subregional division oflabour, Japanese highereconomiesandfacilitateachieve ofscale of internationalproduction fragmentation. To have progressivelyTNCs adopted astrategy the automotive sector. And sincethelate1990s, trade. intra-industry 24.5 percentofglobalvertical economies accounted for industrialized newly China. Between 2001 and 2005, the first-tier Taiwan Province ofChinaandHong Kong, Asia –intheRepublicofKorea, Singapore, more extensive andSouth-East inNorth-East By the2000s, were chains becoming globalsupply in China; 1986-1990 and between the periods 6 The mostimpressive increase took place 5

trade linkages withintheregion (Figure VI-3). Asia,South-East strengthened thishasfurther from components and imported North-East and on parts since Chinarelies significantly now emerged asa ‘global centre’ assembly and the rest of the world. has China in particular increasing theirintermediate-goods tradewith have been countries same timethedeveloping proportion has beenabove 30percent. At the goods was South-South, butsincethe1990s, the Asia-Pacificof developing trade inintermediate South-South. Inthelate1980s, 15percent only An increasing proportion ofthistrade is VI-2.Figure in isindicated chains integration inglobalsupply 15 percent. The current extentofAsia-Pacific trade from 2to intra-industry of globalvertical 2001-2005, Chinaincreased itsaverage share

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CHAPTER 6 Building Resilience to Natural Disasters and Major Economic Crises

This trend is confirmed by another measure, shows that intra-regional trade of Asia-Pacific the Grubel-Lloyd index, which measures intra- industrial products has been increasingly industry trade of a particular product.7 The index characterized by intra-industry trade (Figure VI-4). Figure VI-2 World trade flows of intermediate goods, 2008

Source: Miroudot and others, 2009. Note: The map represents imports of intermediate goods above $20 billion. Circles stand for intraregional imports and arrows for interregional imports. Arrows and circles are proportional to the value of the flows.

Box VI-1 The impact of natural disasters on supply chains

The impact of natural disasters on a supply chain is illustrated by the figure below. When a disaster hits, supplier A suffers from direct losses in terms of destruction of physical assets, recovery expenditure and lost income. If the disaster severely hits public infrastructure, supplier A is likely to have indirect losses due to either damaged distribution facilities or disrupted power supplies.

For supplier A, either direct or indirect losses can result in production and distribution suspension and subsequent weak financial conditions and possible layoffs. Therefore, the losses of supplier A may cause an additional burden on the government due to lost tax revenue. Damage to financial institutions and insurance companies will be in the form of rising non-performing loans and a surge of compensation to private entities for their losses caused by the disaster.

The production suspension of supplier A or the damage to the distribution facilities can cause indirect losses to both upstream and downstream supply chain partners. The negative impact can be transmitted to the whole supply chain and affect the firms involved, regardless of their geographical locations. At the same

148 Chopra andSodhi, Chopra Source: 2004. demand andretakingmarketsharecanprovetobedifficult. from one competing product to another due to lower price or better availability. Recovering from changes in high. In some cases, short-term product substitution can lead to consumer behaviour changes as they move close-to perfectlycompetitivemarketsinwhichsubstitutionofproductsiseffortlessandpriceelasticity potentially causingafallindemandfortheproducts.Theriskoflostmarketshareisparticularlyhigh A. Theseproblemsareoftenmanifestedinfailurestodeliverthemarketsorhigherconsumerprices, to avoidthedisaster’snegativeeffectsbeablegainmarketsharedueproblemsfacedbysupplier The effectsofdelaysanddisruptionscanbefeltinthelongterm,shouldothercompetitorswhowereable and components. the casewithKobeearthquakein1995whichleftcompaniesSanFranciscowithoutaccesstoparts may havenochoicebuttowaitforitsrecovery.Insuchsituationstheeffectscanbeinternational,aswas single sourceinthemarketandhaltsprovisionofproductsduetoadisaster,itsdownstreampartners may permanentlyturntosupplierBandresultinabusiness loss forsupplierA.However,ifAisthe quickly. Inthelongrun,ifsupplierBisconsideredtobemoredisasterresilient,partnersofA recovery paceofsupplierAisslowandBflexibleabletocompensateforthesupplyshortage opportunity forsupplierBwhoproducesthesubstituteofA’sproduct.Thisismorelikelywhen The productshortageofthedownstreampartnerssupplierAandendmarketmaycreatean communications systems,destroyedequipmentandlostinformation. controlling thesupplychainoperationdifficult,ortemporarilyimpossible,duetodisruptionsin experience severedelays,misseddeliveriesandevensupplierdefaults.Inaddition,disasterscanmake production suspensioncausedbysupplychaindisruption.Afternaturaldisasters,chainsoften time, consumermarketsmayexperiencepricefluctuationswiththeshortageoffinalproductsdueto Budget allocations, priority Budget allocations, priority adjustments, political Policy changes Disaster Natural instability Relief actions aimed Relief actions at theprivate sector and labour marketand labour e.g. loans,Thai soft Australian NDRRA facilities and/orpower failure) Financial institutions: insurance premium, credit risk (physical assets, recovery Social welfareSocial /taxlosses, spending andincome); (destroyed distribution Insurance loss, increased Supplier A: Government: Indirect LossesIndirect unemployment Direct LossesDirect increase Environmental treaties and Intergovernmental agreements, green FTA cooperation and action clauses Indirect lossesdueto supply Indirect Downstream supply Upstream supply Indirect income losses Indirect chain partners: chain partners: chain partners: public-private partnerships insurance schemes, Utilization of monetary Utilization ofmonetary resources through e.g. Disaster funds, shortage etc. Consumer market: Price dueto uctuation Gaining market share market Gaining the shortage ofnal the shortage Supplier B: products

substitution/ behaviour consumer changes Product Product

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CHAPTER 6 Building Resilience to Natural Disasters and Major Economic Crises

Figure VI-3 Shares of selected partners in intermediate-goods trade, 1988-2011

40 Rest of the world

35

30 Developing Asia-Pacific

s e

r 25 h a s

e 20 g a t n

e EU25 c

r 15 e P Japan 10

5 US

0 1 0 9 8 7 6 5 4 3 2 1 0 9 8 7 6 5 4 3 2 1 0 9 8 1 1 0 0 0 0 0 0 0 0 0 0 9 9 9 9 9 9 9 9 9 9 8 8 0 0 0 0 0 0 0 0 0 0 0 0 9 9 9 9 9 9 9 9 9 9 9 9 2 2 2 2 2 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 1 1

Source: ESCAP calculation based on United Nations Comtrade from WITS. Available from http://unstats.un.org/unsd/tradekb/ Knowledgebase/Use-UN-Comtrade-via-World-Integrated-Trade-Solution-WITS (accessed September 2012).

Figure VI-4 Intra-industry trade intensity of the Asia-Pacific industrial sector, 2002- 2011

1

0.98

0.96

0.94

x 0.92 e d i

n 0.9 I

L

G 0.88

0.86

0.84 Trade with the World Trade within Asia-Pacific 0.82

0.8 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: ESCAP calculation based on United Nations Comtrade from WITS. Available from http://unstats.un.org/unsd/tradekb/ Knowledgebase/Use-UN-Comtrade-via-World-Integrated-Trade-Solution-WITS (accessed September 2012). Notes: 1. Intra-industry trade intensity is measured by the Grubel-Lloyd index at aggregated-sectoral level. 2. The list of industrial products follows WTO’s standard classifications based on HS-2002.

150 spatially dispersed.spatially within national borders be theiractivities can andeven within oroutsidenational boundaries feedstock. As a result, belocated can participants inputs,import asfertilizers, such and chemicals on domesticintensively inputs, many include they rely often chains supply Although agricultural sectorinstitutions andorganizations.private involve awiderangeofpublicand often (Figure VI-5).boundaries Inaddition, they extend beyondsectors and can national over span several typically These functions as well asretailing andfinalconsumption. storage, processing, marketing anddistribution, encompass inputs, production, post-harvest, management. ofsupply systems chains Such reliantincreasingly andmulti-tiered on imports are chains also supply agricultural Modern Agriculture 8

frozen food. frozen for and70days food were chilled for 13days five in2006 from days the2002levels, which producers food wasreduced and chilled toonly ofAustralian frozen inventory food the overall reduction ofinventory. inlevels For example, isa chains businesses intoglobalsupply agricultural ofincorporating One effect at bothglobalandregional levels. products haveagricultural become integrated, tradein networksto which ofintra-industry to 49per cent. Figure VI-7 shows the extent however, increased more modestly, from 46 thatwas intraregional,proportion ofimports (Figure VI-6). thesameperiod, Over the intraregional rose from 55to59 percent of Asia-Pacific thatwas exports agricultural trade. Between 2001and2011, the proportion been accompanied by inintraregional arise chains has supply The expansion ofagricultural 9

PHOTO: ESCAP

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CHAPTER 6 Building Resilience to Natural Disasters and Major Economic Crises

Figure VI-5 An illustration of agricultural supply chains

FARMING PROCESSING PRODUCTION PACKAGING CONSUMERS

Source: Adapted by ESCAP from Australia, Department of Agriculture, Fisheries and Forestry, 2012.

Figure VI-6 Intraregional trade intensity of Asia-Pacific agricultural trade, 2002 and 2011

60

55 s e

r 2002 2011 a 50 s h

e g

a 45 t n e c

r 40 e P 35

30 Exports Imports Source: ESCAP calculation based on United Nations Comtrade from WITS. Available from http://unstats.un.org/unsd/tradekb/ Knowledgebase/Use-UN-Comtrade-via-World-Integrated-Trade-Solution-WITS (accessed September 2012).

152 and circumstances. markets withdifferent consumer preferences to react, numerous ifitservices particularly mightfinditdifficultandcostly chain supply recession ina majormarket, complex ahighly demand. Faced with aneconomic downturnor Chains are tosuddenchangesin alsovulnerable subject tofrequent andhurricanes. storms on a tectonicbe located fault line or in an area goods on asinglesource –one might which inputsorintermediate for thatrely enterprises some risks.running exposedare Particularly be abletoboostefficiency. Butthey are also should chains thatusecomplex supply Firms productstural follows WTO’s based on HS-2002. standard classifications Notes: 1. ismeasured by tradeintensity theGrubel-Lloyd indexataggregated-sectoral level;- 2)thelistofagricul Intra-industry Knowledgebase/Use-UN-Comtrade-via-World-Integrated-Trade-Solution-WITS 2012). (accessed September ESCAPSource: basedon calculation UnitedNations Comtrade from WITS. Available from http://unstats.un.org/unsd/tradekb/ Intra-industry tradeintensityofAsia-Pacificagriculture,2002-2011 Figure VI-7 supply Vulnerabilities of global

GL-index 0 0 0 0 0 0 0 0 0 0 .8 .8 .8 .8 .9 .9 .9 .9 .8 .9 1 2 4 6 8 2 4 6 8 chains 2 0 0 2 2 0 0 3 2 0 0 4 2

0 0 5 2 0

0 6 payables flow intime–leading problems tocash may chain beunableto settletheir the supply Another in common concernisthatpartners use ‘just-in-time’ management systems. inventory Problems occur, can example, for that firms for monitor thepossibilities. all be less able to control will firm and focal as thenetwork becomes more fragmented, the linksthatmightbeatrisk.or distribution But somebe abletorecognize production nodes concerned mightnothave. firm may focal The finance and resources thecompany –which This will requirecareful planningandsufficient arduous becomes asthechain more complex. component – a task that becomes increasingly take into account the circumstances of each resilient, needcontrol they that mechanisms If companies chains are tomaketheirsupply 2 0 0 7 2 0 0 8 2 T 0 r a 0 d T 9 e w r a d it e w h 2 in 10 0 it A h 1

0 t sia h e wor - P a c 2 ifc 0 l d 1 1

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CHAPTER 6 Building Resilience to Natural Disasters and Major Economic Crises

among participating firms. This may raise as well as traditional beverage and industrial concerns among financial institutions and make crops. For other crops, such as perishable, it more difficult for firms to obtain external higher-value products a greater concern will be financial resources during the recovery phase. logistics, and compliance with food safety or plant or animal health requirements.15 Most vulnerable are the small and medium-sized enterprises (SMEs). Generally, they work as Japan earthquake, 2011 subcontractors, supplying basic services or labour-intensive parts and components. Few SMEs are prepared for natural disasters.11 This and subsequent sections consider the impact on supply chains of three major Typically, they lack insurance and do not disasters - the earthquake and tsunami in carry out risk assessments nor have business Japan in 2011, the floods in Thailand in 2011, continuity plans.12 This makes it difficult to and Australia’s floods in 2010-2011. recover from disasters and heightens supply 13 chain disruption. In March 2011, an earthquake struck Japan and triggered a devastating tsunami, which led to Agriculture the meltdown of nuclear reactors in Fukushima. The disaster caused a record $210 billion In the case of agricultural production, most of in economic damage, representing 3.8 per cent of the risks are weather-related. Producers will Japan’s GDP.16 Manufacturing was hard always have to cope with varying and often hit. Following the earthquake, Japanese extreme conditions. The natural disasters that automobile production fell by 48 per cent most commonly disrupt agricultural supply and electrical component production by 8 chains are droughts, floods, storms, frosts and per cent. And since production was highly 14 high winds. These can become more intense integrated into the world economy, there was or frequent if human activity or economic widespread disruption in supplies elsewhere, development has diminished the region’s resilience. particularly among Japan’s ASEAN trading partners. As indicated in Figure VI-8 automobile Natural disasters that hit agricultural supply production fell in a number of countries: in chains will usually reduce short-term yields, Thailand by 19.7 per cent; in the Philippines by and lead to price increases and destroy assets 24.0 per cent and in Indonesia by 6.1 per cent. – disrupting the flow of goods, services and There was also serious disruption in the production information. But they can also affect productivity of electrical components. The impacts lasted about and market relations in the longer term. two months for electronic supply chains and three months for automotive supply chains.17 The risks will vary depending on underlying climatic conditions, geography or topography, The global impact of the disruption differed demographics and agrarian and industry according to industries, the locations of structures. They will also differ from one production, the nature of backward-forward commodity to another. For some producers, a linkages and the potential for substitution major risk is the volatility of international market between suppliers in different countries. The prices – as with grain and oilseed commodities, impacts by sector are described below.

154 Source: Ye andAbe, 2012. Source: Ye andAbe, 2012. Automobile productioninASEANcountriesaftertheJapaneseearthquake,2011 Figure VI-8 Electrical componentsproductionaftertheJapaneseearthquake,2011 Figure VI-9

Year-on-year change (per cent) Year-on-year change - - - 2 4 6 2 4 (per cent) 0 0 0 0 0 0 - - - 6 4 2 2 4 0 0 0 0 0 0 Auto productionafterJapaneseearthquake J ap Ma J ap Ma an rc an rc h 201 h 201 T T h h Ap Ap ai ai l ril ril an l an t t d o d o

J May 201 u n e 201 P M h i al l i p a p ys i n i e a s P I n h d i o l i p n e p s i n i a e s 155

CHAPTER 6 Building Resilience to Natural Disasters and Major Economic Crises

Automobiles 10 per cent (Box VI-2). Even car producers like Toyota were hit, demonstrating how difficult Many automobile producers around the world it is to monitor and control procurement in experienced shortages in electronics and car multi-layer supply chains. Automotive components normally produced in Japan. microcontrollers have a high degree of product Automakers in the United States, for example, differentiation so it is difficult to transfer had to cut their second-quarter production in production to other factories. 2011 by 350,000 to 400,000 units.18 General Steel Motors and the French automaker Peugeot Citroën had to temporarily halt production of 19 In 2010, Japan produced 109,599 million certain vehicles. There was also disruption in 20 metric tons of steel – and was the world’s the production of Xirallic pigments which are second largest producer, and the largest used in a number of automobile paints. Merck exporter.21 Following the disaster, in 2011 crude Chemical International’s only production steel production decreased by 1.8 per cent.22 plant is situated near the Fukushima nuclear But this did not greatly affect the world market reactor, and automakers, including Ford Motor, because, as a result of the global recession, Chrysler Group, Volkswagen, BMW, Toyota major mills in 64 countries were operating at Motor and General Motors, had to reduce about 82 per cent capacity and could easily the production of automobiles that used this make up for the decline in Japan’s exports.23 pigment. Asia-Pacific shipbuilders, for example, shifted their orders to mills in the Republic of Korea, Overall, however, the impact lasted only around China, and Taiwan Province of China. three months. By June 2011, Toyota’s production bases had returned to around 70 per cent of their Relief and recovery measures normal production levels and by July were back on their original schedules – demonstrating that Japan’s industrial value chains were hard hit these chains were highly resilient. by the 2011 earthquake, but recovered quickly. Much of this was thanks to government Electronics support to businesses, including SMEs, which were affected directly or indirectly. Rather than Japan produces about 60 per cent of the world’s addressing specific supply chains, however, the silicon wafers for semiconductors. The earthquake Government targeted its assistance on restoring shut down two factories that accounted for normal business functions in general. Measures about 25 per cent of wafer shipments. The included: disaster also affected several factories that make computer chips. Renesas Electronic Corporation, Assistance in financing – The government for example, the world’s largest maker of requested that financial institutions give special microcontrollers for cars and many other consideration for the disposal of dishonoured bills products, had to close eight of its semiconductor and cheques and for longer repayment periods for factories. The shutdown in the Naka factory in SMEs. It also implemented measures to mitigate Hitachinaka City, Ibaraki Prefecture reduced the rapid deterioration of cash flow, such as special the world supply of microcontrollers by about grants, soft loans and repayment grace.

156 disaster reconstruction. provided specialtaxdeductionspost- for mitigation investment and for inearthquake futurefor disasters, it offered tax incentives In addition, to encourage business preparation and licensetax, weight taxandstamptax. vehicle tax,corporation exemption from registration reconstruction, therefund of including special taxdeductionspost-disaster for providing support. active in municipalities were particularly governments ofnon-affected regions and Honshu Island. Here, andregional thelocal in devastation caused Tohoku region of reputationalinspections tominimize damage. plants andstores andhelpedwithradioactivity theestablishment oftemporary supported resume theirbusinesses, theGovernment thedisaster.suspended theirbusinessesafter with ‘employment benefits’ that toenterprises an ‘employment adjustment subsidy’ along

cent of the global market. of microcontrollers–whichmanagevariousinterlinkedelectronic functionsofcars.In2010,ithad29per The JapanesecompanyRenesasElectronicsCorporation (RENESAS)istheworld’slargestmanufacturer Supply chaindisruptionattheRenesasElectronicsCorporation Box VI-2 Box supply chain: suppliers forspecific,andeach requiresaspecialproductionline.Thefollowingfigure showsasimplified Automotive microcontrollers aregenerallydesignedinclosecollaborationwithother automotiveparts General Motors. by Toyota, Nissan and Honda, while it has a 20 per cent share for non-Japanese counterparts such as automotive electronicssystems.Renesassuppliesover 60 percentofmicrocontrollersforcarsproduced Local government support Local government Rehabilitation support – To helpSMEs Assistance intaxation – This involved Employment support 24

– Measures included – Measures included

Almost every car maker in the world relies on Renesas microcontrollers for their – The disaster – The

the region long-term recovery. andsupport torevitalize skills preneurs withthenecessary more intendstotrain ETIC than200entre- disasterrecovery.for thenextthree years Over emergence ofentrepreneur-led innovations the afflicted communities by facilitating the Development Project’ aimedtosupport which Leader initiateda ETIC Recovery ‘Disaster thedisaster had struck,one day after Waseda studentorganization. University Only Innovative Communities is a former (ETIC) entities. Entrepreneurial for The Training There were private also from other relief efforts thatacompetitor couldnotbuild.parts contracts toproduce were given temporary whoseplantswere functioningSuppliers still problemstheir supplierssolve attheplantlevel. engineers from Toyota, example, for tohelp tried the ‘global valuechain’ anchors. Executives and from the manufacturers – were they supplying In addition, many companies received support experienced one ofitsworstexperienced flooding crises of2011, quarter thefourth During Thailand Thailand floods, 2011 25 26

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CHAPTER 6 Building Resilience to Natural Disasters and Major Economic Crises

Supply chains for Renesas automotive microcontrollers

Car Assembler

1st Tier Suppliers

Supplier A Supplier B Supplier C

2nd Tier Suppliers

Supplier D Supplier E Supplier F Supplier G

Renesas Electronics

Eight Renesas factories were affected by the earthquake on 11 March 2011, particularly the Naka factory in Ibaraki Prefecture. Renesas not only lost half of its wafer-start capacity but also faced unreliable electric power supplies as a result of the closures of nuclear power plants.

Renesas production lines make specific microcontrollers for individual car models. So neither other Renesas factories nor competitors could immediately take over their production. As a result, the automobile industry started to exhaust all the remaining stocks and many major motor vehicle companies had to stop operations. For instance, General Motors halted production at a pick-up truck factory in the United States, while Toyota, Honda, Nissan and Mazda shut down 22 plants.

Renesas immediately established a damage assessment team, and by 22 March 2011 had restarted limited production in five out of eight affected factories. The company also prepared three other facilities for resumption but was hampered by power blackouts following the crisis at the Fukushima nuclear power plant.

The Naka factory resumed mass production on 1 June 2011, and by the end of September 2011 Renesas was finally able to restore production to all its affected facilities.In the course of the recovery, Renesas had involved 80,000 people, including those from parent companies, suppliers, downstream producers, government and even from competitors – around twice the number of the company’s regular employees. Despite the rapid restoration of its main factories, Renesas experienced severe losses. Losses from earthquake damage totalled $615 million. Only one-third of the loss was covered by insurance.

This case provides some useful insights on supply chain disruption. One is that even large companies like Toyota can find it difficult to identify weak links in their supply chain. Another is that in the absence of industry standardization in just one of two custom-made components can cause a chain to break, even if they account for a very small amount of the final product value. This example also highlights the need to review practices, such as just-in-time production, and develop business continuity plans.

Sources: Rec, 2011; Tokahashi, 2011; Dishman, 2011; Wilson, 2011; REE, 2011; Inove, 2012; and Ye and Abe, 2012.

158 and eastern provinces.and eastern inBangkok andthecentral facilities mainly established their productionUnited States electronics manufacturers from Japan and the was estimatedat$40billion. of Bangkok. and parts Sakhon Samut Damage Ayutthaya,including Pathum Thani, Nonthaburi, provinceshad central been concentrated inkey that thefloodshitindustries severe because and the eastern and central provinces. and central and the eastern threewere –Bangkok inonly locations located result, automotive 97percentofall factories foreign ownership and tax exemption. 100percent seaboardthe eastern –including regionboth inthecentral andthere andin Investment had offered incentivesfor investing The second reason wasthat Thailand’s Board of and gaineasyaccess tosuppliersandcustomers. totapinto infrastructure firms well-established One wasproximity toBangkok, allowed which werelogistics systems builtthere two reasons. for The production facilities andassociated Phraya delta.a majorfloodbasinoftheChao in Ayutthaya andPathum Thani were built on estates.industrial estates affected severely Seven planning andby of theinappropriate location But thedamageby wasexacerbated poorurban floodmitigation. for ofinfrastructure and alack planning ofwatermanagement anddrainage, combination offactors: massive rainfall, poor Thailand’s severe flooding resulted from a amounted to 29.3 per cent of all productionamounted to29.3percent ofall estates industrial intheaffected The factories 2.6 to1percent. 2011, reducing GDP growth forecast from of contraction in the last quarter of output in 70years. The immediateimpact wasa million jobs, atleasttemporarily. businesses,small thelossof2.32 causing had aheavy impact on SMEs –hitting 550,000 27 The impact wasparticularly 32

28 The floodsalso 29

31 Similarly, 30 As a

It includes theregional basesof It includes Toyota, Nissan, chains. intoglobalsupply integrated and ishighly Thailand is world’s producer 12thlargest vehicle Automobiles 2012. January-February during cent inDecember2011, atrend thatpersisted by 24per declined vehicles knocked-down remained stable,total exports thoseof Japan isshown inFigure VI-11. Japan’s While another. in The consequenceforassembly in finalassembly for tobeexported country andcomponents thatareparts produced inone for units’evident ‘knocked-down –vehicle thiswasparticularly In theautomotive industry The effects werebeyond soonfeltfar Thailand. appliances by 22percent. similarly,fell by 47percent, andelectrical of more than50percent. Electronics exports 2011 suffered a year-on-year contraction export inNovember which the automotive industry dip.further sectorwas export The mostaffected May 2011,caused a butthe floodsthen appliances in April- automotive and electrical quakes had already ofelectronics, hitexports (Figure VI-10). exports industrial Japan’s- earth in decline causedasharp The flooding Thailand’s per cent of all productionper centofall plantsin Thailand. estates,plants inindustrial andlessthan0.5 United Kingdom. around theworld, from tothe thePhilippines Ayutthaya, had tocutproduction inplants the shutdown ofitsplantsandsuppliersin instruments. Honda, example, for dueto electronics, appliancesandoptical electrical cars, sectorsincluding manufacturing computers, major sources inputs in various of intermediate estateswere sincetheseindustrial chains supply Never theless, thishad amajorimpact on global 34

33

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CHAPTER 6 Building Resilience to Natural Disasters and Major Economic Crises

Figure VI-10 Key industrial exports from Thailand, 2011

40% 30% 20% 10% 0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -10%

(per cent) -20% -on-year change -30% ea r Y -40% -50% -60% Electronics Automotive Electronic Appliances

Source: Thailand, Office of Industrial Economics, Ministry of Industry, 2012. Note: Based on value of exports in local currency

Figure VI-11 Japan, monthly growth rates of automobile exports

40%

20% Mar-11 Apr-11 May-11 Dec-11 Jan-12 Feb-12

0%

Jan-11 Feb-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 -20% (per cent) -on-year change

ea r -40% Y

-60%

Total units of exports Knocked-down units of exports -80% Source: Japan Automobile Manufacturers Association, 2012. Note: A knocked-down unit refers to a semi-finished vehicle with a unit value less than 60 per cent of the unit value of a finished vehicle.

160 from suppliersthathad impacted. beendirectly damaged couldnotget they parts physically suspend production; were althoughthey not and Toyota plantsin Thailand alsohad to plantthere onassembly 4October2011. Nissan Honda had tosuspendoperationsatits States and Viet Nam. and States Viet Malaysia, Pakistan, thePhilippines, theUnited Toyota had tostepupproduction inCanada, To losses in output make up for Thailand, Figure VI-12 hard diskandsemiconductor producers as such clustersofmajor The affected areas also had Electronics Baldwin,Source: 2010. Global supplychainsofaharddiskdrivemadeinThailand to production. cent ofautomobile companies damage reported Motors,General IsuzuandFord. 90per Over 35 As the floods ravaged As the floods Ayutthaya, 37

36

wholesalers. hoarding byconsumers resellers orinventory and also a consequence of defensive purchases by tripled. made and byof HDDs Western Seagate Digital cent. rose ofHDDs 20to50per price and theworld producersMany HDD were affected by thefloods (Figure aroundVI-12). theworld fromand components imported many countries parts. production HDD requires multiple parts andisamajorsupplierofHDD (HDD) drives the world’s second largest producer ofhard disk Hutchinson Technology. Thailand, China, after is Technology,Seagate Toshiba, and Western Digital 38 During the flood period the retail prices the thefloodperiod retailprices During 39 Some oftheseincreases Some were, however,

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CHAPTER 6 Building Resilience to Natural Disasters and Major Economic Crises

Relief and recovery measures In addition, the Government facilitated insurance claims payments by temporarily The Government, along with financial allowing foreign surveyors to work in Thailand institutions and Global Value Chain (GVC) in order to relieve the shortage of surveyors. anchors, played important parts in the process of recovery. Support included: Support from global value chain anchors – Some TNCs launched assistance to their Financial assistance – SMEs and individuals employees. Flood-hit Japanese companies sent affected by the floods were able to use a soft loan a number of their Thai workers to work in their programme of 300 billion Thai Baht. The Small Japan-based parent companies. This helped Business Credit Guarantee Corporation also maintain employment while facilitating flows provided loan guarantees of up to THB 120 in supply chains (Box VI-3). billion for seven years for businesses seeking reconstruction loans from commercial banks. Australia floods, 2010-2011 Employment support – The floods affected around 990,000 workers of whom From December 2010 until February 2011, 500,000 were re-employed or returned to Queensland experienced one of Australia’s worst- their previous workplaces. To assist flood- ever floods, compounded intermittently by major hit workers and maintain employment, the storms and cyclones (Table VI-1). Ministry of Labour provided a subsidy of THB 2,000 for each employee for a certain The damage was extensive. Public infrastructure period, providing participating workplaces was severely affected, including more than 9,100 maintained at least 75 per cent of each kilometres of the state road network and approx- employee’s normal salary. As of January 2012, 347 imately 4,700 kilometres of the rail network. Power manufacturers, covering 210,150 workers, had to 480,000 homes and businesses was disrupted. 40 In addition, 11 ports, 139 national parks and 411 participated in the programme. The schools were affected. Private assets were also Government also provided a skill development damaged: there were 97,000 insurance claims, of scheme: participating workers received a food which more than half were for residential properties. allowance of THB 120 per day for a period of Businesses too suffered extensively, including 10 days. In case of lay-offs, the affected workers damage or disruptions to 54 coal mines. received compensation in line with the labour protection law. But some of the greatest impacts were in agriculture with the loss of $1.6 billion-worth of Public-private partnerships – The Government crops. Australia is a major agricultural exporter, so worked with companies to enable temporary this had a significant influence on world markets. relaxation of the regulations related to credits and Waterlogged fields reduced the quality of wheat, insurance. Commercial banks and non-banks and cut Australia’s exports by around 1.5 million were allowed to maintain flooded customers’ tons. This produced spikes in the world prices loan classifications and consider credits to such of wheat, cotton and sugar during late 2010 borrowers as new loan approvals, with special until the first quarter of 2011 (Figure VI-13). This interest rates and extended repayment periods. exacerbated rising world commodity prices.

162 in 2010. inrevenue thesugarindustry for cent decline from Queensland. caused a 27per The flooding – with around 95 per cent of the crop coming Sugar – Australia isalsoaleading sugarexporter to arecord high. situation andinMarch price 2011drove theworld the Queensland exacerbated But the floods in and theUnitedStates, andflooding in Pakistan. in2010duetoadversefallen weather across China Queensland. Globalcotton supplieshad already with around halfoftheproduction coming from Cotton Toyota,Source: 2012 3) generalized designs. company hasalsolaunchedmeasuressuchasdecentralizingsourcesforat-riskpartsandconvertingto The lessonslearnedfollowingthetwoeventsledcompanytoreviseitsbusinesscontinuityplan. actual dropwas390,000vehicles. estimated thatthetwodisastersin2011wouldcutToyota’soutputgloballyby1millionvehicles,but America by the first half of December 2011, and in Thailand by the beginning of2012. Initially, ithadbeen production line according to the parts situation, Toyota was able to return to normal operation in North There weresimilarmeasuresfollowingThailand’sfloods.Byadjustingtheoperationallevelsofeach reached almostnormallevelsbyJuly2011andwasfullyrestoredSeptember2011. As aresult,productionwasrestoredmorerapidlythanhadbeenanticipated.Domestic substitute products. 1) production restorationwere: operations, cametogethertoprovidesupportandrestoreoperations.Thecoremeasuresforpost-quake Immediately aftertheearthquakeinJapan,allToyotacompanies,fromsupplierstodealersandoverseas Toyota’s assistancetosuppliers Box VI-3 Box 2) production itemsandinventory.Thepurchasingunitsconfirmedtheavailabilityofoverseasprimarysuppliers. the impactatsecondaryandtertiarysuppliers.Onsiteinvestigationteamsweredespatchedtoconfirm Support for suppliers suppliers for Support On-site assessment and verification and assessment On-site Finding substitutes Finding – Australia is a leading cotton exporter – Australia isaleading cotton exporter 41 The revenue also declined further further The alsodeclined revenue –Whenrestoringonsiteproductionwasnotpossible,thecompanywouldtrytofind – Toyotaprovidedonsitesupportto200suppliers. –Toyotaconducted an investigationofallprimarysuppliers,including

industry of about$400million. industry the grain and sorghumwith losses for barley were about500,000tonnes, wheat, including cent ofAustralia’s production. grain losses Grain accountsabout10per for Grains –Queensland Australian output. made somein which upfor ofthefall and asBrazil such other countries Thailand reached a30-year high–tothebenefitof harvest. Asaresult, sugarprice theworld water logging hamperedin 2011because the delays due to port closure. duetoport delays was shipment problem exporters grain for 42 Amajor

163

CHAPTER 6 Building Resilience to Natural Disasters and Major Economic Crises

Table VI-1 Australia’s 2010-2011 floods timeline

September-November, 2010

January 1, 2011

Source: World Bank and Queensland Reconstruction Authority, 2011.

Figure VI-13 Movements of selected agro-product prices, 2007-2011

450 Periods of flooding and subsequent impacts 400

350

300 x d e n i

e

c 250 i r p

y h l t

n 200 o M

150

100 Coal, Australia, $/mt

Cotton, A Index, 50 cents/kg Sugar, world, cents/kg

0 9 7 5 3 1 1 9 7 5 3 1 1 9 7 5 3 1 1 9 7 5 3 1 1 9 7 5 3 1 1 9 7 5 3 1 0 0 0 0 0 1 0 0 0 0 0 1 0 0 0 0 0 1 0 0 0 0 0 1 0 0 0 0 0 1 0 0 0 0 0 M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M M 2 2 2 2 2 1 1 1 1 1 1 0 0 0 0 0 0 9 9 9 9 9 9 8 8 8 8 8 8 7 7 7 7 7 7 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

Source: ESCAP calculation based on World Bank data.

164 $A50,000. replacement component –withagrant ofupto cleaning,up to$A650,000for repairs andstock than 20employees couldget low-interest loansof packages. include: These The NDRRA hasanumberoffinancialassistance Government’s share ofNDRRA. around $A3.9billionasthe including rebuildingbillion for flood-affected regions, thatitwould invest indicated Government $A5.6 Arrangements (NDRRA).and Recovery The when disastershit–theNatural DisasterRelief beactivated quickly measures can which recovery alsohaswell-established reliefGovernment and and reconstruction.financing recovery Thenational pledged about $A2.1 billion funding for ($A) perperson. Queensland Government The ofupto1,000Australianassistance grants dollars recovery. Initially, thisinvolved emergency the for ofgovernment pledged levels support All measures andrecovery Relief representing a combined loss of $561 million. by 2010-2011, 10percentfor declined Australia’sfor andvegetable growers fruit and vegetables. of fresh fruit supply Revenue areas thataccount14percentofAustralia’s for many for crops.harvests thefloods affected Overall resulted inwidespread damage anddisrupted vegetables. The floodingandrainfall consistent around ofAustralia’s one-quarter and fresh fruit Fruit andvegetablessupplies – Queensland Rural Adjustment Authority.Rural repayment ofexistingloanswiththeQueensland loans ofupto$A250,000, aswell as deferred repairs replacement, andstock andconcessional 20 employees couldreceive cleaning, $A25,000for

Low-interest loans than Special –Businesseswith fewer grants – Businesses with more – Businesseswithmore 44

43

small businesses in the affected areas. businessesintheaffected small Payment workshops involving conducted recovery Australian Disaster Recovery Government offices equippedwithwireless technology. The banks andtaxoffices; andestablishingmobile staff;paying advice on dealingwithinsurance, managingand longer-termplans for recovery; thedisaster; stepstobusinessrecovery; after guidelines: outbusinessoperations how tosort For example, ofsimple itpublishedaseries and advice and a range of services.support loans, provided Government theQueensland on theirown.could notsurvive Inaddition to businesses andindividualswho tosmall priority Commonwealth andstategovernments gave information technology.information advice andinformation, making good useof future losses. Finally, it offered technical concessional loanstotakesteps tominimize for mitigation by requiring businessesapplying measures. Fourth, itoffered incentivesfor thatenabled efficient recovery partnerships on their own.survive Third, it had public-private whocouldnot firms assistance tosmall ensuredGovernment bylimiting efficiency assistancequickly.it couldoffer Second, the had measuresGovernment pre-agreed recovery othercountries.practices for First, the because Australia’s measures offer good recovery three months. repayments on equipment finance facilitiesfor monthly anddeferring were early; drawn waiving interest deposits penalties if term rate personal loans at a discounted fixedrate; creditemergency limitincrease; refinancing fees;incurring givingcredit card holdersan businessloanswithout or restructuring repayments uptothree for months; rescheduling homepackages including: loan deferring businesses.small Individualbankshad assistance sectoralsohelpedindividualsand The private 45

165

CHAPTER 6 Building Resilience to Natural Disasters and Major Economic Crises

Lessons for building resilient will find it difficult to extend this to the supply chains whole of their supply chain in other countries. Insurance companies may also be reluctant to Just-in-time production and a high degree provide specific services such as microinsurance of product differentiation through global supply for small enterprises. And even where there is chains add to efficiency but can also be a source insurance it can be very expensive. After the of fragility when there is a disruption. This Thailand floods, for instance, firms directly highlights the importance of risk management affected found on average that their insur- strategies based on careful cost-benefit analysis ance premiums more than tripled. A number and trade-offs. of them, particularly the smaller ones, decided not to renew their insurance or to exclude 47 Enterprises that want to build in greater disaster risk coverage. Developing efficient resilience to natural disasters can take a competitive insurance would require improving number of measures, for example: (a) invest more the overall regulatory framework, providing in each location to enhance resilience to natural better risk information and modelling systems, disasters; (b) spatially diversify the locations and exploring innovative new schemes such as of both production and supply; (c) hold larger disaster microinsurance. inventories or stocks. While private agents bear the most of the costs of All of these options incur extra costs. In disasters in developing countries, governments addition to facing direct costs, enterprises that also carry a substantial contingent liability. want to build greater redundancy into their They thus have a strong motivation for ensuring systems may have to forego some economies that private incentives are appropriately of scale or opportunities for lower factor aligned.48 For this purpose, developed countries costs. Similarly, there will be extra costs from use a combination of regulation and tax incentives. diversifying sources of supply, by increasing Japan, for example, provides tax incentives stocks of food for example. for investments in earthquake mitigation and has special tax deductions for post-disaster In making investment decisions, businesses reconstruction. In developing countries, where now have to consider risks even if they are compliance issues are problematic and enforce- not located in a disaster-prone area. Devising ment costs are higher, there is greater need the optimal strategy is not easy, particularly to combine regulatory measures with more when dealing with rare but catastrophic events. active interventions aimed at appropriately Nevertheless, firms will need to assess risks incentivizing private agents. and find ways to control them – for example, through business continuity plans (Box VI-4). There is also considerable scope for international In addition, governments can help minimize cooperation. At present, most such efforts are ad disaster risks and offset market failures such as hoc and there is little formalized cooperation. the absence of adequate insurance. Developing Further initiatives are needed to create standing countries generally have inadequate insurance funds and reserves – not only to bolster disaster 46 markets. Even Japanese companies, who may resilience through improved infrastructure but be able to get coverage for production in Japan, also to provide relief and recovery assistance.

166 I m p l e m e n t

t h e

s t ra t e gi e s

a n d

a d ju s t

bu s i n e s s

p o l i ci e s ,

disaster risks. in developedmarketsliketheUnitedKingdom,aroundhalfofSMEshavenoformalizedplansformanaging a disaster. Business continuity plans surged in popularity after the events of 11 September 2001. But even and upholdingbusinesscontinuityplansincurssomeexpense,theybringlong-termbenefitsintheeventof Such plansarerelevantforthesupplychainasawholewellindividualcomponents.Whiledrafting A businesscontinuityplanassessesrisksposedbynaturaldisastersandcodifiesthepracticalresponses. Business continuityplans British Standards Institution, Standards British Sources: 2010; Denning, 2012. – allowingthecostsofsuchplans tobetaxdeductible. continuity plans.Thestateof OhiointheUnitedStates,onotherhand,hastaken an incentiveapproach community authoritieshave the responsibilitytoadviseandassistfirmswithregard formulatingbusiness to draftsufficientlycomprehensiveplansfordealingwith disastersandemergencies.Inthisregard,the incentive approaches. For example, in the United Kingdom, the Civil Contingencies Act requires businesses Governments can also play a part. Governments of developed countries have used both regulatory and and financialassistance. its supplierstoestablishbusinesscontinuityplansalongside itsown.Forthispurpose,itcanoffertechnical In thelightofgrowingcomplexitysupplychainsin AsiaandthePacific,localfirmshouldrequire plan toreflectrecenteventsandchangesinthesupplychain, externalmarketsandtheenvironment. considered andtakenasappropriate. The final step isto periodically rehearse theproceduresandupdate relocate productionofkeycomponentstolessrisk-exposed areas.Inallcases,insuranceshouldbe from lessrisk-exposedareas.Forsupplychainsrelying on just-in-timedelivery,itmightbenecessaryto For supplychainswithhigh-riskcomponents,thisshouldinvolvebufferstocksandredundantsources effects ofdisruptionsandtheextentfinancialreserves.Thenextstepistodevelopacontinuitystrategy. consider, forexample,thestateofexistinginfrastructure,susceptibilitytonaturaldisasters,potential The first step is to identify potential risks andconducta specific threatandrisk analysis. Thisshould VI-4 Box The genericprocessofdraftingabusinesscontinuityplanisillustratedinthefigurebelow: markedly lower.

In developingcountries,thepenetrationofbusinesscontinuityplanscanbeexpectedto I R m p C r e o e p o s l v l i e ci o i n e m D u e d w rce e s e u , n

v i a ct t n e s a

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167

CHAPTER 6 Building Resilience to Natural Disasters and Major Economic Crises VA O IA MISCIC : MA R IA OTO PH

Existing funds such as the Natural Disaster Risk Information System which will include Fund of New Zealand are typically nationally a regional geospatial database and country- administered and their usage is too limited to specific catastrophe risk models. address the needs of a disaster-struck supply chain. Greater supply chain resilience will also rely It would be better to have greater cooperation critically on support from TNCs and especially between international organizations, development the GVC anchors who can help their business banks, governments of developed countries partners in reconstruction and in improving and vulnerable countries. Examples include resiliency. Intergovernmental cooperation can the recent joint Pacific Catastrophe Risk also facilitate such private initiatives. Assessment and Financing Initiative, piloted by the Secretariat of the Pacific Community, the World Bank and the Asian Development Bank, Policy recommendations with financial support from the Government of Japan and the Global Facility for Disaster Some of the following recommendations Reduction and Recovery. The first of a series apply specifically to supply chain resilience; of applications under the initiative is a Pacific others are valid in a broader framework because

168 accelerate recovery processes as: such accelerate recovery measures toimprove long-termresilience and shouldconsider Governments subsidies for downstreamaffected andemployees industries . assistance to for temporary Therecase isalsoa in reconstruction infrastructure. of physical partnerships,public-private shouldbeinvolved reconstruction. The publicsector, including and, whenadisasteroccurs, infacilitating rapid improve general resilience disasters tonatural are infacilitating investments to interventions areasfor government The most important andrecovery resilience 1. to enhance interventions Public economy ingeneral. resilience andtheresilience ofbusinessand chain of thetightlinkage between thesupply to tailortheseindividual communities and managementbut need strategies of risk part usetaxes andsubsidiesas can Governments private-sector disaster management risk 2. to improve interventions Public reconstruction and recovery efforts.reconstruction andrecovery whoinvest inpost-disaster and corporations specialtaxdeductions to individuals offering plans; businesscontinuity for Advocacy and inbusinesses; managing disasterrisks assessingand for platforms and information applications The development anduseofnew offorests andmangrove swamps; conservation construction, ‘green’ buildingsandthe example, earthquake-, fire- andflood-resistant assetsmorephysical disasterresistant –for and other Measures to make property

of business continuity plansby,of businesscontinuity example: for thedevelopment alsofoster can Governments by: insurance take-up ofprivate hazard. couldsubsidisewider Governments take into account potential problems of moral community offices. plans, agencies orlocal through centralized drafting for Providing support technical deductible accounts; and to countthecostsoftheseplansintheirtax plans,of such example, for by allowingfirms taxincentivesfor theestablishment Offering plans; such legalrequirements for Imposing compulsory andproducts. services producers, innovative microinsurance including assmall-medium such chains in thesupply groups vulnerable for insurance Encouraging toestablish:partners providers,insurance GVC andGVC anchors Increasing between cooperation governments, plans; withbusinesscontinuity firms for management, asdiscountingpremiums such premiumsinsurance reflect firms’ risk on efforts providers with insurance tomake Cooperating efficient marketing channels; access markets to such by promoting cost- markets,sustainable insurance andimproving Assisting thedevelopment ofaffordable and

- -

sharing and early warning systems; warning and andearly sharing assessments,joint risk information risk involved inglobalproduction; businesses group for schemes insurance

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CHAPTER 6 Building Resilience to Natural Disasters and Major Economic Crises

3. Intergovernmental cooperation to support Create standing funds and reserves; and private sector recovery efforts Open up broader cooperation for example, Governments can encourage mutual arrangements on reinsurance schemes jointly established by between GVC anchors and business partners. regional organizations, governments and funds. For instance:

The government of the GVC home country can arrange with the government of the affected countries to temporarily relax labour Endnotes movement restrictions so as to facilitate assistance to overseas subsidiaries, including 1 ESCAP, 2007a. for workers of their business partners; and 2 Christopher, 2011.

Facilitate financial capital movements from 3 Toyota, 2012. GVC anchors and insurance companies 4 Holling and others, 1995. during the period of reconstruction. 5 Legewie, 1999; Hiratsuka, 2011. 4. International cooperation for disaster risk 6 Amador and Cabral, 2008. management 7 Grubel and Lloyd, 1975.

International organizations can: 8 Jaffe and others, 2010; Australia, DAFF, 2012. Provide forums and facilitate the emergence 9 Australia, DAFF, 2012.

of formalized systems of international 10 Kimura and Ando, 2005. cooperation on disaster risk management or building resilience; 11 Wedawatta and others, 2010. 12 Cerno, 2010. Consider global initiatives which would limit man-made environmental risks such as 13 Wedawatta, and others, 2010. cap-and-trade carbon credit schemes; and 14 Johnson, 2003.

15 Help develop standardized safety codes and Jaffee, 1995. infrastructure standards for building more 16 EM-DAT: The OFDA/CRED International resilient supply chains. Disaster Database. Available from http://www.emdat. be/.

There will also be opportunities through 17 Ye and Abe, 2012. emerging comprehensive free trade agreements involving major GVC participating countries. 18 Snyder, 2011.

These include the Regional Comprehensive 19 Chu, 2011. Economic Partnership, Trans-Pacific Partnership and the ASEAN agreements. These can: 20 Narayanan, 2011.

170 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 accessed November 2012. The OFDA/CRED International DisasterDatabase, asia.html Ibid. Thailand Today, 2011. ESCAP and UNISDR, 2012. Farole, 2011. Toyota, 2011. Nissan, 2011; Toyota, 2011. Authority, 2011. World Reconstruction BankandQueensland Ibid. World,IBIS 2011. Bland andKwong, 2011 Chongvilaivan, 2012. Hiratsuka, 2011. Poapongsakorn and Techakanont, 2008. Ye andAbe, 2012. Based on thedatadownloaded from EM-DAT: Bank of Thailand, 2012. ETIC, 2012. Tundra Headquarters, 2011. Namba, 2012. http://response.jp/article/2012/01/21/168729.html emerging media, 2012, availablefrom documents/ENG2011CY.xls; Response http://www.jisf.or.jp/en/statistics/production/from Japan Iron Federation, andSteel 2011, available ISSB, 2013. Available from http://www.issb.co.uk/ JETRO, 2012. Chongvilaivan, 2012. Narayanan, 2011.

48 47 46 45 Ibid. UNISDR, 2013. JETRO, 2012. UNISDR, 2013. 171

CHAPTER 6 ESCAP P HOTO ESCAP PHOTO 7 C THROUGH REGIO MUTUAL SUPPORT OOPERAT I O NAL N

ESCAP P HOTO ESCAP PHOTO 7 C THROUGH REGIO MUTUAL SUPPORT OOPERAT I O NAL N

Building Resilience to Natural Disasters and Major Economic Crises

CHAPTER 7

Mutual support through regional cooperation

In an era of globalization, and ever closer links between countries in Asia and the Pacific, disastrous shocks in one country can soon reverberate across many others. These transboundary crises demand transnational solutions, so Asia-Pacific countries will need to intensify regional cooperation, for which a regional framework for building resilience is proposed.

The preceding chapters have shown how multiple at the global level. Nevertheless, multilateral shocks and their convergence have put policies for economic governance are also economic, social and environmental systems evolving within multipolar frameworks so simultaneously under stress. In 2008, ESCAP regional actions will in turn influence global was already warning of these multiple threats reforms. at a High-level Regional Policy Dialogue in Bali, Indonesia – ‘The food-fuel crisis and Cooperation will be particularly important climate change’.1 2 Here, Asia-Pacific countries for the least developed countries. They already recognized that the convergence of these have many immediate pressures and priorities interrelated and mutually exacerbating crises, that might seem to take precedence over long- together with climate change, threatened to term resilience building. Yet these are also the undermine the region’s development gains and countries most vulnerable to multiple shocks. They affect its future prospects – potentially slowing should, however, also be able to rely on regional progress towards the Millennium Development solidarity. This will not only assist individual Goals (MDGs). countries, but in a closely interconnected world will also help avoid negative feedback The root causes and repercussions of these crises loops that can quickly ensnare other countries. are often transboundary, which necessitates Cooperation can ensure that one country’s greater regional cooperation. By working actions are not detrimental to another’s. together, governments can produce solutions that are greater than the sum of individual country responses. Regional cooperation also Coordinated management further intensifies and deepens interdependencies, during economic crises so future cooperation through forums such as ESCAP becomes even more significant. The Asia-Pacific region is a global powerhouse driving economic growth, and in the current It should also be emphasized that these crises global economic crisis has been an anchor of are often global, so policy reforms are essential stability. Even so, it remains vulnerable to

174 ESCAP,Source: 2012a. BankResearchCentral and Training Centre Asian Europe MeetingandtheSouth-East Banks,Central ASEAN, APEC, theAsia- the Executives MeetingofEastAsiaPacific (Box VII-1). Regional as ASEAN+3, bodies such modelofregional anew impetus for self-help provided which the Asian financialcrisis levels. the1997 This wasdemonstratedafter coordination atinternational andregional Instead, there needstobemuch greater individual countries. targeting theirrescue ordebtrelief packagesat IMF andthe World Bankrespond by solely asthe such Nor international organizations can tools. andfiscal onrely theirown monetary authorities; no longer individual governments can by could be dealt with solely national shocks areThe days long gone wheneconomic sectorFinancial from aregional response. beyond theregion benefit will ofwhich –all bothwithinand economic originating shocks susceptible theystillwereto thefinancialcontagion. hit in2008thecountriesAsia andthePacificweremoreresilient–thoughtheyremained awareofhow liberalization, wereimportant factorsinliberalizationpolicies.Asaresult,whenthe globalfinancialcrisis recapitalize banks, and showed that calibration, through sequencing and selection of the modes of entered intofurtherliberalizationcommitmentsunderthe WTO’sfinancialservicesagreement,whichhelped demand fortheregion’sexports.Interestingly,at height ofthecrisis,region’sWTOmembers despite protectionistpressuresfromcrisis-hitsectors.This helpedrestoregrowththroughbuoyantglobal Policymakers fromaffectedcountriesalsostoodresolutely infavourofexpandingtradeandinvestment, build foreignexchangereservesthatwouldprotectagainst asimilartypeofcrisisinthefuture. deepen theirregionalcooperation,tobettercoordinatethe managementofspeculativecapitalflows,andto strategies that were focused on maximizing economic growth driven by external borrowing. They resolved to The 1997Asianfinancialcrisishadaprofoundeffectonthe region,forcingpolicymakerstorethinkeconomic The 1997financialcrisis:lessonsineconomicpolicymanagement BoxVII-1

foreign exchange reserve poolof$120billion.foreign exchange reserve a (CMIM)toinclude Multilateralization the CMIasChiangMaiInitiative inprogress.another spurt Membersexpanded On amore positive note, thisalsostimulated conditionality. CMIwaslinkedtoIMF because was partly America and Japan for bilateral swaps. bilateral andJapanfor America of approached treasuries in the United States Republic ofKorea –instead andSingapore –Indonesia, support seeking liquidity the Mai Initiative (CMI)(Box VII-2), countries 2009 when, thanutilizingtheChiang rather toebb. started mechanisms in Onetestcame however, such impetusfor some ofthepolitical As theregion recovered the1997crisis, after policies.rate macroeconomic management andexchange regional bond market; on and iii) cooperating a ii)developing regional liquidity; emergency on three objectives:primarily i) providing cooperation mechanisms. These havefocused and have initiatedanumberofforums

3 This

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In addition, they raised the ceiling of currency initiatives such as the APEC Financial swaps not subject to IMF conditionality from Development Programme and the Initiative on 10 to 20 per cent. In a further encouraging Strengthening Capital Markets in the APEC sign of continued reform of the CMIM, region. The bond markets would also be stronger leaders of ASEAN+3 have announced that in if they had common substructures of credit 2014 member countries will be allowed to tap guarantees and ratings. up to 40 per cent of their own quota without an IMF aid package.4 With regard to the third objective, on regional exchange rate policy coordination, most One continuing limitation of the CMIM is activities have remained at the stage of that when a member requests support, the information exchange and dialogue. Countries participating countries need to agree to contribute recognize the deleterious effects of exchange on each occasion. This provision may ensure rate volatility, particularly for the trade in parts that countries only contribute when they are in and components in regional supply chains. a position to do so, but it also makes the system They also appreciate the dangers of competitive very slow.5 devaluations. But as yet, no consensus has emerged on a collectively managed float or any Countries in the region have also been aiming other arrangement for currency stabilization. to reduce their dependence on extra-regional On this issue, there is no clear evidence, funds by expanding Asian bond markets – either theoretical or empirical; the crisis-hit euro through the Asian Bond Fund (Box VII-3) being a case in point. and the Asian Bond Market Initiative. Since 1997, the region has seen a nearly 30-fold Nevertheless, the region has created a strong increase in the size of the bond market.6 foundation of regional cooperation in trade, However, there are still concerns about the investment and capital flows. As a result, many quality of the bonds, since issuers’ credit rating countries are in a better position to absorb levels still do not meet investor expectations.7 external shocks than they were a decade and To address this, APEC has launched several a half ago. This was demonstrated by their

Box VII-2

The Chiang Mai Initiative

The Chiang Mai initiative (CMI), established in 2000 as a direct response the Asian financial crisis, is a set of bilateral agreements that established a pool of $200 million in foreign exchange reserves that was raised to $1 billion in 2005. In 2009, the CMI was transformed from a bilateral network into a multilateral foreign exchange reserve pool of $120 billion. Of this pool, 80 per cent is contributed by China, Japan and the Republic of Korea, while the ASEAN countries provide the remaining 20 per cent. An independent regional surveillance office, the ASEAN+3 Macroeconomic Research Office (AMRO) was established in 2010 and is responsible for conducting surveillance of Chiang Mai Initiative Multilateralization (CMIM) operations.

Source: ESCAP, 2012a.

176 ESCAP,Source: 2012a. ESCAP,Source: 2012a. remained thesame: asuddenstopincapital from the1997crisis, thefundamentalissue crisis. Althoughthisdiffered inmany ways resilience the2008globalfinancial during The 2008financialcrisis:visibleresilienceandhiddenvulnerabilities size of$1billion,topurchaseregionalbondsdenominatedinUSdollars. the fundwaslaunchedin2003withvoluntarycontributionsofmemberstoadedicatedfund,aninitial Korea, Malaysia,NewZealand,thePhilippines,Singapore,ThailandandHongKong,China).Thefirststageof association ofcentralbanks11economiesintheregion(Australia,China,Indonesia,Japan,Republic The AsianBondFundwasestablishedbytheExecutivesMeetingofEastAsiaPacificCentralBanks,an The AsianBondFund of vulnerability. of otherregions.Itcantakeregional actionthatbridgesthegapbetweenvisibleresilience andhiddenforms Asia andthePacific,withitsstrongmacroeconomicfundamentals, hasanopportunitytoavoidthemistakes Even inEuropetheseseemtohavebeenshiftedalater phaseoftherecoveryprocess. has toaddressissuessuchasskyrocketingyouthunemployment andthedeclineofgovernmentservices. response. Ratherthandealingsolelywithmacroeconomic factors,suchaspublicdebtandfiscalbalances,this The experiences of both the 2008 and 1997 financial crises have underlined the need for a much broader increased securityofjobsandlivelihoodsforthemostvulnerable. the capacitytoaccumulatewealth.Widespreadeconomic recoveryatthemacrolevelhasnottranslatedinto Those most resilienttocrises are those with access to capital, knowledge,employment opportunities and the qualityofhumandevelopmentinbothshortandlong terms. a jobthathasdisappearedforever.Moreover,anyreductionofhealthandeducationexpenditureswillaffect the poor.Vulnerablecommunitiescanseetheirlifesavingsdevastatedbyaspikeinfoodprices,orlossof But apparentoveralleconomicresiliencemasksunderlyingvulnerabilities.Inparticularithidestheimpacton economies appearedtobebackonlong-termgrowthtrends. policies, the overall damage was limited and the recovery was quick and strong. By 2010, most of the region’s and thewillingnessofpolicymakerstorespondwithaggressivefiscalstimuliexpansionarymonetary The 2008globalcrisiscausedavisiblecontraction.However,thankstofinancialsectorreformsafter1997 Box VII-4 Box BoxVII-3

(Box VII-4). andstrong wasquick recovery and theoverall This time, however, thedamage wascontained flows,for liquidity.run leading toa general

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Trade and investment integration Land, water and energy linkages Most Asia-Pacific economies have come to rely heavily on exports, often over 50 per cent of GDP – the bulk of which are destined Demand for water, food and energy is expected for developed country markets. Indeed, in to rise by 30 to 50 per cent over the next two decades. This could put unsustainable pressures South-East and East Asia, in particular, exports on natural resources with particularly harmful are often a greater share of GDP than household impacts for the poor. Policymakers increasingly consumption, investment and government recognize that land, water, and energy supplies consumption – and sometimes all three and food security are interdependent – and combined. Given that future global crises could the risks are correlated.8 Countries need to also weaken export demand from the developed cooperate accordingly. countries, Asia and the Pacific will thus rely more on regional export markets and will need Food security to generate more demand for consumer goods from within the region. Countries across the region have cooperated for some years on food security. In 1975, in This will mean tackling remaining tariffs and the aftermath of global market turmoil, the the often complex measures on rules of origin. United Nations established an International Countries also need to simplify customs and Emergency Food Reserve. Then in 1979 at inspection procedures, improve transport links a subregional level, ASEAN agreed on the and reduce transaction costs. Indeed, given ASEAN Food Security Reserve. This arrangement the current stalemate in the Doha Round of proved ineffective because the reserves were too negotiations, economic integration reforms are small and each disbursement required bilateral likely to happen through the faster track that negotiations.9 In 2004, the ASEAN ministers regional trade agreements provide. therefore relaunched the scheme as the East Asia Emergency Rice Reserve which had clearer At the same time, it will be important to stock release guidelines. In March 2010, this improve the climate for investment. Further reserve facilitated the transfer of 10,000 metric flows of FDI would boost domestic demand, tons of rice from Viet Nam to the Philippines. increase access to credit and insurance, reduce It also developed programmes to help disaster inequality, and ultimately build greater resilience victims in Cambodia, Indonesia, and Myanmar. to external shocks. If investors are to risk their In 2011, ASEAN+3 agreed to establish a capital they will need predictable and secure permanent mechanism which, with three more mechanisms. Investment would also benefit participating countries, is able to earmark from tighter regional coordination of such substantially greater reserves. policies – creating common markets of production and consumption that produce There have also been food security economies of scale while ensuring a level arrangements among the SAARC countries. playing field for competition. SAARC established the first reserve in 1998,

178 and anagreement on dataandinformation as aregional floodmanagement programme, generation production, andfood energy aswell the management ofwaterandrelated resources, economic, social, andenvironmental issuesin integrates which the BasinDevelopment Plan thentheCommission hasformulated Since Cambodia, PDR, Lao Viet Nam.Thailand and Commission between thegovernments of of the independent Mekongformation River by conflict but againin1995withthe revived ECAFE) was not land, but water. preoccupation ESCAP for (thenknown as days,its founding themainenvironmental promoting collaboration. such Indeed, during decades, ESCAP hasbeenattheforefront of of cooperation on water resources. For over five across Countries theregion have along history Water resources fromstocks andman-made bothnatural hazards. and reserves food governments protect critical issues effectively. that Itisalsoimportant commercial transactions, hasaddressed these related toprices, andconditions terms of The ASEANsystem, questions clarifying by safeguards plants, for animalsandhumans. across borders relaxing withoutexcessively speedily stocks oftransferring also establishways scale.guidelines andon asufficient They should Food withclear needtooperate systems reserve weaknesses. andprocedural hasstructural still the scheme 2008 as the SAARC Food Bank. Nevertheless, but this was notactivated. Itwasrelaunched in planning. involvement basin ininternational river represented theUnitedNations’ firstdirect theMekong. prioritized and itquickly This Control wasestablished,the Bureau ofFlood 11 Progress slowed was subsequently 10 In May 1949,

material damage caused by damage caused typhoons. material and minimizing thelossoflife for established in 1968 to coordinate measures WMO Typhoon Another istheintergovernmental ESCAP/ earlier, is the Mekong River Commission. One ofthemostsignificant, asmentioned through ESCAP.been initiatedorsupported Many initiatives regional for cooperation have eradication.and poverty goals inthecontext ofsustainable development accelerateimplementation oftheHFAurgently subregional andregional to organizations commitment totheHFA on andcalled reaffirmed theinternational community’s More recently, theRio+20outcome document mechanisms and capacities for early warning. early for andcapacities mechanisms the development ofregionaland (e)support regional centres;specialized collaborative on progress;reviews (d)establishorstrengthen assessments; (c)coordinate andpublishperiodic and publishregional andsubregional baseline promote regional programmes; (b) undertake five thefollowing specifictasks:to undertake (a) management. on regional Itcalls organizations encourages cooperation on disasterrisk The Hyogo of Framework Action (HFA) other critical natural resources. natural other critical could bestrengthened orexpandedtoinclude basins. river transboundary integration Such of cooperation among theregion’s major Table listssome otherframeworks VII-1 on hydrological dataexchange. sharing. Italsohasanagreement withChina managemet Cooperation on

Committee was which disaster risk 13 12

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CHAPTER 7 Building Resilience to Natural Disasters and Major Economic Crises

Table VII-1 Major transboundary river basins in Asia

River basin Riparian countries Total Intergovernmental Member countries Principal cooperation areas population in framework of river basin cooperation (million)

Amu Darya Afghanistan, 43.3 Interstate Commission for Kazakhstan, Water quantity, water quality, Kazakhstan, Water Coordination Kyrgyzstan, joint management Kyrgyzstan, (ICWC); International Tajikistan, Tajikistan, Fund for saving the Aral Turkmenistan, Turkmenistan, Sea (IFAS) Uzbekistan Uzbekistan Amur China, Mongolia, 63.9 Amur River Coordination China, Mongolia, Joint management Russian Federation Committee Russian Federation Ganges- Bangladesh, 581 Mahakali River India, Nepal Water quantity Brahmaputra- Bhutan, China, Commission; Meghna India, Myanmar, Nepal Indo-Bangladesh Joint Bangladesh, India Joint management Rivers Commission Indus Afghanistan, China, 219 Indus Waters India, Pakistan Water quantity, joint India, Pakistan Commission management

Mekong Cambodia, China, 57.2 Mekong River Cambodia, Lao Hydropower, irrigation, Lao PDR, Commission PDR, Thailand, navigation, fishing, flood Myanmar, Thailand, Viet Nam control and relief Viet Nam

Source: ESCAP, 2011d.

The Japan Meteorological Agencyresources. In the two other arrangements, provides support and advice to cooperation tends to be looser: governments members through the Regional Specialized commit fewer resources and activity is typically Meteorological Centre in Tokyo. A third example, confined to typhoon-related early warning and established in 1972, is the intergovernmental information exchanges. WMO/ESCAP Panel on Tropical Cyclones which provides a cyclone warning service for There are also international and regional the Bay of Bengal.14 In this case, the Regional cooperation mechanisms for emergency Specialized Meteorological Centre is responses that are supported by ESCAP. The the Indian Meteorological Department. International Charter on Space and Major Disasters, for example, which became operational All three cases have demonstrated the value in 2000, provides countries affected by of regional cooperation, but the intensity of disasters with a unified system of satellite data cooperation varies. Cooperation is most acquisition and delivery. Currently, 14 of the advanced in the Mekong River Commission world’s space agencies are members, offering – where there is clear political commitment more than 21 earth observation satellites; and members, development partners and China, India and Japan together have donors provide the Commission with substantial more than six. At the regional level, another

180 a more timely andefficientmanner.a more timely shouldhelpprovideThis collaboration datain disastersand emergencies. during information provide access tonear-real-time satellite-based Programme use RESAP’s will to framework UNITAR’s Applications OperationalSatellite management. disasterrisk for Inaddition, building programmes on space applications Development (RESAP) provides which capacity Applications Programme Sustainable for In 1994, it established the Regional Space regional cooperationinspace applications. ESCAP hasalsobeenworking toenhance of Korea and Thailand. by operated satellites India, Japan, theRepublic disaster-related andproducts information from provides Asiawhich isSentinel mechanism ESCAP xecutive Secretary, DrNoeleen Heyzer at site the of Sichuan the earthquake, withpopulations. affected

then progress hasbeensteady, albeitslow. and objectives cooperation. for Since management asone oftheireightprinciples 1976, ASEANleaders identifieddisaster atthesubregionalhas alsoevolved level. In management Cooperation indisasterrisk regional level. ofAction atthe implementing thePlan 2012. ESCAP istaskedtotake thelead in intergovernmental meetingheldinDecember This was States atthe adopted by member Development, ofAction). 2012-2017(Plan Disaster RiskReduction andSustainable for Systems and Geographic Information Action Applications ofSpace for Technology the formulation of the Asia-PacificPlan of Recently, theESCAP secretariat facilitated

ESCAP PHOTO

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Of note is the ASEAN Agreement on Disaster hazards.15 Such a collective system, the Regional Management and Emergency Response, which Integrated Early Warning System (RIMES) came into force in December 2009. This is the was established with the support of the Trust world’s first, and only, HFA-related binding Fund (Box VII-6). It is now providing a range instrument. In South Asia, SAARC at its 14th of cost-effective early warning and climate Summit adopted the ‘SAARC Comprehensive application services to members. Disaster Management: A Framework for Action 2006-2015’. A more recent initiative is the Regional Cooperative Mechanism for Disaster Monitoring Integrated early warning systems and Early Warning, Particularly Drought. Established under ESCAP’s RESAP programme, In recent years, early warning systems have this mechanism receives technical support from become more people-centred. These rely on member countries in the region. While still at an four inter-related elements: knowledge of risks; early stage this should provide an information monitoring and warning services; dissemination portal for national strategies and mitigation and communication; and response capability. experiences. It will also serve as a technical All are equally important: failure in one will support platform for no- or low-cost space-based result in a collapse of the entire system. All four products for drought analysis – and as a elements are now benefiting from advances in platform to encourage technology transfer and technology and communications which are capacity building. allowing people-driven forms of cooperation to transcend geographical boundaries. The Disaster preparedness ESCAP Trust Fund for Tsunami, Disaster and Climate Change Preparedness contributed Countries can also work together to agree on what to the development of an integrated regional to do when disaster strikes. ASEAN, for example, early warning system comprising a network of has established standard operating procedures collaborative centres connected to subregional for coordinating disaster relief and emergency and regional centres (Box VII-5). responses between member countries. These systems were put to the test in May 2008 when Sharing also lowers costs – particularly for cyclone Nargis hit Myanmar, and ASEAN was systems that address infrequent but catastrophic able to act as a bridge between Myanmar and events, such as tsunamis. One study has the international community. In 2011, ASEAN, concluded that if individual countries each in order to link national disaster management developed their own early warning systems for agencies and provide early warnings and tsunami warnings in the Indian Ocean this response, launched the ASEAN Coordinating would cost around $50 million – in addition to Centre for Humanitarian Assistance on Disaster $5 million to $10 million per year for operating Management. This came into action, for multiple systems. A collective system, on the example, in July 2012 when it monitored the other hand, would require no more than $1.5 effects of an earthquake in Aceh, Indonesia. million operating expenditure. Moreover Search and rescue teams stood by in Jakarta and for a further $1 million a year this could also in Malaysia. Fortunately, after a few hours of incorporate warnings on hydro-meteorological monitoring, it was clear they would not be

182 ESCAP,Source: andothers, basedon Subbiah 2010. Aysan,Source: 2011. cost formaintainingtheregionaltsunamicomponentofRIMES isabout$1.5million. advantages ofESCAP. warnings forcoastalhazardsandrecommendedactionstostrengthentheFundbasedoncomparative of an Indian Ocean tsunami early warning system. It also reconfirmed the relevance of focusing on early An evaluationin2011concludedthattheFundhadmadeasignificantcontributiontoestablishment The scopeoftheFundwaslaterexpandedtoincludecoastalhazardsandclimatechangepreparedness. this systemwillhelpsaveabout1,000liveseveryyearforthenext100years. system been in place on 26 December 2004. As for preventing future losses, a conservative estimate is that A studycommissionedbyESCAPestimatedthatnearly160,000livescouldhavebeensavedhadthiswarning Regional TsunamiServiceProviders,withthespecifictaskofissuingtsunamiwarningsinIndianOcean. in 2011.Underthissystem, Australia, India and Indonesia have been mandatedby UNESCO/IOC to act as continents, andfeedsintotheoverallIndianOceanTsunamiWarningMitigationSystemwhichwentlive The FundhelpedestablishRIMES,whichnowcoversover26countriesfromtheAsianandAfrican objective wastobuildandenhancetsunamiearlywarningcapacitiesatvariouslevelsintheIndianOcean. established in2005througha$10millioncontributionfromtheGovernmentofThailand.Theoverall The ESCAPMulti-DonorTrustFundforTsunamisintheIndianOceanandSouthEastAsianCountrieswas ESCAP TrustFundforTsunami,DisasterandClimatePreparedness cost effective: The RegionalIntegratedMulti-hazardEarlyWarningSystem(RIMES)hasthreecharacteristicsthatmakeit RIMES: thecosteffectivenessofregionalcooperation Box VII-6 Box VII-5 Box member countries. and specialservicesintotheregionalsystemalsohas the benefitofensuringconstantengagement these servicesinRIMEShasanaddedrecurringcostofless than$0.5million.Integratingsuchvalue-added and tropicalcyclones–whichisattractiveforcountrieswhere tsunamisarenotamajorconcern.Integrating

Faster responses Faster scope Multi-hazard scale of Economies – Thismakestheearlywarninginformationmoreeffectiveandincreases thebenefits. – –RIMESalsoincludesother,morecommon,hazards,such asfloods,thunderstorms – Countriespooltheirresourcestomonitorinfrequentevents. Theannualrecurring

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needed. Shortly after typhoon Bopha struck In the Pacific, the most comprehensive the Mindanao region of the Philippines in information resource on disaster risk December 2012, the Centre launched an management is the Pacific Disaster Net. ASEAN Disaster Emergency Logistic System. Established in 2008, this was developed by SOPAC, IFRC,UNDP-Pacific Centre Knowledge sharing and UN-OCHA. In South Asia, the SAARC Disaster Management Centre established the Policymakers will be in a better position to South Asia Disaster Knowledge Network in integrate disaster resilience into national 2011 to provide a common platform and easy planning processes if they can broaden and access to real-time disaster data from different deepen their exchange of knowledge. To assist providers using a map-based system. The these flows, ESCAP is collaborating with the network is linked to portals within and beyond the governments of the SAARC Asian Disaster Preparedness Centre (ADPC) member countries. on the Asia-Pacific Gateway for Disaster Risk Management and Development. This web portal Regional networking has also helped build provides information and knowledge products resilience at the community level. The ‘Making that enable government ministries, as well as Cities Resilient Campaign’, for example, has other institutions and the general public, to organized international city-to-city learning integrate DRR principles, concepts and practices events to share disaster risk information. into development processes (Box VII-7). As This has resulted in partnerships between each country gains experience on disaster risk Bonn in Germany and six cities: Bukhara in management, the Gateway platform should Uzbekistan, Chengdu in China, Cape Coast in help accelerate the uptake of good practices. Ghana, La Paz in Bolivia, Minsk in Belarus and

Box VII-7 The Asia-Pacific Gateway for Disaster Risk Management and Development

Launched by ESCAP in November 2010, the Asia-Pacific Gateway for Disaster Risk Management and Development is an interactive web platform that provides unprecedented opportunities to share information and knowledge products about disaster risk management (DRM) across the Asia-Pacific region. The Gateway acts as a knowledge broker that connects the various hubs of DRM knowledge in the region to develop an extensive database of policies, plans and assessments. These ‘knowledge configurations’ connect government ministries, particularly national development and disaster management authorities, and enable them to benefit from centralized access to hundreds of policies, strategies and studies across the Asia-Pacific region.

The Gateway is a regional initiative supported through key partnerships with the Asian Disaster Preparedness Center (ADPC), the UNISDR, the United Nations Asian and Pacific Training Centre for Information and Communication Technology for Development, and the United Nations Office for Outer Space Affairs. The Gateway builds on existing initiatives in disaster risk management, such as ADPC’s DRR Project Portal for Asia and the Pacific, and relies on the active participation of users to provide value-added content.

184 infrastructure,can effects andthecascading Natural disastersweaken ordestroy critical Resilient infrastructure solutions (Figure transfer VII-1). to individualrisk generate savingsofupto50percentcompared be $45million. This regional could mechanism are participating, andco Samoa, Islands, Solomon Tonga and Vanuatu countries, Islands, theMarshall namely and earthquakes.cyclones Pacific Five island Re.Swiss The programme covers major tropical Tokio Insurance, &Nichido Fire Marine and Japan Insurance, Insurance, MitsuiSumitomo international reinsurance companies, Sompo placed withfour catastrophe risk successfully principall Initiative. Catastrophe RiskAssessmentandFinancing the Pacific 2013launched Bank inJanuary ofthe Community withthesupport World on thisexperience, ofthePacific theSecretariat FacilityRisk Insurance (Box VII-8). Building takeadvantageCatastrophe can oftheCaribbean economies intheCaribbean,Small example, for could joinregional pools. insurance risk credit or arrange insurance. However, they are inaposition they toarrange contingency liquidity.problems ofshort-term Nor individually disasters.of natural Asaresult, into run they budgets, the financial impact absorb cannot countries, developing Small withlimited insurance risk Regional adaptation, andwaterquality. biodiversity are on alsocooperating projects on climate flooding fromriver Rhine. the Thesecities element isBonn’s indealingwith challenge inMongolia.Ulaanbaatar The common y by ofJapan, theGovernment has 17 The pilotprogramme, funded verage isexpectedto 16

and tourism. transportation, telecommunications, environment projectsfinance infrastructure inenergy, power, of $300million to with paid-upcapital established theSAARC Development Fund at thesubregional level. In 2010, SAARC There are investment also infrastructure funds and disasters. in anticipation offutureinfrastructure threats works, butalsotostrengthen subregional create income and employment through public projects.in infrastructure to This was partly stimulilarge invested fiscal they ofwhich much many Asia-Pacific countries responded with response tothe2008 global financialcrisis, approximately $10billion. tourism, agriculture and environment worth transport, energy, telecommunications, trade, other donors, hastargeted projects in example,for from withsupport theADBand groups. The GreaterSubregion Mekong (GMS), investment from other, subregional overlapping Connectivity onprojects ASEAN related totheMasterPlan andIndonesia;Malaysia itfundsmany ofthe Bank (ADB)withmajorcontributions from is co-financed by the Asian Development re Fund,the ASEANInfrastructu which on national infrastructure. Pacific region needstospendabout$8trillion to 2020, ithasbeenestimatedthattheAsia- neglect ofinfrastructure. For 2010 theperiod prolonged economic result stagnation ina can to aneconomic crisis. The isalsotrue:reverse produce failures widersystemic thatcouldlead resilient regional ICTinfrastructure. ADBhas Many oftheseinvestments aimtocreate more recovered fasterthanothers. thathad invested countries ininfrastructure Following the1997Asianfinancialcrisis, . Inaddition, there isinfrastructure 20 Alsoin2010, ASEANcreated 18 21

19 Asaresult, in

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CHAPTER 7 Building Resilience to Natural Disasters and Major Economic Crises

Box VII-8 The Caribbean Catastrophe Risk Insurance Facility

The Caribbean Catastrophe Risk Insurance Facility (CCRIF) provides participating governments of the Caribbean Community with the opportunity to purchase insurance coverage at rates 45 to 50 per cent lower than if they were to purchase insurance individually in financial markets. This is because participating countries can pool their country-specific risks into one diversified portfolio. The facility then transfers risks it cannot retain to the international financial markets through reinsurance or through other financial coverage instruments such as catastrophe bonds.

Parametric insurance products are priced for each country based on their individual risk profiles. Annual premiums typically vary from $200,000 to $4 million, for coverage ranging from $10 million to $50 million. Bermuda, Canada, France, the United Kingdom, the Caribbean Development Bank and the World Bank have pledged a total of $47 million to the CCRIF reserve fund. Participating governments contribute resources to the pool according to their respective risk exposure. With 16 governments currently members of the CCRIF, participation is regarded as high.

Source: Small Island Developing States Network, 2012.

Figure VII-1 Benefits of risk pooling in the Pacific Benefits of Regional Risk Pooling 1800

1600 With Regional Risk Pooling 1400 Without Risk Pooling

1200 dolars S 1000

ns of U 800 o i l l i

M 600

400 Millions of US dollars

200

0 Tropical Cyclone Earthq1uake Tropical Cyclone and Earthquake Source: World Bank and SOPAC, 2011. Impact on reserve requirements to sustain a 1-in-150 year disaster Note: Impact on reserve requirements to sustain (e ar 1-in-150thquake, yeartsun disasterami and (earthquake, tropical cyc tsunamilone) and tropical cyclone)

186 Europe. Asiaand between Central than 20countries Highway (TASIM) project spanningmore is the Trans-Eurasian Super Information development plan. Another regional initiative componentkey ofitsregional infrastructure development ofbroadband asa corridors resilience. may Governments therefore wishto to maximize and are missingopportunities addressrisks donotsuffficiently disaster still Nevertheless, many oftheseprogrammes backbone network. responsible ofthe theconstruction for are which jointly countries the participating by theITU, aswell astelecomfrom operators project led alliance that involves a connectivity ASEAN Connectivity, Also ofnote, ASEAN, on initsMasterPlan an extendedSAARC highway. information phase for asapreliminary and may serve across Bangladesh, Bhutan, India, andNepal initiative. This aimstoimprove dataconnectivity Economic Highway Cooperation Information AsiaSubregional theSouth and loansfor has alsoapproved about$16millioningrants Network. Superhighway Information ADB provided theGMS fundingof$65millionfor 23 The TASIM initiative is a collaborative 22 hasdesignatedthe

forms of critical infrastructure. ofcritical forms the Trans-Asian Network Railway with other now buildon theAsianHighway Network and of interests ofrisk, andsharing can countries neighbouring countries. neighbouring move to more acrossthat enablestraffic easily scale,much itsoverall butthestandardization Highway Network, example, for is not so development. The real valueoftheAsian regional integrationandlong-term sustainable thatpromote inways infrastructure develop reducewill costsby resources sharing and what isneededaregional that framework andtransnational synergies,sectoral however, infrastructure.critical To benefitfrom cross- other similar approachalsobetakenfor can through ofregional decades cooperation. A Highway Network, were bothofwhich forged Trans-Asian Network Railway andtheAsian agreements,infrastructure the notably in coordinating andpromoting regional initiatives. ESCAP haslong takenthelead building resilience intoregional infrastructure ESCAP also promote can cooperation by programmes. intocurrentintegrated andfuture infrastructure to ensure reduction thatdisasterrisk is frameworks andregulatory theirpolicy review 24 Through mutuality

ESCAP PHOTO

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A regional framework for to immediate growth-enhancing objectives, over building long-term resilience. However, building resilience coordinated policymaking at the regional level can address these very challenges. The proposed regional framework builds on the four-pronged The multiple shocks that affect the Asia-Pacific action agenda outlined in the study entitled region are increasingly interconnected and “Growing together: economic integration for converging, bringing with them complex an inclusive and sustainable Asia-Pacific linkages. While the region has adopted Century” that was prepared for the 68th session numerous multi-country mechanisms and plans of the Commission in 2012. The framework of actions, for the most part they are disparate, consists of three pillars, three enablers and one ad hoc or event driven, and lack a region-wide integrator, as set out below in Figure VII-2. coordinated approach. This calls for a new regional framework for resilience-building Pillar 1 – Coordinated investment in inclusive – one that rebalances economic, social and development environmental systems. This framework, rather than addressing the consequences of recurring Coordinated macroeconomic policies can crises addresses the root causes. Rather than help move countries in Asia and the Pacific pursuing individual goals it is comprehensive – towards crisis-resilience. Macroeconomic policy cutting across countries, sectors and institutions coordination enhances financial sector stability with coordinated regional initiatives. The by reducing the volatility of key macroeconomic framework is also inclusive – meeting the needs variables, thereby mitigating the risk of a of the region’s poorest who are often the least financial crisis. Policy coordination is also responsible for causing crises and disasters, but 25 needed to minimize negative spillovers the hardest hit by them. and to maximize positive spillovers, especially since shocks are multiple and The framework gives a central role to business cycles are becoming increasingly governments – as the planners of long-term coordinated. Thus, macroeconomic policy socio-economic development. Indeed, the coordination can contribute to sustaining recurrence of shocks should be an opportunity growth by reducing volatility and strengthening for governments to re-enter economic, social financial stability. Coordinated policies shore up and environmental systems and use their fiscal market confidence and build overall resilience. resources to build resilience. The key question is whether the governments of the region are Fiscal policy – Countries can maximise the willing or able to prioritize these objectives. All social returns on public investment by taking countries find it difficult to finance investment to advantage of regional synergies. Each country protect economic activity, critical infrastructures, makes its own fiscal choices according to and their people from future shocks – whose national priorities. But countries can also timing, likelihood and magnitude are unknown. work together in setting regional agendas that Furthermore, in the current climate of slow prioritize public investments in such areas as economic growth, they are likely to give priority regional infrastructure, disaster preparedness,

188 A regionalframeworkforbuildingresilience ofresilience-building.principles resources towards development thatisbasedon target theirfiscal –andstrategically horizons planning coordinate theirlong-term policy change adaptation.and climate Inthisway, they Figure VII-2 as competitive devaluations. aswell spillovers policy preventing monetary andexchange policiesmay thushelp monetary exchangebilateral rates. Coordination of misalignmentof differentialsrate andserious may also losecompetitiveness through inflation andfinancialcrisis.sector fragility Countries asource flows are offinancial capital term often

Monetary andexchange rateMonetary policies

Synergizing regional initiatives INCLUSIVE DEVELOPMENT INCLUSIVE

– Short – Short THE INTEGRATOR Technological innovation COORDINATED INVESTMENT IN INVESTMENT COORDINATED THE ENABLERS: Resource pooling Early warningEarly

COORDINATED ECONOMIC MANAGEMENT ECONOMIC COORDINATED cooperation framework needstobeconsolidated.cooperation framework mechanism. Overall, theregional financial would provide acohesive surveillance consider establishingaregional that platform andsurveillance,financial monitoring and and should alsostrengthen regional monetary migration.through regulatory MemberStates by-passing regulationprevent enterprises banking andfinancialmarket regulations to their of theregion needtoharmonize still progress.significant Nevertheless, the countries regional coordination policy hasmade to multi-polar configurations, among which Consequently, governments have beenturning outtobealong hasturned haul.global level

– Financial reform atthe policiesFinancial –Financial SUSTAINABLE RESOURCE MANAGEMENT RESOURCE SUSTAINABLE

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Regional risk financing – Neighbouring more inclusive and it should build more resilient countries facing common hazards should consider livelihoods. Foremost, this will involve greater regional cooperation in risk financing. They can investment in social infrastructure – particularly thus pool resources and spread the risks across in education and health services that will lead a wider group of countries. This is of particular to more resilient human development. value to small and disaster-prone countries; if they tried to obtain insurance on their own they Resilient human development also entails would face exorbitant premiums. Similarly, establishing social protection floors – not as during times of economic crisis, a coordinated a handout, but as investments in supporting regional approach could also provide emergency the poor and other vulnerable groups against liquidity support and protect against sudden the risks of multiple shocks. ESCAP estimates reversals of capital flow. National governments that the costs of providing a social protection would then feel less pressure to build up large system by 2030, would range between 5 to 8 per 27 28 foreign exchange reserves. cent of GDP per year. States should be able to afford this, and yet, coverage remains very Trade policy coordination – Asia and the low. For least developed countries and other Pacific should also rationalize its preferential low-income countries, the very countries that trading agreements. At present, regional trading are most in need of expanding social protection partners belong to multiple agreements, each programmes, this problem is not trivial. More with their separately negotiated terms. Two often than not, they are also the countries with initiatives that aim to be more comprehensive high vulnerabilities to multiple shocks with are the trans-Pacific Partnership led by the a large portion of the population vulnerable United States of America, and the Regional to the same risks of economic crises, natural Comprehensive Economic Partnership (RCEP) disasters, epidemic diseases or extreme food led by ASEAN. RCEP should be of particular price increases. The main disincentive in benefit to countries participating in production introducing a comprehensive social protection networks centred in China, as well as to Asian system is therefore the risk that multiple shocks countries in that depend heavily on intraregional will result in surges in public expenditures at the trade.26 same time that revenues decline.

Pillar 2 – Coordinated economic management This wide divergence in States’ “ability to pay” opens up the opportunity for a multi-country The second pillar of resilience-building is cooperative approach. A regional social investment in inclusive development. Asia protection fund based on the principles of and the Pacific has achieved rapid growth and regional solidarity in the face of multiple shocks economic recovery but has not translated this is worth further consideration. Besides the progress into increased security of jobs and political groundswell that builds up from livelihoods. As a result, income inequalities are regional solidarity, there are also numerous on the rise while more than 80 per cent of the economic synergies. One need only consider region’s poor are estimated to be without any how the absence of social protection and basic security against the risks associated with extreme vulnerabilities act as push factors for multiple shocks. Development thus needs to be economic migration to countries that offer

190 Drawing on globalnorms,Drawing theregion could social protection ofsuch tracking systems. cooperation in the planning, coordination and As aminimum, there shouldbemore would needtobeworked outandagreed to. aregionaltration andoperation ofsuch fund related to the contribution scales, adminis- sustainable ways. Third, numerous aspects to implement national programmes in more Rather, itwould augmentagovernment’s ability of their national social protection systems. control ofgovernments intheadministration afundwouldexistence ofsuch notpre-empt the ways.work supportive inmutually Second, the are global andregional needed asthey solidarity by unexpectedshocks.overwhelmed Both provider if social protection are systems floors withaprovision to act as a reinsurance toestablish their socialprotectioncountries fund thathasbeenproposed would helppoorer and HumanRights, among others. The global Extreme for Poverty Nations Rapporteur Special the RighttoFood, by theUnited andsupported on are Rapporteur spearheaded by the Special that atthegloballevel discussions underway currentfund would complement andsupport need tobestressed. One is thattheregional Three points related totheproposed fund would economic migration. protection that mitigates the push factors in by toaregional contributing social fundfor atafractionproblems ofthecosts collectively their borders. Instead couldaddress they these toprotectafield spendmillionsofdollars bothwithintheregion countries andfurther other extremeofexploitation. forms Richer prey fall tocrime,invariably and trafficking extreme tofleehopelesssituations and risks take peopleoften Millions ofvulnerable andeconomic security.better opportunities

do notreach everyone. will Governments buildingresilience. for opportunities Butthey applications, are providing unprecedented ICT,Modern along withspace technology Enabler 1–Investing intechnological innovation security.food land resources for are ofwhich –all critical manage sharedsustainably water, and energy coordination.policy can helpcountries They would enableregional cooperation and underASEANandSAARChave evolved Comprehensive asthosethat such frameworks beyond existingbasin-widecooperation. linkages, energy water-food thisshouldextend cooperation.of South-South To address the byframeworks dynamism tapping into the new basinmanagement river existing integrated countries. needtostrengthen Governments basins, 14 cover between three andsix region’s and population. territory around basinscovering oneriver third ofthe Asia andthePacific has52transboundary Pillar 3–Sustainable management resource dialogue. ready a such for toprovide theplatform example ofregional solidarity. ESCAP stands region could provide a leading of the world most disaster-prone aswell asthemostdiverse More needstobedone. Asia-Pacific asthe (Box VII-9). in coordinating socialpoliciescouldbeuseful the region thathasmade themostheadway purpose, emanatingfrom experiences theEU, region asawholemore resilient. For this multiplier makingthe effects further trigger This would improve implementation and itsown onalso develop norms socialprotection. 29 Of these

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therefore need to enter the scene more Enabler 3 – Pooling resources for better proactively with forward-looking visions and preparedness long-term development plans. Governments who are preparing their disaster Governments should support the development responses have to acquire the necessary of technological innovations that have yet to information and expertise. For this purpose, reach their peaks. This can require massive ESCAP could serve as a bridge – bringing public investment in infrastructure that together regional cooperative mechanisms supports affordable, reliable and universal that have similar expertise and mandates, such access to these technologies. At the same time, as the Typhoon Committee and the Panel on Governments will need to manage the overall Tropical Cyclones. impacts of innovation – ensuring that the benefits spread to everyone, especially vulnerable Data sharing, monitoring and surveillance are groups, while also taking measures to minimize not just important when disasters are underway; potential risks, both for people and the they are also vital beforehand. These should be environment. This will require collaboration continuous processes. Countries participating between the public and private sectors as well as regional cooperation. in cooperative mechanisms such as RESAP and Sentinel Asia, for example, can commit to Enabler 2 – Monitoring and early warning providing access to near-real-time satellite data and products in support of preparedness – as Governments should continue to strengthen well as for damage assessments and recovery regional monetary and financial monitoring planning. And collaboration in research and and surveillance. The main objective would policy analysis needs to be strengthened by be to detect and assess the symptoms of making better use of existing institutional potential crisis and make early corrective arrangements. Governments should be policy recommendations. The establishment prepared to undertake damage and loss of the ASEAN+3 Macroeconomic Research assessments for resilient recovery and Office (AMRO) in Singapore in April 2011 reconstruction planning across all sectors. can provide guidance on how to achieve this. Institutions need to be willing to undergo Similarly, in disaster-prone areas, governments continuous reforms that make them adaptable will need to support people-centred risk to situations and allow for streamlined knowledge, monitoring and warning services. decision-making and implementation. For this they can work more effectively through regional cooperation. This would enable them Supply chains could also be made more to pool scientific knowledge and technical resilient by determined regional action that expertise and take advantage of economies of pulls resources for better preparedness. scale. Governments, development partners and This could include joint supply chain risk donors should further strengthen and expand assessments, targeted development aid and regional multi-hazard monitoring and early warning systems – such as the integrated more institutionalized forms of cooperation regional early warning system for tsunami, that have more impact on the stability of global coastal hazards and climate preparedness. markets.

192 challenges such asresilience-building. such challenges traditional areas contemporary andtackle areas new of cooperation thattranscend for over decades,developed andtwo, advocating knowledge andgood practices thathave been coordination consists ofone, the sharing coordination process. For the mostpart, therefore, national policiestotheregional policy powerthe legalorpolitical tobindcountries’ mechanisms. None of these institutions have regional andcooperative organizations The Asia-Pacific region hasanumberof initiatives intoacomprehensive whole. issue concernshowthevarious besttointegrate the enablersofresilience-building, the final Having set out the three and discussed pillars initiatives The integrator regional –Synergizing system, andaimstoboostdialoguecooperationwithintheregionaswellinternationally. promotes asetofcommonvalues,whilerecognizingthateachcountrywillhaveuniquesocialprotection body forwelfareandsocialissuesbetweenDenmark,Finland,Iceland,NorwaySweden.TheCouncil Another exampleofregionalcooperationinsocialprotectionistheNordicCouncil,aninter-parliamentary have appliedtojointheEUandwouldlikereformtheirsocialwelfaresystems. adapt. IntheEU,openmethodofcoordination(OMC) Issues offerusefulpointersandlessonsinpolicycooperationthateconomiesoftheAsia-Pacificregioncould The experiencesoftheEuropeanUnion(EU),NordicCouncilandCentreforWelfareSocial Social protectioncoordinationintheEuropeanUnion Box VII-9 Box programmes atthecountrylevel. aims todevelopamutuallearningprocessthatassessestherelativeeffectivenessofkeypoliciesor commonly agreedobjectivesandindicators,datathatisdirectlycomparableacrosstheEU,OMC report datathatisusedbytheEUtomonitorprogresstowardscommonobjectives.Inthisway,through common objectivesonsocialprotectionandtranslatetheseintonationalplans.Countriesregularly such asemployment,healthandsocialprotection.ThroughtheOMC,nationalgovernmentsestablish The OMC isamechanismforpolicy areas whichremaintheresponsibilityof national governments, a frameworkforcoordinatingpoliciesbetweenEUcountries. 31 Furthermore,theECalsousesOMCframeworktohelpcountriesthat

and address climate change concerns.and address climate reduce todisasters andeconomic risks crises, resilience to and in that way enable countries reinforcingthe mutually role of of the pillars thefoundation strengthenenablers thatform ensure sustainableresource management. The the provision of social protection, as well as development,in inclusive through inparticular in stronger positions toenhance investments macroeconomic management, be will countries the pillars. For example, through coordinated toaddressStates theinter-linkages between resilience building. This would allow member in theabove mentionedandenablers of pillars learning alsoprovide for aregion-widecan forum inresilience-building.organizations ESCAP SAARC andotherregional andsubregional ASEAN, for regional platform sharing For thispurpose, ESCAP provide a can 30 onsocialprotectionandinclusionprovides

32

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The emphasis is on softer forms of policy Endnotes coordination and consensus-building. For these purposes, member States can draw upon the 1 ESCAP, 2008. expertise of relevant committees in the 2 Commission. For example, the Committee ESCAP, 2009a. on Disaster Risk Reduction would provide 3 ESCAP, 2012a. the intergovernmental platform for a regional 4 voice on global issues pertaining to disaster Ibid. risk management in preparation for the post- 5 Ibid. 2015 development agenda. The Committee 6 on Macroeconomic Policy, Poverty Reduction Ibid. and Inclusive Development could provide the 7 Bank for International Settlements, 2008. platform for governments to build a regional 8 voice on the ways to build on a more resilient Notably, the Global Risks 2011 Report presented at the Davos Summit and the Report of the United regional macroeconomic and financial Nations Secretary-General’s High-level Panel on architecture. A related forum that plays a useful Global Sustainability. role is the Asia-Pacific Regional Coordination 9 Mechanism chaired by ESCAP’s Executive Briones, 2011. Secretary, in which agencies related to the 10 ESCAP, 2007a.

United Nations could exchange views and 11 devise coherent regional programme strategies in Jacobs, 2002. support of member States policymaking processes. 12 UN Regional Commissions, 2011.

13 The Committee is currently composed of fourteen Notwithstanding the region’s strengths, it members: Cambodia; China; Democratic People’s Republic of Korea; Hong Kong, China; Japan; Lao faces considerable risks – most countries are People’s Democratic Republic; Macao, China; regularly exposed to multiple shocks that Malaysia; the Philippines; Republic of Korea; could jeopardize future economic security Singapore; Thailand; Viet Nam and the United and social progress. Countries across the States of America. region need therefore to work together to 14 The Panel’s members - Bangladesh, India, Maldives, consolidate and extend their achievements Myanmar, Oman, Pakistan, Sri Lanka and Thailand.

– by ensuring that their economic, social 15 and environmental systems are sufficiently Subbiah and others, 2008. robust, flexible and resilient to deal with the 16 UNISDR, 2012. uncertainties of what lies ahead. 17 World Bank, ADB and SOPAC, 2011.

18 ADB and ADBI, 2009.

19 Ibid.

20 ESCAP, 2012e.

21 ADB: “Greater Mekong Subregion: Overview”

194

32 31 30 29 28 27 26 25 24 23 22

A/RES/67/195 and indicators in a number of policy areas. inanumber ofpolicy and indicators member States toestablishcommon objectives,member States guidelines in theEU, cooperation of basedon thevoluntary Nordic Council European Commission OMC: An intergovernmental meansofgovernance ESCAP, 2011d. ESCAP, 2013c. Federation, Russian and Thailand Turkey. Fiji, Ten were countries analysed: Bangladesh, China, ESCAP, 2012b. ESCAP, 2013c. ESCAP, 2007b. ASEAN, 2010.

India, Indonesia, Malaysia, thePhilippines, the

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