Battling the 'Asian flu'

By William Harms
News Office

Economist Robert Townsend, who studies the management of risk in developing economies, has a rare opportunity to examine the impact of the current "Asian flu" on a national economy.

Townsend, the Charles Merriam Professor in Economics, has received funding from the Ford Foundation to expand his study of the economy of Thailand to see how people are faring in the face of the current economic crises there. The work is part of a $2.5 million, five-year grant from the National Institutes of Health to study systems of risk management throughout the country.

Thailand's economy was the first of a series of economies in Asia to undergo stress during the past few months. In the case of Thailand, the value of the local currency fell by 50 percent, a situation that has caused companies to go out of business and forced lay-offs in the country's expanding industrial sector.

The crises came as Townsend and his colleagues were completing a survey of households in the region around Bangkok, which was growing economically, and in the less prosperous agricultural area in the northeast.

The follow-up survey will begin this month and continue through June as researchers in Thailand interview households, local leaders, village-level organizations and banking groups to determine how seriously people have been affected by the financial crises, the worst the country has experienced in recent decades.

"The work will offer timely information and policy recommendations based on measurements that are solidly grounded in economic theory," Townsend said. "More generally, the research can been seen as addressing the issue of the impact of globalization."

One of the ways in which the wealthy in the nation may be able to deal with hardship is to borrow from a bank. That option is not available to those with fewer resources or those in rural areas who do not have access to conventional bank loans.

In the absence of loans, "households would need to accumulate buffer stocks of rice and other crops or accumulate money in cash or savings accounts," Townsend said.

The initial survey asked people how they managed losses during the worst economic times of the previous five years. They were questioned about their assets, including livestock, rice in storage, cash and business resources.

"In the re-survey, we will be able to see the changes that have taken place and possible patterns across households with respect to income, wealth, demographic characteristics, education, occupation and proximity to Bangkok," Townsend said. "This type of analysis is not possible with the usual socio-economic data sets of the World Bank or National Statistical Offices."

Townsend expects to find a wide variety of experiences. It could be, for instance, that farmers who use traditional forms of protection from economic swings, such as pooling rice supplies, will experience little impact from the crises because they are not as dependent on the cash economy. City dwellers who need to be able to borrow money to get through tough times could face greater difficulty.

"Some areas of the country might not suffer much impact at all," Townsend said. "In areas with good rice harvests, things might be going quite well. It's a good time to export and those exports could help the country get through the crises."