Middle Class Is Casualty of Asian Downturn

By EVELYN IRITANI

Dec. 27, 1998 12 AM PT

TIMES STAFF WRITER

BANGKOK, Thailand —

Even as the economic storms from Asia seem to be subsiding, the region’s middle class--proof of the “Asian miracle” and heir to the supposed Pacific Century--is shrinking by the tens of millions and sinking into poverty.

Instead of inheriting a legacy of global economic supremacy, a generation of Asians finds itself trapped in an urban middle-class nightmare of declining wages, rising prices and dashed expectations.

Much as the Great Depression left its mark on a generation of Americans, the financial collapse that began here 18 months ago is changing behavior, political beliefs and aspirations from Bangkok to Jakarta to Seoul.

Two decades of growth and an estimated 25 million jobs will be lost to this economic cataclysm, whose shock waves have reverberated as far as Russia and Brazil.

In a new assessment of the damage, the World Bank estimates that by 2000, more than 50 million people--the population of nearly two Californias--will fall into poverty in the five hardest-hit Asian countries: Thailand, South Korea, Indonesia, Malaysia and the Philippines. That would double the number of poor in those countries.

“It is clear that changes wrought by last year’s events in Asia will be as intense as those brought on by the Great Depression of the 1930s for Europe and North America,” the World Bank says.

And like the Depression, which sowed the seeds for the political upheaval in Europe that led to World War II, this downturn has bred an explosive mixture of disillusionment and hunger.

Confronted by a well-educated and increasingly restive populace, four governments--in Japan, South Korea, Thailand and Indonesia--have already been thrown from power.

“When you look at the political unrest, the primary source is the middle class, not the poorest or the wealthiest,” said James Castle, head of the Castle Group, a prominent consulting firm based in Jakarta, Indonesia.

Yet political turmoil merely reflects a broader, deeper and more long-lasting change in attitude and outlook whose ultimate shape is not yet known. George Yeo, Singapore’s minister of arts and culture, calls it a “defining communal experience for Asians across cultural and national boundaries.”

It has been a barely imaginable reversal for young professionals like Chaovalit Tainsuwan, who came of age during East Asia’s golden years, a period of unprecedented growth that lifted about 375 million people out of poverty.

Laid off this fall from a manager’s job at a Bangkok electronics firm, Chaovalit is applying for a lowly technician’s post at a fraction of his previous salary. Even if he gets the job, he has lost ground; the prodigious saving habits of Asians like him are all that stand between them and the bottom.

Instead of buying Christmas gifts this season, he dipped into his savings to cover the mortgage.

“I’m just trying to save any extra money I get,” said Chaovalit, 36, who measures the economic decline in his upscale suburban housing complex by the sea of “For Sale” signs.

The changes throughout the region extend far beyond the pocketbook to the life-altering ravages of poverty, in which families collapse, addictions rise, and crime and violence hold sway. All these have begun to occur, according to social workers and government reports.

And the region’s social safety nets are, by Western standards, virtually nonexistent.

Governments Mostly Eschew Welfare

Asian governments traditionally have eschewed welfare or employment programs and, in the last two decades, have relied instead on the region’s dramatic economic expansion to keep jobless rates low. Families also have been expected to take care of their own.

Although all the hard-hit Asian governments are under pressure to step in--and agencies like the World Bank and the Asian Development Bank are beefing up their aid--most efforts are aimed at helping the poorest of the poor. The newly disenfranchised middle class is on its own.

South Korea is the only country offering unemployment benefits, which it recently extended to nine months, but those funds reach only a fraction of those without jobs.

The collapse of the South Korean construction industry has left Park Choong Sun, a 37-year-old welder, without work for a year. His parents are dead and he has no other family, so he spends his days and nights at a corner bench in Seoul’s central railway station. When the station doors are locked at midnight, he heads down to one of the subway entrances, where as many as 3,000 people huddle to be sheltered from the cold.

“I drink more because there’s so much on my mind,” explained the discouraged worker, who was back at the station on a recent chilly winter day after being hospitalized because of a severe fall.

Shame of Jobless Leads to Denial

Many South Korean men who lose their jobs are so ashamed that they keep up the employment myth by putting on their business suits every morning and wandering around Seoul.

“Over 80% of Koreans believed they were middle class. Now there’s almost no middle class,” said Lee Si Hyung, director of the Korea Institute of Social Psychiatry.

The Thai and Indonesian governments had counted on farming to absorb some of their urban jobless. And some farmers have gotten a boost from those countries’ currency devaluations, which lowered production prices and made new export markets possible.

But Cornell University professor Iwan Jaya Azis, who has studied recent migration patterns in Asia, said many of those who returned to their villages early in the crisis were not able to find work. One reason is the shift in recent years from labor-intensive family farms to large corporate plantations that require fewer workers.

Unable to find jobs in the cities or on the farms, many Asian professionals and skilled workers are setting up sidewalk stalls to sell food or cheap goods. However, eking out a living on the street has become much more difficult, according to Karm Joonnasorn, 25, who sells pork with her husband in downtown Bangkok. Together, they make about $12 a day.

Karm said the laborers and office workers who are her main customers have either vanished or are buying one piece of meat instead of two.

“It’s more difficult to sell, especially this year,” said Karm, whose family of three pays $61 a month for a shack in the shadows of Bangkok’s tallest skyscrapers.

The middle class has taken the brunt of Asia’s currency and stock market collapses in part because the biggest job losses have taken place in white-collar industries such as banking, real estate and retailing, according to Cornell’s Azis.

They tend to be city dwellers who are also more vulnerable to rising prices caused by the sharp devaluation of their currencies because more of the goods and services they use are denominated in dollars, according to Azis and others.

The experience has been especially jolting because the members of Asia’s middle class had become enthusiastic participants in the consumer economy that flourished in the last two decades, fed by foreign capital and the proceeds of overheated stock and real estate markets.

In less than a generation, Asia’s upwardly mobile moved from the fields to the office, quickly embracing the lifestyles of the industrialized West. From 1975 to 1995, the number of people living in poverty in East Asia dropped from 720 million to 345 million, according to the World Bank.

These newly middle-income wage-earners often sent their children abroad for schooling, obtained loans for homes, automobiles and motorcycles, and became the world’s most voracious consumers of everything from cell phones to cognac.

Now, those lucky enough to still have jobs are being squeezed by drastic cutbacks in their incomes and by soaring interest rates on consumer loans, as well as by rising prices for basic necessities such as rice and fuel, which have skyrocketed in countries such as Indonesia, where government subsidies have been eliminated.

Families Are Going Through Nest Eggs

In Indonesia, the percentage of income devoted to savings dropped by nearly half and redemptions of life insurance policies increased more than 40% since last year, according to Castle.

These are the kinds of experiences that molded a generation of frugal Americans in the 1930s, and the Asian crisis will probably have the same effect.

“It will color their habits for the rest of their lives,” Castle said. “They will be less secure in their future, even in good times, and much more conservative even in their savings habits.”

Meanwhile, this sharp turn in the fortunes of Asia’s urban middle class has brought economies across the region to a virtual standstill.

Retail spending has collapsed, and the decline has been greatest in such crucial industries as motor vehicles, whose sophisticated manufacturing was seen as a model to help industrialize the region’s emerging economies.

In Thailand, once the world’s fastest-growing small-truck market, vehicle sales have plummeted from 50,000 to 12,000 a month. Used car lots filled with repossessed automobiles are springing up across Bangkok.

Companies such as Ford, General Motors and Toyota, which have invested hundreds of millions of dollars in Asian manufacturing facilities, are scaling back their aspirations. Most are keeping their factories open with skeleton staffs, boosting their exports to non-Asian markets and betting on eventual recovery.

However, John Bonnell, Southeast Asia director at Bangkok-based Automotive Resources Asia Inc., predicted that auto demand in Southeast Asia will not return to pre-crisis levels for at least five years because of the collapse in buying power and the disappearance of a pool of low-cost loans and attractive leasing packages.

Even if Asia’s economies hit bottom next year and begin to turn around, as many governments are predicting, it will be at least four or five years before the middle class reappears and regains the economic clout it enjoyed before the crisis, economists say.

That has been Mexico’s fate. The middle class suffered the greatest drop in living standards after the collapse of the peso in December 1994, according to Jonathan Heath, chief economist at Mexico City-based Latin Source Mexico. And the purchasing power of the average Mexican manufacturing employee is not expected to return to its former levels until 2005 or 2006--in effect signifying the loss of a decade.

Yet in numbers of people hurt, Asia has seen the equivalent of several Mexicos collapsing at once--and with the same perverse unfairness. As in Mexico, those with cash in the bank in Asia actually benefited from the high interest rates that were part of the tight monetary standards imposed by the International Monetary Fund as part of its bailouts.

A Wealthy Thai Woman’s Perspective

Phasuk Thomya, a member of a wealthy Thai family of royal descent, knows that those caught in the middle are the most vulnerable. Although she and her friends have cut out their overseas trips and other extravagant purchases, they do not have to worry about putting food on the table. And even those with overdue loans know that their bankers are reluctant to knock on the doors of their wealthiest customers.

“For middle-class people, they don’t wait,” she said.

That’s why Phasuk recently opened a small restaurant, Cafe du Tou, in downtown Bangkok to employ 30: her household workers and the staff of a small real estate firm that she was forced to shut down for lack of business.

“I must take care of them because they’re like part of my family,” she said.

Mark Magnier of The Times’ Tokyo Bureau contributed to this report.

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Asia in Crisis

Increase in Poverty Due to Downturn

Increase in poor due to enemployment:

*--*

Total Country millions % of pop. millions % of increase Indonesia 39.9 20% 12.3 30.8% South Korea 5.5 12 4.7 85.5 Thailand 6.7 12 5.4 80.6

*--*

Increase in poor due to inflation:

*--*

Total Country millions % of pop. millions % of increase Indonesia 39.9 20% 27.6 69.2% South Korea 5.5 12 0.8 14.5 Thailand 6.7 12 1.3 19.4