Endnotes

¹The term ”social protection” denotes major branches of social security such as pensions, healthcare, work injury, and social assistance.

²Longevity risk concerns the probability that accumulated savings and retirement benefits may be inadequate to last until death. Inflation risk concerns the probability that value of retirement benefit may not be protected against inflation during the retirement period.

³The “first-best” approach assumes that there is efficient resource allocation arising from perfectly competitive markets. Much of conventional economic analysis is based on the first-best assumption. Once the economy is not assumed to be in a first-best situation, assessing the impact of policies and formulating appropriate reforms become less straightforward and more contextual.

⁴The 2008 global economic crisis is arguably the most severe in over 7 decades. The International Monetary Fund (IMF) estimated that the world output increased by 3.0% in 2008, but declined by 0.8% in 2009 (IMF 2010). Its projections for growth of world output for 2010 and 2011 are 3.9% and 4.3% respectively. IMF uses the country classification “Developing Asia” to denote all Asian countries except Japan, and “Newly Industrialized Asian Economies”. This classification thus includes the People's Republic of China (PRC) and India, two of the rapidly growing Asian economies. The IMF has estimated that in 2008, the output in Developing Asia grew by 7.9%, but the growth rate was lower at 6.5% in 2009 (IMF 2010). It projects the growth rate of 8.4% for 2010 and for 2011. The International Labor Organization (2009) has indicated that as many as 50 million jobs may be lost globally if the crisis persists for a prolonged period. A general consensus among the analysts is that growth will remain subdued, unemployment will remain high, and the financial sector will undergo a major restructuring leading to its diminished role.

⁵The scope of this paper is limited to Eastern and Southern Asia, thus, excluding West Asia and Central Asia.

⁶For 2010, public debt as a percentage of gross domestic product is projected to be nearly 200% for Japan, over 60% for India and the Philippines, and over 50% for Malaysia and Thailand (Economist Intelligence Unit 2009). This would suggest both high costs of financing debt and constrained space for continued fiscal stimulation.

⁷A study by the European Commission (2009) finds that the combination of current global economic crisis and ageing populations will make fiscal sustainability an acute challenge for the European Union Members.

⁸Giang and Pfau (2009) have undertaken a stochastic actuarial assessment of pension finances in Viet Nam and found that the demographic changes are likely to deplete the pension fund by about 2052 with a 90% confident interval range of 8 years.

⁹Totalization agreements are designed to ensure that individuals and employers do not end up paying social security taxes or contributions in more than one jurisdiction, or alternatively avoid paying them in either jurisdiction. They also assist in recognition of pension rights, and in cross-border social security administration. The Philippines has entered into about 10 such agreements, mainly with countries in Europe and with Canada. India has also entered into several such agreements, primarily with European countries.

¹⁰The main objective of leveraging demographic complementarities is to help expand economic space, and achieve greater economic integration among Asian countries. Rapidly ageing Asian countries such as Japan, Korea, and Singapore could make more extensive and innovative use of off-shoring activities, involving those countries such as Philippines, Bangladesh, Viet Nam, and India, which are currently in a demographically favorable phase (i.e., where the share of working-age population to total population is rising). They can also use technology to minimize use of labor in economic activities, including in elderly care. Some Asian countries, such as Malaysia, perceive hosting the affluent elderly as long-term residents from rapidly ageing Asian countries as a good business opportunity.

¹¹There may be room for some expansion of coverage, both in terms of number of persons covered, and the benefit levels through application of greater professionalism, including more extensive use of technology, and through parametric reforms. This avenue should not be overlooked as extension of coverage of social security will require a combination of different avenues.

¹²B = Thai baht

¹³Thus Japan's Government Pension Investment Fund with assets of US$1.2 trillion became an independent institution in April 2006. Earlier it was part of the Ministry of Health, Labor, and Welfare.

¹⁴The PRC does not yet have national security legislation. Provincial and city/county social insurance agencies and employers adapt central government guidelines to local conditions (Social Security Administration 2008).

¹⁵Shanghai is reportedly considering relaxing its one-child policy. The positive impact on reducing the pace and level of ageing will, however, be gradual.

¹⁶This is exemplified by the 57.3% share in Rashid Hussein Bank (RHB) Capital Bhd., a private sector financial conglomerate, controlled by Malaysia's Employee Provident Fund (EPF). Such unusual investment choice could generate higher returns, but also involves substantial risks. There is also a possibility that disproportionate energies of the top management of the EPF may be devoted to this investment.

¹⁷These pay recipients in exchange for an action that brings private behavior closer to the social optimum (de Janvry and Sadoulet 2004). Therefore, they are best regarded as part of broader social safety nets.

¹⁸Indonesia has embarked the long term objective of achieving universal coverage for all branches of social security primarily through social insurance mechanism. It passed the Undang-undang Sistem Jaminan Sosial Nasiona Law No 40/2004, and Law No 11/2009 on social welfare to achieve this goal. The actual progress however has been relatively slow. A social security secretariat was set up in May 2009 but its budgetary allocations are not on a firm footing.

¹⁹Viet Nam also has the long term goal of universal coverage using social insurance methods, complemented by means-tested, social assistance and transfers. It passed a law on health insurance in November 2008 and a Decree 62/2009ND-CP on health insurance in August 2009. It has, however, postponed the implementation of unemployment insurance, but provided cash transfers to the poor to cope with the current global crisis.

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