Bird flu and regional cooperation

Bird flu and regional cooperation

David E. Sumual, Analyst, Danareksa Research Institute,
Jakarta

Attention has shifted again to the renewed concerns of
"microbe economics" in recent weeks. Seemingly no less deadly
than the SARS outbreak last year, the outbreaks of bird flu have
rung another alarm bell about the emergence of a region-wide
public health crisis in East Asia.

Bird flu has sprung up in Thailand, Taiwan, Japan, South
Korea, Cambodia, Indonesia, Laos, Pakistan, Vietnam, China and
Indonesia, killing twelve people and the slaughter of at least 20
million chickens across the region thus far.

According to the World Health Organization (WHO), there is a
possibility that the deadly strain of the flu virus, known as
H5N1 could spread from chickens to pigs and then mutate before
jumping to humans.

After first insisting that this country was free of bird flu,
Indonesia belatedly and reluctantly joined the list of countries
severely affected by the avian flu pandemic last week. The
government was forced to admit that the virus had caused the
deaths of some 40 percent of the 4.7 million chickens that have
died since last September.

Some analysts suspect that the government decided not to warn
farmers of the outbreak earlier because of pressure from certain
big poultry companies that feared their operations would be
disrupted, as may have been the case in Thailand. Nevertheless,
the government officials may have also considered the social and
economic consequences, particularly in regard to the upcoming
national elections.

The government apparently did not realize that the cover-up
mentality might cause an even worse impact on the Indonesian
economy. The slow response in containing the avian influenza has
put the country's US$6 billion poultry industry, which employs
some 2.5 million workers, at risk. Hitherto, the government's
initially secretive response has allowed the virus to spread to
51 districts across 10 provinces, causing approximately $917
million in financial losses to date.

Only after intensive pressure from WHO did the government
undertake an aggressive campaign to combat the disease by
allocating $27 million for a mass culling and vaccinations of
chickens. Although the allocation of such a large amount of funds
is of relief, all elements in society should pay close attention
as to how the funds are channeled to avert any possible abuse of
funds.

The Indochina peninsula, especially Thailand, where poultry
exports bring in $1.2 billion per year appear has been the worst
hit so far. Reportedly, the European Union, Russia, Australia and
Middle East countries have banned poultry imports from the
region, including Indonesia although there is no evidence that
the virus is being passed on through the eating of chicken
products. Though it is too early to quantify the potential
economic impact of this pandemic, the impact of bird flu on
Indonesia's economy is by no means on the same scale as the SARS
outbreak.

In the short-term at least, the bird flu outbreak may only hit
poultry-industry profits as shown by the media reports of
declining sales that prompted lower poultry prices. If this is
the case, the impact on the economy will be small as the
livestock industry accounts for less than 2 percent of
Indonesia's GDP. However, the travel and tourism industry could
later be hit if the virus starts affecting humans. Excluding the
negative impacts of the recent $25 visa-on-arrival policy, the
impact of a man-to-man transmitted virus could be severe on the
tourism industry, especially in the absence of appropriate
government measures.

Negative sentiment surrounding the bird flu pandemic could
even incite a speculative attack on a country's financial system.
An obvious example is Hong Kong six years ago when a speculative
attack on Hong Kong's pegged currency almost brought the city's
financial system down. Worryingly, some signs of financial
troubles -- although in no way like the financial contagion that
swept the region in 1997 -- have emerged.

Investor paranoia incited by the media coverage about the
dangers of avian flu that could harm the region's economies has
sent shockwaves through the region's stock markets. Thailand's
stock market appears to have been the worst hit, plunging 17.4
percent down to 667 points, since the Thai government
acknowledged the outbreak last Monday. The Jakarta stock market
is also starting to lose ground, down 7.6 percent since last week
to 731.8 (as of lunchtime on Monday), with many investors seeing
the bird flu crisis as an excuse to take profits.

The bird flu and SARS outbreaks actually have similar
characteristics of the widespread contagion effect of the 1997
financial crisis that turned out to be much more of a regional
than a global phenomenon. The region's economies have become
highly interdependent and are perceived to have similar economic
structures by foreign investors and lenders. The interactions
between trade and investment flows account for the deepening of
economic linkages in the region.

Interestingly enough, the progress in intra-regional trade has
been increasingly stronger, primarily due to a sharp increase in
trade linkages between ASEAN countries and the rest of East Asia.
For instance, according to DRI calculations, the share of trade
within ASEAN rose from 23.5 percent in 1999 to 25.3 percent in
2002. At the same time, the share of trade within ASEAN plus
China, Japan and Korea increased from 32.8 percent in 1998 to
36.1 percent in 2002.

All in all, the outbreak of SARS last year and bird flu
recently have actually given countries geographically close to
one another, some lessons on the importance of closer
cooperation. The microbe crises may indeed do a great deal of
harm to East Asian countries, but they have also fostered a sense
of solidarity in the region because people have common problems
and are seeking solutions together. The region's leaders also
appear to see the importance for institution-building especially
regarding transparency and accountability in dealing with public
health issues, which could be a good model for reliable
governance in other areas.

The first step of the regional cooperation in the fight
against bird flu has been nurtured in the ministerial meeting of
the affected countries in Bangkok last week. This initial step
was encouraging and may open up an opportunity to strengthen the
regional cooperation such as policy dialogs and reviews among
neighboring counties in preventing contagion of any crisis.

This article is a personal view