Covid-19: an unprecedented dual crisis

Lee Chang-Hee

Pho Thin is where I can taste the best pho at a reasonable price, and I am sure that many Hanoians would agree with me. This humble family-owned street restaurant supported generations of people coming from the home village of its founder, the late Mr. Bui Chi Thin, who hoped to build their new life in the capital city. Since its establishment in 1954, Pho Thin never ceased its operation as a household business, during the centrally planned economy, the American War, or the financial crisis in late 1990s and late 2000s. Now, however, it is temporarily closed for social distancing.

This anecdote illustrates the devastating magnitude of the economic and social challenges triggered by the Covid-19. Millions of household businesses are put on hold, while thousands of larger enterprises have suspended their operation. Every day people are losing jobs, and their income.

The entire world is facing an unprecedented severe crisis, the worst one since World War II. With various forms of lockdowns and social distancing, the global health crisis is quickly triggering a global economic and social crisis. According to the latest estimates of the International Labor Organization (ILO), full or partial lockdowns have affected almost 2.7 billion workers, representing 81 percent of the world’s workforce. The ILO Monitor released earlier this week indicated that working hours will decline by 6.7 percent in the second quarter of 2020, which is equivalent to 195 million full-time workers.

Around 38 percent of the global workforce is employed in the sectors that are now facing a severe decline in output and a correspondingly high risk of devastating layoffs, wage reductions and working hours. Accommodation and food services, including street restaurants like Pho Thin of Hanoi, are among them.

It is no longer just a public health challenge. We need to protect public health, and people’s livelihoods. It is not a choice. If we fail to save people’s livelihoods, we will ultimately fail to protect their life and health against the virus, and vice versa.

The good news is that Vietnam is one of a few success stories so far, perhaps together with Korea, in containing the spread of Covid-19. From the very beginning, the Government put the top priority on protecting people’s lives and health, as announced by Prime Minister Nguyen Xuan Phuc. Unlike some other countries where abrupt and harsh lockdown created chaos, Vietnam has taken resolute but gradual and soft measures, with transparent and real-time information sharing. It is no wonder that Vietnam’s approach has garnered praise from the international community but also from its own people. The Berlin-based Dalia Research showed that among many countries surveyed, Vietnam’s citizens report the highest trust and confidence in the government’s response to this pandemic.  

But don’t forget this is not a single-country fight. It’s a global one! So, even if Vietnam succeeds in keeping Covid-19 under full control, its economy and society will still be severely affected as long as the Covid-19 crisis keeps spreading in the other countries with which Vietnam is connected through trade. More than two million jobs are at risk, as the latest estimate by the Ministry of Planning and Investment clearly shows.

Ta Hien, Hanoi's popular night beer street, is deserted at 7 p.m. on April 13, 2020. Photo by VnExpress/Ngoc Thanh.

I am very encouraged to see that Vietnam has begun to introduce and roll out policy packages to stimulate the economy and support enterprises, jobs and incomes, as evidenced by the resolution on government’s Covid-19 support. Yes, there may be rooms for improvement. But I believe that the unprecedented $2.6 billion support package is broadly in line with what ILO suggests at global level for large scale and integrated policy responses to fight Covid-19: 1) stimulating the economy and employment, 2) supporting enterprises, jobs and incomes, and 3) protecting workers in the workplace. Such policy framework will enhance post Covid-19 recovery by limiting harms to people and minimizing threats to future growth potential.

I want to emphasize three points.

First, under the current situation, enterprises are likely to accelerate layoffs, which have already started. If unchecked, these layoffs will magnify the social crisis and resulting downward spiral.

It is critical to focus on maintaining jobs, by directing the government’s support to businesses that carry out various measures to retain workers in employment. This will help to slow down and minimize the shock of employment crisis. In doing so, it is important to have social dialogue between enterprises and workers, and between both of them and the Government for gradual adjustment to jobs, working hours and wage incomes based on mutual understanding. Social dialogue can create trust and confidence in policies and measures taken by the Government and enterprises, minimizing possibility of social instability. This will help the economy bounce back once Covid-19 comes under control. In this regard, Vietnam already has some good initiatives, such as what have been done by Hai Phong Economic Zone trade unions.

Second, it is important to minimize the impacts of various containment measures on micro enterprises, family business and rural agricultural communities. These are the businesses that sustained Vietnam during the wars and economic crises in the past. However, the current pandemic and social distancing measures is causing a heavy strain on their capacity to absorb economic and social shocks. When there is an abrupt collapse of global demand for Vietnamese goods and services, or a disruption of global supply chains, millions of micro enterprises, family businesses and rural farming community provide subsistence support. Therefore it is urgent to allow them to play their roles at this critical juncture, with government’s support.

Third, micro enterprises, family business and rural agricultural communities, as well as all workers in non-standard forms of employment often fall through the cracks of social protection. Together with employment retention measures, emergency cash transfers are therefore essential to ensure that they get the support they need to stay afloat. Cash disbursements to low- and middle-income groups are not only an effective way to protect people’s livelihoods but also maintain continued consumption. These households are likely to spend a large portion of the cash support on food and basic necessities in the local market, thereby maintaining demand and benefiting the society as a whole. Evidence from previous crises shows that social protection cushion the demand and supply shocks, both in addressing emerging deprivations and serving as an effective economic and social stabilizer.

Protecting people’s livelihood through this difficult time must be a priority to protect the foundation of the society and therefore is at the heart of paving a solid path towards recovery and win the fight against Covid-19. Now it is time to take balanced approach to this dual crisis. On public health front, Vietnam has proven to be one of best countries in the world. It is time to prove that the nation is equally excellent in addressing economic, social and labor market challenges. I have the confidence that Vietnam can do it. The international community, including ILO and U.N. agencies, will provide all available support.

*Lee Chang-Hee is the country director of ILO Vietnam.