Defining New Poverty Lines for Asia

It's hard to imagine a balance sheet where the accounting matters more. In Asia, despite an ongoing boom, hundreds of millions of people still subsist on such meager incomes that any shift in the official poverty line can make conditions suddenly look brighter or bleaker—at least on paper. That point was made dramatically last week when two leading development banks revised their definitions of what it means to be poor. Though the studies differed methodologically, both significantly increased the number of Asians estimated to be living without adequate nutrition, clothing and shelter, a change that could complicate U.N.-led efforts to halve the global poverty rate by 2015.

The revised poverty lines don't reflect a sudden drop in conditions. Instead, they represent an attempt by development economists to, as Robert Zeigler of the International Rice Research Institute in Manila puts it, get their "arms around the definition of poverty and articulate it in a way that [policymakers] can use effectively." To accomplish that, the Manila-based Asian Development Bank (ADB) proposed scrapping the $1-per-day poverty measure popularized by the World Bank in 1990 as an estimate of the per-person cost of procuring the 2,100 calories a day deemed necessary for human health. The ADB's new Asian Poverty Line raises the bar to $1.35 per day. And the World Bank study raises its global poverty line to $1.25.

Though both poverty lines are based on purchasing-power parity (the comparative cost of similar goods in different countries), their methodologies and focuses diverge. The World Bank extrapolated poverty levels from general consumption patterns in 15 poor countries around the world, only two of which were Asian, whereas the ADB surveyed poor households in 16 Asian countries, arguing that this better identified specific purchasing patterns. For example, the study found that struggling households typically procure inferior grades of rice in small quantities (a kilo or less at a time) from local traders, whereas average Asians increasingly buy their grain in the 10-kg. sacks from supermarkets (as a result, the poor often pay less per calorie). The result of the ADB approach is a poverty line tailored specifically to Asia, where the bulk of the world's poor still live.

Both new standards suggest the number of Asians barely surviving is far larger than previously thought. In India, for example, some 319 million people get by with less than the old $1 per day. Use the World Bank's new $1.25 standard and the tally jumps to 455 million; it's 622 million if you use the ADB's $1.35. The ADB standard also pushes up poverty rates in Bangladesh, Indonesia and the Philippines by 6.6, 20.1 and 15.9 percent respectively. "What makes headlines are [Asia's high] growth numbers," says the ADB's chief economist, Ifzal Ali. "But there are two faces of Asia: an Asia that is shimmering and an Asia that is shivering." The new statistics show how many people have been left out in the cold.

The estimates also raise new doubts about the ability of the world's poorest countries to achieve their Millennium Development Goals for poverty reduction set by the U.N. back in 2000. By the World Bank's calculation, the global target is only being met today because China has far exceeded its benchmarks. By contrast, poverty in both South Asia and sub-Saharan Africa remains stubbornly high even though both regions have achieved impressive growth in recent years.

As for solutions, banks note that the vast majority of Asia's poor are rural, and that the Asian countries with the best track records for tackling poverty—China and Vietnam—did so by reforming agriculture and drawing surplus rural labor into manufacturing. Theoretically, their strategies are transferable to the Indian subcontinent, where poverty rates remain among the world's highest. But that has proved hard to execute due to corrupt and inefficient governments and closed markets.

The new poverty lines also underscore the risks posed by the latest threat to emerge: runaway food prices. This year's spikes in the cost of rice, wheat and corn have hit the poor hardest for the simple reason that they must devote the bulk of their meager incomes to food. "People end up spending more of their incomes on rice and less on other foods, education, housing and medical expenses—or they eat less," says Zeigler. "Any way you slice it, people's standard of living drops dramatically." In Bangladesh, according to the ADB's consumption survey, each 10 percent rise in cereal prices results in a 2.5 percent jump in the national poverty rate. Food, both studies agree, weighs heaviest on the budgets of the world's poorest households. That's part of the reason the current poverty equations look so grim.