Can we manage this crisis differently?
Bailing out the poor, not just the banks
Following the latest international economic development downward reviewed figures, the World Bank has just decreased its growth rate forecast for Africa from 5,4% to 3,3%. Considerably more than for rich countries, this deterioration has severe consequences ; for, as was highlighted by the chief economist of the World Bank Shanta Devarajan, a specialist on Africa, “(on this continent), like nowhere else, a deterioration of the environment represents a humanitarian crisis.” 1 SAccording to him, “based on the last thirty years, the mortality rate of children under one year old could increase by 700 000 due to GIP slowdown. Equally, life expectancy could decrease.
This reality is too easily masked in this world crisis which appeared in the rich countries and which first effects are being felt in the developed countries. However, as Minouche Shafik , permanent Secretary of the British Ministry for International Development rightfully mentions in an editorial2 published on the international blog “Ideas for development” 3, “whatever the timing of an economic crisis, the poor are invariably the ones most impacted.” Leading to the question of knowing how to adapt programmes which will bring the crisis to an end, due to be discussed at the next G20 summit in London on April 2, so that they take this reality into account.
This is why we recommend reading this editorial; for, as opposed to yesterday, rich countries cannot afford anymore to forego putting in place a crisis management policy which includes the poor countries. The creation in 1997 of the Ministry for International Development (Department for International Development, DFID) is in this respect a particularly interesting initiative from the British Government, illustrating today’s slowly growing awareness that economic and political isolationism isn’t viable anymore. For the first time, a government has set up a ministerial department not directly devoted to national affairs but to the eradication of extreme poverty in the world, while at the same time justifying its action in the name of its own interests.
It is based on the unique experience of the DFID and its branch offices network throughout the world that Minouche Shafik casts a lucid look with no concessions at the consequences of the crisis on the poor populations which first effects, as she has pointed out several times , essentially translate into food terms. To such an extent that as the G20 gets closer, we can legitimately ring the alarm concerning the absence of a debate on the food security issue.
momagri Editorial Board
“In every economic crisis, it is the poor that suffer the most. Whether it is individuals or countries, they are the most vulnerable and lack the savings and the institutions to support them during difficult times. In past crises, we have focused too late on adverse effects on poor people. Can we do it differently this time?
The current economic downturn, unlike the East Asia crisis, started in the richest countries and has now affected the major emerging markets. The effects on low income countries are being felt, not mainly through financial markets, but through the volatility of commodity prices, the decline in export volumes and remittances. Reporting from DFID’s offices (Ethiopia, Bangladesh, India, Pakistan) indicate that in some cases poor households are taking children out of school to save money, and families, especially women and girls, are eating less or lower quality food, leading to concerns about malnutrition. Estimates are that the economic crisis has already put 100 million people back into poverty.
It is interesting to recall the lessons from previous shocks. During the recession of the 1980s, many developing countries embarked on structural adjustment programmes. While the economic reforms were often necessary, the awareness of the negative effects quickly became apparent and caused political problems in many countries and for the international financial institutions. The appeals for “adjustment with a human face” ensued and instruments such as Social Funds were established in many countries to cushion the effects through community development, skills training, and microfinance. While these Social Funds were often quite effective, they often took too long to establish and failed to play a truly countercyclical role in helping the poorest cope with economic adjustment.
For developing countries, this crisis started with the spike in food prices in early 2008. Interestingly, there was once again an appeal to create new institutions. The international response focused on a set of short term measures (food aid, social protection, input subsidies, etc.) and longer term measures (investment in research, infrastructure). But within months of agreement on this, food prices had started to fall and energy prices skyrocketed. Once again, there was a search for ways to alleviate the adverse effects. And once momentum on an international response coalesced, oil prices fell by two-thirds.
What lessons can we draw from these experiences? First, it is the nature of globalisation that there will be shocks. Those shocks may be food or fuel prices or credit squeezes or flights to quality, but they will come. Second, attempts to orchestrate a tailored response to protect the most vulnerable will almost always lag behind the need. This is inevitable given the long lead times required when new institutions are desired. Third, the best mechanisms are those that provide protection from any shock and use existing institutions and programmes to keep the most vulnerable above a minimum threshold.
Some countries have formal systems of social protection which can vary from reasonably good (Brazil, Ghana, India, Bangladesh, Indonesia, Vietnam), to limited (Uganda, Zambia, Ethiopia, Pakistan, Central Asia, Caribbean, Iraq) to still under preparation (Kenya, Sierra Leone, Cambodia). But in many countries there is no formal system and poor households rely on informal mechanisms such as remittances (Pakistan, China) or digging into modest savings (China), borrowing from moneylenders (Bangladesh), or drawing down on assets such as livestock (Tanzania) in order to cope. A good example of a well designed social protection scheme is Ethiopia’s Productive Safety Net Programme, which provides cash and food transfers for over 7 million people. £13 ($18) per month pays for cash transfers to support an entire family. The overwhelming majority (84%) of households spend some or all of this cash on buying staple food, ensuring improved health and nutrition outcomes and protecting families from having to sell productive assets to pay for food. Over a quarter of recipients (28%) also use some of the funds to keep children in school. Cash is also used to settle health bills and to facilitate asset accumulation by many families, especially livestock purchases. The programme proved its value last year, protecting many families from high food prices and drought and enabling the government and donors to use the existing programme to extend the duration of assistance.
DFID does not see the money we have committed to social protection as a welfare programme, although clearly for some households it will provide this function. The real payoff from social protection is in protecting other investments we are making in development. There is strong evidence that economic shocks in poor countries cause rising infant mortality, falling school enrollment, and falls in nutrition levels. Severe malnutrition in early childhood often leads to stunted physical development and deficits in cognitive development - all of which reduce life chances and result in significant losses in life-time earnings. The costs of preventing such malnutrition can be very low because of recent technological advances - as noted in Josette Sheeran’s (NDL : the World Food Program’s Executive Director since April 2007) January 8 contribution to Ideas4development4.
In the months ahead, more poor countries need to be instituting social protection schemes to ensure that this economic crisis does not cause persistent poverty across generations and undermine recent progress, especially on education. When the Tequila crisis hit Mexico in 1994, it triggered the design of the famous PROGRESA programme which resulted in the establishment for the first time of an effective safety net for the country’s poor. More countries should do the same and more donors should be allocating funding to social protection. Robert Zoellick has called on the US to pledge 0.7 per cent of its stimulus package to a vulnerability fund for developing countries, who cannot afford a fiscal stimulus, to help them manage the consequences of the crisis (”A Stimulus Package for the World”, New York Times, 22 January 2009). Ideally we would create a shared funding mechanism that would send a strong signal that, alongside international policy coordination to protect the world’s financial systems, we will work together to protect the poorest from the inevitable shocks that globalisation brings. Without that, we risk losing the international consensus around globalisation and the value of past and future investments in development.”
By Minouche Shafik,
Permanent Secretary of the British Department for International Development (DFID)
While stimulus plans of several hundreds of billions of dollars are being defined in the rich countries5, the risk of seeing inequalities progress between industrialised and developing countries, which don’t have the means of implementing recovery plans, is very high. In this respect, the idea of creating “ a shared financing mechanism” to harmonise an international recovery plan is interesting; it is indeed necessary for the future G20 taking place in London in three weeks-time to try and find a coordinated but also global answer to the crisis.
However, the multiplication of recovery plans, even if they mobilise exceptional sums, will not prevent another crisis from occurring later, just as it won’t allow the recovery of food security for the poor countries. On the contrary, among the ideas currently put forward by the international community to put an end to the crisis, the Doha Round conclusions stand in good position, despite their aggravating effects on the poor countries’ food insecurity.
This is why today more than ever, it is necessary to back-up economic recovery policies with long term structural thinking , leading to the implementation of efficient regulatory policies aimed at correcting market disequilibrium, especially agriculture, which Minouche Shafik indicated the volatility of. These are particularly necessary given that, as the DFID permanent secretary indicated, the extent of the economic shock repercussions on poor populations is but the consequence of the state of vulnerability which they found themselves in before the crisis. In many respects therefore, this crisis must be seen as a unique opportunity to introduce real governance rules intended to re-establish lasting and equitable growth for all, while at the same time respecting the food security obligation, which is an unalienable right as it was recently reconfirmed in his report by O.de Schutter, the United Nations special Speaker on the right to food 6.
momagri Editorial Board
1 Cf. Le Figaro, « L’Afrique est la plus touchée par la récession mondiale », 11/03/2009
2 http://www.ideas4development.org/cette-crise-peut-elle-etre-geree-differemment-en-aidant-les-pauvres-et-pas-seulement-les-banques/fr/
3 “Ideas for Development” is an international Blog meant to stimulate debate on development issues. It brings together a set of senior professionals engaged in this sphere through their careers and personal convictions. Josette Sheeran, the World Food Program’s Executive Director since April 2007, Donald Kaberuka, the 7th elected President of the African Development Bank Group, and Dr. Rajendra K. Pachauri, the Chairman of the Intergovernmental Panel on Climate Change (IPCC) since April 2002, are regular contributors. This Blog aims at offering a new forum for open discussion and interaction between scholars, students, professionals of various backgrounds and the public at large. Together, they can share information, viewpoints and visions for the future with the common goal of advancing the cause of development.
4 Cf. “The nutrition challenge and what I saw in India” http://www.ideas4development.org/the-nutrition-challenge-and-what-i-saw-in-india/en/
5 The United States is devoting USD 787 billion to their stimulus plan (5,6% of their GDP), the European Union as a whole nearly €400 billion (3,3% of its GDP), and Japan has announced on March 13 a third stimulus plan package of €160 to 240 billion.
6 Cf. Report by Olivier de Schutter, UN Special Rapporteur for the Right to Food on his mission to the World Trade Organization (WTO), March 9, 2009http://www.momagri.org/UK/Editorials/Doha-round-will-not-prevent-another-food-crisis_454.html |