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|UN Warns Austerity Plans Damage Economic Recovery|
Cuts in spending on health, education and other social programs in response to high government debt threaten to turn back decades of social progress. Rather than giving in to austerity measures, governments should address the root causes of the financial crisis, says a report by UN DESA.
1st July 2011
22nd June 2011 - Reuters
Austerity measures being adopted by many industrialized world governments in the wake of the 2008-09 financial crisis are undermining economic recovery, a United Nations report said on Wednesday.
Cuts in spending on health, education and other social programs in both rich and poor countries, it asserted, threaten to turn back decades of social progress, block new job creation and derail efforts to eradicate poverty.
"The growing pressure for austerity measures, ostensibly for reasons of fiscal consolidation, is putting at risk social protection, public health and education programs, as well as the economic recovery measures," the report said.
If governments give in to these pressures, they could jeopardize the sustainability of the recovery, which was at best uncertain and fragile, it declared.
"Continued support for stimulus and other recovery measures is needed to strengthen the momentum of output recovery and to protect the economic and social investments that underpin future growth."
The study, "The Global Social Crisis-Report on the World Social Situation 2011," was presented at the world body's European headquarters in Geneva by its main author, Malaysian -born U.N. Assistant Secretary-General Jomo Kwame Sundaram.
Chinese, Asian Efforts
Sundaram, a development economist who has taught at both Harvard and Yale universities in the United States, told a news conference that Asian countries, including China, had made strong efforts to sustain economic recovery programs.
Their exports to the West had helped drive the overall post-2009 recovery, he said. But if demand from richer countries tailed off as austerity slashed disposable incomes, Asian economies would also drop back.
The report made no specific reference to the current problems of European countries in the euro zone and outside it, which have been heightened by the political and social turmoil in debt-burdened Greece.
But its thrust was implicitly critical of European Union member countries and the U.N.'s International Monetary Fund (IMF), which are pressing Greece to push on with tough austerity measures as a condition for a bail-out loan.
Portugal, Ireland and Spain -- all users of the euro -- and Britain which stayed out of the common currency have all introduced austerity programs involving cuts in social services and are all facing varying degrees of social unrest.
The U.N. report said responses to the crisis had not addressed what had sparked it.
"For example, financial reform in major economies has not matched initial expectations and exposes the recovery to new abuses, excesses and vulnerabilities," it asserted. "There are signs that this is already happening.
"Progress in addressing other structural causes of the crisis have also been limited....income inequalities continue to grow, global balancing is limited and global demand remains depressed.
"The failure to address the root causes of the crisis will impede a sustainable recovery," the report said.
22nd June 2011 - UN DESA
Over the period 2008-2009, the world experienced its worst financial and economic crisis since the Great Depression of the 1930s. In 2009 global output contracted by 2 per cent. Since then, the global economy has bounced back, due mainly to unprecedented coordinated actions by leading economies with fiscal and monetary measures. But this recovery has been uneven and still remains fragile, with ongoing adverse social consequences.
The crises have hampered progress towards attaining the MDGs
• Global unemployment rose sharply from 178 million persons in 2007 to 205 million in 2009. The rapid rise in unemployment has triggered an increase in vulnerability, especially in developing countries without comprehensive social protection. Estimates suggest that between 47 million and 84 million more people fell into, or remained trapped in, extreme poverty because of the global crisis.
• The economic crisis exacerbated the effects of the food and fuel price hikes in 2007 and 2008. According to the FAO, the number of people living in hunger in the world peaked at over a billion in 2009, the highest on record. In the wake of the recession, food and fuel prices are again on the rise. These multiple crises have set back the progress many countries have made towards achieving the internationally agreed development goals, including the Millennium Development Goals.
• During times of financial and economic crisis, households often adopt coping strategies, such as making changes in household expenditure patterns; however, these can negatively influence education, health and nutrition, which may lead to lifelong deficits, especially for children, and thus perpetuate the intergenerational transmission of poverty.
• The impact on social progress in areas such as education and health will only become fully evident over time. Given the fragility of the economic recovery and the uneven progress in major economies, social conditions are only expected to recover slowly. The increased levels of poverty, hunger and unemployment will continue to affect billions of people for years to come.
• Meanwhile, austerity measures in response to high government debt in some advanced economies are also making the recovery more uncertain and fragile. Increased pressure for fiscal consolidation and new pressures in response to such debt have severely limited fiscal and policy space in developed economies, and many countries are also under pressure to cut public expenditure, undertake austerity measures, reduce the scope of government action and further liberalize labour markets.
What does this mean for policymakers?
• Countries need to be able to pursue countercyclical policies in a consistent manner. Such policy space should be enabled by changing the fundamental orientation and nature of policy prescriptions that international organizations impose on countries as conditions for assistance.
• It is essential that Governments take into account the likely social implications of their economic policies. It has been shown, time and again, that economic policies considered in isolation from their social consequences can have dire consequences for poverty, employment, nutrition, health and education, which, in turn, adversely affect long-term sustainable development.
• The relative success of some Asian and Latin American Governments in mitigating the economic and social impacts of the recent crisis strongly underscores the need for Governments to be consistently countercyclical and the wisdom of conserving fiscal resources during boom periods to support expansionary measures in times of need. Universal social protection systems and active employment generation programmes should become permanent measures, not merely temporary components of national crisis response measures.
• Social investments should be accorded priority in recovery strategies and development policies. Increasing expenditures to expand social protection and improve access to education and health services will help ensure more inclusive development with stronger domestic demand and a more solid foundation for future growth.
As challenging as it may be, the crisis offers an opportunity for achieving social progress by making universal social protection a reality, revisiting the social impacts of globalization, and ensuring more inclusive and sustained growth.
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