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Development implications of the financial and economic crisis SNIS Academic Council Debate Series Bern, 23.03.2009 Katja Hujo, Research Coordinator www.unrisd.org What is UNRISD? • An autonomous United Nations agency founded in 1963 • Engages in multidisciplinary research on the social dimensions of contemporary development issues • Stimulates dialogue and contributes to policy debates within and outside the United Nations system How is Research Organized? • Cross-country and thematic papers • Research coordinators based at UNRISD or in universities • 150–250 researchers at country level, 60% from developing countries • Country-level research in 50–100 countries How is Research Used? • In global, regional, national and local development debates • By scholars, activists, government officials, international organization personnel, specialized and mass media, and the general public Research Programmes 1. Social Policy & Development 2. Democracy, Governance & Well-being 3. Markets, Business & Regulation 4. Civil Society & Social Movements 5. Identities, Conflict & Cohesion 6. Gender & Development Social Policy and Development The Multiple Roles of Social Policy Production human capital stabilization Reproduction Protection Redistribution sharing care burden market effects equity and equality gender-sensitive institutions life-cycle contingencies legitimation and social cohesion Development Implications of the Global Economic and Financial Crisis • Transmission channels of crisis effects on developing countries • Possible consequences for social development: – Production, reproduction, protection, redistribution • Challenges for Social Policy: – Financing – Equity – Social inclusion and democratization Transmission Channels • Foreign capital and domestic credit – Net private capital flows estimated to half in 2008 to US$ 467 billion and to US$165 billion in 2009 (IIF 2009) • Trade and FDI • Commodity prices • Remittances Importance of Aid Trade Commodity Prices Remittances Crisis effects on social development • Production – – – – – Growth and employment Fiscal accounts: budget deficits Balance of Payments: Current account deficits Public debt (risk spreads ) Financial sector (balance sheet effects, interest rates , credit ) • Reproduction – Gender effects: girls’ schooling and health, maternal health, female employment in export industries and public sector, access to micro-credit – Care burden – Infant mortality Crisis effects on social development • Redistribution – Vertical: Income and assets – Horizontal: between groups (gender, ethnicity and race, migrants, sectoral and geographical) • Protection – Insecurity – Individual and market-based social protection schemes insufficient – Financing constraints for public schemes Growth Fiscal Accounts Challenges for Social Policy • Market-based social insurance schemes highly affected by crisis (example: private pension funds and savings’ accounts) • Social protection activities at individual, household or community level adversely affected by systemic crisis (risk pooling, remittances etc.), although likely to bear burden of failed markets and strained public schemes • Universal tax- and contribution- financed schemes best suited in case of systemic crisis (countercyclical, broadest possible pooling) • Expansion of social assistance and emergency programmes recommended Challenges for Social Policy • Financing: – Respond to higher need with less money (spending priorities, efficiency etc.)! – No short-term response: expand domestic financing instruments like taxation and social insurance contributions – External financing instrumens (aid, natural resource rents, remittances) more volatile, more difficult to influence through national policy, less synergies for economy and state-citizenship relations Challenges for Social Policy • Equity – Multiple redistributive effects of crisis makes it difficult to identify winners and losers – Progressive financing and spending important; good to invest in social infrastructure (gender, vulnerable groups) – Likely move towards targeting,although costly and not inclusive Challenges for Social Policy • Social Inclusion and Democratization – « Benefit of Crisis » revisited: • Prospects for new development paradigm, new social contract based on solidaristic and democratic values? • Or increased social conflict, inequality, informalization and poverty with erosion of rights? Thank you ! • Graphs taken from: – World Bank 2009: Swimming against the tide: How developing countries are coping with the global crisis – IMF 2009: The Implications of the Global Financial Crisis for Low-Income Countries