The recent macroeconomic crises in many Asian (1997–99) and Latin American (1994–95, 1999) countries have prompted many countries to reassess the adequacy of their social safety nets to assist poor and vulnerable population groups. Similarly, the waves of natural disasters and the economic and social consequences that have afflicted Africa and many countries in Central America and South Asia over the past two decades also suggest the need for a more effective response to crises.
The widespread covariate nature of natural disasters and economic crises has implications for the ways in which the shocks are transmitted to households as well as how households are able to prepare and respond. Economic crises are manifest in a variety of ways that can disproportionately hurt the poor, including increasing unemployment or declining wages, relative price changes such as increased prices of food, and lower returns on physical and financial assets. Natural disasters such as earthquakes, floods, hurricanes and droughts wreak significant physical destruction and loss of life and can also lead to regional health, harvest, and food price shocks. The effects on the poor and vulnerable are often exacerbated by cuts in public spending on the social sectors particularly following economic crises, along with a longer term erosion of social capital within communities, marked by increasing crime and violence.
Individuals and households respond to these shocks differently. Many take on additional work often in the low-paying informal sector or shift production. Some adjust food consumption patterns, reducing their productivity and increasing their vulnerability to longer-term malnutrition and illness. Other families reduce education expenditures and try to increase income by sending their children to work rather than school. Still others cut back on health expenditures by delaying visits to clinics until it is too late. Women tend to suffer disproportionately as they lose their jobs first, and often provide for their families before themselves. In addition, informal and group-based coping mechanisms that form the backbone of most safety nets for the vulnerable tend to be insufficient and may be unsustainable in the face of a large covariate shock due to an inability to adequately diversify risks.
A public social safety net can be an important counter-cyclical tool to help protect the incomes and human capital investments of the poor and vulnerable in times of crisis. Effective social safety nets must be able to respond in a timely and flexibly manner to changing needs without relying extensively on administrative discretion. Setting up safety nets during a crisis is difficult. Increasing evidence suggests that it is better to have mechanisms in place beforehand that can be scaled up (and down) as needed.
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