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Social Protection Responses to the Three Waves of Crisis: Finance, Food & Fuel South

South-South Learning Forum 2009

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Social Protection Responses to the Three Waves of Crisis: Finance, Food & Fuel South 

Fuel and food prices volatility is likely to continue affecting the purchasing power of millions of people.

The food, fuel and financial (FFF) crises bring threats to human development from several fronts. First, falling real wages and employment impede households’ ability to provide adequate food and necessities to their members. Second, the reduction of working opportunities abroad and reduction in the level of remittances further reduce the income of the poor. Third, the squeeze on government budgets and reduction of foreign aid usually reduce services to the poor, during a time when people are switching from private to public education and health services. In the absence of assistance, households may be forced into the sale of the assets their livelihoods depend on, withdrawal of their children from school, inadequate use of health care, inadequate diets and resulting malnutrition. Many millions more will be poor, and progress toward the Millennium Development Goals (MDGs) will be slowed as a result.

The current global crisis in financial markets is adversely affecting growth and equity objective. The slowdown will inevitably affect, albeit with a lag, employment and earnings, with declining FDI, exports and remittances leading to a severe slowdown in GDP growth. While fuel and food prices are moving away from their recent 2008 summer peaks, their volatility is likely to continue affecting the purchasing power of million of people and poses challenges to governments in developing countries
Policy makers in many countries have been under pressure to quickly introduce measures to protect their citizens, bringing the potential for social protection responses to the fore. This is underlined most forcefully in the recent G20 London Summit Declaration which stated:

“We are determined not only to restore growth but to lay the foundation for a fair and sustainable world economy. We recognize that the current crisis has a disproportionate impact on the vulnerable in the poorest countries and recognize our collective responsibility to mitigate the social impact of the crisis to minimize long-lasting damage to global potential”.

In the absence of sound policy advice, government may resort –as has been the case in several instances- to less efficient policy instruments which often have undesirable efficiency and fiscal impact. Sound macroeconomic policies and a favorable investment climate are essential to mitigating the impact of the crisis on earnings and employment, but they are not enough.
In this context, social protection instruments can help (i) forestall to a degree the increases in poverty and inequality that the change would bring; (ii) support households maintain access to food and essential services for health and education and (iii) maintain social equilibrium and in avoiding policies that will further aggravate the problem.

An effective policy package should include a combination of social safety nets (transfer programs including – cash and feeding interventions designed to cushion the income and human capital investments of the working poor from the worst impacts of the crisis), labor market polices (passive and active labor market programs designed to stabilize employment and earnings) and other policy instruments (sound macroeconomic and fiscal policies, etc.). In addition greater learning exchange is required to enhance implementation aspects in response to crises, as well as for ongoing operations. In this respect, emerging experiences on new innovations and adaptations of social protection interventions are significant.

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