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Shocks, poverty, and resilience: Oxfam’s findings from 12 countries

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1 Shocks, poverty, and resilience: Oxfam’s findings from 12 countries
Duncan Green, Oxfam GB

2 Oxfam’s research on the economic crisis
12 country case studies, involving 2,500 individuals - variety of methods Desk review of other research by multilaterals and academic institutions Analysis of fiscal impact in poor countries (forthcoming) One month consultation on draft overview All papers available at Countries: Armenia, Burkina Faso, Cambodia, Ecuador, Ghana, Indonesia, Nicaragua, Philippines, Thailand, Vanuatu, Viet Nam, Zambia (and regional analysis) Most extensive in SE Asia (household surveys, focus groups, interviews)

3 Channels of transmission
Aid budgets? Government spending…? Informal economy Remittances Trade Finance 3

4 Regional generalisations (with health warnings)
East Asia: Manufactures trade and labour markets Africa & Pacific: Commodity exports and trade revenue Latin America: Both Eastern Europe: Financial contagion Central Asia: Remittances and trade with Russia South Asia: relatively insulated, Sri Lanka worst hit Health warnings: 1. Impacts, patterns of resilience and vulnerability diverse 2. Research patchy 3. GEC not over 4. Pockets of vulnerability and resilience even where national exposure limited (e.g. some export-dependent workers in Ghana & Indonesia) 5. Households don’t distinguish between crises E Asia: mass layoffs in garment & electronic supply chains – knock-on informal impacts Africa & Pacific: threat of fiscal crisis in months and years to come Eastern Europe: largest falls in GDP Central Asia: banking crisis and falling oil prices in Russia affected others

5 “ “ Vulnerabilities: workers in export industries
I’ve never made any mistake, never done anything wrong. It’s probably because of my age… it’s very difficult for older people, difficult to get a new job - even youths find it hard. - 41 year old female garment worker dismissed from a factory in Serang, Indonesia We have been laid off without receiving salaries for 3 months, and no compensation… - laid off worker in Thailand In countries such as Thailand and Cambodia, women employed in the frontline of the world’s consumer supply chains have lost their jobs in large numbers. Eg mid-last year 18% (63000) garment workers had lost their jobs. Many others have suffered wage freezes, reductions of work hours or were pressures into less secure contracts, as companies have taken advantage of the crisis. Nicaragua: workers in the Maquila factories that produce garments and other export goods for the US market has seen a third of its jobs go – 30,000 workers mostly women. Each maquila worker supports an average of four people.

6 “ “ Vulnerabilities: informal workers
Lots of factories here have closed, due to this recession. Lots of people have lost their jobs. This has negatively impacted our business, as these factory workers are our main customers. We sell them cooked food for lunch. - street trader, Durban, South Africa It is okay for a couple of people to open restaurants, or do business in pig dealings, paddy rice husking, mechanical services or construction. But if all migrants return and do the same things, It would be a disaster, as there are no customers. - retail shop owner, Nghe An, Vietnam Informal economy is where majority of women and men in developing countries make their living with no regulation, no security, and no social safety nets. For both men and women the crisis has resulted in increased informalisation and vulnerability. Street vendors suffering twin squeezes of increased competition from retrenched workers and reduced consumer demand. Home based workers suffered from reduction in export demand, reduction in pay rates for piece work. Profound impact on informal economy has been largely invisible in terms of officials statistics, despite its importance in many countries.

7 “ “ Vulnerabilities: rural households
[My relatives in the US] are unable to send me money because the job opportunities are not there any more. Their support is a huge contribution to the family here because it helps us to support children in school and pay medical bills when one is sick. - resident of Monrovia, Liberia I feel cheated as I wonder how economic problems somewhere in America can make my cash crop suffer here in Malawi. It’s a shame that I cannot boil and eat it… - Malawian cotton farmer - Small farmers in Africa and elsewhere who pursued export agriculture faced falling prices - While remittances dropped less than expected, households lacking alternative livelihoods have been hit (6%) - Increase in loan defaults of farmers in Nicaragua and potential sale of assets in South-East Asia - In Cambodia, Vietnam, Indonesia and the Pacific Islands, not having land or access to fishing increased vulnerability.

8 Gendered impacts Transmission Impact Response Finance Production
Gender numbers Gender norms Capital flight Devaluation Confidence Aid FDI Credit squeeze Investment Asset prices Support for banks Loans from IFIs Borrowing Concessions for investors Production (Export) demand Output Employment Enjoyment of rights Subsidies for selected industries Loosening labour laws Reproduction Remittances Informal paid work Govt social expenditure Earnings Nutrition School attendance Unpaid work Social protection Gendered impacts Economic Sphere Transmission, impacts, responses to first wave of GEC relatively well understood within financial and formal productive sectors – easily quantified. Much less known about the second wave impacts and responses in informal and reproductive (mainly unpaid domestic work by women) economies. Reproductive economy is least visible, most gender differentiated. Endured disproportionately by women. Gender #s / norms: reinforce, decompose (e.g. Viet Nam), transform…? (women targeted 1st because viewed as secondary breadwinners; within household eat less etc.) The table provides a useful framework for analysing the connections between the economic crisis and gender relationships. The rows represent the three economic spheres that the crisis is transmitted to, affects, and within which it is subsequently responded to. Transmission channels, impacts, and responses to the first wave of the crisis are now relatively well understood within the financial and formal productive economies, as these are easily quantified. We can measure how many formal jobs are being lost, the extent to which trade and financial flows are slowing, and we also know how much, and on what, governments are spending stimulating their economies and bailing-out their financial sectors. However, much less is known both about the second wave impacts and about responses within the reproductive and informal economies. The reproductive (or caring) economy is where the activities that reproduce, care for, maintain, and develop families, communities, and labour forces take place. As much of this is unpaid domestic work, done largely by women, it remains the least visible, but arguably the most important, component of the global economy. Responses within the reproductive economy are least visible, but most gender differentiated. Such responses, to this and other crises, are typically endured disproportionately by women and children. Counter-intuitive: countries with large nos of female migrants resilient because they are concentrated in the service sectors (such as the care economy broadly defined) and ‘entertainment’ and are more likely to send remittances home, and a higher proportion. The impacts have been more focused on male migrants linked into the business cycle of the host economy eg construction, manufacturing etc. Conversely, gender norms may be called into question by the crisis. In some cases these norms will decompose (for example, men who find themselves unemployed as a result of the crisis may temporarily take on roles within the reproductive economy that they are not accustomed to, such as cooking the family meal). There is also the possibility that in some circumstances, gender norms will be transformed on a permanent basis, with the traditional division of labour, and men's and women's overall work burden, being renegotiated within both the reproductive and productive economies. Adapted from Diane Elson, University of Essex 8

9 Resilience to the crisis
So far, countries and households have dealt better with the economic crisis than we expected Families have supported each other, shared food, information, money, kept children in school Many of those affected have not received formal support What are the limits of resilience – for families and nations, in the context of ongoing shocks? If one theme emerges from research… RESILIENCE and the multiple ways countries, communities, households, individuals have found to weather the storm. Coping -> desperation Clear that many women are paying particular price through additional unpaid work to support their households This focus on resilience appears somewhat at odds with the big numbers routinely quoted by development organizations (including Oxfam) in discussions of the crisis, for example that m more people (depending on the source) were driven into extreme poverty in 2009 due to the crisis. These numbers are rough and ready, and largely based on either the predicted fall in economic output or the poverty elasticity of growth at regional or national levels, or on predicted changes in consumption levels (assumed to be distributionally neutral within country). It will be some time before household surveys provide a genuine picture of the poverty impact of the crisis, but Oxfam’s research suggests the final figures may well fall short of these numbers. The limits of resilience: resilience, whether national or individual, has its limits. Assets once depleted take years to recoup; working extra hours in second or third jobs leaves a legacy of exhaustion; loans taken on to finance consumption accumulate into crushing debt burdens; and meals forgone can affect children for their entire lifetimes. When they get it right, governments, aid donors and others can strengthen and replenish the sources of resilience. When they get it wrong or fail to show up, lives and life chances quickly become vulnerable and precarious.

10 Sources of resilience: pre- & post-crisis
Social networks Friends, families, religious institutions, community organisations Economic structures Diversification vs. monodependence; financial integration; domestic resource mobilization; regional vs. global integration; access to natural resources Role of the state Fiscal space; effective bureaucracies; rule of law; strong agricultural and fishery sectors Social policies Essential services; social protection; automatic stabilisers Extent of resilience and degree to which it’ll bolster future dev is largely determined before crises strike Social networks: first point of call. Subsistence farming, reverse remittances Economic structures: diversification (household and national), domestic resource mobilisation (taxation, control over banking), regional vs. global integration (e.g. Uganda) Role of state: effective bureaucracy (rapid responses with stimulus), rule of law (esp. labour laws) Social policies – reduce household vulnerability: social protection (easier to scale-up), automatic stabilisers (e.g. unemployment insurance, demand-driven public works programmes) But resilience has its limits… Social networks: At a household level, resilience is largely built on the agency of poor people themselves, their friends and families, and local institutions such as churches or community groups. Everywhere, people have turned to one another to share food, money and information to recover from lost jobs or reduced remittances. Families with land for subsistence farming or access to fishing have been able to survive much better than those without. Migrants with strong social networks could rely on support locally, or even (in Vietnam) on reverse-remittances from home. Economic Structures: Dependence on one or two commodities or markets increases the risk should they go into freefall; the degree and nature of integration with the global economy, particularly of the financial sector, has also proved a source of vulnerability. Countries such as Brazil that retain state control over a portion of the banking system have been more able to use those banks to channel credit to cash starved small producers and small and medium enterprises. Countries with effective systems of domestic taxation in place reduce their vulnerability to sudden losses of trade taxes or foreign capital inflows. Regional trade links can offer a bulwark against slumps in global markets for economies like Uganda. Oil producers, Botswana (diamonds), Mexico (US market). Role of the State: Resilience is enhanced when governments have entered the crisis with fiscal space, in the form of high reserves, budget surpluses and low debt burdens. Effective state bureaucracies capable of responding rapidly to the crisis with fiscal stimulus measures have also shown their worth. Well-designed and implemented labour laws are needed to deter unscrupulous employers from taking advantage of the crisis to attack workers’ rights. State support for smallscale agriculture and fisheries bolstered household survival strategies in countries such as Viet Nam and Sri Lanka. Social Policies: Countries with free health and education, and effective social protection systems, have proved more resilient, reducing the vulnerability of poor people to health shocks, avoiding school dropouts in response to falling incomes, and providing shock absorbers against falls in household incomes. More generally, automaticity is beneficial in a crisis: if automatic stabilizers such as unemployment insurance, or demand-driven public works schemes like India’s National Rural Employment Guarantee Scheme (NREGS) are already in place, they can respond immediately to a crisis rather than wait for decisions by hard-pressed governments fighting the crisis on several fronts. Similarly, it is far easier to scale up existing cash transfer schemes such as Brazil’s bolsa familia to inject cash into poor communities than to design new ones from scratch. The chaos generated by a crisis also increases the likelihood of hastily introduced emergency responses being badly designed, or captured by vested interests.

11 Responding to the crisis: Poor-country fiscal changes 2008-2009
Many governments have used fiscal policy to stimulate their economies Focus of stimulus packages and counter-cyclical expenditure has included increasing spending and infrastructure investment as well as tax cuts and subsidies to stimulate consumer and business demand LICs have also kept up spending and increased deficits to combat crisis (in contrast to E Asia ’97) But revenue has now slumped… after initial attempt to defy fiscal gravity spending in 2010 is now being cut… In 2009, countries responded to the fiscal hole by borrowing, or running down reserves so as to maintain or increase spending. They also managed to mobilize some additional grants, however the amounts were wholly inadequate (see below). Initially, sub-Saharan African countries that had an IMF programme were best able to cope, having the financial and policy support to increase spending. Of the Sub-Saharan African countries that had an IMF programme, three-quarters of them increased spending in 2009, and most of that was poverty-related spending. Examples of countries with an IMF programme that increased poverty-reducing spending in 2009 were Burkina Faso and Cameroon, which both increased health and education spending; Sierra Leone and Zambia, which increased education spending: and Guinea-Bissau which increased health spending.

12 Fiscal impacts in poor countries (preliminary findings)
Budgets in 2010 are being cut on average by 0.2% of GDP Two-thirds of the countries for which social spending details are available (18 out of 24) are cutting budget allocations in one or more of the priority social sectors of education, health, agriculture and social protection Education and social protection are particularly badly affected, with average spending levels in 2010 lower even than those in 2008 (58 countries surveyed) Middle East & North Africa (2), Europe & Central Asia (3), Latin America & Caribbean (3), South Asia (6), East Asia & Pacific (8), Sub-Saharan Africa (36) IMF programme countries (35), non-programme countries (23). Due to lack of aid and concerns about debt levels, many countries are having to cut vital spending in 2010. In 2010, countries with an IMF programme are having to exit from their fiscal stimulus slightly faster than countries without a programme, cutting spending in 2010 by 0.1% more of GDP. Half of the countries in Sub Saharan Africa with an IMF programme are cutting spending in For other, non African, low income countries with an IMF programme, this figure rises to 75%. This is at a time when developing countries need to massively increase spending if they are to meet the MDGs. These countries need to massively increase social spending, as the economic crisis pushes millions of people further into poverty and the Millennium Development Goals deadline approaches. Instead, budget data from 58 poor countries surveyed by Oxfam - including detailed breakdowns of social spending in half of these countries - shows that poor countries have had to slash education, health, agriculture and social protection spending. These countries need to massively increase social spending, as the economic crisis pushes millions of people further into poverty and the Millennium Development Goals deadline approaches. Instead, budget data from 56 poor countries surveyed by Oxfam - including detailed breakdowns of social spending in just over half of these countries - shows that poor countries have had to slash education, health, agriculture and social protection spending. The IMF must work with developing country governments to ensure they’re not forced to exit from their fiscal stimulus too soon.

13 Poor-country fiscal holes
: Increase in expenditure : Decrease in expenditure The economic crisis has left 58 poor countries with a combined ‘fiscal hole’ (that is, a shortfall in budgetary revenue) of $65bn in 2009 and Despite promises by the G20 and donor countries to help poor nations survive the crisis, just 13 percent of this revenue gap has been filled by grants. Given this failure by the international community, poor countries were forced to resort to expensive domestic borrowing to finance spending in 2009. Little risk of external debt crisis, but domestic debt crises are possible There is also good news on international responses – in the past IFIs have sometimes exacerbated vulnerability (e.g. by imposing pro-cyclical spending cuts as conditions for loans), but IMF has allowed more fiscal space in sub-Saharan Africa and advised governments to protect social spending Oxfam also called for a change in IMF rules so that it can give grants, funded by gold sales, to finance a massive increase in poor countries’ health and education spending. At present, the IMF’s Articles of Agreement only permit it to give loans. The financial crisis reduced the budget revenues of the low-income countries surveyed by more than $52bn in 2009, and $12bn in 2010, compared to 2008, resulting in a fiscal hole of $65bn. For half of all low-income countries analyzed, revenues will still be below 2008 levels by the end of 2010. Due to falls in direct taxes, countries have had to rely more on indirect taxes on consumption. Consumption taxes, for example VAT, are typically regressive ie they hit the poor hardest. International community response to the drop in revenues: The international community is providing only $8.2bn of additional grants in 2009 and 2010, which is woefully inadequate to fill a fiscal hole of $65bn, plugging just 13 per cent of the revenue gap. Just one third of countries foresee an increase in grants in 2010. External financing in total (including loans) is estimated to have filled less than one third (US$20 billion) of this fiscal hole. The OECD reported a fraction of an increase in 2009 aid levels in real terms from $122–123 billion, a rise of 0.7%. However, when compared with last year’s prices, aid has fallen by $3.5 billion. Donor countries remain well off-track on their aid commitments, which have risen from just 0.30% 2008 to only 0.31% in 2009. Rising debt - especially domestic borrowing: Because the international community reacted to the crisis too slowly and with far too little money, in 2009 three quarters of low income countries were forced to borrow more from expensive domestic markets. Though most external loans were cheap, the crisis has exacerbated risks of external and especially domestic debt problems for low-income countries. Though the IMF responded reasonably quickly to the crisis by disbursing loans, its rules must be changed so that it can give grants to poor countries to combat shocks. It also needs to reduce the burden of its economic policy conditions further, to make it a more attractive funder of last resort in the event of global and national crises. Gold sales: The IMF agreed in 2008 that it would sell a portion of its gold holdings to create an endowment to generate income for its activities. The IMF sold the first half of this gold, about 212 tonnes, in The profits from the first half of these sales exceeded what was initially projected. This windfall (defined as any profit above $850/oz) was equivalent to almost $1.44 billion, according to the IMF. The IMF’s Board agreed in late 2009 that a portion of this windfall, almost $900 million, would be made available for lending to low income countries. The remaining $500 million has not been committed and is considered “excess” windfall profits. The Fund expects that it will realize further “excess” windfall profits when it sells the remaining 191 tonnes. In total the “excess” windfall profits may amount to $1.4 billion depending on the market price of gold. This “excess” windfall amount could be invested in an endowment, along with other resources, to generate income for grants. Financial Transaction Tax: The IMF has produced its preliminary report on a financial sector tax for G20 finance ministers, in response to G20 leaders’ request last year to review how the financial industry can help pay for efforts to repair the banking system. While the FTT was not the IMF’s preferred option, the report said it was technically feasible. Oxfam’s view is that any tax agreed by the G20 must raise at least $200 billion annually to help pay for the impact of the crisis on the poorest, and to fight climate change. A financial transaction tax is the best route to achieve this - at rates of around 0.05%, the FTT could raise at least $400bn dollars annually.

14 Policy implications and lessons
Plan for crises before they occur Monitor the impacts and talk to people Support local-level coping mechanisms Gender matters (in all economic spheres) After a crisis, replenish resilience Fiscal hole requires sustained donor/IFI support so countries can keep spending Plan for crises before they occur: Governments need both to invest in prevention (e.g. via adequate regulation of finance) and to stress-test their economic policy, state institutions, and social policies against possible future crises (often more effective than short-term crisis responses) Monitor the impact and talk to people: The best responses have involved on-the ground, real-time monitoring of the impact of the crisis, and genuine dialogue with affected communities about the best way to respond. Support local-level coping mechanisms: Governments should build the capacity of families, local civil society, and faith organizations to respond to crises. Access to information: Support during crises can also include providing information on sources of help, and even supporting connectedness and ‘moral messaging’ – e.g. respected local figures calling on citizens to check on the welfare of their neighbours. Gender matters: One near-universal characteristic of responses to date is gender blindness. Governments have responded to job losses in textiles and garments industries, largely of women, by channelling fiscal stimuli into construction, which largely employs men. Big capital-intensive infrastructure projects in any case create far fewer jobs than the local-level public works exemplified by the Indian National Rural Employment Guarantee Scheme. Attempts to inject credit into cash-starved economies too often end up being pounced upon by large enterprises, which employ relatively few workers, rather than benefiting small, labour-intensive firms, or people working in the vast informal economies of the South. After a crisis, replenish resilience: Each crisis depletes the coping capacities, both physical and psychological, of poor people and communities. After the crisis has passed, there is an urgent need to replenish those sources of resilience before the next shock arrives. The crisis has marked the political coming of age of social protection (needs extension – esp. to the informal economy and to migrant workers) as a development issue and, more widely, has highlighted the importance of managing risk and volatility at all levels (matters as much as average stocks/flows). It is not enough to pursue economic growth now, and social welfare later – the two must come together in pursuit of improved well-being. Poverty is not just about income, it is about fear and anxiety over what tomorrow may bring. This crisis is not the last, but if one of its lessons is that reducing vulnerability and building resilience are the central tasks of development, then future crises may bring less suffering in their wake.

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