Crises and Social Programs Vinod Thomas and Xubei Luo Independent Evaluation Group Istanbul, Turkey October 6, 2009

1. The Current Economic Crisis 2 Global GDP Growth (percent, quarter-to-quarter, annualized) Source: WEO, July 2009

Turkey’s Decline in Industrial Production Growth 3 Industrial Production Growth (y-o-y) Sources: World Bank (DECPG), Datastream, IMF

Turkey’s Increase in Unemployment 4

2. Shocks and the Poor Limited coping methods ► Low human capital ► Few assets ► Limited access to financial markets ► Precarious living conditions ► Fragile health/nutrition Impact ► Sharp decline in consumption ► Sharp decline in health and education expenditures 5

Poverty Impact of Current Crisis By end-2010, 90 million more people are expected to be living in extreme poverty, less than $1.25 per day, than would have been the case without the crisis. 6

Natural Disasters, a Growing Threat ► The reported number of disaster has been increasing, growing from fewer than 100 in 1975 to more than 400 in 2005 (IEG, 2006). ► The cost of disaster damages has been exploding: the economic costs of major disasters in constant dollars are now estimated to be 15 times higher than they were in the 1950s - $652 billion in material losses in the 1990s (IMF 2003). ► Human cost is also high and increasing: more than 1.6 billion people were affected by natural disasters in ; and 2.6 billion in (IEG, 2006). 7

3. Inclusiveness and Poverty Reduction A one standard deviation improvement in the income distribution could reduce poverty by 67% in Sub-Saharan Africa, close to half Latin America and Caribbean and Europe and Central Asia, one-third in Middle East and North Africa and East Asia and Pacific, and 17% South Asia. 8

Inequality, Growth and Poverty

Growth and Distribution Jointly Affect Changes in Poverty poverty line Source: Bourguignon (2003)

Pro-cyclical Declines in Health Spending after Crisis 11

Social Protection in Previous Crises ► Mexico: implementation of a one-time top up payment to Opportunidades participants to address the adverse welfare impacts of the recent food crisis. Payment to the poorest families increased by 24.3% in (Ravallion, 2008) ► Indonesia: introduction of Health Care Subsidies program as an important component of the social safety net in response to the crisis in (Sparrow, 2008) ► Thailand: expansion of existing social insurance program to provide support to low-income family in response to the crisis in (Pongsappich and Brimble, 1999) 12

WBG’s Vulnerability Framework “Protect the most vulnerable” is a theme of World Bank Group’s operational crisis response: Protecting the most vulnerable from the fallout of the crisis Maintaining long-term infrastructure investment programs Sustaining the potential for private sector-led economic growth and employment creation 13

14 4. Poverty Programs, Not as an After-Thought ► Social and poverty impact of crises should be anticipated 1% reduction in GDP traps another 20 million people in poverty 100 million more people in poverty with the global recession ► Millions live very close to the poverty line, so even small GDP changes produce vast swings in poverty ► Past responses to crises ignored poverty impact in the early stages ► More attention needed to vulnerable groups—potential area for the World Bank Group to contribute ► Impact on immigrant labor: foreign and domestic migration, remittances

15 Crisis Response Lessons from Research ► Early, rapid and sizeable responses are key ► Social safety-net and pro-poor policies need support from the outset ► Policies need to account for behavior and the political economy ► Immediate responses cannot ignore implications for development ► Global crisis needs a global solution—target stimuli where the marginal impact will be the greatest* * How to Solve the Global Economic Crisis—Justin Yifu Lin, Senior Vice President and Chief Economist, World Bank

16 Crisis Response Lessons from Evaluation ► Emphasize not only volume, but also quality ► Focus on poverty from the outset ► Build in the environment and climate change ► Seek selectivity and adaptability of response ► Stress coordination among partners ► Focus on monitoring and evaluation ► Organize for early warning

Concluding Remarks ► Protecting the most vulnerable is of critical importance during the crisis time and for driving equitable growth and reducing social exclusion in the long run. ► Social protection is important for promoting inclusive growth with equality of opportunities. ► Inclusive growth is part of the long-term solution for the global financial crisis. 17

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