Impact of Global Crises on Social Development

1. Faith Innerarity Permanent Secretary Ministry of Information, Culture, Youth and Sports Jamaica Impact of Global Crises on Social Development

2. Outline of Presentation • Introduction – Importance of Enabling Environment for Social Development • Implications of Global Crises • Food, energy and financial crisis • Social dimensions of climate change • Policy Response • Conclusion and Recommendations

3. Importance of Enabling Environment for Social Development • Economic and social policies are mutually reinforcing. • The World Summit for Social Development emphasized the importance of an enabling macro-economic policy framework for social development. • Globalization presents opportunities as well challenges for economic and social progress.

4. Implications of Global Crises for Social Development • Vulnerable groups, especially in developing countries, are being adversely impacted by the global financial crisis, economic meltdown and higher food and fuel prices • Impact of rising food prices has negative consequences for poverty reduction and jeopardizes gains made in many developing countries.

5. Implications of Global Crises for Social Development • The FAO (2008) notes that the current hike in world commodity prices is nearly for all the major food and feed commodities and there is a strong possibility that the prices may continue to remain high after the effects of short-term shocks dissipate. The current situation differs from the past in that the price volatility has lasted longer, a feature that is as much a result of supply tightness, as it is a reflection of ever-stronger relationships between agricultural commodity markets and other markets.

6. Source: Food and Agricultural Organization 2008

7. Implications of Global Crises for Social Development • In 2007, climatic conditions played a major role in the supply of cereal production in major grain producing countries.Adverse weather conditions in Australia, for example, devastated crops and led to reduced harvests in many countries, particularly in Europe. • International Panel on Climate Change (IPCC) projects that global food production could rise if local average temperatures increase by between 1 and 3 degrees Celsius, but could decrease above this range. However, this projection is before extreme weather events are taken into account; and the IPCC judges that extreme weather, rather than temperature, is likely to make the biggest difference to food security

8. Implications of Global Crises for Social Development • Increases in fuel prices have also raised the costs not only of producing agricultural commodities, but also of transporting them. • Today’s global agricultural system is predicated on the availability of cheap, readily available energy for use in every part of the value chain, both directly (e.g. cultivation, processing, refrigeration, shipping, distribution) and indirectly (e.g. manufacture of fertilizers and pesticides). • The increase in energy prices have been very rapid and steep, with the Reuters-CRB energy price index more than doubling over a period of three years since the middle of 2004. Freight rates have also doubled, mainly within a one-year period beginning February 2006.

9. Implications of Global Crises • A recent World Bank study estimates that there has been a 3-5% increase in the global poverty rate as a direct result of the hike in food prices and that the number of poor has swelled by more than 100 million. • The regions worst affected are those with the largest numbers of persons living in extreme poverty. • The bulk of the income of the poor (up to 80% based on some estimates) is spent on food, which makes them most vulnerable to increases in food prices • Urban as well as rural poor are affected by increased food prices.

10. Implications of Global Crises • Nutrition and health of children in poor households are put at risk as expenditure on food is cut back in response to rising prices. • The number of malnourished persons worldwide was projected to increase by an additional 44 million to a total of 967 million by the end of 2008, representing an increase of 848 million over the 2003 figure.

11. Implications of Global Crises • Other essential expenditure in poor households such as school related costs are affected by higher food and fuel prices, with the attendant risk of children being withdrawn from school or recording poor attendance. • Small and medium scale enterprises are gravely affected by increasing lack of access to affordable credit in light of the credit squeeze.

12. Implications of Global Crises • A significant impact of the global economic slowdown including decreased consumer demand in the developed economies and reductions in foreign direct investments, is the loss of jobs in the formal sector. • In the case of Jamaica, the bauxite and tourism industries and remittances are among the major areas where these factors are expected to have the greatest impact.

13. Implications of Global Crises • Small developing countries like Jamaica are particularly vulnerable as their economies are very dependent. • The three main sources of foreign exchange in Jamaica are tourism, bauxite/alumina and remittances. • The slow down in the construction of houses in the United States has reduced the demand for aluminum. • The slow down in motor vehicle manufacturing globally has also had an adverse effect on the demand for aluminum. Global alumina stockpiles are full, so much so, that ships laden with alumina have no place to off load the commodity. Smelters have been closed.

14. Implications of Global Crises • As a consequence of lowered demand, two bauxite/alumina plants in Jamaica are facing closure, (the hope is that this will be temporary), with the prospect that a third plant may also be affected. This will cause a loss of jobs and will have a negative impact on the economies of the surrounding communities. • Job losses in the industrialized countries of the North will impact tourism in Jamaica and the wider Caribbean as well, as holidays are not an option for the unemployed. • Remittances sent by overseas residents to their families in Jamaica have been declining since late last year as those who send the money have been experiencing the economic pressures of their host countries, including job losses.

15. Implications of Global Crises • Reduction in Government revenues as a result of decline in economic activity has impact on attainment of macro-economic and fiscal targets. • Reduced inflows to consolidated funds seriously affects Government’s ability to finance critical areas of social development such as health and education. • In Jamaica, for example, the free education policy up to secondary level and removal of user fees from public hospitals and other health facilities present particular challenges in respect of sustainability within context of current economic and financial crisis.

16. Implications of Global Crises • One positive development is that the price of oil has declined significantly which reduces the amount of money that has to be allocated to provide this commodity. However, in the case of Trinidad and Tobago, as an oil producing country in the Caribbean, the reduction in price has created a massive shortfall in Government revenues.

17. Social Dimensions of Climate Change • The alarming frequency and intensity of severe weather patterns and events such as hurricanes, is but one of the debilitating effects of climate change. • Jamaica and other Small Island Developing States in the Caribbean have in the last few years suffered from multiple hurricanes which have impacted adversely on the lifeblood of our economies – the agricultural and tourism sectors • In these instances of natural disasters, it is the poor and vulnerable who suffer the most.

19. Policy Responses • Stimulus packages and ‘bail-outs’ in developed economies • Government of Jamaica Initiatives • Increasing local food production • Focus on training and increasing access to job opportunities • Expansion of social assistance programme • Assessment of alternate energy sources • Tax incentives for productive sector • Special credit windows for small/medium scale enterprises • Focus on strategic priorities for national budget

20. Policy Responses • Jamaica was appointed to the Board of the Adaptation Fund and is one of ten countries in which a community-based adaptation project is will shortly be implemented under the Global Environment Facility Small Grants Programme to reduce vulnerability and enhance the capacity of selected communities to adapt to climate change.

21. Conclusion and Recommendations • More effective integration of economic and social policies is urgently required. • Regulatory framework for financial institutions must be strengthened and effectively managed at national and international levels. • Democratic governance structures must be reinforced through broader and deeper participatory approaches. • International cooperation must be intensified. • UN member states must ‘stay the course’ of the internationally agreed social development goals of Copenhagen and the Millennium Declaration.

22. Social investment is a productive factor and in the context of the current global crises, expenditure on essential human capital development and protection of the vulnerable should be enhanced and not compromised as it is the key to future progress.

23. Thank You