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Emerging Markets

Policy action advised to head off unrest

UN expert calls for targeted social spending as tensions rise

The sharp deterioration of the Latin American economy has sparked fears of social unrest, and policy action is needed to defuse potentially destabilizing tensions, a UN adviser has told Emerging Markets.

Policy choices will determine how the crisis impacts income distribution, Paul Collier, the envoy of the UN secretary general Ban Ki-Moon to Haiti, said in an interview. “There is always a potential for instability but it depends how it is handled.” 

Collier said: “It is inevitable that poverty will rise, but the impact on income distribution depends on policy instruments.” He called for targeting social spending. “That is a policy choice.”

Collier will today tell IDB delegates in Medellin how the crisis could be turned into an opportunity, based on his experience in the poorest country in the region.

For example, efforts are being made to create new job opportunities in the garment sector near Haiti’s border with the Dominican Republic, he said. Haiti’s manufactures can then be exported via its neighbour.

“The Dominican Republic has the infrastructure strategy that might provide a model for the government of Haiti to get it right,” Collier says, as the transport infrastructure in the impoverished and cyclone-prone country is precarious.

The Haitian authorities have been anxious to avoid a repetition of last year’s riots over food and fuel prices riots, which toppled the government. Violence also flared in many other countries.

“Social disturbance is an obvious consequence. ... It will need strong and effective policy response. Governments can not afford to get it wrong,” says Collier.

Collier warned that Haiti “will suffer a big hit” from a decline in migrant workers’ remittances, which account for more than a quarter of Haiti’s GDP and are twice the size of its export revenues. Robert Meins, a remittances specialist at the IDB, said that 31% of the population receives money from diaspora.

Haitian economy minister Daniel Dorsainvil told Emerging Markets that remittances fell in January by 3% year-on-year and in February by 6% year-on-year. “A decline in remittances is one of the main elements of the financial crisis.”

The new CIA director, Leon Panetta, recently mentioned economic instability in Argentina, Ecuador and Venezuela as a cause for security concerns. And governments fear organized protest as well as rioting such as last year’s.

In Paraguay, the four largest trade unions are due to decide whether to launch a general strike on Sunday, while the government has been struggling to pass its anti crisis package in Congress. This will be the toughest test for president Fernando Lugo, who took office last year.

The context of fears over unrest is the danger that gains in poverty alleviation achieved in recent years may now be reversed. The proportion of the Latin American population living in poverty fell to 32% last year, from 40% in 2005, according to UN’s Economic Commission on Latin America and the Caribbean (ECLAC). The proportion in extreme poverty fell from 15% to 12%.

Gains in Brazil, which has improved to the point where fewer than one-quarter of the population are now under the poverty line, are in danger. “There is a risk of losing the gains achieved since 2003,” said Jose Carlos Miranda, Brazil’s executive director at the IDB.

The sharp deterioration of the Latin American economy has sparked fears of social unrest, and policy action is needed to defuse potentially destabilizing tensions, a UN adviser has told Emerging Markets.

Policy choices will determine how the crisis impacts income distribution, Paul Collier, the envoy of the UN secretary general Ban Ki-Moon to Haiti, said in an interview. “There is always a potential for instability but it depends how it is handled.”

Collier said: “It is inevitable that poverty will rise, but the impact on income distribution depends on policy instruments.” He called for targeting social spending. “That is a policy choice.”

Collier will today tell IDB delegates in Medellin how the crisis could be turned into an opportunity, based on his experience in the poorest country in the region.

For example, efforts are being made to create new job opportunities in the garment sector near Haiti’s border with the Dominican Republic, he said. Haiti’s manufactures can then be exported via its neighbour.

“The Dominican Republic has the infrastructure strategy that might provide a model for the government of Haiti to get it right,” Collier says, as the transport infrastructure in the impoverished and cyclone-prone country is precarious.

The Haitian authorities have been anxious to avoid a repetition of last year’s riots over food and fuel prices riots, which toppled the government. Violence also flared in many other countries.

“Social disturbance is an obvious consequence. ... It will need strong and effective policy response. Governments can not afford to get it wrong,” says Collier.

Collier warned that Haiti “will suffer a big hit” from a decline in migrant workers’ remittances, which account for more than a quarter of Haiti’s GDP and are twice the size of its export revenues. Robert Meins, a remittances specialist at the IDB, said that 31% of the population receives money from diaspora.

Haitian economy minister Daniel Dorsainvil told Emerging Markets that remittances fell in January by 3% year-on-year and in February by 6% year-on-year. “A decline in remittances is one of the main elements of the financial crisis.”

The new CIA director, Leon Panetta, recently mentioned economic instability in Argentina, Ecuador and Venezuela as a cause for security concerns. And governments fear organized protest as well as rioting such as last year’s.

In Paraguay, the four largest trade unions are due to decide whether to launch a general strike on Sunday, while the government has been struggling to pass its anti crisis package in Congress. This will be the toughest test for president Fernando Lugo, who took office last year.

The context of fears over unrest is the danger that gains in poverty alleviation achieved in recent years may now be reversed. The proportion of the Latin American population living in poverty fell to 32% last year, from 40% in 2005, according to UN’s Economic Commission on Latin America and the Caribbean (ECLAC). The proportion in extreme poverty fell from 15% to 12%.

Gains in Brazil, which has improved to the point where fewer than one-quarter of the population are now under the poverty line, are in danger. “There is a risk of losing the gains achieved since 2003,” said Jose Carlos Miranda, Brazil’s executive director at the IDB.

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