Transcript OITNueva_ING

Policy Initiatives in Latin America
to Address the Financial Crisis
Andrés Marinakis, ILO
Washington, 20 May 2009
Presentation Structure
Part I
The crisis and its probable impact
Part II
Six recommendations for tackling the crisis
Final thoughts on employment policies
First ideas about the crisis
• Some countries imagined they were protected against
the crisis.
• It was also believed that the more dynamic developing
economies could “break free” and serve as the engine
of the global economy (China, India).
• Developing countries are better prepared to meet the
crisis (lower debt levels, fiscal balance, higher
reserves, lower unemployment, etc).
• Few considered the adoption of fiscal policies to
counteract cyclical effects during the boom years
(except for Chile, with its structural surplus rule).
Probable impact of the crisis
• It is now clear that the crisis will have an impact on the region,
although not all the countries will necessarily face recessions.
• The impact of crisis in the region was first felt in the last
quarter of 2008, with a rapid fall in economic growth.
• Even without a recession, it is clearly impossible for Latin
America’s economies to continue creating jobs at the rate they
had been doing in the past.
• The delay between the start of the crisis and its greatest impact
on the job market has allowed a certain margin for preparing
policy responses.
• Even if in 2009 the product stabilizes , the impact on the labor
market will last beyond 2010.
The economic deceleration already
promises increased unemployment
• In October 2008, the ILO warned that there could be 20
million new unemployed in the world in 2009.
• The 2009 Global Employment Trends Report adjusted
that figure to 50 million.
• January's Labour Overview predicted a worst-case
scenario increase in Latin America from 7.3% in 2008 to
7.9% or 8.3% in 2009. That means between 1.5 and 2.4
million new unemployed.
• An April update of that estimate gave a figure of between
2.3 and 3.2 million.
• Typical profile of these newly unemployed workers:
male, breadwinners.
However, the magnitude of the
impact will depend on how the
following react:
• People
– Participation rates
– Young people and education
• Companies
– New hires, adjustments to hours worked, advances on vacation time
– Dismissals
– Negotiations with workers to protect jobs
• Governments
–
–
–
–
Countercyclical fiscal and monetary policies
Expanded social protection programs
Employment policies
Wage policies
Importance of social dialogue and
international coordination
• Avoid overreacting, which would make the crisis a
self-fulfilling prophecy.
• Encouraging an attitude of collaboration.
– Example: guarantees for deposits of different countries
depending on the stability of the financial sector.
• The same applies to the job market and its impact on
consumption.
• Framework guidance agreements are needed among
sector leaders; within industries or companies, actions
must be taken through collective bargaining.
Crisis transmission vectors
• Financial
– Restrictions on international credit (higher costs)
• Economic
– Reduced exports
– Falling commodity prices
– Reduced remittances by emigrants from central
countries
– Reductions in private investment (foreign and
domestic)
Second round
• Increased unemployment and reduced incomes
undermine consumption
Keys to economic activity
• Unlike earlier crises, this one will not be solved by
increased exports.
• Avoid protectionist import policies.
• Reduced private investment (domestic and foreign) can
only be partially offset by increased public investment.
• A key role will be played in this crisis by the protection
of domestic consumption, which means protecting
jobs, the purchasing power of wages, and income
levels.
Part II:
Recommendations
• Covering both economic policy and labor and
employment policies in the strictest sense.
• These are general recommendations that will
have to be adapted and developed in greater
detail according to each country’s specific
situation.
Recommendation 1
Anticyclical fiscal and monetary policies
• Now is not the time to tighten our belts: launch
stimulus packages wherever possible, placing
priority on areas for spending and investment
with a high impact on employment.
• However, fiscal space varies from one country
to the next.
• More expansive monetary policy: in general,
inflationary pressures are relaxing.
Recommendation 1
Anticyclical fiscal and monetary policies
• Widespread acceptance of the need for anticyclical policies and
state intervention during this crisis, in industrialized and
developing countries alike.
• However, not all anticyclical policies have the same impact on
employment:
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–
–
–
reduction of the value added tax rate
public infrastructure works with intensive machinery use
credits for purchases of vehicles and consumer appliances
promotion for popular housing programs through large construction firms
or medium-sized companies
– emergency employment programs
• Delay in execution, importance of territorial distribution
Recommendation 2
Specific support for MSMEs
• Reduced credit access at times of economic
contraction is a danger for companies that need
funds for their medium- and long-term
development.
• Consequently, lines of credit should be created
and/or strengthened.
Recommendation 2
Specific support for MSMEs
• In contrast to the USA and Europe, where the financial
system is undergoing a process of adjustment, Latin
America’s banks are sound.
• In general, however, the requirements for granting
credit have been stiffened, along with credit costs, as a
“preventive” measure.
• This procyclical behavior has posed particular
obstacles to MSMEs.
• Role of state banks and development institutions in
backing credits.
• Provide greater transparency on the cost of different
types of credit through increased information (Brazil).
Recommendation 3
Strengthen social protection against the crisis
• Unemployment insurance (contributions):
– review benefit access conditions to attain greater
coverage
– assess the need for additional contributions to
maintain financial sustainability with fewer
contributors and more beneficiaries
• Noncontribution programs without insurance
and to protect unemployed informal economy
workers.
Recommendation 3
Strengthen social protection against the crisis
• Chile has modified its unemployment insurance
by increasing its coverage and benefits.
• At times of high unemployment, benefit
payments are extended by an additional two
months.
• Brazil increased the coverage of its Bolsa
Família program by raising the qualification cap
on family income.
• 1.3 million families were added to the existing
total of 11 million.
Recommendation 4
Introduce emergency employment programs
• At times of crisis, with rapidly rising unemployment,
the introduction of direct programs on a massive scale
can be justified in order to:
(a) halt the increase in the unemployment rate and
(b) provide needy households with income
• Change the targeting focus, from groups that are
difficult to incorporate (for example, young people) to
breadwinners and heads of households.
Recommendation 4
Introduce emergency employment programs
• Extensive previous experience in the region
– Argentina: Breadwinners and heads of households
– Chile: PROEMPLEO
– Mexico: Temporary Employment Program
• Contingency fund in Chile: activated when the
unemployment rate exceeds 10%.
• Keeping young people in the formal education
system and in the technical training system.
Recommendation 5
Moderate wage increases, ensuring that
purchasing power is maintained
• Moderate minimum wage recovery policies,
maintaining its real value.
• Monitoring observance of the minimum wage.
• Collective bargaining that includes moderation
of current wages; should also consider how the
benefits of future growth will be distributed.
• Include contingency clauses in wage
negotiations.
Recommendation 5
Moderate wage increases, ensuring that
purchasing power is maintained
• Remember that inflation in 2009 is, in most countries,
going to be lower than in 2008.
• Recent adjustments:
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Colombia and Mexico: practically equal to past inflation
Spain: 4% (1.5 percentage points over 2008 inflation)
Brazil: readjustment of 12% (6 pp over 2008 inflation)
China: 2008 MW adjustment of 15%, frozen in November
Paraguay: increase of 5% in MW (accumulated CPI 10%)
• The last wage negotiation round in Uruguay took place at
a time of uncertainty, and so a contingency clause was
included for if the crisis should affect the main economic
variables.
Recommendation 6
Fundamental rights and social dialogue
• Protect workers’ right to be heard.
• Encourage dialogue at all levels to avoid
dismissals whenever possible:
– adjustments to working days and wages
– both the cost of the crisis and the benefits of
recovery should be shared equally
– support from public programs to offset, in part, lost
earnings (unemployment insurance), training
• Institutionalization of social dialogue at the
national level.
Recommendation 6
Fundamental rights and dialogue social
• Mexico, “National Agreement on behalf of families’
economy and employment”: includes emergency jobs,
subsidies to avoid dismissals, Social Security coverage
for the unemployed, credit access for small companies,
etc. (01-2009).
• Argentina, oil sector agreement: postpones wage
negotiations for 6 months pending a better
understanding of the impact of the crisis on the sector
(11-2008).
• Chile, Sodimac: job conservation and cost adjustments,
salary cuts for all executive positions (300 people, out
of 15,000 workers).
Final thoughts on employment policies
Existing policies and institutions
• The development of policies that already exist
in some countries allows for adjustments
following a course that has already been set out.
• Other countries require the ad hoc design of
emergency measures.
• In some countries, solid institutions allow the
programs and policies to reach the beneficiaries;
in others specific structures need to be created.
Final thoughts on employment policies
Learning and institutional development
• Important for supports to target breadwinners and heads of households.
• Increase public investment with a major impact on employment and
geographical distribution in critical areas.
• Implement massive emergency employment programs with the
subsequent transition to productive jobs (attention to geographical
distribution).
• Develop unemployment insurance programs and adapt their
requirements and benefits at times of crisis, expanding the effective
coverage and duration of those benefits.
• Assist workers in retaining their jobs with public policies (including
unemployment insurance and training).
Final thoughts on employment policies
Learning and institutional development
• Make use of increased awareness of programs for newhire subsidies for when the recession bottoms out.
• Encourage young people to stay in school and in
technical training.
• Develop a nationwide network of employment offices
to provide less qualified workers with more effective
labor intermediation.
• Incorporate contingency funds for active policies at
times of rising unemployment (anticyclical).