Development Account Projects
Implications of macroeconomic policy, external shocks and social protection systems for poverty, inequality and social vulnerability in Latin America and the Caribbean
Background:
A wi In the context of implementing the Millennium Development Goals, poverty incidence should be reduced provided that favourable medium- to long-term economic growth is sufficiently broadly based to ensure that the poor benefit from such growth. However, economic growth and expectations are constantly threatened by inappropriate macroeconomic policies, poor economic management and external shocks. In the Latin America and Caribbean region a series of stabilization and structural adjustment reform policies have been implemented to ensure high and steady growth rates, but these policies have been frustrated by periodic financial and macroeconomic instability. Existing social protection systems put in place accompanying these reforms (including safety nets for the poorest) have not been able to counteract the negative repercussions of such instability for the poor.
The effects that restrictive fiscal and monetary polices, exchange-rate regime, and economic liberalization reforms have on national and regional poverty and inequality have to be better understood.
ECLAC and UNDP recently joined forces to develop instruments to approximate the impact of macroeconomic and external shocks on labour and household incomes through the use of a computable general equilibrium (CGE) model. The project covers 16 Latin American and Caribbean countries. Each country-specific CGE model is coupled with a microsimulation method to enable the inclusion of survey data to better approximate the effects of inequality and poverty. However, along with trade policy, deregulation policies, fiscal policy, and exchange-rate regimes also have the potential to cause considerable adverse effects in terms of inequality and poverty. These, together with the external shocks triggered by the volatility of speculative capital flows, drastic terms-of-trade adjustments and even inflows of remittances, make the potential benefits of structural adjustment and stabilization policies difficult to attain.
ECLAC, in cooperation with other United Nations partners, will undertake this study to arrive at an in-depth understanding of the effects of macroeconomic and external shocks on poverty, inequality and social vulnerability, using country-specific, dynamic macro-micro CGE modelling analysis. Country-case studies (mainly in Andean and Central American countries) will provide details on countries’ characteristics in terms of economic growth, volatility and reaction to economic and financial crises. Information-sharing and policy discussions are foreseen with other United Nations offices and agencies with a presence in the field, such as UNDP, ILO and the United Nations Research Institute for Social Development.
Objective:
To increase the skills and knowledge of policymakers and policy shapers (the stakeholders) to design more effective macroeconomic and social protection policies based on an improved understanding of the relationship between macroeconomic and external shocks, on the one hand, and the impact on inequality, poverty and vulnerability of the population and social protection systems, on the other.
Expected accomplishments:
- Increased knowledge of stakeholders on the mechanisms of transmission from macroeconomic policy and external shocks to poverty, social vulnerability and inequity
- Strengthened capacity of stakeholders to analyse the mechanisms of transmission from macroeconomic policy and external shocks to poverty, social vulnerability and inequity
- Strengthened capacity of stakeholders to monitor the achievement of Millennium Development Goal 1 through macro-micro modelling analysis
Implementation status:
In 2006 ECLAC has negotiated an agreement with DESA for the joint execution of the project, based on the organizations´ complementary expertise. The Development Policy and Analysis Division (DPAD) of DESA, in particular, will provide technical assistance for the development and application of the general equilibrium methodology and related training, supervise the technical aspects of the work of national teams and contribute technical inputs for the substantive reports of the project. A Letter of Agreement has been signed between DESA/DPAD and ECLAC (Annex 1) to decentralize a part of the budget to DPAD. ECLAC will be responsible for technical expertise in other fields, particularly social protection policies, and the general coordination and administration of the Project, the preparation of the required financial and substantial reports in consultation with DESA/DPAD.
In addition, ECLAC, in coordination with DESA/DPAD and the Regional Bureau for Latin America and the Caribbean of UNDP, has identified country teams in Bolivia, Costa Rica, Nicaragua, Ecuador and Guatemala. The formation of country teams is being facilitated by good channels of communication with national counterparts, essentially government officials and UNDP country offices.
