Development Account Projects
Supporting Finance and Planning Authorities to Formulate and Implement Macroeconomic Policies
Following the Latin American debt crisis in the 1980s, the international financial institutions (IFIs) began to promote orthodox macroeconomic policies that narrowly focused on inflation targets (usually at a very low level, below 2%) and fiscal consolidation. The IFI policy advice, asking developing countries to "liberalize, privatize and deregulate" was supplemented with flexible exchange rate regimes and capital account liberalization. IFIs generally argued that such a policy mix would attain macroeconomic stability which, in turn, would keep the cost of capital low and encourage private sector to invest, leading to sustained growth and poverty reduction. In this paradigm, price stability became synonymous with macroeconomic stability. Many developing countries pursued, often unwillingly and unwittingly, this orthodox policy framework during the 1990s and in the current decade, despite the fact that they failed to trigger the expected growth, generate employment or reduce poverty in the target countries. On the contrary, these policies often retarded growth and induced volatility and increased the likelihood and recurrence of economic shocks in many countries.
The UN has consistently advocated alternative macroeconomic policies for developing countries, with strong emphasis on employment generation and greater regulation of capital flows to contain volatility and contagion. The current crisis has reaffirmed the need for such alternative macroeconomic policies. The UN is uniquely positioned to coordinate and lead an effective international response to the crisis, which can help to prevent further meltdown and foster sustainable recovery. The idea of providing Member States with a 'second opinion' on macro-economic policies was first raised and unanimously approved at the High Level Committee on Programmes (HLCP) meeting on the financial and economic crisis in Geneva in February 2009 where the IMF, in particular, welcomed the UN to provide alternative macroeconomic advice to the Member States.
Following the HLCP decision and the growing demand for macroeconomic policy advice from many developing countries, UN-DESA is developing and coordinating a system-wide capacity for providing alternative macroeconomic policy advice to the Member States. As economic recovery remains tentative, the UN support for macroeconomic advisory capacity development will help developing countries to accelerate and sustain their economic growth, generate employment and reduce the likelihood of a double-dip recession.
UN-DESA, working closely with UN-DOCO, presented the concept of macroeconomic policy advisory capacity at the Induction of new UN Resident Coordinators (UNRC) on 11 November 2010. The UNRCs welcomed the initiative and expressed strong interest in collaborating with UN-DESA on issues related to fiscal policy and fiscal space, with a view to accelerating and sustaining MDG achievements in their countries of accreditation.
The overriding objective of the project is to strengthen the capacity of policy makers, especially in finance and central bank authorities and other relevant ministries in developing countries to design and implement alternative and coherent macroeconomic policies to achieve and maintain full and productive employment, reduce volatility and vulnerability, and better respond to future economic shocks in order to meet commitments to the Internationally Agreed Development Goals, including the MDGs.
- Enhanced capacity of national finance and central bank authorities in participating countries to design and implement counter-cyclical macroeconomic policies, and enhanced integration of macroeconomic priorities for employment generation, growth and investment and reduced economic volatility and vulnerability dimensions into National Development Strategies (NDS) and Poverty Reduction Strategies (PRS).
- Enhanced capacity of policy-makers to evaluate various fiscal and monetary and exchange rate policy options, with increased ability to understand the development impacts of these policies through different simulations and technical analysis
- Enhanced capacity of the UN Resident Coordinator System to receive, process, coordinate and deliver on requests for macroeconomic advisory services to concerned Member States, utilizing institutionalized channels of communication between UNDG and Member States.
The budget for Project AJ (ROA 182-6B) was approved, and allocation became available, in June, 2011, with a completion scheduled for December 2013. During the course of 12 months in 2012, the project made good progress and had significant impact in strengthening capacities for Finance and Planning authorities from Bhutan, South Africa, Kenya, Indonesia, and Bangladesh. Achieving an implementation rate of 31%, the project has already spent US$ 161,843 against a total allocation of US$ 514,000.
In 2012 the DESA/DPAD received numerous requests from various developing countries (Bangladesh, Bhutan, Cambodia, Ghana, Indonesia, Kenya Madagascar, Tajikistan, South Africa, Sri Lanka and Swaziland for capacity development assistance in the area of macroeconomic policy formulation and implementation. Because of resource and other capacity constraints, the project decided to concentrate its efforts in countries where the other DPAD project was operational and achieved significant results in influencing various policies and development strategies. The project deployed policy advisory missions, developed policy notes and briefs on country-specific issues and organized workshops and seminars to support national capacities for policy analysis. The Macroeconomic Advisory Capacity development activities supported Bangladesh, Bhutan, Cambodia, South Africa, Tajikistan and Swaziland and organized national, regional and sub-regional training workshops.