It is a common belief that the recovery from recession begins after 18 months. From this perspective, if we consider United States’ official acknowledgment that recession began in December 2007, it was already 11 months when the world leaders gathered for the Asia Pacific conference in November 2008. Taking December 2007 as the base year for the historic recession, 17 months have already passed by. The only memorable achievement as of today from these estimates is the realization by world’s larger economic powers that new protectionist barriers should be discouraged and WTO talks initiated again.
There is a greater probability that financial crisis will limit the possibility of global commitment to allocate US$ 16 billion to accelerate the realization of Millennium Development Goals.
The speculation of the head of France’s biggest listed bank, BNP Paribas, that the phase of exceptional turbulence on the markets should end by the second half of 2008 also turned out to be wrong. Nobel Prize laureate Paul Krugman observes that the worst maybe over but massive lingering debts make early recovery unlikely. In the USA, housing investment is below 3 percent of GDP. Although US Federal Reserve has cut the key borrowing rate to near zero, says Krugman, business sentiment is not affected by a discounted rate. The problem is in the three fronts of real economy i.e., the savings rate and housing and business investment.
The chief economist of Merill Lynch says, for each $1 increase in the price of oil, Russia’s government budget earns about $1.7 billion a year. Last winter, oil dipped below $40 a barrel. Now oil price is above $60 per barrel. The Dean of the New Economic School in Moscow writes “If oil prices go back to where there is no budget deficit, then it will be business as usual”. Reacting to this scenario, International Herald Tribune wrote “The problem is that rising oil prices have turned around Russia’s prospects so quickly that economists are now warning of a different risk: the crisis may be too short.” Is this the global reality?
Dominique Strauss-Kahn, MD of IMF recently said that global downturn is not over, the world is still in the grips of a “Great Recession” and, therefore, it would be wrong to be complacent. IMF estimates that the world economic growth will increase by 1-3 percentage points by the end of this year since a global fiscal stimulus equals to 2 percent of the world’s GDP. Although the global economy is handled on the coordinated policies of major global players, the fundamental question unanswered is how much and how long stimulus is needed. Therefore, mitigating the slump is one side of the story but policies for recovery is another.
IMPACT ON HEALTH
The global financial crisis has threatened the sustainability of health service delivery largely in the less developed countries and on the health of urban poor. The cuts in social spending – health, education and social protection – can severely damage health, development, security and prosperity. Global Statistics reveals richest countries spend on an average over US$ 3000 per person per year compared to $30 in poor countries and even this amount is contributed by external finance. The rich countries thus spend 8-10 percent of their national income on health.
IMPACT ON HUMAN DEVELOPMENT
The development challenge of global recession is to give continuity to achieve the Millennium Development Goals (MDGs). There is a greater probability that financial crisis will limit the possibility of global commitment to allocate US$ 16 billion to accelerate the realization of MDGs by fighting poverty and hunger in resource poor countries. The obstruction to maintain progress towards this end would mean to accept failure in generating employment, restoring growth, accessing basic service delivery especially in healthcare and education to the poor and vulnerable.
Shaohua Chen and Martin Ravallion estimate that the crisis will add 64 million people to the population living under $2 a day. The “Global Monitoring Report 2009: A Development Emergency” by the World Bank estimates that up to 90 million extra people worldwide (62 million in Asia) will live in extreme income poverty with less than US$ 1.25 per day in 2009. Since current crisis has a multiplier effect on the physical quality of life, this crisis seems affecting the lives beyond our quantitative exercise.
IMPACT ON SECURITY
Security has different dimensions. Recent study shows nearly three-quarters of security professionals think the recession has significant impact on their purchasing of technology. The same result shows a further 72 per cent of IT security professionals said their budgets had been reduced in the past seven months due to the downturn.
The crisis has also shown the impact on national social protection systems. It has weakened the prospect of shaping social policies that promote economic and social stability. Some already suspect that there will be a severe impact on certain types of pension schemes. Effective government guarantees for social protection is going to be extremely difficult.
IMPACT ON PROSPERITY
Prosperity is linked to the ability to deliver basic standards of living and well-being in the developing countries. The authors in Sustainable Development Commission in UK believe, their “debt-driven consumption has created an unstable system which has put jobs and livelihoods at risk, as well as damaging them psychologically and socially”. The experts argue that the desire for economic growth has contributed to growing environmental crisis by undermining well-being in developed countries and therefore, it is one of the root causes of the current financial crisis. As the challenge is to reduce the shocks and negative impacts from excessive reliance on growth by switching over to fair, sustainable, low-carbon economy, it is now time to initiate intellectual discourse to find out the answer if prosperity without growth is possible.
bishwambher@yahoo.com
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