Impact of an economic slowdown o

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					              Impact of an economic slowdown on Human Development in LAC
                               Challenges and Opportunities

                          A one day workshop – Monday May 19, 2008

The objective of this workshop is to develop a common understanding of how a slowdown and
raising food prices may impact human development in the LAC region, and the implications for
the Bank. The format of the event is designed to combine people with a strong analytical
background with people with strong policy and operational experience, in a low-stress
environment. We hope to cover ground in four areas: (i) what is known about how economic
slowdowns and a reduction in real incomes of the poor impact results in health and education; (ii)
the transmission mechanisms – institutional and political processes that affect financing in the
social sectors, new challenges and new policy options; (iii) What countercyclical programs are
available in LAC to cushion a possible crisis; (iv) what new instruments does the Bank have – or
could develop to help countries facing a slowdown. There would be an introduction and four
working level sessions, as described below.

8:30 – 9am               Breakfast

9:00 – 9:15 Opening Session. Setting expectations for the day.
     Evangeline Javier (Director, LCSHD),
     Peter Hakim (President, InterAmerican Dialogue)

9:15 – 10:45am Session 1. How did recessions in the past affect health and education
outcomes? What additional impact can be expected by higher food prices? Some of the
available evidence from LAC suggests that past recessions had a greater impact on health than
on education coverage and outcomes. Some people drop out of school, especially the youngest
and the oldest, but most don't. Dropping out may be affected by the direction taken by the
opportunity cost of child labor (it may go up or down). Availability of school lunches may have an
important retention effect. On health, studies have found drastic increases on infant mortality
and sharp decreases in the coverage of key interventions (including immunization). The reasons
are subject to further analysis, but are likely to include: (i) public health expenditures in health
include a larger proportion of drugs, vaccines and other consumables than expenditures in
education -- those expenditures are particularly vulnerable to fiscal contractions and real income
losses; (ii) out of pocket expenditures are higher in health than in education as a proportion of the
total, and the income elasticity of health expenditures is very high; (iii) faced with fiscal
adjustment, user fees (legal and illegal) can rapidly increase. The objective of the session would
be to develop an understanding of these issues to help design appropriate responses.
Chair: Shanta Devarajan (Chief Economist, Africa Region). Panel:
      Nora Lustig (Shapiro Visiting Professor of International Affairs, George Washington
         University),
      Norbert Schady (Senior Economist, DEC),
      Tamar Manuelyan (Director ECSHD, speaking about EAP).

10:45 – 11:00am          Coffee

11:00 – 1pm Session 2. How did the financing of health and education suffer during
previous slowdowns? And what new patterns are expected to come into play in the
future? What recommendations could be made for the future – earmarking, ranking of
cuts, separate budgets? On the private side, the large importance of remittances in some
countries, and the likelihood that these are already suffering will be considered, as will their
impact on health and education spending. On public budgets, usually governments facing a fiscal
contraction cut what is easier to cut. Drugs, vaccines, school maintenance are among the easiest
things to cut. Importantly, in the past in LAC fiscal adjustment was greatly facilitated by high
inflation rates (which reduced real wages even if nominal wages were fixed downward); with low
inflation rates even more of the adjustment could fall on consumables (and investment, but some
of this is now better protected through PPPs). The Bank has attempted to "protect" the financing
of key social programs in many countries, usually with DPLs -- there is now some skepticism
about the rate of success of such protection
Chair: Augusto de la Torre (Chief Economist LCR). Panel:
      Sanjeev Gupta (Senior Advisor, Fiscal Affairs, IMF),
      Fidel Jaramillo (Regional Economics Advisor IADB and Former Minister of Finance of
          Ecuador)
      Jose Antonio Ocampo (Former Executive Secretary ECLAC),
      Rodrigo Chaves (SM Economic Policy LACPREM).

1:00 – 2:00pm Lunch

2:15 – 3:45pm Session 3. Are the existing Social Protection programs an appropriate anti-
cyclical response? The countercyclical use of CCTs is a topic of heated debate. While it may
be easy to increase the transfer amount for the existing beneficiaries, there is a risk that there will
be pressure to expand the beneficiaries, and specifically to break with the existing targeting
procedures (in several countries the quality of targeting is based on the use of geographic rules
that exclude urban areas, if this line is crossed the CCTs can become politicized). Workfare
programs by contrast are a natural choice for anticyclical response -- set a low wage and allow
people to self-select, increase the size of the program during the downturn and reduce it when
the economy grows back. While in theory this could work, we need to review the evidence about
how the politics behind these programs have been managed (say by piqueteros in Argentina).
Chair: Ariel Fiszbein (Chief Economist HD). Panel:
     Francisco Ferreira (Lead Economist, DECRG),
     Rogerio Gomez Hermosillo (Former Director of Mexico’s Oportunidades),
     Catalina Smulovitz (Univ. Di Tela – Politics of workfare).

3:45 – 4:00pm Coffee break

4:00 – 5:50pm Session 4. Reflections on lessons learned and brainstorming about a
World Bank response. This session would have two parts. The first would summarize the
emerging lessons from the previous three sessions and present the main challenges for the
Bank. The second would discuss how the Bank can be helpful. It would explore opportunities in
lending and in knowledge sharing. In lending, it would examine existing DDOs to understand if
they are appropriate. Review the success rate of DPLs that protected key social programs. We
should also brainstorm about the risks and opportunities of our existing portfolio -- how do we
expect the portfolio to perform in the event of a downturn and what amendments would make it
more useful?
Chair: Helena Ribe (SM Social Protection, LCSHD). Panel:
     Peter Hakim (President, InterAmerican Dialogue),
     Daniel Cotlear (Lead Economist, LCSHD),
     Augusto de la Torre (Chief Economist, LCR),
     Stefan Koeberle (Director, LCSOS),
     Country Director (TBA),
     Evangeline Javier (Sector Director, LCSHD)

5:50 – 6:00pm Closing Remarks
    Pamela Cox (Regional Vice-President, LCR)

				
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