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The funding gap remains large. However, the capacity of state public budgets is more limited than before the pandemic, as emergency spending for the epidemic has led to higher levels of debt and fiscal deficits.
Many countries received support from the International Monetary Fund’s rapid financing instruments and other arrangements, or obtained additional loans to deal with the emergency, putting them in more debt. Now the Fund and the world’s financial leaders are talking about “necessary” financial restrictions or austerity cuts after the pandemic. These cuts reduce economic activity and worsen living conditions. In practice, the epidemic has revealed the weak state of public health systems – generally overburdened – and a lack of funding and staff shortages due to past austerity and privatization policies.
During the last decade, most countries have implemented austerity policies, which have had negative social impacts. People have suffered from insufficient Social Security reforms that have reduced their hard-earned benefits; Cuts in salaries and expenses of teachers, health workers and other public officials; Cutting aid; Labor flexibility reforms that worsened working conditions; Privatize public services; Targeting and reducing social protection benefits when the world must expand social protection floors.
Angel Poligan – Mexico
In this context, more than 500 organizations and academics from around the world signed a statement calling on the International Monetary Fund to end austerity:
“The International Monetary Fund has begun to restrict countries to new long-term loan programs conditional on austerity in recent months … There are a notable number of emergency packages that the Fund provided in the context of dealing with the” Covid 19 “which include language that strengthens financial control in the recovery phase … Instead of austerity, it is necessary to create fiscal space and give governments time, flexibility and support to achieve a sustainable, inclusive and equitable recovery .
In fact, people suffer unnecessarily. Before the pandemic they were abandoned. They have been severely affected during the epidemic. If finance ministers agree to austerity cuts, people will suffer severely from reduced public spending. In the 1980s and 1990s, structural adjustment and austerity became prerequisites in Latin America and sub-Saharan Africa. As for the results? Between 1980 and 2000, Latin America experienced a two-decade economic recession. In sub-Saharan Africa, per capita income has fallen by 15%.
Poverty and inequality have increased during the pandemic. Countries must now avoid austerity cuts at all costs and instead work to boost social spending. Returning to the situation before the Crown is not the solution, since many have been deprived of a decent life. It is imperative to increase public spending and create jobs.
This is possible. There are alternatives. There are at least 8 options that governments can consider to increase public budgets, rather than austerity.
First: increasing tax revenues, in particular, in light of rising levels of inequality, progressive increases in income and wealth taxes, and corporate taxes, including taxes on the financial sector, which largely remain tax free.
Second: Increase social security coverage and income by transferring workers from the informal economy to the formal sector, thus paying social security contributions and, above all, not reducing employers’ social security contributions as is sometimes suggested because this would make social security irregular. Sustainable.
Third: Combat illicit financial flows and recover them. Significant public funds are lost to illegal activities such as money laundering and tax evasion. Reducing these flows will significantly increase available public funds.
Fourth: if governments need to reallocate public spending, austerity cuts in the social sector must be avoided at all costs. Instead, the focus should be on replacing high-cost spending with low social impact, such as defense. For example, Thailand has cut military spending to invest in public health.
Over the past decade, most countries have implemented austerity policies that have had negative social impacts, and people have suffered inadequate reforms in social security, wage cuts, and the dismissal of teachers, health workers, and others.
Fifth: Adopt macroeconomic frameworks that are more adaptable to a certain tolerance for inflation and fiscal deficits.
Sixth, the International Monetary Fund should explore sovereign debt cuts. Given today’s high levels of debt, it is important to encourage debt forgiveness / relief, or at least debt repayment with restructuring.
Seventh: Increases in development aid and transfers, such as the Global Fund for Social Protection Floors.
Eighth: Issue special drawing rights in international financial institutions or, alternatively, issue paper money to developing countries through a multilateral union within the framework of the United Nations to provide liquidity to avoid global recession.
These policy options are so important to people’s lives that they are not determined behind closed doors: they must be discussed openly in the national dialogue, with all stakeholders, including trade unions, employers, governments and civic organizations.
Austerity can and should be avoided, it is possible to increase social spending and job creation. Governments must not accept harmful austerity. Instead of cutting budgets that have been slashed sharply, countries can avoid austerity and have much larger budgets to finance job-creating economic activities and bring health and prosperity to all citizens.
* Isabelle Ortiz is Director of the Global Program for Social Justice at the Policy Dialogue Initiative at Columbia University in the USA, Director of the International Labor Organization and UNICEF, and a senior official at the United Nations Nations and the Asian Development Bank.
Richard Jolly is a development economist chosen as one of the world’s 50 leading economic thinkers, professor emeritus and researcher at the Institute for Development Studies (IDS) at the University of Sussex, UK, and a former Secretary-General United Nations Deputy.
This article was published in Inter Press Services (IPS) on October 16, 2020
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