In a statement delivered to the spring meetings of the International Monetary Fund and the World Bank, Mr. Somavia said growing links between the two organizations and the ILO were crucial to multilateral efforts addressing a range of social imbalances ranging from widening income gaps to a global economic slowdown and climate change.
“The ILO’s tried and tested mechanisms of social dialogue and tripartite discussions are particularly vital in building consensus around policies to avert a steep slowdown and move out of recession”, Mr. Somavia said in the statement. “I believe they are an undervalued asset upon which the multilateral system should draw in shaping policies for a sustainable recovery.”
Mr. Somavia cited forecasts by the IMF World Economic Outlook projecting global growth for 2008 and 2009 at 3.7 per cent and an increasing risk that the outturn could drop below 3 per cent, equivalent to a global recession (Note 1) adding that other studies indicated these developments would impact labour markets in the U.S. and other countries during 2008.
“Stability and progress in the world of work is threatened by instability and setbacks in the world of finance”, Mr. Somavia said. “The scale of the financial restructuring now underway and the severity of the credit squeeze make the current financial crisis perhaps the most severe since 1945 and may result in markedly slower growth in the USA and other industrialized countries for as much as two to three years.” (Note 2)
Mr. Somavia said the ILO has been keenly following “the policy debates and actions of central banks and finance ministries over recent months in view of the importance of monetary and fiscal policies to creating a conducive environment for the international community’s objectives of full and productive employment and Decent Work for All”.
He said “imbalances in financial markets are related to wider disequilibria in society and in the process of globalization. Averting the risk of a major global slowdown and ensuring recovery to a sustainable global development path thus requires coherent policy action within and between countries across several policy fields, including finance and investment, trade, employment and social affairs and environment”.
“We need to find a better balance between the democratic voice of society, the productive dynamic of the market and the regulatory function of the state”, he said.
Among the fiscal responses to a slowdown would be a strengthening of “the redistributive quality of tax and benefits systems both to ensure the maximum impact on consumption and also to counteract the trend towards increased inequality of market incomes.”
“Some developing countries have started to build automatic social and economic stabilizers”, he said. “However such systems often reach only a small layer of society leaving most workers and their families, mainly in the informal economy, vulnerable to risks such as ill-health, injury or job-loss and the country as a whole vulnerable to external and domestic crises.”
He cited ILO research that shows that “the combination of a modest cash benefit for children and a modest pension, which could be an entry level benefit package for the least developed countries, could reduce the poverty head count by about 40 per cent, costing about 4 per cent of their GDP”.
“The distributional impact as well the size of fiscal policy injections influence the effectiveness of policy packages”, he said. “The composition of such policy packages should therefore figure in international discussions on joint efforts to meet the global challenges of underlying social and economic imbalances.”
Mr. Somavia listed four priorities for international discussions at the Spring 2008 meetings of the IMF and World Bank and more widely within the multilateral system, including fiscal policies for social and economic stability, international regulation of financial markets, sustainable enterprise development, and the employment dimension of policies to address climate change.
“I look forward to the results of the international discussions now underway on reforms to financial regulations and urge that consideration be given to building in incentives for investment in productive and sustainable enterprises and disincentives for the financing of high risk borrowing against inadequate collateral”, the statement said.
Note 1 – IMF: World Economic Outlook, April 2008.
Note 2 – Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison Carmen M. Reinhart, University of Maryland and the NBER, and Kenneth S. Rogoff, Harvard University and the NBER, (February 5 2008 version).
Key resources : Statement by Mr. Juan Somavia delivered to the spring meetings of the International Monetary Fund and the World Bank (12-13 April 2008)