Drawing Lessons To Put In Place Poverty-Sensitive Responses To Macro Shocks

Undoubtedly, a macroeconomic shock–resulting in an economic slowdown
or worse, a recession–aggravates poverty which could lead to
irreversible effects on capabilities of the poor. Based on lessons
drawn from past crises, this paper attempts to develop a guide for
policy-making that is sensitive and responsive to the welfare and
interests of the poor. It describes the features of macroeconomic
policies towards crisis prevention then proceeds to identify issues
relating to the formulation and implementation of stabilization
policies once the crisis explodes. Finally it proposes the
consolidation of a framework (upon which key issues are identified and
policies are made) which gives policy-makers an idea of: a) how
macro-wide shocks are transmitted to communities, households, and
individuals; and, b) the core questions to be resolved, with due regard
to specific contexts, whenever tensions and tradeoffs emerge in the
selection of the policy menu.

Especially in this age of globalization, the world market economy is
prone to crises, some of which could not be accurately predicted. Thus,
even if the Philippine economy could hurdle the structural obstacles to
sound and sustained growth, it would nevertheless remain vulnerable to
systemic external shocks. The 1997 global financial crisis has
demonstrated clearly that economies with strong fundamentals are not
spared from the volatility and risks of the globally integrated market
economy.

But the Philippine economy faces greater internal risks, underscoring
the need for economic policy to be sensitive to crisis prevention or
mitigation. We cite two factors why this is so. The first factor is the
history of the boom-and-bust cycle, a decisive end to which has become
the main challenge for economic policy-makers. It can be easily
observed over the decades that the economy has taken a roller-coaster
ride, so to speak. Note that once growth rate peaks at around 6
percent, the strains in the economy become visible, leading to a
slowdown if not a recession. The second factor is the regrettable fact
that the Philippines is calamity-stricken–perennially visited by
devastating typhoons, powerful earthquakes, severe droughts, and the
like.

These natural calamities contribute to a macro shock, recently
exemplified by the impact of the El Niño drought on agriculture output
in 1998.

In brief, the proneness of the global market system to shocks, the
historical boom-andbust episodes in the economy, and the regularity of
natural calamities all combine to make the Philippines quite
susceptible to macro shocks. To be sure, the best strategy is to
minimize the occurrence of a crisis, but if this cannot be avoided,
then the next-best option is to mitigate the impact, with emphasis on
the protection of the poor.

Hence, based on lessons drawn from past crises, this paper attempts to
develop a guide for policy-making that is sensitive and responsive to
the welfare and interests of the poor.

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