U.N. warns austerity plans damage economic recovery

Reuters News
Posted: Jun 22, 2011 6:55 PM
U.N. warns austerity plans damage economic recovery

By Robert Evans

GENEVA (Reuters) - Austerity measures being adopted by many industrialized world governments in the wake of the 2008-09 financial crisis are undermining economic recovery, a United Nations report said on Wednesday.

Cuts in spending on health, education and other social programs in both rich and poor countries, it asserted, threaten to turn back decades of social progress, block new job creation and derail efforts to eradicate poverty.

"The growing pressure for austerity measures, ostensibly for reasons of fiscal consolidation, is putting at risk social protection, public health and education programs, as well as the economic recovery measures," the report said.

If governments give in to these pressures, they could jeopardize the sustainability of the recovery, which was at best uncertain and fragile, it declared.

"Continued support for stimulus and other recovery measures is needed to strengthen the momentum of output recovery and to protect the economic and social investments that underpin future growth."

The study, "The Global Social Crisis-Report on the World Social Situation 2011," was presented at the world body's European headquarters in Geneva by its main author, Malaysian -born U.N. Assistant Secretary-General Jomo Kwame Sundaram.


Sundaram, a development economist who has taught at both Harvard and Yale universities in the United States, told a news conference that Asian countries, including China, had made strong efforts to sustain economic recovery programs.

Their exports to the West had helped drive the overall post-2009 recovery, he said. But if demand from richer countries tailed off as austerity slashed disposable incomes, Asian economies would also drop back.

The report made no specific reference to the current problems of European countries in the euro zone and outside it, which have been heightened by the political and social turmoil in debt-burdened Greece.

But its thrust was implicitly critical of European Union member countries and the U.N.'s International Monetary Fund (IMF), which are pressing Greece to push on with tough austerity measures as a condition for a bail-out loan.

Portugal, Ireland and Spain -- all users of the euro -- and Britain which stayed out of the common currency have all introduced austerity programs involving cuts in social services and are all facing varying degrees of social unrest.

The U.N. report said responses to the crisis had not addressed what had sparked it.

"For example, financial reform in major economies has not matched initial expectations and exposes the recovery to new abuses, excesses and vulnerabilities," it asserted. "There are signs that this is already happening.

"Progress in addressing other structural causes of the crisis have also been limited....income inequalities continue to grow, global balancing is limited and global demand remains depressed.

"The failure to address the root causes of the crisis will impede a sustainable recovery," the report said.

(Editing by Philippa Fletcher)