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New Bank wisdom on economic crises

15 June 1999

The Bank has identified 5 main ways in which macroeconomic crises affect the poor. They are changes in:

  • prices, which change relative wages, employment patterns and consumption;
  • aggregate labour demand;
  • the rates of returns on assets;
  • the level of public transfers, in cash and in kind; and
  • the community environment, in terms of public health and/or safety.

The Bank argues that “the overarching priority for policymakers must be to take steps to avoid irreversible welfare losses to the poor…”.

The Bank sets out an agenda of:

  • choosing stabilisation policies that achieve their macroeconomic objectives at the least cost to the most vulnerable;
  • ensuring that pro-poor public services are not cut back;
  • setting up or reinforcing safety nets to provide effective insurance before a crisis, and assistance one hits;
  • intervening to help preserve the social fabric of societies in crisis;
  • setting up mechanisms to monitor the crisis impacts and evaluate responses.

Macroeconomic Crises and Poverty: Transmission Mechanisms and Policy Responses, available at: www.worldbank.org