Latvian teachers suffering from the economic crisis

Boris Kagarlitsky, the director of the Institute of Globalization Studies in Moscow, writes in today's Moscow Times about the situation of Latvian public servants in general and teachers specifically:

"Pensions were cut by 10 percent and by 70 percent for those who continue working while drawing a pension. Allowances for children and family benefits were also reduced by 10 percent. Because interference in the private sector is prohibited, the government chose to cut the salaries of state employees. Now teachers, doctors and even policemen will take home 20 percent less in wages at the end of each month. In contrast to big business, the poorest members of society do not have government lobbyists."

To read the full article, go to:

http://www.moscowtimes.ru/article/1016/42/379061.htm

OECD/IMF talk of « exit strategies » has big risks for workers and families

The annual OECD Ministerial Council meeting in Paris this week expressed concern about the growing public debt associated with stimulus packages in many OECD countries.

Already, the OECD and the IMF are talking about “exit strategies”, which translate into future cutbacks in public expenditure. This is to be linked with the OECD/IMF announcement this week suggesting a slow end to the crisis. In a BBC interview, the IMF’s Chief Economist, said that the US might begin recovery later this year or early in 2010, but that Europe would be behind the US, and unemployment would continue to rise everywhere. But he also talked about public deficits.

At the Plenary of TUAC in Paris this week, trade union colleagues warned that governments, the OECD and the IMF were all developing a line that would mean higher ongoing rates of unemployment and lower social protection for families, well into the foreseeable future. Ironically, the same arguments that set the scene for the crisis are now re-emerging for a post-crisis scenario.

There is also the paradox that the OECD, and even the IMF, talk about protecting education and health spending. But their policies aimed at cutting public spending do precisely the opposite. They end up cutting resources for education and health. We should highlight this paradox in our campaign.

World Bank confirms sharp drop in financial flows to developing countries

Six months ago many in the South thought the financial crisis was mainly a problem of the North. In February, however, the head of the IMF, Dominique Strauss-Kahn warned that the impact on the developing countries could be devastating. In March, financier and philanthropist George Soros wrote in the Financial Times that the G20 had to take action to prevent both a financial and a human catastrophe for the countries of the South. This was in the lead-up to the London G20 Summit which announced a trillion US dollars of funding for the IMF to support countries in difficulty – developing countries of the South, and Central and Eastern European countries.

Now the World Bank confirms the warnings. In its Annual Global Development Finance report released yesterday, the bank says private capital flows to developing countries will fall almost to just one quarter of 2007 levels – to $363 billion for all countries from $1,200 billion in 2007. This drop in private flows is huge.

But it comes on top of a likely sharp drop in Official Development Assistance from government aid agencies – that is the pattern of previous downturns in the North. Moreover, NGOs and foundations have contributed significant resources for development in recent years, but they have been hit by the crisis too, especially US endowments.

The IMF funds are not the solution. Firstly, the actual contributions have not yet reached the one trillion ($1,000 billion) level promised in London. Secondly, they are being allocated subject to “old” IMF conditions, notably cuts in public sector spending. A colleague from Angola told the ITUC Executive Board yesterday that her government had announced a 30 percent cut in public sector spending for next year – and other developing countries will do likewise.

The World Bank said yesterday that developed nations are misguided in focusing efforts on restoring demand in their own economies. Prospects in developing countries will impact on growth prospects in the developed countries too, the Bank warns.

We agree. The trade union movement said that all along – see the Global Union Declaration to the G20 Summits in Washington and London.

When will they listen? And when will they act?

Sources: Global Unions Washington office, Financial times

Conflicting views on recovery – G8 Finance Ministers versus reality

G8 Finance Ministers put out a mildly optimistic statement on Saturday, after their meeting in Italy. They see a recovery of stock markets and improved business and consumer confidence. They recognize, however, that “we are in the middle of the worst crisis since the Great Depression”, and that the situation remains uncertain with significant risks.

This mild optimism does not reflect reality. The day before, John Evans, TUAC General Secretary, told the Council of Global Unions that unemployment will double over the next two years. The optimistic projections coming out from Finance Ministries, the IMF and the OECD all assume that the banking system will start working again. This is not happening. The view that recovery will come soon is based on no rational analysis, but rather on wishful thinking. Unemployment figures just received by ILO and OECD confirm this reality. ILO has revised its estimates again, now up to 59 million extra unemployed. OECD reported an increase in unemployment of 7.8% in the OECD countries in April alone.

Guy Ryder, ITUC General Secretary, reported to the CGU General Secretaries on Friday that the situation had become more not less bleak. “I am increasingly concerned that we may be sleepwalking into something horrific, not just for 2 or 3 years, but for the next 2 or 3 decades” Guy said.

G8 Development Ministers also met in Rome on Friday.

Link: Summary of global unions’ view http://www.actionforglobalhealth.eu/news/g8_representatives_of_civil_society_met_minister_frattini

Two new reports ring alarm bells for public finances

The IMF has just released a paper “Fiscal Implications of the Global Economic and Financial Crisis” that rings alarm bells for public finances. Prepared by a staff team from the IMF’s Fiscal Affairs Department, the paper says governments have to balance two opposite risks:
· The risk of prolonged depression and stagnation, as against
· The risk of a loss of confidence in government solvency.

For G20 advanced economies, the report projects that fiscal balance will worsen by 8 percent over 2008-09 compared with 2007. The increase in government debt will be even more sizable. The report also points to risks for pension funds in many countries, particularly those exposed to “toxic” investment such as CDOs and “credit-default swaps”.

The thrust of this report is that governments which have put in place big stimulus packages will soon have to scale back on public spending. Unfortunately, this report confirms the assessment that for public sectors, including education in many countries, the worst is yet to come.

Nota Bene: The report does not say a word about education, neither about the impact of fiscal restraint on education services, nor on the contribution of education to the re-launching of economics.

It does contains useful technical information. Link to the report http://www.imf.org/external/pubs/ft/spn/2009/spn0913.pdf

The second report released by Eurodad, the European network on debt and development, provides a reasoned critique of the IMF. It is entitled “Bail-out or blow-out? IMF policy advice and conditions for low-income countries at a time of crisis”. The report shows how the macro-economic preoccupations of the IMFs play out in actual advice to countries, and indeed conditions imposed on them for IMF support. In these countries, public finances are already being squeezed, often dramatically. Leading examples are counties in Central and Eastern Europe including Latvia, Ukraine, Hungary and Lithuania (http://www.eurodad.org/whatsnew/reports.aspx?id=3679).

The IMF came out of the London G20 in April with an enhanced mandate and more resources, in order to help low-income countries get through the crisis. Despite the welcome statements of the IMF’s Director on the need for coordinated global stimulus and the role of public services, these two reports show that the “old” IMF is still very much in place. Public services and education are likely to suffer as a consequence.

Source: Peter Bakvis, Global Unions Washington Office

A “jobless recovery”?

Labour leaders met with staff of the World Economic Forum in Geneva last Friday. One of the issues raised was the notion of a “jobless recovery”. In other words, the risk that stock markets would rise while unemployment got worse. A “jobless recovery” would mean returning to a casino economy based on speculation, with wins for a few and losses for many. It would perpetuate inequities. It could not be sustainable.

Real recovery will have to be led by consumers, and that requires raising incomes, with more equity of distribution. One of the big challenges said Neal Kearney of ITGLWF is “how to keep workers in the middle of a recession: downturns should be used for upskilling”. Philip Jennings of UNI stressed the risks of youth unemployment and threats to social cohesion. Anita Normark of BWI said we had to deal with climate change while charting a road to recovery. Tim Noonan of ITUC gave an example of the impact of an unexpected event such as the outbreak of swine-flu on employment. Lee Howell from the WEF staff made a remark that caught my attention “the current recession is transformational. But we don’t know what’s on the other side”. Rick Samans, WEF Managing Director, agreed that the global community was accumulating risks. “One of the lessons from this crisis is that we should be on the watch for other big risks” he said.

In an attempt to get a better understanding of global risks, the WEF has launched an ambitious network of Global Agenda Councils, some 70 of them, linking together about 1500 leaders from all regions, from business as well as civil society, to discuss challenges ranging from economic balances, to ecosystems, to pandemics, to terrorism. Global Unions are invited to play an active role. EI will be invited to councils on Skills Gap and Technology and Education.

The meeting concluded with a discussion that I initiated on “Investment in people” and what that really means. For talk of a “jobless recovery”, is like saying a “recovery without people”. And that just doesn’t make sense!

Next: Shaping up for the G20 in Pittsburgh

How Wall Street fleeced millions from Wisconsin schools

The story of how five Wisconsin school districts lost millions due to Wall Street financial engineering that trustees believed to be AA safe is just one example of the impact of the financial crisis on education.

Five school districts in Wisconsin joined together with the aim of enhancing their pension trust fund investments. Trustees were persuaded that new financial instruments called CDOs were nearly as safe as Treasury Bonds, but with better rates of return. They put in $37.5 million of their own funds, and borrowed another à $165 from an Irish Bank. They did not realize that they were bit players in a complex international deal involving banks in the US, Ireland, Germany and Canada.

This example is given by Les Leopold, Director of the Labour Institute and Public Health Institute in New York, in his new book “The Looting of America: How Wall Street’s Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What we can do about it”. He quotes the New York Times: “Wisconsin schools were not the only ones to jump into such complicated financial products. More than $1.2 trillion of CDOs have been sold to buyers of all kinds since 2005 – including many cities and government agencies….”.

Read the story of the “Wisconsin Five” on http://www.alternet.org/story/140208/the_looting_of_america%3A_how_wall_street_fleeced_millions_from_wisconsin_schools/.

Les Leopold’s book is available on Amazon at http://bit.ly/rltb4.

Source: ITUC and International Federation of Journalists (IFJ)

Global imbalances

Returning to the last Wednesday’s item about massive imbalances leading up to the financial crisis (http://fundingeducation.blogspot.com/2009/05/startling-revelation-what-imf-and.html), it is interesting to read reports of US Treasury Secretary Timothy Geithner’s visit to China this week.

Reuters pointed out yesterday that China is the biggest foreign owner of US Treasury bonds. US data shows that it held $768 billion in Treasuries as of March, but some analysts believe China’s total US dollar-denominated investments could be twice as high. Now Geithner is on a mission to reassure China that its massive investments in US dollars are safe. Students at Beijing University, where Geithner studied Chinese in the 1980s, were not convinced as they greeted his assurances with loud laughter.

China is demanding a bigger role at the IMF, and in international policy making in finance, and Geithner gave public backing to that. Both the US and the Chinese officials know that today’s huge global imbalances are unsustainable. That means that even if the current crisis can be overcome within the next two years, major structural changes in the system are inevitable. This is called paradigm change.

And remember that the impact on employment and public services including education will linger well after recovery begins – see: Is economic recovery on the way? http://www.ei-ie.org/handsup/en/article_detail.php?id=140).


Source: Reuters, Global Unions Washington Office