Full Report - Subregional Office for East and North-East Asia - escap

DEVELOPMENTAL MACROECONOMICS: THE CRITICAL ROLE OF PUBLIC EXPENDITURE CHAPTER 3
Although now the IMF recognizes the perspective of
many emerging and developing countries, critics believe
that its guidelines on capital account management go
only half way; it still sees capital account liberalization as
a long-term goal. 29 The Fund recommends restrictions
on inflows only as a sort of “last resort” – when all
other measures, such as building up reserves, letting
currencies appreciate and strengthening fiscal policy
have been adopted. More caution is urged when
using regulation on outflows, arguing that by and large
they should not be used but can be considered in
crisis or near crisis conditions.
However, from a developmental viewpoint, capital
account openness should not be viewed as an
all-or-nothing position. The increased importance
of equity flows has increased the effective scope
of a capital account policy of semi-openness. A
capital account can be open to equity flows – both
portfolio and FDI, even when money and bond flows
are managed. The benefits of managing short-term
capital flows can be summarized as follows:
• Reduce the instability and possibility of crises
arising from volatile international capital flows
• Insulate domestic interest rates, credit conditions
and/or the exchange rate from international credit
conditions
• Make some room for expansionary monetary policy
KEY AREAS OF INCLUSIVE AND SUSTAIN-
ABLE DEVELOPMENT
This section provides a rationale for public
investment in key areas of inclusive and sustainable
development. They include: ensuring productive
and decent employment; providing better access
to social services, including health, education,
protection for persons with disabilities and old-age
income security; and ensuring affordable access to
energy. Together, at their basic levels, they afford
social protection in the broader sense of the term
and ensure resilient and inclusive development.
Indeed, whether the terms are aspirational or
intergovernmentally negotiated and legally binding,
it has long been argued in international instruments
that the guarantee of a certain standard of living
is an inalienable human right. 30
In addition to rights-based arguments, there are
also economic and social benefits to ensuring
that all individuals have income security as well
as universal access to basic services, such as
health and education. Indeed, “a robust system
of social protection not only fulfils people’s basic
rights, it also establishes a firm platform for both
social and economic development and provides an
automatic stabilizer for vulnerable groups affected
by crisis” (ESCAP, 2011c, p. 3). There is evidence
to suggest that, in the Asian and Pacific region,
a direct correlation exists between robust social
security mechanisms and human development (see
figure 3.3).
In recognizing the central role of social protection,
especially during a crisis, the United Nations System
Chief Executives Board for Coordination launched the
social protection floor initiative in April 2009. That
initiative is defined by the Board as “an integrated
set of social policies designed to guarantee income
security and access to social services for all,
paying particular attention to vulnerable groups, and
protecting and empowering people across the life
cycle” (ILO and WHO, 2011, p. 9).
The global leaders gathered at the High-level
Plenary Meeting of the sixty-fifth session of the
General Assembly in September 2010 (the Millennium
Development Goals Summit) declared: “We consider
that promoting universal access to social services
and providing social protection floors can make
an important contribution to consolidating and
achieving further development gains. Social protection
systems that address and reduce inequality and
social exclusion are essential for protecting the
gains towards the achievement of the Millennium
Development Goals”. 31
In June 2012, a new international labour standard,
Social Protection Floors Recommendation, 2012
(No. 202), 32 was adopted at the International Labour
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