Development cooperation strategy and more social protection is needed

João José Fernandes, Pedro Krupenski
Oikos

Introduction

Since joining the Euro in 1999, Portugal has had the lowest growth in the Eurozone. Between 2001 and 2007 Portugal experienced only 1.1% average annual growth. The government deficit was -6.5% of GDP in 2005 and it was -3.1% in 2007. When the global financial crisis occurred, a drop in tax revenues and the money allocation to support commercial banks, led to further increases in the government deficit and in general gross debt. At 108.1% in 2011, Portugal had the third highest general government gross debt to GDP ratio in Europe (EU27), behind only Greece and Italy (Eurostat, 2012a ). As debt continued to grow investors were unwilling to lend and in May 2011 Portugal was the third country to seek a ‘bailout’ from the EU-ECB-IMF troika[1]. The austerity measures accorded between the Portuguese Government and troika, are responsible for major setbacks. Many basic economic and social rights that were guaranteed are now being either questioned or neglected. In this scenario, the development cooperation public policy that contributed significantly to the achievement of the Millennium Development Goals (MDG) also suffered a major negative shift.

Policy Response to 2008 Financial Crisis

The policy response to the 2008 financial crisis, was the implementation of a progressive stringent set of austerity measures: freezing of nearly all insurance benefits and pensions, reducing the pensions tax allowance, reduction in means-tested unemployment assistance, family benefit and social assistance, increase in standard VAT rate (from 20% to 23%) including increasing the VAT on natural gas and electricity to standard rate, increase in income tax rates and reductions of tax credits, public sector pay cuts (up to 10%), reductions in numbers of employees in central Government and across public administration generally (Leahy, et al., 2013 ). According to OECD, in September 2011, the Portuguese Government announced an 11% reduction in the NHS budget for 2012, twice the budget cut under the EU/IMF bailout agreement. The actual figures of OECD indicate that spending in health for the year 2011 fell 5.2% compared to 2010 when the average of all countries of the organization was a growth of 0.7%. The objective for the Public spending on health, in 2013, is to achieve just over 5.1% of gross domestic product (GDP), while the average in the euro area is estimated to be approximately 7% (Morgan, et al., 2013 ).

Amongst the measures proposed for 2012/13 are: reductions in pensions (with different approaches to different levels: including cuts for those with pensions of between €600-€1,000 per month, and freezing of pensions below €600 per month, with potential marginal increases for those on the lowest levels), controlling costs in the health sector, reductions in costs in education by €380m, reductions in social transfers (other than pensions) of at least €180m by tightening eligibility criteria and decreasing some benefits, increasing personal income tax, reductions in numbers and in wages of government employees. In 2013, the Government and the EU-ECB-IMF Troika will decide a further permanent cut of 4 billion Euros in public expenditure, mainly related to the welfare state (heath, education, pensions and social protection) (Leahy, et al., 2013).

Economic and social setbacks

Increasing unemployment, impoverishment and increasing vulnerability of the powerless groups and communities are the major consequences of austerity policies.

Unemployment

Portugal unemployment rate estimated for the 4th quarter of 2012 was 16.9%. This value is up 2.9% from the same quarter of 2011 according to a release from the National Statistics Institute. There were 923.2 thousand unemployed people, which corresponds to a year-on-year increase of 19.7% (more 152.2 thousand of jobless people). There were 4.5 million employed people, which corresponds to a year-on-year decrease of 4.3% a (less 203.6 thousand of employed people) (Fontes, 2013 ).Portugal Youth Unemployment Rate in January 2013 is at 38.60%, compared to January 34.60% last year and 23,40% in January 2009. This is much higher than the long term average of 17.55% . These reported figures are missing the increasing number of emigrants (near 100 thousand in 2012, especially skilled young people) and the increasing number of long-term unemployed who have given up actively seeking employment.

Impoverishment

As common acknowledged there is a time-lag in the availability of data on comparable poverty measures across Europe. Figures are now published for Portugal for 2011 (with a 2010 reference period), but this still doesn't represent the full impact of austerity policies.  However, enough evidence exists to conclude that Portugal has a high rate of 'poverty and social exclusion', which is the combined indicator used under the Europe 2020 strategy. The rate of 24.4% in 2011 represents 2.6 million people (source, Eurostat, 2012b ). Portugal’s rate is higher than the EU27 average rate of 23.4% (2010) (Eurostat, 2012b). Portugal’s child poverty rate fell between 2004 and 2007, but there was a sizable increase between 2007 and 2008 and the rate has remained at about that level since. The 2010 rate is above the EU27 average: the average rate was 20.5%, while Portugal’s rate was 22.4% (2010 and 2011) (Eurostat, 2012c ). The risk of poverty rate for people aged 65+ in Portugal was 21% in 2010.This is higher than the EU27 average of 16% (2010). The rate of poverty in Portugal for working people who still do not earn enough to protect them from poverty (the working poor) is 10.3% (2011), which is above the 2010 EU27 average of 8.4% (in 2010). Beyond these official figures, there is a public perception of increasing impoverishment. Near 300 thousand people depend on Portuguese charities for their food security and more than 10 thousand children have their first meal at public schools.

Impacts on Vulnerable Groups

The Commissioner for Human Rights of the Council of Europe reported on concerns for vulnerable groups in Portugal following a visit in May 2012. Among these groups he highlighted the situation of children, older people and Roma people. The Commissioner drew attention to how the combined effects of unemployment, cuts in salaries, increased taxes and reduced social and unemployment benefits has resulted in growing poverty among many Portuguese families. The Commissioner (Muižnieks, 2012 ) noted that:

  • Child poverty is on the rise in Portugal, as a result of increasing unemployment and following the adoption of austerity measures in 2010 and 2011. Cuts in child care benefits in 2010 and 2012 were particularly severe and had a significant impact on the income of many families with children and consequently, on a range of children’s rights. The increasing prices of health care and public transportation as well as the increasing number of evictions as a result of nonpayment of mortgages have also had a particularly negative impact on children’s rights. Budgetary stringency is also affecting education, including higher education. For instance, the reduction in the number of scholarships for university students reportedly led to a number of students giving up their studies. All of these factors suggest the risk of a resurgence of child labor, notably in the informal economic sector and agriculture.
  • The elderly are vulnerable to poverty and are adversely affected by the fiscal austerity measures which have resulted in the lowering of incomes due to the freezing of pensions, cuts in social benefits, increases in costs of health care, public transport, gas, electricity and food, affecting especially those living in isolated rural areas.
  • Roma continue to suffer from social exclusion and various forms of discrimination, particularly as regards housing, education and access to employment. The Commissioner notes with concern that action taken by some local authorities, such as depriving Roma settlements of access to water, has been in breach of fundamental European human rights standards. The fact that many Roma pupils are taught in separate classes also remains of particular concern to the Commissioner who firmly believes that integration into mainstream education should be favored so as to ensure that all Roma pupils have equal access to quality education.

According to Charity groups, the Portuguese Government’s response, especially under the Social Emergency Program, is not able to deal with the suffering caused by the crisis and the austerity measures. The crisis is not well understood by many people leaving those affected without hope (Caritas Portuguesa, 2012).

MDG and Portuguese Cooperation for Development Policy

Portugal considered the MDG “one of the greatest international challenges facing the world (then)”. MDG were integrated in the 2005 five yearlong national cooperation strategy[2] and set as one of the top priorities for the Official Development Aid (ODA). In 2006, operational plans were discussed and approved on a national level to deliver the strategy and those goals.

According to the official assessment[3] that took place in 2009, the plans were successfully implemented, in order to make the architectural, instrumental and financial adjustments to deliver the strategy.

In fact, MDG were mainstreamed in all Portuguese Development Cooperation, the Portuguese ODA contribution to MDG was accurately monitored and strong public support to the MGD were some of the positive achievements.

In 2010 a Council of Ministers Resolution was issued[4] to promote policy coherence by consolidating the integration of the international commitments Portugal was bounded to and align all national policies that were related to developing countries with the cooperation for development policy, in order to “increase the national external policy visibility and the effectiveness of the Portuguese public role on the fulfillment of the MDG”.

In 2011, a new government was elected. Ever since, the public cooperation for development policy has been subjected to the economic diplomacy and the promotion of the Portuguese language demands. The alibi to this shift is the national need to capture foreign investment and internationalize the Portuguese economy as means to take Portugal out of the economic and financial crisis that is going through. There are no official documents that support these options. However, all the measures that have been adopted (like merging the former Development Agency with Instituto Camões, the former institute that promoted Portuguese language throughout the world) are eloquent about these political options.

The lack of openness and clarity about the current development cooperation policies also threatens some other commitments that Portugal assumed by signing the Forth High Level Forum for Aid Effectiveness outcome [5] like the transparency and predictability of aid as effectiveness of aid principles.

In what regards transparency, Portugal is on the 59th position among 72 donors on the 2012 Transparency Index[6] issued by Publish What You Fund (PWYF), thus being classified as 2poor” in terms of transparency.

A changing world and the fact that the 2005 had reached its self-established lifetime demanded a new strategy. So far no new strategy is in place. Deep changes are needed.

MDG and ODA

In 2002, Portugal was part of the Monterrey Summit where donors committed to allocate 0.7% of its Gross National Income (GNI) to ODA.

Ever since, the Public Budget allocated to ODA suffered several fluctuations. An average of 0.28% of GNI has been allocated to ODA since 2002. However, if we dismiss the 561 million Euros effect of debt relief to Angola, made in 2004, the average goes down to 0.24% of GNI to ODA.

Thus, Portugal is below the average European ratio GNI/ODA witch is 0.34% after the enlargement of the European Union to the Eastern countries. Before that, the average was 0.52%, almost the double of the Portuguese average.

The “untying of aid” (aid that is not related to the obligation of the partner country to purchase products and/or services from the donor country) was a commitment that was included in the Millennium Declaration. DAC/ODCE issued a recommendation about the untying of aid to the development countries that was subscribed by Portugal in 2005. In this recommendation ODCE sets a list of criteria to define what is and what is not ODA and advises the donors not to cross a certain percentage of tied aid. Since 2009 the increase of ODA volume has been done partially through tied aid. 2011 data shows that 72.5% of ODA is tied aid, representing an increase of 15.1% between 2010 and 2011. This increase is officially justified with the relevant weight of the concessional loans from Portugal to Developing Countries and also with the recent requalification made by ODCE of aid to refugees and public awareness raising for development issues as means (in certain cases) of ODA.

Conclusions

Given the high levels of unemployment and poverty already being experienced in Portugal, and the findings that early measures disproportionately affected poorer people, very serious impacts might be anticipated on vulnerable groups, putting at risk the more elementary economic, social and cultural rights. For these reason, we highly recommend the implementation of a human rights based approach to national budget and welfare state reform, allowing the social protection of the powerless and dis-empowered groups.

In what concerns Development Cooperation Policy, and as a lesson learned from the financial crisis, we believe it should become a State Policy. As a government policy is subjected to all electoral and economic cycles and the respective changes that often occur despite the commitments made with partner countries, Civil Society and most important with the people in needs. It is also crucial that Portugal sets the means to meet the “untying of aid” commitments as by not doing so is deliberately stealing with one hand what gave with the other. It is highly recommended that Portugal aligns with Busan principles, namely with transparency and predictability, to allow fostering both accountability of its practices and strategic programing to its partners.

Notes:

[1] Troika is the name given to the Portugal creditors group composed by the European Commission (EC), the International Monetary Fund (IMF) and the European Central Bank (ECB).

[2] “A Strategic Vision for Portuguese Development Cooperation”
http://icsite.cloudapp.netdna-cdn.com/images/cooperacao/visao_estrategica_cp_ing.pdf

[3] “  Assessment of the Strategic Vision for Portuguese Development Cooperation”
http://icsite.cloudapp.netdna-cdn.com/images/cooperacao/balanco_visao_ingles.pdf 

[4] Published in Diário da República  on the 4th  of  November 2010 and available at http://www.ipad.mne.gov.pt//CentroRecursos/Biblioteca/Documents/0496504966.pdf

[5] The high level forum took place in Busan, South Korea in November 2011. The outcome document can be found at http://www.dev-practitioners.eu/fileadmin/Redaktion/Documents/Post-Busan_03_2012/Busan_FINAL_EN.pdf?PHPSESSID=676429f1ff11085f8399f01af656fbbc

[6] Pilot Aid Transparency Index 2012, issued by Publish What You Fund, available at http://www.publishwhatyoufund.org/files/2012-Aid-Transparency-Index_web-singles.pdf

Eurostat, 2012a. General Government Gross Debt, tsdde410 [Online] (Updated, 26.10.12). Available at http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tsdde410  accessed 06 march 2013.

Leahy, A., Healy, S., Murphy, M. (2013). Caritas Europa Report: The Impact of the European Crisis. Report prepared by Social Justice Ireland for Caritas Europa.

Morgan, D. and R. Astolfi (2013), “Health Spending Growth at Zero: Which Countries, Which Sectors Are Most Affected?”, OECD Health Working Papers, No. 60, OECD. Publishing. http://dx.doi.org/10.1787/5k4dd1st95xv-en

Fontes, N. (2013). Portugal Unemployment Rate Up to 16.9 percent in Q4. Analysis based data from INE. Available at: <http://www.tradingeconomics.com/portugal/unemployment-rate > Accessed on 05 March 2013.

Ycharts (2013). Portugal Youth Unemployment Rate:38.60% for Jan 2013. Available at: http://ycharts.com/indicators/portugal_youth_unemployment_rate_lfs  accessed on 06 March 2013.

Eurostat, 2012b. Headline Targets. t2020_50, 51,52,53 [Online] (Updated 8.11.12) Available at  http://epp.eurostat.ec.europa.eu/portal/page/portal/europe_2020_indicators/headline_indicators  accessed, 6 March 2013).

Eurostat, 2012c. At Risk of Poverty Rate by Detailed Age Group, tessi120 [Online] (Updated 9.11.12) Available at http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&language=en&pcode=tessi120&plugin=1accessed, 6 March 2013.

Muižnieks, N., Commissioner for Human Rights of the Council of Europe, 2012. Report following his Visit to Portugal, 7-9 May 2012. CommDH(2012)22. Strasbourg: 10 July 2012. Available at https://wcd.coe.int/com.instranet.InstraServlet?command=com.instranet.CmdBlobGet&InstranetImage=2134231&SecMode=1&DocId=1919090&Usage=2 accessed, 6 March 2013.

Caritas Portuguesa, 2012. Crisis in Portugal: Context, Challenges and Hopes.

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