SPECIAL CRINMAIL: The financial crisis and child rights

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Twenty world powers met last weekend in order to address what is commonly termed the ‘global financial crisis.’ But what is this ‘crisis’? Who is involved? And what will it mean for children? This CRINMAIL aims to guide readers through the maze of commentary and media fanfare on the subject, and consider what the implications might be for children.


What is the crisis all about?

The global financial crisis of 2008 is being billed as the worst of its kind since the Great Depression in the 1930s and 40s. It began, or at least became visible, in the United States in September this year, with the failure, merger or conservatorship (a legal term in the US with a similar meaning to nationalisation) of several large US-based financial firms.

Beginning with failures of large financial institutions in the United States, it rapidly evolved into a global crisis resulting in a number of European bank failures and declines in various stock indexes, and large reductions in the market value of equities (stock) and commodities (e.g rice, sugar etc) worldwide. The crisis has led to instability in financial institutions especially in the United States and Europe.

The International Monetary Fund (IMF) projects global growth to slow down by 1.5 percent from 3.7 per cent in 2008 to 2.2 per cent in 2009. While people living in developed economies will certainly feel the pinch of a recession, millions in the developing world who are already deep in poverty might disproportionately bear the impacts of the economic decline.

As countries slide into recession, many question the workings of the international financial system which has allowed excessive risk-taking, and in the end endangered ordinary people’s savings, pensions and homes.

Causes

The financial crisis has its roots in the US and the excessive expansion of house building and of credit to buy homes, but the economic consequences have long spread beyond American shores.

Japan is now in recession. Flagging exports to the US are part of that story but consumer demand at home is also weak.

Some European countries have had their own housing and credit booms that are now going into reverse. Britain, certainly, but Spain and Ireland too, are likely to face recession or are already doing so.

Many Central and Eastern European countries have had such booms that have now gone into reverse - the Baltic Republics: Estonia, Latvia and Lithuania for example.

Country focus

Other countries have banks and other businesses that have borrowed heavily in foreign currency. As their own currency falls, the burden of that foreign debt increases and so does the risk of defaults.

That is why Hungary is in difficulty.

Indeed, there is a queue of countries in negotiations with the International Monetary Fund (IMF), seeking emergency loans.

Hungary, Iceland, Ukraine, Belarus and Pakistan are all talking to the IMF.

These countries all have their own home-grown problems, including rapid credit growth, overseas borrowing and deficits in their international balance of payments.

But it has been the international crisis that has brought them into focus.

Developing countries across the board have been affected by international investment funds selling shares and bonds to bring their money home to invest in the safety of assets such as American government debt. 

The US may be a far bigger debtor than any developing nation, but it is still seen as presenting no risk of failing to repay.

Others have been affected by falling prices for the commodities they export, for example Brazil and soya or Russia and oil. 

Recession for the developing world too? 

The developing world's financial markets have been hit very hard by a crisis that started elsewhere, but will it drag them into recession too?

It is certainly possible, and it is very likely that most will experience slower economic growth.

But many are in much better shape than they were in the wave of developing country financial crises of the 1990s and the start of this decade.

What is being done about the crisis globally?

The ‘G20’ meeting last weekend brought together leading industrial powers, such as the US, Japan and Germany, and also emerging market countries such as China, India, Argentina, Brazil and others - representing 85 per cent of the world economy.

However, Oxfam International said that many of the world's poorest and most vulnerable countries were not included in this summit, yet they were the ones likely to suffer most in a global economic downturn.

"More than two billion people were not represented at this summit, and it's critical that their voices and contributions be part of the solution to the current crisis," said Gawain Kripke, spokesperson for Oxfam International. The group said that the action plan agreed by the G20, while reaffirming commitments to the Millennium Development Goals, did not include specific measures to ensure this.

Meanwhile, the African Union said that Africa must be consulted over any reform of the world's financial system.

"There is one problem for us, and that is that people tend to take decisions for us, without listening to us, and then impose them on us," said Jean Ping, chairman of the AU commission.

"Africa demands to be heard," he said.

The meeting called for a "broad policy response", emphasising the role fiscal policy, such as tax cuts, must play in reviving economic growth.  The G20 promised to make progress before a second summit in April.

Secretary-General Ban Ki-moon, speaking before the summit, urged world leaders to do everything they can to alleviate the impact of the current crisis on the world's poorest people.

Ban said he would tell the leaders that the billions of dollars being spent to mitigate the financial crisis are already "vastly more'' than the amounts they allocate to international aid. So "this is clearly a question of will,'' the secretary-general said.

"My focus will be more on how to insulate the interest and well-being of developing countries from the financial crisis impact.''

Key issues agreed by world leaders at this summit included:

  • reform of international financial institutions such as the World Bank and the International Monetary Fund
  • an agreement by the end of 2008, leading to a successful global free-trade deal
  • improvements to financial market transparency and ensuring complete and accurate disclosure by firms of their financial conditions
  • making sure banks and financial institutions' incentives "prevent excessive risk taking"
  • asking finance ministers to draw-up a list of financial institutions whose collapse would endanger the global economic system

The managing director of the International Monetary Fund, Dominique Strauss-Kahn, told the BBC that its resources were being stretched by the global financial crisis.
He said it was likely to need at least $100bn (£68bn) of additional funding over the course of the next six months.

He also called for countries to continue cutting interest rates, wherever possible, to help ease the crisis., adding that he felt the European Central Bank had the room to make another rate cut.

What does it mean for children?

Poverty and rights

The prospect of recession impacts across the children’s rights spectrum. Back in 1984, during the world recession of the early 80s, a UNICEF study found that it is children of the poorest people who suffer most from recession.

It was conducted in Brazil, Chile, Cuba, Costa Rica, India, Nigeria, South Korea, Sri Lanka, Tanzania and Zambia. Parts of the United States and Italy were included.
The study said that ''in most of the case study countries for which there are data, the number of people and children living below the poverty line shows an upward trend.''

It said the impact of the recession was detected in many areas of child welfare. It expressed concern that efforts to lower the infant mortality rate were impeded by cutbacks in social expenditures. For example, real spending in Chile for social programs in 1982 was said to be less than it was in 1974.

In the United States, the study said, some localities experienced an increase in infant mortality rates in the last three years.

The study also indicated that in Brazil and some parts of the United States, the number of underweight births is increasing. An underweight birth is defined as a child born weighing less than 5.5 pounds.

[Source: New York Times: http://query.nytimes.com/gst/fullpage.html?sec=health&res=9402EFD71E38F930A25756C0A962948260]  

The argument for rights

Thomas Hammarberg, Commissioner for Human Rights at the Council of Europe, argues that: “Increased unemployment will place a further burden on state budgets and there will be less space for social assistance at a time when needs will inevitably grow. This is likely to cause tensions and perhaps even social unrest. There is a risk that xenophobia and other intolerance will spread further and that minorities and migrants may become targets. Extremists might seek to exploit and provoke such tendencies.”

Mr Hammarberg goes on to caution that economic and social rights, such as the the right to social security, the right to an adequate standard of living, the right to food, the right to education, the right to housing, the right to health, the right to work and the right to rest and leisure, must not be neglected during times of economic hardship. He concludes: Economic and social rights have not been defined in a vacuum; they are based on the experience of past crises and on the knowledge that ignoring social justice comes at an enormous cost. They can also serve as very useful guiding principles for political decision makers at a time when difficult choices have to be made.”

Read the rest of Mr Hammarberg's viewpoint here

In a news article, Radhika Balakrishnan, Professor of Economics and International Studies at Marymount Manhattan Colleg, US, and Diane Elson, Professor of Economics and Sociology, Human Rights Center, Essex University, insist that: “The system of international human rights law provides a framework through which governments can be held accountable for their discharge of their obligations. The U.S. government has been complicit in the emergence of the financial crisis. It deregulated the financial sector, failing to provide adequate protection for Americans against violations of their human rights by financial institutions. It failed to provide protection for Americans needing safe assets to achieve an adequate standard of living in their retirement, and good-quality affordable mortgages to purchase housing.”

Experts believe that a human rights approach helps to develop an empowering approach to poverty, so that people in poverty are not blamed for being poor, or given help out of charity.

For more information, see the UN guidance Poverty Reducation and Human Rights: A Practice Note

For examples of court cases where economic and social rights have been successfully litigated, visit www.escr.net

Visit our guide to strategic litigation

Eurochild: A Child's Rights Approach to Poverty

Housing

The Centre on Housing Rights and Evictions (COHRE) believes that addressing both chronic and acute housing rights violations suffered by millions of children throughout the world is central to ensuring their long term security and well-being. More than one out of every three children, approximately 640 million children, does not live in adequate housing.

COHRE issued a press release on World Habitat Day (6 October) arguing that the unmet demand for adequate housing provided the primary target for the predatory lending practices that led to the crisis. It said: “The realisation of housing rights for the world's poor majority must not now be sacrificed in the name of international economic "recovery" efforts.” Read the whole of the release, which explains the devastating impact of forced evictions, and the denial of housing, in countries including the US, China (during the Olympics) and Cambodia, here 

As homeowners default on their mortgage repayments, the effect of repossession on children becomes a crucial concern.

Violence

In Florida, US, reports have already surfaced of violence towards children resulting from financial pressure. "Over the past three months, I've seen more and more cases where children are being abused," Susan Sherman, pediatric nurse practitioner, says. "Not because their parents are bad, but because they've gotten into such horrible economic shape." Read more here

In Australia, escalating family violence has also been blamed on the economy. Read more here

A European Parliament report, “Promoting social inclusion and combating poverty, including child poverty, in the EU” (INI-COM (2007) 0620), contained a raft of provisions on the relationship between child poverty and child maltreatment. You can read the report here

Enrolment and attendance at expensive secondary level falls, and for poorer families enrolment at primary level may also fall.

There are already concerns, for example in the US, that education budgets could be affected by the financial crisis. Congress was grappling with an estimated $700 billion assistance plan for the financial sector that left some advocates worried that such an enormous unplanned expenditure could squeeze domestic spending for a long time. Read more here

Health

Cheaper diets are less diverse and have fewer micronutrients, hence increased risk of stunting; if families cannot afford even enough calories (let alone diverse foods) then acute malnutrition and starvation become possibilities, although this is extreme.

Fewer people can afford treatment where healthcare is not free and indirect costs (transport, etc.) are significant.

In Russia, experts have warned parents to resist the temptation to buy cheap toys during economic hardship.

Safety tests on a sample of randomly selected toys purchased in markets across Russia, focusing on imported Chinese-made toys, which currently make up the vast bulk of the Russian toy market; around 70 percent by value, found that one in five of the toys posed health risks to children. Almost all of these dangerous toys came from open-air markets and unregistered, unlicensed outlets. Read the full story here

Mental health

UK charity Rethink has warned that the financial crisis is likely to have severe implications for people’s mental health, with home repossession one of the key risk factors.

The Ontario Association of Children's Aid Societies (OACAS) in Canada warned that one-third of children seeking mental health services in 2007 were still waiting at the end of the year. Despite the current economic environment, we must remain committed to securing a prosperous future for our children," said Executive Director Jeanette Lewis. Read more here

Child psychologist Michele C. Thorne, assistant professor of clinical psychology at the Indiana University School of Medicine, US, says that parents should recognise that even newborn babies pick up on the emotional tones of adult stress. She says children of any age, including teens, need to be reassured that they are safe and will be cared for no matter how the family is faring. More here

Child labour

An alternative to cutting spending is to try to increase income, and for the poorest this may mean resorting to more dangerous and exploitative means of earning income: e.g. taking children out of school and sending them to work instead, or engaging in transactional sex.

For example, a report on the economic recession of 1999 in Colombia found that: “The late nineties' economic crisis impact on child labour and education was sharp increase of children in the labour force and a slight decrease of school attendance.”

International development

Efforts to eradicate global poverty have come under threat as governments grapple with the financial crisis, UK international development secretary Douglas Alexander said.
Mr Alexander warned there was a risk developing countries could be forgotten amid the turmoil on the money markets.

Speaking at the World Bank's annual general meeting, Mr Alexander said the effects of the credit crunch were starting to ripple through emerging economies and slow economic growth.

Rica Garde, Economic Policy Officer at Save the Children UK, argues that it is the poorest countries that are aid dependent which are likely to be hardest hit by the crisis. Reports suggest that rich economies cut back on aid during recessions, and this happened in the Nordic countries in 1991 and Japan in 1997. Many fear that aid budgets will receive less priority as donor countries try to soften the blow of the recession on their populations. Yet these are crucial times for development.

The World Bank warns of the impacts of the food and financial crisis converging in the developing world. Estimates by the Bank posit that the food crisis has pushed 105 more people into poverty and 44 million more individuals into malnutrition. Despite recent declines in food prices, they remain higher than 2005 levels and millions still need support. “It is unthinkable to cut aid as it is tantamount to cutting off a lifeline for the poorest people of the world”, concludes the organisation.

Among other measures, Save the Children is calling for:

• The reform of the global financial system into a more responsible one. This includes stricter supervision of the banking and financial sectors to improve transparency, accountability and allow regulators to detect early signs of stress. On a broader scale, cross-border financial practices that hurt developing countries must be reformed. For example, there is a need to curb tax havens and evasion which put legitimate tax revenues out of reach of developing-country governments.

• Reform the role and governance of the Bretton Woods Institutions. This crisis has prompted calls for a Bretton Woods II conference to address the inadequacies of the World Bank and the IMF. This conference should follow a democratic process where both rich and poor countries have equal say on what and how the reforms should be. The IMF should focus on overseeing the global macroeconomy and keep its hands off development lending. On that note, the World Bank should look at how to improve existing poverty reduction strategies. The Bank should consider development programmes that increase developing-country governments’ ownership and accountability. Most importantly, these institutions should be made more democratic, transparent and accountable to all member and donor countries.

• A world trade system that promotes inclusive and sustainable development . The global economy should recognise the need for a truly free and fair trading system. While free access to rich markets is necessary, it is important that developing countries are allowed to engage better with the world trading system as this is a way for trade to harness inclusive development. Resolving the Doha Round is only the first step to this reform. The more crucial steps include building infrastructure, creating capacity to meet international standards and simplified origin criteria to improve trade facilitation in developing countries. The trade system should consider the environmental impacts of economic activity and there should be multilateral effort to mitigate them. The preservation of the environment is a global public good; hence the world economy should come up with ways to pay for sustainable energy and clean ways of production.

[Sources: BBC; Open Democracy; Science Daily; Council of Europe; Moscow News; Wink News; news.com.au; New York Times]

Countries

    Please note that these reports are hosted by CRIN as a resource for Child Rights campaigners, researchers and other interested parties. Unless otherwise stated, they are not the work of CRIN and their inclusion in our database does not necessarily signify endorsement or agreement with their content by CRIN.