US spending cuts will hit also the South

The government spending cuts in the United States as the President and Congress fail to reach a deal will be felt not only by Americans but also the developing countries. This comes at a bad time as the rich economies are already on a downward path. Last week, the Organisation for Economic Cooperation and Development, the group of 34 rich countries, said that the gross domestic product of its members fell by an annual rate of 0.6% in the last quarter of 2012. The European Commission, meanwhile, predicted that the Euro-zone economies would contract by 0.3% this year, which could prove to be optimistic given the recent political uncertainties in Italy. The spending cuts in the US would add to the contractionary trend in the rich countries.

The continuously weakening of the Western economies will have adverse effects on exports, tourism, workers’ remittances and incomes in developing countries. There is another and more direct dimension to the “sequestration” on the developing world. The government’s spending cuts will affect the budget for aid given to poor countries and to development programmes such as provision of medicines and food, according to a report by the Inter Press Service (IPS).

The new secretary of state, John Kerry, revealed that the State Department and its aid agency USAID, would have to cut US$2.6bil (RM8bil) from their 2013 budget. The cuts would include $200m from humanitarian assistance and $400m from global health programmes. For example, the US would reduce its contribution to the Global Fund to Fight AIDS, Tuberculosis and Malaria by $300m this year, meaning there will be less medicine donated to poor countries. Kerry has written to Congress stating that this reduction would reduce the United States’ ability to provide food assistance to two million people and USAID would have to cease, reduce, or not initiate assistance to millions of disaster affected people, and would “gravely impede” efforts at reducing AIDS-related and child deaths.

The IPS report also quoted Jeremy Kadden of InterAction (an alliance of NGOs aiding developing countries) as saying: “These cuts will cost lives. We’ve made very significant progress over the past 10 years, with real people improving their lives, and this would set that process back enormously, devastating actual people on the ground.” He estimated that the budget cuts would lead to some three million children losing access to the basic education they currently receive; two million people would suffer reductions in or stop receiving food aid, while 600,000 children would lose nutrition assistance. Unlike in the United Kingdom, where the Cameron government decided not to cut its aid budget despite huge slashing of the overall government budget, there is no exemption for overseas spending in the US sequestration exercise.

The poor in America will also be affected. About 600,000 low-income women and children will stop receiving food aid. Also affected in the $26bn cut in domestic programmes are health, education, drug enforcement, national parks and Hurricane Sandy relief. Low-income families will also be affected by a cut in public housing subsidies, which could hurt about 125,000 poor families, according to The Guardian. The National Institutes of Health, which will suffer a 5% budget cut, is cancelling hundreds of research grants. Another $16bn in mandatory spending will be cut, including in medicare, agriculture programmes and unemployment benefits.

* Excerpt of the weekly ‘Global Trends’ column of Martin Khor >>> here.