1. Rob Vos Director Development Policy and Analysis Division, UN-DESA
Economic and social impact of El Niño in Andean countries 25 April 2006 Inter-American Development Bank, Washington, D.C
Rob Vos
Director
Development Policy and Analysis Division,
UN-DESA

2. Nature of El Niño and its policy implications
“Pre-announced” and recurrent disaster but difficult to predict
Preventive action is possible
Methodological problems
But past experience can be assessed
WMO reports unlikely continuation of La Niña or development of El Niño in 2006 but does not rule it out
WMO reports that “As predictions are least reliable at this time of year, careful monitoring will be needed over the next several months for indications of La Niña conditions persisting further into the year, or of the onset of a rapid evolution toward El Niño conditions. Neither of these two scenarios is considered likely, but cannot be ruled out at the current time.” (3 March 2006)

3. Methodological issues of measurement of impact
Assessment of costs: choice of benchmark (direct damage vs. “normal” depreciation)
Direct and indirect effects
What prices to use to value damages?
For preventive action: how to deal with uncertainty of how and when risk areas will be affected
Identify types of risks and degrees of vulnerability: e.g. to income losses (agricultural and infrastructure) and health risk of the poor

4. Methodological issues of measurement of impact (cont.)
Estimation of costs also depends on policy objective: direct damage vs. developmental reconstruction

5. Estimates of economic and social costs: Ecuador 1997-1998
% of GDP
Official
CEPAL
Vos et al
Total net (excl. emergency aid)
12.9
11.9
2.7
Agriculture
7.8
5.2
0.6
Infrastructure
4.6
4.0
1.0
Social services
0.5
1.1
Manufacturing, tourism
0.0
1.6
Agricultural net losses: equivalent to 4.7% of agricultural GDP and 0.6% of total GDP
Differences: identification of flooded areas at greater topographical detail and foregone earnings at value added rather than by total production; pre-disaster prices vs. export prices

6. Estimates of economic and social costs: Ecuador 1997-1998
Agriculture net losses: US$112 mln (Vos) versus $ 1,012 mln (Cepal)
Estimates partly “ex-ante”
53% of cultivated area affected by floods, but not all same degree
Differences:
identification of areas
valuation
Productivity gains in shrimp production and some agricultural crops
Agricultural net losses: equivalent to 4.7% of agricultural GDP and 0.6% of total GDP
Differences: identification of flooded areas at greater topographical detail and foregone earnings at value added rather than by total production; pre-disaster prices vs. export prices

7. Estimates of economic and social costs: Ecuador 1997-1998 (2)
Infrastructure: $ 900 mln (official); $786 mln (Cepal) vs $204 mln (Vos et al)
Differences:
Identification degree of damaged infrastructure. In effect:
Main road system: only in specific areas
10 bridges collapsed
Unpaved: unusable during rainy season
Income losses to transporters

8. Estimates of economic and social costs: Ecuador 1997-1998 (3)
Indirect effects on real economic growth not clear
Impact of other external shocks
Expansionary fiscal policy
Food price increases retained due to import of basic foods
Rural employment and poverty
Employment and agricultural income losses would explain rise in rural income poverty in affected areas with 11 percentage points
Estimate employment loss using labor use per hectare by crop and technology level and apply to affected cultivated areas.
Potential impact on rural poverty calculated with indirect methods utilizing: income and consumption data, poverty indices, poverty-growth elasticity, and most vulnerable cantons were classified.

9. Health risks Increased disease prevalence (malaria, dengue, cholera)
Damage to drinking water systems
Reduced access to health services

10. Different risks require different mitigating actions
Typology of required policy interventions
Type 1: impact on persons and infrastructure
Type 2: impact on persons
Type 3: impact on infrastructure

11. Targeting and monitoring
Typology of cantons (municipalities) for targeting
Type A: low vulnerability and impact
Type B: moderate vulnerability but relatively strong impact
Type C: high vulnerability but moderate impact
Type D: high vulnerability and strong impact
The combination of these two typologies could serve as a way to set priorities for preventive and curative action and target more vulnerable areas.

12. Lessons learned and policy recommendations
Adverse effects of El Niño are problem of underdevelopment
Policy approach: compensatory relief and development investment
Recurring nature of El Niño  insurance schemes (public funds or private financial instruments)
Need agreement on nature of damages
Need establish criteria, procedures and benchmarks for costing and valuation
Present value versus replacement for new versus improved investment

13. Lessons from other disasters
Hurricane Mitch
Central America is a high risk zone but lack of prevention and mitigation measures leaves vulnerable exposed
75% of damages were caused by improper land use and settlements
Need to integrate disaster strategy with development objectives