a time of crisis, a time for change ottawa 19 october 2009
TRANSCRIPT
A time of crisis,
a time for change
Ottawa 19 October 2009
2
Crisis Unexpected?• A crisis foretold• Unsustainable global imbalances • International financial architecture• Ideology: deregulation, self-regulation,
inadequate and inappropriate regulationcapital account liberalization
• Financial Globalization: No growth, stability• Developing countries innocent victims• Policy responses: inadequate; double
standards• International cooperation: G7, G20, UN
3
Global imbalances ballooned
United States
Oil exporters
Euro Area
Japan
China
Other Asia
Other industrialised
Central and Eastern
Europe
Latin America
-1000
-800
-600
-400
-200
0
200
400
600
800
1000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
USD bn
.
4
Net Capital Importers
Capital Importers
U. K.9%
I tal y3%
Turkey 3%
Greece3%Others
20%
U. S.50%
Spai n9%
Aust ral i a3%
US macro-financial policies•International monetary + financial ‘non-system’
•Prolonged loose macroeconomic policies
•Lax financial regulation + policies
•Low US savings rate•US over-consumption, E Asian
surpluses•US, UK economic hubris
6
Broad Liquidity!
964 % of World GDP
78 % of Total
10 % of Total
11 % of Total
138 % of World GDP
1 % of Total
122 % of World GDP
9 % of World GDP
Derivatives
Securitized Debt
Broad Money
Power Money
7
Globalization: finance>trade
0
20
40
60
80
100
120
140
160
180
1980 1990 1995 2000 2006
US
$ T
rillio
ns
0
50
100
150
200
250
300
350
As
pe
rce
nt
of
GD
P, in
dic
es
19
80
=1
00
Global financial assets
Global merchandise trade
) Global financial assets as a percentage of GDP(right axis
) Global merchandise trade as a percentage of GDP(right axis
8
Finance-investment nexus?
0.00
0.05
0.10
0.15
0.20
0.25
0.30
Gross Fixed Capital Formation
Gross Financial Investment Abroad
Financial globalization
•Net capital flows from South to North (US largest borrower)
•Cost of funds not generally lower due to financial deepening (more intermediation, financial rents)
•Higher volatility•Lower growth, higher instability
Net transfer of financial resources from South to North
Source: UN World Economic Situation and Prospects 2008 )forthcoming(
-1000
-800
-600
-400
-200
0
200
Bill
ions
of U
S do
llars
Developing economies Africa Eastern and Southern Asia Western Asia Latin America
Short-term capital inflows
problematic•No real contribution to investment,
growth rates•Asset (shares, real estate) price +
related (e.g. construction) bubbles instead
•Cheaper finance for consumption binges•Over-investment excess capacity•All exacerbate instability, pro-cyclicality
12
Financial impacts on developing countries• Despite non-involvement in sub-prime debacle:
Emerging stock markets collapse greater Reversal of capital flows, FDI also down Spreads rise, much higher borrowing costs
• But financial positions stronger than during Asian + LA crises (more foreign reserves, better fiscal balances)But reserves rapidly evaporating with export collapse; fiscal space also disappearing
Capital inflows contract
0
250
500
750
2005 2006 2007 2008 2009*
$ B
illio
ns
Source: IFF *Projection
Credit crunch: US, EUPercentage of lenders tightening standards, by size of enterprise seeking loans
Panel A: United States Panel B: European Union
-20
0
20
40
60
80
100
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008
Large and Medium Small
0
20
40
60
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2006 2007 2008
Small & Medium Large
Borrowing costs for Southremain high
0
2
4
6
8
10
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09
Africa
Asia
Latin America
Europe
17
Contagion: crisis spreadsFinancial sector contagion (incl. vicious circles):Sub-prime crisis financial crisis asset price deflation liquidity/credit crunch
Financial crisis Economic recession(including feedback loops)Real economy contagion (incl. vicious circles): Less investment, especially abroad (FDI) Less consumption
Reduced demand for imports, i.e. for exports of others Prices, output declines globally Growth, employment declines globally
Deflationary spiral•Asset (stock, property) markets
deflating negative wealth effect
more bank insolvency generalized credit squeeze
•Lower external demand, world trade excess capacity investment slowdown
•Depressed domestic demand lower prices, outputrices, output lower employment, incomes
20
Globalization: Parallel fates
-4
-2
0
2
4
6
8
2003 2004 2005 2006 2007 2008 2009 (P)
Developing countries
Developed countries
World
Preliminary, revised forecast
Food prices remain higher
50
100
150
200
250
300
350
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Wheat Maize Rice
26
World trade collapse
10.9
7.7
9.2
6.6
2.4
-11.1
4.1
-12
-8
-4
0
4
8
12
2004 2005 2006 2007 2008 2009 2010
Ann
ual p
erce
ntag
e ch
ange
0.5
Trade collapse consensus
6.0
2.2
-9.0
-13.2-15.0
-10.0
-5.0
0.0
5.0
10.0
WTO OECD
2007 2008 2009 Forecasts
% c
ha
ng
e
South exports fall more
(volume index, 1998 = 100)
100
120
140
160
180
200
220
240
260
280
2006M
1
2006M
3
2006M
5
2006M
7
2006M
9
2006M
11
2007M
1
2007M
3
2007M
5
2007M
7
2007M
9
2007M
11
2008M
1
2008M
3
2008M
5
2008M
7
2008M
9
2008M
11
2009M
1
World trade
Developing and other non-OECD country exports
OECD country exports
Source: CPB
Oil, metal prices fell more
30
Trade impacts: summary•Exports decline all developing countries
•Terms of trade primary exporters
•Trade surpluses, reserves run down quickly
•But lower energy, food prices helped net food and oil importers
World economy contracted, recovery uncertain
3.9
2.1
-2.6
1.6
3.9
3.5
2.7
4.0
-3
-2
-1
0
1
2
3
4
5
2003 2004 2005 2006 2007 2008 2009 2010
Optimistic
Pessimistic
Growth by main country groups
Per capita GDP growth rate
Change in growth rate
2004-07 2008 2009
2009/
2008
2009/ 2004-
7World 2.6 0.9 -3.4 -4.3 -6.0Developed
economies 2.1 0.3 -4.1 -4.4 -6.1
Economies in transition 7.7 5.5 -2.6 -8.1 -10.2
Developing economies 5.7 4.0 0.1 -3.9 -5.6
LDCs 5.2 3.6 0.3 -3.3 -4.9
60 developing countries will see declining incomes in 2009
12
33
18
1
14
2
13
60
22
0
10
20
30
40
50
60
70
2008 2009 2010
Developed countries
Economies in transition
Developing countries
Livelihoods threatened•Declining living standards•Many livelihoods under threat,
especially when social protection not well- developed
•Prolonged slowdown in world economy likely to cause remittances, job creation, tourism and ODA to decline, unemployment to increase, particularly among youth
Social impacts
•ILO: >200 m. more working poor •ILO: Unemployment to rise by 51m•ILO projections based on IMF Nov 08
•MDGs, IADGs, social spending at risk•Rising social, political unrest•US intelligence report, February 2009: crisis -- greatest security risk
Aid flows unreliable
0%
1%
2%
3%
4%
5%
6%
7%
8%
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Other LICs
Sub-Saharan Africa
LDCs
19697
1591
260
5 0 0 0
1 0 0 0 0
1 5 0 0 0
2 0 0 0 0
G-2 0 to tal co mmitme nt G-2 0 fis cal s timulus , 2 0 0 9 O D A to A frica, 2 0 0 8
Bill
ion
US
Dol
lar
ODA for Africa vs G20 recovery efforts
• Net ODA is net of principal payments, but not of interest received on such
loans• Net Aid Transfer (NAT) is net of both• Japan recently received >$2bn/year in interest
on ODA loans• NAT excludes cancellation of old non-ODA loan,
e.g. a 2003 Paris Club agreement cancelled some $5bn in non-ODA official debt owed.
• That cancellation is ODA, but generated little additional net transfers, ie. NAT
• Hence, e.g. DRC received $5.4bn in ODA in 2003,
but only $400m. in NAT
Net aid transfers?
Remittances to developing
countries declining•Historically, remittances to home countries in crisis rise
•However, migrant workers in host countries now most adversely hit by job losses, lower incomes
•Evidence uneven for different migrant workers by home
country, host country, crisis impact
Stimulus lags delay recovery
0 2 4 6 8
3 month delay
Immediate andsustainedstimulus
efforts
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2009 2010 2011
Global recovery with coordinated vs uncoordinated stimuli, 2010-2015
Output, jobs recovery lags, 1991, 2001
Duration of output recovery and job market recovery after the 1991 and 2001 US recessions (in months)
0
10
20
30
40
50
60
Output Job market recovery
1991 2001
Multilateral responses•UN, BIS forecasts more accurate than
others; IMF, WB upbeat till late 2008•IMF, WB also marginalized by G7, etc•IMF discouraging strong fiscal
stimulus by developing countries without surplus
•G7 G20: more inclusive? legitimate? crisis-management, but neither
developmental nor equitable•June 09 summit on crisis + impact on
developing countries •UN PGA (Stiglitz) Commission of
Experts
New Bretton Woods moment?Bretton Woods, 1944: United Nations
conference on monetary + financial affairs• 15 years after 1929 Depression• Middle of WW2• US initiative vs UK Treasury stance• 44 countries (28 developing countries; 19 LA)• UN system: IMF, IBRD, ITO• Clear emphasis on sustaining growth, job
creation, post-war reconstruction, post- colonial development, not just monetary and financial stability
48
Thank youPlease visit UN-DESA
www.un.org and G24 www.g24.org websites
•Research papers•Policy briefs•Other documents
Acknowledgements: UN-DESA, ILO