Transcript Human Development in DW

Topic 1: Global Impact of the 2008 Financial Crisis
(FC): Comparing Canada and the Third World
Countries (One county or the Developing World in
general, with examples on countries)
Framework: Formulate a framework using the
arguments and concepts from one or more Kit
Articles 1-5 and from Term 1 lecture 5 on Financial
Crisis.
Thesis: While the 2008 financial crisis that originated in the US,
had severe economic and financial repercussions on the core
countries (the US and the European), the regulatory regimes of the
Canadian financial institutions limited Canada’s exposure to the
crisis and minimized its adverse impact on the economy and
employment.
In contrast, the Third world countries where most people are
already poor, faced worsening of poverty due to their declining
GDP, loss of export trade and growing unemployment that led to
greater poverty.
Impact of the 2008 Financial Crisis (FC): Canada
I. Economy and Finance
II.Employment and Economic security
III.Human Development and Poverty
Canada: Financial Crisis of 2008 (FC)
I. Economy and Finance
1. FC: less impact than in other AICs. Credit has solid growth as
Canada’s financial institutions are better capitalized and less
leveraged than their international counterparts. Canadian financial
institutions continue to be the healthiest in the world. World Economic
Forum has ranked Canada’s banking system as the soundest
in the world for 3 consecutive years.
2. Strong growth in world prices of most commodities produced in
Canada since mid-2010
3. Canada’s sound fundamentals have made Canadian financial assets
attractive to international investors
http://www.bankofcanada.ca/2011/03/speech
es/great-recession-canada-perception-reality/
2012:
http://www.budget.gc.ca/2012/plan/toc-tdm-eng.html
http://www.budget.gc.ca/2011/plan/chap2eng.html
•The six largest domestic banks hold > 90% of banking industry
assets. This adds to the banking industry’s stability
•In 2006, sub-prime loans accounted for less than 5% of new
mortgages in Canada, compared to 22% in the United States.
•While >50% of all mortgage debts outstanding in the US were
sold to investors through securitization, >75% of Canadian
mortgages were held by financial institutions on their balance
sheet as traditional mortgages
Subprime
Subprime is a classification of borrowers with a
tarnished or limited credit history.
Lenders will use a credit scoring system to determine
which loans a borrower may qualify for.
Subprime loans are usually classified as those where the
borrower has a credit score below 640.
Subprime loans carry more credit risk, and as such, will
carry higher interest rates as well.
Approximately 25% of mortgage originations in US are
classified as subprime.
Subprime lending encompasses a variety of credit types,
including mortgages, auto loans, and credit cards.
However, the downside:
•Stock markets registered their greatest drops in more than 75 years.
•As the contagion spreads, it directly affected our exports to the
US. Three-quarters of our exports go to US markets. Sharp decline
in exports - decrease by >16 % in 2010.
•Capital investments declined due to uncertainty in a weakening
financial markets with shaken consumer and business confidence:
22 % downturn in business investments in 2010
http://www.bankofcanada.ca/2011/03/speech
es/great-recession-canada-perception-reality/
www.bankofcanada.ca/wp.../2013/01/mprsummary-2013-01-23.pdf
http://www.bankofcanada.ca/2011/03/speech
es/great-recession-canada-perception-reality/
Impact of the 2008 Financial Crisis (FC): Canada
I. Economy and Finance
II.Employment and Economic security
III.Human Development and Poverty
Canada:
Employment losses were much less serious than during
earlier recessions - jobs regained sooner
But, only partial recovery of business investment (45%)
and exports (67%) from the losses due to the recession.
Jobs linked to these sectors have not come back .
2012:
http://www.budget.gc.ca/2012/plan/toc-tdm-eng.html
http://www.bankofcanada.ca/2011/03/speech
es/great-recession-canada-perception-reality/
2012
http://www.budget.gc.ca/2012/plan/toc-tdm-eng.html
Impact of the 2008 Financial Crisis (FC): Canada
I. Economy and Finance
II.Employment and Economic security
III.Human Development and Poverty
III. Human Development and Poverty
• In US, 2 of the Detroit-based auto companies receive
loan guarantees of $17 billion and $4 billion from the
Canadian Federal and Ontario provincial governments.
Ford received a line of credit. Without them, millions of
workers will lose their jobs in Canada.
• Feminized sectors & women workers left out in job
creation: Investment in ‘infrastructure’ for repairing and
constructing roads, bridges and buildings, and bailing out
the Detroit Three is job creation that amounts to ‘jobs for
boys,’ as far fewer women work in such industries.
Human Development and Poverty (cont’d)
Public Spending on the poorer families and children:
Instead of assisting the unemployed, the poor on
welfare and income supplement by not cutting them
back in the govt budgets:
a.Canadian government helped Canada’s banks. –
swapped hundreds of billions of dollars for questionable
assets held by banks
b.$85-billion cumulative deficit over five years for the
bail out - “Insured Mortgage Purchase Program” lists
the $75-billion CMHC buyout
c.$ 45-billion is being provided to further backstop
mortgage lending by banks
Impact of the 2008 Financial Crisis (FC): DW
I. Economy and Finance
II.Employment and Economic security
III.Human Development and Poverty
Economy: (OXFAM study)
Asia and the Pacific, especially in Central and South-East Asia
GDP growth dropped in 2008 and 2009. India, Indonesia, Thailand,
Viet Nam, the Philippines, Pakistan, and Sri Lanka where the poor
populations predominate.
China: state control and high foreign exchange reserves have given
greater flexibility to control the crisis.
Newly industrialized countries: South Korea, Malaysia, Singapore,
Taiwan, Hong Kong and Macau: high per capita incomes, high
degrees of trade and investment integration with the world, highly
export dependent. But, they have fiscal and social policies to deal
with declining exports & increasing unemployment.
Less developed countries :Bangladesh, Cambodia, Bhutan, Lao
PDR, Mongolia, and Nepal: increasingly integrated with the global
and regional economy through trade. Worsening economies
2010 GDP in sub-Saharan Africa : Fell 7% ($84 billion).
(International Monetary Fund (IMF) data and forecasts, 2011 http://www.imf.org/external/pubs/ft/weo/2010/update/01/index.htm)
Financial stability in DW:
The region’s financial sector had no complex new financial
instruments (such as in US: Collateralized Debt Obligation
(CDO) Credit Default Swap (CDS))
Effective financial supervision and prudent risk management
Foreign exchange reserves have been built up in Asia based on
export surpluses (e.g. China), and on capital inflows or
remittances (e.g. in the cases of Bangladesh, India, Indonesia,
and Viet Nam).
However:
FDI fell significantly. Banking stresses in low income countries
e.g., non-performing loans (NPLs) to total assets ratio doubled
in Zambia (7% to 13% during 2009.
Impact of the 2008 Financial Crisis (FC): DW
I. Economy and Finance
II.Employment and Economic security
III.Human Development and Poverty
Employment:
The greatest impact on employment was in the garment and
mining industries.
Jobs lost:
In 2009. 25,000 to 30,000 garments workers’ jobs lost in
Bangladesh.
In 2009, Cambodia lost a third of garment workers (102,527 jobs)
A third of Zambia ‘s mining jobs lost:10,000
Three quarters of miners in DRC (18,000 people) lost jobs
Cambodia has been hit hard with job losses in garments, tourism,
and construction industries.
Philippines: most lay-offs in export processing zones (EPZs) - 75
% are women workers
Thailand: 125,700 women (I in 4 export industries) laid off or lost
regular work that turned temporary.
In Indonesia and Thailand: (Oxfam evidence)
Using crisis as an excuse: Factories dismissed workers in order
to hire younger, cheaper workers.
In Serang, Indonesia, in one factory, 79 employees with 8 to 14
years seniority were dismissed Then, hired younger workers
with flexible, lower paid short-term contracts, apprenticeships,
and for outsourcing.
Impact of the 2008 Financial Crisis (FC): DW
I. Economy and Finance
II.Employment and Economic security
III.Human Development and Poverty
Human Development in DW:
•Families : In Indonesia: If with jobs, give up meat or fish.
Women now unemployed - only food twice a day instead of three
times - eat less at each meal.
•Forego food to give food to their children or husbands
Watered down the milk to babies and feeding children less
•No money for school meals
•For the first three months my kids found it very difficult to give up
rice, tempe, and tofu and just eat soup and the cheapest thing.
– (Dismissed worker in a focus group discussion, Indonesia)
My husband and I skip meals to make sure our baby has milk.
– (Woman in focus group discussion, the Philippines)
Men deserve to eat more food because they are physically stronger,
do hard work on the farm, and earn income for the family.
– (Focus group discussion, Viet Nam)
Human Development:
In Cambodia, 70% of the poor took out loans from relatives or
friends, or bought food on credit.
Parents in urban areas in Indonesia report eating less and
selling assets to keep their children in school.
“It is better for us not to eat than for our kids not to go to
school.”
– (Woman in a focus group discussion, Indonesia)