Transcript Impact of the financial crisis on emerging market economies…

Regional dimension of the
crisis
Interactive Thematic Dialogue
On the Financial and Economic Crisis and its impact on
Development. 25-27 March 2009
Delivered by
ECLAC
o/b The UN Regional Commissions
Contents
• The global context
• The regional impacts and expected effects
• Responses
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The global context
• The consensus forecast shows that world growth will
register a contraction in 2009.
– The expected contraction ranges from -0.5% (IMF forecast) to 2.9% (JP Morgan).
• Driven by a contraction in global demand, which will be
reflected in the largest contraction in world exports since
the Second World War.
– World exports are expected to contract by 9% in 2009, WTO.
• The world economy is expected to recover in 2010
provided:
– Adequate policies to stabilize financial conditions.
– Adequate fiscal stimulus.
– Improvement in credit conditions.
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The regional impacts and expected
effects
Impact of the financial crisis on emerging
market economies…
• As things stand, the consensus forecast suggest
that emerging market economies will register a
significant slowdown in their growth trajectory.
• And that the main challenges faced by
emerging market economies growth thus far are:
–
–
–
–
Tightening of external financial conditions.
Declining commodity prices.
Weak and weakening external demand.
Countries capacity to finance counter-cyclical policies.
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Developing economies have experienced
restricted access to external finance…
Private Flows
(Billion of US$)
LAC
Emerging Europe
Africa and Middle East
Emerging Asia
2007
183.6
392.8
37.4
314.8
2008
89.0
254.2
26.4
96.2
2009
43.1
30.2
27.2
64.9
Source: Institute of International Finance, January 2009
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Also exports of goods and services have been
affected…
• Reduction in exports of goods and services.
 The WTO estimates a 9% global trade decline for 2009.
 Significant reduction in commodities prices.
Exports real value
(Growth rate)
LAC
Emerging Europe
Africa
Middle East
Emerging Asia
2006
4.0
6.0
1.5
3.0
13.5
2007
3.0
7.5
4.5
4.0
11.5
2008
1.5
6.0
3.0
3.0
4.5
Source: WTO
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The dynamic of GDP will be significantly affected in
2009
GDP
(Growth rate)
LAC
Emerging Europe
Emerging Asia
2008
3.9
4.2
3.9
2009
-2.2
-2.6
0.2
2010
3.0
1.3
5.0
Source: JP Morgan
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Financial conditions of developing economies
have deteriorated…
• After the intensification of the financial crisis in
September last year:
 Exchange rate markets have turned more unstable.
 Equity markets experienced a strong downward adjustment.
 Country risk spreads spiked.
 The stock of international reserves either stopped growing or
decreased.
 Credit growth has slowed down considerably in most
developing economies.
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Impact of the financial crisis on the most
vulnerable sectors of society…
• Experience from past financial crises show that they
have negative effects on poverty and welfare, and tend
to slowdown progress towards the MDGs.
• Unemployment rates are increasing, together with real
wages reduction impede households ability to provide
adequate food and necessities.
• Employment is shifting from dynamic exports oriented
sectors to low productivity informal sectors.
• Declining in remittance and migrant return could
undermine poverty gains.
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Responses at the regional level
Fiscal stimulus plans
• To boost aggregate demand and for social protection.
• Asia:
 Asian economies have the capacity to undertake counter-cyclical fiscal
policies.
 China announced in November the largest fiscal stimulus package (USD 586
billion) in Asia (about 13% of GDP), second only to the US package in size.
• Middle East:
 Several countries, including Egypt, Saudi Arabia, and the UAE have
adopted expansionary fiscal policies to boost domestic demand.
• LAC:
 Argentina, Bolivia, Brazil, Chile, Colombia, Mexico, Panama, Paraguay
and Peru have also announced fiscal plans to boost aggregate demand.
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Fiscal package stimulus in LAC
(% of GDP)
Argentina
5.7%
4.2%
Colombia
Peru
2.4%
Chile
2.2%
Bolivia
1.9%
Latin America
1.4%
Brazil
Guatemala
Costa Rica
Mexico
Honduras
0.0%
1.0%
0.8%
0.7%
0.6%
0.6%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
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Regional Financial Cooperation
• Assistance of regional financial institutions.
– Africa:
 African Development Bank has set up a US$1.5 billion Trade Finance
Facility to support trade and investment in Africa.
 The ECA, in collaboration with the African Union Commission and the
African Development Bank, organized a High-Level Forum which resulted in
the creation of a Committee of Ten Ministers of Finance and Central Bank
Governors to recommend measures to be taken at the national, regional,
and international levels to mitigate the effect of the crisis on African
economies.
– Asia:
 Current crisis has highlighted the need for regional coordination and
cooperation. For example, ASEAN+3 have agreed on a multilateral reserves
pool to increase the availability of funds and to reduce the amount of
precautionary funds held by each country as a defense mechanism against
short-term capital flows.
– LAC:
 Support of Andean Corporation, IADB and Latin American Reserve Fund.
US$ 10 billion.
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Responses at the international
level
Developing economies require the provision of countercyclical liquidity on a global scale…

Enhance IMF and other global institutions (World Bank),
lending capacity (capital and leverage).

The disposal of 250 billion are insufficient to cover the eventual
liquidity needs of large countries.

Short-term liquidity facilities must be strengthen with lightconditionality.

New lending facilities.

The United Nations has proposed a credit line facility funded by those
emerging economies that have accumulated substantial stocks of
international reserves.

Regional initiatives to complement global arrangements.

Central Banks swaps.
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The needed reforms of the international
financial architecture
• The current situation provides a window of
opportunity to move towards a more equitable
and stable financial system.
 The international community has the responsibility to ensure that this
does not become a missed opportunity.
• Restoring efficiency, trust and legitimacy to the
international financial system.
• The new financial architecture should reduce
systemic risk and improve governance.
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The needed reforms of the international
financial architecture
• The reduction of systemic risk entails:
 Liquidity facility as a permanent component.
 The consideration of surveillance as a public good.
 A consistent and widely accepted regulation and supervision
framework is required.
• Improvement in governance requires:
 Incorporate the demands and adequate representation of
developed and developing countries.
 Reflect the current and growing role of emerging market
economies.
 Include an active role for the United Nations and other Bretton
Woods institutions.
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For more on the regional dimension of the
financial crisis, please visit
www.un.org/regionalcommissions
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