Transcript International Economic and Financial Crisis. Causes and

Prof. Gheorghe ZAMAN, PhD
Corresponding member of Romanian Academy
Institute of National Economy
1
Part I
Causes and Remedies
2
Causes
Traditional causes:
 the “boom” of credits beyond the normal limits and
guarantees (colaterals);
 strong increase of assets prices, especially in the field
of real estates;
 uncontrolled loans to economic agents less reliable
(credits subprime).
3
Causes
Nontraditional causes:
 The extent and depth of subprime crises related to the sui
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generis origin-and- distribute model;
Highly exaggerated “appetite” for profits conducive to the
increase in the demand for very risky assets;
Ex-ante ignorance and ex-post uncertainty; regarding the
risks associated to shares; mortgage, derivatives and creditdefault swaps;
Lack of adequate corporate governance;
High unjustified earnings wage and bonuses for manager of
financial institutions;
Rating agencies were not able to preview the crises of
Lehman Brothers and others.
4
Challenges
1. The present day international financial crisis of the capitalist
economic model is a crisis of the system (financial,
capitalist) or just a “normal” manifestation of “business cycle”?
2. Could be avoid the crisis or not?
3. How long does it last the crisis?
4. Which are the most affected economic and social domain?
5. Bad (toxic) credits are result or a cause of shortcoming in the
functioning mechanisms of the free market economy. The
“principle polluters pays” is or is not applicable in the case of
“toxic credits” producers?
6. The impact of globalization.
7. The impact of sustainable development requirements.
8. The problems of business ethics and social responsibility
of enterprises.
9. A new paradigm of capitalism oriented to a better
compatibility between economic efficiency and social justice,
cohesion and inclusion.
5
Efects on short term
 Decline of output (GDP) demand and foreign
trade
 Increase of unemployment (in manufacturing
industries, vehicles, metal industrie, etc.)
 Bankruptices in the financial and banking
sector, turbulences on capital markets;
 Reductions of credits volume and
strengthening of prudential measures in
borowing
 FDI is decreasing
 Withdrawl of foreign capital
6
Effects on medium and long terms
 Rethinking of international and national financial
mechanism from the viewpoint of public-private
partnership
 A new restructuring and transformation of
national economies taking into consideration the
increasing role of knowledge production and diffusion
 Improving the transparency, communication,
information and monitoring and supervision of
rating agencies and auditing institutions
 Reorentation of foreign trade relations especially
in the case of medium and small size countries.
7
Remedies anticrisis measures
Short term in measures
 Bank capitalisation with the assistance of
the state and international financial
institutions
 Diminishing interest rates
 Special facilities for SMEs
 Sustaining labour force employment
8
Remedies anticrisis measures
Long term in measures
 G-8 and G-20 measures
 Formulation and implementation of
solutions both globally and locally are
concerned on a different track policy
packages:
9
A. Fiscal and monetary policies to keep credit flowing
and provide fiscal stimulus to the economy (nature of
fiscal stimulus)
Robert Zoellick – World Bank President: “Pumping
money into the economy through fiscal stimulus is not
enough, governments need to fix the financial system”.
B. Restoring health to the financial system wich
involves dealing with the bad loans and toxic assets,
recapitalizing them, reshaping the financial sector
regulation, avoiding financial nationalism.
Dominique Strauss-Kahn, Managing Director of IMF:
“If the financial system is not restructured all the money
from the stimulus would go into a black hole”.
10
C. Labour market and social reponses to mitigate
the blow on labour market and people.
 strenghthening income maintanaince measures;
 expanding social protection measures and protecting pensions;
 strenghten active labour market policies (temporary payroll tax
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holidays, wage subsidies, expanding training programs);
support to enterprises, particularly SMEs, to overcome cash-flow
and access to credit problems;
encourage public investment in infrastructure;
targeted support to vulnerable groups and sectors;
restructuring of enterprises and sectors in a socially responsable
way;
strengthening of employment services in order to facilities the
adjustment of
individuals to changing labour market conditions;
incentives and investment in energy efficient technologies and
green jobs.
11
Part II
Impact of crisis -ROMANIA
12
Industrial production indices of Romania ( %)
March 2009 as compared with:
Industry – total
1st Trim
2009/2008
Febr 2009
March 2008
109,4
91,5
87,0
115,2
110,7
95,5
90,4
98,2
84,8
110,2
115,7
107,3
106,0
102,8
82,8
99,6
86,7
90,3
96,5
81,3
85,6
81,7
91,1
95,0
- by sector:
Mining
Manufacturing
-by group of industries :
Intermediary goods
Capital goods
Durable goods
Current consumption goods
Energy
13
 The unadjusted series of indices during 1.I.-31.III.2009 as
compared to the same period of the previous year, points
out that industrial production was by 13.0% lower
because of decreases registered for manufacturing (15.2%), for electricity, gas, steam and air conditioning
production and supply (-2.5%) and for mining and
quarrying (-1.8%).
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 The highest decreases were registered in the branches:
manufacture of basic metals (-52.1%), manufacture of other
non-metallic products (-34.4%), manufacture of wearing
apparel (-26.4%), manufacture of textiles (-24.7%),
manufacture of motor vehicles, trailers and semitrailers (24.2%), manufacture of chemicals and chemical products (24.1%), manufacture of leather and related products (23.7%), manufacture of rubber and plastic products (19.7%), manufacture of coke and refined petroleum
products (-16.4%), manufacture of furniture (-16.2%).
 Increases were registered in the branches:printing and
reproduction of recorded media
 (+9.7%), manufacture of tobacco products (+4.3%),
manufacture of other transport equipment (+3.9%) and
manufacture of beverages (+2.3%).
15
 By broad industrial groups decreases were registered in
intermediate goods industry (-18.7%), in durable goods
industry (-18.3%), in capital goods industry (-14.4%), in
current goods industry (-8.9%) and in energy industry (5.0%).
 During 1.I.-31.III.2009 the turnover per total industry, in
nominal terms, was lower by 16.2% as against the
corresponding period of 2008 due to the decreases
registered in energy industry (-32.9%), in intermediate
goods industry (-26.6%), in durable goods industry (23.6%) and in current goods industry (-6.1%).
 The labour productivity in industry decrease by 1.5%
during 1.I.-31.III.2009 as against the same period of the
previous year due to the diminished labour productivity
in manufacturing (-3.0%).
16
Resources of primary energy
 During 1.I.-31.III.2009, the main resources of primary
energy amounted to 8434.1 thousand tonnes equivalent2) oil
(of which 6059.2 thousand tonnes equivalent oil from
domestic production), decreasing by 18.9% as against 1.I.31.III.2008, as a result of import diminution by 41.1% and of
production by 5.0%.
 During 1.I.-31.III.2009, the production of electric energy
amounted to 16019.1 million kWh, decreasing by 10.1% as
against the corresponding period of 2008. Most of
production is still obtained in classical thermo-power
stations (56.0%), followed by hydro-power stations (24.9%).
 The final consumption of electric energy was 12884.5
million kWh during 1.I.-31.III.2009, by 7.4% lower than
during 1.I.-31.III.2008; population consumption increased by
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9.6% and public lighting increased by 8.8%.
Comparison with the same month of the previous year
 -the turnover volume of enterprises having as main
activity retail except trade of motor vehicles and
motorcycles experienced a decrease of 5.4% as against
March 2008. Products sold via mail, order houses or via
internet registered a growth by 235.3%. Turnover volume
index for retail of automotive fuel decreased by 16.7%.
 -the turnover volume of enterprises having as main
activity wholesale and retail, maintenance and repair
of motor vehicles and motorcycles, registered a fall of
40.0% as against March 2008.
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 -the activity of market services rendered to the
population registered a turnover by 6.3% lower than
in March 2008. Decreases were registered for activities
of travel agencies and tour-operators (-41.9%), for
washing and (dry) cleaning of textile and fur products
(-28.8%), for hotels and restaurants (-12.2%) and for
hairdressing and other beautifying activities (-11.3%).
 -turnover in wholesale, in nominal terms, fell by
16.8% compared with March 2008.
 The services mainly rendered to the enterprises
registered a turnover, in nominal terms, lower by 4.9%.
19
Comparison with the 1.I.-31.III.2008 period
 The turnover volume of enterprises having as main activity retail
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excepting motor vehicles and motorcycles registered a fall of 5.2%.
Trade of products by order houses or Internet, the system preferred by
the population segment with higher income and few time available,
registered a growth of 228.2%.
The turnover volume index for retail of automotive fuel decreased by
16.1%.
The turnover volume of enterprises having as main activity wholesale
and retail, maintenance and repair of motor vehicles and
motorcycles registered a decrease of 37.3%
The market services rendered to the population registered a fall of
5.4% during
The turnover in wholesale, in nominal terms, decreased by 13.5% .
The services mainly rendered to the enterprises registered a
turnover, in nominal terms, by 0.1% lower
20
Exports (FOB) and imports (CIF) of Romania
1st trimestre 2008 and 2009 (mil.euro)
Exports FOB
Trade
Intra
EU 27
Trade
Extra
UE 27
TOTAL
Imports CIF
Balance
FOB/CIF
2008
2009
2009/
2008
-%-
2008
2009
2009/
2008
-%-
2008
2009
5788,6
4918,3
85,0
9376,7
6302,1
67,2
-3588,1
-1383,8
2354,4
1642,7
69,8
3864,0
2254,6
58,3
- 1509,6
-611,9
8143,0
6561,0
80,6
13240,7
8556,7
64,6
-5097,7
-1995,7
21
International trade in goods
during 1.I-28.II.2009as against same period of 2008
 FOB exports amounted to lei 16967.8 million (€ 3991.8
million), their value being with 14.3% lower than the
same period of 2008, calculated based on the values
expressed in lei, respectively 26.0% calculated based on
the values expressed in euro.
 In the structure of exports, three of the 10 sections of
goods comprised in the Standard International Trade
Classification (SITC Rev. 4) account for 78.6% of total
exports as follows: machinery and transport equipment
(38.2%), miscellaneous manufactured articles (22.5%)
and manufactured products mainly classified by raw
material (17.9%).
22
 CIF imports amounted to lei 22785.7 million (€
5365.9 million), their value being lower than the same
period of 2008 with 26.2% based on the values
expressed in lei, respectively 36.2% based on the
values expressed in euro.
 In the structure of imports, four of the 10 sections of
goods comprised in the Standard International Trade
Classification (SITC Rev. 4) account for 79.3% of total
imports, as follows: machinery and transport
equipment (32.9%), manufactured products, mainly
classified by raw material (21.8%), chemicals and
similar products not-elsewere specified (14.1%) and
miscellaneous manufactured articles (10.5%).
23
 During 1.I-28.II.2009, the trade deficit was lei 5817.9
million (€ 1374.1 million) in FOB/CIF prices.
 The value of intra-community exchanges of goods was
lei 13030.0 million (€ 3059.4 million) for deliveries and
lei 16718.4 million (€ 3924.8 million) for inputs,
representing 76.8% of total exports and 73.4% of total
imports.
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The main structural modifications
(1.I-28.II 2009 as against 1.I-29.II 2008)
 increasing weight for sections: “Machinery and
mechanical appliances; electrical equipment; sound
and image recorders and reproducers” – with 3.4
percentage points, “Vegetable products” – with 2.2
percentage points, “Textiles and textiles articles” –
with 1.1 percentage points;
 decreasing weight for sections: “Base metals and
articles of base metals” – with 4.1 percentage
points,“Mineral products” – with 3.3 percentage points,
“Chemical products” - with 1.1 percentage points .
25
 Exports of machinery and mechanical appliances; electrical
equipment; sound and image recorders and reproducers = 26.8%, hold
the first place and registered a decrease of 1.5% at values expressed in lei
(15.0% at values expressed in euro)

"Electric machinery, appliances and equipment and parts thereof” holds the main
weight (63.5% in total section and 17.0% in total exports).
 Exports of textiles and textiles articles, hold the second place and
registered a decrease with 5.8% at values expressed in lei (18.7% at values
expressed in euro).
 exports of clothing articles and accessories, other than knitted or crocheted
represented 59.0% of total section and 7.7% of total exports. Also, exports of
clothing and accessories knitted or crocheted had a weight of 20.1% in total section
and 2.6% in total exports.
 The third place =”Vehicles and associated transport equipment” with
11.6% in total exports
 “Vehicles, tractors and other ground vehicles” represent 79.6% of total section and
9.2% of total exports.
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 Exports of base metals and articles of base
metals =the fourth place , a decrease of 37.2% at
values expressed in lei (45.5% at values in euro)
 “Pig-iron, iron and steel”, representing 37.0% of total section and 4.2% of
total exports and “Pig-iron, iron and steel products”, representing 32.9% of
total section and 3.7% of total exports.
 ”Mineral products” with 6.9% of total exports, where
exports of petroleum products (spirit, gas oil, oils)
represent 97.3% of total section and 6.7% of total
exports;
 ”Footwear, headgear, umbrellas and similar
articles” with a weight of 4.9% of total exports.
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In the period 1.I-28.II 2009, in comparison with the
corresponding period of 2008
 Exports to the European Union countries (EU 26)
decreased with 8.1% at values expressed in lei
(20.7% at values expressed in euro), registering a
weight of 76.8% in total exports.
 Partner countries holding the first 10 places in the
total amount of exports representing 69.0% of total
exports were the following:
 Germany (17.9% of total exports), Italy (17.7%),
 France (8.8%),
 Turkey (4.3%), Hungary (4.2%), Netherlands (3.9%)
 United Kingdom of Great Britain and Northen Ireland
(3.3%), Bulgaria (3.2%), Spain (2.9%), Austria (2.8%).
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Tourism
Comparison with first quarter 2008
 Arrivals in the tourist reception establishments
registered a fall of 15.9% in the first quarter of 2009 as
against the first quarter of 2008.
 In the first quarter of 2009 arrivals of Romanian
tourists in tourist reception establishments
represented 79.0% of total arrivals, while foreign
tourists represented 21.0% of total arrivals.
 In the first quarter of 2009, arrivals in hotels held a
weight of 72.6% in total arrivals in tourist reception
establishments with accomodation functions,
decreasing by 17.1% as against the first quarter of 2008.
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Current Account in the 1st trimester 2008 and 2009
(mil. euro )
1st TRIMESTRE 2008
Current account
A.Good
and
services
a. Good
b. Services
B. Revenues
C.
Current
transfer
1st TRIMESTRE 2009
Credit
Liabilities
Net
Credit
Liabilities
Net
12 627
16 582
-3 955
10 576
11 285
-709
10 020
8 143
1 877
13 953
12 221
1 732
-3 933
-4 078
145
8 350
6 561
1 789
9 630
7 898
1 732
-1 280
-1 337
57
532
1 790
-1 258
305
924
-619
2 075
839
1 236
1 921
731
1 190
30
 Temporary decrease of current account pressure but
long term vulnerability
 Decrease of strong currency proceedings from :
 Remittances of labour force working abroad;
 Foreign direct investments in decline – 50% in 2009 as
compared with 2008;
 Decrease of free currency from privatisation of state
owned assets ;
 Increase in a short term foreign debt.
31
Forecasts of main macroeconomic indicators of Romania
(changes -% of compared with previsions year 2008-2013)
2008
2009
2010
2011
2012
2013
GDP
7,1
-4,0
0,1
2,4
3,7
4,4
-Industry
-Agriculture
-Constructions
-Services
Final consumption
- individual
- public adm.
Gross
fixed
capital
formation
Exports (mil.euro)
Imports CIF (mil.euro)
1,3
21,4
26,1
5,1
8,0
8,4
3,7
19,3
-10,0
-2,9
2,6
-2,2
-5,4
-4,9
-11,0
-6,5
-3,0
0,8
4,0
0,7
-0,5
-0,6
0,1
-0,5
1,0
2,8
6,0
2,2
1,8
1,9
1,0
3,5
3,1
3,8
7,0
3,1
3,0
3,1
2,0
4,8
4,2
4,9
8,0
3,7
3,3
3,5
2,0
6,4
33628
56337
28400
42040
29950
43230
31800
45290
34400
48290
37600
51870
-22709
-13640
-13280
-16897
-12,3
-9393
-7,5
-8750
-6,5
-9300
-6,3
-9830
-6,1
-10220
-5,7
7,85
5,8
3,5
3,2
2,8
2,5
Balance
of
foreign
trade(mil.euros)
Current account
mil. euro
% in GDP
Inflation rate
(annual average)
GDP, current prices
-13490
-13890
-14270
32
Evolution of Romania’s external debt on short, medium
and long terms ( billion euro )
External debt
2003
2004
2005
2006
2007
2008
TOTAL
18,4
21,5
30,9
41,2
58,5
73,0
- short term
2,7
3,2
6,3
12,6
19,8
22,2
-medium and long terms
15,7
18,3
24,6
28,6
38,7
50,8
33