Transcript IMF - Finmedia

The Impact of
The Global Crisis on
Central and Eastern Europe
by
Tonny Lybek
IMF’s Resident Representative in Bulgaria and Romania
[email protected]
at
Romanian Financial and Banking
Analyst Association
Bucharest
December 8, 2009
1
Agenda
 I: World Economic Outlook
– Uneven signs of recovery but no time for complacency
 II: Regional Economic Outlook
– From excessive credit growth to a credit crunch
 III: Global Measures: Role of The IMF
 IV: European Bank Coordination Initiative
– Romania’s Economic Program
 V: Conclusion
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I.1 The Global Crisis
 Deepest global recession since the 1930’s:
 In 2009, world growth is expected to decline
(1.1 percent) for the first time in 60 years!
 International trade declining
 The phases:
 Sub-prime in the USA
 -> Financial fragility increases (from local to global)
 Sep. 15, 2008: Lehman’s Bankruptcy
 -> Global uncertainty and downturn
 March 2009: Downturn looses speed
 -> Global measures, but uneven recovery
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I.2 How Long Will It Last?
 Financial shocks:
 Financial shocks typically lasts longer!
 Global integration larger than most realized!
 No obvious locomotive:
 Unemployment is lagging!
 Non-performing loans (NPLs) are lagging!
 Normalization of activity? Re-stocking!
 Positive signs, but no time for complacency!
 Cautious exit of anti-crisis programs (G20 on Nov 6–7):
http://www.imf.org/external/np/g20/110709.htm
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I.3 World Economic Outlook
Real GDP and World Trade, Annual Change in Percent
2007
2008
Time of projection:
World output
Advanced economies
United States
Euro area
Germany
France
Italy
Spain
Japan
United Kingdom
European Union
World trade volume
Imports of advanced economies
Imports of emerg. & dev. countries
Exports of advanced economies
Exports of emerg. & dev. countries
2009
April
June
Sep
2010
April
June
Sep
5.2
3.0
-1.3
-1.4
-1.1
1.9
2.5
3.1
2.7
2.1
2.7
2.5
2.3
1.6
3.6
2.3
2.6
3.1
0.6
0.4
0.7
1.2
0.3
-1.0
0.9
-0.7
0.7
1.0
-3.8
-2.8
-4.2
-5.6
-3.0
-4.4
-3.0
-6.2
-4.1
-4.0
-3.8
-2.6
-4.8
-6.2
-3.0
-5.1
-4.0
-6.0
-3.8
-4.6
-3.4
-2.7
-4.2
-5.3
-2.4
-5.1
-3.8
-5.4
-4.4
-4.2
0.0
0.0
-0.4
-1.0
0.4
-0.4
-0.7
0.5
-0.4
-0.3
0.6
0.8
-0.3
-0.6
0.5
-0.1
-0.8
1.7
0.1
-0.1
1.3
1.5
0.3
0.3
0.9
0.2
-0.7
1.7
0.9
0.5
7.3
4.7
13.8
6.3
9.8
3.0
0.5
9.4
1.9
4.6
-11.0
-12.1
-8.8
-13.5
-6.4
-12.2 -11.9
-13.5 -13.7
-9.6 -9.5
-14.9 -13.6
-6.5 -7.2
0.6
0.4
0.6
0.5
1.2
1.0
0.6
0.8
1.3
1.4
2.5
1.2
4.6
2.0
3.6
Source: Table 1.1 in World Economic Outlook, April 2009; Table 1 in World Economic Outlook Update , July 2009,
IMF; and Table 1.1 in World Economic Outlook, October 2009 , IMF.
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II.1 Central and Eastern Europe
 The Good Times 2003–07—Catching-up:
 Vulnerabilities were building-up!
 Private sector imbalances growing rapidly!
– Increasing current account deficits
– Increasing exposures to Western banks
 Public finances looked much better than they were!
 Convergence process not fully appreciated!
 Crisis came late to the region:
 Initial denial made it difficult to take early action!
The five stages: Denial ->
Resentment ->
Bargaining ->
Depression ->
Acceptance!
6
II.2 Current Account Deficits Increased
7
II.3 Current Account Deficits
Fueled by Capital Inflows
200
Cumulative net capital inflows, 2003-07
(Percent of 2003 GDP)
150
Other
FDI
Portfolio
Total
100
50
0
-50
Czech Republic Poland
Hungary
Slovak Republic Lithuania
Estonia
Romania
Latvia
Bulgaria
8
II.4 Increasing Exposure to Western Banks
9
II.5 The Credit Boom Was
Fueled by Western European Banks
Change in exposure Western Banks and Change in Credit to GDP ratio, 2003-08
(Percent of GDP)
60
50
Latvia
Change in Credit to GDP ratio
Bulgaria
40
Estonia
Lithuania
30
Hungary
Romania
Czech Republic
Poland
20
Slovakia
10
0
0
10
20
30
Change in exposure Western Banks
40
50
60
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II.6 Exposures During Previous Crises:
Lessons To Be Learned?
Figure 12. Exposure of Western Banks to Selected Regions
(Billions of US dollars, adjusted for exchange rate changes.
500
1000
Eight New Member States
450
900
400
800
350
700
300
600
250
500
200
400
150
300
100
200
50
100
0
Dec.2002
Dec.2004
Dec.2006
Dec.2008
500
0
Dec.2002
Emerging Europe
Dec.2004
Dec.2006
Dec.2008
250
Latin America
Asia
450
400
200
350
300
150
250
200
100
150
100
50
50
0
Mar.1992 Sep.1993 Mar.1995 Sep.1996 Mar.1998 Sep.1999
0
Dec.1977
Sep.1979
Jun.1981
Mar.1983
Dec.1984
Source: BIS, locational statistics.
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II.7 Much of The Lending in FX
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II.8 Impact of The Global Crisis
 Shock I: Lower external demand
 Shock II: Slowdown in capital inflows:
 Foreign direct investment (FDI)
 Funding of—mainly foreign-owned—banks!
 Direct borrowing by non-financial companies
 Slow-down in domestic demand:




Delaying investments, particularly construction
Uncertainty about employment
Slower wage growth and lower remittances
Wealth effects (asset prices)
=> From excessive credit growth to a credit crunch!
 Some already ripe for a home-grown crisis:
 Imbalances differed among CEE countries
 Cushions differed among countries
=> IMF has tried to stress differences in the region!
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II.9 Vulnerabilities and Severity of
Recessions Have Varied
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II.10 Regional Economic Outlook
Real GDP, Annual Change in Percent
2007
2008
Time of projection
Baltics
Estonia
Latvia
Lithuania
2009
April June
Sep Nov
2010
April June Sep Nov
7.2
10.0
8.9
-3.6
-4.6
3.0
-10.0
-12.0
-10.0
… -14.0
… -18.0
… -18.5
…
…
…
-1.0
-2.0
-3.0
… -2.6
… -4.0
… -4.0
…
…
…
Central Europe
Hungary
Poland
1.2
6.8
0.6
4.9
-3.3
-0.7
… -6.7
… 1.0
…
…
-0.4
1.3
… -0.9
… 2.2
…
…
Southeastern Europe
Bulgaria
Croatia
Romania
6.2
5.5
6.2
6.0
2.4
7.1
-3.5
-3.5
-4.1
-7.0 -6.5 …
… -5.2 …
-8.0 -8.5 -7.8
-1.0
0.3
0.0
-2.5 -2.5
… 0.4
1.7 0.5
…
…
0.5
Source: Table 2.4 in World Economic Outlook, April 2009; Table 1 in World Economic Outlook Update ,
July 2009, IMF; and Table A4 in World Economic Outlook, October 2009, IMF.
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III.1 Coordinated Global Measures
 Avoid the mistakes of the 1930s:
 Avoid a liquidity crisis becoming a solvency crisis
 Avoid trade restrictions and capital controls
 Avoid excessive competing depreciations
 Coordinated policy actions (G20 statements):
 Central banks provide ample liquidity
 Governments allow stimulus subject to fiscal space
 Global coordination:
 The changing role of the IMF
 World Bank, EBRD, EIB, etc.
 The European Union (EU)
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III.2 The Role of The IMF
 Mitigating the impact of the global crisis:
 Reform of IMF facilities:
 Adjust set of facilities:
– Introduced Flexible Credit Line (FCL)
– Enhanced Stand-By Arrangement (SBA)
– Facilitated exceptional access and frontloading
 Streamlining conditionality:
– Re-focus on macroeconomic stability
– Reduce detailed structural conditionality
 Increase access to funding ($250 ->$750 bill)
 Increase SDR allocation
 Further encourage policy coordination:
 Surveillance (macroeconomic policies)
 Financial sector regulation (role of FSAP)
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III.3 IMF Assistance Suddenly Needed
Access levels and growth declines in Fund arrangements
10
ARG ARG
RUS
TUR
5
COL
TUR
Percent change in real GDP 1/
IDN
0
PHL
BRA
BRA MEX
GTM
BRA
BLR COL
IRQ
UKR
-5
LKA
PAK
SLV
ARG
CRI
BIH
GEO
SRB
TUR
KOR
URY
HUN
-10
THA
IDN
ISL
IDN
-15
POL
MNG
MEX
SYC
ROM
UKR
ARG
ARM
-20
LVA
-25
-30
1997
1999
2001
2003
2005
2007
2009
Sources: WEO and staff calculations.
1/ Maximum cumulative decline in three years from program inception; projected changes for current programs.
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III.4 IMF Lending Activities
IMF Lending Arrangements, October 31, 2009
Member
Belarus
Bosnia and Herzegovina
Hungary
Iceland
Latvia
Romania
Serbia
Ukraine
Poland
Total Europe
Total
Date of
Expiration Total Amount Undrawn Outstanding
Arrangement
In billions of SDR
SBA
SBA
SBA
SBA
SBA
SBA
SBA
SBA
FCL
12-Jan-09 11-Apr-10
8-Jul-09 30-Jun-10
6-Nov-08
5-Apr-10
19-Nov-08 31-May-11
23-Dec-08 22-Mar-11
4-May-09 3-May-11
16-Jan-09 15-Apr-11
5-Nov-08 4-Nov-10
6-May-09 5-May-10
o/w Europe in percent
Source: International Monetary Fund.
Note: 1 SDR = 1.08804 € on October 31, 2009.
2.3
1.0
10.5
1.4
1.5
11.4
2.6
11.0
13.7
55.5
108.8
0.9
0.8
2.9
0.7
0.8
5.4
1.9
4.0
13.7
31.1
78.6
1.4
0.2
7.6
0.7
0.7
6.1
0.7
7.0
0.0
24.4
30.9
51.0
39.6
79.0
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IV.1 Romania: A Case in Point
 Global crisis made it increasingly
difficult to secure external financing:
 Large short-term private debt
 Large fiscal imbalances even in good
years, make financing challenging
during a recession
=> Emerging credibility problem!
=> In need of a “safety belt”!!
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IV.2 Romania’s Package
 Joint package supporting Romania’s program!
 Size of the “safety belt” (€20 billion over 2 years):
 IMF*: May 4; 24-month Stand-By Arrangement with exceptional access
€12.95 billion (1110.77% of quota). Interest rate about 3½% and
repayment over 3–5 years.
 EU**: May 5; ECOFIN Council approved the framework for a €5 billion
loan, a maximum of five installments over 24 months (on top of pre-and
post-accession funds and the advance payment of structural funds in
2009). Interest rate is libor + spread and an “average maturity of
maximum 7 years”.
 World Bank**: 2009–10, 3 DPLs of total €1 billion. Interest rate will
depend on the maturity, currency, and if fixed or floating rate.
 EBRD and other multilateral IFIs (EIB): various projects, about €1 billion.
* Half of second tranche to help finance the budget deficit
** Budget support
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IV.3 Romania’s Economic Program
 A: “European Bank Coordination Initiative”: foreignowned banks remain committed to Romania!
 B: Government addresses fiscal imbalances:
 Fiscal consolidation: ensure sustainability!
 Improve fiscal governance: ensure predictability!
 C: NBR continues to maintain sound banking system:
 Ensure prompt and early action
 D: Price stability remains primary objective of
monetary policy (inflation-targeting)
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IV.4 European Bank
Coordination Initiative
 For instance, part of programs in: Romania,
Hungary, Serbia, Bosnia & Herzegovina
 Romania: Nine largest foreign-owned
banks committed to:
 (i) maintain exposure to Romania, and
 (ii) increase capital (CAR 8% -> 10) in line with
stress tests during the program period:
–
–
–
–
Vienna meeting on March 26, 2009
Brussels meeting on May 19, 2009
Bucharest meeting on August 6, 2009
Brussels meeting on November 18, 2009
23
IV.5 Market Reactions
1400
EURNM CDS Spreads 5-year
(In basis points)
March 25, 2009
Agreement at staff
level on Romania's
Economic Program
Source: Bloomberg
1200
April 2, 2009
G20 Statement
in London
September 15, 2008
Lehmann Brothers
files for bankruptcy
1000
Bulgaria
Czech Republic
Estonia
Latvia
Lithuania
Hungary
Poland
Romania
Slovak Republic
800
October 1, 2009
Romania's coalition
government splits
600
400
200
0
Jun-08
24
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
V Conclusion
 Global financial crisis is deep!
 Financial integration is significant!
 Positive signs, but not time for complacency!
 The IMF is mitigating the crisis by:
 Intensified coordination:
 member countries, other IFIs, EU, and banks
 Providing financing to smooth the adjustment:
– Should not be an excuse to delay structural reforms!
 Functioning as an external anchor provided
authorities are committed!
25
Thank
you
very
much
for
your
attention
26