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Financial Crisis, Recession, and the Development Agenda. Richard Newfarmer Special Representative to UN and WTO World Bank. ECOSOC Geneva July 9 , 2009. Financial panic plunges GDP in high income countries into severe recession…. Q3 2008. Q4 2008. Q1 2009. Source: World Bank.

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Financial crisis recession and the development agenda

Financial Crisis, Recession, and the Development Agenda

Richard Newfarmer

Special Representative to UN and WTO

World Bank

ECOSOC

Geneva

July 9, 2009


Financial panic plunges gdp in high income countries into severe recession
Financial panic plunges GDP in high income countries into severe recession…

Q3

2008

Q4

2008

Q1

2009

Source: World Bank.


Contracting consumption in rich countries transmits recession to poor countries – as world trade collapses

Annual growth of global trade volumes

Percentage change

Source: World Bank, Global Economic Prospects, 2009


… and costs of borrowing have skyrocketed… and recession to poor countries – as world capital flows have dried up

Spread over US Treas., basis points

Private capital flows to dev’ing countries

US$ b.

Forecast

2008-09

Corporate

CEMBI composite

$1,158 billion in 2007

East Asia Crisis

Sovereign

EMBIG composite


Leading to global recession for the first time in the last 70 years
…leading to global recession…. for recession to poor countries – as world the first time in the last 70 years

Percent

Growth of real GDP

Developing

World

High Income

Source: World Bank, DEC Prospects Group, Consensus Forecast, May 2009.


Crisis effects growth regions differently in 2009 gdp growth percent
Crisis effects growth regions differently in 2009 recession to poor countries – as world GDP growth, percent

Source: World Bank.


Outlook recovery could begin late this year or next but strength and duration is uncertain
Outlook? Recovery could begin late this year or next …but strength and duration is uncertain

GDP annual growth rates (%)

Forecast

% change

Developing countries

High-income countries

?

Source: World Bank, Global Development Finance, 2009


Green shoots? Tentative signs that recession is bottoming out …led by developing countries industrial production, percentage change (saar)

Developing (excluding China)

World

(excluding China)**

High-income OECD

** China is excluded due to vagaries in recent data tied to the Lunar New Year.

Source: World Bank through Thomson/Datastream.


Low-income countries are at particular risk… out …led by developing countries

  • Especially those that:

  • export only a few commodities

  • have large % in poverty

  • have weak fiscal positions

  • have low reserves/ high debt

  • “fragile states”

  • Implications of slowdown…

  • 200 million likely to be trapped in poverty

  • Unemployment will certainly rise thru 2010

  • Infant mortality and child mortality rises – 200,000- 400,000 infants annually

  • Health services cutback

Source: IMF, 2009


Risks inattention to the long term development agenda
Risks… Inattention to the long term development agenda out …led by developing countries

  • For example, climate change

  • Countries in brown and yellow likely to experience:

  • More droughts

  • More severe storms

  • Rising water scarcity

  • Rising sea levels

  • Countries vulnerable to climate change are the same as those to recession

  • Both forces could produce unprecedented:

  • Declines in food production

  • Pressures on migration


Split on Recession Cure, Leaders Try 3 Approaches out …led by developing countries

The crisis requires a multilateral response… and the G20 leaders strive to coordinate actions…

G20 Summit April 2

Agreed:

  • Accelerated restructuring of banks and increased regulation

  • Pledge to avoid protection

  • Fiscal stimulus and expansive monetary policy

  • Mobilization of more capital for developing countries

    • IMF – $700- b. New arrangement to borrow (NAB)

    • World Bank MDBs – Capital increase for ADB

  • Reform of the IMF and World Bank – Increased capital , new voting, merit selection of leaders


Improving the multilateral response requires
Improving the multilateral response requires… out …led by developing countries

  • Fulfilling pledges for development assistance, and augmenting these with a “vulnerability fund”

    • Need for social safety nets, labor –intensive infrastructure, SMEs, “aid for trade”

    • Financing gaps may be between $200-700 billion

    • Problem: 2010 when fiscal pressures in rich countries become more acute

  • Resisting pressures for trade protection will require vigilance and determination – and renewing a commitment to the Doha Development agenda

  • Improving regulation of financial markets will require careful balancing of national regulatory authorities with international cooperation


Financial crisis recession and the development agenda1

Financial Crisis, Recession, and the Development Agenda out …led by developing countries

Richard Newfarmer

Special Representative to UN and WTO

World Bank

ECOSOC

Geneva

July 9, 2009


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