FINANCIAL CRISIS AND POVERTY

1. FINANCIAL CRISIS AND POVERTY “Speaking Frankly – Challenges for Latin America”Peter KoenigDecember 3, 2008

2. The Financial Crisis • “you know what the big difference is between the Big Depression of 1929 and the onset of the one of today?” • “In 1929 the bankers jumped from the windows committing suicide. Today they get a Golden Parachute for a soft landing.” • This crisis is man-made. It is in no way a natural catastrophe – like a hurricane. • Why? We are living in an economic system that is driven by debt, speculation and greed.

3. Today the world is run by a deregulated dollar. It has become ‘Fiat Money’ Debt… • It is just paper money. It turns into debt, since it has no longer the backing of gold, silver or commodities –

4. Specualtion… • How serious can such a system be, if it is possible that the stock exchange wipes out almost $25 trillion in corporate values – almost twice the US GDP – in less than a month ?

5. Greed… • Speculation leads to billions of dollars in profit for the rich and powerful • ExxonMobile 3rd Q record profits ever $14.8billion – 15% above previous record profit • Yet Government gives it further tax breaks

6. The Government Debt… • According to the US General Accounting Office, the Government debt – is about $56 trillion (expected to increase to about 60 trillion by the end of 2008 calendar year) • 4 x the US GDP of $ 13.5 trillion

7. Why does the world get pneumonia when the US coughs? • The dollar is still reserve currency for most countries, especially developing countries – and the US debt is globalized - it is distributed around the world (China – US# 1 trillion, Japan – US$ 1 trillion ….) • If the dollar collapses other countries’ reserves will be partially wiped out • But - how long will the world continue to honor the dollar as its reserve currency? • This question is for you to reflect on.

8. How does the crisis affect poverty at home and abroad? Poverty at home • New Homeless people - tent cities • Destitution / poverty - 15% - 20% hovering on poverty • Wiped out pension funds, saving - for average citizen • Rapidly growing unemployment - possibly up to 30% • Food shortages – affordable food scarcer (1/3 US corn used for ethanol)

9. How does the crisis affect poverty at home and abroad? Poverty Abroad – Impact on Developing Countries • Decline of remittances - could be > 50% • 2007 $180 billion to developing countries • 2007 ODA $92 billion • 2007 totla debt service of dev. countries $142 billion • Negative flow $50 billion

10. Here is where the debt comes from…. • There is a lasting impact from long-term debt-promoting activities by WB, IMF, IDB and others • The slogan at the entrance of the World Bank - “… A World without Poverty is our Dream”… • But these agencies are producing poverty to keep it a dream • In Africa, the average per capita income declined by US$ 200 between 1974 and 2000. (World Economic Forum)

11. Instruments of WB, IMF, IDB… • Indebting: WB, IFM, IDB - others… • ….plus Leverage effect with private banks • Privatization of public sector • Free Trade • Exports (take away the best of a country, cheap) • Growth (In Peru 70% of the revered growth of 4%-6% goes to 1% of the population) • Genetically Modified Organisms -GMO (don’t yield seeds) • Famine-Starvation - leading to 7.000 farmer suicides in India • 75% of increased famine due to agrofuel, acc. to WB and FAO • 1/3 of US grain stocks used for more profitable ethanol production • Socio – Environment • Global Warming

12. Consequences for Developing Countries • Less western Money available… probably a good thing… • Less dependence and more autonomy • Wrangling for favors – West (moslty US) vs. East (China and Russia) • Creating new dependencies – for exploitation of natural resources

13. For Hydrocarbon Producers… • Faltering Western Economies need less energy • Falling oil & gas prices (currently under US$ 50/barrel – 4 months ago US$ 150!) • Fewer revenues for producers; and • Revenues in a falling currency – the UDS Dollar….

14. What can developing countries do? • UrgentSatisfy local markets • ImportantEducation, education & education • ThirdIdentify comparative advantages (niche markets) for export – but NEVER at cost of local markets • Most importantBe careful in selecting money lenders (so-called ‘development assistance’) – Beware of world Bank, IMF, IDB – ‘don’t send fox to guard chicken coop’

15. What can developing countries do? – Cont’d • Developing countries, should call shots; they decide for what the loans are used and what lending conditions are acceptable – not the money lenders – Watch out for ‘strings attached’! • Fourth – promote slow but independent and equitable growth – better than the traditional neoliberal dogma of rapid export growth – the gains of which are usually channeled to local elite and foreign lenders – with little or no benefits to the working poor. • And finally - - Create alliances (economic and political) among developing countries – see South America (MercoSur, UnionSur, Banco sur – new political alliance of South America) – and other South-South alliances – G77…. etc.

16. IMF New Emergency Rescue Fund • Beware of new IMF, WB Rescue instruments: • Collapse of economic system = Golden Nest Egg for IMF, WB • Special G20 Meeting in Washington mid-November 08 called to re-activate IMF Emergency Fund • Fund currently US$200 billion – but IMF estimates requirements > US$ 1 trillion • Call on China, oil producers and other rich nations to replenish Emergency Fund • World Bank also will help with emergency loans

17. IMF New Emergency Rescue Fund – Cont’d. • IMF already granted / negotiating: • Iceland - $ 2.1 billion • Ukraine - $ 16.5 billion • Hungary - $ 10 billion • Pakistan - $ 7.6 billion… and • … more to come….

18. IMF New Emergency Rescue Fund – Con’t. • IMF usual loan conditions: • cutting government spending (in some cases as much as 1% of GDP) • Rising interest rates • Result in further downturn of recipient government’s economies

19. IMF New Emergency Rescue Fund – Con’t. • Put this in Context of US and other G8 economic stimulus which are exactly opposite: • rise public spending • slashing interest rates - lessening impact of recession • Unequal standards favoring rich over poor – the norm for neoliberal economics

20. Alternative Economic Systems • > Keynesian capitalism – allowing some form of government intervention when needed • > Social democratic capitalism (Western European Model) – government controls certain sectors, mostly social – government interventions in markets accepted when necessary – and • > Neoliberal approach – free-for-all market dogma – no government intervention, no market regulations – current US dogma being spread around the world – and what brought about the current crisis

21. Alternative Economic Systems – Cont’d. • Given the collapse of the capitalist system as we know it – isn’t it high time to start thinking about possible alternatives to the current scheme? • Inequity (income and asset distribution) in industrialized and developing countries is rampant – and growing • The growth fetish: how much happier does a dollar more in the pockets of the rich make? – but in pocket of the poor it may make a difference… • World societies have vital interest in more equitable world – less poverty = more peaceful world

22. Closing on positive note: There is hope – a light at the end of the tunnel: The only place in the Western World that has built up resistance to the neoliberal doctrine over last 10-15 years – by democratically electing governments by the people for the people – who are increasingly united in solidarity in South America. CONGRATULATIONS !

23. Thank you !!!