What caused the crisis? Market failure? Policy failure?. Policy failure • US and EU government “populism” over-indebts lower-income groups • US and EU fiscal low-interest policies fuelled asset bubble (including commodities)
• US and EU government “populism” over-indebts lower-income groups
• US and EU fiscal low-interest policies fuelled asset bubble (including commodities)
• Global imbalances generated growing and unsustainable debts of US, EU, and Japan (G3)
Financial Times, 20 Sept 2008
Rapid (and massive) US & EU government response
•Monetary expansion by the country’s central bank , e.g. Fed Reserve in the US
• Fiscal expansion (Tax cuts, govt. spending, rebates)
• Bank bailouts (Govt. infusion of taxpayers’ money into banks that fail)
Topic 1: Global Impact of the 2008 Financial Crisis (FC): Comparing Canada and the Third World Countries.
TheWorld Bank Global Monitoring Report 2010: The Millennium Development Goals (MDGs) after the Crisis (April 2010)
• WB projects the poverty impact of the crisis
through the effect on growth; also for MDG targets
• “The crisis left an estimated 50 million more
people in extreme poverty in 2009, and some
64 million more will fall into that category by
the end of 2010 relative to a pre-crisis trend”
• That is 2% of the world population...
Understanding the financial crisis of 2008
http://www.youtube.com/watch?v=qqUGoVez8xg 11 min
Employment losses were much less serious than during earlier recessions - jobs regained sooner
But, only partial recovery of business investment (45%) and exports (67%) from the losses due to the recession. Jobs linked to these sectors have not come back .
Developing Countries pursued autonomous policies - not dependent on those based on IMF strictures:
• Reserve accumulation to insure themselves after learning form 1990s crises
• Counter-cyclical macro-policies (fiscal, monetary and exch-rate) to stabilize their output
• More extensive safety nets (universal rather than targeted) to sustain demand
Financial stability in DW:
The region’s financial sector had no complex new financial instruments (such as in US: Collateralized Debt Obligation (CDO) Credit Default Swap (CDS))
Effective financial supervision and prudent risk management
Foreign exchange reserves have been built up in Asia based on export surpluses (e.g. China), and on capital inflows or remittances (e.g. in the cases of Bangladesh, India, Indonesia, and Viet Nam).
FDI fell significantly. Banking stresses in low income countries e.g., non-performing loans (NPLs) to total assets ratio doubled in Zambia (7% to 13% during 2009.
Economy: (OXFAM study)
Asia and the Pacific, especially in Central and South-East Asia GDP growth dropped in 2008 and 2009. India, Indonesia, Thailand, Viet Nam, the Philippines, Pakistan, and Sri Lanka where the poor populations predominate.
China:state control and high foreign exchange reserves have given greater flexibility to control the crisis.
Newly industrialized countries: South Korea, Malaysia, Singapore, Taiwan, Hong Kong and Macau: high per capita incomes, high degrees of trade and investment integration with the world, highly export dependent. But, they have fiscal and social policies to deal with declining exports & increasing unemployment.
Less developed countries :Bangladesh, Cambodia, Bhutan, Lao PDR, Mongolia, and Nepal: increasingly integrated with the global
and regional economy through trade. Worsening economies
2010 GDP in sub-Saharan Africa : Fell 7% ($84 billion).
(International Monetary Fund (IMF) data and forecasts, 2011 http://www.imf.org/external/pubs/ft/weo/2010/update/01/index.htm)
The greatest impact on employment was in the garment and mining industries.
In 2009. 25,000 to 30,000 garments workers’ jobs lost in Bangladesh.
In 2009, Cambodia lost a third of garment workers (102,527 jobs)
A third of Zambia ‘s mining jobs lost:10,000
Three quarters of miners in DRC (18,000 people) lost jobs
Cambodia has been hit hard with job losses in garments, tourism, and construction industries.
Philippines: most lay-offs in export processing zones (EPZs) - 75 % are women workers
Thailand: 125,700 women (I in 4 export industries) laid off or lost regular work that turned temporary.
In Indonesia and Thailand: (Oxfam evidence)
Using crisis as an excuse: Factories dismissed workers in order to hire younger, cheaper workers.
In Serang, Indonesia, in one factory, 79 employees with 8 to 14 years seniority were dismissed Then, hired younger workers with flexible, lower paid short-term contracts, apprenticeships, and for outsourcing.
In Cambodia, 70% of the poor took out loans from relatives or friends, or bought food on credit.
Parents in urban areas in Indonesia report eating less and selling assets to keep their children in school.
“It is better for us not to eat than for our kids not to go to school.”
– (Woman in a focus group discussion, Indonesia)
Mexico does not have a national unemployment insurance program, but the Distrito Federal initiated an unemployment insurance program in fall 2008 for city residents working for firms in the city for six months or more.
Mexico set up a temporary Job Preservation Program in 2008. It provided subsidies of $110 Mexican Pesos per day (about US$8.23 with September exchange rate) for up to three quarters of the workers in participating firms, for up to a total of $5,100 Mexican pesos per worker (US$382).
Mexico scaled up it Programa de Empleo Temporal (PET) as one of several labor market measures.
With the global crisis, it was scaled up, covering 285,000 beneficiaries in 2008, 682,000 in 2009 and 894,000 in 2010 (World Bank 2011; ILO/OECD 2011).
Conditional cash transfer programs (CCTs) are meant to break the intergeneration transmission of poverty, by transferring cash to poor households on the condition that those household make prespecified investments in the human capital of their children (Fiszbein and Schady 2009).
Source: Understanding the Poverty Impact of the Global Financial Crisis in Latin America and the Caribbean -Part II: The role of social protection DRAFT 1/31/13
Margaret Grosh, Anna Fruttero, Maria Laura Oliveri, World Bank
Global Financial Crisis, its Impact on India and the Policy Response NirupamBajpaiWorking Paper No. 5 July 2011
Social spending in India after the crisis:
The spending on social sector has been increased (US$ 30 billion) in 2010-11, which is 37 percent of the total plan outlay in 2010-11.
Another 25 percent of the plan allocations are devoted to the development of rural infrastructure.
allocation for school education increased by 16 percent (US$ 6 billion) in 2009-10. US$ 7 billion in 2010-11.
In addition, States will have access to US$ 792 million for elementary education for 2010-11.
allocation to Ministry of Health & Family Welfare increased US$ 5 billion for 2010-11.
The measures undertaken by government of India to counter the effects of the global meltdown on the Indian economy have resulted in shortfall in revenues and substantial increases in government expenditures,
Key Drivers to Recovery India
- High Government Expenditure, funded largely through borrowings.
- Increased incomes in rural areas due to greater social spending and high farm good prices; creation of wage employment are National Rural Employment Guarantee Programme (MGNREGA) in the rural areas and SwarnaJayantiShahariRozgarYojana (SJSRY) in the urban areas.
Flood risk reduction
India: Nearly 40 per cent of female respondents were the primary income earners in their household, and in other households, women’s income made crucial contribution to the sustenance of their household income. The above survey results indicated that the income-earning burden on women seemed to be intensifying, as 20 per cent of respondents reported recent retrenchments of household members during the previous six months, and 40 per cent reported a drastic reduction of income provided by one or more members of the household in the same period. An increased number of informal women workers were supporting the entire family on less income. (Source: Horn, Zoe Elena (2010), ‘Effects of the global economic crisis on women in the informal economy: research
findings from WIEGO and the Inclusive Cities partners’, Gender & Development, 18:2, 263–276.)
National Rural Employment Guarantee Programme in India
The main feature of the programme promoting women’s employment and income opportunities entails:
- one third of jobs should be given to women;
- equal wages for work of equal value;
- requiring the provision of a crèche when there are more than five women on a programme.
The national average of women’s participation was 49 per cent. In 20 States, women made up at least 30 per cent of participants in 2008. The programme reduced distressed migration, and improved income and nutrition in the workers’ households. Due to the wage payment at post offices or through banks, the programmehas introduced some sections of the community to use formal financial institutions for the first time.
Source: 2009, UN New York: World survey on role of women in development: Women’s control over economic resources and access to financial resources, including microcredit, pp. 74–75.
Population: 1.22 billion (2011)
Yearly increase: 18 million
Major group: 50% - 0 – 25 years
More than 1.53 billion people by the end of 2030.
Average life expectancy: 68.6 years
Average fertility rate: 2.7 children per woman
Male literacy rate at 75.96% and female at 54.28%
LR 74.04% in 2011 from 65.38% in 2001
About 72.2% of the population lives in some 638,000 villages and the rest 27.8% in about 5,480 towns and urban agglomerations
Homes without electricity: 25 per cent
In 2011, World Bank reported, 32.7% of Indians below the international poverty line of US$ 1.25 per day (PPP) while 68.7% live on less than US$ 2 per day.