Facing multiple crises
What is to be done?
IDEAs, New Delhi
29 January 2010
Global imbalances ballooned
USD bn
1000
Latin America
Other industrialised
800
Other Asia
China
600
Japan
400
Oil exporters
200
0
.
-200
-400
United States
-600
-800
Euro Area
Central and Eastern
-1000
2
90 91
92 93
94 95
96 97
98 99
00 01
02 03
04 05
06 07
Europe
Then narrow with deflation
600
United States
400
Japan
Billion US$
200
0
European Union
-200
-400
-600
Developing
countries (excl
China) and EiT
-800
China
2004
2005
2006
2007
2008
2009
3
Net Capital Importers
Capital Importers
Turkey
3%
Others
20%
Greece
3% Italy
3%
Australia
3%
U.K.
9%
Spain
9%
U.S.
50%
4
ST Real Interest Rates
Short-term real interest rates of major economies (%)
4
3
2
Japan
U.S.
Euro
1
Negative
0
Area
Rates
-1
2008M7
2008M1
2007M7
2007M1
2006M7
2006M1
2005M7
2005M1
2004M7
2004M1
2003M7
2003M1
2002M7
2002M1
2001M7
2001M1
2000M7
2000M1
-2
5
US Fed Longterm Rates
Yields of U.S. T-Bonds and Corporate Bonds ％（1978－2007）
persistenly
20
18
falling long-term
16
rates
14
12
10
8
6
4
2
0
1/31/1978 6/30/1982 11/30/1986 4/30/1991 9/30/1995 2/29/2000 7/31/2004
BAA corporate bond
AAA corproate bond
6
10-year T-bond
Financial deepening
 fragility
7
World Stock Markets: Now vs GD
World Output: Now vs GD
World Trade: Now vs GD
Unemployment still rising
Economic recovery
uncertain
Most developed economies
slowly out of recession
6
4
2.1
2
1.2
0.9
0.5
0
-2
-2.5
-4
-4.2
-6
-3.7
-5.6
USA
Japan
EU15
New EU
Uncertain weak recovery
in transition economies
6
5.6
4.5
4
1.7
2
0.7
0
-2
-4
-3.7
-6
-6.7
-8
South-eastern Europe
CIS
Sub-potential recovery in
developing countries
6.7
7
6
5.5
5.3
5
4.3
4.7
4.1
3.6
4
3.4
3
2
1.9
1.6
1
0
-1
-2
-1.0
2008
2009
2010
-2.1
-3
Developing
countries
Africa
East Asia South Asia Western
Asia
Latin
America
60 developing countries with
declining incomes in 2009
70
60
60
Developed countries
Economies in transition
Developing countries
50
40
33
30
22
18
20
13
12
14
10
2
1
0
2008
2009
2010
Growth by main
country groups
Per capita GDP
Change in
growth rate
growth rate
2004
2009/ 2009/
-07 2008 2009 2008 2004-7
World
Developed
economies
Economies in
transition
Developing
economies
2.6
0.9
-3.4
-4.3
-6.0
2.1
0.3
-4.1
-4.4
-6.1
7.7
5.5
-2.6
-8.1
-10.2
5.7
4.0
0.1
-3.9
-5.6
LDCs
5.2
3.6
0.3
-3.3
-4.9
Food prices remain higher
350
300
250
200
150
100
50
2000
2001
2002
2003
2004
Wheat
2005
2006
Maize
2007
2008
2009
Rice
2010
2011
Stimulus lags delay
recovery
Im m ediate and
s us tained
s tim ulus
efforts
3 m onth delay
Q2
0
Q3
Q4
2
Q1
Q2
4
Q3
6Q4
Q1
Q2
8
Global recovery with coordinated vs
uncoordinated stimuli, 2010-2015
Need coordinated sustainable recovery
Double-dip
recession with
• Premature
stimulus
withdrawal
• Widening
imbalances +
deep US$
devaluation
can be
avoided
through
sustainable
rebalancing
Coordinated, sustainable recovery
“Business as usual”
Early withdrawal stimulus
Coordinated sustainable recovery for all
Double-dip
recession with
• Premature
stimulus
withdrawal
• Widening
imbalances +
deep US$
devaluation
can be
avoided
through
sustainable
rebalancing
Coordinated, sustainable recovery
“Business as usual”
Early withdrawal stimulus
Output, jobs recovery
lags, 1991, 2001
Duration of output recovery and job market recovery after the 1991 and
2001 US recessions (in months)
60
1991
2001
50
40
30
20
10
0
Output
Job market recovery
Financial globalization
• Net capital flows from South to North
(US largest borrower)
• Cost of funds not generally lower due to
financial deepening (more
intermediation, financial rents)
• Higher volatility
• Lower growth, higher instability
Globalization: finance>trade
180
350
160
140
250
US$ Trillions
120
100
200
80
150
60
100
40
50
20
0
0
1980
1990
1995
2000
2006
Global financial assets
Global merchandise trade
)Global financial assets as a percentage of GDP (right axis
)Global merchandise trade as a percentage of GDP (right axis
27
As percent of GDP, indices 1980=100
300
Finance-investment nexus?
0.30
0.25
Gross Fixed Capital Formation
0.20
0.15
Gross Financial Investment Abroad
0.10
0.05
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
28
19
72
19
70
0.00
Net transfer of financial resources
from South to North
200
Billions of US dollars
0
-200
-400
-600
-800
-1000
Developing economies
Africa
Eastern and Southern Asia
Western Asia
Latin America
Short-term capital
inflows problematic
• No real contribution to investment,
growth rates
• Asset (shares, real estate) price + related
(e.g. construction) bubbles instead
• Cheaper finance for consumption binges
• Over-investment  excess capacity
• All exacerbate instability, pro-cyclicality
Problems  Crisis
• International financial architecture:
non-system
• Policy responses:
inadequate; double standards
• Inadequate and inappropriate
regulation
• International cooperation:
G7  G20, IMF strengthened
G20 London Summit
Commitments
$250bn
SDR allocation
44% to G7 countries alone
Only $80bn to DCs
$500bn
IMF Funding
$0 New
Commitments
$1,100bn
Total
$100bn
Aid for the poorest
New Commitments
< $100bn
$250bn
Trade Finance
New commitments
< $25bn
33
G20 Pittsburgh commitments
• G20 takeover (G7)?
• BWI governance shifts
• Executive remuneration debate
• Financial regulation reform?
• Capital requirements
• Surveillance
Systemic reform agenda
• Ensure macro-financial stability with countercyclical macroeconomic policies +
prudential risk management, including
capital controls
• Finance growth (output, employment) with
developmental financial system
• Ensure inclusive financial system -- NEW
• Monterrey policy coherence: Align IMF, WB
with UN development agenda, IADGs
• But who will lead comprehensive reform
process?
Bretton Woods moment lost?
Bretton Woods, 1944: United Nations
conference on monetary + financial affairs
• 15 years after 1929 Depression
• Middle of WW2
• US initiative vs UK Treasury stance
• 44 countries (28 developing countries; 19 LA)
• UN system: IMF, IBRD, ITO
• Clear emphasis on sustaining growth, job
creation, post-war reconstruction, postcolonial development, not just financial
stability
Stiglitz Commission Report
• Macroeconomic stabilization:
broader view
• Regulating financial markets
• Reforming global economic
governance
• Systemic reform priorities:
SDRs as reserve currency
4 crises, dilemmas
Climate change vs development
Reduce climate change while raising
living standards for all
Need to reduce GHG emissions in rich
countries and slow (+ eventually
reduce) them in developing
countries
Food prices lower after spikes, but
higher than before while hunger
rising since ‘95
4 crises: 1 solution?
More renewable energy to mitigate
 sustainable development pathway
Investment (vs market)-led approach to
address climate change, development, food,
recovery goals
Cannot rely on markets alone
More job creation from renewable energy
Cross-subsidization (e.g. global or regional
feed-in tariffs, scale economies)
Big push: front-loading
Scale + learning economies
Need significant (fin. + technology) transfers
Global Green New Deal
• New Deal for recovery, social protection,
jobs, infrastructure, development
• Green: more job creation from renewable
energy (compared to fossil fuel energy)
• Global: cross-subsidization (e.g. regional
feed-in tariffs, scale economies
• Public investment to induce private invt
• Cheap credit  over-investment  underutilized capacity  private investment
reluctance  public invt in renewables
Thank you
Please visit
IDEAs www.networkideas.org
UN-DESA esa.un.org and
G24 www.g24.org websites
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