The 2008-9 crisis and developing
countries: implications for poverty
Frances Stewart
1
The 1980s: a contrast
• 1980s in LA and Africa, especially, disastrous
crisis for economy and for poor. Asia only mildly
affected.
• 1980s: IMF policies reaction to the crisis;
cutbacks.
• Almost no safety nets. Some national ones, and
a few social funds created, but too little too late.
• 1980s crisis lasted WHOLE decade: the ‘lost
decade’.
• Is it different this time? I think it is in a number
of ways:
2
Source of crisis, 1980s: debt and
high interest rates
•
•
•
•
Countries started with huge debts
Budgetary and current account deficits;
Crisis largely confined to areas with
accumulated debt.
Today, NOT a debt crisis. Low interest
rates.
3
Not a debt crisis: LA data
External debt, gross and net of foreign exchange reserves
% of GDP at 2000 parity exchange rates
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
1998
1999
2000
2001
2002
2003
Deuda externa
2004
2005
Neta de reservas
2006
2007
2008
4
5
Today
• Source is financial collapse and recession
in developed countries
• Knock on impact in trade volumes and
terms of trade, capital flows, remittances.
• Varied impact depending on dependence
on trade, private capital, aid, remittances
6
7
M
20 1
03
M
20 5
03
M
20 9
04
M
20 1
04
M
20 5
04
M
20 9
05
M
20 1
05
M
20 5
05
M
20 9
06
M
20 1
06
M
20 5
06
M
20 9
07
M
20 1
07
M
20 5
07
M
20 9
08
M
20 1
08
M
20 5
08
M
20 9
09
M
20 1
09
M
5
20
03
Metals and fuels fell most: agricultural
products less
Commodity prices (1995=100)
250
No energéticos
200
Energéticos
150
100
50
0
8
Latin America
Gains and losses from terms of trade (% of GDP)
25.0%
20.0%
15.0%
10.0%
2003-2007
2003-2008
5.0%
-10.0%
HON
CR
NIC
PAN
URU
ELS
GUA
RDOM
PAR
BRA
MEX
ARG
COL
PER
ECU
CHI
BOL
-5.0%
VEN
0.0%
9
Aid sustained, but for how long?
10
Capital flows fell, but mainly portfolio, FDI
held up
11
Falls in remittances
12
Dependence on remittances varies
•
•
•
•
Over 12% of GDP, Philippines
Under 1%, Thailand.
Kenya, over 5%
S.Africa, less than ½%
13
Impact varied by region and
country
•
•
•
•
Main shock for LA was trade shock (- 30%
value in 2008; vol -15%).
Sub-Saharan Africa: Fuel and mineral
producers negatively affected SSA, food
producers much less.
Asia affected by portfolio capital, remittances
and trade. Still variations. Remittances >12%
for Philippines; and <1% for Thailand.
Walmart effect for some (Bangladesh; Sri
Lanka.)
14
Varied impact
–China and India slowdown but
continued high growth;
–Botswana and Gabon negative;
–Kenya, Mali, Rwanda positive;
–Bolivia and Colombia positive
growth;
–Mexico, Venezuela, Argentina
negative
15
GDP fell: East and central Europe and CIS
worst affected; Asia least
16
GDP growth selected Africa
countries: mixed experience
5%
-5%
Source: IMF World
Economic Outlook
database
17
GDP growth in selected LA
countries:again mixed
5%
-5%
Source: IMF World Economic Outlook database
18
Growth of GDP: selected Asian countries
5%
Source: IMF World Economic Outlook database
19
And China and India sustained high
growth rates
10
6
2
Source: IMF World Economic Outlook database
20
But Eastern Europe almost all
collapsed
5%
-5%
Source: IMF World Economic Outlook database
-15%
21
Reaction to crisis very different
from 1980s
•
•
•
Fiscal stimulus in developed countries;
leading to shortlived recession?
Stimulus in many developing countries
as well as developed
Strong in Asia. But also in LA countries,
Middle East, and Nigeria and South
Africa. Vietnam 5% of GDP; China and
Korea over 2%. Mainly via
expenditure.
22
Impact on poverty
• Depends on public and private
entitlements
• Public entitlements broadly sustained as
public expenditure was sustained mostly
(not Eastern Europe), partly due to
stimulus
23
24
Private entitlements worse affected
•
•
•
Declining industrial production and
formal sector employment. ILO estimates
increase in unemployment of 39-59
million (6.3% to 7.1% 2007-9, globally.
Rise in share of informal sector work
(48.4% to 53% according to ILO).
Suffered from falling remittances
25
Employment in Latin America
Employment variation (points of the working age population)
0.8
0.6
0.4
0.2
0
2007Q1
2007Q2
2007Q3
2007Q4
2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
-0.2
-0.4
-0.6
26
Poverty?
•
•
Very little hard data – scandalous!
Estimates show rise compared with
counterfactual: DFID 90M. extra; WB 4653m; UN DESA, 102m = 1.9% of poor.
27
Seems less bad than 1980s?
Why?
– Many more and more extensive safety nets
and supports in place – conditional transfers
extensive; national employment guarantee
scheme; social insurance. STILL MANY
LEFT OUT, BUT MANY MORE INCLUDED.
– Instead of IMF induced cuts, there has been
expansion respectable because adopted in
West. Less countries going to IMF.
28
Stimulus positive impact on poor
•
•
•
Stimulus used mainly for expenditure,
and quite often for transfers to poor.
Infrastructure expenditure which created
jobs;
In some cases special programmes for
poor: e.g. China, Indonesia, Korea,
Philippines and Thailand – via voucher
schemes; school feeding (WB 2000).
29
Compared with 1980s:
– Recovery seems much quicker. Crisis
shorter. Signs of recovery in Europe/US;
and also more strongly in Asia. Commodity
prices recovering, especially food.
– Will there be another dip? Impact of debt
resulting from stimulus; and ‘orthodox’
reaction to this.
– One thing has NOT changed: still no up to
date data on poor Just like 1980s.
– So this may be too complacent.
30
The Philippines, Social Weather
Station Data does have data
– Hunger rising (also due to food prices),
– But not self-rated poverty.
– Only one fifth of hungry being helped by
government.
31
The Philippines
32
33
Most affected most helped but 80% not helped
34
General lessons: 1
•
•
•
•
Countries more in control of own destiny.
Benefited from developed countries also
being affected and unorthodox policies.
But still no automatic stabilisers nor
automatic protection for the poor in most
countries.
More heterogeneity in both impact and
recovery. More difficult to come to simple
comprehensive prescriptions.
35
General lessons: 2
• In near future:
• Need to avoid expenditure cutbacks induced by
orthodox reaction to extra debt from stimulus and
recession.
• Need continued protection for aid.
• Need to extend social protection to everyone,
including employment schemes.
• And support extensive social protection in normal
development process, not wait until a crisis to put it
in effect.
36
General lessons: 3
• And need better information on poor
URGENTLY.
• Need GLOBAL IMPACT AND
VULNERABILITY ALERT SYSTEM to
get detailed local results which can be
acted upon.
37