Worldwide Lessons from Financial Crises
金融危机的国际经验及现实思考
Vinod Thomas, Director-General & Senior Vice President
Independent Evaluation Group, World Bank
China Center for Economic Research
Peking University
February 19, 2009
Table of Contents
I.
The Crisis
II.
Policy Responses
III. Outlook
2
I. The Crisis
► The sub-prime mortgage bubble in the US was the
detonator of the current crisis
► The extensive use of derivatives made the exposure to
the mortgage crisis explosive
► The chain reaction was globalized because of:
• The links among the financial sectors in OECD and emerging
countries
• The high dependence of international trade on US demand
3
The extent of damage so far
► Deepening recession since mid-2008 with multiple downwards
revisions of growth
► Contagion from the developed to emerging and less developed
economies
► Downward cycle through
•
•
•
•
Trade and weakening demand
Capital flow
Remittance
Commodity price
► Reinforcing expectation for global depression and deflation
4
The sharpest global decline since 1970
10
8
6
4
2
09
20
06
20
03
20
00
20
97
19
94
19
91
19
88
19
85
19
82
19
79
19
76
19
73
-2
19
70
0
19
Percent change
GDP Growth
-4
Advanced economies
Emerging and developing economies
World
5
Annual growth GDP, 2009 (%)
Both OECD and emerging markets fall –
no decoupling
12
10
8
China
6
India
4
Indonesia
Brazil
2
Saudi Arabia
0
0
-2
-4
-6
France2
Italy
Japan
Australia
Mexico
Canada 4
UK
Spain
Germany
USA
South Africa
6
Argentina
Russia 8
10
12
Turkey
Korea
Average annual growth GDP, 2006-2007 (%)
Source: World Development Indicators 2008 and IMF World Economic Outlook Update, January 28, 2009
6
Dramatic fall in Asia’s rapid growth
► China:
• Growth practically ground to a halt in 2008 Q4--Annual growth
rate in 2009 expected to fall to 6.7% from 9.0% in 2008
• Exports plunged 17.5% year-on-year in January 2009—the
largest drop in almost 13 years
• Imports down 43% year-on-year, partly explained by
adjustment in inventory.
► Singapore’s GDP fell at an annualized rate of 17% and
South Korea’s at 21% in Q4 2008
► Industrial production in the 12 months to December,
2008 is down 21% in Japan, 14% in Singapore, 19% in
South Korea
Source: IMF World Economic Outlook Update, January 28, 2009
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Exports and capital flows crumble
Exports (Volumes, Change % 3 mma y/y)
Private Net Capital Flows to
Emerging Economies
35
1000
China
Private capital flows to emerging economies
1000
15
5
-5
(US$, billions, net)
800
600
Mexico
200
2006
2007
600
400
200
0
-200
-15
India
400
(US$, billions, net)
800
25
2008
2009
0
Jordan
Equity investment
2006
Private Creditors
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08
Source: National Agencies through Thomson/Datastream.
2007
2008
2009
-200
Equity investment
Private Creditors
Source: Institute for International Finance: “Capital Flows
To Emerging Market Economies.” 01/27/09.
8
High trade shares with sharp declines in
GDP growth…
(current episode)
100
90
Average trade, % GDP 2006-2007
Korea
Germany
80
Canada
China
Mexico
Spain
Russia
UK
France
Turkey
70
South Africa
Italy
60
Indonesia
50
India
Argentina
40
Australia
USA
Japan
30
Brazil
20
10
0
-10
-9
-8
-7
-6
-5
-4
-3
-2
Change in GDP Growth Rate [2009 projected-Avg. 2006-07] (%)
-1
Source: World Development Indicators 2008 and IMF World
Economic Outlook Update, January 28, 2009
0
9
… Also high trade shares with strong recovery
of GDP growth
Averge trade, pre- and post-crisis (% GDP)
(past episodes)
120
120
100
100
Averge trade pre- and post-crisis (% GDP)
Thailand
80
Indonesia
Korea
Mexico
60
Russia
Turkey
40
Argentina
20
Thailand
80
Korea
Indonesia
Mexico
60
Turkey
40
Argentina
20
Brazil
Brazil
0
-2
Russia
0
0
2
4
Average pre-crisis GDP growth (%)
6
8
0
2
4
6
10
8
Post-crisis GDP growth (%)
Source: World Development Indicators 2008
Note: Crisis events are Argentina (1999-2002); Indonesia, Korea, Russia, Thailand, and Brazil (1997-1998); Mexico (1994) and Turkey
(2000-2001)
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II. Policy Responses
A framework for assessment
Policy
response
Country level
Short-term
Long-term
►Similar responses across
countries—Fiscal and
monetary policies to
stimulate aggregate demand
►Diverse responses depending
on the initial conditions—saving
rates, current account balance
►Sustainable growth—poverty,
environment, education
Global
response
►Coordinated responses—
banking sector, financial
system, liquidity, interest
rates, open trade regime
►International policy
coordination mechanisms—
surveillance, environment,
climate change
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Five Areas for Action
Financial
Consumption
Investments
Fiscal
Terms of trade
Value chain
Liquidity
Financial system
Market confidence
CRISIS
Trade
Environment
Social stability
harmony
Sustainable
growth
Poverty
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Financial sector
Fire-fighting and beyond
► Often receive early attention
• U.S. Housing market: 3 million foreclosures (2008)
• U.S. Banking sector: $1-$2 trillion net cost of bailout
• World stock markets: Almost 50% loss in the total capitalization
in 2008--$30 trillion of wealth disappeared
► Needed measures:
• Adequate prudential regulations with the increasing
sophistication and dynamism of global markets
– Capture the full risk implications of securitized mortgage loans and
derivatives
• Sound development of the financial sector in developing
countries
13
Fiscal policy
Effective economic stimulus
► Stimulus packages – a stark difference from the 1990s
• US: Tax cuts and priority investments – around $800 bn
• Japan: Three packages -- $112 bn
• Germany: Two packages for infrastructure, tax cuts, clean
energy-- $106 bn
• United Kingdom: VAT reduction, capital spending-$27.8 bn
• China: Infrastructure, housing -- $586 bn
• India: Export incentives, guarantees, refinance facility-- $4.1 bn
► Short-term vs. long-term choices:
• Countries with low or negative savings need more than
sustained fiscal stimulus to emerge from the crisis
• Countries with high savings rates can combine the short-term
fiscal stimulus with a longer-term expansionary policy
14
Trade Policy
Avoiding the danger of closing in
► The multiplier effects of the slowdown through the trade system
• China: Decreased export demand, 20 million migrant factory workers
without jobs
► Momentum towards protectionism gains force in crises
•
•
•
•
•
USA: “Buy American” requirements
Russia: raised tariff on imported cars
India: 5% duty on select steel and iron products
Argentina and Brazil: approved tariffs on wine and textiles
China: increased export-tax rebates on 3,700 goods
► Protectionism will worsen the global contraction
► Strong international commitment to resist closing in critical
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Poverty
Not to be seen as an after-thought
► Social and poverty impact of crises should be anticipated
• 1% reduction in GDP traps another 20 million people in poverty,
• 100 million more people in poverty with the global recession
► Millions live very close to the poverty line, so even small GDP
changes produce vast swings in poverty
► Past responses to crises ignored poverty impact in the early stages
► More attention needed to vulnerable groups—potential area for the
World Bank Group to contribute
► Impact on immigrant labor: Foreign and domestic migration,
remittances
16
Environment
The “Cinderella” of the crisis?
► Tensions between:
• Short- and long term objectives—economic recovery,
mitigation, adaptation
• Domestic and global objectives—global public goods
► These tensions increase in crisis periods
• 30-50% reduction in wind and solar installations in U.S.
• Support for climate funds under threat in the EU and elsewhere
► Danger of backtracking on environmental policies
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Five lessons from research
► Early, rapid and sizeable responses are key
► Social safety-net and pro-poor policies need support from the
outset
► Policies need to account for behavior and the political economy
► Immediate responses cannot ignore implications for development
► Global crisis needs a global solution—target stimuli where the
marginal impact will be the greatest*
* How to Solve the Global Economic Crisis—Justin Yifu Lin, Senior Vice President and
Chief Economist, World Bank
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Seven lessons from evaluation
►Emphasize not only volume, but also quality
►Focus on poverty from the outset
►Build in the environment and climate change
►Seek selectivity and adaptability of response
►Stress coordination among partners
►Focus on monitoring and evaluation
►Organize for early warning
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The World Bank Group and the crisis
The WBG has a key role through:
►Financial support
►Policy advice and knowledge sharing
►Catalytic role in cross-country policy
coordination
►Helping to balance national and global goals
►Long term partnership with countries, even
when its share in rescue packages is modest
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IV: Outlook: Uncertainty at an all-time high
21
Unusual Times
“…all consequential events in human history have
come from unexpected, rare occurrences”
Nassim Nicholas Taleb
22
Triple danger
Economic, social, environment
► Global economic downturn
• Outlook highly uncertain
• The timing of the recovery depends critically on policy actions
► Rising poverty worldwide
• The situation exacerbated by growing unemployment
► Climate crisis
• Environmental devastation and global warming can derail all
progress
This could be an inflection point for our planet
A new development paradigm is needed
23
When a crisis prompts action
危机 – Danger and Opportunity
► Brazil’s fiscal responsibility law; India’s 1991 reforms;
Korea’s financial sector actions….
► China revitalized after the Asian crisis
• Liberalization of the housing market
• Easing restrictions on privatization of medium SOEs
• Acceleration of the entry to WTO
• Investment in releasing bottlenecks -- highway, port
facility, telecommunication, high education
► China today…
• Opportunities in human capital; private sector;
openness; infrastructure*
• New ways of green investments
*David Dollar, Sustaining growth: China’s need for a new growth model,
November 19, 2008
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Looking to global opportunities
► Opportunity of fiscal stimulus to improve investments
•
•
•
Target high growth areas
Improve efficiency and raise productivity
Promote green investments
► Opportunity of political support during crisis to reform the domestic
economy
•
•
•
•
•
Financial and regulatory reform
Address long term macro imbalances
Maintain open trade policies
Deepen social safety-net and inclusive growth
Breakthrough in the environment and climate change
► Opportunity for global actions
•
•
•
International regulatory framework for trade, investment and finance
Global action on climate, environment and biodiversity
The role of G20, international architecture and Bretton Wood II
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谢谢!
Thank you!
Improving Development Results Through
Excellence in Evaluation
http://www.worldbank.org/ieg/
http://www.ifc.org/ieg/
http://www.miga.org/ieg/
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