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  ...
Table of ContentsI.     The CrisisII.    Policy ResponsesIII.   Outlook                                     2
I. The Crisis► The sub-prime mortgage bubble in the US was the  detonator of the current crisis► The extensive use of deri...
The extent of damage so far► Deepening recession since mid-2008 with multiple downwards  revisions of growth► Contagion fr...
The sharpest global decline since              1970                                                 GDP Growth Percent cha...
Both OECD and emerging markets fall –           no decoupling                               12 Annual growth GDP, 2009 (%)...
Dramatic fall in Asia’s rapid growth► China:     • Growth practically ground to a halt in 2008 Q4--Annual growth       rat...
Exports and capital flows crumble  Exports (Volumes, Change % 3 mma y/y)                                                  ...
High trade shares with sharp declines in             GDP growth…                                                          ...
… Also high trade shares with strong                                                                       recovery of GDP...
II. Policy Responses                 A framework for assessmentPolicy               Short-term                        Long...
Five Areas for Action                                                     Fiscal                                          ...
Financial sector           Fire-fighting and beyond► Often receive early attention   • U.S. Housing market: 3 million fore...
Fiscal policy          Effective economic stimulus► Stimulus packages – a stark difference from the 1990s   • US: Tax cuts...
Trade Policy        Avoiding the danger of c losing in► The multiplier effects of the slowdown through the trade system   ...
Poverty   Not to be seen as an after-thought► Social and poverty impact of crises should be anticipated    • 1% reduction ...
Environment     The “Cinderella” of the crisis?► Tensions between:   • Short- and long term objectives—economic recovery, ...
Five lessons from research► Early, rapid and sizeable responses are key► Social safety-net and pro-poor policies need supp...
Seven lessons from evaluation►Emphasize not only volume, but also quality►Focus on poverty from the outset►Build in the en...
The World Bank Group and the crisisThe WBG has a key role through:►Financial support►Policy advice and knowledge sharing►C...
IV: Outlook: Uncertainty at an all-time                high                              21
Unusual Times“…all consequential events in human history havecome from unexpected, rare occurrences”                     N...
Triple danger           Economic, social, environment► Global economic downturn   • Outlook highly uncertain   • The timin...
When a crisis prompts action           危机 – Danger and Opportunity► Brazil’s fiscal responsibility law; India’s 1991 refor...
Looking to global opportunities► Opportunity of fiscal stimulus to improve investments    •   Target high growth areas    ...
谢谢 !            Thank you!Improving Development Results Through         Excellence in Evaluation        http://www.worldba...
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  1. 1. 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
  2. 2. Table of ContentsI. The CrisisII. Policy ResponsesIII. Outlook 2
  3. 3. 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
  4. 4. 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
  5. 5. The sharpest global decline since 1970 GDP Growth Percent change 10 8 6 4 2 0 70 73 76 79 82 85 88 91 94 97 00 03 06 09 -2 9 9 0 19 19 19 19 19 19 19 19 20 20 20 1 1 2 -4 Advanced economies Emerging and developing economies World 5
  6. 6. Both OECD and emerging markets fall – no decoupling 12 Annual growth GDP, 2009 (%) 10 8 China 6 India 4 Indonesia 2 Brazil South Africa Saudi Arabia Argentina 0 Australia Mexico 0 2 Canada 4 6 8 10 12 France UK Spain Russia -2 Italy Japan Turkey Germany USA Korea -4 -6 Average annual growth GDP, 2006-2007 (%) Source: World Development Indicators 2008 and IMF World Economic Outlook Update, January 28, 2009 6
  7. 7. 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 KoreaSource: IMF World Economic Outlook Update, January 28, 2009 7
  8. 8. 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 800 25 1000 (US$, billions, net) 800 600 15 (US$, billions, net) 600 400 400 India 5 Mexico 200 200 0 -5 2006 2007 2008 2009 0 -200 Jordan 2006 2007 2008 2009 Equity investment Private Creditors -200 -15 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Equity investment Private CreditorsSource: National Agencies through Thomson/Datastream. Source: Institute for International Finance: “Capital Flows To Emerging Market Economies.” 01/27/09. 8
  9. 9. High trade shares with sharp declines in GDP growth… (current episode) 100 Korea 90 GermanyAverage trade, % GDP 2006-2007 80 China Canada 70 Mexico South Africa UK 60 Spain Italy Russia France Indonesia 50 Turkey India Argentina Australia 40 30 USA Japan Brazil 20 10 0 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 Change in GDP Growth Rate [2009 projected-Avg. 2006-07] (%) Source: World Development Indicators 2008 and IMF World Economic Outlook Update, January 28, 2009 9
  10. 10. … Also high trade shares with strong recovery of GDP growth (past episodes) 120 120 100 100 Thailand Thailand Averge trade pre- and post-crisis (% GDP)Averge trade, pre- and post-crisis (% GDP) 80 80 Korea Korea Indonesia Indonesia Mexico Mexico Russia 60 60 Russia Turkey Turkey 40 40 Argentina Argentina 20 20 Brazil Brazil 0 0 -2 0 2 4 6 8 0 2 4 6 8 10 Average pre-crisis GDP growth (%) 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) 10
  11. 11. II. Policy Responses A framework for assessmentPolicy Short-term Long-termresponseCountry level ►Similar responses across ►Diverse responses countries—Fiscal and depending on the initial monetary policies to conditions—saving rates, stimulate aggregate demand current account balance ►Sustainable growth—poverty, environment, educationGlobal ►Coordinated responses— ►International policyresponse banking sector, financial coordination mechanisms— system, liquidity, interest surveillance, environment, rates, open trade regime climate change 11
  12. 12. Five Areas for Action Fiscal Fiscal Financial Financial Consumption Investments Terms of trade Value chain Liquidity Financial system Market confidence CRISIS CRISIS Trade TradeEnvironmentEnvironment Social stability harmony Sustainable growth Poverty Poverty 12
  13. 13. 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
  14. 14. 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
  15. 15. Trade Policy Avoiding the danger of c losing 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 15
  16. 16. 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
  17. 17. 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 17
  18. 18. 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 18
  19. 19. 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 19
  20. 20. The World Bank Group and the crisisThe 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 20
  21. 21. IV: Outlook: Uncertainty at an all-time high 21
  22. 22. Unusual Times“…all consequential events in human history havecome from unexpected, rare occurrences” Nassim Nicholas Taleb 22
  23. 23. 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
  24. 24. 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 24
  25. 25. 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 25
  26. 26. 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/ 26

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