Download Possible effects of global financial crisis on developing countries

UNITED NATIONS
CONFERENCE ON TRADE AND
DEVELOPMENT (UNCTAD)
CONFÉRENCE DES NATIONS
UNIES SUR LE COMMERCE ET LE
DÉVELOPPEMENT (CNUCED)
Effects of global financial crisis on
developing countries
Michael Herrmann
Economic Affairs Officer
Macroeconomics and Development Policies
UNCTAD, Geneva, Switzerland
This presentation
• Direct effects
• Indirect effects
– Economic slowdown
– Commodity price decline
– Possible aid effects
• Concluding thoughts
100
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400
21.01.08
500
21.01.08
600
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800
21.07.07
Figure 3. Emerging Markets Spread
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21.04.07
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200
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EMBI+ Composite Spread
(basis points)
United States Dollar
Direct effects
Figure 2. MSCI Emerging Markets Price Index
1400
1200
1000
800
600
400
Indirect effects: Economic slowdown
Real GDP growth (annual percent change)
World
Developed economies
Developing economies
Africa
Asia
Latin America
Middle East
IMF WEO, April 2008 IMF, WEO, April 2009
2009
2008
2009
2008
-1.3
3.2
3.8
3.7
-3.8
0.9
1.3
1.3
1.6
6.1
6.6
6.7
2.0
5.2
6.4
6.3
4.8
7.7
8.4
8.2
-1.5
4.2
3.6
4.4
2.5
5.9
6.1
6.1
Note: 2008 are estimates, 2009 are projections
Difference
2009
2008
-5.1
-0.5
-5.1
-0.4
-5.0
-0.6
-4.4
-1.1
-3.6
-0.5
-5.1
-0.2
-3.6
-0.2
Indirect effects: Economic slowdown
Economic slowdown…
… discourages exports of all countries, but especially of
countries with high exports to developed countries.
… encourages fall commodity prices, which affects
many of the poorest developing countries.
… discourages investment in all countries, but
especially in poorer developing countries which are
perceived to be riskier.
… encourages increased profit remittances from
developing countries to developed.
… discourages workers’ remittances from developed
countries to developing countries.
Indirect Effects: Commodity price decline
Commodity price deveopments, major categories, Jan. 2000 - Sep. 2008
500
450
350
300
250
200
150
100
50
Se
p2
00
0
M
ay
20
01
Ja
n2
00
2
Se
p2
00
2
M
ay
20
03
Ja
n2
00
4
Se
p2
00
4
M
ay
20
05
Ja
n2
00
6
Se
p2
00
6
M
ay
20
07
Ja
n2
00
8
Se
p2
00
8
00
0
0
Ja
n2
Index, 2000=100
400
Food
Vegetable oilseed and oil
Minerals, ores and metals
Tropical beverages
Agricultural raw materials
Crude petroleum
Indirect effect: Possible aid effect
Finland Banking Crisis
1200
1000
800
600
400
200
0
1988
1989
1990
1991
1992
1993
ODA Commitments
1994
1995
1996
1997
1998
1999
1998
1999
ODA Disbursements
Finland Banking Crisis
8
6
4
2
0
1988
1989
1990
1991
1992
1993
1994
-2
-4
-6
-8
GDP Growth
1995
1996
1997
Indirect effect: Possible aid effect
MDG financing needs, ODA disbursements and estimated ODA pledges, 2000–2015
(Billions of current dollars)
200
ODA disbursements less bil
Estimated ODA pledges (20
Estimated ODA needed to m
Estimated ODA needed to m
180
160
ODA disbursements less
bilateral debt relief
(2000–2007)
140
Estimated ODA pledges
(2008–2010)
120
Estimated ODA needed to
meet MDGs (Sachs Report)
Estimated ODA needed to
meet MDGs (Zedillo
Report)
100
Trend (ODA disbursements
less bilateral debt relief,
2000–2007)
80
60
Source:
40
Note:
2000
UNCTAD secretariat calculations, based on OECD-IDS;
G-8 (2005); Zedillo Report (United Nations, 2001); and Sachs Report (UN Millennium Project, 2005).
The data, as reported by donors, are in current dollars and represent net disbursements.
2005
2010
2015
Concluding thoughts
The unraveling of the crisis:
Credit crunch -- falling investment -- falling demand -falling exports -- falling commodity prices -- falling
economic growth -- falling aid?
Resolution of the current crisis:
Possibly restrict capital outflows -- rescue systemically
relevant financial institutions -- pursue counter-cyclical
macroeconomic policies – coordinate macro-economic
policies -- step-up social protection.
Prevention of future crisis:
Strengthen regulation of and oversight over financial
markets – address moral hazard through microprudential regulations – limit speculative capital flows
through macro-prudential policies – discourage large and
prolonged exchange rate misalignments.
Concluding thoughts
“Financial markets have for some time had an independent
capacity to destabilize developing countries; there are
now increasing indications of the vulnerability of all
countries to financial crisis. […] Overall, there appears to
be a need for more collective control and guidance over
international finance. ”
The Trade and Development Report 1990.