Download Helmut Reisen

Global Forum on Development
The consequences of the global
economic and financial crisis:
How much do we know?
Helmut Reisen,
Head of Research
OECD Development Centre
9 December 2008
1. Current crisis impact on development finance
• RBS estimate: outflows 2008 equal to 1/5 of 2003-07 inflows (1trn.$)
• Portfolio equity & bond outflows
• Commercial bank credit
• Trade credit
• FDI, M&A
Systemic Sudden Stop
• Calvo, Izquierda, Mejia, NBER Working Paper No. 14026
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2. Lessons for the diagnosis of policy performance
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From decoupling to contagion, from hyperbole to endogeneity/cyclicality
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GDP growth rates
– “Green” vs ‘black’ accounting
– Low risk spreads
– High commodity prices
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FX reserve levels
– Not huge forever
– Currency defense
– Bank recapitalisation cost
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Public budgets
– Deficits → FX rates, Y → debt ratios
Be smarter than ratings agencies and (b)analysts
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3. Channels of crisis contagion
• Through foreign trade (“monsoon effect”)
– Global demand, prices, remittances, tourism. China can’t compensate US.
• Financial contagion
– CA deficits, currency slumps, balance sheet mismatches.
• “Pure” contagion
– (October 2008) breakdown of money and banking markets
→ generalised risk aversion → shedding of assets w/a public guarantees.
Expectations matter
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4. Channels of crisis vulnerability
• Systemic sudden stops
• RER drop =f:
– Size of trade sector, external gap, portfolio integration.
• Partial insurance
– Reserves, debt management, local-currency bank debt.
Strengthen your house even if you are innocent
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5. Development finance in a deleveraged world
Impact of deleveraging
• Mid term: push 2/3; pull 1/3
– With global growth down, flows down
– “Hunger for yield’ satisfied
– Time to rebuild bank capital → less bank credit
• FDI picks up post-crises
• Helped by SWFs (no debt leverage)?
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5. Development finance in a deleveraged world
Multilateral ODA:
The Comeback Kids?
• Aid to be curtailed?
– Deep slumps vs cycles
• IFIs will crowd back in…
• …But will it be enough?
• Can Asian FX reserves be leveraged
through IFIs?
• Stimulate private-flow insurance
Source: OECD Development Centre, based on
World Bank Global Development Finance, 2008.
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6. Global Governance
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Less reliance on international soft law (EITI, DSF)?
Less influence for Wall Street/City → more regulatory independence?
Less pro-cyclicality in bank capital regulation
Less relevance for rating agencies
• More emphasis on guarantees and MDBs
• More emphasis on G20, less on G8, HDP, etc.
• Who represents Small Poor Countries?
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7. Positive aspects of the global credit crisis?
• Lower fuel & food prices
→ More PP for poor, less government subsidies?
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Lower rents → less resource curse?
Less chavismo?
Tax heavens closed?
More intergenerational justice as asset prices go down
More talent allocated to real economy, less to finance
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