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Transcript
Global Recession and
Its Impact on the
Asian Economy
Denero
November 2011
Black Thursday 1929
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Stock Market Crash
Passive Federal Reserve System
Ignorance of Keynesian Pump Priming
Panic in the Banking Sector
Unemployment Rate of 25%
Complete Dominance of the US Economy
in the World
World Financial Market Illiquid
Black Monday 2008
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Real Estate Bubble
Proactive Federal Reserve System
US Government Pump Priming
No Panic in the Banking Sector
No Crash in the Stock Market
Unemployment Rate Manageable
Countervailing Power of Emerging
Markets
Liquidity of Sovereign Funds
Massive intervention of European
governments
Financial Times, 20 Sept 2008
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“…bank boards and bank executives have failed
to understand complex mortgage-backed
banking products, as have central bankers,
regulators and credit rating agencies.”
“…a reward system that has granted huge
bonuses to those who peddled toxic mortgagerelated products….”
“Almost as absurd has been the degree of
leverage racked up by investment banks.”
TYPES OF FINANCIAL CRISIS
BANKING CRISIS
SPECULATIVE BUBBLES &
CRASHES
INTERNATIONAL FINANCIAL
CRISIS
WIDER ECONOMIC CRISIS
CAUSES
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Strategic complementay in Financial Market
Leverage
Asset liability mismatch
Uncertainty & heard behavior
Regulatory failures
Fraud
Contagion
ASIA & CRISIS
EFFECTS
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Subprime losses > 0.1%($ 19.5 billion)
Non performing losses > 5%
Growth rate slowed down from 9.5%- 6.3%
Real economy badly hurt
imports were affected more than
exports
ASIA’S RESPONSE
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Taken several steps both on the fiscal side &
On the monetary side
Cut policy rates and reserve requirements
Increased foreign exchange
Deposit gurantee hiked
Taxes have been cut
FAQ 3
What can be done from a
human development
perspective?
Proactive macroeconomic
policy
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Countercyclical monetary policy and real
exchange rate management (inc. capital
controls) necessary:
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MICs with forex reserves already do this;
but LICs constrained by IMF.
Support domestic banks (esp for agriculture and
SMEs), underwrite longterm investment lending;
keep real interest rates low.
Raise tax pressure (not rates) to maintain fiscal
balance and reduce public borrowing.
HD strategy for difficult times
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Evidence (UNICEF) that for children
employment stability more important than
wages; implications for e.g. inflation policy
Essential to ringfence budgets (in real terms) for
education and health; extend schemes for
(simple) universal benefits.
Focus on inequality (especially horizontal) rather
than just poverty; to reduce conflict and increase
social cohesion.
International action and the
“duty to protect”
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Essential to moderate G8 policy shifts (e.g. bank
regulation, interest rates, exchange rates) from
viewpoint of impact on world poor.
Need for UN to speak in a clear, timely and
credible fashion on these issues.
Regional arrangements for mutual currency
support etc are vital (Asia progressing; LA talking;
Africa nothing). Role for sovereign wealth funds?
THANK YOU