Regional dimension of the crisis Interactive Thematic Dialogue On the Financial and Economic Crisis and its impact on Development March 2009 Delivered by ECLAC o/b The UN Regional Commissions

2 Contents The global context The regional impacts and expected effects Responses

3 The global context The consensus forecast shows that world growth will register a contraction in –The expected contraction ranges from -0.5% (IMF forecast) to - 2.9% (JP Morgan). Driven by a contraction in global demand, which will be reflected in the largest contraction in world exports since the Second World War. –World exports are expected to contract by 9% in 2009, WTO. The world economy is expected to recover in 2010 provided: –Adequate policies to stabilize financial conditions. –Adequate fiscal stimulus. –Improvement in credit conditions.

The regional impacts and expected effects

5 Impact of the financial crisis on emerging market economies… As things stand, the consensus forecast suggest that emerging market economies will register a significant slowdown in their growth trajectory. And that the main challenges faced by emerging market economies growth thus far are: –Tightening of external financial conditions. –Declining commodity prices. –Weak and weakening external demand. –Countries capacity to finance counter-cyclical policies.

6 Developing economies have experienced restricted access to external finance…

7 Also exports of goods and services have been affected… Reduction in exports of goods and services. The WTO estimates a 9% global trade decline for Significant reduction in commodities prices.

8 The dynamic of GDP will be significantly affected in 2009

9 Financial conditions of developing economies have deteriorated… After the intensification of the financial crisis in September last year: Exchange rate markets have turned more unstable. Equity markets experienced a strong downward adjustment. Country risk spreads spiked. The stock of international reserves either stopped growing or decreased. Credit growth has slowed down considerably in most developing economies.

10 Impact of the financial crisis on the most vulnerable sectors of society… Experience from past financial crises show that they have negative effects on poverty and welfare, and tend to slowdown progress towards the MDGs. Unemployment rates are increasing, together with real wages reduction impede households ability to provide adequate food and necessities. Employment is shifting from dynamic exports oriented sectors to low productivity informal sectors. Declining in remittance and migrant return could undermine poverty gains.

Responses at the regional level

12 Fiscal stimulus plans To boost aggregate demand and for social protection. Asia: Asian economies have the capacity to undertake counter-cyclical fiscal policies. China announced in November the largest fiscal stimulus package (USD 586 billion) in Asia (about 13% of GDP), second only to the US package in size. Middle East: Several countries, including Egypt, Saudi Arabia, and the UAE have adopted expansionary fiscal policies to boost domestic demand. LAC: Argentina, Bolivia, Brazil, Chile, Colombia, Mexico, Panama, Paraguay and Peru have also announced fiscal plans to boost aggregate demand.

13 Fiscal package stimulus in LAC (% of GDP)

14 Regional Financial Cooperation Assistance of regional financial institutions. –Africa: African Development Bank has set up a US$1.5 billion Trade Finance Facility to support trade and investment in Africa. The ECA, in collaboration with the African Union Commission and the African Development Bank, organized a High-Level Forum which resulted in the creation of a Committee of Ten Ministers of Finance and Central Bank Governors to recommend measures to be taken at the national, regional, and international levels to mitigate the effect of the crisis on African economies. –Asia: Current crisis has highlighted the need for regional coordination and cooperation. For example, ASEAN+3 have agreed on a multilateral reserves pool to increase the availability of funds and to reduce the amount of precautionary funds held by each country as a defense mechanism against short-term capital flows. –LAC: Support of Andean Corporation, IADB and Latin American Reserve Fund. US$ 10 billion.

Responses at the international level

16 Developing economies require the provision of counter- cyclical liquidity on a global scale… Enhance IMF and other global institutions (World Bank), lending capacity (capital and leverage). The disposal of 250 billion are insufficient to cover the eventual liquidity needs of large countries. Short-term liquidity facilities must be strengthen with light- conditionality. New lending facilities. The United Nations has proposed a credit line facility funded by those emerging economies that have accumulated substantial stocks of international reserves. Regional initiatives to complement global arrangements. Central Banks swaps.

17 The needed reforms of the international financial architecture The current situation provides a window of opportunity to move towards a more equitable and stable financial system. The international community has the responsibility to ensure that this does not become a missed opportunity. Restoring efficiency, trust and legitimacy to the international financial system. The new financial architecture should reduce systemic risk and improve governance.

18 The needed reforms of the international financial architecture The reduction of systemic risk entails: Liquidity facility as a permanent component. The consideration of surveillance as a public good. A consistent and widely accepted regulation and supervision framework is required. Improvement in governance requires: Incorporate the demands and adequate representation of developed and developing countries. Reflect the current and growing role of emerging market economies. Include an active role for the United Nations and other Bretton Woods institutions.

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