Post on 16-Jan-2016
The Triple Crisis and the Global Aid Architecture
Tony Addison, Channing Arndt & Finn TarpUNU-WIDER
UNU WorldwideUNU Office at the United Nations, New York
28 January 2010
Introduction
• The global economy in turmoil: Immediate concern the financial crisis
• But there are – in reality – at least three global crises at work: Finance, food and climate
• At present the three crises sit in their separate ”policy silos”
• Key argument: the three crises interact – a ”triple crisis” with implications for development assistance
2
CRISIS 1: FINANCE
3
IMF
Fo
reca
st
-4-2
02
46
8R
eal G
DP
Ann
ua
l Gro
wth
(%)
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015Year
World Advanced Economies
Emerging and Developing Economies
Source:IMF World Economic Outlook Database October (2009)
Real GDP Growth in World and Major Economic Groupings (1970-2014)
Present economic downturn deepest in 60 years, and no region untouched + a lot speculation as to recovery 4
IMF
Fo
reca
st
-11.89
-2.66-0.93 0.24
First Oil CrisisSecond Oil Crisis
Dot Com Bubble
Financial Crisis
-15
-10
-50
510
15
Tra
de
Vo
lum
e (
Ann
ual P
erc
en
tage
Cha
ng
e)
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015Year
World Trade Volume
Source:IMF World Economic Outlook Database October (2009)
World Trade Volume (1970-2014)
World trade has experienced its sharpest decline in decades + uncertain future
5
2.98
-0.71
IMF
Fore
cast
-10
12
3N
et P
riva
te C
ap
ital F
low
s (%
of G
DP
)
1990 1995 2000 2005 2010 2015Year
Net Private Capital Flows
Source: IMF World Economic Outlook Data Base April (2009)
Net Private Capital Flows to Emerging and Developing Economies (1990-2014)
Net private capital flows to the South have fallen dramatically
6
-$88 Billion(-41%)
-$221 Billion(-47%)
-$78 Billion(-28%)
+2.5 Billion(+11%)
-$46 Billion(-41 %) -$19.5 Billion
(-35.3%)
400
500
300
200
100
0
Private
Capital F
low
s (
$ B
illio
ns)
Source:World Bank Global Development Finance Report(2009)
Note:2008 is an estimate by the World Bank
Changes in Private Capital Flows by Region Between 2007 and 2008 ($ Billion)
2007 2008
And this is true for all regions, except the Middle East and North Africa (but now Dubai!)
7
30.032.4
50.1
35.4
-14.2
-10
010
2030
4050
Glo
bal
FD
I Inf
low
s A
nnu
al G
row
th(%
)
2004 2005 2006 2007 2008Year
Global FDI Inflows(Annual Growth)
Source: UNCTAD World Investment Report 2009
Global FDI Inflows (Annual Growth)
Global FDI inflows turned negative8
-7.3
-10.10
25.2
World Bank Forecast
-10
010
2030
Rem
itta
nce G
row
th R
ate
(Per
cent
age
)
2006 2007 2008 2009 2010year
Base Case Forecast Low Case Forecast
Source:World Bank Migration and Development Brief July 2009
Note:2008 is an estimate by the World Bank
Remittance Growth Rate in Developing Countries
And remittances to developing countries fell sharply9
Worl
d B
ank
Fore
cast
020
40
60
80
Re
mitt
ance
Flo
w($
Bill
ion
)
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010year
East Asia and Pacific Latin America and Caribbean
SSA South Asia
Source:World Bank Migration and Development Brief July 2009Note: 2008 is an estimate by the World Bank.
Remmitance Flows to Main Regions 1999-2010($ Billion)
And again: this is is so in all regions
10
The Response• Unprecedented monetary and fiscal expansion (a
very heavy dose of Keynesian medicine) • Will it work? Some optimism – but in reality much
too early to say ….• Northern governments close to borrowing limits,
and reductions in fiscal deficits already being discussed
• Implications potentially serious for the South where social impact much bigger
• Will the North respond to the need for increased development assistance?
11
The Impact on Aid
• The average banking crisis reduces output per capita by 10% - and the loss is not restored within 7 years of the crisis onset
• The target for raising aid is expressed as a percentage of economic size (0.7% of GNI)
• To maintain the VOLUME of aid, aid will have to rise faster as a % of total spending
• Is this likely under business as usual scenarios? No
12
.98.92
.88.82 .8
.58
.47.43 .43 .43 .42 .41 .39 .38
.34 .32 .3 .3.27
.2 .2.18 .18
Average Country Effort (0.47)
UN Target (0.7)
0.2
.4.6
.81
OD
A P
erc
en
tage
of D
on
or
GN
I
Sw
ed
en
Lu
xem
bou
rg
Norw
ay
Den
ma
rk
Neth
erl
an
ds
Irela
nd
Belg
ium
Unite
d K
ingd
om
Spa
in
Fin
land
Aust
ria
Sw
itzerl
an
d
Fra
nce
Ge
rma
ny
Aust
ralia
Can
ad
a
TO
TA
L D
AC
New
Ze
ala
nd
Port
uga
l
Italy
Gre
ece
Unite
d S
tate
s
Japa
n
Source: OECD-DAC Online Data Base
Net ODA as Percentage of Donor GNI in 2008
ODA/GNI
Many donors far from achieving the UN goal 13
122
59
84
38
88
36
63
29
80
18
60
1626
11
38
6
41
4
33
1
37
-2
42
-6
26
-6
14
-7
26
-7
6
-9
21
-11
9
-17
7
-19-7
-22-13
-31-29-36
-50
050
10
015
0
Net O
DA
an
d O
DA
/GN
I(%
Ch
an
ge
)
Spa
in
Irela
nd
Austr
alia
Port
uga
l
Gre
ece
Lu
xe
mb
ou
rg
New
Ze
ala
nd
Ge
rma
ny
Sw
ed
en
Den
ma
rk
Neth
erl
an
ds
Norw
ay
Can
ad
a
Sw
itzerl
an
d
Fin
land
UK
Belg
ium
Fra
nce
Austr
ia
US
Italy
Ja
pa
n
Note: ODA Disbursement is expressed in current prices(Millions of USD). Data for 2008 is preliminary.
Source: OECD-DAC Online Data Base
Net ODA Disbursement and ODA/GNI (% Change Between 2005 and 2008 )
Net ODA Disbursement (% Change) ODA/GNI (% Change)
The ODA/GNI ratio fell for 12 out of 22 DAC donors before the crisis 14
Gleneagles G8 Summit 90,277
64,227
40
00
050
00
060
00
070
00
080
00
090
00
0
OD
A N
et D
isbu
rse
me
nt (2
007
US
D M
illio
n)
1980 1985 1990 1995 2000 2005 2010Year
Net Disbursement, Total Net Disbursement, Excl. Debt Relief
Source: OECD-DAC Online Data Base
Net ODA Disbursement to Developing Countries Constant Prices (1980-2007)
Net ODA disbursements ”inflated” by debt relief15
Gleneagles G8 Summit
34,224
27,712
17,64317,282
10
00
015
00
020
00
025
00
030
00
035
00
0
OD
A N
et D
isbu
rse
me
nt (2
007
US
D M
illio
n)
1980 1985 1990 1995 2000 2005 2010Year
Net Disbursement,Total Net Disbursement Excluding Debt Relief
Source: OECD-DAC Online Data Base
Net ODA Disbursement to Africa Constant Prices(1981-2007)
Netting out debt relief foreign assistance to Africa has not risen in real terms since the late 1980s
16
Should We Worry?
• Aid’s critics would say NO (some would say growth will rise if aid is eliminated, others say aid has no effect)
• Weight of empirical evidence: Arndt, Jones and Tarp (2009) – aid’s aggegate impact conforms to priors from modern growth theory
• The present financial climate not a good time to experiment with Dambisa Moyo’s proposal to kill aid
17
3.3 2.9 3.2 .6
1.8 2.7 5.0 1.2
.9 3.2 11.2 0
.1 3.5 14.5 .02
1.3 3.6 15.5 0
.7 6.1 15.4 .04
4.0 3.8 14.7 .02
.8.7 21.9 0
1.2 4.1 21.7 0
0 10 20 30
Nigeria
SSA
Ghana
Tanzania
Ethiopia
Zambia
Uganda
Rwanda
Mozambique
Note: Portfolio refers to portfolio investment equity flows in current $. These flows are net and include non-debt-creating portfolio equity flows
Capital Flows to SSA and Selected Countries (% of GDP)
Remittance FDI ODA Portfolio
Average of 2003-2007
(the sum of country funds, depository receipts, and direct purchases of shares by foreign investors.)Source: World Development Indicators and Author's Computation
Despite some improvements in other flows ODA continues to dominate total capital flows to SSA 18
19.919.5
20.8
22.9
22.3
21.220.9
22.3
24.1
24.8
24.1
25.1
21.0
19
20
21
22
23
24
25
Re
ven
ue
Exc
lud
ing G
ran
t (%
of G
DP
)
1996 1998 2000 2002 2004 2006 2008 2010Year
SSA Government Revenue Excluding Grant (% of GDP)
Source:IMF African Regional Economic Outlook October (2009)
SSA Government Revenue Excluding Grant 1997-2009 (% of GDP)
Tax revenues are down (especially trade taxes)19
-$88 Billion(-41%)
-$221 Billion(-47%)
-$78 Billion(-28%)
+2.5 Billion(+11%)
-$46 Billion(-41 %) -$19.5 Billion
(-35.3%)
400
500
300
200
100
0
Priv
ate
Cap
ital F
low
s ($
Bill
ion
s)
Source:World Bank Global Development Finance Report(2009)
Note:2008 is an estimate by the World Bank
Changes in Private Capital Flows by Region Between 2007 and 2008 ($ Billion)
2007 2008
20
Private flows are sharply down in Africa after years of growth
Prospects
• More difficult to sell government bonds + poorer countries risk being crowded out by financing requirements of advanced countries
• Aid at a critical juncture: Will be stretched by the food and climate crises which will intensify if growth resumes
21
CRISIS 2: FOOD
22
050
100
150
200
250
Ind
ices
of M
arke
t Pri
ces
(200
5=
100
)
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010Year
Rice Wheat
Maize Soybeans
Source : IMF Primary Commodity Price Data Base
Note: Rice:Thailand(Bangkok); Wheat:US Gulf ; Maize:US ; Soybeans: US
Cereal Prices in Indices of Market Prices (1957-2008)
Food prices soared in 2007-2008 and then fell back: prospects?23
Food Crisis (1)• Food price developments reflect:
– Low priority to agriculture/food production– Shifting demand patterns– Biofuels (+ lack of research in alternative energy
sources)• Underlying structural drivers behind 2007-2008
spike remain in place – if growth resumes food prices likely to increase again
• Global food architecture not geared to deal with supply shortages – governments may intensify protection to try to satisfy domestic consumers
24
Food Crisis (2)• National responses to food crisis have varied• Africa: Macro-policies main tool to limit impact of
world price shocks• Elsewhere: Greater focus on social protection • But too much social protection ad hoc, stop-go, high
cost – needs to be systematic• A double bind:
– If recovery stalls: new trade and financial shocks– If recovery is sustained: food and energy prices will climb
and hit energy and food importers• Need for public action – but fiscal space limited in the
smaller and poorer economies
25
CRISIS 3: CLIMATE
26
Climate Change (1)
• Present global growth model clearly unsustainable – the challenges are unprecedented
• To respond, the world must transform existing energy systems (mitigation) and simultaneously adapt to the climate change that is already built into global climate (adaptation)
• Failure in shifting from fossil-fuel dependence evident in run-up in oil price prior to the financial crisis (due to lack of investment in energy research)
27
020
40
60
80
10
012
014
0
US
$ P
er
Barr
el
01jan1998 01jan2000 01jan2002 01jan2004 01jan2006 01jan2008 01jan2010
Daily
Note:Oil prices refer to Brent; US dollars per barrel
Source:US Department of Energy
Oil Prices ( January 1998 to October 2009)
Huge run-up, then a fall as recession set in – but what next?
28
Climate Change (2)• If growth resumes energy prices will move back up• Places huge burdens on poor countries – a range of fiscal effects,
which make states more aid-dependent, not less• Costs far exceed current level of aid:
– Per annum mitigation in developing countries by 2030: USD 140-175 billion
– Per annum adaptation costs by 2050: USD 30-109 billion– Aid is presently around USD 100 billion in total
• COP15 demonstrated – climate change finance fragmented as traditional aid, unclear funding will be additional, and who takes control of supply (how much voice for the South?)
• Climate change financing seen as compensation – but aid processes remain conditional
29
Conclusion (1)• A WIDER perspective needed:
– Not one – but three interrelated global crises: The Triple Crisis• Unclear how financial crisis will evolve, but we do know
recovery should not be business as usual• Whether growth resumes or not the world must address
the triple crisis – and break out of the ”policy silos”• Global problems require global solutions, including for
example: – Comprehensive action on climate change– A new global food architecture– And increased development assistance delivered in new ways
30
Conclusion (2)• So far action has been chaotic:
• Economic recovery at best extremely fragile• The coming reduction in in fiscal deficits will force unpleasant
spending choices – and aid may be the loser• A pronounced risk of collapse in the confidence in international
food markets• Aid falling – not increasing – and far from clear that climate
financing will be additional• Carbon taxes (or the alternative of auctioning carbon-emission
licenses) need to be at the core of any serious attempt to come to grips with climate change – but progress at best tentative
• Global institutions are needed for global action• The world at a turning point: Will the future be unilateral or
multilateral?
31