Palani -KTM Presentation on GFC-April-2010

8/9/2019 Palani -KTM Presentation on GFC-April-2010

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ASIA LEADS GLOBALRECOVERY:

MORE FUNDAMENTAL RETHINK NEEDED

FOR ASIAN CENTURY

Thangavel PalanivelChief, Regional Strategy and

Policy Unit,


2/27

Volatility in Commodity Prices affected

Asia in different ways

During the last five years, food andfuel prices increased rapidly

Since Sep 2008 due to GFC, prices

declined substantially, but they still

high compared to early 2007.

Unlike other developing regions,

decline in commodity prices

generally helped Asia (except for

some such as Mongolia, and PNG),

which allowed it to respond GFC

in a effective manner

Prices started to rise in recent

months; strong global recovery

could push up prices once again

which could have serious social

implications

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F o o d a n d F u e l P ri ce s d e cb u t i nc re a s ing on c e

IM F C ru d e O-P ric

F A O F o o d


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-6

-4-2

0

2

4

6

8

10

12

200 1 200 2 200 3 200 4 200 5 200 6 200 7 200 8 2009

2010 P 2011P

G r o w t h ra t e s o f r e a l G D P h a v e b e e n m o r e s y n c h r o n is e d t

Wor ld

Adv anc ed c oun t r

Deve lop ing count r ie

and emer g ing ma r k

A f r i c a

Centra l and Eas te

Eu r ope

Deve lop ing A

La t in Am er ic a a

Car ibbean

S o u r c e : I M F W E O , A p ril 2 0 1 0


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Economic recovery is stronger than anticipated,

but is proceeding at different speeds in different

regions

-1 5

-1 0

-5

0

5

1 0

1 5

__

_ __

__ _

__

_ _

Q u a r t e r ly R e a l G D P G r o w t h ( %

C H IN

H O N G K

IN D I

IN D O N E

KO R E A ,

M A LA Y

P H ILI P P I

SI N G A P

T A IW

T H A IL A

2008 2009 2010 2011

World output 3.0 -0.6 4.2 4.3

Advanced

economies 0.5 -3.2 2.3 2.4

United States 0.4 -2.4 3.1 2.6

Euro area 0.6 -4.1 1.0 1.5

Japan -1.2 -5.2 1.9 2.0NIE-Asia 1.7 -0.9 5.2 4.9

Emerging

economies 6.1 2.4 6.3 6.5

Developing Asia 7.9 6.6 8.7 8.7

China 9.6 8.7 10.0 9.9

India 7.3 5.7 8.8 8.4

ASEAN-53

4.7 1.3 4.7 5.3

World trade

volume 2.8 -10.7 7.0 6.1

World Economic Outlook

Source: IM F WEO, April 2010


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V-Shape Recovery in Exports and Imports

60

80

100

120

140

160

180

2007_Jan2007_Mar 2007_May2007_Jul 2007_Sep 2007_Nov 2008_Jan2008_Mar 2008_May

2008_Jul 2008_Sep 2008_Nov 2009_Jan2009_Mar 2009_May2009_Jul 2009_Sep 2009_Nov 2010_Jan

Jan2007=100

Exports Collapsed in Asia Since Sep 2008, but recovering slowly

CHINA

HONG KONG

INDIA

INDONESIA

KOREA, REP

MALAYSIA

PAKISTAN

PHILIPPINES

SINGAPORE

TAIWAN


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0

100

200

300

400

500

2005_Jan2005_Mar 2005_May

2005_Jul_ep 2005_Nov

2006_Jan2006_Mar _ay

2006_Jul2006_Sep 2006_Nov

2007_Jan2007_Mar 2007_May


2008_Jan2008_Mar 2008_May

2008_Jul2008_Sep 2008_Nov

2009_Jan2009_Mar 2009_May


2010_Jan

Jan2005=100

Equity markets collapsed in 2008, but rec

CHINA

HONG KON

INDIA

INDONESI

KOREA, REP.

M ALA YSI

PAKISTA

PHILIPPIN

SINGAPO

TAIW A

THAILAN


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1012

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25

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1 99 5 1 99 7 1 99 9 2 00 1 2 00 3 2 00 5 2 00 7 2 00 9

C h a r t 1 a : G D P G r o w t h , S a v i n g s a n d I n v e s tm e n

Sa vi ng In ve st me G DP G ro w

-15

-10

-5

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1 0

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1 99 1 99 1 99 2 00 1 20 0 2 00 5 20 07 2 00 9

C h a rt 1 b : G D P G r o w th , S a v in g s a n d I nv e st m I

Sa vin g I nv e st m G D P G r o

-1 0-8-6-4-20

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C h a r t 1 c : G D P G r o w th , S a v in g s a i l i

S a v i n I n v e s t G D P G r

-1 5

-1 0

-5

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5

1 0

1 5

1 0

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C h a r t 1 d : G D P G r o w t h , S a v i n g s a n d I

S a v i n I n v e s t m G D P G r

-1

0

1

2

3

4

5

6

7

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1 0

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1 61 8

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C h a r t 1 e : G D P G r o w t h , S a v i n g s a n d I n v

S a v i n I n v e s t m G D P G r

After the Asian Financial Crisis, savings rates increased,

but investment rates plummeted in South Korea,

Indonesia, Malaysia, Thailand and the Philippines


8/27

Exchange rates in Asia have depreciated quite

significantly in 2008 and early 2009, but now

appreciating due to capital inflows

80

90

100

110

120

130

140

150

160

2007_Jan 2007_Mar 2007_May 2007_Jul 2007_Se p 2007_Nov 2008_Jan 2008_Mar 2008_May 2008_Jul 2008_Se p 2008_Nov 2009_Jan 2009_Mar 2009_May 2009_Jul 2009_Se p 2009_Nov 2010_Jan 2010_Mar

Index of nominal exchange rates (to U

CAMBODIA

CHINA

INDIA

INDONESIA

KOREA, REP

MALAYSIA

PAKISTAN

PHILIPPINES


9/27

The Social Impacts of the Global

Economic Crisis

The assessment of social impacts of the economic

crisis has been constrained by lack of recent data on

social indicators

Hence UNDP used multiple approaches Extrapolating social impacts based on the past

experience

Rapid impact surveys on the vulnerablesectors/population

Projecting social indicators by using growth elasticity

or CGE modeling


10/27

Past Economic Crises and Poverty Reduction

In all previous economic crises, poverty rates have been

increased by an average of 2-3 percentage points

In many countries (Indonesia, Korea, Argentina and

Venezuela), poverty rate in the post crisis period

remained high compared to pre-crisis period

0

10

20

30

40

50

60

Pre

-1996

Crisis

-1998

Post

-2004

Pre

-1997

Crisis

-1998

Post

-2004

Pre

-1997

Crisis

-1998

Post

-2002

Pre

-1997

Crisis

-1998

Post

-2002

Pre

-1980

Crisis

-1985

Post

-1987

Pre

-1987

Crisis

-1989

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-1990

Pre

-1993

Crisis

-1995

Post

-1997

Pre

-1989

Crisis

-1990

Pre

-1981

Crisis

-1982

Post

-1983

Pre

-1982

Crisis

-1983

Post

-1985

Pre

-1988

Crisis

-1989

Post

-1990

Pre

-1993

Crisis

-1994

Post

-1996

Indonesia Korea MalaysiaThailandArgentinaArgentinaArgentina Brazil Costa RicaVenezuelaVenezuelaVenezuela

Past Economic Crises and Poverty Rate


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Rich countries Positive impact in United States

Middle-income countries Ambiguous impact

Examples of positive impact:Brazil, Mexico, Nicaragua, Peru,

Examples of negative impact: CostaRica

Poor countries Negative impact: Cote dIvoire,Indonesia, Malawi,

Source: A Ferreira and Schady (2008, p.50).

Impact of Past Crises on Education

1. Impact varies depending upon level of economic

development

2. Positive impact seen in HICs and MICs, while negative

impact in LICs


12/27

Rich countries Positive impact - United States

Middle-incomecountries

Ambiguous impact

Examples of positive impact: Colombia

Examples of negative impact: Peru ,Mexico, Russia

Poor countries Negative impact - Nicaragua, India, CotedIvoire, Zimbabwe, Ethiopia, Tanzania,Cameroon

Source: Ferreira and Schady (2008, p.50).

Impact of Past Crises on Child Health

and NutritionImpact varies depending upon level of economic development

Positive impact seen in HICs while negative impact in LICs and MICs


13/27

Sample size - 1129 workers covering gems & jewelry,

engineering auto parts, textiles, garments, agriculture in five

states (Gujarat, Madhya Pradesh, Tamil Nadu, Punjab, Uttar

Pradesh)

The gems and jewelry industry was among the worst affected

sectors- 30 % of the workers were unemployed, 49 % of

workers had shifted to similar work with lower income and 21

% had shifted to other less paying activities.

Rapid Impact Surveys on the Vulnerable

Sectors Indian case study


14/27

Rapid Impact Surveys on the Vulnerable

Sectors Indian case study

A high proportion (82%) of workers also experienced a decline

in their wages.

The average monthly income of workers declined by 37%.

86% of workers have reported that their households reduced

food consumption; 58 and 44 % of workers have reduced

expenditure on health and education respectively

Dis-savings was an important coping strategy; 32 % of HHs

used their past savings; While 14 % of HHs pawned , 15% of

HHs sold some of their assets to meet their immediate needs.

A high proportion of HHs also resorted to borrowing as a

coping strategy


15/27

Employment Effects of the Current Crisis

Millions of People Become Unemployed or

Part of Working Poor

Though economic activity has been rebounding strongly, labour

markets showed little sign of improvement.

Preliminary estimates (ILO, Jan 2010) show that number of the

unemployed people increased by 34 million in the last 2 years in

the world

In Asia, number of the unemployed people is estimated to

increased to 87 million in 2009 from 78 million in 2007.

Underemployment is also serious problem; though Asia accountsfor 57% of global employment creation in 2008, significant

proportion of these new jobs are not remunerative;

consequently, 47% of the employed in South Asia are working

poor compared to global average of 20%.


16/27

Gender Impact of the Current Crisis

Varies from Sectors to Sectors

Women workers have been affected much more

seriously than male workers in the garments,

textiles, toys, and electronics sectors because they

dominate workforce at a ratio of 2-5 female workersfor every male worker.

However, male workers have also been affectedseriously in the construction and automobiles

sectors.


17/27

Migrant workers less affected than

predicted and remittances showed

resilience Unlike in the past crises, nomassive international

deportation in 2009.

Some countries have

introduced restrictions on new

migrants; consequently, a

significant slow down in

migrant outflows in 2009

Remittance flows have shownresilience in Asia and Pacific

compared to LAC and MENA

regions

Source: IMF Statistics 2010


18/27

Tourism Initially Affected, but Recovered

Quickly

In the first half of 2009,

most of the Asia-Pacific

countries posted declines in

visitor numbers

However, in the second half

of 2009, tourist arrivals

rebounded strongly

Consequently, the impact ofthe global financial crisis on

tourism related sectors

seems to be modest.

Q1 Nov Dec

Asia Pacific -7.3 3.0 5.7

China -4.8 -2.0 -5.4

India -13.5 -1.0 21.0

Malaysia 2.2 11.0 4.0Maldives -10.8 7.0

Nepal -16.7 8.0 4.4

Republic of Korea 24.3 11.0 4.0

Singapore -5.6 8.0

Sri Lanka -21.3 20.0 16.2

Taiwan 2.2 25.0 27.8

Thailand -15.7 26.0 40.8

Vietnam -14.1 37.0 5.1

Source: W orld Tourism Organization (UNW TO), January 20

Percentage change in Tourist Arrivals, y-o-y

basis, 2009


19/27

High food price reduces purchasing powerof the urban poor more severely than the rich

Higher cereals prices during 2006-08 has decreased poor

households purchasing power by 24 % in Asia, while the

same has decreased only by 4 % for rich households.


20/27

100 Million People Pushed Into Poverty

in Asia

Poverty incidence (1.25$US a day) has declined sharply in Asia.

However, the region still has over 900 million people living under

extreme poverty conditions

Since 1996, Asia was able to lift some 300 million people out of

extreme poverty, but they are under huge threat from multipleglobal crises

Food and fuel crisis during 2007-08 forced 60 million people into

extreme poverty; food and fuel crises are not over; prices are still

high

On the basis of the most recent data on economic growth, it is

estimated that the global financial crisis could trap an additional

17 million people on extreme poverty in 2009, and 21 million in

2010


21/27

100 Million People Pushed Into Hunger

in Asia

Unlike rapid reduction in the income poverty target, progress

toward the MDG hunger target in A-P Region had been only

modest declined from 20 % in 1990-92 to 16 % in 2003-05.

A moderate reduction also seen in the number of hungrypeople from 582 million to 542 million for the same period.

FAOs estimates show that even this modest progress has

been reversed after the food, fuel and financial crises.

Globally, 3F crises pushed undernourished people beyond

one billion mark from about 850 million in 2007. Largest

increases seem to be in Asia (about 100 million)


22/27

Policy Responses in the Right Direction

There are signs that developing Asia, or at least somecountries in the region, are likely to emerge from the crisis

faster.

To a significant extent, the recovery has been associated

with quick and proactive countercyclical monetary and

fiscal policies

Support for poor and vulnerable has also been stepped up

but remains piecemeal and fragmented But these are short-term measures: more fundamental re-

structuring needed


23/27

Crisis an Opportunity to Reset Asia Towards

More Inclusive and Greener Growth

Asian growth increasingly become more urban centered. Growth elasticity of employment and poverty in Asia is not only low, but

also declined in the last decade compared to 1980s

Consequently inequality increasing; Experiences show that if economic

growth is to be favourable to the poor, then direct resources to the sectors

in which the poor work (agriculture), areas in which they live (relativelybackward regions), factors of production which they possess (unskilled

labour) and outputs which they consume (such as food)

Shifting from carbon-based (coal and oil) growth to solar, nuclear andrenewable energy could also help the poor, as they have been affected

severely by global warming related natural disasters recently


24/27

Coverage of Social Protection is low (%)

compared to LAC and CE0 20 40 60 80 100Bangladesh

Bhutan

Cambodia

China

Fiji

India

Indonesia

Lao PDR

MalaysiaMaldives

Mongolia

Nepal

Pakistan

Philippines

PNG

Sri Lanka

Viet Nam

Unem/under employe

Elderly

Health Care


25/27

Crisis also an Opportunity to Strengthen Asias

Social Safety Nets/Protection Programmes

Current programmes are largely via product

subsidies (fuel, food) and are not well targeted

Very limited use of conditional cash transfers (only in

Bangladesh, Cambodia, Indonesia, Philippines)

Food-for-work and employment guarantee schemes,

e.g. NREGA in India

Thailands 30 Baht Scheme and Chinas new health

insurance moves in right direction


26/27

A Seven-Point Agenda To Reset For

An Asian Century:

Rebalance Asian Growth: From Export-led to Domestic

Shift to More Inclusive and Cleaner Development

Consolidate and Target Better Social Assistance Programmes

Strengthen Social Insurance Programmes Pensions, Health,Unemployment

Improved Financial Sector Deepen Bond, Insurance, Mortgage

Markets

Expand Asian Monetary & Financial Coordination BiggerAsian Monetary Facility

Establish Legal and Infrastructure for Asian Common Market


27/27

Great Leadership Is Vital To Achieve Asian Century

Asia must lead not wait and follow

Asian leaders must come together and lead the way

Asia has intellectual and physical resources: can it master

political will

Thank you.

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Palani -KTM Presentation on GFC-April-2010

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