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 Re: "الازمة الاقتصادية العالمية الراهنة واثارها حاضرا ومستقبلا علي السودان" للمستشا (Re: الطيب شيقوق)
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The International Financial Crisis
What Next For Emerging Markets?
Michael U. Klein
Michael U. Klein is the vice president for financial and private sector development at the World Bank Group, and
chief economist of International Finance Corporation. This lecture was delivered at the Munich Finance Summit on
November 6, 2008.
By now we are in the middle of an unusual
financial crisis with global proportions. Already
many articles are being written about
the causes of the crisis, its patterns and developments,
and lessons to be drawn. More will be written over
many years and views about causes and lessons will
remain somewhat unsettled for a while. But as the
Danish philosopher Kierkegaard said, “Life can only
be understood backward, but it has to be lived forward.”
And so, in the middle of the crisis, here are
some perspectives on four broad themes:
n the dimensions of the crisis;
n the phase we may be in right now;
n the broad impact on emerging markets;
n the debates on the future of policy advice and
the international financial architecture.
Dimensions of the crisis in
financial markets
Freeze in interbank markets
In September 2008 interbank markets in the United
States and European economies were disrupted in
unusual, if not unprecedented, ways. Financial institutions
and even corporations came to rely mainly on
central bank funding. In an attempt to shore up cash
positions financial institutions placed a lot of liquidity
right back with the central bank. The resulting excess
liquidity held by the Federal Reserve, for example, rose
to levels not seen since the Great Depression—sort of
a once-in-a-century event. All this despite a number
of actions by central banks to provide ample liquidity
to markets. From this perspective the extraordinary
level of uncertainty and fear, including worries about
an actual return of that Great Depression, is understandable.
The dramatic developments in financial markets gave
rise to unprecedented activism by central banks and
governments, particularly in the United States and
Europe. We are benefiting from the fact that people
like Federal Reserve Chairman Ben Bernanke, who
wrote “the book” on the Great Depression, did not
mistake excess liquidity at the central bank as a sign
of excessive liquidity, in markets. Beyond provision of
extraordinary liquidity, the authorities tried to tackle
the ever more apparent root causes of the problem,
notably insolvency in important parts of the financial
system. Not everything went smoothly, whether
in the genesis of the U.S. TARP program or the European
response starting with the Irish decision to
guarantee deposits of Irish banks. Yet, all in all, the
response by governments has been impressive and so
far shows signs of dealing with the breakdown of trust
in financial markets.
The cost of the rescue so far
However, “rescues” come at a cost. TARP, for example,
amounts to about 5 percent of the U.S. GDP. As
it tends to happen in financial crises, ultimate costs
The International Financial Crisis
What Next For Emerging Markets?
Michael U. Klein
Michael U. Klein is the vice president for financial and private sector development at the World Bank Group, and
chief economist of International Finance Corporation. This lecture was delivered at the Munich Finance Summit on
November 6, 2008.
2 The International Financial Crisis: What Next For Emerging Markets?
end up higher than estimated. Let us assume, for
argument’s sake, that gross costs go to 10 percent of
GDP. It currently seems likely that the United States
will be able to fund this cost at moderate interest
rates, say 4 percent, quite possibly less. Funding debt
#####alent to 10 percent of GDP at 4 percent would
impose an extra fiscal charge of 0.4 percent of GDP.
If the government succeeds in recovering value for
taxpayers, and if interest rates remain lower, the cost
would shrink further. Compare this to the 17 episodes
of financial distress studied the IMF’s October
2008 World Economic Outlook. The average cost
of rescues was 16 percent of GDP and real interest
rates were, if anything, higher. From this perspective,
the current troubles may turn out to be quite
manageable.
The difference with past episodes is, of course, that
this time the world’s largest economy, and many other
very large ones are involved. So the sums are unprecedented.
Also the United States has now reached gross
debt levels, if one consolidates Fannie Mae and Freddie
Mac, of over 110 percent of GDP. Net debt levels
are surely significantly lower, but we may recall that
10 years ago, Japan was downgraded from AAA to
AA when its debt reached levels of about 110 percent
and 40+ percent of GDP, respectively.
Of course the size of rescue packages will vary among
countries, as will the cost of financing. The key point
is that what we see so far are packages that are not
unusually large compared to past ones. In emerging
markets, that is also the case. For example, the
Hungarian rescue is currently #####alent to about 18
percent of GDP, very similar to the Mexico package
in 1995 and Indonesia during the East Asian crisis.
However, more countries are affected and the share
of global GDP dedicated to rescue operations has increased.
Global economic growth
Finally, consider global economic activity. In mid-
October 2008 the IMF came out with a forecast
of some 3 percent of global growth for 2009. That
would be a significant slowdown from over 5 percent
growth in recent years but still about half a percentage
point higher than during the Asian crisis. In recent
days the IMF downgraded its forecast to a little
over 2 percent—based on recessions in many developed
countries and a slowdown of emerging markets
from roughly 8 to roughly 4 percent. Two percent is
still higher than the worst economic slowdown since
World War II, that of 1981/82, when global growth
reached about 1 percent. If the crisis response works it
might still be possible that the world will test the lows
of 1982. However, it remains very unlikely that we will
see a repeat of the Great Depression—barring major
policy mistakes, including protectionism. Whatever
happens, it is likely that 2009 will be the first year
when 100 percent of any global growth comes from
emerging markets.
The current phase of the crisis
One might distinguish two major forces playing out at
the moment and their effect on emerging markets—
the problems of financial institutions and the recessionary
forces that have now spread across the world.
Effects of the financial crisis
In recent months stock markets in emerging markets
have fallen as drastically as in the Asian crisis countries
10 years ago. Currencies have depreciated significantly,
although less so far than in the Asian crisis
countries 10 years ago. Countries that looked relatively
strong on typical indicators of vulnerability, such
as current account deficits and rapid credit growth,
have been hit in this way such as Brazil and Mexico.
At the same time countries that showed less favorable
macroeconomic vulnerability indicators, such as some
smaller economies with less developed financial markets
hardly saw their exchange rates budge.
A possible explanation for this prima facie surprising
picture is the search for cash of financial institutions in
developed countries. As the current quip has it, “their
balance sheets have nothing right on the left hand side
and nothing left on the right hand side.” As financial
institutions search for cash in this process, they take
Mi chael U. Klein 3
it where they can. Hence stronger players with liquid
markets are vulnerable because of that strength, whereas
smaller illiquid markets are of lesser interest.
Now, as interbank and commercial paper markets appear
to be improving, the pressure to withdraw cash
from wherever one can find it may subside again.
Forces of Recession
For some time now, a slowdown in some markets has
been underway. U.S. consumption has slowed down
since 2006 as the large current account deficit of the
United States finally started to unwind. Asset bubbles
are bursting—most notably housing bubbles. Consumers
are less wealthy. They consume less. Even
in China the rapid slowdown of growth to about 6
percent in Q3 of 2008 (down from 12 percent a year
earlier) may in part be due to the bursting of the domestic
real estate bubble.
Financial institutions rode the bubbles, creating ever
more debt secured by assets that now implode. To restore
the health of their balance sheets they need to
find either equity or shed debt. Finding equity has become
harder. So shedding debt (deleveraging) is the
order of the day. Deleveraging may take a substantial
amount of time, possibly even a few years, until it is
truly over everywhere.
A background study by the IMF for the October
2008 World Economic Outlook shows recessions
tend to be more severe when preceded by a financial
crisis and a housing bubble. So the ingredients are in
place for a significant slowdown globally and recessions
in many countries, mostly in the United States
and in Europe.
As the global slowdown unfolds, underlying “typical”
vulnerabilities of countries may well become
more prominent again such as high current account
deficits and rapid credit growth. More countries will
be affected through channels such as lower exports,
lower tourism receipts, lower remittances and the
like. In the first round several countries in Eastern
Europe appear most vulnerable, less so countries
in Asia, Latin America, the Middle East, and even
Africa.
As the global slowdown spreads, poorer countries will
be hit more, for example, through reduced exports,
falling remittances, and lower tourism receipts. The
poorest of the world were recently hit by a food and
fuels shock, which may have pushed as many as 100
million people into extreme poverty. They now face a
financial and fiscal shock with additional and severe
consequences. For the first time in decades the source
of the trouble is in rich countries—all the more reason
to hold those countries to their aid commitments
despite fiscal challenges.
As mentioned earlier the world may well test the depths
of the 1981 slowdown. Trade may fall in absolute terms
for the first time since then. Currently the IMF forecasts
a 2.5 percent drop in trade. A dramatic signal
is provided by the Baltic Dry Index, which captures
shipping conditions. It has collapsed from 15,000 to
892 over the last year and a half. The fall is presumably
due to the switch from very tight capacity constraint
that drove the index up extremely high to a situation
of excess capacity. We also see some trade credit disruptions
due to the financial crisis. The stresses on trade
are among the most worrying features of the current
situation. It will be good to remember that the Great
Depression arose from the interaction of inappropriate
monetary policies and rising protectionism. Today’s
monetary policy response appears very sensible. Hopefully,
protectionism can be prevented.
Among the practical steps to revive growth and job
creation are practical reforms of the business environment.
For example, the Scandinavian countries reformed
their business environments substantially following
the dramatic financial crises of the early 1990s.
Precisely because the immediate crisis response tends
to raise fiscal costs, and because the forces of recession
raise unemployment, it is critical to do what can be
done to generate new jobs and sources of tax revenue.
Creating more dynamic business environments that
make it easier to set up domestic small and medium
enterprises, that make it easier for firms to grow, and
4 The International Financial Crisis: What Next For Emerging Markets?
that create competitive conditions to encourage innovation
and upgrading is critical. Access to finance
for small businesses is best supported by improving
credit bureaus and collateral systems so that trust in
new debtors can be built more easily.
Perspectives on financial vulnerability
of emerging markets
The “fundamentals”
In recent years many emerging markets have strengthened
their economic fundamentals, built up foreign
exchange reserves, reduced debt and improved fiscal
positions. Nevertheless, sovereign bond spreads for
emerging markets rose from about 450 bp in September
2008 to 891 on October 24. Emerging markets
seemed quite vulnerable after all. And yet, bond
spreads rose no more than traditional models expected
given the increase in market uncertainty as the IMF’s
forecasting models suggest. In fact, emerging markets
with strong fundamentals saw their bond spreads rise
less than forecast by the models. In the last week or
two spreads have come down by about half the rise
and have narrowed over developed country spreads.
This is encouraging as many have feared that the
many blanket guarantees in rich countries would
make financing costs for poor countries even worse.
It is also intriguing to see that we have so far not seen
significant real interest spikes in emerging markets hit
by currency weakness and essentially no resort to capital
controls. If truly short term liquidity issues (the
search for cash by rich country banks) caused much of
the stress on emerging markets currencies and stock
markets then this would make sense. The extension
of swap lines by the U.S. Fed to Brazil, Korea and
Mexico would equally make sense from this vantage
point. But matters look more worrying for Eastern
Europe for the reasons mentioned above.
Commodity prices and deleveraging
Both the fall in commodity prices and the global deleveraging
tend to reduce fears of inflation and have indeed
given rise to fears of deflation in some countries.
While some emerging markets still experience inflationary
pressures, the trade-off between inflation fighting
and coping with a slowdown would broadly diminish
and facilitate macro-economic policy-making.
Of course, a fall in commodity price would in many
countries help to cushion the slowdown as it increases
incomes. Even countries that export commodities
might not be too badly hit as the commodity bubble
was fairly recent and many oil exporters, for example,
still budgeted with oil prices in the order of $70 per
barrel.
Long-term growth prospects
Notwithstanding the impending global slowdown,
long-term growth prospects for emerging markets remain
strong. For several decades now trend growth
rates in emerging markets have risen steadily. Underlying
this are the very “advantages of backwardness”
(in the words of Gerschenkron). Emerging markets
can catch up relatively fast with rich countries as they
can adopt and adapt technologies, business practices
and government organizations that have already been
invented elsewhere. Unless the global knowledge and
trading system breaks down this should continue.
In 2008 emerging markets accounted for about 45
percent of global GDP (evaluated at purchasing
power parity exchange rates). On recent trends, this
share will rise above 50 percent by 2013, and by 2050,
emerging markets may well account for around 80
percent of global economic activity.
Policy responses
The unprecedented strong policy response by developed
countries and the mostly prudent policies in
emerging markets augur well for a solution to the crisis.
By happenstance, the IMF is also relatively well
positioned to respond as it had few clients recently
and can now deploy some $250 billion. The Fed and
ECB have been flexibly supporting some emerging
markets—Brazil, Hungary, Korea and Mexico.
The World Bank is also making its contribution.
IBRD stands ready to ramp up lending to some $100
Mi chael U. Klein 5
billion over the next three years and its private sector
arm, IFC, is planning to direct up to $30 billion of
operations towards crisis resolution over the same period.
The World Bank advises governments on crisis
preparedness in the financial sector—a topic of great
interest currently for many emerging markets not yet
hit by the crisis. The Bank currently also provides advice
on distressed bank resolution and work-outs in
three countries—together with the IMF in two and
one other as free-standing advice to the government.
IFC’s operations will emphasize help with short-term
liquidity issues, especially trade finance, with Bank recapitalization
through a special fund and commercial
approaches to improve the work-out of non-performing
assets.
The impact on financial flows to
emerging markets
What we may then see is the following scenario. Foreign
direct investment in emerging markets may not
slow too much given long-term growth prospects.
Portfolio equity flows may be especially hard hit right
now by the search for cash, but may well resume in
the near future. Non-bank debt investors are also again
eyeing emerging markets as deeper local currency-denominated
financial markets are likely further to rise in
importance—not least as a protection against dependence
on international markets. Bank debt on the other
hand may continue to be hard to come by as banks
continue the deleveraging process for quite some time.
The future of international
financial sector policy
There is much talk these days of the need for fundamental
reform, of “Bretton Woods II,” of summits.
Consider just a few perspectives on what may emerge.
Global sources of liquidity for emerging
markets
Up to now the concert of rich country central banks
has provided liquidity to markets mostly within their
own countries, but also beyond in some cases (Brazil,
Korea, Mexico, Singapore). New providers of liquidity
are being courted and are emerging. Saudi Arabia
just held out an offer of $4 billion to Pakistan. China,
Japan, and Korea are setting up an $80 billion facility
for Asian nations. A new consortia may form among
central banks, governments with strong foreign exchange
reserves, and international financial institutions.
Yet there remain lingering doubts whether the current
system can provide enough liquidity if things
get really worse in emerging markets. The resources
of the IMF alone may not suffice as various analysts
have argued. New players and the consortia may help
but may still not be enough or in time.
There is one more radical approach that is conceptually
“simple”: expand the IMF’s ability to create SDRs
from a few hundred billions of dollar #####alent to a
few trillion. That would be a feasible solution without
dreaming up new institutions.
Regulatory co-ordination
Financial markets have become more global and contagion
spreads from country to country. Clearly it
makes sense to find ways for regulators to exchange
more relevant information across borders on a timely
basis through mechanisms such as regulatory “colleges.”
It might even be possible to agree on more basic
principles that govern the conduct of cross-border
regulation. It gets more difficult when determining
who should pay for rescue operations. It may also be
hard to get agreement on practical ways to intervene
with banks and seize their operations across borders.
Conceptually solutions may be found, but politically
this will be hard even within common areas like
the EU and even more so between countries like the
United States and China.
Substantive rules
Some areas for reform are relatively clear and “easy.”
These cover agreement on greater transparency in
markets (regarding, for example, rating agencies),
greater standardization and a better settlement system
for derivatives and some other areas in the field
of financial market infrastructure.
6 The International Financial Crisis: What Next For Emerging Markets?
Then there will be calls for greater state involvement
in ownership of financial institutions. Here there will
be greater reliance on various forms of (partial) state
ownership, particularly as part of rescue operations.
However, in the longer run there is no reason to believe
that state ownership makes financial institutions
more prudent. In several rich countries state-owned
banks have had as much or more trouble than private
ones. In many emerging markets there is a legacy
of governance problems associated with state banks.
More likely a variety of pragmatic responses will prevail
and many financial institutions will be returned to
the private sector as in the past.
The core issues revolve around better prudential regimes.
The scope of regulation will be much debated.
Unregulated institutions will be brought under oversight.
Off-balance-sheet vehicles will be scrutinized
more assiduously and more consolidation enforced—
under the “duck-spotting” principle: “if it talks like a
duck, walks like a duck and looks like a duck—it is a
duck.” Some regulators have already practiced this to
some degree, as in Spain. Hence progress is clearly
possible.
Then there is the issue of systemic risk that each financial
institution by itself neglects. Each institution
may feel it is right to continue taking risks as long as
all others do and the aggregate amount of risks and
system-wide feedbacks may not be taken into account
by its risk models. This calls for stronger assessment
of systemic risks by regulators. It also calls for powers
for regulators to say “the party is over” before everybody
is “too drunk.” This will be hard. Conceptually
it is not straightforward to assess systemic risks.
Politically it may be even harder. When a regulator
makes the right call a crisis is avoided, but the party
is stopped. There will be strong resistance by those
who party because it will be hard to demonstrate that
a crisis is indeed around a corner but it will be easy to
show how unpleasant the end of the party is.
Finally, there is a renewed debate about how to find
ways to avoid pro-cyclical regulation and other related
policies. This would end up requiring regulators to
“see through the cycle.” A similar challenge arises for
monetary policy and its ability to avoid accommodating
bubbles. Conceptually this is hard. Again it would
require giving the relevant authorities greater powers.
Greater powers can be abused and politics may not
allow them to be used well.
It is clear that action is required to help prevent the
recurrence of the type of crisis we just saw. Some talk
of the need for a “Bretton Woods II.” It might be useful
to remember that it took the Great Depression,
World War II and the existence of a dominant global
power to get to Bretton Woods. None of these factors
are in place today—thankfully. In the world today new
powers are rising. Any solution that is to endure for
decades will take them into account in new ways. But
by the same token there is no easy way to build global
consensus when a major transition in global power is
underway. Hence the search should be on for practical
steps that can help, not for grandiose solutions.
The efforts of central banks and other authorities in
this crisis have shown that even without a truly global
financial regime much can be done. Of course, one
needs to be careful with reforming too much in the
midst of a crisis. But if practical steps can be taken
and as long as the global knowledge and trading system
are preserved, the world is set to come out of the
crisis intact and with continued prosperity for all. n
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| العنوان |
الكاتب |
Date |
| "الازمة الاقتصادية العالمية الراهنة واثارها حاضرا ومستقبلا علي السودان" للمستشار بن شيقوق | abubakr | 04-10-09, 11:18 AM |
| Re: "الازمة الاقتصادية العالمية الراهنة واثارها حاضرا ومستقبلا علي السودان" للمستشا | عاطف عمر | 04-10-09, 11:34 AM |
| Re: "الازمة الاقتصادية العالمية الراهنة واثارها حاضرا ومستقبلا علي السودان" للمستشا | abubakr | 04-10-09, 11:42 AM |
| Re: "الازمة الاقتصادية العالمية الراهنة واثارها حاضرا ومستقبلا علي السودان" للمستشا | الطيب شيقوق | 04-10-09, 12:26 PM |
| Re: "الازمة الاقتصادية العالمية الراهنة واثارها حاضرا ومستقبلا علي السودان" للمستشا | الطيب شيقوق | 04-10-09, 02:27 PM |
| Re: "الازمة الاقتصادية العالمية الراهنة واثارها حاضرا ومستقبلا علي السودان" للمستشا | عمر عثمان | 04-10-09, 03:03 PM |
| Re: "الازمة الاقتصادية العالمية الراهنة واثارها حاضرا ومستقبلا علي السودان" للمستشا | الطيب شيقوق | 04-10-09, 03:34 PM |
| Re: "الازمة الاقتصادية العالمية الراهنة واثارها حاضرا ومستقبلا علي السودان" للمستشا | abubakr | 04-10-09, 03:57 PM |
| Re: "الازمة الاقتصادية العالمية الراهنة واثارها حاضرا ومستقبلا علي السودان" للمستشا | محمد الأمين موسى | 04-10-09, 05:08 PM |
| Re: "الازمة الاقتصادية العالمية الراهنة واثارها حاضرا ومستقبلا علي السودان" للمستشا | حامد محمد حامد | 04-10-09, 06:56 PM |
| Re: "الازمة الاقتصادية العالمية الراهنة واثارها حاضرا ومستقبلا علي السودان" للمستشا | فيصل محمد خليل | 04-10-09, 07:33 PM |
| Re: "الازمة الاقتصادية العالمية الراهنة واثارها حاضرا ومستقبلا علي السودان" للمستشا | الطيب شيقوق | 04-10-09, 09:12 PM |
| Re: "الازمة الاقتصادية العالمية الراهنة واثارها حاضرا ومستقبلا علي السودان" للمستشا | الطيب شيقوق | 04-10-09, 09:32 PM |
| Re: "الازمة الاقتصادية العالمية الراهنة واثارها حاضرا ومستقبلا علي السودان" للمستشا | محمد الأمين موسى | 04-11-09, 05:42 AM |
| Re: "الازمة الاقتصادية العالمية الراهنة واثارها حاضرا ومستقبلا علي السودان" للمستشا | الطيب شيقوق | 04-11-09, 06:36 AM |
| Re: "الازمة الاقتصادية العالمية الراهنة واثارها حاضرا ومستقبلا علي السودان" للمستشا | nazar hussien | 04-11-09, 06:51 AM |
| Re: "الازمة الاقتصادية العالمية الراهنة واثارها حاضرا ومستقبلا علي السودان" للمستشا | فيصل محمد خليل | 04-11-09, 07:32 AM |
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