Globalization and Economic Crises in the Asia-Pacific: Imperatives on Statistics Management

Transcription

1 Globalization and Economic Crises in the Asia-Pacific: Imperatives on Statistics Management Fourth Regional Course/Workshop on Statistical Quality Management UN SIAP Sep 2009, Daejeon By George Manzano UN ESCAP

2 Why bother with understanding global crisis, transmission mechanisms, mitigation? (Can t afford not to )

3 Elements of interdependence Trade: goods, services, raw materials, energy Finance: foreign debt, foreign investment, exchange rates Business: multinational corporations, global production

4 Interdependence: Impact

5 Overall standard of living is higher Access to raw materials & energy not available at home Access to goods & components made less expensively elsewhere Access to financing and investment not available at home Access to big markets

6 Interdependence: Costs

7 Overall volatility is higher Margin of error for policy mistakes smaller Distribution of gains leaves much to be desired Negative spillovers more pronounced

8 Higher risk of getting the crisis flu.

9 Not all crises are alike

10 Role of theory Cause and effect: understanding how a crisis develops Essential elements: provides focus on key issues Theory identifies the information needs: indicators and the role of statistics Policy prescription: mitigation and policy dilemmas Monitoring of policy effectiveness: indicators

11 Crisis Types What is affected in the economy? Currency Crisis: Massive Devaluation & Interest Rate Spike Banking Crisis: Banks not meeting payments Foreign Debt Crisis: Countries not paying international debts

12 Crisis Types Policy induced According to causes Financial panic Moral Hazard Bubble burst Disorderly workout

13 1997 CRISIS twin crisis 1 st Generation: speculative attack on a fixed exchange rate given unsustainable fiscal policy 2 nd Generation: 2 panics and self fulfilling prophesies 3 rd Generation: how currency crises leads to banking crises, currency mismatches, bank lending and moral hazard (bail outs)

14 BUILD UP OF VULNERABILITY AMIDST HEADY GROWTH how did the level of vulnerability rise?

15 Asian Crisis Vulnerability Panic and Illiquidity Approach Trigger shift of market expectation panic creditor grab collapse of banking system Challenge: How to manage market expectations Solution: International lender of last resort?

16 Structural Defects and Moral Hazard Wrong economic incentives (government guarantees, lack of corporate governance, industrial policies) overborrowing, overlending and overinvestment in risky projects asset bubble Solution: greater financial transparency and more resolve to institute reforms

17 Implications on the demand for statistical services Panics are caused by uncertainty, so task is to minimize uncertainty by providing timely information. Moral hazard problems arise from cozy relationships between banks and companies that may fuel imprudent debt behavior. Solution is transparency and improved corporate governance. Effective regulation with strict rule on transparency and disclosure. Better monitoring is shored up by accurate information.

18 The Present Global Crisis: Causes & Consequences on Asia-Pacific developing economies

19 Not just a crisis for banks, but an economic crisis World Recession

20 Vulnerability: global imbalance: US overspending, the ROW (especially Asia) oversaving Why the overspending?: the wealth effect created by the housing bubble in the US Result: a very wide current account deficit in the US, financed by purchases by the ROW of US financial assets: sustainable? The Hard Landing Scare

21 Trigger: sub-prime mortgage crack in US housing market

22 collapse of major banks, stock market crashes, credit freeze Result:

23 Implications: no lending no fresh capital business halts consumption slows wealth effect evaporates cannot pay debts consumption slows

24 International Implications

25 Worst financial crisis since the Great Depression

26 Transmission mechanism: how crises can be exported

27 Financial channels: financial deregulation, massive debt build up, banking crisis Trade prospects: deflated import demand Trade and Finance: drying up of trade finance Capital flows: risk averse portfolio finance

28 What to do

29 Get the banks and financial system to work again: lending function Pump prime the economies: bail out and stimulus (emergency)

30 Liquidity and Inflation: when to put the brakes? Reform the financial sector: excessive risk taking

31 Policy Challenges and the Imperatives on Indicators/Statistics

32 1. Policymakers initially underestimated the severity of the crisis. information of the holdings of toxic assets illiquidity and solvency 2. Need for fiscal stimulus: how much is enough? 3. Structural transformation: diversification, food security and climate change 4. International coordination of fiscal stimuli

33 The Present Crisis and the developing countries in the Asia Pacific

34 External origin but still affected through the following channels: Direct financial: not much Indirect Trade: significant Demand: Low import demand, high export dependence Supply: drying trade finance facilities Indirect Capital Flows Portfolio flows

35 POLICY CHALLENGES

36 Spend more now, save less Reorient productive structure? How to spur demand from domestic market Promote intra regional trade

37 pump prime the ECONOMY

38 make sure that banks are lending

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40 Southeast Asian Economies Prospects 9 GDP growth rate (percent) Cambodia Indonesia Lao PDR Malaysia Philippines Viet Nam Thailand -3 Source: ESCAP 2009 Singapore

41 SURVEILLANCE AND MONITORING Capital account liberalization (openness) and financial contagion Public good aspects of economic stability Asymmetries in size in financial resources between private capital markets and official financial sector, role of speculation

42 Use of Indicators Provide objective basis Choice of indicators is guided by theory Technical level: selection and quality of indicators Interpretation level: judgments of degrees of vulnerability; benchmarks Qualities: Timeliness Low Noise

43 Sample of Leading Indicators Indicator Savings Rate (% GDP) Budget Deficit (% GDP) Current Acct Deficit (% GDP) Foreign Debt (% GDP) Korea Thailand Bench mark < (3) > > >30 Source: Salvatorre, 1999

44 Sample of Leading Indicators Indicator Short term debt (% GDP) CA Def FDI (% GDP) Korea Thailand Bench mark > > 3 Debt Service (% of X) Months of Import Cover Source: Salvatorre, 1999

45 Macroeconomic Fiscal deficit, inflation External Reserves, FDI, Exchange rate Financial Interest rates, credit growth, money supply Institutional Regulatory framework, independence of central bank

46 Lessons from Asian Crisis Informational Needs

47 Need for Detect stress earlier Instill market Uncertainty fuel rumors and speculation discipline

48 Need for TIMELINESS Lead time for policy response

49 Formulating the right policy response

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