Global crisis and Governments responses in LA and the Caribbean economic and social implications Jam

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Global crisis and Governments responses in LA
and the Caribbean economic and social
implicationsJamaica, June 2009
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Outline

• I. The global economic crisis
• II. Impact in LA and the Caribbean
• III. Policy responses
• IV. Social implications
• V. Conclusions

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I. The global economic crisis
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• In middle 2007 the U.S. economy was confronted by
  the bursting of the real estate bubble
• This resulted in unprecedented losses for banks
  with large holdings of mortgage-backed securities
• Eventually, those banks became insolvent putting
  the international financial markets under risk of
  collapsing
• The panic and uncertainty in the financial
  markets quickly translated into a sharp credit
  contraction
• A contagion effect with the real economy
  developed all around the world, unleashing a
  global recession

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Source IMF, March 2009
In 2009, the world economy will contract for the
first time since World War II, and most forecasts
agree that this recession will continue well into
2010
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II. Economic implications in LA and the Caribbean
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How does the crisis filter to the LA and
Caribbean economies?

• The Real Sector
• Decline in volume of exports
• Deterioration of terms of trade
• Reduction in remittances
• Slowdown in tourism activity
• Reduction in Foreign Direct Investment flows
• The Financial Sector
• Tighter and more expensive access to external and
  domestic financing

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LA and the Caribbean economies will slow
dramatically in 2009
Expected GDP Growth, 2009
Source ECLAC on the basis of official data
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The fall in tourism activity will particularly
affect the Caribbean
LA and the Caribbean Exports of Services related
to the Tourism Sector, 2007 (Percentage of GDP)
Source ECLAC on the basis of official data
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The prices of our commodities have gone down
Commodities Index (2000 100)
Source ECLAC
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The contraction of FDI will affect most to the
smaller Caribbean and Central America economies
Net Foreign Direct Investment, 2008 (percentage
of GDP)
Source ECLAC
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Remittances from migrants stagnated in 2008 and
will probably contract in 2009
Growth rate in workers remittances to LA and the
Caribbean
Source The World Bank p preliminary
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III. Policy Responses in LA and the Caribbean
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• Governments in LA and the Caribbean have not been
  idle watching the crisis unfold
• So far, the policy response has been mostly
  characterized by
• Stimulus efforts majorly based on expanded public
  expenditure
• Increased role and intervention of the state in
  the economy
• Appeals for credit from multilateral agencies and
  financial markets to cover budget imbalances
• Efforts to preserve/increase social expenditure
  to protect advances made during the last decade

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The response to the global crisis has been at the
centre of the public agenda
Source ECLAC on the basis of official data from
20 LA countries and 14 Caribbean countries
surveyed
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Policy response in Latin America and the Caribbean
Source ECLAC on the basis of official data as of
March/April 2009
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IV. The Social Implications
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• Regardless of efforts by governments, it is clear
  that the global crisis will still affect the
  Region negatively
• Some major social concerns
• Rising unemployment
• Set back in poverty reduction
• Increased civilian unrest
• Increased criminality
• Worsening of health status

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Unemployment is expected to rise in LAC
Source ECLAC on the basis of official data as of
March 2009
Unemployment in the Region would rise from 7.5
in 2008 up to 8.5 or 9 in 2009
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• Poorer families are more vulnerable to
  unemployment and loss of revenue
• Usually poorer families are also the ones with
  the worst access to health care, educational
  services, food security, etc.
• The increment of unemployment in the Region would
  be reflected in an increase in poverty rates and
  health issues, like malnutrition

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A key issue the Millennium Development Goals

• Established by the UN in 2000, the Millennium
  Development Goals (MDGs) set specific targets to
  be accomplished by 2015
• Halve the proportion of people whose income is
  less than 1 a day
• Halve the proportion of people who suffer from
  hunger
• Ensure that children everywhere will be able to
  complete a full course of primary schooling
• Reduce by two thirds, between 1990 and 2015, the
  under-five mortality rate
• Reduce by three quarters the maternal mortality
  rate
• Achieve, by 2010, universal access to treatment
  for HIV/AIDS for all those who need it
• Stop by 2015 and begun to reverse the incidence
  of malaria and other major diseases
• Prior to the global crisis, the Region had made
  significant advances in this regard

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Progress has been made in the MDGs in LAC
People living with less than US 1.00 daily in LA
and the Caribbean
Children under 5 who are underweight in LA and
the Caribbean
Under five Mortality per 100 live births in LA
and the Caribbean
Source UNSTATS
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Most countries recorded progress against hunger
and malnutrition
Progress towards the goal on malnutrition
reduction in the percentage of children under 5
years of age underweight, respect of 1990 levels
Source ECLAC
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Same in reduction of child mortality rates
Progress towards the MDG on child mortality
Source ECLAC
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• Regarding the MDGs, LA and the Caribbean could be
  considered a mild success, compared to other
  regions
• However, with the current global crisis, it is
  not clear if the Region will be able to reach the
  goals set for 2015
• Furthermore, progress already made during the
  last decade is in jeopardy
• The evolution of the social standards depends on
  how well governments secure resources and keep
  social expenditures at acceptable levels

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Social expenditure increased during the last
decade
Social expenditure as a GDP percentage
Source ECLAC on the basis of official data
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• It is worth noting that
• Public expenditure is a major component of total
  health expenditure in many countries
• Despite significant improvements in health
  situation during the last decade, LA and the
  Caribbean is still far from an ideal standard
• Health situation in the Region is diverse, with
  significant disparities among countries
• HIV/AIDS continues to be a critical concern,
  particularly in the Caribbean

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Health Expenditure in LA and the Caribbean, 2006
Serious disparities are found in health
expenditure, reflecting different degrees of
vulnerability
Source World Health Organization
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And what about HIV/AIDS?

• Latin America and Caribbean realities
• By 2007, the estimated number of persons living
  with HIV was 1.1 million in LA, and 230 thousand
  in the Caribbean
• Every day, there are 438 new infections and 211
  deaths in the whole LAC area
• The Caribbean has the second highest rate of
  prevalence of HIV/AIDS in the world
• Female/male sex workers are among the most
  vulnerable groups
• Increase in unemployment and poverty may lead to
  an increase in transactional sex and higher
  exposure to HIV/AIDS

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HIV/AIDS programmes have expanded
The Region, and particularly the Caribbean, has
made advances in prevention and treatment of
HIV/AIDS, but we are still far from an ideal
situation
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What about Development Cooperation?

• U.N. Secretary General, Ban Ki-moon has recently
  expressed concerns that the global economic
  crisis could reduce the flow of development
  assistance and resources from rich countries to
  developing countries

As the situation is deteriorating ... I am
concerned that this may inevitably affect the
political will and available resources for
developing countries"
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What about Development Cooperation?

• Leaders in the G-20 summit pledged to provide US
  1 trillion to the IMF, the World Bank and other
  multilateral institutions
• Those resources are supposed to provide support
  to developing countries hit by the global crisis
• The effectiveness of this support will depend on
  how well resources are allocated to key economic
  and social needs
• This requires redoubling efforts to improve
  transparency, agility and efficiency in public
  spending

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IV. Conclusions

• The current world economic crisis would be the
  worse since the Great Depression of the 1930s
• The crisis would extend to 2010 and could even go
  beyond
• LA and Caribbean countries will be affected by a
  variety of channels
• In this scenario, socioeconomic progress could be
  reversed, including key issues like the fight
  against HIV/AIDS
• Thus, it is essential a firm commitment to
  preserve and strengthen public spending in health
  and other social areas

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Thank you for your attention