Financial Crisis Discussion

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Financial Crisis Discussion
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What is the nature of the crisis and what caused
it?

• Roots in the USA sub-prime mortgage system
  quickly spread to investment banks.
• Started in the financial sector quickly
  affected the rest of the economy.
• Caused by an imbalance between the capacity to
  expand production and a lack of capacity to
  distribute benefits.
• Has produced a hypocritical response in times of
  growth, an absent (laissez-faire) State has
  allowed growth bubbles. These bubbles have burst
  and States have rescued big corporations from
  their own madness ignoring the principles of
  laissez-faire.
• First systemic crisis of financialized
  capitalism. Shows that it is impossible to
  sustain, in the long term, the logic that assets
  will continue to increase value.

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Is the crisis an opportunity?

• The crisis is an opportunity to
• Expose the damage caused by unregulated neo
  liberalism.
• Catalyze an alternative approach, with regulation
  of both world markets and financial systems.
• Move from free markets to sound policy (planning,
  targeting and regulating to create sound
  economies).
• Show how relying solely on market driven growth
  has failed compared to more targeted structural
  and infrastructural driven growth.
• Question Bretton Woods institutions. There is a
  need for a new Bretton Woods agreement and for
  the creation of a World Monetary Agency to
  exercise market control.
• Build a new world through social justice as an
  alternative paradigm of development.

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What is the impact on developing countries?

• Economic and Financial
• All economies are affected but the poor are the
  most affected.
• Why?
• 1. Knock on impact on stock market of emerging
  economies
• 2. Impacts due to trade and trade prices,
  declining remittances, reduced FDI, reduced
  lending and reduced aid.
• Likely to affect four different types of
  international resource flows
• 1. private capital flows, such as FDI
• 2. portfolio and international lending
• 3. official flows, such as development finance
  institutions
• 4. capital and current transfers, such as
  official development assitance and remittances.

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What is the impact on developing countries?

• Social
• Unemployment due to falling demand for export and
  lower prices
• Loss of market
• Reduced incomes
• Reduced social spending
• Decline in government revenues and expenditure.

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What is the impact on developing countries?

• Policy Change
• Potential for policy change at a national level
  (nationalisation).
• Likely to bring different dynamics/power shifts.
• Potential for civil society and social movements
  to revitalize work for economic justice
  (alternative paradigms for aid).

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What is the relationship between the Financial
Crisis and the Food Crisis?

• There will be an increased price volatility in
  agriculture in 2009-2010 with implications for
  food security due to
• Value of the dollar, price of oil and
  inflationary effects, impacting the availabilty
  of affordable food and the production of small
  farmers
• Insuficient global food stock
• Slow down on demand, putting pressure on prices
• Speculative non-comercial investment funds
  entering or leaving agricultural future markets
• Lower profit margins and more non-performing and
  over-due loans.
• Agriculture serves as a cushion to the worse
  effects of recessions
• and should be seen as a key sector for budgetary
  support.

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What should national governments be doing?

• Implement substantial, sustainable,
  environmentally and socially just changes to
  their economic system.
• These changes should contribute to
• 1. break the dominance of finance over the real
  economy
• 2. social equity, both nationally and between
  the North and South
• 3. guarantee livelihoods and peoples human
  rights
• 4. ecological justice.

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What should national governments be doing?

• Implementation of new policies.
• Policies that work are those that
• 1. increase job opportunities
• 2. improve wealth distribution (through tax
  justice and cash transfer)
• 3. promote access of poor people to land, other
  natural resources, credits, inputs and other
  productive factors
• 4. guarantee universal policies (education,
  health, housing, etc.)
• 5. expand transformative social protection.

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What it the likely impact on ActionAid?

• ActionAid will
• See a decline in income with greatest impact in
  the second quarter 2009
• Be operating in a context of increased poverty
  and decreased state capacity to fight poverty
• Have to reconsider its relationships and
  projects. i.e. Is Corporate Social Responsibility
  going to be a viable campaign in the finance
  downturn?

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What should ActionAid do? (1)

• ActionAid should
• Take the opportunity to influence the development
  debate and consider new models.
• Respond to finance, food and climate crisis
  collectively.
• Look at what policies can best contribute to
  mitigating the effects of the crisis.
• Assess the impact of the financial crisis in a
  number of DAs, by asking all offices to monitor
  the impacts.
• Use the opportunity to push for ideas related to
  land reforms, sustainable development, and
  organic farming along with small scale farming
  and cooperatives.
• Look for opportunities for dialogue on food and a
  package of transformative social protection and
  sustainable agriculture responses.

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What should ActionAid do? (2)

• Put pressure on donors in appropriate forums to
  honour their aid commitments to ensure
  governments still receive support.
• Keep an eye on global architecture and responses
  to the food, finance and climate crises.
• Put pressure on donors, particularly Bretton
  Woods, who plan to reduce public spending.
• Push for more engagement between states and civil
  society, and support national development
  strategies, to ensure that response is long term
  and sustainable and demand rather than donor
  driven.
• Facilitate the role between states and partners
  to ensure understanding of macro economic and
  social policy issues.
• Look for opportunities to develop new partners
  and maintain existing partner linkages and create
  space for these voices in the international
  debate.

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What should ActionAid do? (3)

• Consolidate instead of expanding, reviewing
  expenditure to ensure that it is efficient and
  not moving into other countries.
• Consider how to make expenditure effective,
  efficient and resulting in value for money.
• Ensure that our programmes and projects do not
  unduly suffer.
• Pay special attention to Forex planning and
  implications.
• Prioritise fundraising. This is an opportunity
  for us to improve our fundraising reporting to
  all donors, to ensure that donors are reminded
  how valuable their suppor is.
• Embark on contingency planning, revisiting
  partnership income projections and considering
  what this would mean in light of reduced planned
  income.