1. Worldwide Lessons from Financial Crises
金融危机的国际经验及现实思考
Vinod Thomas, Director-General & Senior Vice President
Independent Evaluation Group, World Bank
China Center for Economic Research
Peking University
February 19, 2009

2. Table of Contents
I. The Crisis
II. Policy Responses
III. Outlook
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3. I. The Crisis
► The sub-prime mortgage bubble in the US was the
detonator of the current crisis
► The extensive use of derivatives made the exposure to
the mortgage crisis explosive
► The chain reaction was globalized because of:
• The links among the financial sectors in OECD and emerging
countries
• The high dependence of international trade on US demand
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4. The extent of damage so far
► Deepening recession since mid-2008 with multiple downwards
revisions of growth
► Contagion from the developed to emerging and less developed
economies
► Downward cycle through
• Trade and weakening demand
• Capital flow
• Remittance
• Commodity price
► Reinforcing expectation for global depression and deflation
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5. The sharpest global decline since
1970
GDP Growth
Percent change
10
8
6
4
2
0
70
73
76
79
82
85
88
91
94
97
00
03
06
09
-2
9
9
0
19
19
19
19
19
19
19
19
20
20
20
1
1
2
-4
Advanced economies Emerging and developing economies World
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6. Both OECD and emerging markets fall –
no decoupling
12
Annual growth GDP, 2009 (%)
10
8
China
6
India
4
Indonesia
2 Brazil
South Africa
Saudi Arabia Argentina
0 Australia Mexico
0 2 Canada 4 6 8 10 12
France UK Spain Russia
-2 Italy Japan Turkey
Germany
USA Korea
-4
-6 Average annual growth GDP, 2006-2007 (%)
Source: World Development Indicators 2008 and IMF World Economic Outlook Update, January 28, 2009
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7. Dramatic fall in Asia’s rapid growth
► China:
• Growth practically ground to a halt in 2008 Q4--Annual growth
rate in 2009 expected to fall to 6.7% from 9.0% in 2008
• Exports plunged 17.5% year-on-year in January 2009—the
largest drop in almost 13 years
• Imports down 43% year-on-year, partly explained by
adjustment in inventory.
► Singapore’s GDP fell at an annualized rate of 17% and
South Korea’s at 21% in Q4 2008
► Industrial production in the 12 months to December,
2008 is down 21% in Japan, 14% in Singapore, 19% in
South Korea
Source: IMF World Economic Outlook Update, January 28, 2009
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8. Exports and capital flows crumble
Exports (Volumes, Change % 3 mma y/y) Private Net Capital Flows to
Emerging Economies
35 1000
China
Private capital flows to emerging economies
800
25 1000
(US$, billions, net)
800 600
15
(US$, billions, net)
600
400
400 India
5 Mexico 200
200
0
-5 2006 2007 2008 2009 0
-200 Jordan 2006 2007 2008 2009
Equity investment Private Creditors -200
-15
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Equity investment Private Creditors
Source: National Agencies through Thomson/Datastream. Source: Institute for International Finance: “Capital Flows
To Emerging Market Economies.” 01/27/09.
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9. High trade shares with sharp declines in
GDP growth…
(current episode)
100
Korea 90
Germany
Average trade, % GDP 2006-2007
80
China Canada
70
Mexico South Africa
UK 60
Spain
Italy
Russia France Indonesia
50
Turkey India
Argentina Australia 40
30
USA Japan Brazil
20
10
0
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0
Change in GDP Growth Rate [2009 projected-Avg. 2006-07] (%)
Source: World Development Indicators 2008 and IMF World
Economic Outlook Update, January 28, 2009
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10. … Also high trade shares with strong
recovery of GDP growth
(past episodes)
120 120
100 100
Thailand Thailand
Averge trade pre- and post-crisis (% GDP)
Averge trade, pre- and post-crisis (% GDP)
80 80
Korea
Korea Indonesia
Indonesia Mexico
Mexico Russia
60 60
Russia
Turkey
Turkey
40 40
Argentina
Argentina
20 20
Brazil
Brazil
0 0
-2 0 2 4 6 8 0 2 4 6 8 10
Average pre-crisis GDP growth (%) Post-crisis GDP growth (%)
Source: World Development Indicators 2008
Note: Crisis events are Argentina (1999-2002); Indonesia, Korea, Russia, Thailand, and Brazil (1997-1998); Mexico (1994) and Turkey
(2000-2001)
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11. II. Policy Responses
A framework for assessment
Policy Short-term Long-term
response
Country level ►Similar responses across ►Diverse responses
countries—Fiscal and depending on the initial
monetary policies to conditions—saving rates,
stimulate aggregate demand current account balance
►Sustainable growth—poverty,
environment, education
Global ►Coordinated responses— ►International policy
response banking sector, financial coordination mechanisms—
system, liquidity, interest surveillance, environment,
rates, open trade regime climate change
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12. Five Areas for Action
Fiscal
Fiscal
Financial
Financial Consumption
Investments
Terms of trade
Value chain
Liquidity
Financial system
Market confidence
CRISIS
CRISIS Trade
Trade
Environment
Environment
Social stability
harmony
Sustainable
growth
Poverty
Poverty
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13. Financial sector
Fire-fighting and beyond
► Often receive early attention
• U.S. Housing market: 3 million foreclosures (2008)
• U.S. Banking sector: $1-$2 trillion net cost of bailout
• World stock markets: Almost 50% loss in the total capitalization
in 2008--$30 trillion of wealth disappeared
► Needed measures:
• Adequate prudential regulations with the increasing
sophistication and dynamism of global markets
– Capture the full risk implications of securitized mortgage loans and
derivatives
• Sound development of the financial sector in developing
countries
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14. Fiscal policy
Effective economic stimulus
► Stimulus packages – a stark difference from the 1990s
• US: Tax cuts and priority investments – around $800 bn
• Japan: Three packages -- $112 bn
• Germany: Two packages for infrastructure, tax cuts, clean
energy-- $106 bn
• United Kingdom: VAT reduction, capital spending-$27.8 bn
• China: Infrastructure, housing -- $586 bn
• India: Export incentives, guarantees, refinance facility-- $4.1 bn
► Short-term vs. long-term choices:
• Countries with low or negative savings need more than
sustained fiscal stimulus to emerge from the crisis
• Countries with high savings rates can combine the short-term
fiscal stimulus with a longer-term expansionary policy
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15. Trade Policy
Avoiding the danger of c losing in
► The multiplier effects of the slowdown through the trade system
• China: Decreased export demand, 20 million migrant factory workers
without jobs
► Momentum towards protectionism gains force in crises
• USA: “Buy American” requirements
• Russia: raised tariff on imported cars
• India: 5% duty on select steel and iron products
• Argentina and Brazil: approved tariffs on wine and textiles
• China: increased export-tax rebates on 3,700 goods
► Protectionism will worsen the global contraction
► Strong international commitment to resist closing in critical
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16. Poverty
Not to be seen as an after-thought
► Social and poverty impact of crises should be anticipated
• 1% reduction in GDP traps another 20 million people in poverty,
• 100 million more people in poverty with the global recession
► Millions live very close to the poverty line, so even small GDP
changes produce vast swings in poverty
► Past responses to crises ignored poverty impact in the early stages
► More attention needed to vulnerable groups—potential area for the
World Bank Group to contribute
► Impact on immigrant labor: Foreign and domestic migration,
remittances
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17. Environment
The “Cinderella” of the crisis?
► Tensions between:
• Short- and long term objectives—economic recovery,
mitigation, adaptation
• Domestic and global objectives—global public goods
► These tensions increase in crisis periods
• 30-50% reduction in wind and solar installations in U.S.
• Support for climate funds under threat in the EU and elsewhere
► Danger of backtracking on environmental policies
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18. Five lessons from research
► Early, rapid and sizeable responses are key
► Social safety-net and pro-poor policies need support from the
outset
► Policies need to account for behavior and the political economy
► Immediate responses cannot ignore implications for development
► Global crisis needs a global solution—target stimuli where the
marginal impact will be the greatest*
* How to Solve the Global Economic Crisis—Justin Yifu Lin, Senior Vice President
and Chief Economist, World Bank
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19. Seven lessons from evaluation
►Emphasize not only volume, but also quality
►Focus on poverty from the outset
►Build in the environment and climate change
►Seek selectivity and adaptability of response
►Stress coordination among partners
►Focus on monitoring and evaluation
►Organize for early warning
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20. The World Bank Group and the crisis
The WBG has a key role through:
►Financial support
►Policy advice and knowledge sharing
►Catalytic role in cross-country policy
coordination
►Helping to balance national and global goals
►Long term partnership with countries, even
when its share in rescue packages is modest
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21. IV: Outlook: Uncertainty at an all-time
high
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22. Unusual Times
“…all consequential events in human history have
come from unexpected, rare occurrences”
Nassim Nicholas Taleb
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23. Triple danger
Economic, social, environment
► Global economic downturn
• Outlook highly uncertain
• The timing of the recovery depends critically on policy actions
► Rising poverty worldwide
• The situation exacerbated by growing unemployment
► Climate crisis
• Environmental devastation and global warming can derail all
progress
This could be an inflection point for our planet
A new development paradigm is needed
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24. When a crisis prompts action
危机 – Danger and Opportunity
► Brazil’s fiscal responsibility law; India’s 1991 reforms;
Korea’s financial sector actions….
► China revitalized after the Asian crisis
• Liberalization of the housing market
• Easing restrictions on privatization of medium SOEs
• Acceleration of the entry to WTO
• Investment in releasing bottlenecks -- highway, port
facility, telecommunication, high education
► China today…
• Opportunities in human capital; private sector;
openness; infrastructure*
• New ways of green investments
*David Dollar, Sustaining growth: China’s need for a new growth model,
November 19, 2008
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25. Looking to global opportunities
► Opportunity of fiscal stimulus to improve investments
• Target high growth areas
• Improve efficiency and raise productivity
• Promote green investments
► Opportunity of political support during crisis to reform the domestic
economy
• Financial and regulatory reform
• Address long term macro imbalances
• Maintain open trade policies
• Deepen social safety-net and inclusive growth
• Breakthrough in the environment and climate change
► Opportunity for global actions
• International regulatory framework for trade, investment and finance
• Global action on climate, environment and biodiversity
• The role of G20, international architecture and Bretton Wood II
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26. 谢谢 !
Thank you!
Improving Development Results Through
Excellence in Evaluation
http://www.worldbank.org/ieg/
http://www.ifc.org/ieg/
http://www.miga.org/ieg/
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