Eugenio Díaz Bonilla, Executive Director, Argentina and Haití, IDB 30th April 2009, International Food Policy Research Institute, Washington D.C.

1. The “Great Recession” of
2009/??:
Implications for LAC
Eugenio Díaz Bonilla
Executive Director,
Argentina and Haití, IDB
Haití

2. Questions and Approaches
Ch t i ti f i d
Characterization of recessions and
impacts
Frisch
F isch (1933) and the wooden rocking ho se
ooden ocking horse:
“impulse” and “propagation”
Origin and size shocks Channels of
shocks.
transmission
Conditions of the economy affected
y
Impacts on LAC
• The economy as a whole
• The agricultural sector
• The poor
Historical View versus
Projections/Simulations

3. Impacts
Agriculture
Differentiate by tradability, main market, source of
inputs
Export crops benefitted by devaluation
Domestic market, higher income elasticity, and
dependence on imported inputs more affected
Banking crisis (credit crunch). Fiscal crisis
Poverty
P t
Employment, wages and incomes (urban/rural;
formal/informal)
Prices of food and other items in consumption basket
of the poor
Government services and safety net. Impact on
human capital

4. Historical
What is the right historical comparison?
The Great Depression?
The 1980s?
Great Depression:
Many explanations (G
M l i (Geopolitical, N
li i l Neoclassical,
l i l
Marxist, Popular, Monetary/Keynesian)
Many countries affected US, Europe, most of LAC,
Japan, many in Asia. Falls of 10-30% PIB;
unemployment 20-40%; 4-6 years before going
back to pre-depression GDP levels. US -28%,
pre depression levels 28%
unemployment > 25%; +7 years to go back to
previous GDP level.
LAC: -13% GDP average 7 main countries;
almost 4 years to go back to previous GDP level

5. -1
0
1
2
3
4
5
6
7
8
19
61
19
63
19
65
19
67
19
69
19
71
19
73
19
75
19
77
19
79
19
81
19
83
World Growth
19
85
19
87
19
89
19
91
19
93
Trend
19
95
19
World Growth and Trend (1960-2009)
97
19
99
20
01
20
03
2009 projected
20
05
2008 estimated and
20
07
20
09

6. Origins of the Recessions
1980 : very ti ht monetary policy in US and
1980s tight t li i d
Europe (to combat inflation…) Increase in
interest rates: 6 7% in real terms over previous
6-7%
levels. Absolute nominal levels of > 15%.
Now: global expansionary monetary policy and
increase in leveraging, leading to an
i i l i l di
endogenous deleveraging (“credit crunch”)
Increase in labor supply, low inflation and
supply
expansionary policy in industrialized countries
Accumulation of reserves in developing countries,
leading to expansionary monetary policy there and
there,
lowering medium term interest rates in industrialized
countries
Financial and institutional innovation, reducing
perception of risk, and increase in leveraging

7. M
ar
-
0
50
100
150
200
250
300
350
M 87
ar
-
M 88
ar
-
M 89
ar
-
M 90
ar
-
M 91
ar
-
M 92
ar
-
M 93
ar
-
M 94
ar
Government
-
M 95
ar
-
M 96
ar
Financial institutions
-
M 97
ar
-
M 98
ar
-
M 99
Debt/Income
ar
-
M 00
ar
-
M 01
ar
-
M 02
ar
Households
-
M 03
ar
-
M 04
ar
-
M 05
ar
-
Nonfinancial corporations
M 06
ar
-
M 07
ar
-0
8

8. Indices de Acciones y Casas en los EEUU desde 1920
3 (Enero 1995=1)
2.5
2
1.5
15
1
0.5
0
19 0
19 4
19 8
19 2
19 6
19 0
19 4
19 8
19 2
19 6
19 0
19 4
19 8
19 2
19 6
19 0
19 4
19 8
19 2
20 6
20 0
20 4
08
2
2
2
3
3
4
4
4
5
5
6
6
6
7
7
8
8
8
9
9
0
0
19
Dow Jones (real) S&P 500 (real) Indice de Casas Case-Shiller (real)

9. Structural Conditions in LAC
1980s: LAC had greater vulnerabilities
Larger current account and fiscal deficits
More rigid exchange rate systems
Larger currency mismatches in banking
system
Dollarized debt (public/external, but also
internally, in the banking system)
Less open economies
Low level of reserves in Central Banks
Result: multidimensional crisis
(economic, currency, debt, financial,
and fiscal aspects)

10. Results 1980s
G
Growth t t l 1982/3 (%)
th total
LAC -1.8
Developing 2.0
World 1.6
GDP Agriculture (%)
LAC -0.1
Developing 3.6
World 2.3
Poverty (US$ 2/day as % of population)
LAC went from 24.6% in 1981 to 28.1% in 1984 (by
1990 it was 21.9%). At the world level the values
were 69.9 (1981), 68.1 (1984) and 63.8 (1990)

11. GDP Growth (%)
10
8
6
4
2
0
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
-2
2
-4
-6
Advanced economies Emerging and developing economies Western Hemisphere

12. Current Situation and Perspectives
N
Now: b tt prepared, yet external shock
better d t t l h k
bigger
But bi
bigger on what di
h dimensions? GDP i
i in
industrialized, global trade, terms of trade,
interest rates and spreads, capital flows?
spreads
Now: better policy reaction (the “benefit
of normalcy”)
In 1980s reaction was strong devaluation,
tightening monetary and fiscal policies…
policies
Now: smooth devaluation, somewhat
expansionary monetary and fiscal policies, no
policies
banking crisis…

13. Current Situation and Perspectives
Now: G-20 process; expansionary
monetary and fiscal policy in
industrialized countries; expansion of
lending in IFIs (including SDRs) and
more flexible conditions)
Now: smoother adjustment in ER, and
j ,
no banking and fiscal crisis, better
safety net programs.
y p g
Therefore, better performance for
agriculture and poverty indicators
Future: VLU and other projections…

14. Scenarios for Growth
Economic Activity
(LAC-
(LAC-7 GDP, 2006 = 100)
GDP Growth
(LAC-
(LAC-7, annual growth rate)
125
7%
V-Shaped L-Shaped
Peak Dec-08 Dec-08
Trough Sep-09 Dec-10 6% 2003-2007 Avg.: 5.8%
120 P-to-T -3.9% -5.1%
Recovery* Mar-11 Dec-13 5%
V-Sh
Shaped
d 4%
115 Scenario
1991-2007 Avg.: 3.3%
Pre-Crisis Levels 3%
V-Shaped
110 2% 2009-13 Avg.: 1.9%
1%
L-Shaped L-Shaped
105 2009-13 Avg.: 0.1%
2009-
Scenario 0%
-1%
1% V-Shaped
p
100 Scenario
L-Shaped
-2% Scenario
95 -3%
2006 2007 2008 2009 2010 2011 2012 2013 2006 2007 2008 2009 2010 2011 2012 2013
*Recovery to pre-crisis levels of output
LAC-7 is the simple average of the seven major Latin American countries, namely Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
These countries represent 91% of Latin America’s GDP.

15. Thanks...

17. Real Indices (CPI deflated)
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
M1 M11 M9 M7 M5 M3 M1 M11 M9 M7 M5 M3 M1 M11 M9 M7 M5 M3 M1 M11 M9 M7 M5 M3 M1 M11 M9 M7 M5
1957 1958 1960 1962 1964 1966 1968 1969 1971 1973 1975 1977 1979 1980 1982 1984 1986 1988 1990 1991 1993 1995 1997 1999 2001 2002 2004 2006 2008
Oil Metals Agriculture

18. -4
-2
0
2
4
6
8
10
19
5
19 4
5
19 6
5
19 8
6
19 0
6
19 2
6
19 4
6
19 6
6
19 8
70
19
7
1-YEAR US DEP. LONDON OFFER
19 2
7
19 4
7
19 6
7
19 8
8
19 0
8
19 2
8
19 4
86
19
8
19 8
9
US BANK PRIME LOAN RATE
19 0
9
19 2
9
19 4
9
19 6
9
20 8
0
20 0
0
20 2
04
20
US BOND YIELD: 10 YEAR
06

19. 0%
10%
20%
30%
40%
50%
60%
19
61
19
63
19
65
19
67
19
69
19
71
19
73
1975
19
75
19
77
1982
19
79
19
81
19
83
19
85
19
8
1987
19 7
8
1992
19 9
9
% Developing Countries in Recession
19 1
9
19 3
9
19 5
9
19 7
1999
99
20
01
20
03
20
05

20. 8
7
6
5
4
3
2
1
60 65 70 75 80 85 90 95 00 05
OECD
Developing Countries
Developing Countries w/o China

21. Mecanismos Actuales?
Política monetaria EXPANSIVA desde 1990s y alto apalancamiento
Millones nuevos trabajadores; baja precios y salarios
Política monetaria expansiva en EEUU y otros países. Mantiene
baja tasa interés corto plazo (2001-2004)
Superávit en China, Japón, países asiáticos, productores de
á ó í á
petróleo, ALC: exportan capitales a EEUU. Mantiene baja la tasa
interés en dólares a plazos más largos
Requerimientos regulatorios/contables luego de Enron
Innovación “tecnológica” en finanzas: crédito e hipotecas a
consumidores de bajos ingresos, seguros de default,
securitización, división activos en segmentos y construcción de
nuevos activos.
activos
Innovaciones institucionales: “sistema bancario en las sombras”
Largo período de crecimiento que baja percepción del riesgo
Consumidores en países industrializados, mayormente EE.UU.
(el alza del consumo hasta 2007 llevaba 27 años de expansión),
mantuvieron alto el ritmo de crecimiento económico, basado en
endeudamiento creciente, sostenido por burbujas de valuación
en las acciones, y desde los 2000s, las casas.
Como cada uno pensaba que riesgo era bajo, SISTEMA tomó
demasiado riesgo y se apalancó. Ahora, desconfianza e
incertidumbre: falta información acerca de dónde está el riesgo

22. Es otra Gran Depresión?
Medidas tomadas:
Monetarias (baja tasas, expansión de
liquidez)
Fiscales (transferencias, baja impuestos,
infraestructura)
i f t t )
Financieras/bancarias (recuperar solidez de
los bancos; regulación ampliada)
bancos eg lación
Problema ha pasado a los países
emergentes:
t
Fuga de capitales
Caída precios productos exportación
Caída comercio

23. Importancia de la reunión G-20
C di tí l di l
Coordinar estímulo mundial
Regulación sistema financiero privado
Aumento capital en organismos
internacionales
FMI
• China y DEGs
BID
• Principal organismo de ALC. Larga historia
• Dueños igualitarios países de ALC y
desarrollados (más participativo)
• Problema ciclo: apoyo demanda mundial
• P bl
Problema tendencia: energía sostenible y
t d i í t ibl
cambio climático

24. -2
15
-1.5
-1
-0.5
0
0.5
1
19 1.5
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
Middle East
19
United States
88
19
89
China, Japan, NIAE
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
European Union
20
01
20
02
20
03
20
04
20
05
20
06
Developing w/o China and Middle East
20
07
20
08

25. Mirando hacia adelante
Escenario 1: crecimiento más lento
De crisis va a surgir un sistema financiero más regulado, con
menos apalancamiento, y más conservador en sus prácticas
crediticias.
Pasado lo peor de la crisis autoridades monetarias y fiscales de
crisis,
los países industrializados deben revertir políticas expansivas.
Consumidores y gobierno de los EE.UU. tendrán que bajar
relación deuda/ingresos y el déficit de cuenta corriente de la
balanza de pagos. El mundo no t d á esa locomotora d
b l d d tendrá l t de
crecimiento.
Escenario 2: Alta inflación; política monetaria restrictiva
Pasado ciclo (siempre se sale) hay que afrontar desafío
sale),
de pasar de proveer energía alimentaria (unos 28
exajoules) y no alimentaria (unos 460 exajoules) a
población de 6400 millones de personas ahora, a 39/43
exajoules y 800/900 exajoules, respectivamente, de
una manera sostenible para población de 9000/10000
millones en el 2050.
Hay que mejorar significativamente mecanismos
internacionales para manejar ciclos y el patrón de
crecimiento de mediano y largo plazo.

26. GDP per capita ggrowth ((annual %) 1974/75 1980/82 1991/93
p p 2001/02
Latin America & Caribbean -1.8 -3.2 3.6 -2.4
Low & middle income countries -0.5 -1.7 0.1 -0.2
High income -4.7 -3.0 -2.2 -1.8
USA -5.1 -4.2 -1.6 -2.8
World -4.1 -2.8 -1.7 -1.4

27. Changes Interest Rates (%) 1974/75 1980/82 1991/93 2001/02
3-m
3 m US LIBOR 1.8 5.8 4 1 3 1
1 8 5 8 -4.1 -3.1
1-y US LIBOR Na 3.9 -4.0 -3.0
Federal Funds 2.2 5.8 -4.2 -2.7
Treasury Bil 1.7 4.6 -3.5 -2.6
3.5 2.6
Govt. Bond 3 y 1.5 4.7 -2.8 -2.0
Govt.
Govt Bond 10 y 1.4 4.4 1 7 0 8
1 4 4 4 -1.7 -0.8
Bank Prime Loan Rate 3.0 6.8 -3.2 -2.7

28. Change in Commodity Prices During Recessions (%)
1974/75 1980/82 1991/93 2001/02
Food 6.7 10.5 -7.1 -8.7
Beverages
B -21.7 -30.0 -24.2 -38.0
21 7 30 0 24 2 38 0
Agricultural Raw Materials -1.0 -10.4 -0.5 -5.3
Metals 14.4 18.8 -26.9 -7.6
Average crude price 99.5 83.8 -0.8 46.9
World Bank LMICs 10.4 1.1 -12.4 -20.3