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ECLAC Subregional Headquarters for the Caribbean

ECLAC Subregional Headquarters for the Caribbean. Global crisis and Government’s responses in LA and the Caribbean economic and social implications Jamaica, June 2009. Outline. I. The global economic crisis II. Impact in LA and the Caribbean III. Policy responses IV. Social implications

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ECLAC Subregional Headquarters for the Caribbean

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  1. ECLAC Subregional Headquarters for the Caribbean Global crisis and Government’s responses in LA and the Caribbeaneconomic and social implicationsJamaica, June 2009

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

  3. I. The global economic crisis

  4. 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

  5. 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

  6. II. Economic implications in LA and the Caribbean

  7. 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

  8. LA and the Caribbean economies will slow dramatically in 2009 Expected GDP Growth, 2009 Source: ECLAC on the basis of official data

  9. 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

  10. The prices of our commodities have gone down Commodities Index (2000 = 100) Source: ECLAC

  11. 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

  12. 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

  13. III. Policy Responses in LA and the Caribbean

  14. 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

  15. 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

  16. Policy response in Latin America and the Caribbean Source: ECLAC on the basis of official data as of March/April 2009

  17. IV. The Social Implications

  18. 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

  19. 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

  20. 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

  21. 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

  22. 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

  23. 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

  24. Same in reduction of child mortality rates Progress towards the MDG on child mortality Source: ECLAC

  25. 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

  26. Social expenditure increased during the last decade Social expenditure as a GDP percentage Source: ECLAC on the basis of official data

  27. 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

  28. Health Expenditure in LA and the Caribbean, 2006 Serious disparities are found in health expenditure, reflecting different degrees of vulnerability Source: World Health Organization

  29. 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

  30. 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

  31. 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"

  32. 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

  33. 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

  34. ECLAC Subregional Headquarters for the Caribbean Thank you for your attention

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