1. Global Economic Prospects 2009 Comments
Indhira Santos
Brussels, December

2. What I will focus on… The global nature of today’s crises
II. Food Crisis

3. I. Global Turbulence
Financial crisis Economic crisis
Commodity prices
Geographic dimension
Policy dimension
Time dimension
Effects are different across and within countries, but these crises are fundamentally global in a:
Interconectedness
he crises that we see today are fundamentally global: geographically, crises spread outside of the country/region where they originate; in terms of policy, policies taken to deal with one crisis reinforce or counterbalance policies taken due to other crises; in terms of time, short-term solutions taken in a rush may be sub-optimal and have a negative impact in the long run.
Confluence of the three dimensions
Geographic dimension: what happens in one country or region spreads; policy dimension: policies taken to deal with one crisis reinforce or counterbalance policies taken due to other crises; time dimension: policy measures taken today have an effect on the long-run and an over-focus on short-term solutions may hinder long-term performance
The key challenge in terms of global governance, domestic and international policies will be how to deal with redistributional effects of shocks – when they are now of a more varied nature, interconnected and with sharp differential effects
The report outlines the individual challenges very well
Example: International trade

4. Trade is already slowing down…
Real goods and services exports’ growth
Source: Menzie Chinn presentation Nov , based on IMF, WEO Oct. 2008; Nov. 6 WEO update

5. International Trade: The Double Threat
From the food crisis
Self-sufficiency
Export bans and taxes
From the financial crisis
Fall in demand
Drying up of trade financing
Protectionist policies
Applied vs. bound rates
Subsidies
Contingent or administered protection
Regulatory protectionism
Competitive devaluations
Short-term minded responses to the crisis can lead to undesirable long-term effects: the case of international trade
At risk, from both crisis
Mentioned in the report, but only at the end – without stressing the double-threat
Timid support for Doha

6. II. Food Crisis On food prices, the Report is rather optimistic…
Slower population and GDP growth should slow demand
BUT…
Population growth slowdown is mostly on developed economies
Changes in diet matter a lot
Prices have subsided by the underlying pressures persist
Supply side: the Report pays only limited attention to why hasn’t productivity risen in some parts of the world, like Africa. Says, most of it is just that prices were low. Recognizes the importance of research and innovation and complimentary infrastructure but does not discuss why the market does not provide them and what we can do about it. We should trust technology, but advancements will not come from thin air (that is something we know)

7. Increase in food crops demand in China
A change in diet as countries’ get richer is a fundamental transformation
Increase in food crops demand in China
Source: Bruegel calculations based on OECD-FAO Agricultural Outlook Database

8. II. Food Crisis On food prices, the Report is rather optimistic…
Productivity growth and more land under cultivation should stimulate supply
BUT…
Bottlenecks and market (and government) failures limit productivity growth
Prices have subsided by the underlying pressures persist
Supply side: the Report pays only limited attention to why hasn’t productivity risen in some parts of the world, like Africa. Says, most of it is just that prices were low. Recognizes the importance of research and innovation and complimentary infrastructure but does not discuss why the market does not provide them and what we can do about it. We should trust technology, but advancements will not come from thin air (that is something we know)

9. Space to improve productivity growth, but it has been slowing down…
And as the Report points out, the easy gains in productivity are over
Need to stress market failures
EAP=east asia and pacific; SA: south asia; ECA: Europe and central asia, mena: middle east and north africa; ssa:
Cereal Yields,
Growth in cropland per agricultural population,
Source: World Development Report 2008

10. The policy agenda Safety nets and conditional cash transfer programs
Work when they exist – and for existing beneficiaries
But very bad at expanding coverage in a rapid manner or adapting the nature of the conditions attached – not strictly safety net programmes
How to adapt them in a world of changing and often unexpected vulnerabilities? (food prices, natural disasters, climate change)
Expensive
Improve access to land and productivity
Providing access to finance and aid
Global integration
Managing catalysts of crises and feedbacks
It not about not having enough food: Sen
Civil conflicts, natural disasters, oppressive governments, epidemics
Comprehensive approach for eliminating hunger and malnutrition
Given that the shock is a price increase rather than reduced supply, the most adequate safety net is to compensate the affected population for their loss in purchasing power in cash
But fewer than half of low and middle income countries have cash transfer programmes
Safety net programmes are rare and have limited coverage
For example, in LAC, coverage exits 25% of the poor in only 8/26 countries
We need a more comprehensive and flexible approach to social safety nets. Here, the WB can be a key player in providing technical assistance, providing information on best practices and financing pilot programs

11. Global Economic Prospects 2009 Comments
Indhira Santos
Brussels, December