1. Understanding the Crisis: Layer upon Layer (Balázs Horváth; joint work with Ben Slay)

2. Outline n A Crisis of Many Components n Formulating an Appropriate Policy Response n Examples n Donor coordination and UNDPs role

3. In a globalized, interdependent world, we face a confluence of shocks that all require policy action now: Short-term/high frequency n Cyclical downturn triggered by massive global imbalances; n Financial crisis and associated liquidity and credit crunch; n An unprecedented roller-coaster of commodity prices. Long-term/low frequencyimpact later, but effect of policies also slow to materialize action needed now n Extreme income inequality; n Seismic demographic shifts; and n Global climate change.

4. What can be done? Remedies available for each problem… n For short-term shocks: –Coordinated Keynesian policies to address cyclical downturn –Keep financial system afloat; regulate widely but sparingly –Address market failures but otherwise let markets set prices n For longer-term threats: –Fiscal redistribution, enhancing inclusive markets and legal empowerment to alleviate extreme inequality –Pension, health, immigration reforms to address demographics –Properly pricing energy, subsidizing low-carbon technologies, building global political consensus for action on climate change

5. Aim for the Overlap in Policy Packages; Keep balance between urgent & important; ST & LT n Combine key elements of remedies for each challenge. n Also deliver on other roles of the government: –enhance regulation of monopolies & of financial system, –improve governance and transparency of govt actions, –avoid self-defeating protectionist trade policies, –legal empowerment of poor enforceable property rights, access to lawaddresses a key aspect of entrenched inequality

6. Examples of building blocks of policy response 1. Widen the tax base –This is a key test of governance –Stark issue: more equitable burden-sharing or vital public services go unfunded. –Support regional and global efforts to minimize tax evasion 2. Structure the fiscal stimulus right –Bolster demand, create green jobs, support low-carbon technologies. –Improve targeting of social transfers –Pension, health, & immigration reforms (demographic changes).

7. Examples, continued 3.Focus political efforts and fiscal stimulus on ending regional conflicts –If successful, by far biggest bang for the buck 4.Coordinated action to alleviate climate change Key: if pricing does not internalize costs of energy use imposed on others, n final users incentives remain grossly misaligned, n chances of slowing global warming are slim. The way out: n Increase taxes on greenhouse gas emission to end mispricing of energy n Use fiscal room opened up to –eliminate distortive taxes (notably on employment), strengthen (targeted) social transfers and subsidize low-carbon technologies; and –in due course, return to path of fiscal sustainability.

8. Crisis is an opportunity for reforms n Vested interests that slowed reforms are weakened; n Societys desire for decisive action grows; n Realization: policy inaction implies higher costs. –Growing poverty associated w/ HK loss, rising crime/conflicts –Tidal wave of economic migration may occur from poor regions

9. Donors to coordinate closely, focusing on areas of their comparative advantage. n more efficient use of scarce development dollars, n reduces the strain on thinly-stretched governments, n UNDPs role: –Coordinator of the various specialized UN agencies –Social policy, governance, environmental, and other policy advice at central and local government level –Proven track record in project implementation in remote regions and working with disadvantaged groups –Can critically contribute to ensuring micro-level traction for policies advocated by IFIs focusing on central government, macroeconomic & sectoral issues.

10. Thank you for your attention