The Crisis, in Figures

The worst international crisis since 1930. The collapse of financial markets and subprime mortgages. Toxic assets. Collateralized debt obligations. Fiscal stimulus packages. The rescue of banks and financial institutions. The fall of the stock market. G-20, G7, G8. It is overwhelming, for the citizen who is not a specialist, to understand the excess of information appearing in the media about the global crisis. Figures are more eloquent than the everyday torrent of information. Therefore, it is important that citizens have an idea of the magnitude of what is occurring.

The economically active population is the total of working-age persons. Of this population, there is a group that works and a group that does not. Those who are not working are unemployed, because work is unavailable – not because they choose not to work – and retirees, who are small in number, because, in this country, those who are past working age have no pensions.

The United States is the world’s largest economy, approximately 23 percent of the global economy, but it represents less than 5 percent of the world’s total population. Traditionally, the job market in the U.S. has been very dynamic, with a permanent demand for manual labor and very low levels of unemployment. Before the current crisis, which originated precisely there, the U.S. had less than 3 percent unemployment. Today, the official figure is 8.5 percent, but if one adds those who have unstable, part-time employment to those who have never held jobs, the figure is 16.5 percent. This is a record, surpassed only by the 25 percent unemployment of the 1930s. Every month since mid-2008, 500,000 jobs have been destroyed in the U.S.

Incentive packages are the only instruments for governments to counter the economic decline. They raise the fiscal deficit to previously unknown levels; however, they do counter the free fall of the economy. For example, according to the Organization for Economic Cooperation and Development (OECD), the club of the rich countries, the projected fiscal deficit of the U.S. is 12.3 percent of the gross domestic product (GDP) for 2009, although there are some who estimate the figure to be 13.1 percent. This is unheard of. The highest figure reached by the U.S. fiscal deficit since World War II was 6 percent in 1983. This year, that will more than double. This equates to a figure difficult to digest: one trillion 750 billion. (Americans call “trillion” what is known as a billion in Spanish, but the American influence on many Dominicans lead them to say “trillion” instead of “villon”.)

The government in Washington has spent $1.2 trillion to “save” financial institutions. It has also approved a package for the public investment of $789 billion. Obama recently announced it will invest an additional trillion to buy the so-called toxic assets of banks. We are talking about the U.S. alone, spending nearly three trillion dollars on saving the banks and stimulating the economy with the same amount that has been spent on the war in Iraq since 2003.

However, bank credit has not revived. Banks are closed for new loans, and capital markets languish. This is significant to developing countries. Capital flow, that is to say the various forms of funding from developed countries, has experienced a clamorous fall. In 2007, the figure was $929 billion. In 2008, it fell by 50 percent to $466 billion. This year, it is projected to be $165 billion, only 18 percent of the amount in 2007.

Direct investment will be the least affected. It shifted from $304 billion in 2007, to $263 billion in 2008, and to $197 billion this year – a 36 percent drop over two years, and a 25 percent drop from 2008 to 2009. But bank credit is experiencing an even greater reduction. From the $410 billion received by emerging countries in 2007, nothing will be given those countries this year, and they will have to repay $61 billion. Official assistance for development has increased, but at ridiculously low figures, when compared to private lending. From a figure of $11,400 million channeled in 2007, the figure for 2009 is $29,400 million – less than in 2008 ($41,000 million).

These projections do not take into account “the promise” of the G-20 meeting in London on April 2: to increase the capital of the multilateral agencies by one trillion dollars, of which half a billion will go to the International Monetary Fund, and the rest to the World Bank, Inter-American Development Bank and other regional banks.

All developed economies are in recession. Overall, the GDP will decline 4.3 percent: 4.0 percent in the U.S.; the European Union, 4.1 percent; Japan, 6.6 percent; Germany, 5.3 percent; France, 3.3 percent; and 3.7 percent in the United Kingdom. Developing countries will be hit with less intensity. China will grow “only” 6.3 percent; India, 4.3 percent, and Russia will fall 5.6 percent in GDP.

In Latin America, the major economies will also be affected. Growth in Brazil will be at 0.3 percent, and Argentina and Mexico will be down 1.2 percent. In this context, our country will be in positive figures, with about 3 percent growth.