Introduction

Depression in economic sector has achieved pick point in this decade. In up coming days it will create some more trouble in financial sector of the whole world. Financial crisis or economic meltdown refers to the crisis in economic sector where all industries. Multinational companies, stock market , all the international sector are facing the crisis in financial support or assistance. Though its impact most probably fall in 1st world nation. But the 3rd world economy as like Bangladesh are also facing crisis in economic sector. The 2008-2009 recession is seeing private consumption fall for the first time in nearly 20 years. This indicates the depth and severity of the current recession. With consumer confidence so low, recovery will take a long time. Consumers in the U.S. have been hard hit by the current recession, with the value of their houses dropping and their pension savings decimated on the stock market. Not only have consumers watched their wealth being eroded they are now fearing for their jobs as unemployment rises. U.S. employers shed 63,000 jobs in February 2008, the most in five years. Former Federal Reserve chairman Alan Greenspan said on April 6, 2008 that "There is more than a 50 percent chance the United States could go into recession. . On October 1, the Bureau of Economic Analysis reported that an additional 156,000 jobs had been lost in September. On April 29, 2008, nine US states were declared by Moody's to be in a recession. In November 2008 Employers eliminated 533,000 jobs, the largest single month loss in 34 years. For 2008, an estimated 2.6 million U.S. jobs were eliminated. The unemployment rate of US grew to 8.5 percent in March 2009, and there have been 5.1 million job losses till March 2009 since the recession began in December 2007. That is about five million more people unemployed compared to just a year ago. This has become largest annual jump in the number of unemployed persons since the 1940s. Although the US Economy grew in the first quarter by 1%, by June 2008 some analysts stated that due to a protracted credit crisis and "rampant inflation in commodities such as oil, food and steel", the country was nonetheless in a recession. The third quarter of 2008 brought on a GDP retraction of 0.5% the biggest decline since 2001. The 6.4% decline in spending during Q3 on non-durable goods, like clothing and food, was the largest since 1950. A Nov 17, 2008 report from the Federal Reserve Bank of Philadelphia based on the survey of 51 forecasters, suggested that the recession started in April 2008 and will last 14 months They project real GDP declining at an annual rate of 2.9% in the fourth quarter and 1.1% in the first quarter of 2009. These forecasts represent significant downward revisions from the forecasts of three months ago.

A December 1, 2008, report from the National Bureau of Economic Research stated that the U.S. has been in a recession since December 2007 (when economic activity peaked), based on a number of measures including job losses, declines in personal income, and declines in real GDP. Bangladesh, though not so much globalised financially, depends significantly on foreign trade. More significantly, its exports including readymade garments, shrimps, leather, etc are heavily dependent on the western consumer demand. Therefore, falling employment and hence the declining income of the average consumers in the USA and Europe are bound to have serious impacts on our export potentials. This may start impacting after January 2009 once the buying spree during Christmas sales is over. Similarly, there can be negative impact on the export of Bangladeshi low-skilled manpower following ever declining oil price with potential depression in infrastructural development activities in the Middle-East. So the new government will have to face these economic crises. One positive thing is the falling price of oil and commodities in the international market. This will dampen inflationary pressures.

So economic meltdown is now becoming a headache for the whole world and many economists are trying there best to find the way to remove this situation. Government takes different steps in all nations to handle this problem. Even the international agencies like World Bank, IMF, ADB, etc. take different types of steps to handle this economic crisis. But its effect is too large that now in recent time it has became the talk of the topics of the whole world. People are worried because of these catastrophic phenomena.

World economic meltdown

How it originated and spread out
The world economic crisis originated in USA. The world economic crisis causes on the basis of giving loan in housing sector without considering the loan repaymentation individually and institutionally. Who took loan they became unable to refund it. Thats why world economy has fall on this economic crisis. This economic crisis is not reduce within a short time. But in broade sceance the lack of discipline in international financial market and the weekness of institutional structure are responsible for this crisis. IMF(International Monetary Fund) predicts that after 19380 greate depression, it is very much difficult situation for the developing country. IMF also refers that it results from the institutional default in financial discipline in developed countries specially USA. In the world market, this economic crisis is not suddenly happened . But in previous years in USA. Unnecessary sub-prime mortgage was given in housing sector and it causes this economic crisis. In 2000-2006, the American people propensity to purchase land and flut was increased. It resulted an unhealthy competition in real estate sector. Those people were working in this sector . Who were lucky that the bank and different financial institution give loan to to them without any subjective and objective judgement. In majority field such types of institution and individuals were given loan who were given loan who were not suitable or qualified to make this loan even they were not able to make this loan pay. In this way the standard of giving loan of bank and financial institution decreased in an intensive level. Otherhand, financial institution took opportunity of uncontrolled financial system thats why they made the primery loan condition be easy. For this reason borrowers propensity to take loan was increased. Creditors thought that housing sector or real estate is the best place to invest . And all the investors invested their money as well as loan in real estate sector. For this reason one time the supply is greater then demand. For this the price would decreased in this sector. At the end of 2006 the crisis may intensive. At that time all planning of real estate business was in vain. The main causes of this crisis was that in this sector, the investors were fail to refund the money of sub-prime mortgage. At that time the market interest rate was increased and the price of housing was decreased. Thats why creditors frustrated to reinvest. Creditors lost their creditworthiness because of closing the easy way loan, decreasing the price of real estate, increasing the interest rate. At that time the mortgage firms were in extreme loss position thats why these companies share price also decreased. As well as investors of these companies were also hampered. The investors were in frustration about these company. They sold their share of these company and which made an uncertain condition in the economy. As a result from the middle of 2007 the share index decreased

in world wide. In a statistical review it was shown that, in 2007 almost 13 lack, mortgaged property was occupied which is over more then 79 percent in comparison of 2006 . Because of the decrease in creditworthiness extremely last three months of 2007, the banks profit decreased by 89 percent in comparison of previous year. For this reason 100 mortgaged firms or companies stopped there activities. Big firm also affected like City group removed their employee. Though a big financial crisis was curving on, but the previous USA president Bush did not intervene in the real estate sector. He suggested that market should be run its own way. But after someday he had to change his policy. At the last of 2007 he announced to give subsidy to the 12 lack house owner. The crisis would be in a large form when some European banks hampered to invest in real estate sector in USA. At that time for decreasing the share price, the foreign investors had to fall in loss. Some economist denoted it as a result of extreme globalization of financial system. In the first of 2008, the financial crisis expanded more and more. The main bank of UK, Germany, Switzerland fall on crisis. Some financial institution were bankrupt. The govt. of USA and Bank of England ensure investors and nationalized some of bankrupt bank. Even Federal Reserve got ready with $28000 crore to increase the assurance of share market. But it could not work also. At that time Federal Reserve forced the financial institution to change their policy. In the middle of 2008 Federal Reserve assured the risky financial institution. President Bush suggested to the people that they not be frustrated about mortgage market. At September 7, the USA government took the controlling power of two top companies Feri Me and Fredi Me in exchange of $20000 crore. At the same month at 15, a large American bank Lehman Brother failed to carry on business because of bankruptcy . That time the US govt. decided to give stimulus package of $70,000 crore. So above these cases are the main factors of financial crisis. Now question is that why does happen this crisis. Where are the policy makers of the world? Many specialists illustrated it different ways. One school thinks that it causes just for economic reason. They think that market could not behave positive with the expectation of investors and investees. Another school explain, the causes of recession is that the govt. and central bank were unable to predict and failed to take proper steps against crisis. This school mainly blames the former president Bush authority. The economists have said, money market failed to trust on Bush authority. Others economists said, the structure of money market was also responsible for this crisis. Thats why it should be changed. So US economy has realized that govt. intervention was need to control these financial institution. Which was totally absent in previous financial year.

From the above circumstance we have got the point that the main causes of economic meltdown is giving sub-prime mortgage loan as well as govt. unintervantion to the economy.

Impact of first phase on global economy:

Phases mean any stage of series of event or in a process of development. With a sleuth of layoffs coming from all angles, why don't we take a step back and see where we are in the phases of recession. At macroscopic level, the cycle looks like a tidal wave, and the recession is a long process of declining economy.

Speaking strictly from the perspectives of startup economy.

The First Phase :

The financial crisis that started in the US in March of this year has now turned into a fullfledged economic crisis that has pushed the European Union, Japan, Hong Kong and others into recession There is a saying that when America sneezes, countries around the world get flu. This has been evident from the fact that the American financial crisis has left everyone in a state of shock.

October 10 was the day when stocks and shares dropped to the lowest level in US, Japan, Britain and Australia and pretty much across the world. No country was spared from the financial crisis because of globalisation and inter-locking of financial interests. Some economists have compared October 10 to September 11, 2001 when terrorists attacked the World Tower in New York. Financially 10/10 is the new 9/11 because the financial system and the money markets will never the same. 10/10 has dramatically changed forever, according to economists, the global financial system. Governments have intervened with funds to avoid collapse of reputable banks and some say nationalisation in part of banks was unthinkable during 21st century. But it has happened in a free market economic system. The crisis is compounded by the fact that the Bush administration has not been prudent in having a deficit budgets for several years. It is reported the current budget deficit of the US in this financial year that ended on October 1st hit a record high to $ 455 billion, partly because of the on-going huge expenses ($10 billion per month) in the misconceived war in Iraq.. ( It is noted President Bush inherited a surplus budget of $79 billion from the Clinton administration). Furthermore the US regulators have not supervised adequately the way the banks were providing loans to all kinds of people during the housing- boom period. And the financial regulatory bodies in the US ignored the warning signs of financial storm since August 2007 and believed that free-market system would take care of it. America with its $13 trillion economy, the world's biggest economy, can absorb and come out of this crisis after a certain period of time but other countries with much less economies of strength will suffer heavily The first phase of the financial crisis, to date, is not even half over and most likely will continue for several more years. More sub prime mortgage-like market busts are yet to come, punctuated by highly visible bank, non-bank financial institution, and/or major corporate bankruptcies. Phase one of the financial crisis dates from events commencing in late 2006 with the start of the collapse of the sub prime residential U.S. mortgage market. The sub prime crisis then burst upon the general economic scene in late summer 2007. The first phase then continued throughout the remainder of 2007, as other credit markets linked to or affected by the sub prime crisis were in turn impacted. These included markets like collateralized debt obligations (CDOs), which bundled sub primes with other assets, the asset backed commercial paper market, commercial property, leveraged buyout loans, junk bond and corporate high yield bond markets. Just about every major short-term debt market was impacted to one degree or another. The result has been a contraction of lending dollars amounting to several trillions, now working its way through the real economy and grinding it to a halt. However, only $100 billion or so in new capital have so far been raised by the banks. The banking sector is still short by nearly $1 trillion. And until that remaining $1 trillion is

worked off, the material basis for the financial crisis will not have been resolved. In the interim, the financial crisis will almost certainly erupt once again, commencing a second phase.

List of recessions in the United States :

Great Depression: United States GDP annual pattern and long-term trend, 192040, in billions of constant dollars. This is a list of recessions that have affected the United States. Though a recession is popularly defined as two quarters of negative GDP growth, the beginning and ending dates of U.S. recessions are officially determined by the National Bureau of Economic Research (NBER). the NBER defines a recession as, "...a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." From 1945-2007 the NBER has identified 11 recessions .their average duration was 10 months (peak to trough). Most of the recessions listed here have affected economics on a worldwide scale; some of them are the Great Depression, the late 1980s recession, and the early 2000s recession. Recessions in one country are often grouped together with recessions in other countries that are related, and they commonly share a focal point as the cause of the recession. Note that before detailed economic statistics began to be gathered in the 19 th century. It was difficult to tell when recessions occurred .In spite of this, it is possible to estimate when economic recessions began because they were typically caused by external actions on the economic system such as wars and variations in the weather.

Recessions and other Economic Crises :

Time since start of previous Causes entry

Name

Dates

Duration

Panic of 1797 17971800 3 years

Depression of 1807

18071814 7 years

10 years

Panic of 1819 18191824 5 years

12 years

Panic of 1837 18371843 6 years

18 years

Panic of 1857 18571860 3 years

20 years

The effects of the deflation of the Bank of England crossed the Atlantic Ocean to North America and disrupted commercial and real estate markets in the United States and the Caribbean. Britain's economy was greatly affected by developing deflationary repercussions because it was fighting France in the French Revolutionary Wars at the time. The Embargo Act of 1807 was passed by the United States Congress under President Thomas Jefferson. It devastated shippingrelated industries. The Federalists fought the embargo and allowed smuggling to take place in New England. The first major financial crisis in the United States featured widespread foreclosures, bank failures, unemployment, and a slump in agriculture and manufacturing. It also marked the end of the economic expansion that followed the War of 1812. A sharp downturn in the American economy was caused by bank failures and lack of confidence in the paper currency. Speculation markets were greatly affected when American banks stopped payment in specie (gold and silver coinage). Failure of the Ohio Life Insurance and Trust Company burst a European speculative bubble in United States railroads and caused a loss of confidence in American

Panic of 1873 18731879 6 years

16 years

Long Depression

18731896 23 years

Panic of 1893 18931896 3 years

20 years

Panic of 1907 19071908 1 year Post-World War I recession 19181921 3 years

14 years 11 years

banks. Over 5,000 businesses failed within the first year of the Panic, and unemployment was accompanied by protest meetings in urban areas. Economic problems in Europe prompted the failure of the Jay Cooke & Company, the largest bank in the United States, which burst the post-Civil War speculative bubble. The Coinage Act of 1873 also contributed by immediately depressing the price of silver, which hurt North American mining interests. The collapse of the Vienna Stock Exchange caused a depression that spread throughout the world. It is important to note that during this period, the global industrial production greatly increased. In the United States, for example, industrial output increased fourfold. Failure of the United States Reading Railroad and withdrawal of European investment led to a stock market and banking collapse. This Panic was also precipitated in part by a run on the gold supply. A run on Knickerbockers Trust Company deposits on October 22, 1907, set events in motion that would lead to a severe monetary contraction. Severe hyperinflation in Europe took place over production in North America. It was a brief but very sharp recession and was caused by the end of wartime production, along with an influx of labor from

Great Depression

19291933 43 months

21 months

Recession of 19371938 13 months 1937

50 months

Recession of Feb-Oct 1945 1945

8 months

80 months

Recession of Nov 1948 11 months 1948 Oct 1949

37 months

Recession of July 1953 10 months 1953 May 1954

45 months

Recession of Aug 1957 8 months 1958 April 1958

39 months

returning troops. This in turn caused high unemployment. Stock markets crashed worldwide, and a banking collapse took place in the United States. Although sometimes dated as lasting until the Second World War, the US economy was growing again by 1933, and technically the U.S. was not in recession from 1933 to 1937 The Recession of 1937 is only considered minor when compared to the Great Depression, but is otherwise among the worst recessions of the 20th century. The decline in government spending at the end of World War II led to an enormous drop in Gross Domestic Product making this technically a recession. The Post War years were unusual in a number of ways and this era has little in common with other recessions. The 1948 recession was a relatively brief cyclical economic downturn, the mildness of which led to confidence in the notion that the Post War-era would be a period of stronger growth. After a post-Korean War inflationary period, more funds were transferred into national security. The Federal Reserve changed monetary policy to be more restrictive in 1952 due to fears of further inflation. Monetary policy was tightened during the two years preceding 1957, followed by an easing of

Recession of April 1960 10 months 1960-1 Feb 1961

Recession of Dec 1969 11 months 1969-70 Nov 1970 1973 oil crisis 19731974 stock market crash

policy at the end of 1957. The budget balance resulted in a change in budget surplus of 0.8% of GDP in 1957 to a budget deficit of 0.6% of GDP in 1958, and then to 2.6% of GDP in 1959. After President Kennedy's 30 January 1961 call for increased government spending to improve the 24 months Gross National Product and to reduce unemployment, the 1960-61 recession ended in February.[28] The relatively mild 1969 recession is 106 thought to have been mostly caused months by the Federal Reserve raising interest rates to hold down inflation. A quadrupling of oil prices by OPEC coupled with high 36 months government spending due to the Vietnam War led to stagflation in the United States. The NBER considers a short recession to have occurred in 1980, followed by a short period of growth and then a deep recession. 58 months Unemployment remained relatively elevated in between recessions. The early '80s are sometimes referred to as a "double dip" or "w-shaped" recession. 12 months The Iranian Revolution sharply increased the price of oil around the world in 1979, causing the 1979 energy crisis. This was caused by the new regime in power in Iran, which exported oil at inconsistent intervals and at a lower volume, forcing prices to go up. Tight

Nov. 1973 16 months March 1975

1980 recession

Jan-July 1980

6 months

Early 1980s July 1981 16 months recession Nov 1982

Early 1990s July 1990 8 months recession March 1991 Early 2000s Mar-Nov recession 2001

8 months

Late 2000s recession

Dec 2007ongoing current

monetary policy in the United States to control inflation led to another recession. The changes were made largely because of inflation that was carried over from the previous decade due to the 1973 oil crisis and the 1979 energy crisis. Industrial production and 92 months manufacturing-trade sales increased in early 1991. The collapse of the dot-com bubble, the September 11th attacks, and 120 accounting scandals contributed to a months relatively mild contraction in the North American economy. The collapse of the housing market led to bank collapses in the US and Europe, causing the amount of available credit to be sharply curtailed, resulting in huge liquidity 73 months and solvency crises. In addition, record oil prices and food prices, stock markets crashed globally, and several high profile banking, automotive, and manufacturing giants collapsed in the United States

Impact of first phase of Bangladesh economy:

Bangladesh, with a population of more than 150 million, is a lowincome, food-deficit country. Over 40% of the population is children. Three-quarters of Bangladeshis live in rural areas. The country sits within the worlds largest delta, making it extremely vulnerable to floods, and cyclones.In the past decade, Bangladesh has made impressive economic and social progress towards achieving some of the Millennium Development Goals (MDGs), despite repeated natural disasters and external shocks.Bangladesh has met the MDGs for gender parity in education and has made impressive progress towards achieving universal primary enrolment. According to the Bangladesh MDG mid-term report of 2007, the net enrolment ratio in primary education was 87%. The average GDP growth over the last six years was over 6%. Although poverty fell from 57% of the population in 1990 to 40% in 2005, challenges remain in eradicating extreme hunger and malnutrition. Indeed, recently, the global food and fuel price crisis in 2008 and the Cyclone Sidr in 2007 have tested the resilience of the Bangladeshi people. A nation wide survey conducted by WFP, UNICEF and the

government in December 2008 to assess the impact of high food prices on the population revealed significant food insecurity (one in four Bangladeshi) and increased severe (stunting, underweight and wasting) malnutrition rates.The global financial crisis could compound this situation. The economy is indeed increasingly exposed to global shocks as a result of increased openness to the global economy. The contribution of trade (export and import) increased significantly since 2001 from 33.4% of the gross domestic product (GDP) to 43.4% in 2008. Bangladesh, though not so much globalised financially, depends significantly on foreign trade. More significantly, its exports including readymade garments, shrimps, leather, etc are heavily dependent on the western consumer demand. Due to bumper production of agriculture sector our economy barely fall in first phase of crisis.

Measures taken by world largest economy:

Since 2008, much of the industrialized world entered into a recession, the late-2000s recession, sparked by a financial crisis which was caused in part by the combination of a real estate bubble in the United States and the securitization of real estate mortgages in a way which made the riskiness of mortgage-backed securities difficult to assess. Sub-prime loan losses in 2007 exposed other risky loans and over-inflated asset prices. With the losses mounting, a panic developed in inter-bank lending. The precarious financial situation was made more difficult by a sharp increase in oil and food prices. The exorbitant rise in asset prices and associated boom in economic demand is considered a result of the extended period of easily available credit, inadequate regulation and oversight, or increasing inequality. As share and housing prices declined many large and well established investment and commercial banks in the United States and Europe suffered huge losses and even faced bankruptcy, resulting in massive public financial assistance. A global recession has resulted in a sharp drop in international trade, rising unemployment and slumping commodity prices. In December 2008, the NBER declared that the United States had been in recession since December 2007, and several economists expressed their concern that there is no end in sight for the downturn and that recovery may not appear until as late as 2011. The recession is considered the worst since the Great Depression of the 1930s. The world largest economies have taken some measures to get rid of crisis which are given below-

North America
U.S.

Number of U.S. household properties subject to foreclosure actions by quarter The United States entered 2008 during a housing market correction, a sub prime mortgage crisis and a declining dollar value. In February, 63,000 jobs were lost, a 5-year record. In September, 159,000 jobs were lost, bringing the monthly average to 84,000 per month from January to September 2008. Federal reserve rates changes Discount Date Discount rate rate Primary new interest rate change rate Apr 30, -.25% 2.25% 2008 Mar 18, -.75% 2.50% 2008 Mar 16, -.25% 3.25% 2008 Jan 30, 2008 -.50% 3.50% Jan 22, 2008 -.75% 4.00% Early suggestions of recession In the early months of 2008, many observers believed that a U.S. recession had begun. As a direct result of the collapse of Bear Stearns, Global Insight increased the probability of a worse-than-expected recession to 40% (from 25% before the collapse). In addition, financial market turbulence signaled that the crisis will not be mild and brief. Alan Greenspan, ex-Chairman of the Federal Reserve, stated in March 2008 that the 2008 financial crisis in the United States is likely to be judged as the harshest since the end of

Discount rate Secondary new interest rate 2.75% 3.00% 3.75% 4.00% 4.50%

Fed funds Fed funds rate rate change -.25% -.75% new interest rate 2.00% 2.25%

-.50% -.75%

3.00% 3.50%

World War II. A chief economist at Standard & Poors said in March 2008 he has a worstcase-scenario in which the country could endure a double-dip recession in which the economy would briefly recover in the summer 2008. Under this scenario, the economy's total output, as measured by the gross domestic product, would drop by 2.2 percentage points, making it the third worst recession in the post World War II period. The former head of the National Bureau of Economic Research said in March 2008 he believed the country was then in a recession, and it could be a severe one. A number of private economists generally predicted a mild recession ending in the summer of 2008 when the economic stimulus checks going to 130 million households started being spent. A chief economist at Moody's predicted in March 2008 that policymakers would act in a concerted and aggressive way to stabilize the financial markets, and that then the economy would suffer but not enter a prolonged and severe recession. It takes many months before the National Bureau of Economic Research, the unofficial arbiter of when recessions begin and end, makes its own ruling. According to numbers published by Bureau of Economic Analysis in May 2008, the GDP growth of the previous two quarters was positive. As one common definition of a recession is negative economic growth for at least two consecutive fiscal quarters, some analysts suggest this indicates that the U.S. economy was not in a recession at the time. However this estimate has been disputed by some analysts who argue that if inflation is taken into account, the GDP growth was negative for the past two quarters, making it a technical recession. In a May 9, 2008, report, the chief North American economist for investment bank Merrill Lynch wrote that despite the GDP growth reported for the first quarter of 2008, "it is still reasonable to believe that the recession started some time between September and January", on the grounds that the National Bureau of Economic Research's four recession indicators all peaked during that period. New York's budget director concluded the state of New York was officially in a recession. Governor David Paterson called an emergency economic session of the state legislature for August 19 to push a budget cut of $600 million on top of a hiring freeze and a 7 percent reduction in spending at state agencies already implemented by the Governor. An August 1 report, issued by economists with Wachovia, said Florida was officially in a recession. White House budget director Jim Nussle said the U.S. avoided a recession following revised GDP numbers from the Commerce Department showing a 0.2 percent contraction in the fourth quarter of 2007 down from a 0.6 percent increase and a downward revision to 0.9 percent from 1 percent in the first quarter of 2008. The GDP for the second quarter was placed at 1.9 percent below an expected 2 percent. Martin Feldstein, who headed the National Bureau of Economic Research until June and serves on the group's recessiondating panel, said he believed the U.S. was in a very long recession and that there was nothing the Federal Reserve could do to change it. In a CNBC interview at the end of July 2008, Alan Greenspan said he believed the U.S. was not yet in a recession, but that it could enter one due to a global economic slowdown.

A study released by Moody's found two-thirds of the 381 largest metropolitan areas in the United States were in a recession. The study also said 28 states were in recession with 16 at risk. The findings were based on unemployment figures and industrial production data. In March 2008, Warren Buffett stated in a CNBC interview that by a "common sense definition", the U.S. economy is already in a recession. Warren Buffett has also stated that the definition of recession is flawed and that it should be 3 quarters of GDP growth that is less than population growth. However, the U.S. only experienced two consecutive quarters of GDP growth less than population growth.

Canada
Canada was one of the last industrialized nations to enter into a downturn. GDP growth was negative in Q1, but positive in Q2 and Q3 of 2008. Most Canadian economists expect Q4 to be the start of the Canadian recession. The almost 1-year delay of the start of the recession in Canada relative to the U.S. is largely explained by two factors. First, Canada has a strong banking sector not weighed-down by the same degree of consumer-related debt issues that existed in the United States. The United States economy collapsed from within, while the Canadian economy is being hurt by its trade relationship with the United States. Second, commodity prices continued to rise through to June 2008, supporting a key component of the Canadian economy and delaying the start of recession. In early December 2008, the Bank of Canada, in announcing that it was lowering its central bank interest rate to the lowest level since 1958, also declared that Canada's economy was entering in recession. The Bank of Canada has since announced that it has two consecutive months of GDP decline (Oct -0.1% & Nov -0.7%). The country's unemployment rate could rise to 7.5% in the next two years, according to the latest OECD report.

Mexico
The Mexican government took emergency measures to bolster economy as the country is suffering from growing impacts of a global economic turmoil. The global economic crisis is spreading into Mexico which has been tied closely to the United States, poisoning its export, financial market, foreign investment as well as many of its pillar industries, and pushing the country to the brink of a recession.

Mexican President Felipe Calderon launched an anti-crisis program in January to protect his country from the downturn and the economy is expected to pick up in the second half of 2009. ON THE BRINK OF RECESSION According to the latest statistics released by Mexico's Central Bank, the country registered an economic growth of 1.5 percent last year, lower than the predicted 2 percent, with the figure for the last quarter of 2008 sliding to a negative 1 percent. Furthermore, the prospect for country's economy remains gloomy, and a zero or negative growth is expected for this year. The Central Bank had earlier lowered its prediction from between 0.5 percent to 1.5 percent to between negative 1.8 percent to negative0.8 percent, indicating the country is edging closer to recession. Meanwhile, President Calderon said the country will be experiencing times of huge difficulties in terms of economic growth, investment and employment. Mexico's unemployment rate reached 5 percent in January, the highest in more than 12 years, and as many as 340,000 employees are expected to lose their jobs by the end of this year, far more than the January prediction of 201,000. The Mexican peso has tumbled 32 percent against U.S. dollars since last August, making it the worst performer of the world's most-traded currencies. What's more, foreign capital flows to Mexico is likely to plummet to 15.113 billion dollars this year from 18.5893 billion dollars in 2008 when global economic downturn was unfolding. MEXICO'S STRUGGLING INDUSTRIES Many of Mexico's export-dependent industries are struggling with economic woes amid shrinking demand in world markets. The auto sector, one of Mexico's pillar industries, suffered a 2.1 percent loss in output and 7.7 percent decrease in export last November. As about 75 percent of the cars foreign automakers produce in Mexico are for export, and the auto industry accounts for 17 percent of the total output value of Mexico's manufacturing industry and 3.5 percent of its GDP, the slashing auto output dealt a heavy blow to the country's export. Foreign remittances, which had been second only to oil revenue in the share of national income, plummeted to 25.145 billion dollars in 2008, or a 3.6 percent decline from the previous year, and the first negative growth in eight years, said the Central Bank. The Bank attributed the sharp decline in remittances to massive layoffs among Mexican migrant workers in the United States in the heavily affected industries such as construction

and processing. Economists predicted that remittances are unlikely to pick up any time soon in view of the sagging U.S. economy. Mexican cement giant Cemex SAB, the world's third largest cement producer, lost 92 percent of its full-year profit in 2008 compared with the previous year, because of declining exports, the sagging value of the peso, a shrinking housing market, as well as the credit crunch. GOVERNMENT'S STIMULUS PACKAGE To stimulate economy, the Mexican government forged with business and union associations a stimulus plan worth 54 billion dollars in January that includes a freeze on gasoline and natural gas prices in 2009, housing aid, unemployment insurance and more construction. A total of 800,000 houses will be built or remodeled in 2009, which will generate as many as 2.5 million temporary jobs, according to the government. President Calderon also pledged some 550 million dollars to poverty-stricken families to improve their livelihoods and nearly 150 million dollars to ailing industries, especially export-dependent companies, to save hundreds of thousands of jobs. Furthermore, to stop a sharp depreciation of the battered peso, which has fallen to record lows, losing 32 percent against the dollar since last August, the Central Bank decided to start auctioning off 100 million dollars a day on March 9. The state-owned oil giant Pemex has also announced recently that it will invest 19.4 billion dollars in exploration and production as part of a plan to boost the company's daily output to 3 million barrels by 2015. Some experts said that it takes time for Mexico's economy to recover as it is so closely tied to U.S. economy. But there is the possibility that it will pick up in the second half of 2009 if the stimulus measures taken by world's economic powers and the Mexican government itself work out.

South America
As it mainly consists of commodity exporters, South America was not directly affected by the financial turmoil, even if the bond markets of Brazil, Argentina, Colombia and Venezuela have been hit. On the other hand, the continent experienced a tough agricultural crisis at the beginning of 2008. Food prices have increased a lot, due to a lack of arable land. One of the main reasons for the loss of agricultural land was the high value offered by the production of

biofuels. Food prices, rising since 2002, ascended from 2006, reaching a peak during the first quarter of 2008. In one year the average price of food rose by about 50%. Then South American countries were affected by both the global slowdown and the decrease in food prices due to the declining demand. In June 2008, the Economic Commission for Latin America and the Caribbean (ECLAC) declared it expected a 4% growth for 2009. However at the end of the year it predicted that the year 2009 would put an end to six years of prosperity during which Latin America has benefited from high raw materials prices. Production in the region is likely to decline and unemployment to increase. However, the Center for Economic and Policy Research has estimated that the region may be able to cope with the global downturn with the right macro-economic policies, as these countries no longer depend on the U.S. economy.

Brazil
Brazil, Latin America's largest economy, has fallen into technical recession after registering two consecutive quarters of declining GDP. Official statistics show that Brazil's GDP shrank 1.8 percent year-on-year in the first quarter and contracted 0.8 compared with the fourth. The first-quarter result combined with the fourth quarter's 3.6 percent decline from the third quarter to push Brazil into the technical definition of a recession _ two consecutive quarters of falling GDP. Brazil's unemployment rate, meanwhile, reached a two-year high of nine percent. To actively manage the crisis, Brazil has undertaken a series of macro-control measures and adopted stimulus plans in addition to seeking expanded cooperation with other nations such as China. GOVERNMENT ACTS SWIFTLY There is no doubt Brazil moved swiftly to adjust the country's economic policies and ease the impact of the global slump. Brazil's Central Bank has recently cut its basic annual interest rate (Selic) by one percentage point to 9.25 percent. The rate was 13.75 percent in January. To stop the sharp depreciation of the real, which has lost more than 30 percent against the U.S. dollar since the start of the crisis, the Central Bank sold millions of dollars in repurchase agreements or dollar swaps and increased the amount of money for lending. President Luiz Inacio Lula da Silva in January signed a law creating a 14.2 billion reais (6.4 billion dollars) sovereign wealth fund. Lula also granted tax breaks to banks, automakers, construction firms and airlines late last year.

Thanks to a cut in the industrialized products tax, Brazil's auto industry saw a recovery of production in the first quarter of 2009. The tax cut triggered a record-high sale of 271,494 new vehicles in March, up 17 percent from the same period in 2008. Car sales for the first quarter this year reached record-high levels as well, with 668,314 registered sales. Brazil, aware of the agricultural sector's importance to the national economy, also has taken a series of measures to help farmers and agricultural enterprises. It has encouraged banks to grant more loans to farmers and agricultural enterprises. According to the Finance Ministry, the sector is expected to receive loans of at least 15.8 billion reais (6.79 billion dollars) in 2009. BRAZIL, CHINA ENJOY IMMENSE POTENTIAL OF COOPERATION China and Brazil, though far apart geographically, have seen continuous development in bilateral trade in recent years, with immense potential for the future. Bilateral trade volume in 2008 reached 48.5 billion dollars, a 63.2-percent increase year on year. Chinese exports to Brazil reached 18.75 billion dollars, an increase of 64.9 percent, while China's imports from the South American nation surged by 62.2 percent to 29.75 billion dollars. The booming development points to great potential in bilateral trade, Wang Qingyuan, commercial counselor at the Chinese embassy in Brazil, told Xinhua. Lula, who visited China in May, said the two nations have a "shared responsibility to help bring about the fundamental reforms in global governance that the world so urgently needs." China already is Brazil's largest trading partner, but Lula said he still sees the potential for a huge expansion in bilateral trade. Qiu Xiaoqi, the Chinese ambassador to Brazil, said China and Brazil enjoy common ground on many world issues, including how to establish a new international economic order and how to reform the current financial system.

Argentina

We look at the economic background to the rioting and looting in Argentina, and the factors which led to the social crisis there. Argentina, the one time darling of the IMF, held up as an example of how a country should stringently adhere to structural adjustment programmes, is presently standing as a shining example of how the capitalist system cannot be made to work in the interest of the majority. When Economy Minister Domingo Cavallo pegged the Argentinean peso to the dollar ten years agoon a one-to-one basishe envisaged that this would end hyperinflation. Three years ago, when neighbouring Brazil devalued its real, this seriously began to upset Argentina's foreign investments and exports, as buyers of Argentinian products found they could get the same next door and far cheaper. Argentina is now in debt to the tune of $132 billionattributable largely to far-reaching borrowing carried out during the second term of the Carlos Menem government, prior to the election of President Fernando de la Rua. The effect of the domestic and foreign borrowing was to send domestic interest rates spiralling upwards. As the debt increased, so did the interest rates, which had a knock on effect for many businesses reliant upon credit. In the 1990s, Menem introduced mass privatisation as a way of increasing economic efficiency. This resulted in many workers being made redundant, with them being surplus to requirements and unprofitable to employ. So, back in 1999, the Argentinean recession began, a product of Argentina's relative economic inefficiency and the measures taken to tackle it. The recession began increasing in ferocity as domestic demand declined and unemployment increased and, because the government's tax revenues started shrinking, Argentina's burden of debt became all the more heavier. In November all of Argentina's economic woes came to a head when people, fearful their pesos would be devalued, began hurrying to the banks to exchange them for dollars whilst the one-to-one rate was still in existence. Cavallo, fearful the banks would be drained of money, issued a decree which limited withdrawals to $1000 per person per month. The effect of this was to create mistrust in the government and widespread uncertainty with people rioting and protesting on the streets, with looting reported in many cities. One week before Christmas the riots had spread to Buenos Aries. The president declared a state of emergency and brought troops onto the streets. But his government offered no remedy for the economic crisis and this only brought larger numbers of protestors back on to the streets within 24 hours, the unemployed being joined by "middle class" professionals all taking part in the looting. When thousands of protestors congregated in Congress Square, banging pots and pans, the resignation of the president, his economic minister and the entire cabinet was almost immediate. De la Rua was determined to make one impassioned speech before he left, but with an angry crowd having none of it, he was instantly whisked to safety by a helicopter.

Tensions rose. People poured in from outlying districts, blockading motorways and erecting barricades, destroying banks and multinationals, looting supermarkets and fighting with almost 40,000 police who had been drafted into the city. When the violence had subdued, 26 had been killed. Many Argentineans blame de la Rua for the crisis, citing the fact that he was the president when the crisis was deteriorating more alarminglyas if he could control the economy! As the economy was controlling him, he had little option but to cut public spending to service debt repayments. De la Rua, however, did enter office foolishly promising to kick-start the economy and end high level corruption yet by early 2000 he had introduced 650 million worth of spending cuts and forced through eight unpopular austerity plans, which included a 13 percent cut in state workers' wages. Just prior to the unrest, the government planned to further cut public spending from 34 billion to 27 billion in a further attempt to service the crushing loan repayments. The current president is one Eduardo Duhalde, a former left-wing senator and once upon a time investigated for the corruption his predecessor promised to stamp out. At present he plans to freeze the prices charged by foreign-owned utilities companies and put a tax on foreign owned oil companies. To protect the better off from currency devaluation he has offered to convert dollar loans under $100,000 into pesos, at the one-to-one rateplacing a hefty burden on banks, not borrowersand he has further promised that cash will be set aside for the unemployed. All of which amounts to a timely game plan to placate the more volatile sections of Argentinean society. Meanwhile, IMF top brass are in Argentina demanding, on behalf of the US and Europe, that the country does not default on its loan obligations. Outside markets are watching events carefully aware of the fact that economic crisis have tended in the past to lead to military coups and all their implications and are now mindful of granting further loans to the region. There has been much analysis of recent events in Argentina. The general mood is that the IMF is to blame, that its structural austerity programmes are socially and politically unsustainable and that its rule-book needs tearing up. What has not been said is that, like the Argentinean government, the IMF is simply a body trying to make capitalism work. And in this regard they cannot entirely be faulted, because as events in Argentina have revealed, capitalism is working perfectly well, for this is the only way it can work in an anarchic and chaotic manner, negligent and oblivious to the misery and suffering it creates. If a few get rich while millions lose out big style, then this is capitalism working as it only can work. If there is recession followed by boom followed by recession, then capitalism is working healthily. Argentina, therefore, is another example of capitalism functioning normally.

Euro zone
In the Euro zone as a whole, industrial production fell 1.9 percent in May, the sharpest onemonth decline for the region since the exchange rate crisis in 1992. European car sales fell 7.8 percent in May compared with a year earlier. Retail sales fell by 0.6 percent in June from the May level and by 3.1 percent from June in the previous year. Germany was the only country out of the four biggest economies in the eurozone to register an increase of activity in July though the increase was sharply down. Economic analysts from RBS and capital Economics say the decline raises the risk of the eurozone entering a recession in 2008. In the second quarter, the eurozone's economy was reported to have declined by 0.2 percent. The economy declined again in the third quarter putting the eurozone in a technical recession.

Ireland
Ireland in the first quarter of 2008 reported a contraction in GDP of 1.5 percent, its first economic contraction since it began reporting by quarter and first recorded contraction since 1983. However, Ireland's Central Statistics Office reported growth in GNP of about 0.8 percent, Ireland's government considers GNP a better measure of the economy. Analysts have predicted Ireland's economy will contract further in the rest of the year. A report from NCB Stockbrokers predicts gross national product will fall by 1 percent in 2008 and by 0.4 percent in 2009 due to a decline in multinationals hit by the global economic slowdown. An economist from NCB said non-residential investment would fall by 5 percent in 2008 and by 12 percent in 2009. Ireland's GDP saw a contraction in the second quarter by 0.5 percent making Ireland the first member of the eurozone to enter a recession. The government is being advised by Merrill Lynch, the American broker that ran out of capital in September 2008. In January 2009 it was forced to nationalise its third largest bank, Anglo Irish Bank and to announce recapitalisation of its top two banks, AIB and Bank of Ireland. In February 2009, the government announced record unemployment levels in the country, with its highest monthly increase in 40 years and 1,500 people being laid off daily. Students rallied against the government, with 15,000 partaking in one march to protest against the reintroduction of university fees two days after former Taoiseach, Bertie Ahern was attacked, booed and jostled by an angry mob in Galway.

Spain
Spain's Martinsa-Fadesa, a construction company, has declared bankruptcy as it failed to refinance a debt of 5.1 billion. The two banks with most exposure to Martinsa-Fadesa are reportedly Caja Madrid, at 900m, and Banco Popular Espaol, at 400m. Spain's finance minister Pedro Solbes has said it would not bail out the company. In the second quarter in Spain house prices reportedly fell 20 percent. In Castilla-La Mancha some 69 percent of all houses built over the past three years are still unsold. Deutsche Bank said it expects a 35 percent fall in real house prices by 2011. Spain's premier, Jose Luis Zapatero, blamed the European Central Bank for making matters worse by raising interest rates. More than 98 percent of home loans in Spain are priced off floating rates linked to Euribor, which has risen 145 basis points since August. Housing accounts for over 10 percent of Spain's

economy. The Bank of Spain is concerned about the health of smaller regional lenders with heavy exposure to the mortgage market. Although Spain has avoided recession in the first half of 2008, unemployment in the country has risen by 425,000 over the past year, reaching 9.9 percent. Car sales in Spain fell 31 percent in May. Spain's factory output slumped 5.5 percent in May. The country's business lobby Circulo de Empresarios warned of a "high probability" that Spain's economy would fall into recession in the second half of 2008 due to the housing collapse. Spain had a 7.9 percent decline in retail sales in June compared to the previous year, the largest drop since Spain began registering the results and the seventh consecutive monthly decline. This included a 17.9 percent drop in retail sales of household goods. June food sales in Spain fell by 6.8 percent. Morgan Stanley issued a major alert on the health of Spanish banks and the Spanish economy in a report, saying, "A momentous economic slowdown is now under way. We believe the deterioration in Spain is just in the beginning stages. The bulk of the pain will be suffered in 2009." Morgan Stanley also warned there was 40 percent chance of a 0.5 percent contraction of the Spanish economy in 2009, with a risk of an even more extreme 1.4 percent contraction in 2009. According to Spanish automobile manufacturers' association ANFAC new car sales fell 27.5 percent in July from the same time in 2007, the third consecutive monthly drop of over 20 percent. Spain's government forecast the unemployment rate would rise to 10.4 percent in 2008 and to 12.5 percent in 2009. Spain's second largest bank BBVA predicted the unemployment rate could reach 14 percent in 2009. Spain's Purchasing Managers Index for the manufacturing sector in July fell to a new low suggesting a deep recession. In the second quarter Spain's economy grew by 0.1 percent, the lowest gain in 15 years. As of January 2009, Spain's government forecast the unemployment rate would rise to 16 percent in 2009. The ESADE business school predicts 20 percent. According to Spains Finance Minister, the Spain faces its deepest recession in half a century.

Germany, Italy, Greece, Portugal

In Germany officials had warned the economy could contract by as much as 1.5 percent in the second quarter because of declining export orders. The economy of Germany indeed contracted in both the second and third quarters putting Germany now in a technical recession. Although the idea was fought for a moment Angela Merkel and the German government approved a 50 billion strong rescue plan to protect the German economy of the crisis, making of it Western Europe's biggest rescue plan for now in this crisis. Germany's industrial output was down 2.4 percent in May, the fastest rate for a decade. Orders have now fallen for six months in a row, the worst run since the early 1990s. The German Chamber of Industry and Commerce warned of up to 200,000 job losses in coming months. German retails sales fell 1.4 percent in June more than any expectations. The German economy declined by 0.5 percent in the second quarter. Industrial output in both Italy and Greece has slumped 6.6 percent over the past year. However, Greece's economy will continue to grow for both 2008 and 2009; Eurostat expects the Greek economy to grow 3.1% and 2.5% respectively. However Greece faces a

very big challenge with its public finances because of the crisis. Portugal's industrial output is off 6.2 percent. The country, which was just recovering from a period of economic crisis during the past years, had several industries closing, one bank saved by the state, the remaining banks showing signs of significant unrest and unemployment figures rising to almost 11%. In Italy, Fiat announced plant closures and temporary layoffs at factories in Turin, Melfi and Sicily. Car sales in Italy have fallen by almost 20 percent over each of the past two months.Italy's car workers' union said, "The situation is evidently more serious than had been understood." On 10 July 2008 economic think tank ISAE lowered its growth forecast for Italy to 0.4 percent from 0.5 percent and cut the 2009 outlook to 0.7 percent from 1.2 percent. Analysts have predicted Italy had entered a recession in the second quarter or would enter one by the end of the year with business confidence at its lowest levels since the September 11 attacks. Italy's economy contracted by 0.3 percent in the second quarter of 2008.

France, Benelux
Other eurozone members saw a decline in their economies in the second quarter as well; France by 0.3 percent, Finland by 0.2 percent while the Netherlands showed zero growth in the second quarter. However the final estimates released by the INSEE, France's statistical agency, showed the French economy grew by 0.14 percent during the third quarter thus barely avoiding a technical recession. In the first quarter of 2009, France fell into recession, the last developed nation to do so. In order to fight the economic crisis, French president Nicolas Sarkozy announced a 26 billion rescue plan which will amount to an additional 15.5 billion in addition to the normal budget for 2009 and will increase France's public deficit to 4%. It is similar, to an extent, to Barack Obama's proposal to stimulate the U.S. economy by investing in the nation's vital infastructure. Further proposals include tax rebates for small businesses as well as easing restrictions on building permits and government contracts particularly with construction and civil engineering. This is due to the "prime la casse" program where buyers received a rebate of up to 1,000 for scrapping their polluting old vehicles and purchasing new environmentallyfriendly/ fuel efficient cars. As a consequence, car sales in France in December 2008 were 30% higher than in December 2007 although on the total 2008 year the sales was down 0.7%. Because the French new cars market fared better than most as well as increased sales in South America, French brands, particularly Renault, now have bigger shares of the world's market despite selling fewer cars in 2008 than in 2007. Another highly exposed industry is naval construction, an order concerning a packet boat for NCL was already cancelled. In order to fill the blank in the construction planing the French government is expected to order soon a third Mistral BPC, as well as smaller ships, for the French navy to DCNS. This is part of the Sarkozy's rescue plan. DCNS also won its biggest export contract ever when the Brazilian government placed a 7 billion large order to the company. The order concerns four Scorpne class submarine with a conventional propulsion and a fifth one with a nuclear propulsion, as well as a naval shipyard and a naval base.

The French cooperative bank Caisse d'Epargne suffered a 600 million derivatives trading loss in October 2008, which it blamed partly on the high market volatility at the time. The group of employees responsible for making the unauthorised trades were dismissed. French banks have also been affected to some point by the fraud set by Bernard Madoff. Most importantly Natixis, an investment bank, potentially lost 450 million in the process and BNP Paribas could lose 350 million. Neither Natixis or BNP Paribas directly invested in Madoff's but through bonds issued by the US treasury they could face such loses. It is to be determined if all of these are effectively lost, which ones can be recovered and what can be saved by legal procedures. Other groups like AXA, Socit Gnrale, Crdit Agricole and Groupama could also face loses to some point. On 28 September 2008, Dutch-Belgian bank Fortis was partially nationalized with a cash infusion from the Benelux countries amounting to 11.2 billion. Fortis' troubles started in the beginning of the year with an announcement that it faced around $1.5bn of losses in the American sub-prime catastrophe. In June, the company announced a selloff of assets to raise 5 bn to improve the liquidity of the organisation. This, however, proved insufficient. On 6 October 2008, it was announced the French bank BNP Paribas would take over 75 percent of Fortis' activities in Belgium, and 66 percent in Luxembourg, in exchange for the Belgian government becoming the new group's major shareholder.However the Belgian government was accused of pressuring shareholders and collapsed over the controversy thus delaying the operation. A new proposition was made on 30 January 2009 with slightly different terms. BNP Paribas would take over 75% of Fortis' banking activities in Belgium and only 10% of the insurance activities in return of what the Belgian government would take 11.7% of BNP Paribas. This agreement would come with a warranty from the Belgian government that it would cover up to 5 billion if more toxic assets were to be discovered. On 30 September 2008 the Belgian, French and Luxembourg governments said they would invest 6.4bn into keeping Dexia, Belgium's second largest bank, afloat. In May 2008 industrial output fell in the Netherlands by 6 percent.On 19 March 2009, the INSEE announced worse contraction than previously said, predicting a -2.9% set back of the croissance, and a jobless rate up to 8.8 as soon as June 2009.

United Kingdom

People queuing on 15 September 2007 outside a Northern Rock bank branch in the United Kingdom, to withdraw money from their accounts.

The economy of the United Kingdom has also been hit by rising oil prices and the credit crisis. Sir Win Bischoff, chairman of Citigroup, said he believes that house prices in Britain will keep falling for another two years. The Ernst & Young Item club predicted growth of only 1.5 percent in 2008, slowing to 1 percent in 2009. They also predicted consumer spending would slow to only 0.2 percent, and forecast a two-year drop in investment. The Institute of Directors quarterly business opinion survey showed business optimism at its lowest level since the survey began in 1996. Deputy Governor of the Bank of England, John Gieve said inflation would accelerate "well over" 4 percent while economic growth is "slowing fast." Bank of England Governor Mervyn King said there may be "an odd quarter or two of negative growth," following the first quarter of 2009. Gieve said he couldn't rule out the U.K. economy heading into a recession, adding the economy was "quite a long way" from the end of the slowdown. Nationwide, the UK's biggest building society, warned the UK could head into a recession after house prices in July 2008 fell 8.1 percent from the previous year. Housing prices declined by 1.7 percent in July, double the decline recorded in June. Standard & Poor's said on 30 July 2008 that 70,000 homeowners were in negative equity and it could rise to 1.7 million or about one in six homeowners in the UK based on an expected 17 percent decline into 2009. The Bank of England reported that mortgage approvals fell by a record of nearly 70 percent. In Northern Ireland, house sales saw a fall of some 50 per cent according to a survey by the University of Ulster/Bank of Ireland and housing prices fell on average by 4 percent.[7 British manufacturing activity declined by the most in almost a decade in July, the third consecutive month of declines. The number of companies that went into administration in MayJuly 2008 was 938, an increase of 60 percent compared with the same period in 2007. The number of company liquidations in the second quarter of 2008 rose to 3,689, a 16 percent increase and the highest quarterly figure in five years. House builders expected the number of houses built in 2008 in England and Wales to be the lowest since 1924. The declines were seen as an indication the United Kingdom had a high chance of entering a recession. Factory production in the UK dropped 0.5 percent in June 2008 when twelve out of 13 categories of factory production fell. The economic output of the UK was reported to have increased by just 0.2 percent in the second quarter 2008, the joint-slowest pace since 2001. The Office for National Statistics later gave a revised number saying growth in the British economy was at zero, the worst since the second quarter of 1992. The current slowdown has ended 16 years of continuous economic growth, the longest period of economic expansion in Britain since the 19th century. A report from the National Institute for Economic and Social Research said the economy contracted by 0.1 percent in the period from May to July 2008 and 0.2 percent from June to August 2008. A voter backlash due to the personal financial effects of the global credit crunch was widely attributed by politicians of the United Kingdom Labour Party, which had been in power since 1997, as the reason their political fortunes took a dramatic downturn through

May 2008, with a succession of defeats in by-elections and the London Mayoral election, and the worst opinion poll result in their history. Political opponents countered this apparent excuse by pointing to the fact that the incumbent Prime Minister Gordon Brown, who had taken office in June 2007 just before the crisis broke, had been the country's 'Iron Chancellor, and had allegedly not ensured the country had sufficient monetary reserves to be able to lower taxes and ease the burden on voters, despite overseeing one of the longest sustained periods of economic growth in the country's history. In August 2008 the party also faced calls to impose a windfall tax on the utility companies, who were reaping record profits due to the fuel crisis, perceived as in bad taste given rising food and fuel prices. On 17 September 2008, news emerged that the banking and insurance group HBOS (Halifax Bank of Scotland) was in merger talks with Lloyds TSB about creating a UK retail banking giant worth 30bn. The move received the backing of the British government which stated that it will over-rule any claims from the competition authorities. According to the Office for National Statistics unemployment claims in August 2008 increased by 32,500 to reach 904,900. The wider Labour Force Survey measure found joblessness rose by 81,000 to 1.72 million between May and July, the largest increase since 1999. In September 2008, British bank Bradford & Bingley's 20 billion savings business was acquired by Spanish bank Grupo Santander. While its retail deposit business along with its branch network will be sold to Santander. The mortgage book, personal loan book, headquarters, treasury assets and its wholesale liabilities will be taken into public ownership. From 1 December 2008, the UK Government made the decision to cut VAT from 17.5% to 15% for 13 months in an attempt to encourage a big spend from UK shoppers before Christmas. On 4 December 2008, the Bank of England cut interest rates from 3% to 2%, which amounts to the lowest level since 1951. On 8 January 2009, the Bank of England reduced rates even further, from 2% to 1.5%, the lowest level in the its 315 year history. On 23 January 2009, Government figures from the Office for National Statistics showed that the UK was officially in recession for the first time since 1991. On 5 February 2009 interest rates were cut further from 1.5% to 1%. A February 2009 research on the main British insurers showed that most of them are not considering officially raising insurance premiums for the year 2009, in spite of the 20% raise predictions made by The Daily Telegraph or The Daily Mirror. However, it is expected that the capital liquidity will become an issue and determine increases, having

their capital tied up in investments yielding smaller dividends, corroborated with the 644 million underwriting losses suffered in 2007. On 5 March 2009, the Bank of England cut interest rates yet again, from 1% to 0.5%. The same week, it announced that it would begin a policy of quantitative easing, printing up to 150 billion of new money. Figures published in March 2009 by the Bank of England revealed that over $1 trillion in foreign holdings had been withdrawn from UK banks between spring and the end of 2008, representing a huge loss of confidence in UK financial institutions. By November 2008, unemployment had risen to over 1.8 million and by March 2009 had surpassed 2 million, the highest since 1997, the year the Labour Party came to power. By 2010, forecasts project unemployment could surpass 3 million which would be the highest since the early 1990s recession. A report by the ONS produced in March 2009 stated that the UK economy shrank by 1.6 percent during the last quarter of 2008, with a 1% drop in household spending. A further decline of up to 4% GDP during 2009 was predicted. In April 2009, it was reported that first quarter GDP had shrunk by 1.9 percent, with a prediction of a 4.1 percent drop for the year. The largest contributor to this figure was manufacturing output, which fell by 6.9 percent over the quarter. In May 2009, Standard And Poor cut its rating outlook for the UK to negative.Official figures also showed that British public borrowing hit a record high for the month of April, the first month of the new tax year - net public borrowing came in at 8.5bn in April 2009, compared to April 2008's figure of 1.8bn In June 2009, the figure for the first quarter GDP drop was revised downwards from 1.9 to 2.4 percent, with economic output falling 4.1% from the previous year. Revised figures also showed that the recession began in Q2 of 2008, rather than Q3 of 2008 as previously reported. In the 3 months to May 2009, the unemployment rate showed a record quarterly rise of 281,000 to stand at 2.38 million - equivalent to 7.6% of the working population. In the three months to June, the number of job vacancies fell to a record low of 429,000, down by 35,000 from the previous quarter.

Russia

The 20082009 Russian financial crisis, part of the world Economic crisis of 2008, is an ongoing crisis in the Russian financial markets that has been compounded by political fears after the war with Georgia, as well as renewed concern about state intervention in corporations of strategic interest, Putin's poor policy and by the plummeting price of Urals heavy crude oil, which has lost more than 70% of its value since its record peak of $147 on 4 July 2008. While according to the World Bank Russias strong short-term macroeconomic fundamentals make it better prepared than many emerging economies to deal with the crisis, its underlying structural weaknesses and high dependence on the price of a single commodity make its impact more pronounced than would otherwise be the case. In November 2008, there were reports that trade in Russian shares had increasingly shifted to London traded Global Depositary Receipts during frequent suspensions in Moscow, dictated by rules imposed by the regulator to reduce volatility on Moscow's increasingly illiquid stock market. Reuters reported more than $1 trillion has been wiped off the value of Russia's shares during the crisis. As the crisis progressed, it became clear the Kremlin would play the dominant role in deciding which Russian oligarchs -- many of whom were highly leveraged -- would survive the crisis. Reuters and the Financial Times speculated that the crisis would be used to increase the Kremlin's control over key strategic assets in a reverse of the "loans for shares" sales of the 1990s, when the state sold off major assets to the oligarchs in return for loans. State VEB bank was used to refinance the debt of Oleg Deripaska, once ranked by Forbes as Russia's richest man, but demanded a 25 percent stake in Norilsk Nickel as collateral for the $4.5 billion loan. The Financial Times called it another "sale of the century", a reference to the book about the Russian asset sales of the 1990s by Chrystia Freeland. In February 2009, Fitch Ratings downgraded Russia's Long-term foreign and local currency Issuer Default ratings (IDR) to 'BBB' from 'BBB+', the Short-term foreign currency IDR to 'F3' from 'F2' and the Country Ceiling to 'BBB+' from 'A-' (A minus). "The downgrade reflects the negative impact on Russia from the fall in commodity prices and the dislocation to global capital markets that has left Russian banks and companies struggling to refinance external debt, and the difficulties Russia faces in managing the necessary macroeconomic policy adjustments," said Edward Parker, Head of Emerging Europe in Fitch's Sovereigns team. "The scale of capital outflows and the pace of decline in Russia's foreign exchange reserves have materially weakened the sovereign balance sheet," said Mr Parker. Russia's foreign exchange reserves (FXR) have fallen by USD210bn, from their peak at end-July 2008 to USD386.5bn as at 23 January 2009, albeit around USD58bn of which was due to valuation effects. The euro fell to session lows versus the dollar below $1.29 after ratings agency Fitch downgrade.

Australia
There has been a credit market crisis in the Australian economy since early 2008. The taxation system is currently being reviewed in order to reduce its complexity and increase

the tax concessions made for investment income, although it remains uncertain what if any financial products will be excluded in the proposed changes. In July 2008, the National Australia Bank cut a A$850 million bond sale by two thirds following investor flight and opted for a 100 percent write-off on a clutch of "senior strips" of AAA-rated collateralized debt obligations (CDO) worth A$900 million.Banks began avoiding lending for land, to focus on refinancing existing clients, and small developers held on to their properties as second-tier loan costs (up to $15 million) were, reportedly, unaffordable since February. Housing prices consequently fell in the second quarter for the first time in about three years, restricting consumer confidence to its lowest level in 16years. High profile casualties of the credit crunch include Allco Finance, MFS, ABC Learning, Babcock & Brown and Centro while numerous other institutions have lost a significant part of their value. Sources such as the IMF and the Reserve Bank of Australia predict Australia is well positioned to weather the crisis with minimal disruption, sustaining more than 2% GDP growth in 2009 (while many Western nations go into recession). The World Economic Forum recently ranked Australia's banking system the fourth best in the world, while the Australian dollar's 30% drop is seen as a boom for trade, shielding from the crisis, and for helping to slow growth and consumption. Some analysts have predicted the continuing decline of trade in 2009 could put the economy into recession for the first time in 17 years. Unemployment will increase because of slower growth, declining profits and government revenues.

First Commonwealth Stimulus Package

In order to avoid and or cushion the impact of a recession the Federal Government proposed a $10.4 billion AUD stimulus package. The package would provide cash payments to those already on government transfer payments. $4.8 Billion of this package went to Pensioners, carers and war veterns with individuals getting a lump sum of $1,400 and couples getting $2,100. $3.9 billion was to be paid for people who where receiving family tax benefit A and people who where receiving family tax benifit B. $1.5 Billion was set aside for the first home grant with it being double to $14,000 for existing homes and trebeled to $21,000 for newly built homes. Other smaller programs would make up the the rest of expenditure. Treasury estimated that it would boost GDP by 1% and UBS chief economist predicted that if all of the stimulus money where spent then it would boost christmas sales by 30%.

In March 2009, Canberra announced that the Australian economy contracted by 0.5% in the last quarter of 2008, leading to fresh worries of recession. On Wednesday the 22nd of April, 2009 it was declared officially that Australia was in recession by Prime Minister Kevin Rudd. On June 3, the Federal Government announced that Australia did not show negative growth for two consecutive quarters, and thus has not officially entered recession, providing an optimistic outlook for the economy.The positive GDP figure was due to a increase in the trades surplus due to an increase in exports and a large decrease in imports. This combined with steady consumption figures to prevent the economy contracting in this quarter.

Unemployment
Employment, Unemployment and Participation Seasona lly seasonall Numbe Adjuste y Seasonally r of Number Unemploy Participat d Adjusted Adjusted people of people Date ment ion Numbe number Unemploy employ unemplo Rate, % Rate, % r of of people ment ed , yed ,000s people unemplo Rate, % 000s Employ yed ,000s ed ,000s Marc 10 h 611.1 5.4 65.4 10 771.6 649.9 5.7 794.9 2009 April 10 630.8 5.5 65.5 10 798.9 614.6 5.4 2009 790.6

Seasonally Adjusted Participati on Rate, %

65.5 65.4

New Zealand
New Zealand Institute of Economic Research's quarterly survey showing New Zealand's economy contracted 0.3 percent in the first quarter and Treasury figures suggested the economy also contracted in the June quarter putting New Zealand in a technical recession. The Treasury says the economy could recover in the second half of the year under the impact of high dairy prices boosting farmer incomes and cuts to personal tax rates, which come into effect on Oct. 1.About 23 financial companies in New Zealand have filed for bankruptcy in a year. Housing starts in New Zealand fell 20 percent in June, the lowest levels since 1986.Excluding apartments, approvals dropped 13 percent from May. Approvals in the year ended June fell 12 percent from a year earlier. Second-quarter approvals dropped 19 percent. The figures suggest a decrease in construction and economic growth. House sales fell 42 percent in June from a year earlier. The New Zealand Treasury concluded that the country's economy had contracted for a second quarter based on economic indicators, putting New Zealand in a recession. New Zealand's central bank cut rates by half a percent arguing the economy was in recession.[ New Zealand's GDP declined by 0.2 percent in the second quarter putting the country in its first recession in a decade.

East Asia
China

CHINESE growth was already the envy of the world. Now recession-stricken countries will be turning an even brighter green. On July 16th new figures showed Chinas GDP growth quickened to 7.9% in the year to the second quarter. That is healthy enough by anyones standards but the headline number conceals a more astonishing rebound. Goldman Sachs estimates that GDP grew at an annualised rate of 16.5% in the second quarter compared with the previous three months (see chart 1). Over the same period, Americas economy probably contracted again. Chinas economic stimulus has clearly been hugely effective. So effective, indeed, that some economists are now worrying it may be working rather too well.

In the year to June fixed investment surged by 35%, car sales rose by 48%, and purchases of homes by more than 80%. After falling last year, home prices are now rising briskly in some big cities, and share prices have soared by 80% from their November low. Domestic spending has been spurred partly by the governments stimulus package, but probably even more important was the scrapping of restrictions on bank lending late last year. In June new lending was more than four times larger than a year earlier (chart 2). One reason why the economy has rebounded so quickly is that much of the slowdown was self-inflicted, rather than the result of Americas economic collapse. In 2007 concerns about overheating prompted the government to curb the flow of credit for construction and home buying. This caused Chinas economy to slow sharply even before the global financial crisis. Then, last November, the government turned the credit tap back on full.

That has given a big boost to domestic spending but raised concerns that the flood of liquidity will push up inflation, fuel bubbles in shares and housing, and store up bad loans. The M2 measure of money surged by 29% in the year to June. In fact the risk of high inflation in the near future appears low: Chinese consumer prices fell by 1.7% in the year to June, and spare capacity at home and abroad is holding down prices. But asset prices could be a bigger danger. According to one estimate, 20% of new lending went into the stockmarket in the first five months of this year. It is probably too soon to use the word bubble. The stockmarket is still at only half its 2007 peak and, although house prices have risen sharply this year in Shanghai and Shenzhen, the nationwide average is barely higher than it was a year ago. But the pace of bank lending is unsustainable, and Americas recent experience suggests that it is better to prevent bubbles forming than to mop up the mess afterwards. Several officials at the central bank have said lending should be curbed.

At the moment, the prime minister, Wen Jiabao, is signalling that he wants monetary policy kept fairly loose. Exports remain weak and the government fears premature tightening could derail the recovery. It is also keen to create jobs and maintain social stability in the months before the 60th anniversary of Communist Party rule in October. Still, the central bank has begun to tug gently at the reins. It has nudged up money-market interest rates and warned banks that it intends to increase its scrutiny of new bank loans. The China Banking Regulatory Commission has warned banks to stick to rules on mortgages for second homes, which require a down-payment of at least 40% of a propertys value. The recent rebound in house sales is, in fact, exactly what the government is aiming for, since it is using property as a way to spur private consumption. Higher house sales encourage more spending on furniture and consumer appliances. Construction also creates

lots of jobs; indeed, it employs almost as many workers as the export sector. Since October the government has encouraged people to buy houses by cutting the minimum mortgage down-payment on their main home from 30% to 20% and by reducing stamp duty and other taxes on property transactions. Stronger sales are now feeding through into new house building: housing starts rose by 12% in the year to June, the first growth in 12 months. Given the importance of property to domestic demand, the government is highly unlikely to want to clamp down hard on the housing market. Despite the recent lending boom, Chinese banks mortgage lending is still very conservative compared with that in Americaat the peak of Americas housing bubble it was easy to get a mortgage for 100% or more of the value of a home. Nevertheless, the lesson of Americas financial crisis for Chinas government is plain: overly loose lending should never be ignored.

Hong Kong The Hong Kong economy officially slid into recession in the final quarter of 2008. The economy is predicted to grow at 2 percent in 2009. Hong Kong is an advanced tertiary economy built on services, retail, tourism, transport and financial industries. Hong Kong's manufacturing industry is located in Guangdong province which employs over 11 million people. The Hang Seng Index has lost over 60 percent of its value, property market lost over 40 percent in value and unemployment is at a record high of 4.8 percent.

Japan
In recent months Toyota has replaced its bosses, halted pet projects and temporarily cut production in Japan almost in half. Toshiba took control of affiliates and said it would shut down unprofitable businesses. Sony plans to halve the number of its suppliers to save {Yen}500 billion ($5.2 billion) this year alone. All have cut back their part-time and temporary workers, who had only ever been promised a pay-cheque, not a job for life. The actions of these prominent Japanese companies have encouraged others to follow suit. During the lost decade of 1991-2002 Japanese firms dithered rather than adopting the harsh measures that might have prevented a drawn-out stagnation. But this time around the response has been much faster and deeper. After all, if any country ought to know how to respond to a low- or no-growth environment it is Japan: it has had plenty of practice.

The press has done its part, continually reminding the public of the once in a century nature of the crisis and thus providing support for the lay-offs. And banks have played a more constructive role than they did in the 1990s, by refusing to extend credit to some needy firms that cannot meet their obligationsto the dismay of politicians and bureaucrats.

It helps that unlike during the bursting of the countrys bubble economy in 1991, the crisis originated outside Japan and all unpleasant measures could be blamed on the American bankers whom many Japanese held responsible for it. And the sudden collapse of export sales, which happened in tandem with a spike in commodity prices and an appreciation of the yen (which makes Japans exports more expensive), meant that corporate Japan had no choice but to act. All this is quite a turnaround. During the lost decade Japan regarded its problems as a private, domestic matter: it resented outside pressure to sort out errant banks, speculative property developers, overly ambitious conglomerates and so on. Corporate reforms were introduced, albeit slowly and imperfectly. Jobs, sacrosanct in Japan, were eventually shed. The reaction this time is notable because it capitalises on the changes introduced back then and provides an opportunity to push for even more restructuring. It is sorely needed. The drop-off in demand from the West has clobbered Japans export economy. Foreign trade is down one-third. Japans economy is expected to contract by 6% this year, making it the worst-hit among rich countries. Industrial overcapacity is thought to be much higher than in America or Europe. Indeed, things are so bad that it is generally assumed that they cannot get any worse, and will instead improve over the next six months as the inventory cycle turns and firms restock. This has helped push the Nikkei 225 share index up by around 40% since March, when it hit a 26-year-low. Many firms failed to restructure seriously during the lost decade, especially after 2002 when record profits poured in from exports. Companies refused to pare their sprawling operations and spin off non-core units (it is common for firms to own their own hot-spring resorts, for instance). But the recession has strengthened the hand of reformers. The most widespread form of restructuring is the easiest: cutting staff. Since the lost decade, Japans labour force has become more flexible, as the post-war tradition of lifetime employment has waned. Non-regular workers, as temps and part-timers are known, have increased from one-fifth to one-third of the workforce. Labour represents around 70% of Japanese business costs: though hard on individuals who are sacked, the rise of non-regular workers has let firms cut costs fast. It is still difficult and expensive to lay off regular workers. Firms typically provide the main pensions of staff they jettison, as well as lump-sum severance packages. This explains why companies such as Toshiba must raise huge sums to cover restructuring costs. Another sign of change is corporate Japans sudden zeal for mergers and acquisitions, despite the uncertain business environment and a scarcity of capital. Last year Japanese firms spent a record amount acquiring businesses abroad, and the buying has not abated. Firms such as Kirin, a beverage-maker, J-Power, an electricity wholesaler, and many others have bought foreign companies this year. Japans stagnant domestic economy offers no prospects for growth, and the strong yen, low asset prices and a dearth of rival bidders make it a good time to pounce.

But most transactions were domestic, as companies span off units or took direct control of affiliates. In recent months Hitachi, Toshiba and Fujitsu, among others, have shuffled their businesses in ways that were unthinkable before the downturn. In the first quarter of this year dealmaking in Japan even exceeded that in China, with a total value of $30 billion. But is the restructuring going far enough? The emphasis has been on cost-cutting, rather than overhauling business models. And most of the big moves have been made by Japans big export-focused firms, which were the first to be affected by the downturn. There has been much less reform among Japans huge swathe of inefficient, domestically oriented companies. Moreover, even those firms that are trying to cut costs have tried to spread the pain among their suppliers, which may actually make things worse in the long run. The advantage of commercial camaraderie is that firms can count on at least a little business to keep them alive. But propping up ailing ones ultimately harms their healthier rivals, by depriving them of resources they could more fruitfully deploy, including capital and qualified staff. An executive at a medium-sized supplier to a big electronics firm explains how. The electronics firm continues to do business with weak suppliers offering inferior technology, depressing prices and profits for stronger ones. This has forced him to cut his research budget. How can we keep up with the technology cycles if we lack the profits to invest? he asks.

South Korea
By September 2008, the crisis threatening the GSEs (US mortgage lenders Fannie Mae and Freddie Mac) began to have consequences in Asia. The foreign exchange reserves of South Korea's central bank contained many depreciating "Agency bonds" from the GSEs, threatening a currency crisis and leading to depreciation of the South Korean won against the US dollar and other major currencies,. Samsung Electronics has been reported to be posting a decrease in sales for the first time since the 1997 Asian financial crisis that home appliances saw a decrease in the domestic market of up to 20 percent since mid-June compared to the previous year. Domestic auto sales also saw a decrease in the second quarter. Auto exports also posted a loss and exports of home appliances were also reported to be in decline.

Middle East
Lebanon
Lebanon is one of the only seven countries in the world to have scored profits in 2008.Given the regular security turmoil it has faced in the past, its banks have adopted a

conservative approach. The strict regulations imposed by the central bank were crafted to make the Lebanese economy immune to political crisis; and so far, this has applied to the global economic crisis as well. The Lebanese banks remain, under the current circumstances, high on liquidity and reputed for their security. Moody's has recently shifted Lebanon's sovereign rankings from stable to positive acknowledging its financial security. Moreover, with a Beirut stock market increase of 51%, the index provider MSCI, ranked Lebanon as the world's best performer in 2008.Analysts are, nonetheless, skeptic about the future indirect effects of the crisis, but so far, the direct consequences have proved to be positive.

Global Economic Meltdown and India( Need for government spending)

The global economy is in the midst of the worst crisis it has seen in 70 years. The International Labor Organization says that 51 million jobs in the world economy could disappear this year. The world economic growth has slowed down to 0.5 % (slowest since WWII). However, in the midst of it all India seems to be happily claiming that none of this has much of an impact on the Indian economy. Hmmm, think again. India may not have been affected by the global economic turndown as much as US, Europe or Japan, (not yet at least), but that doesnt mean India is immune to it. Although it may now seem a lifetime ago, it has only been a few months since the so-called decoupling hypothesis dominated media coverage of the global economy. It was considered that the Asian economies would be largely decoupled from the developed ones due to the robust domestic market. Well, now since that has been disproved its time that we start thinking of how to get out of this mess. Indias financial sector may have been by and large, insulated from the rest of the world, which is why the Indian banks are in better condition than its counterparts worldwide. However, the rest of Indias economy isnt. A lot of the boom in Indian economy can be attributed to the exports of goods and services to the developed countries. Though the percentage would not be high in real terms, it definitely created a multiplier effect to help the rest of the economy.The withdrawal of investments by U.S. firms and the sharp decline in U.S. demand for foreign goods and assets have hit our respective sectors sorely. India might not be able to escape these tremors quite so easily. Now with the world economy slowing down, the exports are starting to struggle and this would affect the economy adversely. Our policy makers are aware of this and have taken certain measures to boost the slowing Indian economy. The Indian government has acted to unfreeze liquidity by aggressively cutting interest rates, the cash reserve ratio, and the statutory liquidity ratio. It has also announced fiscal stimulus in two stages, though on a much smaller scale than in many other countries. However, the cutting of interest rates, CRR and SLR are not enough and bailouts (like what was done in the US) should be the last thing the government should do. Its time to revert to a bit of Keynesian economics. Keynes argued that significant and heavy spending by the government was the best way to deliver the economy from such a crisis. Infrastructure spending, I believe would provide significant boost to the economy. Government must at all times continue to invest in measures that boost the long-term productive capacity of the economy. It is good to see that the government has already started taking steps in this direction. The Cabinet yesterday (29 Jan 09) approved infrastructure projects worth Rs. 334bln (projects included were Chennai metro and widening of 1410 kms of highways). The CII advocates an additional spending of up to 15% on infrastructure projects like roads, low cost housing, power and ports. This, in addition to providing much needed

Pakistan
In Pakistan the central bank's foreign currency reserves, when counting forward liabilities is said to only amount to as little as $3 billion, sufficient for a single month of imports. Corruption and mismanagement have combined with high oil prices to damage Pakistan's economy. Pakistan's rupee has lost more than 21 per cent of its value in 2008 and inflation is at 25 per cent. The government has failed to defer payments for Saudi oil or raise favorable loans. President Asif Ali Zardari claimed Pakistan needed a bailout worth $100 billion which he was expected to ask for at a meeting in Abu Dhabi in November. Ratings agency Standard and Poor's rates Pakistan's sovereign debt at CCC +, only a few ratings above the default level, warning the country may be unable to cover about $3 billion in upcoming debt payments. This led a change in economic managers,and politically elected finance minister Naveed Qamar was replaced by a financial advisor, Shaukat Tareen, a former banker belonging to Citigroup on October 8, 2008. The new finance advisor led the Pakistani delegation to IMF-World Bank meeting in USA with a hope to obtain a loan from the World Bank which has been stopped now due to reservations from IMF on World Bank for releasing this nature of Loan to any country.

Measures taken by World Bank , IMF, ADB, IDB:

World Bank

World Bank Forecasts Worsening Global Recession

The World Bank said the global recession in 2009 will be even deeper than previously predicted, with developing nations facing increased poverty and unemployment. The World Bank said in a report issued Monday that the global economic recession and associated market turmoil caused a steep drop in international capital flow to investments in less developed countries in 2008. The bank said foreign investments are expected to fall further this year. Earlier this month the World Bank said the global economy will shrink by 2.9 percent. In March, the Washington-based lender had said the economy would decline 1.7 percent. The bank said the world economy should start to grow again in late 2009, but recovery will be slower than expected. It urged countries to make "bold" policy measures to revive lending and growth. The World Bank's economic forecast is even more pessimistic than expected predictions by its sister organization, the International Monetary Fund.

Reports on Bloomberg and Reuters quoted unnamed sources saying the IMF is raising next year's growth prediction to hit 2.4 percent, up a half a percent from what earlier IMF studies predicted.

A meeting of development committee of the World Bank and International Fund, said the global economy has deteriorated and developing countries face serious consequences, as the financial and economic crisis turn into a human and development calamity. The committee said in a statement, that as a result, progress made towards the Millennium Development Goals (MDGs) is now in jeopardy. "The crisis has already driven more than 50 million people into extreme poverty, particularly women and children. "We must alleviate its impact on developing countries and facilitate their contribution to global recovery," it said. The committee confirmed its support for making optimal use of reconstruction and development's balance sheet with lending of up to $100 billion over three years. It also decided to treble the International Bank for IBRD's lending this fiscal year and fast track 15 commitments of the International Development Association (IDA). Other measures taken include the World Bank setting up a vulnerability financing facility to protect the poorest against global crises. The fund includes a global food crisis response programme and the new rapid social response programme. The bank is also to maintain infrastructure development and create jobs. To do this, it has established an Infrastructure Recovery and Assets Platform. Some of the initiatives are designed to mobilise more resources, both public and private. The bank will lend up to $15 billion a year for infrastructure, while the International Finance Corporation (IFC), the private sector arm of the bank, had equally launched the infrastructure crisis facility, as well as a Microfinance enhancement facility, to help poor borrowers. IFC has equally expanded its global trade finance programme from $1 billion

to $3 billion in addition to launching a global trade liquidity Programme, which is expected to support up to $50 billion of trade in the next three years. This month's G20 meeting ended with one overriding tangible agreement: A commitment by the rich countries to provide more than $1 trillion in assistance (mostly in the form of loans) to developing countries. This money is desperately needed. Although they had nothing to do with mortgage-backed securities or credit default swaps, developing countries are getting worst hit by the global economic meltdown. The World Bank conservatively estimates that 53 million more people will be trapped in deep poverty due to the crisis. Fleeing foreign investors, plummeting remittance earnings, falling commodity prices and shrinking export markets are devastating developing countries, leaving them in dire need of infusions of hard currency. So, the G20 move is to be applauded except that the entire purpose of the G20's assistance may be thwarted by the institution through which the G20 countries chose to channel most of the money: the International Monetary Fund (IMF). (There's also the matter that the $1 trillion figure overstates what will actually be delivered, and includes previously pledged money.) The logic of providing assistance to developing countries is to help them adopt expansionary policies in time of economic downturn. Yet the IMF is forcing countries in financial distress to pursue contractionary policies -- exactly the opposite of the stimulative policies carried out by the rich countries (and supported by the IMF, for the rich countries). The good news is this: The U.S. Congress can fix the problem, if it imposes conditions on the IMF before it agrees to authorize the U.S. contributions to the Fund. For three decades, the IMF has imposed "structural adjustment" on the developing world, using different names. In exchange for providing loans and, more importantly, a stamp of approval needed to access donor money, the IMF requires countries to adopt a series of market fundamentalist policies. These include deregulation (including of financial services), privatization, opening to foreign investment, orienting economies to export markets, removing protections for local producers growing food or manufacturing for the local market, removing labor rights protections, cutting government budgets, raising interest rates, and more. Furious at being subject to IMF dictates, over the past decade almost all middle-income countries paid back their loans to the IMF and refused to have anything to do with the institution. Only African and other poor countries remained under IMF control. The financial crisis has breathed new life into the IMF. Now headed by a new Managing Director, Dominique Strauss-Kahn, the Fund proclaims that it has changed. The days of harsh conditionality are over, it says. That's a pronouncement to be applauded except that the evidence of actual change in

IMF policy is disturbingly hard to find. The Fund's loans since September 2008 to countries rocked by the financial crisis almost uniformly require budget cuts, wage freezes, and interest rates hikes. These are exactly the opposite of the policies that make sense in recessionary conditions. They are exactly the opposite of the huge stimulus measures taken in the United States and other rich countries. They are the opposite of the interest rate reductions in the United States (now effectively at zero) and other rich countries. In Ukraine, Georgia, Hungary, Iceland, Latvia, Pakistan, Serbia, Belarus and El Salvador, the IMF has told countries to cut government spending, an analysis by the Third World Network shows. This means less money for health, education and other vital priorities. Earlier this month, the IMF told Latvia -- where the economy is expected to contract 12 percent this year -- that its loans would be suspended until it further cuts spending. The IMF has also instructed almost all of these countries to raise interest rates, the Third World Network analysis shows. The IMF has ballyhooed a new, low-conditionality lending program, known as the Flexible Credit Line. But that is available only to "good performing" countries -- which will be the countries least in need of loans. In some countries, there may be a modest loosening of Fund conditions. But the basic framework remains in place. Putting on its best face at a meeting it convened in Tanzania on the impact of the financial crisis on Africa, the Fund said in a policy paper that a few poor countries might have some capacity to undertake small stimulative programs. "A few countries may have scope for discretionary fiscal easing to sustain aggregate demand depending on the availability of domestic and external financing." But even then: "All this must be done carefully so as not to crowd out the private sector through excessive domestic borrowing in the often thin financial markets." But for countries in weak positions -- the vast majority -- "the scope for countercyclical fiscal policies is limited." And, the Fund continues to counsel against capital controls, which could limit the ability of foreign funds to enter and flee a country easily. This is of central importance, because it is concern about a currency attack that is the rationale for why poor countries cannot undertake stimulative measures. Capital controls would be the obvious remedy. But since the Fund rules them out a priori, countries are helpless, and denied the right to use the same Keynesian tools available to the rich countries. The opportunity to win real change at the IMF is this: The new money for the Fund's coffers has not yet arrived. The United States has pledged $100 billion of the $500 billion in new money that G20 countries said they would provide for the Fund (they also

announced plans for an additional $250 billion through issuance of Special Drawing Rights, a kind of IMF currency). Congress must approve the U.S. contribution. Congress can very reasonably attach conditions to any money for the IMF, so that IMF policies do not undermine the very purposes of providing money in the first place. The Congress can say, before the money goes to the IMF, the IMF must agree not to impose contractionary policies during times of recession, or at least provide a reasoned, quantitative justification for any such policies. The Congress can say, before the money goes to the IMF, that the IMF must exempt health and education spending from any government budget caps. The Congress can say, before the money goes to the IMF, that parliaments must be given the authority to approve any deals negotiated between the IMF and finance ministries. People are growing a little tired of seeing hundreds of billions of dollars allocated without conditions and accountability. Congress must not sign a blank check for the IMF.
The Asian Development Bank recently organised a meeting in Manila of central bank governors, ministers and senior finance officials from South Asia to consider the impact of the economic meltdown, and possible responses. Michel Camdesus, former managing director of the IMF delivered the opening address, former Union minister Arun Shourie the closing address.

Several features about the current economic crisis stand out. The first, of course, is the sheer scale of what preceded it, and the magnitude of what has happened in its wake: to recall a typical fact, in a recent lecture, Andrew Sheng mentions that, on the eve of the breakdown, the nominal value of financial derivatives and exchange traded derivatives had soared to fourteen times the worlds GDP.

Effect of these measures on world economy

Anti-Crisis Measures and Recession in the US Drawing on their experience of the crises of 1998-1999 and 2001, the governments of leading countries prepared to beat off the new economic destabilisation by creating massive financial reserves.

Russia formed a Stabilisation Fund of $548.1 billion. China had huge reserves of gold and foreign currency amounting to $1.68 trillion, 70 per cent of it in dollar-denominated form. The Eurozone had more than $500 billion at its disposal, and Japan $1.02 trillion. The reserves of gold and foreign currency of the US were relatively small, a fraction of those of Japan. Meanwhile, by the end of 2007 the US national debt had reached almost $10 trillion, while the total indebtedness of the federal government, of the states and of US corporations amounted to $40 trillion. For purposes of comparison, world GDP in 2007 amounted to $61 trillion, after annual increases of 4 per cent in 2001-2005 and of 3.1 per cent in 1991-2000. In order to service its debts and cover its budget outlays, the US government was forced each year to attract some $400-500 billion in foreign funds, through the sale of long-term FRS bonds. As an anticrisis strategy, all countries proposed to give financial aid to corporations that had got into difficulties, helping to restore their normal functioning. Governments also planned to direct financial resources to maintaining stable currency exchange rates and securities prices. As the first months of the new global crisis demonstrated, however, none of these measures were effective. They aided in the short-term stabilisation of stock markets, and temporarily restored the solvency of corporations, but did not relieve the causes of the crisis. The result was merely to postpone shifts in the phases of development of the crisis. In the US, steps to lower refinancing rates, financial bail-outs of companies and the temporary stimulating of demand through returning a portion of tax revenues to the population (the Bush plan to return $168 billion to consumers) could not save the national economy from entering the crisis zone. Unemployment in the US is increasing. For lack of credits, 28 million Americans are using food stamps (in 2007 this figure was 26.5 million). In March the US economy shed 81,000 jobs, followed by another 20,000 in April. The number of officially recognised jobless in May rose by a further 5 per cent. The total number of unemployed in the US amounted to 5.5 per cent of the able-bodied population, the highest figure for twenty years. Of 8.5 million jobless, only 3.1 million were receiving benefits. According to official data, the average monthly increase in the number of unemployed has now reached 5 per cent, which does not include immigrants or large numbers of US citizens. For the first time in five years, economic activity by companies in the service sector has declined. In the sectors of retail trade, transport, finance, property and health care, employers are cutting their staff numbers. Consumption is also declining. According to economists, demand remains stable only for foodstuffs. In all other categories, the volume of sales is down. The US is also suffering from a significant problem of inflation, which according to various calculations has been running since the beginning of the year at between 4 and 7 per cent. The banking industry is in a parlous state. Vast sums from throughout the world have been thrown into saving it, but the financial transfusions have not yielded firm, positive results. The banking group Citigroup, which was the first to suffer from the crisis, has been selling assets and is trying to strengthen its position through

share issues. Over the past six months, industrial production in the US has shrunk by between 1.2 and 1.5 per cent. There is every reason to suppose that in the coming months problems in disposing of goods will have a stronger effect on the productive sector. In the first quarter of 2008 US GDP grew by only 0.6 per cent on an annualised basis, compared to 2.2 per cent in 2007 and 3.3 per cent in 2006. In the view of United Nations analysts, there are two likely scenarios for the American economy. In the pessimistic scenario, US GDP contracts in 2008 by 1.2 percent, while the optimistic one has it rising by 1 per cent. Such assessments, however, are based on the extrapolation of trends characteristic of the current state of affairs. This is fundamentally wrong, since the crisis in the global and US economies is developing in definite stages. At present it is in an early stage, affecting mainly the financial sector. Soon, the crisis will appear more fully in trade and services; later, it will make its effects felt in industry. The result for the US economy will be that the year culminates in a noticeable fall in GDP. At a minimum, this decline could amount to 4 or 5 per cent, while at a maximum it could be much higher. Meanwhile, no-one should count on 2008 being the worst year of the crisis, or the year which sees it surmounted, since the fundamental contradictions which gave rise to the global destabilisation will not have been resolved. In the mid-1990s the share of financial services in the GDP of the US surpassed that of industry. Between 1973 and 2008 the share of manufacturing in GDP fell from 25 per cent to 12 per cent. The portion represented by financial services rose from 12 per cent to 20-21 per cent. Some 4-5 per cent of the growth of GDP in the financial sector between 1990 and the first decade of the new century was linked to the mortgage boom. Between 1987 and 2007 overall indebtedness in the US grew from $11 trillion to $48 trillion, most of it in the private financial sector. The bursting of the consumer soap bubble will lead inevitably to an unprecedented number of bankruptcies, most of them in the financial sector. Contrary to the general view, the negative US trade balance is not playing an important role in the development of the crisis, since it is covered by the repatriation to the country of corporate profits. The foreign goods that enter the US market are often produced in enterprises belonging to American firms. The huge retail network Wal-Mart thus owns more than 700 factories in China. While making big profits in the American retail market, however, US corporations for many years have pursued a policy of reducing their spending on labour power, spending that has been directly responsible for creating that market. Other countries, including Russia, are entering the world crisis only after a substantial delay compared to the US. This tendency is evidently going to persist throughout 2008. At the same time, it is possible to predict that the fall in oil prices will hold off until 2009, in practice until the global crisis passes into the phase where it will afflict industry. The crisis on the financial markets is spurring investors to engage in speculative operations involving the purchase and sale of oil, returns from which are considered more reliable. During the first five months of 2008, while demand for oil remained effectively stagnant, prices grew by more than a third. In tactical terms this trend might appear advantageous for Russia, but strategically it increases the risks for the country that are associated with the crisis.

Along with the US, European countries including France, Great Britain, Ireland, Switzerland, Luxembourg and Spain have also begun experiencing economic problems. The 2007 profit figures of one of the largest French banks, Crdit Agricole, fell short of projections by 16.8 per cent. The companys losses on the US mortgage market during the first quarter of 2008 came to 1.2 billion euros. Another French bank, Socit Gnrale, announced that it had written off 1.18 billion euros in credit instruments, and that net profits during the first quarter had fallen by 23 per cent to 1.1 billion euros. The largest Swiss bank, Crdit Suisse, announced losses of $2.85 billion. Still greater losses were suffered by Europes largest bank, UBS AG. In the fourth quarter of 2007 these losses came to $13.7 billion. In connection with the American popular default (massive nonpayments on housing mortgages), the banks of the world have already written off a total of more than $320 billion. Merrill Lynch and UBS have almost completely run out of capital. Morgan Stanley, the Mizuho Financial Group, Citigroup and Washington Mutual have suffered losses amounting to a third of their capital. Aggregate losses in the mortgage market and in the debt securities market associated with it have been put by the IMF at $565 billion. This figure was reduced under pressure from the US; earlier, the IMF assessed potential losses at $945 billion. Reports are continuing to appear of losses borne on the US mortgage market. The size of the gradually crumbling pyramid of mortgage credits is put at $10.7 billion. The collapse on the US property market has left house prices dramatically cheaper. The Case-Schiller Index, which measures the cost of property in the United States, has dropped to its lowest level in twenty years. On a national scale, the index of housing prices for the first quarter of 2008 fell by 14.1 per cent compared with the same period of 2007, reaching its lowest point since 1988. The market is saturated with houses and apartments repossessed from borrowers. In 2008 there have been foreclosures on more than a million homes as a result of failure to meet mortgage payments. Housing, which makes up a colossal segment of the American market, is continuing to be devalued. Over the coming months the decline in the value of housing could reach from 10 to 25 per cent. The victims of the continuing popular default in the US have also included commercial institutions in Japan and Thailand. The American mortgage crisis has had an indirect impact on the entire world banking system, resulting in a shortage of cheap credit. Without constant financial transfusions, the banks of the world periphery have finished up in difficult circumstances, as local problems with debtors have begun to pile up for them. The first difficulties have appeared with servicing credits provided by foreign banks. There has been an outflow of bank investments. Following immediately on the global stock market crisis, a financial crisis has arisen; it is simply a new manifestation of the general world economic crisis. Faced with a shortage of bank liquidity, governments have used diverse measures to provide companies with the funds needed to bail them out. In Russia, the authorities have placed money from the Pension Fund on the books of problem banks. Of the countries of the former Soviet Union, it is Kazakhstan that has finished up in the worst position. Kazakh President Nazarbaev has acknowledged that the economy of his country is in a profound crisis. The reason is financial problems, or more

precisely a banking crisis, caused by the impossibility of servicing cheap foreign credits. Money has started to flood out of Kazakh banks, whose ratings have fallen sharply. The government of Kazakhstan has allocated $4 billion to help the banks, out of the countrys overall financial reserves of $40 billion. But neither this sum, nor Kazakhstans holdings of gold and foreign currency, will suffice for long. The strict austerity measures of which Nazarbaev speaks will likewise have little effect. For the governments of other countries to apply such measures will also lead only to a deepening of the crisis. Obtaining a reprieve for the corporations through cutting consumption further will not only fail to relieve the contradictions responsible for the crisis, but on the contrary, will exacerbate them. US officials maintain that the negative trend can still be overcome, and a global spread of the crisis averted. American analysts who early in the year had agreed with the governments optimism are now more pessimistic. The refinancing rate has been lowered to 2 per cent without significant effect. The stock market is in a state of limbo. Since May, citizens have been having tax revenues returned to them. The payment process will take two and a half months, and depending on the size of their incomes, taxpayers will receive back sums from a few hundred dollars to $2400. The maximum payments will be received by families earning around $150,000 per year and who have three or four children. So far, however, the hopes of the officials that financial stimulation will help to increase consumer activity have not been borne out. People are preferring to spend their money paying off debts and on creating stockpiles of food. US firms are still trying to cut costs by attacking the work conditions of employees, which is doing nothing to encourage an increase in consumption. Returning the debts of the population to the banks through the mechanism of tax benefits might reduce the pressure on US financial institutions to some extent, but is not doing away with the general crisis trend in the consumer market. The calculation in Washington is that through combining low-cost credit for corporations with temporary measures to stimulate demand in the domestic market, enough time can be bought to allow an economic recession to be avoided and the crisis period to be successfully negotiated. The assumption is that the crisis is a temporary inconvenience that will pass of its own accord. But the standard responses being implemented by the authorities are not making an impact on the cause of the crisis, which for the world economy is of a systemic character. There is no reason to think that a new lowering of the refinancing rates will be more effective. Nor are there grounds for supposing that a one-off subsidy to the population will increase its effective demand, which has declined for objective reasons. In conditions of falling demand, providing companies with financial bail-outs will not restore them to effective operation. The upshot is that the anticrisis measures now being applied in the US are failing to stop the development of a whole range of negative trends in the economy, and are merely providing a temporary respite. This is capable of lasting for a few months, but by early autumn new symptoms of the crisis developing in the US can be expected to appear.

Challenges to the Icelandic Economy

In the fall of 2008, Iceland experienced wide-spread financial difficulties. In the wake of the global financial crisis, Iceland's three largest private banks were taken into government administration due to a lack of available credit to finance debts, despite substantial assets. The resulting contraction of the Icelandic economy has had a profound effect on Iceland and its population. External debt has increased substantially from one of the lowest levels in the world, and sharp increases in unemployment and inflation are having substantial and adverse affects on peoples' lives. The Foundations of the Icelandic Economy are Strong The foundations of Icelands economy remain strong however, despite the current economic crisis. Icelands clean energy, its marine resources, strong infrastructure and well-educated workforce, provide a firm basis to overcome the current economic difficulties and implement necessary reforms. Iceland Moves Towards Economic Recovery Multilateral assistance from the International Monetary Fund (IMF) is playing a key role in creating a solid platform for the restructuring of Iceland's economy. The economic policy of the Government will be based on the programme already established by the authorities and the IMF. The progress of the programme will be discussed with the representatives of the IMF and targeted measures will be explored for reducing interest rates as rapidly as possible, and a schedule will be established for the relaxation of currency restrictions. The Government will conduct a prudent fiscal policy under which the fundamentals of the welfare system will be protected, as well as basic services to the community, while at the same time it will aim at balancing state expenditure and income.

China, France, Russia challenge supremacy of US dollar

The leaders of the G8 group of major industrialized countries lined up for their photo call at the conclusion of this years summit and sought to put their deliberations in the Italian town of LAquila in the best possible light. US President Barack Obama spoke of a historic consensus on environmental policy and German Chancellor Angela Merkel declared that considerable progress had been made at the summit. In fact, most of the decisions announced over the past three days were vague and non-committal. In general, they marked a retreat from positions agreed (and not carried out) at preceding G8 summits.

Climate change Attempts at the summit to reach a binding decision on the limitation of greenhouse gases were blocked by developing economies such as India, China and Brazil, which argued that climate targets were being used by developed industrial countriesin particular, the US to hamper their own economic growth. Representatives from all three countries had been invited to attend the second day of G8 talks in LAquila. An initial proposal put forward at the summit for an 80 percent cut in greenhouse gas emissions by 2050 was buried within hours of being announced. Canada said the goal was aspirational and Russia said it could not possibly meet the target. In the event, the summit agreed to halve greenhouse gas emissions by 2050, but its final resolution was notable for its lack of detail. It remained unclear which reference year would apply for the reduction. If the starting point is later than 1990the baseline normally used then the target entails more modest cuts, as most countries saw emissions rise after that date. The latest agreement also falls well short of the target set by the European Union in March 2007, which called for a 20 percent reduction of CO2 emissions by 2020, in comparison with 1990 levels. Germany had even declared it wanted cuts of as much as 40 percent by 2020. The G8 leaders also left open the question of how their climate targets were to be financed, with any decision on this issue left until the G20 summit planned for the end of September in Pittsburgh, Pennsylvania. Commenting on the G8 resolution on climate change, United Nations Secretary General Ban Ki-moon complained that the G8 had missed a unique opportunity for progress.

Farm aid Much of the talk of success at the end of the summit centred on the decision by G8 leaders to establish a $20 billion fund spread over three years for farm aid to less developed nations. Initial summit communiqus mentioned a sum of $15 billion, and summit participants presented the final sum agreed, involving an additional $5 billion, as a considerable advance aimed at assisting poor nations and continents, in particular, Africa. The sum of $20 billion is completely inadequate to alleviate poverty in undeveloped nations. In a report issued a week before the summit, the British charity ActionAid noted that one billion people were going hungry in the world, and declared that decisions at the G8 gathering could literally make the difference between life and death for millions in the developing world.

The token amount announced in Italy condemns these hundreds of millions of people to worsening hunger and poverty, as the global economic crisis takes a particularly cruel toll on the weakest and most vulnerable economies. Most of Africa and Asia are being starved of capital, which is being monopolized by imperialist powers seeking to bail out their banking systems, even as the export markets of so-called Third World countries shrink. Moreover, the communiqu on farm aid fails to make clear whether the $20 billion (of which the US has pledged a paltry $3.5 billion) represents new money, or is merely to be redistributed from funds long since promised. At its summit in Gleneagles, Scotland in 2005, G8 leaders pledged no less than $50 billion in aid for underdeveloped countries by the year 2010. According to the Organization for Economic Cooperation and Development (OECD), only one third of this target had been met. Financial and economic policy G8 leaders were also unable to come to any firm agreement on how to combat the financial crisis. Acknowledging the dangers posed by the crisis, the summit issued a statement on Wednesday that declared, The situation remains uncertain and significant risks remain to economic and financial stability. However, the G8 is deeply divided on how to respond to the crisis. The US and Britain advocate additional large-scale injections of capital to the banks and big business, while a number of European countries, led by Germany, oppose further stimulus measures, warning of the danger of ballooning government budget deficits and the threat of inflation. Germany, whose economy is geared to industrial exports, is particularly concerned over the prospect that soaring US deficits will further depress the value of the US dollar in relation to the euro, pricing German exports out of the US and other major markets.

The G8 leaders were unable to arrive at a coordinated policy in response to the crisis. They could do little more than urge individual governments to collaborate with one another as they pursue their own national solutions. The joint declaration acknowledged the lack of consensus, stating that exit strategies will vary depending on economic conditions and public finances. Pro forma, the G8 summit participants unanimously denounced trade protectionism and warned of the dangers of increasing national isolation. In a joint declaration released Thursday, the G8 members and the G5 group of emerging economiesBrazil, China, India, Mexico and South Africadeclared they were committed to completing by the end of 2010 the World Trade Organization Doha round of talks aimed at reducing trade barriers and liberalizing economies. None of these proclamations can be taken seriously. Rather than bringing down trade barriers and other forms of economic protectionism, the universal response by individual

nations to the financial crisis has to been to step up retaliatory trade, currency and capital measures against other countries. The US government adopted a buy American clause as part of its stimulus program, requiring that only steel and other goods made by domestic producers be used in planned infrastructure projects. The multi-trillion-dollar bank bailout enacted by the Obama administration and resulting record budget deficit have, moreover, resulted in the bulk of available private capital on world financial markets flowing into the US. The Chinese authorities responded with their own stimulus package, which also contains a buy national clause. Other leading nations are taking similar measures. According to Holger Grg from the Kiel Institute for the World Economy, If German Chancellor Angela Merkel rescues Opel in the wake of the crisis because it is a German company, that is also protectionism. Differences on trade policy broke to the surface at the summit over the issue of energy markets. Alarmed by the recent increase in oil prices, which raises the danger of a prolonged world recession, France and Britain proposed measures to regulate energy markets and reduce the volatility of oil prices. Their proposal was promptly rebuffed by oil exporters Russia and Canada, both of which said it would be impossible to administer markets in such a way. Iran In its joint declaration and under massive pressure from the US delegation, the G8 expressed its serious concern over post-election violence in Iran, but put off endorsing new sanctions against the country. In his visit to Moscow earlier in the week, President Obama brought considerable pressure to bear on the Russian leadership to take

a harder stance against the Iranian government. In LAquila, however, the Russian delegation declared that the measures taken against the opposition in Iran were an internal matter. Challenges to the US dollar As is often the case at such summits, the most significant and contentious issues were not part of the official agenda. While the G8 leaders were unable to arrive at viable agreements on economic policy, climate change or world poverty, there was growing evidence of the emergence of a bloc of countries intent on challenging the leading role of the US in economic policy and world affairs. On Thursday, Chinese State Councilor Dai Bingguo openly criticized the role of the US dollar as the global reserve currency. According to the Chinese foreign ministry, Dai told

summit leaders: We should have a better system for reserve currency issuance and regulation, so that we can maintain relative stability of major reserve currency exchange rates and promote a diversified and rational international reserve currency system. Dai did not mention the dollar, but the target of his remarks was clear. Chinas has a total investment in US Treasuries of more than $1 trillion. Dais comments repeat criticisms of the role of the dollar first made by official Chinese sources in March, but his remarks at a high-level meeting of world leaders represents a new stage in the escalation of economic tensions between the US and China. When asked about Dais comments, G8 leaders sought to play down their significance. British Prime Minister Gordon Brown initially said he could not remember Dai making such remarks at a session of the summit he attended along with the US president. When his memory was jogged, Brown said, We dont want to give the impression that big change is around the corner and the present arrangements will be destabilized. In fact, Dais comments had been preceded earlier in the week by a statement from the Kremlins top economic adviser, Arkady Dvorkovich, who told the Wall Street Journal that the issue of an alternative global reserve currency should be part of the agenda of the G8 meeting. We will, alongside China, stress the need to gradually develop a global financial system which will be based on several new strong regional currencies, Dvorkovich told reporters. With time, he added, those new currencies will then take on a more global character." In a significant development, the same theme was also taken up by French President Nicolas Sarkozy, who told a press conference on Thursday that the current system, based

since the end of World War II on the supremacy of the US dollar, was outdated and should be replaced.

Second phase financial crisis and its impact on Bangladesh:

The world economy has changed spectacularly since September 2008. What began as a slump in the US housing sector is now a global crisis, spreading to both rich and poor economies. Many believe that this may go down in history as the worst crisis since the Great Depression of the 1930s wiping out almost 10 trillion US dollar worth of value from stock markets over the past months. The triggers of the present global financial crisis were in the US subprime mortgage market, the crumple of which engulfed the global financial markets leading to a painful recession of the world economy.

Bangladesh, though not so much globalised financially, depends significantly on foreign trade. More significantly, its exports including readymade garments, shrimps, leather, etc are heavily dependent on the western consumer demand. Therefore, falling employment and hence the declining income of the average consumers in the USA and Europe are bound to have serious impacts on our export potentials. This may start impacting after January 2009 once the buying spree during Christmas sales is over. Similarly, there can be negative impact on the export of Bangladeshi low-skilled manpower following ever declining oil price with potential depression in infrastructural development activities in the Middle-East. So the new government will have to face these economic crises. One positive thing is the falling price of oil and commodities in the international market. This will dampen inflationary pressures. Sectoral impacts are given below:

Financial sector:
The slowdown in the leading economics is likely to adversely affect Bangladeshs export, and inflows of aid , FDI, and worker remittances to the country. However, overall, there is no reason to panic. Unlike the richer economics and some of the advanced developing countries, the overall financial leverage in Bangladesh is low. The countries banking system has no toxic derivative involvements. It is, therefore highly unlikely that external stocks will increase the risk of the asset quality problems or precipitate a credit crunch in Bangladesh. However, to forestall the occurrence of any financial crisis, the financial sector should be properly regulated. Banks and financial institutions will need to take necessary caution while extending credit, by ensuring the quality of the asset to avoid any financial risk. They should invest mainly in the productive sector instead of lending to nonproductive sector, in particular consumer financing, which increased by over 100% in the past one year. Bangladesh may also consider guaranteeing bank deposits as a defensive measure. All major countries in America, Europe and Asia have in recent days moved to guarantee all their bank deposit to shore up investor confidence. Such guarantees may induce a shift of deposits from Bangladeshs banking system to countries elsewhere. There is therefore, a need of defensive action. In a time where there is a lot of uncertainty, investor risk aversion is very high, and there is a lot of nervousness, there are possibilities to have contagion to banking system anywhere. Bank and financial institution in Bangladesh will need to strictly comply with the existing regulations. They need to be extra-cautious in running their business, taking lessons from the collapse globally. They should also take appropriate measures to overcome the various ailments of the banking sector such as capital inadequacy, provision shortfall, declining trend in loan recovery, and the increase in bad loans. The global financial crisis is not likely to have any adverse effect on Bangladesh Banks foreign exchange reserves, because the Taka is not freely convertible for capital account transactions. Moreover, Bangladesh bank has taken several initiatives to avoid any impact of the global financial turmoil on the financial sector. The currency composition of its foreign exchange reserves has been altered significantly to protect the real value of the reserves. At present only 50% of Bangladesh banks reserves are held in US Dollar, and the rest in other currencies. Furthermore, to avoid risk of any possible losses, both Bangladesh

Bank and commercial banks holding reserves abroad have withdrawn fund from problem banks that were merged or taken write-downs lie ahead. The demise of the investment banks as well deleveraging among hedge fund and others in the shadow banking system the markets, security dealers and the non banking financial institution will add to a global credit contraction of many trillions of dollars. The IMFs base case is that American and European bank will shed some $10 trillion. In America overall credit growth will slow to below 1%, down from a post-war annual average of 9%. The alone could drag Western economics growth rates down by 1.5% points. The IMF warns of an impending recession, saying that world economic growth will slow down from 5.6% in 2007 to 3.9% in 2008 and to 3.00% in 2009. The multibillion dollar rescue package and interest rate cut have failed to lift confidence in the financial system. Commercial bank which have received funds from the fed fell hesitant to lend them. They have refused to lend to each other. Credit flows have not increased. Nervous investors, who have seen house prices and equity markets tumble and interest rates fall, are shifting their savings to ultimate safe investment-gold. Some other are buying the nearly risk free govt. treasury bills. Investor are thus concerned about the exacerbation of the credit crunch and gloomy forecasts for economic growth. The IMF warns of an impending recession, saying that world economic growth will slow down from 5.6 % in 2007 to 3.9% this year and to 3.0% in 2009. the multi-billion dollar rescue package and interest rate cuts have failed to lift confidence in the financial system. Commercial banks that have received funds from the fed feel hesitant to lend them. They have refused to lend to each other. Credit flows have not increased. Nervous investors, we have seen house prices and equity markets tumble and interest rates fall, are shifting their savings to the ultimate safe investment- gold. Some others are buying the nearly risk-free government treasury bills. Investors are thus concerned about the exacerbation of the credit crunch and the gloomy forecasts for economic growth. Nevertheless , all hoped are not lost yet. What is very important is that the rich economies have decided to act in unison to safe off the global economic crisis. In particular, the United States, the biggest economic power on earth, is prepared to act, and act decisively , which provides reasons for optimism. So, too, does the relative strength of the emerging markets, particularly China. It is, of course, true that the emerging economies have not remained fully immune from this crisis. Their stock markets, too, have plunged and many currencies have fallen sharply. But the comforting thing is that domestic demand in much of the emerging world, although slowing, has not collapsed. The IMF expects emerging economies, led by China, to grow by 6.9% in 2008 and 6.1% in2009. that will cushion the world economy although not sufficiently to save it from recession. Another short-term fillip comes from the recent plunge in commodity prices, particularly oil, which will free the weak and financially stressed rich economies from the worried of inflation that stimulus packages like interest rate cuts might generate.

Export

Nearly 87 percent of Bangladeshs exports are destined to markets in developed countries. Ready made garments (RMG) make up over 75% of all exports, mostly to US and EU markets. The impact on RMG exports will therefore determine the impact on the countrys overall exports. With the ongoing recession in the US and EU, it is likely that exports will be hurt. There are some moderating factors that should be considered. Since the countrys RMG exports mainly cater to the low price segment of the apparel market, the current slowdown may create less impact on the countrys RMG exports. With incomes falling, even some diversion of demand from the high-end garment segment to low-end may take place. But people may also compensate by not diverting to low-end and just buying far less high-end clothing. Major purchasers of RMG products may move to take advantage of the market situation by negotiating less favorable order contracts for suppliers from LDCs. Bangladesh is the cheapest producer of RMG in the world at present. In fact, a local company has received a $10 million order that was diverted from China. There are also negotiations for orders that are being diverted from India, Turkey, Indonesia, and Cambodia. Latest data from government indicates exports during Jul-Sep 2008 up about 42% from the same period of the previous year. But a more important question would be if this trend can be sustained if recession prolongs. Bangladesh is a net importer of essential food commodities and fuel. In recent months prices of commodities such as rice, wheat, edible oil, fuels, fertilizer, etc. have dropped significantly in the global market which favors Bangladesh. The settlement of L/Cs for consumer goods during Jul-Oct 2008 declined by 19% (Source: Bangladesh Bank). On the other hand, settlement of L/Cs for capital machinery has increased by about 8.5% which is a positive sign for future industrial growth and productivity. Taka has appreciated against many currencies such as the Euro, Aus $, Canadian $, etc. so this makes imports from those countries cheaper. Official general inflation figures are: 7.26% in October down from 10.19% in September. Food inflation is 8.08%, down from 12.09% (these are point-to-point calculations). Remittance receipts during July-October 2008 up by around 36.5% compared to the same period of the previous year. Most remittance to Bangladesh is from the Middle Eastern Gulf states whose financial health has not yet been severely affected by the crisis. However, the price of oil has fallen very sharply, from $147 a barrel in July to under $50 at present. If this continues, the demand for labor from Bangladesh is bound to fall as new construction projects are halted. Bangladesh has little FDI and most of these are longer term in nature. Tighter global credit markets have raised the cost of capital in the international market and are likely to reduce FDI in developing countries. Increasing FDI to Bangladesh depends more on domestic factors such as improvements in infrastructure, power supply, and governance and business practices. Most of Bangladeshs aid sources (nearly 80 percent of the total) come from multilateral sources. Aid inflows are likely to remain unaffected in the short run although the promises of significant aid increases may not materialize. Aid during FY 2009-10 is not likely to increase as developed countries mobilize resources to tackle their domestic economic problems. Bangladesh Bank projects growth of around 6.2% for the current fiscal year. However, World Bank projects it will be in the range of 4.8-5.4%. Official govt. forecast is based on the fact that Bangladesh has not had any major natural disasters this year which set back agricultural output. Over half of all economic activity in the country occurs in the informal sector. Accurate data regarding this sector is hard to come by. The informal sector employs

a large section of the population (particularly lower income groups) and the global financial crisis is unlikely to affect it. It is therefore difficult to paint an accurate picture of the impact of the crisis on the economy of Bangladesh and lower income groups in particular. Newly elected govt. should actively focus on these issues.

FDI:

FDI feared to shrink further

Inflow of fresh foreign direct investment (FDI) to Bangladesh will shrink further, hurt by the global financial trauma. Domestic investment for the export-oriented industry has already taken a hit from the crisis. However, local investment, some claim, is set to rise with the confidence boosting up among entrepreneurs, thanks to a transition to democracy. The investment from these entrepreneurs marked a slowdown during the rule of the caretaker government. The declining trend in capital machinery import shows that Bangladesh has already started facing the knock-on effects of the global financial meltdown. Bangladesh Bank statistics say L/Cs worth $628.87 million were opened for the imports of capital machinery during July-December of 2008 against $792.83 million in the same period a year earlier. Financiers showed a 12 percent decline in L/C opening in the first quarter of the current fiscal year, compared to the previous quarter. We saw a declining trend in L/C opening for the capital machinery import in the last three months, said a senior official of Eastern Bank Limited.

Some other bank officials echoed the view. The FDI, which was declining since 2006 due mainly to political uncertainty, has been projected an upturn for 2008, backed by Japan's NTT DoCoMo's purchase of the 30 percent stake in AKTEL for $350 million from local AK Khan and Company. Bangladesh received $ 483.6 million FDI during the first six months of 2008. The actual FDI in Bangladesh was $ 843 million in 2005, which was $ 793 million in 2006 and $ 666 million in 2007. The United Nations Conference on Trade and Development (Untad) says worldwide FDI inflows shrank 21 percent in 2008 to $1.4 trillion. The World Association of Investment Promotion Agencies says FDI will be contracted by 12-15 percent this year. In contrast to trade, the impact of the global downturn on investment has so far hardest on the countries where financial woes began. The Asian Development Bank in its latest quarterly update on Bangladesh economy said the fall in FDI proposals by foreign investors in 2008, as registered by the Board of Investment, is of concern. In 2008, the BoI registered only $60 million in FDI proposals covering 13 projects, the ADB said. The expected FDI flows in the energy sector are unlikely to materialise in the near term as investors will be cautious about any large investment. Postponement of FDI in the energy sector will be seriously detrimental to growth prospectus in view of the prevailing power and gas shortages, the ADB said. Experts also said political or economic instability in the US or Europe will certainly leave an impact in other parts of the world. As these countries are major export destinations of Bangladesh, the economic downward will certainly hurt Bangladesh, they said. The global recession has a correlation with FDI inflows to Bangladesh, said Mustafizur Rahman, executive director of Centre for Policy Dialogue. Despite the global crisis Bangladesh can manage a healthy FDI, if some constraints can be resolved, an optimistic Rahman said. Non-assurance of energy availability and inadequate infrastructure are the main constraints for both the local and foreign investment. If we can address these issues, we are hopeful that the country will be able to attract more foreign investment. Mamun Rashid, a leading banker and economic analyst said, It seems that we can't avoid the impact of the global financial meltdown, which other countries have already started facing. This is evident from the issuance of L/C and credit to private sector.

He suggested a cohesive and integrated policy response to keep the shock at a minimum level. Annisul Huq, president of the Federation of Bangladesh Chambers of Commerce and Industry, said it is obvious that business expansion or investment will see contraction during a financial crisis worldwide. In the case of Bangladesh, the impact may not be so high, as the country has already entered into a democratic era and has cheap labour force, Huq, also an entrepreneur, pointed out. Ifty Islam, managing partner of Asian Tiger Capital Partners, a financial institution focusing on private equity and venture capital, at a discussion with chief executives of local and multinational companies said it is possible for Bangladesh to achieve $5 billion in FDI. He identified eleven sectors in Bangladesh that deserve this investment, such as energy, infrastructure, pharmaceuticals, textiles, agriculture, healthcare, telecom, climate change, education, shipbuilding and light engineering. To attract FDI, Ifty Islam recommended four types of investment activities: National image building, investment generation, investor servicing and policy advocacy. Investor servicing involves assisting committed investors to analyse business opportunities, establishing a business and maintaining it. Policy advocacy encompasses initiatives aiming to improve the quality of the investment climate and identifying the views of the private sector in this area, Islam said. Other experts said the new government should undertake proper plans to attract greater FDI to Bangladesh. Meanwhile, financiers pointed to the fact that disbursement of industrial term loans, which were negative in the previous quarters, will increase from the next quarters. The industrial term loans during July-September, 2008 stood lower at Tk 4950.93 crore, compared to Tk 5576.51 crore during April-June, 2008, according to Bangladesh Bank. The BoI also said registration of local investment proposals is increasing. Tk216 billion investment proposals were registered with the BoI in 2008 against Tk 135 billion in 2007, up by 60 percent. We are receiving industrial loan applications, especially from the RMG sector. But we are analysing these investment proposals very carefully, as the global recession, as reported by media, has left an impact on this sector, said SM Aminur Rahman, managing director of Janata Bank. We are now focusing on SME and energy sector investment."

The rising business confidence is also prompting the local entrepreneurs, who remained silent during the caretaker government period amid fear, to move forward to the banks and leasing companies for term loans for business expansion. Many of our corporate clients did not come to us during the last two years. But, they are now coming to us for loans to make new investment, said an official of Dutch-Bangla Bank. We can get the whole picture of new investment after this year, said Jamal Uddin Ahmed, corporate head of IDLC Finance Limited, an industrial leasing company, which is now busy in implementing the last year's industrial projects.

Remittance:
It is reported that remittances during the last financial year stood to almost $7 billion dollars, 25% per cent were from the industrialised countries in the West and 75% per cent come from the Middle East. The Middle East has not been immune from the crisis and stocks fell over in the oil-rich countries, even in Dubai. Given the background, it is likely that remittances will be less because there will be jobs-cut in the countries of economic slowdown. year Remittance (billion) Growth rate (%) current 9.2 16.8 Last year 7.9 32.4 Souce:world bank (WB) There is one flip side of the financial crisis in that price of oil has plummeted to a level, unimaginable this summer. At the time of writing it was less than $50 dollars, from the highest $147 dollars per barrel. That would enormously help Bangladesh which imports oil. Although remittances have not dropped significantly in absolute terms, Tasneem Siddiqui, chair of the Refugee and Migratory Movements Research Unit at the University of Dhaka, says the situation may not be stable. Mr Hossain says the impoverished rural economy will be hardest hit. "Declining remittances are a problem because remittance earnings provide income for many families in rural areas, which is linked to domestic demand. Declining remittances will have an adverse effect on our economy, that's very clear. Mahbub Ullah, professor of development studies at the University of Dhakan says: "Remittances have been crucial for the rural economy of Bangladesh. The last time we had double-digit inflation there were no cases of starvation because of remittance flows from abroad. Otherwise we could have seen a repetition of the 1974 famine

Inflow of foreign aid and assistance:

Bangladesh receives about $2bn in foreign aid each year, but it does not always reach the people it is intended to help. As in many countries where corruption is widespread, some government officials can be swayed to favour firms which offer them personal payments. But how can the organisations that donate the money ensure that it is used effectively, especially in places where corruption is a major problem? Syed Ershad Ahmed, president of the American Chamber of Commerce (ACC) in Dhaka, would like to remove the political influence from the process of awarding contracts. "We have to depoliticise our bureaucracy first if we want to see a free and fair business and tender system in Bangladesh," he says. "Local companies have an opportunity to pay some money under the table, but the foreign companies try to maintain transparency as much as possible and that actually puts them at a disadvantage," he adds. Reluctant bidders The train journey from Dhaka, the Bangladesh capital, to the port of Chittagong, can take up to eight hours. A new track would cut the journey time in half but that would cost tens of millions of dollars - money beyond the scope of the Dhaka government. That is why it has asked for help from the Asian Development Bank (ADB), an organisation funded by the governments of Asian countries which aims to raise the standard of living for people in the region. Many construction projects such as new roads and bridges are funded by foreign money. But the donors rarely pay the contractors directly. Instead, the cash is channelled through the government and so it's left to civil servants to decide which local companies get the work. Accountant Attique-e-Rabani believes that creates a risk that the aid money will be mismanaged.

"I know the ADB is sitting with the money and they want to pay for the improvement of the railway, but the project is running very slow," he says. He believes people are not interested in working with the ADB because they monitor their projets very closely and want to see some transparency. Like most foreign donors, the ADB does not pay local contractors directly. Paul Heytens, the country director in Bangladesh, says that is because the bank tries to respect the independence of the government. "I've been impressed with the dynamism of the country," he says. Despite being hit by cyclones and some serious flooding, the country's economy still grew by 6% against the backdrop of the global financial crisis. The ADB works through governments and also engages with the broad spectrum of civil society in its member countries. "Any request for assistance needs to be channelled through government, but ultimately, what we are looking for is bankable projects," he explains. "We look at the broader impacts, for example on reducing poverty - benefits that may not be readily quantifiable." Unclear policies Maintaining political goodwill is clearly important for any organisation to be able to work effectively. Attique e-Rabani believes there is a risk that aid money will be mismanaged when it is channelled through government officials. "You have to assume there is a level playing field that is fair," he says. When that playing field is government-controlled, however, he believes that is a difficult assumption. "Corruption is a big problem across the world and in Bangladesh too," he asserts, "And we haven't the leadership or the system which will bring it down." He maintains that the government holds power in the wrong sense. "They should be the servants to the community. It is not very clear-cut what the policies are," he says.

"They are interpreted by the officers of the government machinery, and they use their discretion." Mr Ahmed of the ACC thinks things have got better over the past couple of years, however. Transparency International, which monitors corruption around the world, agrees the situation has improved in Bangladesh since 2007, when parliamentary elections were suspended by military leaders and an interim government imposed. An anti-corruption drive led to hundreds of arrests and some politicians and business people were given long prison terms for offering or taking bribes. Slow progress According to Bangladesh law, every procurement has to be under an open bidding system. Mahbubur Rahman, the president of the International Chamber of Commerce, says that although the process by which contracts are awarded has become more transparent, companies often seek contracts simply because of the money involved. "By and large, those who offer their services to the government sometimes lack the expertise to deliver what they promise," he says. He is also concerned about how much money is filtered through what are ostensibly consultants. Mr Rahman says there is anecdotal evidence that as much as 60% of donated aid is spent on these middle-men. The ADB's Paul Heytens recognises the challenges of working in Bangladesh, but maintains that success comes through working effectively within the existing framework. "We try to harmonise with government priorities," he says, "In the case of our current strategy and programme - the government's poverty reduction strategy." He agrees, however, that the bank's aims might not always be the same as the politicians in power in the countries where the bank operates. At least 40% of Bangladeshis remain in poverty, although foreign aid money has helped to reduce infant mortality and has funded the fight against malaria. Foreign money has also provided new roads and bridges and schools but, despite years of negotiations, there are no signs of that rapid new train service to Chittagong. Not all projects are as slow as the new railway.

When all sides are satisfied that contracts can be delivered on time and on budget, things can move rapidly. But it takes a lot of time and effort to win trust and without that, businesses in Bangladesh will find that lucrative opportunities are passing them by.

Inflation:
Inflation has recently been the biggest macro policy challenge in Bangladesh. With the
aggravation of the financial turmoil we have seen a sharp decline in global commodity prices. This makes the inflation battle a little easier for Bangladeshi policymakers. But new policy dilemmas are likely to emerge if export earnings begin to slow down and currencies of Bangladeshs competitor countries depreciate. This will put exchange rate policy under pressure to maintain export competitivenessm Market interventions aimed at depreciating the currency will dilute through declining international commodity prices to domestic prices and, consequently, undermine the objective of reducing inflation from its current double-digit level.

Employment:

There is no real-time information with regard to the Bangladesh labour market; latest available data on employment and labour market was for FY2005-06. Based on this data set, a projection was made with respect to employment scenario in FY2007-08 by the BB (Table 9). According to the estimate, the size of the labour force was likely to be 51.8 million in FY2007-08; with 7.2 million in the industrial sector and 19.13 million in the services sector. Among the workers

of the industrial sector, 5.27 million workers worked in manufacturing sector, and 1.7 million in construction sector. Among the workers in the services sector, 8.46 million workers worked in trade, hotel and restaurants, and 4.21 million in transport, storage and communication sector. According to the projection, unemployment rate in FY 2007-08 was estimated to be 3.98 per cent. Female workers participation was about 12.1 million which was 29.2 per cent of the total female population under the same age category. Participation of workers in the informal sector was 37.2 million. However, it appears that under the changing scenario, with possible downward revision of growth of GDP, and changes in growth-employment elasticity, the composition of labour force in different sectors and the rate of unemployment may need to be reviewed. Possible impact of the crisis on the employment scenario with respect to some of the key sectors of the Bangladesh economy will be carried out in the second phase of this study.
TABLE 9: PROJECTED EMPLOYMENT IN MAJOR SECTORS IN FY2007-08 FY2005-06 FY2007-08 (estimated) 1. Agriculture 22.83 23.41 Crops and horticulture 20.93 21.37 Forestry 0.74 0.79 Fisheries 1.16 2. Industry Construction 1.50 Mining and quarrying 6.90 7.20 Manufacturing 0.10 0.12 Electricity, gas and water supply 5.20 5.27 0.10 0.11 3. Services Community, social and personal services 2.60 Trade, hotel & restaurants 17.70 19.13 Transport, storage &communication 7.80 8.46 Finance, business services and real estate 4.00 4.21 Health, education, public admin and defense 0.70 0.75 2.60 2.86 Total 47.43
(in million) Sector Source: Bangladesh Bank (2008), Recent Employment Situation and Labour Market Developments in Bangladesh, Policy Paper 0807, Policy Analysis Unit, June.

Impact on Employment in Different Sectors RMG: Readymade garments sector, which employs more than 2 million workers, has thus far been spared from the worst consequences of the crisis. Since most of the growth is volumedriven, employment in the sector has been sustained, more or less. Major setback in terms of retrenchment of workers and wage cut or withdrawal of some of the benefits they enjoy are yet to be seen in large scale. Because of positive level of growth in export of knit and woven products during July-December, 2008 period (27 per cent, and 21 per cent respectively), the demand for workers in RMG sectors is likely to be positive. There is no incidence of cut of workers wage as a measure to reduce the overall cost of production, although various reports mentioned about buyers pressure to lower the CM as buyers found it difficult to sell products even at discounted prices. Discussion with a chief executive of global retail chain, Dhaka office, revealed that because of downward pressure in the CM, apparel manufacturers took various initiatives to reduce the overall cost of production without reducing workers wage, such as improvement of productivity of workers, and reduction of wastage of clothes.

However, if the demand for import of Bangladeshi apparels decelerates or, even in extreme case, declines in the coming months, entrepreneurs may search for new ways for the reduction of cost of production. Further investigation will be required to understand the extent of impact of the crisis on enterprises and on workers in this sector. Textile: In recent months, as was pointed out, yarn producers in Bangladesh have suffered erosion of competitiveness vis--vis imported yarn from India. Bangladeshi RMG manufacturers, particularly knitwear manufacturers, are procuring yarn from India instead of local mills. Consequently, yarn has been piling up in local spinning mills. This amounted to about 0.15 million tons, according to some newspaper reports. Consequently, 12 spinning mills out of 341 mills have been reported to have shut down; most of the mills currently in operation have reduced their level of operation by about 30 per cent. As a result, a good number of workers have lost their jobs, as reported in the national dailies. Further investigation will be needed in order to understand the extent of impact of this on workers in this sector. Jute and Jute Goods: The slow down of the jute sector is particularly due to reduction of export of yarn. However, export of sacking has peaked up in recent times owing to increasing use of sacks for carrying crops; sluggish trend is observed with respect to export of hessian due to the slow down of the real estate sector. As a result, most of the jute enterprises have reduced their level of production by 25-30 per cent. In order to adjust with the situation, 10-20 thousand workers have been retrenched from different mills particularly from yarn and Hessian mills during July-December, 2008. These retrenched workers were working in jute mills under temporary contract.

According to the leaders of Bangladesh Jute Mills Association (BJMA) and Bangladesh Jute Spinners Association (BJSA), the loss of jobs may further increase and may reach at 50,000 by the end of June, 2009. Further investigation is needed in order to understand the extent of impact on workers working in this sector. Frozen Food: Although export of frozen food, particularly shrimp, has declined during JulyDecember, 2008 period, there is no evidence that shrimp processing factories have closed down due to the crisis. However, because of lack of availability of raw materials (57,000 m.ton of the total required 0.3 million m.ton in FY2007-08) and infection in cultured shrimps (known as microforon disease) only 77 mills are now operating out of the 140 mills, where about 77,000 workers are working. Leather and Footwear: Export of footwear has performed well during July-December, 2008 period; however, export of processed and finished leather has sharply declined over time. There was no report in the national dailies as regards laying off of workers in this industry. Further investigation is needed in order to understand the extent of impact on workers working in this sector. Ship Building: The shipbuilding sector is under pressure because of reduced orders and, in some cases, deferment/cancellation of some previous orders. What impact this is having will need to be investigated further. Impact on Migrant Workers Migrant workers have tended to suffer from the ongoing financial crisis (Figure 5). Although number of workers going abroad in 2008 (875,055) was 5 per cent higher compared to the previous year, the number substantially declined when compared to the growth in 2007 over 2006 (118 per cent). More importantly, month-on-month number of migrant workers has started to decelerate from January, 2008 (140 per cent growth) and reached its lowest level in December, 2008 (-40 per cent) (BMET, 2008). Growth of migration in major markets is mixed. While in some of the Middle East and South East Asian countries it was substantially high in 2008 compared to 2007 (85.2 per cent in the UAE, 47.6 per cent in Singapore, 200.6 per cent in Oman, and 68.9 per cent in Qatar), in other markets of these region it was negative (-35.3 per cent Saudi Arabia, and -51.77 per cent Malaysia). Since 2006, UAE and Malaysia had been two key destinations for Bangladeshi workers followed by Saudi Arabia. It is important to mention here that currently Saudi Arabia and Kuwait have stopped issuing work permits to Bangladeshi workers, while these two destinations comprises of 39.7 per cent of total migrant workers from Bangladesh. Thus, growth of outward migration will not be sustained unless recruitment of workers in Saudi Arabia and Kuwait can be ensured. There is dearth of adequate information about return migrants, since information on return migrants are not maintained in a systematic manner. However, evidence suggests that workers in the affected countries are experiencing retrenchment (though on a limited scale).17 Malaysia has announced retrenchment of about 45,000 workers by January, 2009, of which a substantial number appears to be migrants; it was reported in the national dailies that retrenched migrant workers in Indonesia held processions in Jakarta demanding jobs in Malaysia. It would be a challenge for Bangladesh to retain the growth of migration in 2009. In all likelihood, the pace of growth will slow down.

Remedies to get rid of crisis:

National Policy Responses to the Financial and Economic Crisis: The Case of Bangladesh
Till now, no concerted strategy has been adopted in Bangladesh in view of the ongoing global economic crisis. This owes partly to the fact that the (negative) impacts are yet to be visible in the economy. Performance of Bangladesh in such areas as export, remittance, share market, and aid has been along historical trends during the July- December 2008 period. However, some of the early disquieting developments are starting to emerge in some sectors (banking and finance, import duties). Government of Bangladesh has set up a technical committee and The Central Bank (Bangladesh Bank) has taken some precautionary measures through its monetary policy and has set up a Task Force to review and monitor the situation. In the following sections, under some broad headings, a number of initiatives which concern the relevant areas, have been highlighted. However, as was pointed out earlier, many of these initiatives that were taken in the recent past were not directly related to the causes or consequences of the global financial crisis, and are in many instances, coincidental. Nevertheless, some of the very recent initiatives (encouraging higher remittance, banking sector practices, reserve management) appear to be inferred by concerns about possible impacts and consequences.

Fiscal/monetary policy packages to stimulate domestic demand, income and Employment Measures taken by the Government
A high-powered technical committee has been formed in early November, 2008 to closely monitor the impact on the countrys economy from the fallout of the current global financial crisis and take instant remedial measures. The Finance Secretary will head the 8member committee. (Source: 3 November 2008, The New Nation) Government undertook a seven-point strategy to ensure the well being of the Bangladeshi workers abroad and to explore new manpower export markets in the Scandinavian, European and East European countries like Norway, Sweden and Romania. (Source: 30 November, 2008, Financial Express) Measures taken by the Central Bank (Bangladesh Bank) Bangladesh Bank (hereinafter BB) has set up a Forex Investment Committee headed by a deputy governor of the Bank. The high-profile committee monitors the situation on a

daily basis, and, accordingly, manages the currency composition of forex reserves. (Source: 22 September, The Daily Star) BB has prudently withdrawn about 90 per cent of its total investment from international banks which were perceived to be at risk. Withdrawal of substantial amount of countrys reserve from international banks located mainly in the European countries will have direct impact on central banks earnings in the current fiscal (BBs total profit in FY2007-08 was US$364.4 million) Commercial banks had about USD500 million worth of foreign exchange assets with various commercial institutions (and savings instruments) abroad (Nostro Account).1 BB has advised them to be cautious about such investments and is keeping an eye on activities of commercial banks in this regard and advising them on a day to day basis. Being apprehensive of falling remittance at a time of slowing down of economies of developed countries and Middle-East (from where about 80 per cent of remittance come), BB has instructed banks to take measures to reduce the time and cost of transferring remittances. Four suggested measures are: cutting down time and costs of transferring remittances; bringing remittances through legal channels; creating opportunities for investment of remitted money; and welfare of expatriates. The BB directed the bank branches or exchange houses overseas to keep their organizations open on holidays to help expatriates remit funds. (Source: 16 December, 2008, The Daily Star) BB continues its intervention in the inter-bank foreign exchange market by selling and buying US dollar directly and providing such short term facilities to the banks aiming to keep the market stable. BB sold $14 million at the market rate directly to one SCB and a foreign commercial bank the same day to meet the growing demand for the greenback. (Source: 16 December, 2008, Financial Express) BB has allowed settlement of import payments in Euro alongside the US dollar among the Asian Clearing Union (ACU) member countries. (Source: 24 December, 2008, Financial Express) In view of the losses incurred by importers as a result of the fall in global commodity prices (e.g. wheat, edible oil and pulses) and the difficulties faced by importers in honouring L/Cs, BB has relaxed the conditions for opening fresh letters of credit (L/Cs) from the existing 90 days' time to 150 days. (Source: 17 November, 2008, The New Age) BB will continue its foreign currency support to the commercial banks mainly for making payments of fuel oils, fertiliser and food grains import. (Source: 16 December 2008, Financial Express)

Bangladesh Banks Monetary Policy Statement for July-December, 2008

Bangladesh Bank in its Monetary Policy Statement for July-December, 2008 has provided its policy stance envisaging possible impact of global economic meltdown on the domestic economy.2

Supporting productive sectors: Give priority to unhindered flow of private sector

credit to productive sectors, with agriculture, SMEs, and the rural economy being the prime targets.

Private sector credit: Growth in private sector credit would be watched carefully and if
the situation warrants, necessary policy adjustments would be introduced.

Soundness of banking sector and their liquidity position: BB will continue

monitoring the liquidity situation in the banking system and adopt appropriate measures to overcome any temporary pressure on liquidity.

Exchange rate: Desired exchange rate stability would be maintained to keep the pressure
of imported inflation under control. BB would routinely conduct surprise inspections on banks and exchange companies relating to compliance with foreign exchange regulations as well as the anti money laundering act.

Remittances: Measures would be taken to divert increasing amount of remittances

toward investment in productive sectors to ease the potential demand pressure and expand the economys productive capacity.

Import payments: For facilitating more efficient import of essential goods, BB has
made available forward hedging mechanism to importers. In this context, BB would ensure that the facility is used only for true hedging.

Women entrepreneurs: BB would continue to encourage increased flow of credit to

women entrepreneurs for investment in productive sectors.

Measures protecting the poor and the vulnerable Social Safety Net Programmes: In order to provide support to the poor and
vulnerable group, a number of social safety net programmes have been implemented in the country on a regular basis. This includes among others, public food distribution system (PFDS), rural employment and road maintenance programme, and 100 Days Employment Generation Scheme. The last two programmes have been introduced under the national budget for FY2008-09. Public Food Distribution System (PFDS): Under the PFDS, government provides in-kind support to poor people particularly vulnerable group, people affected by natural calamities and disaster. The government mainly distributes rice and wheat through

priced and non-priced (targeted) channels. Monetised distribution relates to sale of rice and wheat through Open Market Sale (OMS), Fair Price Card (FPC) etc., while non-monetised (targeted) channels include Food for Works (FFW), TestRelief (TR), Gratuitous Relief (GR), Vulnerable Group Development (VGD),Vulnerable Group Feeding (VGF), Food for Education (FFE) and other reliefchannels. Total food grains distribution in FY2008-09 (01 July-20 November) through PFDS was 697.89 thousand metric tons.

Rural Employment and Road Maintenance Programme: Government has recently introduced the Rural Employment and Road Maintenance Programme for the ultra poor and destitute women of some of the crisis prone districts, namely Panchagarh and Rangpur districts. The programme is designed in such a way that everyone will have five years guaranteed employment, and at the end of the programme each will get cash worth of Tk.70,000 (USD1,020). During the project period, 52,000 destitute women will be employed to work in the maintenance of 90,000 kms of road network in the northern part of the country. 100 Days Employment Generation Scheme: Under the national budget for FY2008-09 government has introduced a new programme titled 100 Days Employment Generation Scheme with an allocation of Tk.2,000 crore (USD291.5 million) to generate employment for 20 crore man-days (2.92 million) to combat Monga (seasonal chronic food shortage among the absolute poor in selected areas) in greater Rangpur and Dinajpur districts. The 60-day first phase of the special programme had started on September 15, 2008 and ended successfully on November 30, 2008. The first phase continued during the peak period of the seasonal monga for which the government had allocated 60 percent of the money amounting Taka 181.2 crore (USD26.4 million). A total of 30,20,400 beneficiaries including women labourers will get Tk.100 (USD1.46) as wage a day in two phases of the 100-day programme. Supporting productive and sustainable enterprises to safeguard employment Support programme for low income working mothers: A new programme has been introduced under the national budget for FY2008-09 with a monetary support of Tk.20 crore (USD2.92 million) to provide support to low-income workers particularly for working mothers of the garment factories. Second Primary Education Development Programme (PEDP-II): Under thenational budget for FY2008-09, government has continued Second Primary Education Development Programme (PEDP-II); as part of which 5.5 million primary students are receiving stipends on a annual basis. Total outlay for this programme is Tk.1,800 crore (USD262.4 million). Financing SMEs: Under the national budget for FY2008-09, government has
allocated an endowment fund of Tk.100 crore (USD14.6 million) for the SME

Foundation to provide credit to SMEs through private commercial banks. The SME Refinancing Scheme of BB has been allocated Tk.500 crore (USD72.9 million) in FY200809 from Tk.300 crore (USD43.7 million) in FY2007-08.

Conclusion :
Since the collapse of the United States sub prime mortgage market and the subsequent international global crisis, many developed and developing countries have been plunged into deep recession. Bangladesh though has found itself in a slightly different position. Its economy is not so dependent on international capital and foreign investment, which has helped to lower the immediate impact of the crisis. Despite this the Bangladesh government has formed a high-level technical committee and taskforce to monitor and advise on the crisis, and ministries and financial institutions have taken several precautionary measures. Importantly in October 2008 Bangladesh Bank withdrew 90 % of its total investment from foreign banks which has helped to further shield the economy, so that it is only now that the affects of the crisis are being felt. Additionally the Bank has taken measures to stabilise the exchange rate, provide extra liquidity to the financial sector and raised the limit on private foreign borrowing. It has also relaxed the conditions for opening fresh letters of credit (L/Cs).

In February 2009, the Finance Minister AMA Muhith admitted that the global financial crisis was having an impact on trade in Bangladesh. In April the Government announced their stimulus package with 65 million dollars directed to assist exports. This though falls short of the 877 million dollars needed according to industry experts (Yahoo news, 2009). During 2008, 57% of Bangladeshs economy was involved in the global economy and this is increasing. This indicates that the country might be progressively more affected should the crisis continue for an extended period. Trade, migration and remittance are the most likely sectors to be impacted as 43.3% of Bangladeshs openness is related to trade and 10 % to remittance. Overseas Development Assistance (ODA) and Foreign Direct Investment (FDI) may also be vulnerable in the longer term but to a lesser extent due to only 3.2% integration with the global economy (CPD and ILO, 2009). Whilst the longer term nature of FDI commitments has kept the net inflow of investment relatively stable, the sluggish growth of rich countries may eventually slow it down. Aid receipts (excluding dollars) are providing less in local currency due to unfavourable exchange rates and future aid commitments from donors may be in jeopardy if the downturn continues.