“Impact of Global Economic Crisis in Education and AIDS”

BACKGROUND
September 2008, many business journals published commentaries warning about the financial stability of leading U.S. and European investment banks and insurance firms. Beginning with failures caused by misapplication of risk controls for bad debts, collateralization of debt insurance and fraud, large financial institutions in the United States and Europe faced a credit crisis and a slowdown in economic activity. The crisis rapidly developed and spread into a global economic shock, resulting in a number of European bank failures, declines in various stock indexes, and large reductions in the market value of equities and commodities. Moreover, the de-leveraging of financial institutions further accelerated the liquidity crisis and caused a decrease in international trade. World political leaders, national ministers of finance and central bank directors coordinated their efforts to reduce fears, but the crisis continued. At the end of October a currency crisis developed, with investors transferring vast capital resources into stronger currencies such as the yen, the dollar and the Swiss franc, leading many emergent economies to seek aid from the International Monetary Fund.
The collapse of Lehman Brothers was a symbol of the global financial crisis.
On Sunday, September 14, it was announced that Lehman Brothers would file for bankruptcy after the Federal Reserve Bank declined to participate in creating a financial support facility for Lehman Brothers. The significance of the Lehman Brothers bankruptcy is disputed with some assigning it a pivotal role in the unfolding of subsequent events. The principals involved, Ben Bernanke and Henry Paulson, dispute this view, citing a volume of toxic assets at Lehman which made a rescue impossible. Immediately following the bankruptcy, JPMorgan Chase provided the broker dealer unit of Lehman Brothers with $138 billion to "settle securities transactions with customers of Lehman and its clearance parties" according to a statement made in a New York City Bankruptcy court filing.

PROBLEMS
The following countries/territories went into recession in the third quarter of 2008: Japan, Sweden, Hong Kong, Singapore, Italy, Turkey and Germany. As a whole the fifteen nations in the European Union that use the euro went into recession in the third quarter. In addition, the European Union, the G7, and the OECD all experienced negative growth in the third quarter.
The following countries went into technical recession in the fourth quarter of 2008: United States, United Kingdom, Spain, Indonesia and Taiwan.
Of the seven largest economies in the world by GDP, only China and France avoided a recession in 2008. In the year to the third quarter of 2008 China grew by 9%. This is interesting as China has until recently considered 8% GDP growth to be required simply to create enough jobs for rural people moving to urban centres. This figure may more accurately be considered to be 5-7% now that the main growth in working population is receding. Growth of between 5%-8% could well have the type of effect in China that a recession has elsewhere.

Impact of Global Economic Crisis in Indonesia

Indonesia is suffering from gradually increasing impacts of the global financial crisis, with its export value growth in 2009 predicted to drop below zero.
Indonesian central bank (Bank Indonesia)'s Deputy Governor Hartadi A Sarwono said on Thursday that the country's export value is expected to drop 4.6 percent this year.
Hendri Saparini, director of the Econit Advisory Group, also predicted on Wednesday that the country's export value growth this year will stand at minus 5 percent.
According to the government department, Indonesia's non-oil product export value will fall 20 percent or 21.6 billion U.S. dollars this year from 108 billion dollars in 2008.
Their predictions have partly come true, seeing the country's export value dropped 17.7 percent month on month this January. Suffering from the export decreasing, Indonesia's export-related companies, including traders and manufacturers, have to expand lay-offs so as to save their costs. Sofyan Wanandi, chairman of the Indonesian Employers Association, said on March 13 that the country's unemployed population had grown to 240,000 by this month, most of which came from labor-intensive industries, though the governmental statistics showed that figure was 37,909. Nevertheless, the big unemployment inevitably reduced Indonesia's purchasing power and lowered market demands, while the country's major commodity supports remained adequate. Thus, Bank Indonesia, considering the low fuel price on the International market, predicted the country's inflation rate this year will go down to 5-7 percent, which gives it spaces to cut the benchmark interest rate. Bank Indonesia cut the bank's benchmark rate by 50 basis points from 8.25 percent to 7.75 percent on March 4, seeing the country's inflation rate in February recorded at 8.6 percent. That is the fourth time for the central bank to cut benchmark interest rate since last December. However, the commercial banks in Indonesia did not actively follow suit to cut their interest rates sharply, but only decrease the lending rate from 14.2 percent at the end of last year to 13.93 percent by the second week of March and the deposit rate from 8.75 percent to 8.32 percent, averagely. Those are not enough, said analysts, adding that banks should keep lending rates below 13 percent to guarantee the economy running at the targeted 4.5 percent economic growth. Therefore, many analysts and some officials in Indonesia had lost their confidence in the 4.5 percent economic growth this year, even Bank Indonesia on Thursday reduced its economic growth expectation to 4 percent. However, President Susilo Bambang Yudhoyono seems to remain optimistically about the figure. President Yudhoyono's confidence came from the government's plan of allocating a total 73.3 trillion rupiah (about 6.1 billion U.S. dollars) economic stimulus package. "Let us make the economic stimulus a success because it is the state's and people's money and therefore it should be aimed at the right targets and used as much as possible to improve the people's welfare," said the president on March 7, adding that he hoped the funds would be channeled in April. Of the package, 12.2 trillion rupiah (about 1 billion dollars) is for certain departments and ministries for infrastructure development across the country, which is 2 trillion rupiah more than the government's previous plan. The president said that infrastructure development would accelerate economic growth and enable maximum absorption of the work force amid the global financial crisis. According to the previous plan, the 10.2 trillion rupiah (about850 million dollars) could be used to create 1 million jobs directly and another 1 million to 2 million jobs indirectly. Besides, the money is also expected to bring 900,000 laid-off labor forces back to work. Furthermore, the Indonesian government supports the proposal of raising fiscal stimulus to up to 2 percent of gross domestic product (GDP), particularly in 2010, at the meeting of G-20 finance ministers and central bank governors in London. "The fiscal stimulus for 2009 is not a problem. The problem is the fiscal stimulus for 2010 that needs to be raised," Head of the Fiscal Policy Board at the Indonesian Finance Ministry Anggito Abimanyu said on Monday. Although he said the government has not decided about the fiscal stimulus for 2010, it is possible for the country to allocate stimulus funds worth about 105 trillion rupiah (about 8.75 billion dollars) next year.
In spite of the big meaning, the huge stimulus package will definitely increase the budget deficit of the Indonesian government. According to the Financial Ministry's official director general of budgetary affairs Anny Ratnawati, the deficit will hit 137 trillion rupiah (about 11.4 billion dollars) this year, accounting for 2.6 percent of the country's GDP, as against last year's 51 trillion rupiah (about 4.25 billion dollars), or 1 percent of the GDP. Ratnawati made that calculation when the stimulus package was still 71.3 trillion rupiah. With the additional 2 trillion rupiah, the country's budget deficit in 2009 will reach about 139 trillion rupiah (about 11.6 billion dollars). In order to cover the deficit, Indonesia has prepared standby loans worth 44.5 trillion rupiah (about 3.71 billion dollars) and is still seeking loans from other countries and international financial institutions.
Bank Indonesia' Sarwono said on Thursday that the government was in a process to finalize a standby loan worth 1 billion dollars from the Islamic Development Bank (IDB) and the French government. He also said that the government had received 5.5 billion dollars (from Japan, Australia and the Asian Development Bank) before that.
On the other hand, according to the Investment Coordinating Board (BKPM), Indonesia is expected to maintain a 20 percent foreign direct investment growth this year, which is another positive signal to the country's economic growth.
BKPM chief Muhammad Lutfi said on Feb. 24 that though investment growth was not too high this year compared with last year's 43.8 percent, in view of the current global economic crisis the country's economy was still better than that of other Asian countries.
DESCRIPTION-DATA
Global Crisis Prompts Big Rise in World Bank Health and Education Financing
AIDS Drugs Could Be in Short Supply
Washington, April 24, 2009 - The World Bank said today it was mobilizing up to $3.1 billion this year in health financing to help poor countries battle threats to their social services during the global economic crisis. This effectively triples Bank support from $1.0 billion last year and will be used to strengthen health systems in poor countries, boost their performance in preventing and treating communicable diseases, and improving child and maternal health, hygiene and sanitation.

The Bank also said it was doubling its education financing this year in low- and middle-income countries to $4.09 billion.

The new health and education numbers follow the Bank's announcement earlier this week that its investments in social protection programs, including social safety nets, are expected to rise dramatically for 2009-2010 to $12 billion.

In a new report showing how previous crises have forced developing countries to cut back on health and education spending, the Bank also warns that a number of countries may already be facing hardship in supplying life-saving drugs for people living with AIDS.

According to the new report,Averting a Human Crisis During the Global Downturn: Policy Options from the World Bank's Human Development Network,preliminary findings from a March 2009 survey conducted in 69 countries, which offer treatment to 3.4 million people on antiretroviral treatment (ART), suggests that 8 countries now face shortages of antiretroviral drugs or other disruptions to AIDS treatment. A total of 22 countries in Africa, the Caribbean, Europe and Central Asia, and Asia and Pacific expect to face disruptions over the course of the year. Together, these countries are home to more than 60 percent of people worldwide on AIDS treatment. HIV/AIDS prevention programs are also in jeopardy. 34 countries representing, 75 percent of people living with HIV, already see an impact on prevention programs that target their high-risk groups (including sex workers and injecting drug users).

"This new report shows that people on AIDS treatment could be in danger of losing their place in the lifeboat, and mothers and their children in poor countries could face cuts in key health and nutrition services," says Joy Phumaphi, the World Bank's Vice President for Human Development and former Health Minister for Botswana. "The global economic downturn has taken a wrecking ball to growth and development in the developing world, with children having to drop out of school and poor families eating cheaper, less nutritious food which can result in weight loss and severe malnutrition, especially for young children and pregnant women."

Phumaphi says that during the East Asia crisis in the late 1990s, for example, a survey of public health facilities in Thailand reported a 22% increase in anemia amongst pregnant women as mothers switched to eating less nutritious foods; in Indonesia, micro-nutrient deficiencies (especially vitamin A) in children and women (of reproductive age) increased during the crisis period, while the average weight fell for children under the age of three.

Holding the line on social services:

Evidence from previous crises in Argentina, Indonesia, Thailand, and Russia shows that governments were forced to cut health services as a result of shrinking budgets and that returning health spending to pre-crisis levels took up to 10-15 years to achieve.

"We cannot afford a 'lost' generation of people as a result of this crisis," Phumaphi said. "It is essential that developing countries and aid donors act now to protect and expand their spending on health, education and other basic social services and target these efforts to make sure they reach the poorest and most vulnerable groups."

Citing the new report, the Bank says that 23 countries depend on foreign aid for more than 30% of their total health spending and that maintaining donor aid flows during a crisis is urgent in order to safeguard health services. In Rwanda and Ethiopia, foreign aid donors subsidize more than 50% of total government budgeted health spending. Governments have used this aid to expand their health services but they are highly dependent on uninterrupted aid flows aid to keep health services available to people, especially the poorest and most vulnerable groups.

People most vulnerable to falling sick and into extreme poverty as a result of the global economic crisis include people living with disabilities, 'informal' workers who toil in the shadows of the mainstream job market and make up a large percentage of the workforce in developing countries, and poor women and children, especially mothers and girls.

Gaps in HIV/AIDS prevention and treatment:

According to the new report, the Bank is encouraging countries which depend extensively on external donor HIV/AIDS financing to identify impending cash shortages as far as possible in advance, and to liaise with the Bank and other partners which would help to mobilize 'bridge financing' that prevents interrupted AIDS drug treatment at the very least. At the same time, the Bank warns that maintaining and expanding effective HIV prevention programs during the current crisis is also essential to guard against a resurgence of new infections.

The report also suggests that countries set up simple early warning systems to help track and minimize treatment interruptions while closely monitoring drug supplies and the use of key health services.

Ensuring children remain in school:

Evidence from the East Asia crisis and others show that families suddenly faced with unemployment and lost wages pull their children, especially girls, out of school and that they seldom return to school afterwards, effectively ending their chance of a formal education.

The report says that allowing enrollments and learning levels to deteriorate during the crisis will deprive developing countries of the ability to get a head-start on their economic competitiveness when the world eventually emerges from crisis.

Evidence from past crises and recent impact evaluations show that conditional cash transfers (e.g., the 'Oportunidades' program in Mexico), school feeding programs (e.g., in Jamaica) and student fellowships can also help to keep children in school. Governments and donors can also help with block grants to schools in the most vulnerable areas, on-time payment of teacher salaries, and other incentives to keep students stay in school and learn during crises.

Countries able to maintain or build up their job skills during the recession will be able to better to recover their lost footing; wealthy countries such as the United States are using stimulus investment in education and higher labor skills to re-tool their workers for the future and also to guard against future crises and economic downturns.

Social protection to help poor and vulnerable people:

Social Protection programs, which include safety nets, and job creation and training programs, help to forestall rising poverty and inequality as a result of the crisis. For example, these programs can ensure that people in need get the nutrition, health, education services and alternative sources of income they need to weather the worst effects of the global downturn.

World Bank response to potential human crisis:

To avert a human emergency during the economic crisis, the Bank is providing swift assistance for poor and vulnerable groups, especially including women, children, and people with disabilities. It is also working with countries and donors to maintain adequate national investments in health and education, and to scale up social protection programs during the economic crisis.

"We have seen in the past that global slowdowns can lead to reduced government spending and donor flows to health and education," says the World Bank's Managing Director for Human Development Graeme Wheeler. "Despite the crisis, aid donors must honor their commitments to increase financing for human development to prevent backsliding in this vital area."

For example, Wheeler says that the World Bank has set up a Vulnerability Financing Facility (VFF) to channel funds to those hardest hit by the twin food and economic crises with separate windows for rapid social response and food security. Through the VFF and other programs, the Bank is helping countries to expand services for maternal/infant health and nutrition, and school feeding programs; scale up targeted safety net programs; invest in active labor markets, income support for the unemployed, job creation and training programs and other work related initiatives.

The Bank is also advising countries against making abrupt policy changes to their pension systems in response to the crisis, and to focus on diversifying their pension systems and on smaller, targeted measures to protect those at or near retirement age.