The US$50-trillion loss of financial assets of the world’s economies is but a reflection of the decaying state of capitalism, economist Jose Enrique Africa of the independent think-tank IBON Foundation, Inc. said in reaction to a March 2009 study released by the Asian Development Bank (ADB).
BY NOEL SALES BARCELONA
Correspondent
Bulatlat
The US$50-trillion loss of financial assets of the world’s economies is but a reflection of the decaying state of capitalism, economist Jose Enrique Africa of the independent think-tank IBON Foundation, Inc. said in reaction to a March 2009 study released by the Asian Development Bank (ADB).
Last March 10, the ADB publicized Centennial Group Latin America president Claudio M. Loser’s paper, titled “Global Financial Turmoil and Emerging Market Economies: Major Contagion and a Shocking Loss of Wealth?” which examines the impact of the crisis on the world’s economies, with the focus on what he calls “emerging market economies”.
“The loss of capital valuation of financial assets world-wide may have reached well over US$50 trillion. This loss in the capital stock has been very significant, as it amounts to about the equivalent of one year of world GDP (gross domestic product). The decline reflects the reduced capitalization of stock markets, loss in the value of bonds, supported by mortgages and other assets, and the depreciation of many currencies with respect to the US dollar, on account of a surprising run toward the US currency, and perceived to be a safe-haven currency,” says Loser in his paper.
In his paper, Loser said, the two other areas that can be expected to show the impact of the slowdown are remittances and services, like tourism.
“Remittances over the last fifteen years have become a major channel of prosperity. The merits of increased mobility of large numbers of workers to well-paying jobs in prosperous destinations may be subject to debate. However, the impact of the consequent remittances to their home countries have helped increase prosperity and reduce poverty, particularly in Asia and Latin America- India, Mexico and the Philippines being the largest recipients of workers’ remittances. Remittances amounted to some US$280 billion in 2008 (some 2 percent of GDP of the receiving countries), with near US$110 billion to Asia, and US$70 billion to Latin America. These flows have been very stable, and acted as a countercyclical force in the receiving countries,” explained Loser.
“However, they are highly sensitive to economic conditions in the countries of employment. With many emigrants working in the US, Europe, and the Middle East, remittances started to fall in 2008, for the first time in a quarter century. The prospects for 2009 are equally dire, with adverse consequences for the well being of many millions of households among developing countries,” Loser added.
Furthermore, the Centennial Group Latin America’s chief said, even foreign Direct Investment (FDI) will also suffer in the short run.
“By early 2008 capital flows to developing countries had started to slow down, and these flows fell sharply in the second half of the year reflecting the financial crisis. In the end, cumulative flows for the year were only about one half of those registered in 2007, with sharp declines both in Asia and Latin America. The Institute of International Finance estimates that net private flows to emerging economies declined from a record US$930 billion in 2007 to below US$470 billion in 2008 and to projected flows of only US$165 billion in 2009. Net flows are projected to decline by 80 percent from their 2007 peak for Emerging Asia, and by 75 percent for Latin America. This will complicate economic management, as countries deal with weakening external accounts,” said Loser.
“The estimate of US$50 trillion in losses is unprecedented and dramatically highlights the gravity of the problem facing the global capitalist system. The accumulation of such massive financial wealth actually just reflects the unprecedented dependence of advanced capitalist economies on digitally conjured capital to try and keep their intrinsic crises at bay,” said Africa in an interview.
He explained the largest part of this US$50 trillion is merely digital wealth or the accumulation of debt that could never be paid and of recycled speculative profits, neither of which is based on production or any real economic value.
“But the problem is likely even much bigger and the total amount of fictitious capital in the global capitalist system is probably even many times more than this. However the US$50 trillion or much more in losses also mainly reflects the loss in digital wealth of the very small minority of the world’s ruling economic elites and the world’s 4-5 billion poor do not lose anything that they never had. The impact on the people of the world is more in how they are now made to suffer the consequences of relying, directly or indirectly, on the intrinsically flawed capitalist economic system that is now undergoing a seizure of historic proportions,” Africa said.
