Global Financial Assets Lost $50 Trillion Last Year, ADB Says

BLOOMBERG - Shamim Adam
March 9 (Bloomberg) -- The value of global financial assets including stocks, bonds and currencies probably fell by more than $50 trillion in 2008, equivalent to a year of world gross domestic product, according to an Asian Development Bank report.

Asia excluding Japan probably lost about $9.6 trillion, while the Latin American region saw the value of financial assets drop by about $2.1 trillion, said Claudio Loser, a former International Monetary Fund director and the author of the report that was commissioned by the ADB. The report didn’t give a breakdown of asset declines in other regions.

“The loss of financial wealth is enormous, and the consequences for the economies of the world will unfortunately commensurate,” said Loser, now the Latin American president of strategic advisory firm Centennial Group Inc.. “There are serious economic and political stumbling blocks that may well cause the recovery to be costly and slow to consolidate.”

Some of the world’s biggest financial companies including Lehman Brothers Holdings Inc. and Merrill Lynch & Co. have collapsed as banks and other financial institutions reported almost $1.2 trillion of losses and writedowns since the start of 2007. Global stock markets lost about $28.7 trillion in 2008, and another $6.6 trillion has been wiped from the value of world equities in 2009.

“Poor macroeconomic and regulatory policies allowed the global economy to exceed its capacity to grow and contributed to a buildup in imbalances across asset and commodity markets,” Loser said. “The previous sense of strength and invulnerability is now gone.”

Global Recession

The global economy is likely to shrink for the first time since World War II, and trade will decline by the most in 80 years, the World Bank said yesterday. Its assessment is more pessimistic than an IMF report in January predicting 0.5 percent global growth this year.

Developing nations will bear the brunt of the contraction and they will face a shortfall of between $270 billion and $700 billion to pay for imports and service debts, the Washington- based World Bank said.

“This crisis is the first truly universal one in the history of humanity,” former IMF Managing Director Michel Camdessus said at an ADB forum in Manila today. “No country escapes from it. It has not yet bottomed out.”

Growth in 2009 may drop by half in developing and emerging countries, and a recovery in the global economy may only begin late this year or in early 2010, Loser said. Developing nations, which mostly escaped the earlier effects of the credit crisis, are facing more problems as the downturn worsens, the report said.

‘Mounting Difficulties’

“Emerging economies were initially able to absorb the initial impact of the crisis on account of the considerable progress in recent years in consolidating economic performance,” Loser said. “This group of countries is experiencing mounting difficulties. Policy makers will thus need to find a balance between economic stimulus and financial stability.”

Asia is likely to recover with “vibrant” growth once the crisis recedes in 2010, Manu Bhaskaran, the Singapore-based head of economic research at Centennial Group, said in a separate report for the ADB released today. South Asia’s growth prospects “remain good,” he said.

“Asia is mainly suffering a cyclical slowdown because of problems in the developed economies, it is not suffering a structural economic breakdown,” Bhasakaran said. “There is no reason to think that the growth engines that have been unleashed in many parts of Asia are likely to weaken.”

Capital Flows

Net capital flows to emerging markets may fall to $165 billion this year, from $470 billion in 2008 and a record $930 billion in 2007, Loser said, citing estimates from the Institute for International Finance. Net flows to emerging Asian economies may drop by 80 percent from the peak in 2007, he said.

Protectionist measures by countries to prevent a deeper fallout from the global downturn won’t work, Loser said.

“There is no room for denial or populist policies,” Loser said. “Otherwise the crisis will become even deeper and harder to reverse.”