Given the tentative state of the global economy in 2009, the decisions made within this General Assembly will establish the future of our nations and citizens, become the foundation of arising conflicts and negotiations, and redefine our international understanding of the world economy. Global leaders must begin to seek preventative measures for future crises while ensuring that the global economy prevails despite the challenges that we face in 2009.
Countless countries are falling into recession and unemployment rates skyrocket, putting the number of job losses in the US at 2.8 million, it’s highest in 60 years, and leaving civilians unprotected, unnourished, and discontent. Therefore, while attempting to rectify the economic issues posed by this crisis, the international community must also remain wary of the political and social implications of this catastrophe, and maintain the social fabric that prevents nations from falling into anarchy. The financial crisis started in 2007 in the United States with their housing market. The big banks had the belief that if a huge financial crisis were to occur within their institution, the government would come to the rescue. Because of this, major banking corporations started to lower their standards and take on riskier, subprime loans.
In addition to this, the housing market started booming because more citizens who were looking for a loan could get one due to the lower standards. Subprime loans were now classified as less risky, which meant that credit rating companies would classify them as high-quality when they actually were not. These bad loans were bundled together to create Collateral Debt Obligations (CDOs) as to make more profit off of them, and make these debts seem like they are not subprime. The problem with these CDOs is that they were being classified as AAA when in fact, the were far from it. Then, when subprime mortgage owners began to default, all of the rest defaulted too. Because of this, hundreds of billions of dollars in CDOs were essentially lost.
Another factor that went into the collapse was mortgage-backed securities. A mortgage backed security gives banks the ability to turn a mortgage into a security and sell it to investors. The housing market seemed insanely stable, so investors were very interested in buying these, but this made it so that the MBS market also had more subprime MBS’. These subprime buyers started to default, and again the rest followed. These banks that were collapsing due to these factors, although in US, were global, and the entire globe has been affected on a large scale.
Georgia, especially was hit very hard by this crisis due to the unfortunate timing for the country. Through Georgia’s recent projects rebuilding an unstable and inefficient economy, the country and its government have gained valuable experience and knowledge regarding financial infrastructure. Before these two events occured, Georgia’s once incredibly unstable economic system was doing very well. This is due to the 2003 Rose Revolution, which resulted in a new, nonviolent government led by Mikheil Saakashvili, who is still the president now.
The Rose Revolution was a series of peaceful protests to overthrow Shevardnadze’s government. After the movement, there was an economic growth average of 10.5%. Changes reduced the country’s corruption, which transformed Georgia from one of the most corrupt countries in the region to a role model for other transforming nations.
This is much higher than the average Gross Domestic Product growth of the EU-10 area and of Georgia’s Black Sea neighbors Moldova and Ukraine for the period. Sadly, this ended in 2008 with the “twin crisis,” and the Georgian government now has to deal with the negative impact of both the financial decline and the Russo-Georgian war. Georgia’s finance sector is dominated by banks, and during the pre-crisis years, the government worked with the IMF and the World Bank on multiple development programs, including “Millennium Challenge” projects. This was, again, all brought about as a part of President Saakashvili’s economic growth plan. The Georgian government was continuously praised by international financial institutions regarding successful implementation of these programs. Georgia had managed to create a reinforcing upward economic spiral based on free market reforms and great institution building measures. The Russo-Georgian war had only a 5-day violent conflict, but it pertained to issues that have been around for a very long time.
In the 5-day violent period 170 servicemen, 14 policemen, and 228 civilians from Georgia were killed and 1,747 wounded. Sixty-seven Russian servicemen were killed, and 283 were wounded, and 365 South Ossetian servicemen and civilians were killed. Humanitarian aid came from the United States to start to aid the recovery just as president Mikheil Saakashvili signed a ceasefire agreement with Russia.
Sadly, Georgia was not able to pull itself out of the post-war crisis before the global economic crisis struck. While the banks around the world are for a big part to blame for this crisis, some of the blame must also fall on the people. If civilians had not been purchasing loans that they knew they could not pay back, this issue could also have been more easily contained. Our citizens may not have been doing this purposefully though.
Because of this, Georgia would like to instate educational institutions to prevent further issues. Free financial consultations at community centers, and free courses as well. In addition to the civilians being uneducated, unemployment is also an conflict that increases this crisis because it presents a situation where citizens cannot even begin to start paying their debts back. Unemployment has been a persistent problem in Georgia ever since the country gained independence in 1991.
Because of this, we would like Governments to incentivise corporations who will partner with educational forces: internships, apprentices etc.. This will help people enter the fields they want to work in and create more spots. In the pre-crisis world, banks were surveilled minimally. It was too easy for them to keep information from the government. They could scale stress tests, etc.
however they wanted to portray their institution in a good light. To prevent this, we must first create more overseeing of the banks. We can create a governmental branch specifically for surveilling and coordinating with the banks. Second, we must create more thorough credit and stress checks that are also surveilled so that there is no room to keep secrets. If we create a better vetting system and bottom line standard for how to obtain a loan that is standardized, this issue could not start up again.
Countries should adopt an expansionary fiscal policy increasing public spending to promote economic growth. Finally, if we can increase tourism inflows and high levels of public investment, the world can slowly start coming out of this crisis. We cannot change what has happened in the past, but what can be changed is the economic future. If these solutions are enacted, we can begin to start ensuring that this crisis never occurs a second time.