Helping developing countries during the financial crisis

Developing countries are severely hit by the global economic crisis. The leaders of the world’s 20 biggest economies, recognising that the global financial crisis has ‘a disproportionate impact’ on vulnerable people in poor countries, have promised to make hundreds of billions of United States dollars available to these countries as part of a $1.1 trillion plan to rescue the world economy. In a communiqué released by the Group of 20’s London Summit, the leaders announced what they called ‘a global plan for recovery on an unprecedented scale’. They said the rescue package would include resources totalling $850 billion, to be channelled through global financial institutions, ‘to support growth in emerging market and developing countries by helping to finance counter-cyclical spending, bank recapitalisation, infrastructure, trade finance, balance of payments support, debt rollover, and social support.’ http://www.pambazuka.org/aumonitor/comments/2296/

The EU Commission helps with a support package. The EU has recognized that the current recession is affecting the global system at all levels – overturning the old notion that globalisation could only be good. The hardest hit are those who were already the world’s poorest – particularly those who had begun to climb out of poverty. To give EU action a coherent framework, the Commission has issued a policy paper – Supporting developing countries in coping with the crisis. The paper reaffirms the two guiding principles for EU relations with developing countries – partnership and solidarity. http://ec.europa.eu/development/icenter/repository/COM_2009_0160_4_EN.pdf

Related Publications:

UN Conference on the World Financial and Economic Crisis and its Impact on Development
http://www.un-ngls.org/IMG/pdf_ngls_bulletin_1.pdf
In an effort to help keep interested stakeholders informed on the latest developments and events leading to the UN Conference on the World Financial and Economic Crisis and its Impact on Development taking place in New York from 1-3 June 2009, NGLS has launched a dedicated weekly ’bulletin’ up to the Conference. This first issue reviews the mandate and background of the Conference. It also contains information on related meetings and reports from the UN system.

DCED has launched a new web page providing links to a selection of the many materials now being produced on the global financial crisis and its impact in developing countries. http://www.enterprise-development.org/page/the-global-financial-crisis

The Centre for Development Policy and Research is pleased to announce the publication of Development Viewpoint #24, ‘‘How the Global Crisis Is Transmitted to Developing Countries”. The author, Jan Toporowski, Department of Economics, SOAS, expose how developing countries are extraordinarily vulnerable to the financial crisis that is unfolding in the U.S. because its debt deflation (its reduction of expenditures to repay its debt) will reduce developing-country exports and, in turn, the outflow of U.S. dollars, the international reserve currency, which is crucial to financing international trade. He also notes that the recent fall in commodity prices and the appreciation of the U.S. dollar will only exacerbate developing-country problems. http://www.soas.ac.uk/cdpr/publications/dv/49755.pdf

CDPR also announced the publication of Development Viewpoint #26, ‘‘Global Financial Crisis and Recession: What Could Happen to Major Emerging Economies?” http://www.soas.ac.uk/cdpr/publications/dv/49965.pdf. The authors, Terry McKinley, Director of CDPR, and Naret Khurasee, a researcher at Alphametrics, draw on the results of a 2010-2015 global scenario, generated by the State of the World Economy macroeconomic model, to assess the projected impact on the major emerging economies of Brazil, China, India and South Africa. They find that as the global economy is projected to recover after 2010, all four economies should resume credible rates of economic growth. But China is expected to perform the best during 2010-2015. The other three economies are projected to grow more slowly and confront problems of current-account deficits or government debt. For related material on the State of the World Economy model, see: http://www.soas.ac.uk/cdpr/researchareas/worldmodel.

The Centre for Development Policy and Research is pleased to announce the publication of Development Viewpoint #28, ‘‘The Roots of the Global Financial Crisis”, http://www.soas.ac.uk/cdpr/publications/dv/50940.pdf. The author, Costas Lapavitsas, Department of Economics, SOAS, and Research on Finance and Money, identifies several factors that he believes are at the root of the current crisis: loose US macroeconomics policies in the early 2000, the extraction of financial profits by commercial banks directly out of personal incomes (such as through subprime mortgages) and the adoption by banks of highly risky investment banking functions (such as securitisation of mortgages).

Labor Market in the People’s Republic of China (PRC) and its Adjustment to Global Financial Crisis http://www.adbi.org/email.notification/url.php?id=2711&url=%2Fevent%2F2941.labor.market.prc.global.financial.crisis

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  1. Major donors adopt plan to support poor countries in crisis during the High Level Meeting at OECD on 27-28 May 2009

    Members of Development Assistance Committee, the world’s major donor countries, and other donors, have adopted an Action Plan to support poor countries trying to cope with the economic and financial crisis.

    Globally, aid has risen and most donors are so far holding to their promises in the face of the crisis. In fact, participants to the meeting welcomed the announcement by the Obama administration of its proposal to double its foreign assistance over the next five years. But, despite this trend, some DAC members have decreased their aid and others are unlikely to meet their commitments. Only renewed efforts will bring the collective aid performance back on track, especially for Africa. As the major international institutions respond quickly to emerging needs with the funds they have available, there is a risk that this money will soon run out. The action plan calls on the DAC donor community to ensure that these institutions can count on the financial support they need to backstop developing countries over the medium term.

    The global downturn is affecting developing countries – the least responsible for the crisis, and the least able to cope with its impact. Low-income countries, in particular, were already weakened by the food and energy crises. The stakes are now high: The World Bank estimates that, as a result of the crisis, 53 million more people will have to live on less than USD 1.25 a day. Eckhard Deutscher, Chair of the Development Assistance Committee, warns “We must not allow the current crisis to push millions of people back into poverty, reversing the progress for which developing countries have worked so hard”.

    Open trade, investment support and private sector development are critical to the development of poor countries. Yet they also need aid to mitigate short-term pressures and move towards strong, clean and fair growth. The Development Cooperation Minister of Luxembourg, Jean-Louis Schiltz, emphasizes, “Predictable financing for development is key. Above and beyond aid, we must use all available policy options to ensure that developing countries come through the crisis and continue progress towards their development goals.”

    In the Action Plan, Members of the Development Assistance Committee agree to assist developing countries by:

    * meeting their existing aid commitments, in particular in Africa.
    * helping low-income countries finance both short- and long-term priorities.
    * making the most effective possible use of aid.
    * financing international institutions in a timely and predictable manner .
    * tackling the crisis using all instruments available, not just official aid.

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