In 2009, we are living through an upheaval that is changing our world. What will be the implications for the future?
Is the financial crisis over and could it happen again? We asked experts with diverse perspectives to address the key questions that concern the developing countries.
The Ds: Sharp economic downturns follow banking crises; with government revenues falling, fiscal deficits worsen; deficits lead to debt; as debts pile up rating downgrades follow. For the most fortunate countries it does not end in default.
It is not surprising that the U.S. has been by far the world’s largest shock producer in this crisis. The big shock absorbers on the other hand were Japan, Russia and Germany, whose exports shrank more than their imports.
The crisis in the developed world has spilled over into the lives of the world’s poorest, who are particularly vulnerable even to the smallest income shocks.
Countries in Central, Eastern and South Eastern Europe have been hit hard by the global crisis. There is a need to rethink the growth model because a return to the status quo ante does not seem realistic.
South Africa’s policy response to the crisis should to some extent help contain the contraction. Nevertheless, the recovery is likely to be slow and hesitant.
Which conclusions can be drawn from the experience of small states, such as the Eastern Caribbean Currency Union (ECCU), to prepare and mitigate the impact of financial and economic crises?
While we are observing some “green shoots,” it is too soon to speak of a recovery. We can, however, identify some key forces that are likely to shape any future growth path.
V. Kasturi Rangan and Djordjija Petkoski
The financial crisis creates unique opportunities for companies to reassess their strategies and identify innovative solutions, including creative partnerships that meet the needs of the poor.
Protectionism constitutes a double threat. It can make recovery from the recession slower and reduce the growth potential of the international economy once recovery has taken hold.
While global coordination is absolutely essential, success in achieving it may prove difficult because economic globalization has outpaced political globalization. If we are to succeed, we will have to manage coordination better than we have in the past.
One important lesson of the crisis is the need to take a systemic view of measures aimed at financial stability. Measures that enhance the stability of a single institution could be inimical to the stability of the financial system as a whole.
Notwithstanding concerns that the dollar’s prospects as a reserve currency have been dimmed by the crisis, there has been no actual diminution of the dollar’s international role. The dollar will remain the principal form of international reserves for the foreseeable future.
There is empirical evidence that government actions and interventions prolonged and worsened the financial crisis, because they were based on faulty diagnosis of the problem and did not follow clear predictable principles.
