Effects of Economic Crisis on Developing Countries and Transition Countries

The crisis originated in the major financial centres in the developed countries. The force of impact on the developing and transition countries became apparent only gradually. The situation is new; previous crises spread from the developing countries. This time developing countries are the victims of the crisis, but they did not cause it. “The causes of the global financial crisis are to be found in the financial and economic policies of the developed countries, primarily the United States (US). Developing countries are not responsible for it, but they are now seriously affected,” wrote Martin Khor, the new Director of the South Centre in Geneva.

The Third World Network (2008) reported that the UN Economic Commission for Asia and the Pacific had in fact registered a “phase of heightened instability”, but at that time they reduced their growth predictions only minimally. In the IMF July 2008 update of the Global Financial Stability Report (IMF GFSR)2 the IMF, for its part, registered a weakening of growth in the threshold countries and a heightened risk of inflation. Borrowing abroad became more expensive; investors had become more risk-conscious. But the IMF still characterised the threshold countries as fairly crisis-resistant. The full force of the global financial and economic crisis impacted the developing and threshold countries in the course of 2008. Subsequently the IMF, the World Bank and other institutions continually downgraded their growth predictions for Asia, Latin America and above all Africa.3 High growth rates disappeared and many countries even had to put up with shrinking economic production.

According to the IMF April 2009 World Economic Outlook (IMF WEO), the growth setbacks in the threshold and developing countries were higher than in the industrialised countries. Compared with their growth potential, the developing and threshold countries are therefore harder hit by the global financial and economic crisis than the industrialised countries that caused it.

The regression in economic growth entailed a sinking per capita income, at least in countries with high population growth rates. Macro-economically the crisis manifested itself in mounting deficits in trade and payment balances, dwindling currency reserves, currency devaluations, increasing rates of inflation, higher indebtedness and soaring public budget deficits.

The international agencies reported on social unrest in Bulgaria, China and Latvia. This had a direct impact on the living conditions of the population. The United Nations Educational, Scientific and Cultural Organization (UNESCO) (2009) estimated that the fall in growth cost the 390 million poorest people in Africa, i.e. those who must survive on the equivalent of USD 1 per day, a total of some USD 18 billion or USD 46 per person. This is equivalent to a drop in average per capita income of one-fifth.

The International Labour Organization (ILO) (2008) feared the number of unemployed could rise to some 50 million by the end of 2009. The imbalance is mounting. Shortly before the G-20 meeting in Washington in November 2008 the World Bank estimated that a fall in growth of 1% would force 20 million people into absolute poverty (World Bank 2008). Six months later the World Bank predicted that the number of poor would rise further in half the developing countries. Among the low-income countries as many as one-third and in the countries south of the Sahara as many as three-quarters would be affected (World Bank GMR 2009). This means that the Millennium Development Goals faded into the distance for many countries. As a consequence there has already been social unrest in some countries.4 In its latest yearbook the international network Social Watch (2009) reports, in numerous contributions by local civil society organisations, on how the crisis has subjectively affected individual countries.