Response to Economic Crisis in Developing Contries

4.0 Response to Economic Crisis in Developing Countries

In the wealthy countries the discussion on how to deal with the global financial and economic crisis marginalised the developing countries and their needs. At all events, the impact of the crisis on the poor countries did not hit the headlines the way bank bailouts and toxic securities did.

In recent years many developing countries have made significant macro-economic progress. Consequently, some of them are better armed against the crisis than they were on previous occasions. These countries are not exposed to the crisis without any protection whatever. Many governments in the developing countries have undertaken measures according to their own powers. They have strengthened their (regional) cooperation with one another. The UN, IMF, World Bank and other international organisations have also endeavoured to support the developing countries. They were urged to act by the non-governmental organisations and numerous academic powers.

4.1. Developing countries’ response at national level

21There is a considerable degree of variation in the initial position of the individual developing countries. Some have high international currency reserves, others have a substantial inland market. However, many countries had already been severely depleted by the food and energy crises.

4.1.1. Fiscal stimulation measures

In the US the stimulation programme amounts to over 7% of the GDP. Other examples are Korea, Malaysia, the Philippines, Thailand and Vietnam. South Africa also stepp (...) Wealthy countries responded with extensive fiscal interventions. Numerous developing countries also launched programmes of this kind. Countries with substantial international currency reserves and a low budget deficit, like China, were in a position to do so. China announced a CNY 4 billion programme (some EUR 430 billion) for the years 2009 and 2010 to be invested in domestic infrastructure, social security, technology, environment and education.12 I. Ortiz posted an analysis of fiscal stimulation plans in 43 industrialised and developing countries as per March 2009 (Ortiz 2009). However, a procedure based on individual programmes for each country was considered insufficient, and a multilateral, coordinated approach was called for.

Most developing countries had and still have a clearly lower financial-political scope for stimulation programmes and social measures to protect the poorest. Using a special fiscal capacity indicator, a UNESCO team ascertained that 43 of the 48 low-income countries examined have no scope for stimulation packages in favour of the poor (UNESCO 2009). Higher bilateral aid and liquidity aid from the international financing institutions could significantly expand the range of options for such countries.

4.1.2. Money policies

Other countries, like India, opted for other paths. India does have considerable international currency reserves to call on, but it also has high fiscal deficits which leave little room for increased expenditure. Consequently, India put the emphasis on monetary measures, in particular facilitating credit access options for producers. For many developing countries, however, these money policy measures are strictly limited because easement in interest policy impacts the exchange rate of their currency and the rate of inflation.

Conversely, the effect of devaluation of currencies as a specific export incentive measure would probably be limited as long as global demand did not rise more strongly. Some countries, in contrast, have introduced selective trade restrictions on non-essential luxury goods.