Effects of global financial crisis on developing countries

1. Effects of global financial crisis on developing countries Michael Herrmann Economic Affairs Officer Macroeconomics and Development Policies UNCTAD, Geneva, Switzerland

2. This presentation • Direct effects • Indirect effects • Economic slowdown • Commodity price decline • Possible aid effects • Concluding thoughts

3. Direct effects

4. Indirect effects: Economic slowdown

5. Indirect effects: Economic slowdown Economic slowdown… … discourages exports of all countries, but especially of countries with high exports to developed countries. … encourages fall commodity prices, which affects many of the poorest developing countries. … discourages investment in all countries, but especially in poorer developing countries which are perceived to be riskier. … encourages increased profit remittances from developing countries to developed. … discourages workers’ remittances from developed countries to developing countries.

6. Indirect Effects: Commodity price decline

7. Indirect effect: Possible aid effect

8. Indirect effect: Possible aid effect

9. Concluding thoughts The unraveling of the crisis: Credit crunch -- falling investment -- falling demand -- falling exports -- falling commodity prices -- falling economic growth -- falling aid? Resolution of the current crisis: Possibly restrict capital outflows -- rescue systemically relevant financial institutions -- pursue counter-cyclical macroeconomic policies – coordinate macro-economic policies -- step-up social protection. Prevention of future crisis: Strengthen regulation of and oversight over financial markets – address moral hazard through micro-prudential regulations – limit speculative capital flows through macro-prudential policies – discourage large and prolonged exchange rate misalignments.

10. Concluding thoughts “Financial markets have for some time had an independent capacity to destabilize developing countries; there are now increasing indications of the vulnerability of all countries to financial crisis. […] Overall, there appears to be a need for more collective control and guidance over international finance. ” The Trade and Development Report 1990.