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

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Presentation on theme: "Effects of global financial crisis on developing countries Michael Herrmann Economic Affairs Officer Macroeconomics and Development Policies UNCTAD, Geneva,"— Presentation transcript:

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 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

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.


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