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Developing countries and economic crisis

Published: 05. 07. 2010

An initial interim assessment shows that the developing countries are suffering just as much as the industrialized countries from the consequences of the world economic crisis. The hardest hit are highly world-market oriented export countries.

The worldwide economic crisis is still far from over. If until just recently there was talk of an early recovery, the forecasts have again become more cautious since the dramatic deterioration in Greece's economic situation. It is therefore still too early to reliably assess the long-term economic and social impact of the crisis on developing countries.

Some international organizations have nevertheless published initial assessments of the crisis-ridden year 2009. The findings are worrying. They show that despite considerable regional differences, the poorer countries have on average suffered just as considerable economic setbacks as the industrialized countries. Moreover, for them the economic crisis has quickly become a crisis of poverty. The latest UN estimates are that over the past year the crisis has already plunged 50 to 80 million people into deep poverty in developing countries.

North-South comparison

At first glance, the developing countries seemed to have weathered the global recession relatively well. World Bank figures show that their average economic growth for 2009 was marginally positive, thus contrasting starkly with the negative growth rates in industrialized countries (see table). If we exclude the two economic giants China and India, however, the economic output of the poorer countries has declined just as sharply as that of the wealthy industrialized countries. By UN estimates, only in 14 countries did per capita income grow strongly enough to make possible urgently needed progress in combating poverty. In southern Africa, average income even contracted again for the first time in 10 years.

A comparison of 2009 and 2007 growth rates is also revealing. It shows that last year, economic growth in developing countries fell behind the pre-crisis figure by all of 6.4 percentage points. Leaving China and India aside, the difference is even 8.9 points as compared to «just» 5.9 in the industrialized countries. The growth declines vis-à-vis the period before the crisis are therefore clearly greater in the South as a whole than in the countries in which the crisis began. Yet numerous industrialized countries, including Switzerland, have taken the crisis as an opportunity to postpone urgently needed increases in development assistance indefinitely and even to cut spending.

The price of world market integration

The countries hit particularly hard by the crisis are those developing countries that have followed the recipes of the International Monetary Fund and the World Bank in recent years and geared their economies towards export production by large foreign corporations. In Latin America for example, goods and services exports, which go largely to the USA, declined by over 11 per cent in 2009, and net inflows of foreign direct investment by as much as 21 per cent. In the export-oriented East Asian developing countries, it is only the comprehensive stimulus programmes and relatively steady import demand from China that have managed to ward off massive economic reverses comparable to those in Latin America.

Thus, an important lesson from the crisis is that developing countries should no longer be forced into greater integration into the world economy. Rather, they should be given more support in ensuring that income is distributed more fairly and in strengthening their domestic markets. This better prepares them to withstand crises and goes much further to promote their social development and reduce poverty. 

Mark Herkenrath, Alliance Sud

Growth rates of gross domestic product (in %)

Source: World Bank, Global Economic Prospects 2010, p. 3

Article published in: Alliance Sud News No. 64, Summer 2010

Classification: Economy , Finances
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