Effects of global financial crisis on
developing countries
Michael Herrmann
Economic Affairs Officer
Macroeconomics and Development Policies
UNCTAD, Geneva, Switzerland
This presentation
• Direct effects
• Indirect effects
– Economic slowdown
– Commodity price decline
– Possible aid effects
• Concluding thoughts
Direct effects
Indirect effects: Economic slowdown
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.
Indirect Effects: Commodity price decline
Indirect effect: Possible aid effect
Indirect effect: Possible aid effect
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.
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.