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Debt Crisis Essay

3107 words - 13 pages

July‐December 2011 




European Debt Crisis and Impacts on  Developing Countries 




    2011‐2 Issue 


  July – December 2011 

SESRIC  Reports  on  Global  Financial  Crisis  :  The  financial  crisis  which  started  in  July  2007,  when 
investors  lost  their  confidence  in  the  ...view middle of the document...

1 The World Bank estimated that  developing  countries  would  face  a  financing  gap  of  $270‐$700  billion  depending  on  the  severity  of  the  economic  and  financial  crisis  and  the  strength  and  timing  of  policy  responses.2  There  was  the  fear  that  sovereign  debt  issuance  by  high‐income  countries  would  crowed  out  many  developing  countries.  The                                                             
 “Swimming Against the Tide: How Developing Countries Are Coping with the Global Crisis,” Background Paper  prepared by World Bank Staff for the G20 Finance Ministers and Central Bank Governors Meeting, Horsham, United  Kingdom on March 13‐14, 2009. 





  challenge  facing  the  developing  economies  was  how  to  protect  and  expand  necessary  expenditures  on  social safety nets, human development, and critical infrastructure.   By late‐2010 the concerns seemed to have given way to optimism about the passing of the crisis and start  of recovery. Expert organizations such as the World Bank (WB) and International Monetary Fund (IMF)  were  forecasting  that  the  crisis  is  over  and  the  recovery  is  on  its  way.  The  April  2011  World  Economic  Outlook3, IMF’s flagship report on the status of world economy, starts with:  “The world economic recovery continues, more or less as predicted … Earlier fears of a double‐ dip recession – which we [(the IMF)] did not share – have not materialized.”   The WB’s June 2011 Global Economic Prospects4 highlights that:  “The global financial crisis is no longer the major force dictating the pace of economic activities  in  developing  countries.  The  majority  of  developing  countries  have,  or  are  close  to  having  regained full‐capacity activity levels … Global growth is projected to remain strong from 2011  through 2013.”  Yet,  not  long  has  passed  and  the  word  of  the  day5  is  the  fear  of  a  Eurozone  collapse  and  a  pandemic  malaise. Just as the world economy seemed to be entering the recovery phase, the Euro crisis has brought  back the gloom.   This  has  important  implications  for  the  developing  world.  While  the  earlier  crisis  made  it  difficult  to  protect the process of economic development in these countries, should the current European debt crisis  form  into  a  global  financial  disaster,  the  current  situation  could  even  reverse  many  of  the  progresses  made during the last decades. Perhaps it is time for developing countries to start planning for developing  strategies that puts them less at risk of suffering the most from such financial crises in the high‐income  countries. The mix  of the OIC member countries,  with some of the richest countries in the world as  member states, give them an exceptionally unique  position  and  opportunity  in  this  regard  through  forming  an  emergency  development  fund  between  the  member ...

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