Petru Veverita
21-01-2010
My presentation is focused on the impacts of the crisis on newly independent states. The crisis is hitting developing countries hard. The global financial system has never served developing countries well. The vulnerability of those countries that opened their doors to the global financial system has increased, but they haven’t received the financing they so desperately needed. It is clear that we need a system that will serve developing countries. Ban Ki-Moon, UN Secretary-General, said: “We have to do more than just fix the current financial disorder. We have to improve governance, so that globalisation produces fine results and promotes justice. We have to make sure that it is environmentally, economically, socially and politically sustainable”.
Governments should monitor and respond to the realities of the economic and financial crises. In some cases, governments have been proactive, like in Russia and Kazakhstan. They injected huge resources from their national reserves and budgetary surpluses. They provided short-term economic stimuli to revive demand. In some cases, special priority was given to agriculture. However, in the majority of countries (this is the case of Moldova), governments face growing demand for public services with severely reduced public resources.
It is crucial to learn our lessons from the crisis. It is also crucial to identify causes that undermine the effectiveness of the financial regulation and supervision. The anatomy of the crisis is rather simple: easy credits, bad loans, weak regulation and supervision of complex financial instruments, loss of credibility and trust and, finally, financial panic. However, the channels of transmission of the crisis are different. Although developing countries are less integrated into global financial markets, the poorest countries are hit harder due to slow export growth, reduced remittances and low commodity prices. The crisis may also lead to the reduction of private investment inflows. This means that weak economies are less able to cope with international vulnerabilities.
The issue of remittances is a challenge. Remittances have been an important external financing source in many developing countries. These remittances are four times the size of the international development assistance. During the economic crisis, migrant workers have been losing their jobs and have less money to send to their families in developing countries. As a result, remittances are expected to shrink significantly in 2009 and even in 2010. In several newly independent states, the share of remittances in the GDP is very high: 45% in Tajikistan, 35% in Moldova, 30% in Kyrgyzstan and 15% in Armenia (2007 data).
The cost of the crisis is very high. GDP decline in developed countries is expected to be 3.8%. In the CIS countries, the decline may reach 5.8%. GDP increase is expected only in 2010. In the Eastern Partnership countries, GDP will decline by 5%, whereas in 2008 the economic growth was at this level.
How can governments react to the crisis? The situation is different. In October this year, at the summit in Chisinau, representatives of the CIS countries approved an anti-crisis plan. However, it seems that there are no chances for its implementation. Each country is managing the crisis in its own way.
In Moldova, the crisis coincided with elections. Last autumn, the government and the National Bank of Moldova stated that there was no financial and economic crisis in Moldova. The Moldovan economy is very open and therefore exposed to foreign factors. The global economic crisis led to a decline in labour demand in Western European countries, and it affected Moldovan citizens working abroad. More than 30% of GDP comes from remittances. The GDP decline registered in 2009 is 5%. There are also declines registered in all major sectors. The unemployment rate is more than 10% (compared to 2-3% in 2008), and the budget deficit is expected to reach more than 10% (compared to only 2% in 2008).
The global financial crisis requires much better responses in the areas of fiscal, monetary, trade and financial policy. The crisis also may provide an opportunity for introducing better social programmes. Developing countries suffer from growth decline, high unemployment and poverty. In developing countries, policy responses have to include not only immediate short-term stabilisation actions but also long-term strategies.
