The global financial crisis
and developing countries1
What can the EU do?
Paper for informal EU Development Ministers’ meeting
29-30 January 2009, Prague, Czech Republic
20 January 2009
1
This paper was commissioned by the UK Department for International Development and the Netherlands
Ministry of Foreign Affairs. The team is led by Dirk Willem te Velde and includes Nick Highton, Isabella
Massa, Mareike Meyn, Jane Kennan and Jodie Keane. We are grateful to Stephany Griffith Jones, Simon
Maxwell, Adrian Hewitt and Sheila Page and UK and Dutch officials for suggestions and contributions. Any
views expressed are the responsibility of the authors and not of the UK or Dutch Governments or ODI.
1
Table of contents
1. Introduction
3
2. Links to the London G-20 Summit
4
3. Further action
3.1 EU instruments
3.2 EU – other regional or global initiatives
5
5
6
Appendix 1 The Global Financial Crisis: main areas of impact
A1.1 Growth forecasts and expected output loss
A1.2 Transmission mechanisms
International capital flows, aid and remittances
Trade
A1.3 What effects are already visible?
A1.4 Vulnerable countries: typologies
9
9
113
15
18
Appendix 2 The Global Financial Crisis: Main responses so far
A2.1 Fiscal stimulus
A2.2 Use of shock facilities
IMF facilities
The World Bank Group
EU facilities
A2.3 Additional finance or early disbursement
21
21
26
Appendix 3 The importance of the EU to developing countries
34
Appendix 4 - The economic impact of the global financial crisis on SubSaharan Africa
39
Appendix 5 The financial crisis and trade policies
40
2
30
1. Introduction
The global financial crisis, its likely impact on developing countries and possible policy
responses by the European Union (EU) will be discussed by EU Development Ministers at an
informal meeting in Prague on 29-30 January 2009. This background note sets out in
appendices the possible impact of the global financial crisis on developing countries and the
responses so far, and in sections 2 and 3 looks ahead to the options available to the EU to
respond to the global financial crisis and minimise the negative effects on developing
countries.
The paper focuses on what the EU (the European Commission and 27 EU member states) can
do. The role of the EU as a trade and development partner is crucial in promoting well-being
in developing countries2:




The EU is the main trading partner for developing countries. In 2007 a fifth of
exports from developing countries went to the EU. The EU is also a major
sourcing market with 28% of imports coming from African, Caribbean and Pacific
(ACP) countries (incl. South Africa).
The EU is a major source of remittances for developing countries. The EU27
accounted for 30% of all global remittance outflows in 2007.
The EU is a major provider of foreign direct investment (FDI) to developing
countries. Around 27% of total FDI were destined for developing countries in
2007, and 57% of FDI outflows are accounted for by the EU (2007).
The EU is the world’s largest provider of official development assistance (ODA).
In 2007 the EU accounted for 53% of net ODA flows disbursed by Development
Assistance Committee (DAC) donors. Total net ODA to the Least Developed
Countries (LDCs) has nearly doubled in real terms over the last 10 years, reaching
US$32.5 billion in 2007, representing one-third of total aid, more than half of
which has been provided by the EU.3
The global financial crisis has put pressure on all of these important sources of revenues for
developing countries, with potentially very significant consequences (detailed information on
impacts are reviewed in appendix 1). It is still too soon to understand the precise effects, and
the news is getting worse by the day. The shock, however, is likely to be significant,
estimated to result in output losses of at least US$50 billion in Africa (US$ 353 billion in
developing countries) over 2008-9 and a 2 percentage points slower output in 2009 in
developed and developing countries, a loss which is more than five times the gains of a
possible WTO settlement. Global financial flows to developing countries are expected to
decline by 25-50% from USD 1 trillion to USD 550-750 billion over 2007-9. Trade finance is
under pressure, global trade is forecast to fall by 2% in 2009, and exports in China, Taiwan
and Korea were already down by 20% year-on-year in November 2008. India and China have
each lost 10 million jobs, 14,000 jobs have gone in South African mining. Remittances are
down by 40% in Kenya, tourism bookings by 40% in Cambodia and Kenya. While there have
already been some policy responses (appendix 2), this may not be enough given the scale of
the shock, and apart from the €1 billion Food Facility the EC has not yet responded.
The EU can act in a number of ways. First, EU member states and the European Commission
can act individually or through EU instruments. But they can also promote wider initiatives
by regional or global partnerships or institutions.
2
3
See appendix 3 for further data.
See http://www.oecd.org/dataoecd/47/25/41724314.pdf
3
2.
Links to the London G-20 Summit
Poor developing countries have a direct interest in global financial stability even though they
may not be the main actors. The G-20 summit of 15 November 2008 in Washington (which
included the main developed and emerging economies) discussed the global financial crisis
and produced a list of 40+ action points. The next discussions will take place in London on 2
April 2009. The substance of the London summit has yet to be announced, but it is expected
there are three main strands to the 2 April 2009 agenda:



Financial sector reforms; delivering progress on the Washington action plan to
build better, and counter cyclical financial systems; and
Economic and social policy responses; Economic recovery to restore jobs and
growth; macroeconomic actions to revive the global economy, stimulate
employment and review of measures taken and of further possible steps, including
on the Doha Trade Round and social actions to protect the poorest from the
downturn.
Reform of international financial institutions (IFIs); speed, principles, priorities,
process for reform of the IFIs, including the International Monetary Fund (IMF),
Financial Stability Forum (FSF) and World Bank.
There are discussions about what global financial rules are priorities, given that many rules
have already been adopted e.g. by European regulators, and about what is in the interest of
developing countries. For example:



There is a discussion about the introduction of new accounting rules to reduce the
pro-cyclicality of international capital flows and bank lending in particular. The
debate is between academic thinkers (Charles Goodhart, Avinash Persaud) who
favour a complete rewrite of the current Basel II financial rules versus
practitioners and regulators suggesting that anti-cyclical elements could be
included in the Basel II principles. It is key that capital adequacy ratios vary over
the cycle and be linked to the growth in banking assets; they could be lower than
8% in bad times; and whether rules can be implemented to regulate the funding of
assets (the crisis has taught us it matters whether mortgages are financed by
deposits or short-term money markets).
There are currently weak financial rules on tax havens, but it is completely
unthinkable to bail out tax havens now. Countries have responded by safeguarding
deposits and banking systems in their own county only. Transparency is back on
the agenda (this could cover capital flight etc) which should cover tax havens
some of which are close to “home”.
IFI reform has been on the table for some time. Will the current crisis allow a
greater voice and participation of developing countries? And could the G20
accelerate the Bank’s discussions on governance and strategic direction (see
section 3.2).
New global financial rules need to be supported by global action to provide global public
goods (EU publication).4 Developed countries can smooth the impact of the crisis and
volatility borne by developing countries by engaging in a co-ordinated fiscal response at
4
Morrissey, O., and D.W. te Velde. 2004. "Economic Policy and Global Action." The Courier ACP-EU 202.
http://www.europa.eu.int/comm/development/body/publications/courier/courier202/pdf/en_28.pdf
4
home as well as abroad5. It might be easier to stimulate growth in developing countries, and
the world economy has recently been growing on the basis of developing country demand
recently.
3.
Further action
The EU development ministers can discuss a co-ordinated approach in individual responses6
and how EU instruments should respond to the crisis (section 3.1) but they can also promote
other global and regional initiatives (section 3.2).
3.1
EU instruments
So far the EU’s stimuli have bypassed developing countries, there is little evidence that its
shock facilities are delivering, and EU institutions have yet to respond in full to the global
financial crisis which is having large financial and economic effects (apart from the €1 billion
Food Facility). It is time for a wake up call. What can the EU do?
Keep aid commitments - At Gleneagles 2005, the G8 committed to increase aid to USD 130
billion in 2010 (at constant 2004 prices). Currently it is around $100 billion. There is no
simple relationship between downturns and changes in aid (notice e.g. what happened in the
period 2000-2002: aid did not decline while growth did), but some countries did reduce aid in
past downturns; and France, Spain and Italy may now reduce increases in aid or cut aid. The
case for aid is as strong as it was before, and even stronger. More aid would be needed in
countries to manage the downturn and ensure that development success stories are not
compromised7. The EU target in the 2008 EU Agenda for Action aims to reach an aid target
of 0.56% of gross national income or EUR 66 billion. As GNI is declining, so might aid.
However, the Agenda for Action did not take the global financial crisis into account.
Early disbursements of EDF – if the effects become worse, there might be a case for early
disbursement. This requires frontloading of EU Member state spending, and new rules to
quicken disbursements (which are needed with or without a crisis).
More resources for the EU’s FLEX (part of EDF) but only with quicker disbursements
rules to ensure anti-cyclicality. This is a tall order since the ACP suggest that FLEX in its
current format does not seem to work adequately and that they have lost a compensatory
mechanism (after losing other mechanisms such as STABEX which were not very effective)
If more resources are made available for FLEX (and initial allocation were small8)to deal
with shocks in 2009 it would need to be accompanied by new disbursement rules and/or
include some automaticity of support. So far developing countries have revealed little
interest.
More generally, the EU could consider a relaxation of EDF disbursement rules to deal with
crisis and ensure that existing EU bilateral and EDF supported budget support instruments are
5
Part of the stimulus abroad would come back to the home country: we estimate that every $6 of increased (untied) aid
would lead to increased exports of $1
6 Increased bilateral aid and fiscal stimuli, and encouarge bilateral Development Finance Institutions to be anti-cyclical (not
all can, e.g. the CDC is expecting fewer income streams).
7 Massa, I. and D.W. Te Velde (2008), The global financial crisis: will successful African countries be affected?, see
http://www.odi.org.uk/resources/projects/background-papers/2008/12/financial-crisis-african-countries-povertydevelopment.pdf
8 Griffith-Jones, S. and J.A. Ocampo (2008), Compensatory Financing for Shocks: What Changes are Needed?, draft paper
for UN.
5
as flexible and responsive as possible. For example the EU should allow for the possibility to
address possible Balance of Payments problems quickly as and when they occur, not months
and years later when the impact has already been felt. Budget support could be appropriate.
Encourage the EIB to respond to the crisis – for instance, it could think about engaging in
debates on trade finance (where there are market failures, ie by preventing crowding out of
the private sector when the situation improves), and acting on the challenges, by fast tracking
projects that promote growth directly (e.g. infrastructure funding), and further encourage the
local private financial sector. In fact part of a fiscal stimulus could be provided in the form of
increased support to accelerate growth policies such as the provision of good quality and
appropriate infrastructure. This could be in the form of output based aid mechanisms rather
than interest-rate subsidies.
The EU (i.e. its member states) can implement and improve a co-ordinated fiscal stimulus,
and part of this stimulus should go to developing countries in the form of grants and loans.
The EU countries should not increase the financial burden and economic challenges they
already pass on to developing countries (appendix 1), and improve their commitments on aid
and development finance as the case for aid is stronger now than it was before.
3.2
EU – other regional or global initiatives
Is the scale and speed of responses: is the current shock architecture up to scratch? A
basic requirement of the shock-response architecture is that it needs to provide sufficient
counter cyclical resources in terms of volume and flexibility. At present, modalities for
providing liquidity are ad hoc and inadequate to address the problems associated with
systemic instability - certainly on the scale currently being experienced.
Efforts to provide increased liquidity for past shocks have been unsatisfactory, and often
depended on ad hoc arrangements with the IMF’s large shareholders - which as creditors
have important interests to protect. The IMF has taken several steps to strengthen its capacity
to provide financing in crises, but none of the facilities has been backed by additional money
and rely on the existing resources of the Fund. This leaves a key part of the architecture
fundamentally constrained in its ability to respond.
Proposals have been made to allow the Fund to issue Special Drawing Rights (SDRs) to
provide international liquidity. This would require an amendment of the Fund’s Articles of
Agreement and would face opposition from some major industrial countries. An argument
against resorting to new issues of SDRs concerns its potential inflationary consequences.
Available evidence suggests that the effects on inflation would be small or non existent
however. A positive advantage is that SDRs would help avoid the need for developing
country governments to maintain high conventional reserves invested in low profit assets.
There is a high degree of consensus that shock financing needs to be speedy to be effective
(an important point also made with respect to EU instruments). A difficulty is that bilateral
donors typically cannot reorient flows quickly. The IMF facilities, though more capable of
acting quickly, are disparate and tend to carry excessive conditionality. Low or no
conditionality is appropriate in view of the exogenous nature of the shock now facing
developing countries.
As with other forms of development financing, a higher degree of concessionality is
appropriate for LICs. In the case of low-income countries, there is a clear case for the
international community to provide grants for a significant proportion of the long-term effects
6
of shocks. If grant financing e.g. via existing multi donor budget support programmes, cannot
be disbursed quickly, then concessional funds provide a second best alternative.
In the short term, flexible funds should be made available for countries that have successfully
approved annual Art IV consultations, thus reflecting reasonable macro-economic policies. In
the longer term a practical way of building greater speed of response to shocks into existing
IMF lending facilities is to build alternative scenarios into all Fund programmes. Thus,
programmes could include provisions that lending would automatically increase and should
certain levels of deterioration of terms of trade or reversals of capital flows occur, while
programmes are otherwise on track.
The EU could therefore support further anti cyclical action by the World Bank Group (IDA,
IFC) and IMF (as long as it is provided without conditionalities) and press for streamlining
of low conditionality IMF facilities - possibly supplemented by an SDR issue. As surveyed in
appendix 2, the World Bank Group (IBRD) Loans will triple from US $13.5 billion to US
$35 billion in the current fiscal year up to US $100 billion over the next three years. IDA has
$42 billion for 2008-2011, which it could frontload (e.g. using the IDA Fast Track Facility
which would speed approval processes) and US $2 billion available to help hardest hit
poorest countries. The IFC has facilities for US $30 billion over the next three years, which
involve a doubling in the trade finance programme to US $3 billion, provide a new bank
recapitalisation fund to recapitalise distressed banks, provide a new infrastructure crisis
facility to provide roll-over financing and help recapitalise existing, viable, privately-funded
infrastructure projects facing financial distress
The EU can support the UN process. There is a UN commission on the international
monetary system which is meeting again in March 2009 (see Box 1) and there will be a high
level UN conference later this year.
Box 1: The Commission of Experts of the President of the United Nations Genera l
Assembly on Reforms of the International Monetary and Financial System,
This unprecedented global financial and economic crisis requires an unprecedented global response from the
entire international community, the G-192. The Commission held its first meeting in New York on January 4
through January 6, and recommendations include
 It is imperative that all the developed countries take strong and effective actions to stimulate their
economies, and consider consequences on other countries. Additional assistance to developing countries
may be required to offset these effects.
 There are large asymmetries in global economic policies—countercyclical policies are pursued by
developed countries, while most developing countries pursue pro-cyclical policies.
 It is imperative that developing countries be provided with funds to enable them to undertake comparable
policies, to stimulate their economies, to provide social protection, and to ensure a flow of liquidity to their
firms, including maintenance of trade credits.
 While there is a need for long discussed reforms in their governance, in the short run the creation of a
new credit facility, perhaps within the IMF, the World Bank, or regional or sub-regional
development banks, should be considered, with stronger representation for developing countries.
 While funds within the International Financial Institutions are limited, it is imperative that more funds be
provided, and that they be provided without the usual conditionalities, especially those that force these
countries to pursue pro-cyclical policies or to adopt the kinds of monetary and regulatory policies which
contributed to the current crisis.
 Additional funding could be provided by a large issuance of Special Drawing Rights.
 The Commission noted several regional efforts at cooperative responses to the crisis, including providing
needed liquidity, and urged the consideration of their expansion.
 The crisis highlights how policies and institutions in developed countries can have global systemically
significant effects.
 The Commission urged greater transparency on the part of all parties in responding to the crisis.
 While a successful completion of the Doha trade round would be welcome, certain actions could be
implemented immediately, namely the opening of markets in advanced economies to least developed
countries’ exports.
The next plenary meeting will be held in Geneva on March 8-10.
7
The EU could help to improve global financial rules and reduce pro-cyclicality of
accountancy rules on banking. This is the time to kick-start discussions amongst regulators,
banks and finance experts.
G-20 and IFI reform – the EU can encourage governance reform of the IFIs and ensure
better representation of poorer countries. The EU could be thinking of a co-ordinated view.
But IFI reform is also about the role of the IMF in times of crises – vis-à-vis regional banks
and initiatives. Further, the G20 Leaders called for reform of the World Bank’s governance,
its mandate and financing. The G20 can move forward discussions on governance reform
planned for the coming two-three years and discussions on strategic directions at the Bank’s
Annual Meeting in October 2009.
The EU could ask Sovereign Wealth Funds to act counter cyclical. SWFs have played a
stabilising role by providing the funds that have helped to stabilise the global banking system
during the current world financial turbulence, and have generated an important opportunity to
increase financial cooperation amongst developing countries9.
The EU should ensure that any schemes are undertaken following consultation with the
private sector as new aid fund need to leverage in private resources, and not crowd these out
(an issues which might become important in a recovery, but less so in a recession).
The EU could also promote the establishment of a national crisis response task force in
each developing country10, building on existing institutions for state-business relations11,
tasked with tracking the impact of the crisis and responding to it.
Beyond shock facilities and international monetary issues, the EU can support respect for
current WTO rules, even in the absence of a Doha settlement, and avoid taking
protectionist measures, such as the recently announced resumption of export subsidies to
dairy products (FT 16 Jan 2009). Such measures break the commitment of the November
2008 G20 meeting not to take protectionist measures as a response to the crisis. At the least
the EU itself should not become more protectionist and needs to refrain from raising tariffs or
reinstating dairy export subsidies.
9
Griffith-Jones, S. and J.A. Ocampo (2008), Sovereign Wealth Funds: A Developing Country Perspective, draft
Te Velde, D.W. (2008), paper for conference on the global financial crisis in Berlin 8 December 2008,
http://www.odi.org.uk/resources/projects/background-papers/2008/12/policy-responses-financial-crisis-developingcountries-emerging-markets.pdf .
11 K. Sen and D.W. te Velde, State-Business Relations and Economic Growth in sub-Saharan Africa,
Journal of Development Studies, forthcoming.
10
8
Appendix 1 The Global Financial Crisis: main areas of impact
The financial crisis that emerged in the financial sector in developed countries and then
spread to developed countries’ real sectors has also affected confidence in the financial
markets of emerging economies and has begun to affect the real economies of developing
countries. While some effects are already visible, it is expected that major impacts in
developing countries will become much worse throughout the year.
This section discusses:




growth forecasts in the light of the crisis;
transmission mechanisms;
effects of the crisis so far;
aspects of vulnerability.
A1.1 Growth forecasts and expected output loss
Growth forecasts have been revised downwards in rapid succession.
The International Monetary Fund (IMF) had already downgraded its forecasts for world
growth significantly in October 2008 and now expects growth of just 2.2% for 2009, with an
equal downgrading for developed and developing countries. The latest forecasts are more
pessimistic.
The World Bank’s Global Economic Prospects released in December expected world growth
of 1.9% for 2009 (compared to 4.9% in 2007). Growth in developing countries was expected
to slow from 7.9% in 2007 to 6.3% in 2008 and 4.5% in 2009.
The Asian Development Bank downgraded its forecasts for growth in developing Asia in
mid-December 2008 and expects 5.8% in 2009, down from 9% in 2007.
EU economies are hardly growing or even shrinking. Spain and Italy expect a fall in the rate
of economic growth by 1%; the UK expects that its economy will shrink by between 0.75%
and 1.25%, with some private institutions forecasting a 2% decline; and France admits that its
growth prospects of 0.2-05% might be overoptimistic.12 Table 1 shows detailed growth
forecasts by the IMF for 2008 and 2009 at three points in time. It is now acknowledged that
even this is too optimistic. For example, China might grow by only 5-6% this year, not the
8% suggested in the table.
Chart 1 shows that emerging and developing countries have grown much faster than
developed countries in this decade. Many suggested that this was evidence of a decoupling in
growth rates. As the chart shows, growth in both developed and developing countries will
slow down, but while developed countries’ growth will shrink, developing countries will still
continue to grow.
12
Der Spiegel (08/01/09): “ Deutsche Exporte stürzen ab wie seit 15 Jahren nicht mehr.“ Available online at:
http://www.spiegel.de/wirtschaft/0,1518,600067,00.html.
9
Table 1: GDP annual percentage change projections
April
3.7
2008
October
3.9
November
3.7
April
3.8
2009
October
3.0
November
2.2
Advanced economies
United States
Euro area
Germany
France
Italy
Spain
Japan
United Kingdom
Canada
Other advanced economies
Newly industrialized Asian economies
1.3
0.5
1.4
1.4
1.4
0.3
1.8
1.4
1.6
1.3
3.3
4.0
1.5
1.5
1.3
1.9
0.9
-0.1
1.4
0.7
1.0
0.7
3.1
4.0
1.4
1.4
1.2
1.7
0.8
-0.2
1.4
0.5
0.8
0.6
2.9
3.9
1.3
0.6
1.2
1.0
1.2
0.3
1.7
1.5
1.6
1.9
3.4
4.4
1.1
0.1
0.2
0.0
0.1
-0.2
-0.2
0.5
-0.1
1.2
2.5
3.2
-0.3
-0.7
-0.5
-0.8
-0.5
-0.6
-0.7
-0.2
-1.3
0.3
1.5
2.1
Emerging and developing economies
Africa
Sub-Sahara
Central and Eastern Europe
Russia
Commonwealth of Independent States
Developing Asia
China
India
ASEAN-5
Middle East
Western Emisphere
Brazil
Mexico
6.7
6.3
6.6
4.4
6.6
5.2
5.5
4.2
6.8
6.9
8.3
9.7
7.8
5.4
6.1
4.5
5.2
1.9
6.6
6.4
6.7
4.3
7.0
8.2
9.3
7.9
5.8
6.1
4.4
4.8
2.0
6.9
5.9
6.1
4.5
7.0
7.2
8.4
9.8
7.9
5.5
6.4
4.6
5.2
2.0
6.5
8.4
9.5
8.0
6.0
6.1
3.6
3.7
2.3
6.1
6.0
6.3
3.4
5.5
5.7
7.7
9.3
6.9
4.9
5.9
3.2
3.5
1.8
5.1
4.7
5.1
2.5
3.5
3.2
7.1
8.5
6.3
4.2
5.3
2.5
3.0
0.9
European Union
1.8
1.7
1.5
1.7
0.6
-0.2
World
Sources: IMF’s World Economic Outlook, April and October 2008, and World Economic Outlook Update, November 2008.
Chart 1: Real GDP growth slowing in developed and developing countries
9
Emerging
and developing economies
8
7
6
5
4
3
2
Developed
economies
1
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
-1
1980
0
Source: IMF’s World Economic Outlook Update, November 2008.
Assuming that most of the revisions in forecasts produced in July and November for 2008
and 2009 is due to the global financial crisis, it is possible to estimate possible output losses
over the period 2008-2009, expressed in 2007 US dollars. Charts 2–4 show projected output
in constant prices for the world, developing countries and Africa. Table 2 suggests that the
10
output loss over 2008-2009 is expected to be close to 1.4 trillion 2007 US dollars for the
world; the decline in 2009 alone will be more than five times a successful Doha Round
settlement estimates (some suggest thus is around US$80 billion) is expected to gain. The
costs would be US$50 billion for Africa alone.
Chart 2: World GDP, US$ 2007
(July, October and November 2008 projections)
60000.0
58743
59000.0
58122.7
58000.0
57560.2
57000.0
56538 56429.8
56321.1
56000.0
55000.0
54312 54311.6 54311.6
54000.0
53000.0
52000.0
2007
2008
2009
Sources: IMF’s World Economic Outlook Database; and authors’ calculations. Note: the yellow bar stands for July projections,
the blue bar stands for October projections, and the red bar stands for November projections.
Chart 3: Emerging and developing countries GDP, US$ 2007
(July, October and November 2008 Projections)
17500.0
17315.3
17217.9
17007.8
17000.0
16500.0
16228.0 16228.0 16182.5
16000.0
15500.0
15180.6 15180.6 15180.6
15000.0
14500.0
14000.0
2007
2008
2009
Sources: IMF’s World Economic Outlook Database; and authors’ calculations. Note: the yellow bar stands for July projections,
the blue bar stands for October projections, and the red bar stands for November projections.
11
Chart 4: Africa GDP, US$ 2007
(July, October and November 2008 Projections)
1250.0
1236.6
1226.2
1203.1
1200.0
1162.2
1156.8
1149.1
1150.0
1092.3
1100.0
1092.3
1092.3
1050.0
1000.0
2007
2008
2009
Sources: IMF’s World Economic Outlook Database; and authors’ calculations. Note: the yellow bar stands for July projections,
the blue bar stands for October projections, and the red bar stands for November projections.
Table 2: Cumulative output loss, 2008-09
Estimated output loss
US$ 2007 billion
World
1400
Emerging and developing countries
353
13
47
Africa
Sources: Implied by revisions to the IMF’s growth rates; and authors’ calculations.
Of course, the cumulative output loss will grow and the situation may prove to be worse than
current forecasts. It might be of interest to compare the expected output loss with that in
previous crises by measuring the difference in output levels between actual and potential
output. Table 3 measures the cumulative difference between projected potential output and
actual output over the years, starting from the first year in which each crisis started.
There are two things to note:

The costs of previous global financial crises in individual developing countries are
very large compared to the effects of the current financial crisis (with the possible
exception such as Iceland). The current crisis is in developed countries which can
respond, while the other crises started in developing countries themselves.

However there is a big difference between past crises and the current financial
crisis. The current crisis is a global phenomenon with much bigger global effects
than was the case for past crises, even though individual outfalls have so far been
limited.
Table 3: Comparative cumulated output loss during a financial crisis
Country
13
12
Period
Output loss
Billions of
Billions of
GDP in 2002
(US$ bn)
Output loss as
a share of GDP
GDP pre crisis
(US$ bn)
By comparison:
 In 2007 FDI inflows to SSA amounted to about US$25 billion.
 Remittance flows to SSA increased from a value of US$1.7 billion in 1995 to a value of US$19
billion in 2007
 ODA flows to SSA reached a net value of US$40 billion in 2006.
(in 2002 data)
1989 US$
2002 US$
Argentina
2002
25.6
37.1
102
36
Brazil
1999-2002
96.7
140.1
506
28
586.7 (1999)
Indonesia
1997-2002
238.6
345.9
195.7
177
215.8 (1997)
Korea, Rep.
1997-2002
122.9
178.1
546.9
33
516.3 (1997)
Malaysia
1997-2002
60.6
87.8
95.2
92
100.2 (1997)
Mexico
1995-2002
78.1
113.2
649.1
17
286.7 (1995)
Thailand
1997-2002
210.5
305.2
126.9
241
150.9 (1997)
Turkey
2001-2002
29.0
42.1
232.7
18
196 (2001)
Total
862.0
1,249.6
2454.4
50
Source: Adapted from Griffiths-Jones and Gottschalk (2004); World Development Indicators. Note that output losses are
cumulated (so two years of halved output compared to potential could show up as a 100% output loss
A1.2 Transmission mechanisms
The main transmission mechanisms of the global financial crisis to developing countries
include:




international capital flows (FDI, portfolio flows and bank lending);
remittances;
aid; and
trade.
International capital flows, aid and remittances
Calì, Massa and te Velde (2008) discusses the possible implications for financial flows to
developing countries. Table 4 provides a summary overview of the type of flows under
pressure, the baseline flows in 2007 and the expected drop during the current financial crisis.
Calì, Massa and te Velde (2008) suggests that international financial resources to developing
countries fall by some US $300 billion, or a drop of a quarter. This assumption is in part
based on the following observations:




the level of FDI flows to developing countries fell by around one-third in the
previous downturn (2000-2002);
forecasts for international bank lending indicate a drop of one-third to two-fifths;
previous financial crises show that remittances could drop by around one-fifth;
It is assumed that Development Finance Institutions (DFIs) increase finance and
that aid is stable – as aid is a policy not behaviour.
13
Table 4: Gross financial resources to developing countries, latest year available, US$ billion
Baseline
financial flows
in 2007
Foreign Direct
Investment
(gross)
International
bank lending
(net)
US $499 billion
(UNCTAD)
Possible new estimate
for 2008/9 (assuming a
2% drop in GDP over
2008-2009 due to the
crisis)
US $350 billion (own
estimate)
US $400 billion
(IIF)
US $250 billion (estimate
for 2008 by IIF)
Portfolio equity
flows (net)
US $-6 billion
Zero or negative net
flows
Remittances
(gross)
Aid (gross)
US $251 billion
US $210 billion
US $100 billion
US $100 billion
Development
Finance
Institutions
(gross)
US $50 billion
(2005/6), not
including IMF
US $75 billion (in 2008,
assuming trend growth)
Sum of above
Around US
Around US $1000 billion
$1.3 trillion
Source: Calì, Massa and te Velde (2008).
Expected fall
Examples
one-third
Xstrata pulled out of a US $5
billion deal in South Africa; drop
of net FDI by 40% in Turkey.
one-third to two-fifths
International bank cross-border
claims (world wide) fell by US
$862 billion in the second quarter
of 2008.
Investors in Korea have
withdrawn US $45 billion, US
$6.1 billion during the year in
South Africa, and US $16 billion
in India in 2008.
one-fifth
Annual decreases of 12% in
Mexico, and 38% in Kenya.
No change
Governments in France, Italy,
(assumption, but
and Spain could be planning to
acknowledge pressures freeze or cut aid budgets.
on aid and other
budgets)
Increase (assumption)
New facilities (IFC, IMF US
$200-250 billion); IMF deals with
Ukraine (US $16.5 billion),
Hungary (US $12.5 billion) and
possibly Pakistan.
Decrease of US $300
billion (fall by 25%)
The World Bank’s Global Economic Prospects published a month later than ODI’s forecasts
suggests an ever-greater drop in net international financial flows to developing countries,
from around US$1 trillion to US$530 billion.
Trade
The World Bank’s Global Economic Prospects forecasts a fall in trade volumes by 2% in
2009, the worst for several decades. However, the World Bank also assumes that global trade
recovers soon, growing at 6% in 2010. Many suggest these are too optimistic, certainly in the
light of more recent data (see Section 2.3).
Chart 5: Growth in trade volumes
14
12
10
8
6
4
2
0
-2
1981
1985
1989
1993
-4
Source: World Bank’s Global Economic Prospects (2009).
14
1997
2001
2005
2009
A1.3 What effects are already visible?
There are already signs of withdrawals of capital and export losses in developing countries.
 Data: the crisis has led to declines in FDI, for example FDI to Turkey has already
fallen by 40% over the year 2008 and FDI to India dropped by 40% in the first six
months of 2008; FDI to China was US$6.6 billion in September 2008, a 20% fall
from the first nine month average of 2008;
 Examples: mining investments in South Africa and Zambia have been put on hold
 Other forecasts: the World Association of Investment Promotion Agenciesforesees
a 15% drop in FDI for 2009.
.
The crisis has led to a drop in bond and equity issuances and the sell-off of risky assets in
developing countries.
 The average volume of bond issuances by developing countries was only
US$6 billion between July 2007 and March 2008, down from US$15 billion over
the same period in 2006.
 Between January and March 2008, equity issuance by developing countries stood
at US$5 billion, its lowest level in five years. As a result, World Bank research
suggests some 91 International Public Offerings have been withdrawn or
postponed in 2008.
There is already financial contagion and stock markets have fallen around the world, with the
largest losses since the 1930s. This has triggered entrenchment by investors, with reports that
they have withdrawn US$45 billion from Korea, US$6.1 billion from South Africa, and
US$16 billion from India over 2008. Turnover on the nascent stock market in Uganda has
fallen by 60% in 2008. Stockmarkets are down everywhere, including in Africa



in Egypt the CASE 30 index fell by 57% in the period 31 July–2 December 2008;
in South Africa the JSE All Share Index fell by about 28% from end July to
2 December 2008;
in Nigeria the All Share index has declined by 45.3% since March 2008.
Remittances have also declined:


in the first eight months of 2008, remittances to Mexico (which depend almost
exclusively on migrants to the USA) decreased by 4.2%, with the strongest
declines in August;
remittances to Kenya (which also depend on the US economy) have been hit even
harder, with the Central Bank estimating around a 40% year-to-year drop in
August 2008.
There are also concerns about trade finance:14

14
Concern about the shortage of trade finance led the Brazilian government to use a
portion of its reserves to provide trade financing for exporters and to transfer
US$2.2 billion to Brazil’s National Development Bank (BNDES), also for trade
financing.
• In the Asian crisis of the 1990s the value of trade finance from banks outstanding in Indonesia fell from US
$13 billion in 1997 to US$ 3 billion in 1999.
15
While EU27 imports data appear with a time-lag of around 3 months, and trade data are
noisy, with marked fluctuations, we can already see a decline in EU27 trade volumes over the
year (Chart 6). The smoothed growth rates15 for September show that the EU already
imported some 3% less than a year ago.
Chart 6: Growth in EU27 imports from developing countries (Jan 2001–September 2008),
volumes
10%
8%
6%
4%
2%
0%
Jan. 2001
-2%
Jan. 2002
Jan. 2003
Jan. 2004
Jan. 2005
Jan. 2006
Jan. 2007
Jan. 2008
-4%
-6%
-8%
-10%
Source: Eurostat (year-on-year, moving average of growth rate in last few months)
Chart 7: Growth in UK imports from developing countries (Jan 2001–October 2008), SITC 616
volumes (manufactures classified chiefly by material)
80%
60%
40%
20%
0%
Jan. 2001
Jan. 2002
Jan. 2003
Jan. 2004
Jan. 2005
Jan. 2006
Jan. 2007 Jan. 2008
-20%
-40%
Source: Eurostat (year-on-year, moving average of growth rates in last few months).
The EU’s biggest economies, Germany, UK and France, recorded import volume declines in
food and live animals (SITC 0) of around 30% comparing October 2007 to October 2008.
This decline in demand has so far been offset by price/exchange rate gains. Thus, there were
still positive value growth rates on a monthly 2007-08 comparison.
15
See Appendix for detailed data
16
SITC – Standard International Trade Classification.
16
Export values and production are shrinking throughout the world.17
 The value of UK exports declined by 3.7 per cent in November against the
previous month.
 Germany, Europe’s largest economy, experienced a 10.9% fall in exports and a
5.6% decline in imports in November 2008 (from the previous month). This
decline is the worst since the early 1990s mainly owing to declines in intra-EU
trade.18 Germany’s industrial production shrank by 6.4% (after a 3.7% decline in
October).
 In Spain, industrial production in November 2008 shrank by 15.1% compared to
November 2007.19
 US imports fell by 12% month-on-month in November 2008, exports fell by 6%.
 Export growth in Asia remained surprisingly buoyant until the last quarter of
2008. Dramatic reductions in (annualised) export growth rates were reported as of
November 2008 in a number of Asian economies:
o
18% decline in Korea;
o
2.2% decline in China;
o
23.3% in Taiwan.20
 China’s imports declined by 18% and exports by 2.2.% in November 2008
(compared to November 2007). Letters of credit are posited as financing 70% of
China’s exports, but imports also need to be financed. The latest data for China, in
December 2008, suggest that trade continued this weak performance, with exports
falling by 2.8% and imports by 21.3% compared to December 2007.
 Export revenues are falling rapidly for many countries. Zambia has been affected
with the price of copper falling by 40% since July 2008. Tourism bookings are
down by 40% in Cambodia comparing 2008 to 2007 figures. And visitor arrivals
in (and revenues to) Kenya fell 30% over the first 9 months of 2008. UK internet
searches for holiday packages were down by 40% in December and flight are
being withdrawn.
The global financial crisis has already had significant effects on employment.21
 Job losses in China’s export industry have led to fears about millions of migrants
who left the land for the cities. 10 million people have been laid off as a result of
the crisis.
 Indian exporters suggested that labour-intensive export industries could see the
loss of up to 10 million jobs over the next three months.
 In South Africa, mining companies have so far revealed plans to axe 14,000 jobs.
 Am official in the Democratic Republic of Congo’s main mining region suggested
that the sector would have shed 300,000 jobs by the end of 2008.
 Mining companies in Zambia have shed jobs.
Growth and employment effects would increase poverty. According to the World Bank, a
1% reduction in growth increases the number living in poverty by 20 million, so the
expected 2% reduction due to the crisis this year would increase poverty by 40 million.
17
18
19
20
21
This section has to be based on anecdotic evidence quoted in newspapers due to the time lack of data
availability. At the time of writing (mid-January 2009) Eurostat data for EU27 were only available up to
September 2008 on an aggregated level and up to October 2008 on a country level.
Der Spiegel (08/01/09): “Deutsche Exporte stürzen ab wie seit 15 Jahren nicht mehr“, available online at
http://www.spiegel.de/wirtschaft/0,1518,600067,00.html.
Manager-Magazin (09/01/09): “Industrieproduktion schrumpft rapide”, available online at http://www.managermagazin.de/koepfe/artikel/0,2828,600268,00.html.
See Jessop (2008).
Financial Times, 10 and 14 January 2009.
17
A1.4 Vulnerable countries: typologies
Some types of country face higher risks than others. We list these below.
 Countries with a significant share of exports to crisis-affected countries such as
the USA and EU (either directly or indirectly): Mexico is a good example and the
tourism sector in Caribbean and African countries will be hit.
 Countries exporting products whose prices are affected (Table 5 and Appendix 6)
or products with high income elasticities: Zambia will eventually be hit by lower
copper prices,
Table 5: Commodity dependence and commodity prices, examples
Country
Commodity exports as % of
GDP (WEO 2006)
5 – 10%
5 – 10%
Kenya
Mali
Mozambique
Rwanda
Senegal
Tanzania
Uganda
Source: IMF and own judgement.

5 – 10%
2.5 – 5%
5 – 10%
5 – 10%
5 – 10%
Key commodity exports
(2000)
Commodities experiencing
price declines (Oct over July
2008)
-24% (Coffee)
-19% (cotton)
Coffee, tea, green beans
Cotton, groundnuts, animals,
wood
Fisheries, nuts, fuels
Tea, coffee, hides
Fisheries, cotton, palm oil
Coffee, tobacco, fisheries
Coffee, fisheries
-10% (fish and nuts)
-2% (tea)
-19% (cotton)
-24% (Coffee)
-24% (Coffee)
Countries heavily dependent on remittances will be affected due to a volume
effect (and also a value effect) (Table 6).
Table 6: Remittance-dependent countries, remittances (in US$ million)
Region
2004
2005
2006
Tajikistan
ECA
252
467
1,019
Moldova
ECA
705
920
1,182
Lesotho
SSA
355
327
361
Honduras
LAC
1,175
1,821
2,391
Lebanon
MNA
5,591
4,924
5,202
Guyana
LAC
153
201
218
Jordan
MNA
2,330
2,500
2,883
Haiti
LAC
932
985
1,063
Jamaica
LAC
1,623
1,784
1,946
Kyrgyz Republic
ECA
189
322
481
El Salvador
LAC
2,564
3,030
3,485
Nepal
SAS
823
1,212
1,453
Armenia
ECA
813
940
1,175
Nicaragua
LAC
519
616
698
Philippines
EAP
11,471
13,566
15,251
Guatemala
LAC
2,627
3,067
3,700
Albania
ECA
1,161
1,290
1,359
Bangladesh
SAS
3,584
4,314
5,428
Sierra Leone
SSA
25
2
50
Dominican Rep.
LAC
2,501
2,719
3,084
Cape Verde
SSA
113
137
137
Morocco
MNA
4,221
4,590
5,451
Senegal
SSA
633
789
925
Togo
SSA
179
193
229
Guinea-Bissau
SSA
28
28
28
Sri Lanka
SAS
1,590
1,991
2,185
Dominica
LAC
23
25
25
Vietnam
EAP
3,200
4,000
4,800
Uganda
SSA
311
323
665
Note: e. Estimates based on data until October 2008.
Source: World Bank (2008) based on IMF Balance of Payment Statistics
18
2007
2008e
1,691
1,498
443
2,625
5,769
278
3,434
1,222
2,144
715
3,711
1,734
1,273
740
16,291
4,254
1,071
6,562
148
3,414
139
6,730
925
229
29
2,527
26
5,500
849
1,750
1,550
443
2,820
6,000
278
3,434
1,300
2,144
715
3,881
2,254
1,300
771
18,669
4,472
1,071
8,893
150
3,575
139
6,730
1,000
229
30
2,720
30
5,500
875
Share in
GDP (2007)
45.5%
38.3%
28.7%
24.5%
24.4%
23.5%
22.7%
20.0%
19.4%
19.0%
18.4%
15.5%
13.5%
12.1%
11.6%
10.6%
10.1%
9.5%
9.4%
9.3%
9.2%
9.0%
8.5%
8.4%
8.3%
8.1%
8.0%
7.9%
7.2%



Countries heavily dependent on FDI, portfolio and DFI finance to finance their
current account problems.
Countries with sophisticated stock markets and banking sectors with weakly
regulated markets for securities. The number of stock markets in sub-Saharan
Africa (SSA), though still small, has increased significantly over time – from five
in 1989 to 16 currently, including those recently established in Ghana, Malawi,
Swaziland, Uganda and Zambia. Some stock markets in SSA, such as those in
Ghana, Uganda, Kenya, Nigeria and Mauritius, have experienced an extraordinary
performance over the past few years, thus attracting an increasing share of
portfolio inflows, but this is now at risk. The financial sector in most poor
countries has not been affected as much as in developed countries.
Countries with a high share of foreign-owned banks might be more at risk than
those with few (Chart 8).
Chart 8: Share of banking assets in SSA held by foreign banks with majority ownership, 2006
120%
100%
80%
60%
40%
20%
Swaziland
Madagascar
Mozambique
Zambia
Uganda
Botswana
Rwanda
Cote d'Ivoire
Burkina
Tanzania
Ghana
Niger
Cameroon
Mali
Angola
Zinbabwe
Namibia
Congo
Senegal
Kenya
Burundi
Mauritius
Malawi
Seychelles
Nigeria
Togo
Ethiopia
South Africa
0%
Note: A bank is said to be foreign owned if 50% or more of its shares in a given year are held directly by foreign nationals.
Source: World Bank’s Global Development Finance, 2008.

Countries with a high current account deficit with pressures on exchange rates and
inflation rates. South Africa cannot afford to reduce interest rates as it needs to
attract investment to address its current account deficit. India has seen a
devaluation as well as high inflation. Import values in other countries have already
weakened in the current account. Large current account surpluses and reserve
holdings may provide insurance against a sudden shift in private capital flows
reducing the adverse shocks of the financial turmoil. For this reason, Emerging
Asia and the Gulf Cooperation Council (GCC) countries that have huge current
account surpluses are expected to suffer less from a sudden reversal in foreign
financing than Emerging Europe countries, where the current account deficit is
high and increasing (see Table 7).
Table 7: Current account balance in emerging
Region
2006
Emerging Europe
21.50
Emerging Asia
289.30
Latin America
54.00
Africa/Middle East
14.90
GCC Countries
210.60
market economies, by region (2006-2008)
2007
2008e
-23.60
-34.60
421.80
365.90
26.60
14.00
11.00
33.00
206.10
377.40
Note: Amounts in billions of US $; e = estimate.
Source: Institute of International Finance (IIF), October 12, 2008.
19
Chart 9 also shows which countries have a low level of reserves (measured by
months of imports) and which countries have high commodity dependence. Given
the drop in commodity prices, countries in the top left are in danger
Chart 9: Countries with low reserves and high commodity dependence are more at risk
120sudan
mozambique
nigeria
Commodity dependence
jamaica sierra leone
congo
rwanda
ethiopia
tanzania
100
guyana
zambia
malawi
uganda
ghana
80
kyrgyz rep.
kenya
indonesia
60
south africa
vietnam
40
20
afghanistan
india
nepal
pakistan
cambodia
0
0
yemen
china
bangladesh
2
4
6
8
10
12
14
16
Reserves in months of imports


20
Countries with high government deficits. For example, India has a weak fiscal
position which means that it cannot put public spending in place.
Countries dependent on aid. There might be volume effects if aid is scaled down
and there might be exchange rate effects. For example, UK aid to Mozambique
was hit especially because of a the UK£ depreciation
Appendix 2 The Global Financial Crisis: Main responses so far
The immediate response of many countries directly hit by the global financial crisis was to
engage in significant bank rescue packages worth at least US$3 trillion ( EU and US). These
were crucial measures to save the banking sector from collapse but have also increased future
risks in terms of higher public debt.
There have been three other types of response:



fiscal stimulus by developed countries;
the use of shock facilities in the international financial institutions and aid
agencies;
additional finance or early disbursement mechanisms.
A2.1 Fiscal stimulus
The financial crisis has led to a contraction in aggregate demand. Consumers cut their
consumption in order to increase precautionary saving because of a decrease in real and
financial wealth, tighter credit conditions and a high degree of uncertainty. Firms reduce or
postpone their investments because of lower actual and expected demand. When monetary
policy is not working, governments can take fiscal action in order to increase demand among
consumers and firms.
The tools available to implement a fiscal stimulus package are
 spending increases,
 targeted tax cuts and transfers (e.g. unemployment benefits, increases in earned
income tax credits, safety nets, write-down of mortgages, etc.), and, to a lesser extent,
 general tax cuts (e.g. VAT decreases) or subsidies directed to consumers or firms.
Fiscal sustainability is one challenge to implementing a fiscal package; it may have to be
compromised in uncertain and unprecedented times.
Many countries have already unveiled stimulus packages focusing on supporting productive
investment (i.e. corporate cash flows and public infrastructure) and consumption. Tables 8 to
10 (below) summarise the main economic stimulus packages that have been announced so far
in EU and non-EU developed, emerging and developing countries. On average, developed
and developing countries are implementing stimulus packages ranging from 1 to 2 percent of
GDP.
Just to provide some remarkable examples, Spain and China have announced significant
stimulus packages of €38 billion and US $586 billion respectively. Moreover, the United
States has launched a massive stimulus package of US $800 billion.
On 26 November 2008, the European Commission called for an ambitious stimulus plan (i.e.
the European Economic Recovery Plan) totalling €200 billion (see Table 8).
21
Table 8: European Commission EU Economic Recovery Plan
Stimulus package amount
26 November 2008
€200 billion
(1.5% of 27 EU nations’ GDP)
Description
€170 billion (around 1.2% of EU GDP) provided by member states through tax cuts and
higher public spending.
Additional €30 billion (0.3% of EU GDP) provided by the EU budget.
Suggested measures: cuts in VAT and income tax for the lower paid; higher public spending
on infrastructure such as broadband, research and "green" products.
Extra €5 billion in EU cash to the European car industry, €1 billion to the construction
industry and €1 billion to manufacturers.
EU subsidies for infrastructure projects in member states.
Table 9 highlights measures proposed by EU governments and includes help for troubled
companies and households, support for unemployed people, public aid for the automobile
sector, credit for public infrastructure projects, and changes in the tax system like decreases
in the VAT.
Table 9: Stimulus Plans in individual EU27 countries
Country
Belgium
France
Germany
Stimulus package
amount
December 2008
€2 billion (0.6% of GDP)a
December 2008
€26 billion
(1.3% of GDP)
November 2008
€32 billion over two years
(1.3% of GDP)
December 2008
€50 billion over two years
(up to 2% of GDP)
Italy
Netherlands
November 2008
€80 billion
(5% of GDP)
21 November 2008
€6 billion
(1% of GDP)
Portugal
15 December 2008
€2.2 billion
(1.25% of GDP)
Spain
Over the last six months
€38 billion until 2012
(3.6% of GDP)a
Sweden
4 December 2008
15 billion Swedish crowns
22
Description
Tax cuts.
Increased benefits for laid-off workers.
€10.5 billion for infrastructure, research and support for local authorities,
including:
* €4 billion to investment for state-owned rail, energy and postal companies;
* €4 billion to sustainable development, higher education and military
industries.
Help for the ailing auto industry.
Additional €11.5 billion of credits and tax breaks on investment in 2009 to
companies.
Includes tax rebates, soft loans and handouts.
€20 billion, mainly cuts in payroll levies (October 2008).
€12 billion, mainly in tax rebates for new-car buyers and soft loans (5
November 2008).
Approved rise from €10.5 billion to €18.5 billion in government net new
borrowing in 2009.
Approved on 12 January, 2009.
May include investments in schools, public works and energy efficiency;
income tax cuts; lower health insurance contributions.
Under discussion a bonus for families with children, increased payments for
reduced hours and incentives to help Germany's ailing car industry.
Temporary freeze on regulated energy prices and road tolls.
€2.4 billion in tax breaks for poorer families.
Mainly recycling of existing funds.
Includes fiscal measures aimed at improving companies’ liquidity.
Tax deduction to companies that make large investments.
Companies are allowed to write down investments earlier than usual.
Companies also receive temporary financial support from an unemployment
fund to pay employees who cut their working hours.
Creation of a government program to find jobs for the unemployed.
€1.3 billion is funded by national budget; the rest comes from European
funds.
€800 million on fiscal incentives, including credit lines to support exporters.
€500 million for schools.
€250 million for energy infrastructure.
€580 million for employment programs.
€6 billion in tax cuts.
€4 billion to credit-strapped companies and households.
On 27 November 2008: €11 billion for 2009-10 including €8 billion for local
government investment, and €3 billion for specific industrial sectors and
projects: €800 million for the automotive industry; €500 million for
environmental projects; €500 million for research and development; €400
million to upgrade police and civil guard stations.
Permitted budget deficits from 0.05% to 0.5% of GDP.
Country
United
Kingdom
Stimulus package
amount
(US $1.8 billion)
(0.4% GDP) a
24 November 2008
£20 billion (US $31 billion)
until 2010
(1% of GDP)
Hungary
November 2008
1.4 trillion forint (US $6.9
billion) over two-years
(5.0% of GDP) a
Poland
December 2008
91.3 zlotys (US$31.4
billion)
(7.5% of GDP) a
Description
VAT reduction from 17.5% to 15% from December 1 to end-2009.
Increase from 21% to 22% in the small-firm corporation-tax rate planned for
2009 was postponed until April 2010.
£2.5 billion of additional capital expenditure projects from 2010-11.
£60 payment to every pensioner.
Earlier increase in child benefit.
Postponed increases in vehicle excise duties.
Borrowing up to 8% of GDP (£118 billion) in 2009-10.
Debt up to 57% of GDP in 2012-13.
New 45% tax rate for the rich from 2011.
Half-point increase in national-insurance contribution rates for both
employers and employees from April 2011.
Does not involve new spending.
Includes a regrouping of existing funds to support business.
680 billion forints for lending guarantees mainly to SMEs.
260 billion forints to provide liquidity for lending.
Note:
(a) As percentage of 2007 GDP.
Chart 10 shows the stimulus packages by type of demand in the EU’s six largest economies
stressing that the priorities in all these countries are productive investment and infrastructure
expenditure.
Chart 10: European stimulus packages by type of demand (billion euros)
25
20
15
10
5
0
Residential
construction
Public
infrastructure
Germany
Productive
investment
France
UK
Consumption Consumption
Public
of durables of non-durables consumption
Italy
Spain
Netherlands
Source:
Natixis,
December 2008.
In Latin America, Chile is putting forward a bigger package than its neighbour Argentina ―
2.4 percent of GDP compared to the 1.4 percent of GDP that Argentina is committing to
tackle the crisis.
Mauritius recently introduced a package. It has been forward-looking, and in order to shore
up the country resilience, it has unveiled two stimulus packages totalling Rs 19.7 billion since
May 2008 (see Box 1). Whilst many poor countries cannot afford a fiscal stimulus, it is worth
noting the flexibility and preparedness demonstrated by Mauritius.
23
24
Box 1: Mauritius: A pre-emptive strategy against the financial crisis
After a period of weak economic growth and external shocks in 2005, Mauritius has become a more resilient
economy thanks to a series of effective reforms launched over the last three years and to its robust financial
system as recognized by the IMF. These two elements have played a key role in the context of the current
crisis. The reforms have allowed Mauritius to build resilience to weather the storm of the global financial and
economic crisis. Further, thanks to its financial regulation and absence of derivative products in the financial
system, the country has not been exposed to financial contagion, with the only exception of few corrections in
the stock market due to the spread of fear among investors all over the world.
In spite of this, Mauritius was aware that no country might have been immune to one of the worst global crisis
in many decades. Therefore, rather than waiting to be officially in a recession to launch a stimulus plan, in
May 2008 the first stimulus package worth Rs 9.3 billion (over 3.4% of GDP) has been announced even if the
country GDP growth rate at that time was forecasted to be over 5.5%. Then, in December 2008, the
government unveiled an additional stimulus package totalling to Rs 10.4 billion, equivalent to about 3% of
GDP.
The Prime Minister set up two Ministerial Committees in November. First, a Committee on ‘Nurturing
Resilience’ headed by the Prime Minister and supported by a Technical Committee chaired by the Secretary
to Cabinet. The second Committee, on ‘Human Capacity, Solidarity and Physical Infrastructure’ is presided by
the Vice Prime Minister and Minister of Finance and its Technical Committee is chaired by the Financial
Secretary.
Source: Ministry of Finance website
Table 10: Stimulus plans in other non-EU developed countries
Country
EUROPE
Switzerland
ASIA
Australia
Japan
South
Korea
Taiwan
AMERICA
Canada
United
States
Stimulus package
amount
Description
December 2008
890 million Swiss francs
(US$ 732 million)
(0.2% of GDP) a
Government spending of 340 million francs on flood defence, natural disasters
and energy-efficiency projects.
Spending up to 1 billion francs on roads and railways.
550 million francs as tax breaks to 650 firms for job creation programmes.
14 October 2008
AU $10.4 billion
(US $6.8 billion)
(1% of GDP)
AU $4.8 billion for pensioners.
AU $3.9 billion for low and middle-income groups.
AU $1.5 billion in additional support measures for first-time home buyers.
AU $187 million for a labor-skills program.
20 December 2008
5 trillion yen (US $53
billion) (1.2% of GDP) a
3 November 2008
KR W14 trillion
(US $9.37 billion)
(1% of GDP) a
November 2008
NT$500 billion
(US $14.9billion)
January 2009
$33 billion over one year
(2.1% of GDP)
January 2009
US $800 billion
(6% of GDP) a
KR W3 trillion in tax cuts.
KR W11 trillion in addition fiscal spending, mainly on public infrastructure
projects.
Eased restrictions on residential construction and industrial activity.
T$122.6 billion of subsidies and tax cuts.
T$58.3 billion of infrastructure spending.
Eye-catching shopping voucher scheme.
$12.4 billion to strengthen the employment-insurance system and to provide
income support for low-income seniors, children and the working poor.
$14.7 billion to strengthen and build municipal infrastructure and affordable
housing, invest in child care, post-secondary education, and honour the First
Nations Kelowna Accord negotiated by the former Liberal government.
$5.8 billion investment in green infrastructure, training and education, and
energy retrofits.
Does not include any broad-based tax cuts.
US $300 billion in tax cuts.
Tax breaks for people earning less than US $200,000 a year.
One-year tax credit costing US $40-50 billion for companies hiring new workers.
US $500 tax cuts for most workers.
US $1000 tax cuts for couples.
More than US $100 billion tax breaks for companies.
Incentives for business investment in new equipment.
Note:
(a) As percentage of 2007 GDP.
25
Table 11: Stimulus plans in other non-EU emerging and developing countries
Country
EUROPE
Russia
AFRICA
Mauritius
Stimulus Package
Amount
20 November 2008
US $20 billion
(1.5% of GDP) a
Cut in profit tax from 24% to 20%.
New depreciation mechanism allowing firms to reduce the profit tax
further.
Sanctioned state-run banks to support industry with billions of dollars of
soft funding.
May 2008
Rs 9.3 billion
(3.4% of GDP)
Rs 6 billion to invest in airport expansion, modernisation and funds.
Rs 1.5 billion implementing the PRB in full in one year.
Rs 1.8 billion provision for contingencies.
Rs 2.5 billion in pending on public infrastructure.
Rs 2.6 billion new investments in public infrastructure
Rs 487 million for infrastructure development in local authorities.
Rs 50 million to support infrastructure development in Rodrigues.
Rs 500 million to upgrade public infrastructure in education, health etc.
Accelerating private sector investment.
New private sector investment.
Building human resources capacity.
Supporting vulnerable sectors.
Measures for tourism, agriculture, ICT, seafood, financial services, etc.
20 December 2008
Rs 10.4 billion (US $329.1
million)
(3% of GDP)
ASIA
China
9 November 2008
4 trillion yuan (US $586
billion) over the next two
years
(14% of GDP)
India
7 December 2008
Rs 31,000 crore
2 January 2009
Indonesia
5 January 2009
72 trillion rupiah (US $6.5
billion)
Thailand
26 December 2008
300 billion baht (US $8.7
billion) in 2009
4 November 2008
RM 7 billion
Malaysia
SOUTH AMERICA
Argentina
Chile
26
Description
4 December 2008
US $3.8 billion
(1.45% of GDP) a
5 January 2009
US $4 billion
(2.4% of GDP) a
Investment in 10 major areas, such as low-income housing, rural
infrastructure, water, electricity, transportation, the environment,
technological innovation and rebuilding from several disasters.
Reform in value-added taxes.
Commercial banks' credit ceilings will be abolished to channel more
lending to priority projects, rural areas, smaller enterprises, technical
innovation and industrial rationalization through mergers and
acquisitions.
Rs.20,000 crore of additional plan expenditure.
Across-the-board cut of 4% in value added tax
Sector-specific measures.
Liberalised overseas borrowing norms.
Restored benefits to exporters.
Set up an alternative channel of finance for non-banking finance
companies.
State-run India Infrastructure Finance Company Ltd (IIFCL) allowed to
issue additional tax-free bonds.
To increase spending in infrastructure and other projects.
51.3 trillion rupiah of unspent funds carried over from the 2008 budget
may be used for further stimulus measures.
Additional 30 trillion rupiah to provincial government to be spent on
infrastructure.
Increased lending from government banks for agriculture projects.
Direct lending to local governments for infrastructure projects.
Low-cost loans to farmers, automakers and other exporters mainly from
state-run banks and assets that the government pulled in from the
takeover of the country’s 10 largest private pension funds in November.
Announced additional tax breaks.
Announced US $21 billion public works program.
Funded from copper windfall earnings saved in sovereign wealth funds
as well as through a bond issuance.
US $1.5 billion increase in public spending, with $700 million of that
destined for public works projects.
Handouts to most vulnerable families.
Income tax rebates.
Temporary cancellation of a stamp duty.
Lower employer contributions for small and medium-sized companies.
Country
Stimulus Package
Amount
Description
US $1 billion capitalization for state copper giant Codelco.
Note: (a) As percentage of 2007 GDP.
A2.2 Use of shock facilities
The World Bank, IMF and EC are responding to the crisis with additional resources and new
facilities, but a question is whether this is enough to help offset reduced export earnings and
private investment.
There is a variety of instruments to deal with external shocks linked to trade (see detailed
information in Table 12). These include:



The IMF’s Compensatory Financing Facility (CFF), PRGF (LICs) and External
Shock Facility (ESF) for LICs. The IMF’s trade-related balance of payments
adjustment facility, TIM, available to all member countries, and the
Supplementary Reserve Facility (SRF) the Contingent Credit Line (CCL) set up in
the wake of the Asia crisis .
The World Bank Group: IBRD loans, IDA and IFC.
The European Commission's FLEX programme for ACP countries
IMF facilities
The IMFs Compensatory Financing Facility (CFF) goes back to the 1960s and was designed
to enable countries to borrow when export earnings and financial reserves were squeezed, and
to repay during upturns. Flexibility to extend arrangements in the event of shocks of
unexpectedly long extended duration was an important design feature. The CFF operated
relatively effectively – extending 45 % of total IMF credit to developing countries between
1976 and 1980. The original CFF was amended in 2000 with tighter conditionality. Despite
several ensuing shocks (e.g. September 11, 2001) the revised facility – like the CCL – has
remained unutilised - in large part because of its stringent conditionality.
After the Asia crisis the IMF introduced two new [trade related] facilities: the Supplementary
Reserve Facility (SRF) and the Contingent Credit Line (CCL). The SRF provides resources to
relieve exceptional short terms balance of payments difficulties caused by changes affecting
the capital account or availability of reserves. Credits are very limited, and are regarded as
insufficient to defeat speculative pressure. The CCL is designed to limit contagion to other
countries, as occurred during the Asia crisis, in a preventative manner and has relatively
onerous eligibility requirements - to date it has not been used however.
The original CFF was amended in 2000 with tighter conditionality. Despite several ensuing
shocks (e.g. September 11, 2001) the revised facility – like the CCL – has remained
unutilised - in large part because of its stringent conditionality.
In practice an important IMF vehicle for supporting low-income countries hit by shocks in
recent years has been through augmentation of PRGFs. In practice the total amount of PRGF
augmentation actually provided has been low (below 200 million SDRs between 2005 and
early 2008), though the system proved reasonably workable.
A second window, called the ESF (External Shocks Facility), was created in 2005 to extend
short term facilities to countries without a PRGF. The ESF has the advantage that it applies to
a variety of different shocks (with the exception of an increase in import prices, such as
27
food). The main disadvantage is that a high level conditionality is involved (e.g. an IMF
verified poverty reduction strategy) and that resources available are – again – very limited.
There is an annual limit of 25 per cent of quota (and a total limit of 50 per cent quota for the
facility) which the Fund itself accepts as less than adequate to address the estimated impact of
various shocks. Until recently, no use had been made of ESF; higher quotas on softer terms
are required.
In 2004 the IMF introduced the Trade Integration Mechanism (TIM) to mitigate situations
where WTO agreements give rise to strictly temporary balance of payment difficulties (e.g.
erosion of tariff preferences in export markets, removal of textile quotas). It works by
increase the predictability of resource availability under existing facilities rather than
providing a new mechanism. A key advantage of TIM is that it does not normally involve
additional conditionality, and builds in possible deviations from the IMFs usual baseline
scenarios which help to provide a greater degree of certainty. In this respect it could provide a
model for dealing with trade related shocks The main disadvantage is that resources available
to the scheme are very limited.
Proposals have been put forward to establish a low conditionality ‘stability and growth
facility’ that would be automatically available to countries though Article IV consultations,
and managed by the IMF and the World Bank. This would have the advantage of overcoming
of lack of demand and also working with the grain of the existing system.
28
Table 12: Shock Facilities: IMF and World Bank Group
Shock Facility
1.
2.
1.
2.
3.
4.
5.
Country Examples
INTERNATIONAL MONETARY FUND
Short-Term Liquidity Facilities (SLF) directed  Ukraine (5 November 2008): 2-year Stand-By Arrangement for US
to emerging markets with a track record of
$16.4 billion.
sound policies, access to capital markets and  Hungary (6 November 2008): 17-month Stand-By Arrangement for US
sustainable debt burdens. Financing is made
$15.7 billion.
available without the standard phasing,

Serbia (17 November 2008): 15-month Stand-By-Arrangement for US
performance criteria, monitoring, and other
$518 million.
conditionality of a Fund arrangement.

Iceland (19 November 2008): 2-year Stand-By Arrangement for US
However, borrowers are expected to continue
$2.1 billion.
their commitment to maintain a strong
macroeconomic policy framework.
 Pakistan (24 November 2008): 23-month Stand-By Arrangement for
US $7.6 billioon.
Exogenous Shock Facilities (ESF) directed to
low-income countries facing exogenous
 Latvia (23 December 2008): 27-month Stand-By Arrangement for
shocks which are eligible for the Poverty
US$2.35 billion.
Reduction and Growth Facility (PRGF) but do
 Belarus (31 December 2008): 15-month stand-By Arrangement for US
not have a PRGF in place. Components: (1)
$2.5 billion to be approved on January 2009.
rapid-access component, (2) high-access
component. Conditionality: under (1) to
commit to appropriate policies to address the  Malawi (3 December 2008): 1-year loan for US $77.1 million.
shock, and, in exceptional cases, to take
 Kyrgyz Republic (10 December 2008): 18-month loan for US $100
targeted up-front measures; under (2) an
million.
economic program of the same standard as
programs under the PRGF is needed.
WORLD BANK GROUP
IBRD Loans triple from US $13.5 billion to
 Latin American and Caribbean countries (13 October 2008): IBRD
US $35 billion in the current fiscal year up to
additional funding to sustain jobs, social gains and inject liquidity.
US $100 billion over the next three years.
 Indonesia: postponed draw-down loan to help the government to meet
current spending plans.
 India (18 December 2008): US $3 billion of increased investment to
reduce the shock the financial crisis has on private financing.
IDA donor contributions for US $42 billion
 Colombia (18 December 2008): US $1.2 billion to support strategic
over the next three years.
government programs to cope with the effects of the global economic
crisis.
IDA Fast Track Facility (9 December 2008)
to speed approval processes for money
 Ukraine (22 December 2008): US $500 million for structural reforms to
from the IDA 15 fund for 78 of the world’s
reduce the impact of the financial crisis.
poorest countries. US $2 billion available to
help hardest hit poorest countries by
supporting public spending on infrastructure,
education, health, and social safety net
programs.
Coordinated financial assistance.
 Pakistan: US $1.4 billion, US $600 million for investment and US $800
million for budget support (14 October 2008)
 Hungary: US $1.3 billion (November 2008).
IFC facilities for US $30 billion over the next  Latvia: up to US $550 million, subject to agreement on a strong
program of reforms in the financial and social sectors (19 December
three years:
2008).

Double trade finance program to US $3
 Sub-Saharan Africa
billion;



New bank recapitalization fund to
recapitalize distress banks. US $1 billion
invested by IFC over three years plus
US $2 billion provided by other
investors.
New infrastructure crisis facility to
provide roll-over financing and help
recapitalize existing, viable, privatelyfunded infrastructure projects facing
financial distress. US$300 million
invested by IFC over three years and
US$1.5-US$10 billion mobilized from
other sources.
Improved IFC advisory services.
EUROPEAN UNION
1. Coordinated financial assistance.
2. Increased overall medium-term financial
assistance ceiling to EU countries’ BoP
(Regulation 332/2002) from €12 billion to
€25 billion (November 2008).
3. European Economic Recovery Plan (26
November 2008).


Hungary: balance of payment loan for €6.5 billion (US $8.1 billion,
November 2008).
Latvia: medium-term loan up to €3.1 billion (8 January 2009).
29
The World Bank Group
The World will make available crisis related financing on IDA terms for 78 of the world’s
poorest countries though through a new Fast -Track Financial Crisis Response (FTCR)
facility (under the umbrella of the Vulnerability Financing Facility (VFF)). This would
operate within the current IDA 15 framework which is geared to provide $42 bn to poor
countries during FY2009-11. US $2 billion is available to help hardest hit poorest countries.
No additional resources will be made available under the FTCR however. The VFF also
embraces the Energy for the Poor Initiative, designed to improve access to energy in the wake
of recent high oil prices, and the Food Price crisis response facility.
FTCR will be designed to provide quick technical and budgetary financial assistance (up to
$2 billion of the $ 42 billion IDA15 resources, subject to further review) to support a degree
of fiscal stimulus, strengthen safety nets and maintain basic services, subject to Board
approval. No additional macro conditionality is envisaged beyond an up to date IMF
assessment. The World-Bank would work closely with the IMF and donors providing budget
support. Depending on the degree of front loading judged necessary, the overall share of
Development Policy Lending in total IDA commitments in FY2009 could exceed the
originally anticipated 30 percent, in which case further guidance from the Board will be
sought.
It is hoped that the FTCR facility will help leverage parallel donor financing. The upfront
analytical work to be carried out by World Bank country teams should serve as basis for
donors to make rapid assessments of the situation and help facilitate follow up on their part.
In short, World Bank Group (IBRD) Loans will triple from US $13.5 billion to US $35
billion in the current fiscal year up to US $100 billion over the next three years. IDA has $42
billion for 2008-2011, which it could frontload. The IDA Fast Track Facility (9 December
2008) would speed approval processes for money from the IDA 15 fund for 78 of the world’s
poorest countries. US $2 billion available to help hardest hit poorest countries.
The IFC has facilities for US $30 billion over the next three years, which will be used to :




Double the trade finance programme to US $3 billion;
Provide a New bank recapitalisation fund to recapitalise distress banks. US $1
billion invested by IFC over three years plus US $2 billion provided by other
investors.
Provide a New infrastructure crisis facility to provide roll-over financing and help
recapitalize existing, viable, privately-funded infrastructure projects facing
financial distress. US$300 million invested by IFC over three years and US$1.5US$10 billion mobilized from other sources.
Improve IFC advisory services.
EU facilities
The EU introduced in a mechanism for ACP countries hit by terms of trade shocks – called
FLEX and which replaced the former Stabex and Sysmin. The aim is to safeguard macro and
sector reforms put at risk by short terms fluctuations in export earnings. Key eligibility
criteria are: an export revenue fall of 10 per cent (2 per cent for landlocked or small island
LICs) and 2% increase in public deficit. In other respects conditionality is relatively flexible.
30
The impact of FLEX is constrained by the fact that allocations to countries are small, and are
calculated on the basis of historic vulnerability which is inappropriate to current
circumstances (e.g. the next meeting to decide on responding to 2008 will not be held for
more than 6 months). Also, resources available for FLEX have been outstripped by demand
(around €100 million a year) suggesting that more resources need to be provided but only
when greater flexibility in allocations among countries is provided for.
There is some inconsistency between FLEX and the PRGF facilities in that the former
responds, by design, to increases in the public deficit while the latter typically requires fiscal
tightening (though in principle PRGFs can - and should - accommodate an increase in deficits
to sustain economic activity). The main advantage of FLEX over the PRGF is that it provides
grants. The disadvantage is that it only available to ACP countries, tends to be slower at
disbursing than desirable, and – as noted - is small in scale.
A2.3 Additional finance or early disbursement
Table 13 provides an overview of the responses by Regional Development Banks. Each RDB
aims to respond to the crisis through additional resources, for example to provide trade
credits. The Asian Development Bank (AsDB) response is constrained by a lack of capital,
and the Inter-American Development Bank (IADB) might seek a capital increase from
members to allow it to expand its lending. Below we focus on the AfDB.
The AfdB is observing a worrying decline in African equities, exports and ability to access
capital and trade finance. Revenues are falling and capital projects risk being suspended. The
AfDB is reviewing and considering substantial restructuring of county lending portfolios on
the basis that, although country allocations are now earmarked, faster disbursing instruments
may be required in the current crisis. Case by case decisions are expected by February 2009.
Existing Trust Funds may in addition be redirected towards those counties most in need.
The Bank expects that supplementary resources will be required and expects to seek cofinancing from development partners for specific project investments. The Bank may also
request an exceptional increase in resources as contemplated in the recent declaration of the
G-20. Beyond this, the Bank intends to develop loan guarantee products to generate
additional leverage over limited ADF resources
As part of its efforts the AfDB is establishing an Emergency Liquidity Facility (ELF),
tentatively set at $1.5 billion, to provide fast disbursing liquidity. This will be available to a
broad range of eligible countries to meet urgent needs. The ELF may be extended as a line of
credit to Central Banks for on-lending to public and private financial institutions. It will
operate on a “first come first served” basis with an initial cap of $150 million per country,
subject to review. In view of the emergency nature of the ELF, appraisal and Board approval
processes will be fast tracked.
The AfDB also plans to introduce a new $1 billion trade finance initiative (TFI), and is
considering amending existing lines of credit to include trade finance components. Support
for existing export guarantee/insurance institutions (such as the Africa Trade Insurance
Agency in Kenya and the Credit Guarantee Insurance Company in South Africa) is also being
considered.
31
Table 13: Regional Development Banks Crisis Response
Shock Facilities
Country Examples
AFRICAN DEVELOPMENT BANK (AfDB)
Emergency facility under consideration.
1.
2.
3.
1.
1.
2.
3.
4.
5.
1.



32
ASIAN DEVELOPMENT BANK (ADB)
Supported the proposed idea of establishing
a so-called Asian New Deal to cushion the
impacts of the global financial crisis.
 Pakistan: US $500 million loan (October 2008).
Coordinated financial assistance.
Proposed “Asian Financial Stability Dialogue”
to coordinate regulatory development and
monitor potential vulnerabilities in the region's
markets and financial systems (September
2008).
CARIBBEAN DEVELOPMENT BANK (CDB)
Proposals (December 2008):
 Antigua & Barbuda: finalizing US $30 million loan to weather the
global financial crisis (29 December 2008).

Policy-based loans;
 Jamaica: US $100 million loan to support fiscal and debt

Policy-based guaranteed;
sustainability initiatives (12 December 2008)

Interest subsidisation fund;

Investment loans for infrastructure:

Credit lines to financial institutions;

Direct poverty reducing investments;

Securitisation of future-flows receivables

Diaspora bonds.
EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT (EBRD)
Increased investments of about 20% to €7
billion in 2009 (10 December 2008).
 Georgia: US $100 million financial package (30 December 2008).
€1 billion in extra spending with half directed  Romania: €100 million loan to Banca Transilvania to support medium
to Central and Easter Europe.
and small enterprises.
Expansion of the Trade Facilitation
 Latvia: contribution to the coordinated stabilization package of US
Programme.
$10.5 billion.
20 crisis response packages worth €800
million approved or under consideration.
Increased cooperation with other IFIs.
EUROPEAN INVESTMENT BANK (EIB)
Corporate Operational Plan 2009-2011 (16
Examples:
December 2008)
 Bulgaria: €25 million loan to CIBANK to support SMEs and
a. Increased total lending volume by 30%
municipalities (December 2008).
to €15 billion in 2009 and 2010.
 Namibia: €35 million to state-owned electricity provider NamPower
b. Increased lending to SMEs by 50% to
(December 2008)
€15 billion over two years (extra €2.5
billion per year).
c. Additional €1 billion per year to mid-cap
companies over two years.
d. Increased lending within the energy and
climate change package by €6 billion per
year.
e. Increased convergence lending by €2.5
billion per year.
f.
€5 billion set aside for commercial banks
in Central and Eastern Europe to help
SMEs.
g. Capital increase by €67 billion.
INTER-AMERICAN DEVELOPMENT BANK (IADB)
Fast-disbursing emergency Liquidity Program 
for Growth Sustainability of US $6 billion to
help countries facing transitory difficulties in
accessing credit markets (10 October 2008).

Increased loans, credit guarantees and grants
by a quarter to US $12.2 billion in 2008 to
help Latin America and Caribbean to tackle
the global financial crisis.
US $20 million in financing provided by the
Multilateral Investment Fund (MIF) to the
emergency Liquidity Facility (ELF) to help
microfinance institutions to weather economic
crises (December 2008).
Costa Rica: US $500 million IDA loan for a 5-year term to boost
credit to the manufacturing and exporting sectors (17 December
2008).
El Salvador: US $400 million IDA loan to increase the availability of
credit to the private productive sector (17 December 2008).

Conditional cash transfer programs to fight
poverty in 15 member countries.

Mexico: US $2 billion credit line (17 December 2008).
The DFI sector (e.g. IFC, EIB, DEG, FMO, CDC, EBRD, AfDB) have had a long experience
in using financial instruments on commercial terms (loans, equity positions and guarantees)
on the basis of state-backed guarantees or loans. It is important to recognise the contribution
of DFIs (worth $50 bn in 2006/7) as capital may have already become a binding constraint in
many countries.
Until recently, DFIs had substantial liquid assets (e.g. cash) in their balance sheets. Capital
adequacy ratios have increased dramatically. The IFC reached a level of 57% in 2007 much
higher than the 30% recommended (i.e. they could not find enough profitable projects in
recent years).
Chart 11: IFC’s Capital adequacy ratio (IFC annual reports)
60%
50%
40%
30%
20%
10%
0%
2002/ 3
2003/ 4
2004/ 5
2005/ 6
2006/ 7
2007/ 8
Source: IFC annual reports
This may now change and DFIs need to ensure that they promote capital flows to developing
countries. As mentioned above, the IFC has announced a number of schemes (including
dealing with trade finance) and the EBRD will be increasing its exposure by 20%. Even
though the increase in IFC and EBRD finance amounts to only 1-2% of the estimated losses
in capital flows it is worthwhile.
New aid, incentives and regulations would need to ensure that DFI finance is used to
overcome market and co-ordination failures (e.g. the current herding behaviour in trade
finance, or the mismatch between financial and real rates of return) and promote capital to
countries and sectors that are affected by the crisis. Practically, this could involve revised
investment targets for countries22; incentives for investment officers inside DFIs23 and the
need for new crisis funds that could be linked to DFI operations in a transparent and open
way, similar to the global partnership of output based aid24.
The EDFI is a group of European Development Financial Institutions such as DCD, DEG,
FMO, Propoarco, etc. A recent survey (late last year) among EDFI members’ portfolio
companies indicated that so far the financial crisis has not yet hit very strongly, except for
some projects in the Baltic states, Russia and Ukraine suffering from the depreciation of their
22
A National Audit Office report of 4 December 2008 discusses CDC’s new investment targets
23
While financial sector bonuses may need to be consistent with sector wide stability, remuneration of
investment officers in DFIs could be linked to development impact (and some such as DEG and IFC have
begun to introduce development linked remuneration).
See D.W. te Velde and M. Warner (2007), “The use of subsidies by Development Finance Institutions” ODI
Project
Briefing.
http://www.odi.org.uk/resources/odi-publications/project-briefings/2-subsidiesdevelopment-finance-institutions-infrastructure-sector.pdf
24
33
currencies. However, the EDFIs believe that the effects will become evident later this year.
The developing countries will gradually be affected through declining demand and lower
export prices of commodities.
EDFI members already see an increase in the pipeline of projects. Promoters are increasingly
turned down by commercial banks for financing of their projects or promoters are afraid that
their credit facilities will be withdrawn and therefore are contacting EDFI members.
The EDFIs are presently discussing various initiatives to cope with the financial crisis, which
are expected to be launched later this year, spanning from short term bridge and trade finance
to rescue packages to healthy projects suffering from the withdrawal of funding by
commercial banks
34
Appendix 3 The importance of the EU to developing countries
This appendix discusses the importance of the EU for developing country producers both as
an import and export market, as well as the relevance of the EU as a source of FDI,
remittances, and aid (Overseas Development Assistance, ODA).
Trade
The EU is the main import partner for LDCs (Least developed countries) accounting for
around one fifth of LDC’s global exports and imports (see Table 14-16). The relevance of the
EU as import source and export destination for LDCs increased in the past five years.
Table 14: LDC trade with the European Union
Yearly %
change
Imports from the
EU as a % of to
the world
Exports
23.4
10,386
Exports to the EU as a
% of to the world
Balance
28.6
-1,889
7.4
26.3
-803
13,572
21.7
23.5
-734
20.2
15,595
14.9
21.0
-2,361
20.5
17,923
14.9
22.8
-2,970
19.9
11,975
21.0
-1,116
16.0
20.2
12,931
8.0
22.5
-2,255
16.0
20.9
19,354
8.0
24.4
-4,883
Year
Imports
2003
12,275
2004
11,952
-2.6
20.9
11,150
2005
14,306
19.7
20.4
2006
17,956
25.5
2007
20,893
16.4
9m
2006
13,091
9m
2007
15,187
2008*
24,237
Yearly %
change
Source: http://ec.europa.eu/trade/issues/bilateral/dataxls.htm
Table 15: Major import partners for LDCs (2007)
The major import partners
Partners
Mio euro
World
%
103,950
100.0
1
EU
20,893
20.1
2
China
14,932
14.4
3
India
5,930
5.7
4
Korea
5,335
5.1
5
USA
5,019
4.8
Source: http://ec.europa.eu/trade/issues/bilateral/dataxls.htm
Table 16: Major export partners for LDCs (2007)
The major export partners
Partners
Mio euro
%
World
79,291
100.0
1
EU
17,923
22.6
2
USA
16,888
21.3
3
China
16,802
21.2
4
Thailand
3,347
4.2
5
Japan
2,886
3.6
35
Source: http://ec.europa.eu/trade/issues/bilateral/dataxls.htm
The EU has traditionally a strong trade relationship with African, Caribbean and Pacific
(ACP countries). As can be seen from the Tables 17 and 18 the EU was the major source of
ACP imports and their second most relevant export market (after the US). Excluding petrol,
the EU accounts for about 80% of Quad imports from ACP Africa.25 Particularly for ACP
agricultural exports the EU is the main market.
However, it also becomes apparent from Table 19 is that the EU’s relevance as a source of
ACP imports is increasing while its relevance as export destination is declining. This trend is
likely to increase as a result of the Economic Partnership Agreements (EPAs) which are
reducing ACP import protection vis-à-vis the EU.
Table 17: Major import partners ACP (exc. South Africa), 2007
Partners
Mio euro
World
%
168,312
100.0
1
EU
41,595
24.7
2
USA
19,307
11.5
3
China
17,021
10.1
4
South Africa
7,589
4.5
5
Korea
6,455
3.8
6
Brazil
6,216
3.7
7
Japan
5,343
3.2
8
India
5,262
3.1
9
Singapore
3,468
2.1
3,021
1.8
10
11
Nigeria
United
Emir.
2,884
1.7
12
Caribbean
2,723
1.6
13
Saudi Arabia
2,696
1.6
14
Côte d'Ivoire
2,308
1.4
15
Australia
2,216
1.3
16
Venezuela
2,163
1.3
17
2,022
1.2
18
Thailand
Trinidad
Tobago
2,003
1.2
19
Kenya
1,548
0.9
20
Canada
1,497
0.9
Arab
Source: http://ec.europa.eu/trade/issues/bilateral/dataxls.htm
25
36
See http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_112022.pdf.
Table 18: Major export partners ACP (exc. South Africa), 2007
Partners
Mio euro
%
World
156,174
100.0
1
USA
50,161
32.1
2
EU
34,304
22.0
3
China
19,135
12.3
4
Brazil
4,598
2.9
5
Japan
3,805
2.4
6
South Africa
3,341
2.1
7
Caribbean
2,907
1.9
8
Canada
2,642
1.7
9
Switzerland
2,229
1.4
10
Korea
2,011
1.3
11
1,672
1.1
12
Australia
Côte
d'Ivoire
1,473
0.9
13
Ghana
1,249
0.8
14
Indonesia
1,171
0.7
15
India
1,084
0.7
16
Nigeria
874
0.6
17
Chile
850
0.5
18
Malaysia
771
0.5
19
Thailand
766
0.5
20
Jamaica
756
0.5
Source: http://ec.europa.eu/trade/issues/bilateral/dataxls.htm
Table 19: ACP Countries (excluding South Africa) Trade with the European Union, in Mio €
Year
Imports
Yearly %
change
EU Share of
total imports
Exports
29.30
21,768
2003
25,637
2004
26,914
5.0
27.07
22,318
2005
31,191
15.9
25.16
2006
36,438
16.8
2007
41,595
2008*
46,631
Yearly
change
%
EU Share of
total exports
Balance
Imports
Exports
26.71
-3,869
47,406
2.5
23.97
-4,596
49,231
28,844
29.2
23.49
-2,347
60,036
24.75
33,988
17.8
22.80
-2,450
70,426
14.2
25.19
34,304
0.9
22.25
-7,292
75,899
12.1
25.32
32,844
-4.3
21.63
-13,787
79,476
+
Source: http://ec.europa.eu/trade/issues/bilateral/dataxls.htm
FDI
In 2007 the EU25 accounted for 62.3% of total global inflows of FDI and 53% of global FDI
stock.26 Around 27% of global FDI stocks and flows were destined for developing countries
in 2007.
26
EU25 outflows of FDI as a % of global inflows. Source: UNCTAD.
37
Chart 12: FDI Inflows and Outflows from the EU
Source: http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_122532.xls
Remittances
High income OECD countries accounted for 66% of global outflows of remittances in 2007.
Within the EU in 2007, Spain accounted for 9% of total remittances from OECD countries, or
6% globally; Germany accounted for 8.5%, 5.6% globally; Italy 7% and 4.5% globally; and
the UK for around 3%, or 3% globally. Collectively, France, Germany, Italy, Spain, Ireland
and the UK accounted for 21% of global remittances outflows, almost a third of total OECD
countries.
Table 20: Workers' Remittances - Outflows, compensation of employees, and migrant
transfers, credit (US$ million)
2000
2001
2002
2003
2004
2005
2006
2007
France
3,791
3,960
3,804
4,388
4,262
4,182
4,217
4,380
Germany
7,761
7,609
9,572
11,190
12,069
12,383
12,416
13,860
Italy
2,582
2,710
3,579
4,368
5,512
7,620
8,437
11,287
Spain
2,059
2,470
2,914
5,140
6,977
8,136
11,015
14,728
Ireland
181
274
587.8
788
997
1,535
1,947
2,554
United Kingdom
2,044
3,342
2,439
2,624
2,957
3,877
4,560
5,048
High income OECD
World
76,768
83,449
88,864
101,311
114,804
126,076
142,233
163,690
110,108
118,782
131,297
146,545
167,193
184,639
213,192
248,283
Source: World Bank
ODA
In 2007 the EC accounted for almost 11% of total ODA disbursed. 27 Although this is an
increase on the amount disbursed in 2006 and 2005, there are annual fluctuations; the EC
accounted for a larger proportion of ODA disbursements in 2001 compared to 2007. Though,
this could mean that other donors are either contributing more relative to the EC as opposed
27
38
An increase on 2006 where the EC accounted for 9% and 2005 when the EC accounted for 8%.
to the EC contributing less; total ODA disbursements doubled between 2001 and 2007. EU
(EC and EU member states) were responsible for around 55% of aid.
Table 21: Total net disbursements of ODA, current prices (US$million)
2001
2002
2003
2004
5517.07
5149.96
6445.33
51909.02
60573.4
70713
Year
ODA Total Net Disbursements by EC
ODA Total Net Disbursements by all
countries (by reporting country)
2005
2006
2007
8067.91
8686.53
9489.05
11095.49
78920.4
107670.8
105645.16
105055.89
Source: OECD
Table 22: ODA disbursed by the EC as a % of total disbursements
2001
2002
10.6
8.5
2003
9.1
2004
10.2
2005
8.1
2006
9.0
2007
10.6
Source: OECD
39
Appendix 4 - The economic impact of the global financial crisis on SubSaharan Africa
Summary of an EC paper
According to the paper “The economic impact of the global financial crisis on Sub-Saharan
Africa” released by the European Commission on 27 October 2008, Sub-Saharan African
(SSA) countries may be affected by the global financial turmoil directly through financial
markets, and/or indirectly through the slowdown of the global economy.
Given that SSA economies are not fully integrated into the global financial system and make
a very limited use of innovative financial products like financial derivatives, they are less
likely to be exposed to financial contagion. However, the increased foreign ownership of
SSA domestic banks represents an important channel through which the current financial
crisis may spread across the region. Moreover, due to the global financial turmoil, private
capital inflows into SSA are significantly contracting. As a consequence, FDI in extractive
industries and services sector is decreasing, equity prices are falling and exchange rates are
depreciating. Furthermore, the availability of external financing is reducing (total external
financing in Africa decreased from US $31.4 billion in 2007 to US $4.4 billion in the first
half of 2008) and its cost is increasing (interest rate spreads on sovereign bonds in Africa
widened by about 700 basis points in one year), thus negatively affecting investment projects
(e.g. in infrastructure) that are important for SSA long-term growth.
The global financial turmoil may also affect SSA economies indirectly through the following
real channels: trade, remittances, tourism and official development assistance (ODA). First,
crisis hit developed economies may reduce their demand for SSA products ― especially
primary commodities ― with a detrimental effect on net exports of the African region. In this
context, an important role may be played by China, which is an important destination of
primary commodities exports from many SSA economies. The slowdown of the global
economy due to the financial crisis may also lead to lower commodities prices that may have
a further negative effect on SSA net exporter countries but also a positive impact in terms of
macroeconomic stability and poverty reduction on SSA net importer countries. Second, the
global financial crisis is expected to reduce remittance flows and thus to have a strong
negative effect on those SSA countries which are highly dependent on remittances from
migrants in developed countries. For example, remittances in Kenya fell from US $44 million
in July to US $36.5 million in August. Third, the financial crisis may have a negative impact
on tourism sector, especially in East and Southern Africa, since Europeans may become less
willing to spend their money in long-distance travel. Finally, due to the global financial
turmoil, public finance in donor countries is expected to become constrained. As a
consequence, donors might cut their ODA and become unable to keep their promise to
increase aid to Africa by US $25 billion by 2010. From a policy perspective, SSA
governments need to adopt country-specific prudent policy responses to manage the financial
crisis in order to sustain economic growth and stability as well as to protect the poorest.
Moreover, international financial institutions and development banks should support SSA in
their responses to the financial crisis. Finally, donor countries should keep their ODA
commitments to SSA economies in a period in which aid is needed most.
40
Appendix 5 The financial crisis and trade policies
It is important to monitor closely the trade policy stance of countries affected by the crisis.
For example, according to Baldwin and Evenett (2008) “the number of antidumping cases
jumped 40% in the first half of 2008 and many nations have already raised tariffs in 2008.”
Since “much of the world’s tariff and subsidy cuts” would be on a unilateral or regional basis
but not bound at WTO “many nations could massively increase their tariffs on manufactured
and agricultural goods without breaking a single WTO rule.”28 However, the data base on
which these statements are based provides mixed messages. The quoted WTO report on
antidumping cases only refers to the first half of 2008 (i.e. before the financial crisis). If one
compares the first six months of 2008 with the last six months of 2007 (and not with the same
period in 2007 as done by the authors) a different picture emerges: the number of
antidumping cases has fallen (ICTSD, 2008).29
Also, it remains unknown from where Baldwin and Evenett obtained their data on applied
MFN tariffs which ‘many nations’ had apparently raised in 2008. Looking at the data
coverage of the UNCTAD/World Bank tariff database TRAINS it becomes apparent that no
country reported later tariff data than 2007 – and most countries reported significantly older
MFN tariffs.
Bearing these caveats in mind as well as the time lag of the data any evidence on trade
protectionism is anecdotal for the time being. The anecdotal evidence suggests that
protectionism, as a direct response to the financial and economic crises, has increased in
various countries in the past months (Baldwin and Evenett, 2008):
28
-
The Ukrainian Parliament passed a bill that imposes an additional 13% tariff on all
imports except critical imports;30 Russia has announced to raise duties and decrease
import quotas for “on a wide range of goods”;31 Ecuador aims to raise tariffs for up to
940 products to boost revenue;32 and Brazil and Argentina are lobbying for increased
external protection for MERCOSUR33
-
Automotive industry: Russia has already increased tariffs for imported cars from 25%
to 30% in December 2008.34 The bailout of the US car industry also raises fear of
However, it needs to be borne in mind that bilateral and regional trade preferences had been granted in return
for similar preferences so that any country that rises tariffs vis-à-vis it FTA/PT partner would face tariff
increases in return. Thus, one could also argue that bilateral and regional agreements might be even more an
‘agency of restraint’ than WTO rules (where the breach of rules is arguably less likely to be subject to dispute
settlement than in bilateral agreements).
29
According to ICTSD (2008) 101 new investigations and 58 new measures were reported in the final six months
of 2007 compared to the 85 new investigations and 54 new measures in the first six months of 2008.
30
Socrat Daily (24/12/08): “Ukraine parliament imposes additional import tariffs.” (online):
(http://investory.com.ua/community/diary/1208/sokrat_daily__december_24__2008/), accessed 08/01/09.
31
See Moscow Times (17/12/08): “Medvedev Signs Tariff Pledge in U.S.” (online):
http://www.cdi.org/russia/johnson/2008-210-7.cfm, accessed 08/01/09.
32
International Business Times (27/11/08): “Ecuador increases goods subject to tariff hike.” (online):
http://www.ibtimes.com/articles/20081127/ecuador-increases-goods-subject-to-tariff-hike.htm, accessed
08/01/09.
33
See Chinaview 17/12/08: “Mercosur to deepen cooperation amid global economic crisis.” (online):
http://news.xinhuanet.com/english/2008-12/17/content_10517892.htm, accessed 08/01/09.
34
See The Epoch Times (20/12/08): Russia Ups Tariffs on Imported Cars to Stave off Crisis (online):
http://en.epochtimes.com/n2/content/view/8793/, accessed 06/01/09.
41
increased protectionism (though the EU has already announced to prepare a complaint
shall this violate any WTO rules).35 Other automotive markets (such as Japan or South
Africa) have constantly shown a very high protection level, which is expected to
increase further as a response of the crisis.
-
Steel industry: With global steel prices having almost halved in 200836 and expected
to decrease further in the first half of 200937 the US and EU have raised tariffs in early
2008 and are under pressure by the industry to increase their protection for domestic
steel producers. This would not only harm developing countries steel producers like
China, India, Taiwan or Korea but also their sourcing industries (like the car
industry). Some developing countries have also increased protectionist measures in
the steel industry to curb domestic production (with Vietnam, India and Iran raising
tariffs, Indonesia announcing safeguard measures and China raising export taxes).
-
Mining industry: Increased protectionist tendencies had been observed for mining
products in several countries. In December 2008 Indonesia (which has already
restrictive investment conditions for mining) replaced its national mining permits with
licenses to be issued by the respective districts, which increases the legal uncertainties
for investors.38 China raised its export tax for coke and coal exports and Vietnam
raised the export tariff on a number of minerals including nickel products.39
-
Chemical industry: China has announced increasing import tariffs for chemicals.
Korea, a major supplier of Chinese chemical imports would suffer setbacks from such
measure. China further intends to raise export tariffs for its fertilizers.40
-
Textile and apparel industry: Argentina has increased its MFN rate for fabric, apparel,
textile made-ups and footwear in November 2008.41 The US and the EU are likely to
increase protectionist measures for textile and apparel imports by applying non-tariff
barriers and anti-dumping and safeguards(see below).
Non-tariff barriers
The relevance of non-tariff barriers (NTBs) as trade defensive instruments is likely to become
more important as a result of the financial crisis (Page, 2008). The EU strengthened
environmental regulations for vehicles and steel imports and the US is expected undertaking
similar actions in 2009. Increased EU safety requirements for Chinese candles (in addition to
35
See Newsweek (15/12/08): “Picking Winners. The auto industry bailout may trigger a return to protectionism.”
(online): http://www.newsweek.com/id/175062, accessed 07/01/09.
36
See Bloomberg News (01/02/08): “EU Widens Steel-Tariff Threat on China With New Probe.” (online):
http://www.bloomberg.com/apps/news?pid=20601087&sid=aD1iC4bZCUf8&refer=home, accessed 01/01/09.
37
See The Financial Express (10/12/08): “Steel prices have bottomed: Tata.” (online):
http://www.financialexpress.com/news/steel-prices-have-bottomed-tata/396732/, accessed 07/01/09.
38
See Financial Times (17/12/08): “Licence law alarms Indonesia miners.” (online):
http://www.ft.com/cms/s/0/76c78c64-cbda-11dd-ba02-000077b07658.html?nclick_check=1, accessed
07/01/09.
39
See BNET (July 2008): “AMR Outlines Export Tariff Increase Impact on Ban Phuc Nickel Project.” (online):
http://findarticles.com/p/articles/mi_pwwi/is_/ai_n27937582, accessed 08/01/09.
40
See http://www.highbeam.com/doc/1G1-177721243.html, accessed 08/01/09.
41
See Business Alert US (03/11/08): Argentina Erects Tariff and Non-Tariff Barriers to Protect Domestic
Industry.” (online): http://info.hktdc.com/alert/us0822g.htm, accessed 08/01/09.
42
anti-dumping investigations) can also be seen as a direct response to the economic crisis.42
Similar to the EU, the US introduced tougher safety requirements on various children’s
consumer products imported from China in November 2008.43
The EU is further thinking to expand its product safety requirements for toys, mobile phones
and music players to environmental and public health issues such as energy efficiency and
energy use as well as traceability requirements.44 It appears that some developing countries
are also increasing NTBs on imports. Turkey, for instance, has toughened customs controls,
Argentina has expanded its non-automatic licensing system for apparels and household
goods45 and in Sri Lanka and Bangladesh there are fears that their textile and apparel exports
to India will be subject to increased non-tariff barriers.46
Anti-dumping actions and safeguards
US quotas on Chinese textiles and apparels expired by the end of 2008, one year after the EU.
Given the large increase of imports in 2005 (after the expiration of the WTO Multi-Fibre
Agreement)47 both, the EU and the US, announced ‘close monitoring’ of Chinese textiles and
apparels imports. Even without quotas, the EU and the US have a variety of defence
measures to restrict imports from China, notably anti-dumping actions, as well as global and
China product-specific safeguards.48 Tighter regulations on Chinese textile and apparel
imports in the EU and US have also raised fears of a ripple effect on the South Korean and
Vietnamese industries.
In November/December 2008 Europe has further imposed anti-dumping duties on Chinese
steel and carbon steel wires, bicycle parts, DVDs, glutamate (food additive), citric acid,
electrodes and ring binder mechanisms.49
The US introduced anti-dumping duties on Chinese electrodes, certain chemical products,
kitchen appliance shelves, innerspring units, citric acids and salts, and welded line pipes in
the last three months of 2008.50
42
See EU Official Journal published Regulation 1130/2008, 15 November 2008.
43
SCMP (17/11/08): “Exporters bewail tougher US rules, EU anti-dumping duties.” (online):
http://archive.scmp.com/results.php, accessed 08/01/09.
44 See Business Alert – EU: “Product safety priorities are highlighted by EU's executive arm.” 12 December 2008
(online): http://info.hktdc.com/alert/eu0825a.htm, accessed 07/01/09.
45
See Business Alert US (03/11/08): Argentina Erects Tariff and Non-Tariff Barriers to Protect Domestic
Industry.” (online): http://info.hktdc.com/alert/us0822g.htm, accessed 08/01/09.
46
See http://news.stonebtb.com/Global_Trade/15168-The-Global-Financial-crisis-hit-Sri-Lanka-s-Exports.shtml,
accessed 08/01/09.
47
The expiration of the Multi-fibre Agreement ending the quota restrictions for Chinese textile and apparel
exports resulted in heavily increased Chinese exports up to 1,500%. Subsequently the EU and the US
negotiated new quotas with China which expired by the end of 2007 and 2008 respectively. See McClatchy
Newspapers (29/12/08): “When textile quotas end this week, will U.S. jobs go, too?” (online):
http://www.mcclatchydc.com/226/story/58673.html, accessed 07/01/09.
48
See China Daily (30/04/08): “EU extends anti-dumping duty to shoes from Macao.” (online):
http://www.chinadaily.com.cn/china/2008-04/30/content_6654979.htm, accessed 07/01/09.
49
See Business Alert – EU (12/12/08): “Anti-dumping Actions.” (online) http://info.hktdc.com/alert/eu0825g.htm,
accessed 07/01/09.
50
See http://www.trade.gov/press/press_releases.asp, accessed 08/01/09.
43
However, China is not only a target of around 50% of global anti-dumping action but also
one of the world’s biggest users of these measures. Thus, anti-dumping actions are
increasingly becoming a tool used by developing countries against industrialised countries. In
the first half of 2008 most anti-dumping cases were launched by Turkey (e.g. on cotton),51 the
US, India (e.g. against Chinese pharmaceuticals and Korean steel), Argentina and the EU.52
Price controls and export bans
The financial crisis might further add to price controls that had already been expanded by
various developing countries as a response to the soaring food prices. According to the FAO
(2008) Bangladesh, Benin, Cameroon, Indonesia, Malaysia, Mexico, Russia, Senegal and Sri
Lanka expanded price controls for certain crops (such as rice and wheat). Bangladesh,
Ecuador and Egypt introduced rice export bans and Liberia even banned all kinds of food
exports in May 2008. New quantitative export controls and export price controls were also
introduced by Belarus, China, India, Kyrgyzstan, Russia, Ukraine and Viet Nam.
On the other hand some countries (e.g. Azerbaijan, Brazil, Ghana, Iran, Kenya, Mauritania,
Nicaragua, Nigeria, and Pakistan) have become less restrictive and reduced or even removed
import duties or sales tax on certain foodstuff imports (FAO, 2008).
While price controls and export restrictions might increase domestic production they have
harmful effects on developing countries’ trading partners and might give the wrong signal to
farmers (who might in response reduce their production yield and/or productivity level).
The financial crisis might bear the risk that price controls and export bans are expanded.
Argentina introduced minimum price requirements for floor coverings, staple fibre yarn,
washing machines, lighters, welded link and stranded cable in November 2008. The country
further announced that it will pay increased attention to the import of “undervalued
products.”53
Subsidies
In addition to the billion Dollar bailout of the US automotive industry the US Government
has also agreed on an aid programme to support its cotton producers expected to account for
up to US$ 82.6 million in 2011/12.54 Turkey, Pakistan and China plan to provide increased
support to their textile industry.55
The financial crisis has already strengthened the position of EU and US farmers vis-à-vis the
Government. The ‘Health Check’ of the EU’s Common Agricultural Policy (CAP), agreed on
20 November 2008 and supposed to continue the reform process of the past decade, had been
watered down substantially from the original proposals made by the European Commission
51
See http://www.gca.org.pl/x.php/2,523/Turkey-8211-safeguard-def-305-n-305-t-305-ve-measures-on-cottonyarns.html, accessed 08/01/09.
52
See FT (21/10/08): “Anti-dumping investigations soar” (online): http://www.ft.com/cms/s/0/c90e6e02-9ebc11dd-98bd-000077b07658.html, accessed 07/01/09.
53
See Business Alert US (03/11/08): Argentina Erects Tariff and Non-Tariff Barriers to Protect Domestic
Industry.” (online): http://info.hktdc.com/alert/us0822g.htm, accessed 08/01/09.
54
See http://www.gca.org.pl/x.php/2,526/USA-Program-to-Aid-Domestic-Textile-Manufacturers.html, accesed
08/01/09.
55
See http://www.gca.org.pl/x.php/2,526/USA-Program-to-Aid-Domestic-Textile-Manufacturers.html, accessed
08/01/09.
44
(Meyn, 2008), mirroring the majority view of Ministers that the current level of regulation
and support need to be preserved in times of crises.
References
Baldwin, Richard and Evenett, Simon (2008): “What world leaders must do to halt the spread
of protectionism.” (online): http://www.voxeu.org/reports/protectionism.pdf.
FAO (2008): “Crop Prospects and Food Situation. April 2008.
http://www.fao.org/docrep/010/ai470e/ai470e05.htm, accessed 07/01/09.
(online):
ICTSD (2008): “Anti-Dumping Cases Dropped in Second Half of 2007 WTO Reports.” In:
BRIDGES
Weekly
vol.
12
no.
26,
16
July
2008.
(online):
http://ictsd.net/i/news/bridgesweekly/12780, accessed 06/01/09.
Meyn, Mareike (2008): “Update on the CAP Health Check.” Briefing for the Melinda and
Bill Gates Foundation, December 2008.
Page, Sheila (2008): “Are there special risks from trade and finance in the 2008-9 recession?”
Cátedra Internacional OMC-IR Policy Brief (restricted circulation), December 2008.
WTO (2008): “WTO Secretariat reports surge in new anti-dumping investigations.” Press
Release
/542,
20
October
2008
(online):
http://www.wto.org/english/news_e/pres08_e/pr542_e.htm, accessed 06/01/08.
45