Many emerging economies have employed a variety of stimulus policies to boost liquidity, investment, consumption, and economic growth.
Since the global financial crisis erupted one year ago, the BRIC countries have launched a number of vigorous stimulus packages that have contributed much to the world’s economic stability.
Some of the developing nations have helped to keep the crisis from going worse through extraordinary economic performances but many of them are still confronted by challenges such as shrinking trade and slumping domestic consumption. However, the developing countries need to make economic reforms and tackle their structural problems so that they can make progress in the long run.
Solutions and effects
To deal with the crisis, many emerging economies have employed a variety of stimulus policies to boost liquidity, investment, consumption, and economic growth. Those countries are believed to be the potential vanguard that will lead the world out of the ongoing crisis in the future.
Facing export declines and deflation pressure, China adopted proactive fiscal policies and a relatively easy monetary policy in a timely fashion. China, the world’s largest developing nation, launched a 4-trillion-yuan (585.8 billion U.S. dollars) investment program, lowered interest rates and taxes, and tried to help small and medium-sized enterprises obtain loans. With such measures, China maintained a decent economic scene. China’s domestic investment and consumption continues to gather momentum and accelerate economic growth.
Brazil also has provided tax cuts and other incentives to deal with the crisis. The measures have helped boost the sale and production of durable goods, such as cars and household appliances, and stabilized business confidence. Because of that stabilization, some analysts are now forecasting growth of more than 4 percent for Brazil’s economy in 2010.
Due to tight controls over financial sectors and foreign investment, India largely avoided turbulence caused by the crisis.
The Indian government announced in July that its emphasis for the current fiscal year would be on bolstering the agriculture sector and the poor’s welfare. The Reserve Bank of India says there are signs of recovery for India’s economy.
Risks and challenges
The financial crisis has posed a number of difficulties for many emerging economies and they are bound to face numerous risks and challenges.
Since the crisis began, commodities prices experienced abrupt ups and downs, jolting the emerging economies.
Energy exporters like Russia and Venezuela have suffered a lot due to the destabilized market. The Russian economy declined 9.8 percent in the first quarter year on year and 10.9 percent in the second quarter, putting an end to 10 years of expansion. Venezuela and other oil-rich developing nations also witnessed economic decline in the first half of this year.
On the other hand, oil prices increased from $30 a barrel at the end of last year to about $70 today. Some analysts worry that the developing world may be caught up in future economic woes, if oil exporters like the Organisation of Petroleum Exporting Countries (OPEC) continue to push for quota cuts in the near future.
The crisis also badly hit those countries with a heavy reliance on exports. Shrinking orders from the West has made it harder for some export-oriented emerging economies in Asia to make ends meet. Meanwhile, those economies are trapped in tight liquidity and rising fiscal deficits. With less revenues, they have found it difficult to conduct any public programs.
Until now, the Asian Development Bank has received calls for loans under Countercyclical Support Facility (CSF) from nations like the Philippines, Vietnam, Kazakhstan, Indonesia, Sri Lanka, and Pakistan.
It no doubt is on top of the agenda of the world’s decision makers to work together to end the crisis. However, developing economies must look to the post-crisis era if they hope for long-term development, says Zhou Yongsheng, a professor with China Foreign Affairs University. Zhou says the developing world needs to solve some structural problems related to long-term, stable and sound economic development.
Some developing nations have targeted their structural problems and have begun to act. Russia and Brazil have made it clear that they will try to end their chronic dependence on fuel and resources exports in the upcoming years. Russian President Dmitry Medvedev last week criticized his country’s “humiliating dependence on raw materials” and called for more investment in high-tech industries and energy efficiency.
Over the past 12 months, the Chinese government has been fully engaged in large-scale infrastructure development and other programmes. China has earmarked 58 million yuan (8.5 million dollars) from an investment programme to boost energy efficiency, emission reduction, ecological projects, industrial restructuring and technological innovation.
Over-reliance on exports
To increase domestic consumption, China has continued to adjust the national income distribution makeup, and is trying to expand the domestic market, the rural market in particular. It is noteworthy that over-reliance on exports represents a common problem for developing nations. The Asian Development Bank said in an August report that the emerging nations need to value the expansion of domestic demand in order to realize their economy’s balanced development.
However, due to a lack of funds, some developing countries find it compulsory to make changes in their economic growth models and structure. Zhou Zhiwei, a specialist with the Chinese Academy of Social Sciences, says that for many developing nations, there are problems concerning social equality and people’s livelihoods, and reforms in the international financial order. He says that to solve the problems, the world needs to fight protectionism and build a fairer international economic financial system.
That way, Zhou says, developing countries will be able to improve their rights of speeches and representativeness and achieve more international assistance. — Xinhua