International Policy Response of Developing Countries to the Global Economic Crisis

Research Report. Centre for Poverty Employment and Growth, Human Sciences Research Council

“The impact of the 2008 financial crisis on emerging markets like South Africa has been quite different from its impact on developed economies, and so too have been the responses to the crisis. This paper presents an overview of the policy responses employed to counter the effects of the crisis in Brazil, Malaysia, Mexico and Turkey, all countries that share certain characteristics with South Africa. Using the examples of these countries, the paper then aims to identify themes in the early emerging market response to the crisis and to summarise the key questions facing South African policymakers. This paper was prepared as part of a series on the economic and employment impacts on SA of the 2008 global financial crisis The main findings are: • Most countries can be expected to suffer a recession by virtue of both trade and financial channels. • The effects of smaller exports are likely to emerge gradually, whereas the effects operating through the financial markets are likely to occur suddenly. • Emerging markets have suffered through the financial markets as an indirect consequence of disturbances in the financial markets of developed countries. • It will only be possible to look for a contribution to recovery from trade if a country is also prepared to accept a depreciation of the exchange rate. Other countries will either have to expand internal demand or wait for the rising tide to lift them (somewhat after others who are able and willing to do their share of expanding internal demand). “