Monday, 9 March 2009

IMF report on the global downturn's effect on LICs

The IMF has published a report on "The Implications of the Global Financial Crisis for Low-Income Countries", available in 0.5MB pdf format here.

The report links LICs' relative financial isolation to their protection from the initial world financial difficulties, and describes how the pursuant real economy effects are likely to impact them. The mechanisms involve reduction in demand for goods, reduction in remittances, declines in investment, and falls in aid. There are possible secondary financial effects that may adversely affect their economies, for instance through complex swap arrangements undertaken between domestic and foreign companies. A quantitative model is used to project changes in reserves and classify countries as having high, medium, and low vulnerability using the criteria.

Some of the incidental details surprised me: the good health of Ghanaian banks according to the measures shown, the small foreign involvement in Nigerian banking, the quite low level of remittances to Sub-Saharan Africa, and the extreme dependence of Great Lakes governments on foreign aid. The last point makes me uneasy as well as surprised; huge foreign government influence on Burundi, DR Congo, and Rwanda may be preferred even by their nationals to their worst past domestic governments, but seems unlikely to be preferred to true popular control in meaningful representative democracy.

No comments: