Masthead graphic based on a painting by Gudrun Thriemer.

Friday, March 13, 2009

Kevin P. Gallagher and Timothy A. Wise, "Trading our way out of the financial crisis: The need for WTO reform," CIP Americas Program, March 4, 2009.

[Not many analysts acknowledge today's poor as the largest single source of increased demand. Gallagher and Wise make the point that "Granting developing countries the policy space for equitable growth will be key to stimulating global demand and getting us out of the crisis." -jlt]

Many developing countries have spent scarce resources to build human capital and technological capabilities in the manufacturing, services, and agricultural sectors of their domestic economies. In the wake of the current economic crisis, massive devaluations in currencies, along with the loss of credit, can wipe out domestic firms and put the real economy into a tailspin. Without care, these losses can be irreversible because the domestic firms are often replaced or taken over by foreign firms or import shocks. Losing such firms not only throws people out of work, it represents a long-term setback to dynamic development.

Ensuring that years of development policy are not swallowed up by foreign capital during tough times is among the utmost priorities in the developing world in the wake of the crisis. Some developing countries are equipped with reserves and stabilization funds that can be used to ensure that the domestic economy does not become hollowed out. Many more ran dangerously high budget and current account deficits that make preservation and recovery impossible.

  Developing nations need to be part of a coordinated global response to the crisis.

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