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The World Economic Crisis

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The worlds and current economic crisis are accrued to the developed countries, one being the United States due to neoliberalism, leading to domestic unemployment and underemployment. The actions of trade in the United States pose a major problem to developing countries and their economies especially in this age of globalization. The previous 30 years of Globalization for the developed countries has been due to the extortion of cheap labour, natural resources and capital from the developing counties which can still be viewed as an underlying colonialism. This has led to the developing countries warding off balance-of-payment crises by holding back large foreign exchange reserves in their countries.

The impact of these effects can be measured by the rise or fall of countries GDP. Citing 178 countries GDP it is sufficiently significant to note the there are major changes occurring from the latter effects. In 2008 alone, the GDP of these 178 countries went down by 1.3% compared to previous years According to the international labor organization; unemployment will increase by 10.7million in 2008. It is estimated by the international monetary fund (IMF) that by 2009 a 1.4% contraction will be experienced. This will lead to a further 19million increase in unemployment. This means that poverty levels will increase by a whole 46 million this year as per the World Bank. This impact has been largely felt by Eastern Europe and central Asia having six among ten of the worst declines in GDP from this regions. Countries that depend majorly on export saw a higher GDP fall compared to those that do not depend on export.

The global effects have been perpetrated by means of lowered export and remittances. In 2008 trade in goods and services rose by 3%.this was short of expectations compared to 10% and 7% in the previous years. Trade is expected to decline in 2009 by 12%. The United States has reduced its importation by 30% since July 2008, being the world’s biggest importer. This to the developing countries means a lower foreign exchange income, economic growth decline, and increased unemployment. Remittance cash flows from both temporary and permanent immigrants accounted for 25% of the net inflows of private capital to the developing countries in 2007. In 2008 it rose significantly to an amazing 46%.

The outflow of portfolio capital is also another way by which the effects of economic crisis in a dynamically globalizing world have been felt. This can be defined is the short-term investments in stocks and real estate markets. This money is mobile due to the dismantling of a governments capital control measures. Consequences incurred by developing countries include a fall in their stock market indices, which depresses economic growth, foreign investors converted their currencies into dollars during departure, and hence the value of the local currency got pushed down. The IMF has banned the freely floatation of exchange rates, especially where market forces largely determine the value of a currency. This ideally meant a sharp depreciation in the value of many local currencies in relation to the dollar. There are cases of vulnerability where countries do mostly dependent on foreign direct investment inflows (FDI) between 2005 and 2007 (as a percentage of GDP) suffered major GDP declines in 2008 alone.

In summary, the continuous flow of the crisis via these 3 channels has left developing countries suffering and is unlikely to be able to afford the generous packages offered thereby refuting funding processes by insisting on old policy mix which insist on deficit minimization and interest rate appraisal. The all known welfare state protects citizens of the developed world from the crisis, and only an application of pressure on developed-country governments to maintain aid flows will change these effects thus give a chance to developing countries to begin rebuilding for the future.

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