Sunday 22 Jul 2018 | 17:11 | SYDNEY
Sunday 22 Jul 2018 | 17:11 | SYDNEY

Reader riposte: The GFC and the developing world

9 April 2009 14:25

Nikunj Soni is Executive Director, Pacific Institute of Public Policy and Adviser State Finances, Minister of Finance, Timor-Leste. He responds to contributions from Laurence Chandy and Paolo de Renzo on the implications of the financial crisis for developing countries:

The true long-term cost of the economic crisis may not be known for some time; this is partly because many of the reactions to the crisis seem to be somewhat ‘knee-jerk’, as has been suggested by Laurence. A greater fear, especially for smaller and more vulnerable states, is the philosophical move away from an ‘inclusive’ and ‘integrationalist’ approach to development. In some countries the crisis is being linked to capitalism and globalisation.

Whilst the pros and cons of trade deals can be argued, the weight of evidence would suggest that developing countries do indeed benefit from being given access and therefore being able to economically integrate with the world's richer nations. Recently the debate had finally begun to move away from solely goods and look also at broader issues such as investment and services such as labour flows. However, there is now a real danger of both developed and developing countries going backwards in this regard.

Labour restrictions are already being put up, and although there is no talk yet of protective tariff measures, in essence that is what many of the fiscal stimuli effectively achieve. This is now sending the message to developing countries that they were wrong to abandon the former policies of state intervention and subsidy – policies that had, by and large, failed them.

The combination of the political fall-out combined with the philosophical loss of ground in terms of genuinely trying to integrate the economies of the developing world with those of the developed nations may in the end be another of the harmful long-term effects of this crisis on the vulnerable.