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ESCAP Series on Inclusive and Sustainable Development 2: The Current Global Financial Turmoil and Asian Developing Countries
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| Author(s):
UNESCAP
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| Economic Sector(s):
(1) Global, regional and multisectoral economic and social development strategies and policies; (2) Monetary and financial issues and policies |
| ESCAP Reference
No.: ESCAP series 2 |
| Division/Office:
Macroeconomic Policy and Development |
| Published Date:
April 2008 |
| Country:
{Non-country Specific Publication} |
| Hard Copy Price:
Online Copy Only
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| After about six years of exceptional growth, the world economy has now entered a period of instability and uncertainty due to a global financial turmoil triggered by the subprime crisis in the United States. Current difficulties, however, are not unrelated to forces driving the preceding expansion. From the early years of the decade the world economy went through a period of easy money as interest rates in major industrial countries were brought down to historically low levels and international liquidity expanded rapidly. In the United States ample liquidity and low interest rates, together with regulatory shortcomings, resulted in a rapid growth of speculative lending, sowing the seeds of current problems. Global liquidity and an increase in the risk appetite, rather than improvements in fundamentals, have also been the main reason for a generalized and sustained surge in capital flows to emerging markets. They have given a boost to growth in the recipient countries, but also generated fragility and imbalances, including unsustainable currency appreciations and current account deficits, and credit, asset and investment bubbles, which now render them vulnerable, in different ways and degrees, to shocks from the subprime crisis. The paper analyzes the current global financial turmoil and the
risks for developing countries in the Asia-Pacific region, and suggests policy options and mechanisms to achieve greater financial stability and support for development. |
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- Introduction
- The role of finance in recent global expansion
- Expansion and crisis in the United States
- Capital flows and vulnerability in Asia
- External shocks and policy options in Asia
- Conclusion
References
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