World Bank: Global Financial Crisis and Implications for Developing Countries, G-20 Finance Ministers’ Meeting São Paulo, Brazil

“The current financial crisis has evolved differently from other major crises that have hit the developing world in recent decades. Not only is it occurring in a world of unprecedented financial globalization, where the financial sector plays a historically large role in economic activity, but it is also an “imported” crisis, with origins outside the developing world. The crisis also comes on the heels of a major global shock from high food and fuel prices that has imposed a heavy economic burden on many countries and significantly increased the incidence of poverty and vulnerability.

The uniqueness of the current configuration of economic challenges has important implications for the nature and effectiveness of the policy options available to developing country governments. It implies that the policy responses of individual developing countries are unlikely to measurably affect the depth and length of the global crisis. However, their actions can affect the impact of the crisis on their own economies. Policymakers need to be ready to react forcibly and quickly at the first signs of domestic weakness, including the rapid involvement of external assistance as necessary. More generally, countries need to maintain sound macroeconomic and financial-sector policies, while focusing on mitigating the potential negative impacts of the crisis on those living at the margin. The unprecedented scope of the crisis calls for innovative solutions to complement those more traditional policies that have a sound record of success under similar circumstances.”