Developing Countries in the Global Economic Slowdown: Reform and Participation in International Trade Present the Only Possibilities for Economic Growth in Developing Countries. Aid Is Not the Answer

By Mladek, Josef | The New Presence: The Prague Journal of Central European Affairs, Spring 2009 | Go to article overview

Developing Countries in the Global Economic Slowdown: Reform and Participation in International Trade Present the Only Possibilities for Economic Growth in Developing Countries. Aid Is Not the Answer


Mladek, Josef, The New Presence: The Prague Journal of Central European Affairs


Problems associated with the slowdown of the world economy are gradually spreading into countries in the developing world and exacerbating their unsolved problems which were ignored in times of growing prosperity. The World Bank estimates that textile factories in Cambodia have laid off about one tenth of its employees--approximately thirty thousand people. In the capital Phnom Penh, construction machinery has fallen silent. Elaborate plans to build luxurious residential skyscrapers have been postponed due to insufficient funds from South Korean investors, the main financiers of the Cambodian real-estate boom.

In Malaysia, Indonesian immigrants are beginning to emigrate from the country they once considered to be their Promised Land. A similar destiny and a much longer journey home awaits the majority of the three hundred thousand Nepalese residents there. Central American families in countries such as El Salvador, Honduras, and Haiti find no solace either as they face decreasing funds from relatives working in the wounded American economy. More than three million Guatemalan citizens, or one fourth of the country's population, face a similar fate. Falling prices of traditional export commodities such as cotton, tea, coffee and fresh flowers threaten East Africa. In Zambia, the crisis has even affected football players; due to a crippled demand for copper, mining companies have annulled contracts with local football clubs.

The whole world now faces complex and country-specific changes, but developing nations face an especially unique challenge. In regions such as Sub-Saharan Africa and in countries like India, the banking sector and stock market are too undeveloped to speak primarily of a financial crisis. In the examination of their existing problems, one must focus on the development of the real economy and not the financial sector.

FALSE CHAMPIONS OF GLOBALIZATION

During a visit to South Asia last autumn, former president George W. Bush declared that India holds a great future. Bush was not the only optimist. Analysts believed that developing economies would become independent engines of growth. And because increases in foreign demand created economic progress in these countries, much needed structural reforms were scrapped; now, however, the drop in demand has revealed the superficiality of this economic growth.

India is such an example. Rather than pushing for social reform, politicians consoled the public with a yearly growth rate at ten percent. A wave of social reforms in the early 1990s and the growth of the information technology sector saved Indian politicians from introducing difficult reforms that would have met resistance from the privileged but benefited the poor. These reforms would have, however, helped India adapt to the economic problems it faces today.

Instead, the government spent the growing tax income on welfare programs in rural regions where the largest electoral group (two thirds of the population) reside. The state introduced a program for relieving the poorest Indian farmers of debt and implemented a program guaranteeing one hundred days of employment per year for one member of every family. These social welfare programs only created, however, a long-term fiscal burden. Rather than solving socio-economic problems, the plan merely preserved the status quo by artificially sustaining over-employment in a rural economy devoid of technological development.

Furthermore, in the last few years a problematic employment law has significantly deterred foreign investment; it has unnecessarily increased workforce costs by imposing superfluous bureaucratic obstructions.

WASTED OPPORTUNITY FOR REFORM

The timing of the Oscar-winning film Slumdog Millionaire was rather appropriate. The film debuted just as the poorest Indians began to feel the effects of the global economic slowdown.

To a certain extent, the social stratification of Indian society complicates the adoption of reforms. …

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