Recovery: The Global Financial Crisis and Middle-Income Countries

Alejandro Foxley Report July 9, 2009
There is no single solution to the financial crisis for middle-income countries, but fundamental labor markets reforms that create high-paying jobs are key to restarting economic growth.

There is no single solution to the effects of the financial crisis on middle-income countries, but introducing fundamental labor markets reforms to create high-paying jobs will be the key to restarting economic growth, according to a report by Alejandro Foxley, the former foreign and finance minister of Chile. 

Labor reform is always politically contentious, but the current crisis, by illustrating the dangers of ignoring necessary long-term reforms, has made it easier to reach consensus on the need for action. If policy makers undertake the right reforms, middle-income countries could achieve higher growth, better standards of living, and more effective government.

Key points:

  • Critical reforms include improving access to education and on-the-job training, reducing the costs of hiring and firing workers, and increasing the number of women in the workforce.
  • Unemployment is likely to remain high in middle-income countries as the crisis continues, threatening the stability of governments across Latin America, East Asia, and Eastern Europe.
  • Governments must resist the temptation to take populist shortcuts that make it appear that they are dealing with the crisis when they are not, and should instead be clear and consistent in their pursuit of reform.
  • Sustainable growth requires a balance between exports and domestic demand. East Asian economies that relied heavily on exports for growth have been hit harder by the crisis than Latin American countries that emphasized domestic demand.
  • Diversified trade offers some protection against economic shocks. Middle-income countries should diversify not only their exports but also the markets to which they export.

Foxley concludes:

“There are no magic formulas, no shortcuts, no miracles, and no ‘models’ as far as development is concerned. Economic growth and development is a several-decades-long proposition that requires consistent policies, persistence in moving in a certain direction, and adaptability to shocks and changes and the opportune correction of policy mistakes.”

End of document

About the International Economics Program

The Carnegie International Economics Program monitors and analyzes short- and long-term trends in the global economy, including macroeconomic developments, trade, commodities, and capital flows, drawing out their policy implications. The current focus of the program is the global financial crisis and its related policy issues. The program also examines the ramifications of the rising weight of developing countries in the global economy among other areas of research.


In Fact



of the Chinese general public

believe their country should share a global leadership role.


of Indian parliamentarians

have criminal cases pending against them.


charter schools in the United States

are linked to Turkey’s Gülen movement.


thousand tons of chemical weapons

are in North Korea’s possession.


of import tariffs

among Chile, Colombia, Mexico, and Peru have been eliminated.


trillion a year

is unaccounted for in official Chinese income statistics.


of GDP in oil-exporting Arab countries

comes from the mining sector.


of Europeans and Turks

are opposed to intervention in Syria.


of Russian exports to China

are hydrocarbons; machinery accounts for less than 1%.


of undiscovered oil

is in the Arctic.


U.S. government shutdowns

occurred between 1976 and 1996.


of Ukrainians

want an “international economic union” with the EU.


million electric bicycles

are used in Chinese cities.


of the world’s energy supply

is consumed by cities.


of today’s oils

require unconventional extraction techniques.


of the world's population

will reside in cities by 2050.


of Syria’s population

is expected to be displaced by the end of 2013.


of the U.S. economy

is consumed by healthcare.


of Brazilian protesters

learned about a massive rally via Facebook or Twitter.


million cases pending

in India’s judicial system.

1 in 3


now needs urgent assistance.


political parties

contested India’s last national elections.


of Egypt's labor force

works in the private sector.


of oil consumed in the United States

is for the transportation sector.


of Chechnya’s pre-1994 population

has fled to different parts of the world.


of oil consumed in China

was from foreign sources in 2012.


billion in goods and services

traded between the United States and China in 2012.


billion in foreign investment and oil revenue

have been lost by Iran because of its nuclear program.


increase in China’s GDP per capita

between 1972 and today.


billion have been spent

to complete the Bushehr nuclear reactor in Iran.


of Iran’s electricity needs

is all the Bushehr nuclear reactor provides.



were imprisoned in Turkey as of August 2012 according to the OSCE.

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