Recovery: The Global Financial Crisis and Middle-Income Countries

Alejandro Foxley Report July 9, 2009

Summary

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.

Related Topics

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.”

Source: http://carnegieendowment.org/2009/07/09/recovery-global-financial-crisis-and-middle-income-countries/2fi8

More from The Global Think Tank

The Unequal Impact of the Economic Crisis

Summary Large industrialized nations like the United States, Japan, and Germany have benefited from increasing global demand for relatively stable economies in which to invest. More >

Asia's Overlooked Middle

Brazil in the Global Economy: Measuring the Gains From Trade

Summary Despite holding a leading position in world trade negotiations, Brazil will benefit little from increased trade. Policy makers face acute challenges as the country struggles to generate sufficient employment and improve labor incomes. More >

March 25, 2009 Washington, D.C.

The World Economy on a Precipice

Summary Although recovery from the global financial crisis will likely occur in 2010, forecasts are imperfect and great economic damage has already been done. Leaders at the upcoming G20 summit must adopt more ambitious and coordinated policies to address this crisis. More >

April 9, 2009 Washington, DC

Brazil in the Global Economy – Measuring the Gains from Trade

Summary The Brazilian economy would receive a small boost from either a Doha Round trade agreement at the WTO or a major trade pact with other developing countries, including China. More >

Twitter

@CarnegieEndow

In Fact

70%

of oil consumed in the United States

is for the transportation sector.

20%

of Chechnya’s pre-1994 population

has fled to different parts of the world.

58%

of oil consumed in China

was from foreign sources in 2012.

million cases pending

in India’s judicial system.

million people killed

in Cold War conflicts.

18%

of the U.S. economy

is consumed by healthcare.

$536

billion in goods and services

traded between the United States and China in 2012.

$100

billion in foreign investment and oil revenue

have been lost by Iran because of its nuclear program.

4700%

increase in China’s GDP per capita

between 1972 and today.

$11

billion have been spent

to complete the Bushehr nuclear reactor in Iran.

of Iran’s electricity needs

is all the Bushehr nuclear reactor provides.

new airports

are set to be built in China by 2015.

journalists

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

67%

of the world's population

will reside in cities by 2050.

million Russian citizens

are considered “ethnic Muslims.”

Stay in the Know

Enter your email address in the field below to receive the latest Carnegie analysis in your inbox!

Carnegie Endowment for International Peace

1779 Massachusetts Avenue NW Washington, DC 20036-2103 Phone: 202 483 7600 Fax: 202 483 1840 Contact By Email

Please note...

You are leaving the website for the Carnegie-Tsinghua Center for Global Policy and entering a website for another of Carnegie's global centers.

请注意...

你将离开清华—卡内基中心网站，进入卡内基其他全球中心的网站。

Carnegie Endowment for International Peace

Regions

Countries