Paper
Alejandro Foxley, Fernando Sossdorf
{
"authors": [
"Alejandro Foxley"
],
"type": "other",
"centerAffiliationAll": "",
"centers": [
"Carnegie Endowment for International Peace"
],
"collections": [],
"englishNewsletterAll": "",
"nonEnglishNewsletterAll": "",
"primaryCenter": "Carnegie Endowment for International Peace",
"programAffiliation": "",
"programs": [],
"projects": [],
"regions": [
"North America",
"South America",
"East Asia",
"Eastern Europe",
"Western Europe"
],
"topics": [
"Economy"
]
}
Source: Getty
Other
Impact of The Global Financial Crisis: Predictions Gone Wrong
One of the most striking aspects of the global financial crisis has been how often the facts have contradicted what, according to conventional wisdom, was expected to happen.
Published on Mar 24, 2011
When the global financial crisis struck, the purveyors of conventional wisdom had it all figured out. Latin American countries would surely mismanage the crisis, as they have in the past. Economies that established partnerships with developed countries could rely on that “insurance” against instability. The growth rate of East Asian economies would not dip below the rates reached in previous decades. And the growth rate of economies, such as Ireland’s, which had enjoyed a “good boom” prior to the crisis, would rebound quickly and relatively painlessly.
Not one of these predictions came to pass.
Indeed, one of the striking aspects of the global financial crisis is how often the facts have contradicted what, according to conventional wisdom, was expected to happen.
- Most Latin American countries learned lessons from past financial crises and established economic stability through sound macroeconomic policies. As a result, the downturn there lasted only fifteen months, and Latin American economies are expected to grow by 5 percent a year—faster than advanced economies.
- Countries such as the Baltic states, which joined the EU in the 1990s, discovered that their embrace of its economic rules and reforms offered little protection from the crisis. Their economies suffered far more than those in Poland and the Czech Republic, which took a more gradual approach to partnership.
- Middle-income economies in East Asia, despite assumptions that because they weathered the crisis so well they would continue to have high growth, have been losing competitiveness in both directions: Low-income economies in the region, with their cheaper labor, have cornered the market on low-tech products, while the developed economies, with their advanced knowledge and skills, dominate the high-tech end. Foreign direct investment, public investment, and private investment have all decreased in the middle-income economies, making growth rates of over 6 percent a year in Malaysia and Thailand far from certain.
- Countries considered models in their transition to advanced economies, like Ireland and Spain, were thought to be immune from the most damaging effects of a global economic crisis. But just the opposite occurred. In Ireland, many observers were misled by the country’s two booms: a “good boom” based on sound economic fundamentals, and a “bad boom” following its adaption of the euro.
Another prediction—that people will withdraw support from governing coalitions that react to the crisis by responding to markets rather than voters—may or may not prove to be wrong. Only time will tell.
About the Author
Alejandro Foxley
Former Senior Associate, International Economics Program
Foxley was previously minister of foreign affairs, senator, and minister of finance of the Republic of Chile. While minister of finance he concurrently served as a governor of the Inter-American Development Bank and the World Bank.
- Making the Transition: From Middle-Income to Advanced Economies
- Regional Trade Blocs: The Way to the Future?Report
Alejandro Foxley
Recent Work
Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.
More Work from Carnegie Russia Eurasia Center
- Does Russia Have Enough Soldiers to Keep Waging War Against Ukraine?Commentary
The Russian army is not currently struggling to recruit new contract soldiers, though the number of people willing to go to war for money is dwindling.
Dmitry Kuznets
- Venezuela Is No Oil Eldorado, Despite U.S. and Russian ClaimsCommentary
Geological complexity and years of mismanagement mean the Venezuelan oil industry is not the big prize officials in Moscow and Washington appear to believe.
Sergey Vakulenko
- Including Russia on the EU Financial Blacklist Will Hurt Ordinary People, Not the KremlinCommentary
The paradox of the European Commission’s decision is that the main victims will not be those it formally targets. Major Russian businesses associated with the Putin regime have long adapted to sanctions with the help of complex schemes involving third countries, offshore companies, and nonpublic entities.
Alexandra Prokopenko
- Why Didn’t the Ukraine War Turn Russia’s Ruling Class Against Putin?Commentary
A new book by Alexandra Prokopenko looks at why the Russian ruling class became the regime’s willing servants—and how they might fare in a post-Putin world.
Vladislav Gorin
- Collateral Damage: The Frozen Foreign Assets of Middle-Class RussiansCommentary
The volume of frozen private assets might seem insignificant compared with Russia’s sovereign reserves, but these are the savings of millions of people who believed that foreign securities were a safe investment and in the institution of private property.
Yulia Starostina
