TWN Info Service on Finance and Development (Jan11/03)
17 January 2011
Third World Network

TWN publications from research project on the global economic crisis and Asian developing countries

TWN has published a series of country-based papers from a research project titled: “The Global Economic Crisis and Asian Developing Countries.” 

The research project comprises studies on the impact of the crisis, policy responses, and medium-term prospects in the following eight countries: China, Korea, India, Malaysia, Singapore, Philippines, Pakistan, and Turkey

The project examines the ways in which the global crisis has affected Asian developing and emerging economies, and the policy issues that need to be addressed for securing sustained growth and stability over the medium term.  

A synthesis paper summarises the findings of the country papers and provides a thorough analysis of important policy lessons and issues from a medium-term perspective.  The author of the synthesis paper and the director of the research project is Dr. Yilmaz Akyuz, Special Economic Advisor to the South Centre and former Director of the Division on Globalization and Development Strategies at the United Nations Conference on Trade and Development (UNCTAD).  

The synthesis paper explores the link between the current crisis and the forces driving the preceding economic expansion, examines the transmission of the impact of the crisis through trade, finance and remittances and discusses the policy responses. It then moves to medium-term growth prospects and policy challenges. It is argued that a return to “business as usual” is not a viable option and coming years are likely to see tightened global economic and financial conditions in comparison to pre-crisis expansion.  This means that medium term growth prospects of the Asian DEEs hinge crucially on their success in reducing their dependence on markets in advanced economies and capital flows. A key conclusion is that Asian developing and emerging economies should look for a strategic rather than full and close integration with global markets both in trade and finance and rebalance domestic and external sources of growth. 

We reproduce below the conclusions of the synthesis paper, which is available in full at the following link:

The details of each of the country-based papers are as follows:

China: The Impact of the Global Financial Crisis on the Chinese Economy and China’s Policy Responses,” by Yu Yongding, Chinese Academy of Social Sciences (CASS), former Director-General of the Institute of World Economics and Politics, CASS, and President of the China Society of World Economics.  Available at:

Korea: The Post-Crisis Changes in the Financial System in Korea: Problems of Neoliberal Restructuring and Financial Opening After 1997,” by Kang-Kook Lee, Associate Professor at the College of Economics in Ritsumeikan University, Kyoto, Japan

Available at:

Singapore: Financial Liberalization and the Impact of the Financial Crisis on Singapore,” by Michael Lim Mah-Hui, senior fellow at the Socio-economic and Environmental Research Institute (SERI) in Penang, Malaysia, and, Jaya Maru,  a financial services professional based in Singapore

Available at:

Philippines: The Impact of the Global Financial and Economic Turmoil on the Philippines: National Responses and Recommendations to Address the Crisis,” by Joseph Anthony Lim, Professor at the Economics Department of Ateneo de Manila University in the Philippines. 

Available at:  

Malaysia: The Impact of the Global Financial Crisis: The Case of Malaysia,” by Goh Soo Khoon, Senior Lecturer at the Centre for Policy Research and International Studies in Universiti Sains Malaysia (Science University of Malaysia), and Lim Mah Hui, Senior Lecturer at the Centre for Policy Research and International Studies in Universiti Sains Malaysia (Science University of Malaysia).  

Available at:  

India: The Costs of ‘Coupling’: The Global Crisis and the Indian Economy,” by C.P. Chandrasekhar, Professor at the Centre for Economic Studies and Planning at Jawaharlal Nehru University in New Delhi

Available at:

Pakistan: Pakistan: Causes and Management of the 2008 Economic Crisis,” by Irfan ul Haque, Special Advisor on Finance for Development to the South Centre.

Available at:

Turkey: The Global Crisis and the Turkish Economy,” by Ercan Uygur, Professor of Economics at Ankara University and the president of the Turkish Economic Association. 

Available at:  

With best wishes,

Third World Network (TWN)

Conclusion of the synthesis paper, “The Global Economic Crisis and Asian Developing Countries: Impact, Policy Response and Medium-Term Prospects”

Conclusions: Policy issues and lessons

The global crisis has uncovered systemic and structural weaknesses and vulnerabilities in certain areas in the Asian economies examined here and strengths in others.  Given that global economic conditions are likely to be less favourable than those prevailing before the outbreak of the crisis, it is important to address these weaknesses and vulnerabilities in order to be able to return to rapid and sustained growth enjoyed in the earlier part of the decade.

First, start with strengths.  In almost all countries the financial sector has shown a significant degree of resilience to shocks from the sub-prime crisis.  This is in part due to various measures taken in the aftermath of financial crises of the late 1990s and early 2000s.  Exposure of the banking system to toxic assets has been limited.  This has been so also for indigenous institutional investors which were allowed greater freedom to invest in foreign securities from the early years of the decade in order to, inter alia, ease the pressure of the surge in capital inflows and growing current account surpluses on currencies.  Losses on reserves invested in mortgage-based securities of government-sponsored institutions in the US have also been limited. 

Self-insurance provided by large stocks of international reserves and strong payments positions have certainly been a key element in the resilience of the financial system to shocks.  These not only prevented any threat to financial stability during the rapid exit of capital in the early months of the crisis, but also allowed implementation of strong pro-cyclical policies without facing a payments constraint. 

Korea could not demonstrate the same degree of resilience to financial shocks as other East Asian countries in large part because it had chosen to liberalize the capital account almost fully in the aftermath of the 1997 crisis and allowed considerable build-up of external financial fragility in much the same way as it had done in the run up to the 1997 crisis.  However, large reserves and a sustainable payments position helped avoid financial meltdown.  Turkey and Pakistan found themselves with large and growing current account deficits on the eve of the crisis, in large part because they had allowed their economies to be driven by easy money from abroad.  Both countries had already faced difficulties in sustaining growth before the outbreak of the global crisis.  With these two exceptions, all countries have had adequate fiscal and balance-of-payments space to respond to shocks through countercyclical policies.  

A common feature of the countries examined here is their high degree of susceptibility to financial boom-bust cycles and gyrations in equity, property and currency markets.  This is in large part due to excessive and widespread capital account liberalization both for residents and non-residents.   Indeed, in all East Asian countries the capital account is much more open and integration into the global financial markets is much closer today than was the case on the eve of the 1997 crisis (Akyüz 2008).  This crisis has shown the risks of full integration with markets in global financial centres and the need to adopt a strategic approach to financial opening and integration.  Both the capital account regimes and policies regarding rights of establishment of foreign financial institutions thus need to be reassessed, particularly since the initial enthusiasm for tightening the control over major players in global financial centres has died away.   

The sub-prime boom-bust cycle has also entailed gyrations in intra-regional exchange rates in East Asia.  A main reason is the co-existence of inconsistent exchange rate regimes in the region, ranging from hard pegs to various brands of soft pegs and independent floating.  This is a potential source of conflict and not a sound basis for deepening regional economic integration.  Quite apart from reorienting their integration into the international financial system, the region also needs a relatively close cooperation over exchange rate policies (Akyüz 2009a).

Finally, the crisis has uncovered a high degree of vulnerability of East Asian DEEs to trade shocks, raising the question if the end of export-led growth is reached.  It has echoed the dilemma that Arthur Lewis pointed out in his Nobel Lecture three decades ago (Lewis 1980) that dependence of growth in DEEs on AEs through trade would make it difficult to catch up and close the income gap.  The solution proposed by Lewis was to develop an internal market in DEEs and south-south trade.   East Asia has ample space in these respects.  Traditionally the balance-of-payments constraint is seen as the main reason for the dependence of DEEs on exports.  But East Asia DEEs export not simply to earn foreign exchange for imports needed for capital accumulation and utilization of productive capacity, but to find markets for goods for which there is little or no domestic demand because of imbalances between investment and consumption and profits and wages.  The solution is not to turn inward, away from world markets, but to stop relying on cheap labour and cheap currency and start allowing wages and private consumption to grow in tandem with productivity and underpin the expansion of productive capacity by providing growing internal and regional markets in final goods, very much as in the first-tier NIEs.