If you thought the economy was bad here…

I live in the United States.  At the moment, each day that passes seems to bring news that just when you thought the economy couldn’t get worse … oops, turns out that it can.  I work at a recruiting/HR company, so I’m especially aware of the impact of layoffs, hiring freezes, and other factors that are driving skyrocketing unemployment rates.  It’s bad.

And yet, looking a little farther from home, it’s also painfully evident that things could be much worse.  In many places, they are much worse.  The economic crisis has gone global, and — as usual — it’s the people who were already in a bad spot that are likely to be hurt the most.

A new brief from the Center for Global Development looks at this problem, and suggests possible remedies.  The authors suggest that the root of the problem for poor countries is high market volatility:

Only a few months ago, poor countries that import fuel and food were hit with sudden price surges. Now demand and prices are falling, and poor countries that depend heavily on commodity exports—or indeed on exports generally—face the prospect of a sharp drop in demand. Many developing countries are also confronting sharp upticks in financial market volatility and some face sudden reversals of capital flows. Although this extreme volatility did not originate in developing countries, they are being hit hard. Developing countries—and poor people—are highly vulnerable to such volatility because they lack the coping mechanisms that are common in high-income economies.

Titled “The Age of Turbulence in Poor Countries: The Case for MDB Help with Risk Management,” the brief summarizes arguments for “a broad range of new and expanded activities by the multilateral development banks (MDBs) to help developing countries manage risk.”

The authors argue that MDBs like the World Bank “are well placed to play a central role as market developers for new risk-management financial products.”  They conclude that “MDBs can help solve both demand and supply market limitations for risk-management solutions. But doing so will mean looking beyond their traditional financing tools.”

I have to admit that global finance — pretty much any finance beyond the “pay your bills by the due date” sort — is largely beyond me.  But I’m awfully glad that people like the authors at the CGD understand these things and are thinking about how to help those who need help the most.  Let us all hope and pray that these ones are never forgotten.

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~ by h.e.g. on November 18, 2008.

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