The Global Financial Crisis

Abstract

Basing itself on a recent International Monetary Fund survey, this comment concludes that the Brazil, Russia, India and China countries are likely to become the locomotive for economic growth in the world. Were the global financial crisis to last out for the next 1.5 year, though reduced, annual growth rates in China, India and Russia would continue to be 8.5, 6.3 and 3.5 per cent, respectively. Together, the three countries would still manage to contribute 2.2 per cent to the world growth. The author does not appear to be very optimistic about the Russia, India and China to formulate countermeasures but China had in addition to forex reserves, considerable foreign direct investment and its measures to boost domestic demand focused on infrastructure building. Russia as well needed to boost domestic demand to curb inflationary pressures. The worrying aspect was the prospect of social instability and all three countries had already faced this in the 1980s. Experts were divided as to whether unemployment was worse than inflation, but some kind of protectionist measures would have to be adopted despite the understanding that trade had to be promoted at any cost. However, the need to insulate the domestic market was critical at this time. Russia in addition had to contend with the decline in the prices of oil and gas and in devising strategies to deal with the crisis; the objective was to protect not the American interests but the Russian interests. The problems stemming from the sub-prime lending in the US was only a simplistic way of analysing the crisis.