Tuesday, April 14, 2009

World Bank's Half-Yearly Update Discusses Financial Crisis' Effects on East Asia

Sources: World Bank, Faces of the Crisis; World Bank, EAP Half-Yearly Update

This month, the World Bank released its East Asia and Pacific Update. The Update was entitled "Battling the forces of global recession." Along with the EAP Update, the World Bank has compiled a collection of stories about specific individuals living in the region who have been affected by the financial crisis. The World Bank has released these items in an effort to "put a face to the numbers" in relation to the financial crisis.

The Update recognizes at the outset that the financial crisis is now truly a global crisis-- one that is significantly affecting East Asian economies. The Update's first chapter, which elaborates on how the crisis has affected East Asia, notes that the crisis has affected high-income, middle-income and low-income countries differently. It argues that middle-income countries have been able to respond fairly well to the crisis because their experience in the 1997-1998 Asian financial crisis forced them to develop stronger response mechanisms to turmoil in the markets. For example, these countries now have stronger foreign exchange reserves and lower government debt. They also supervise their banks more closely than before. These developments, says the Update, have helped those countries weather the current crisis. According to the Update, low-income countries have not been terribly affected by the crisis because they are not as integrated into the global financial system.

The Update argues that the region has been most affected by the crisis by the fact that all East Asian countries produce products that countries in other parts of the world frequently purchase when the economy is doing well. Before 2008, when the global economy was thriving, these countries had a large market for the goods they were producing. Since 2008, industrial production in the region has declined. Exports, it appears, are no longer the great source of prosperity for the region that they were before. The Update also points out that in countries like Thailand, which have historically relied on tourism and the sale of other services, have been suffering a "slump" since September 2008.

Discussion Questions:
1- Why is it useful to classify East Asian countries by income level when analyzing the degree of the impact that the crisis has had in the region? Does it make sense to do this?

2- What do you think organizations like the International Monetary Fund (IMF) and the World Bank can do to help East Asia respond to the crisis?

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