Developing countries safe from immediate aftermath of global financial crisis; Minecofin

Developing countries safe from immediate aftermath of global financial crisis; Minecofin

BY GEORGE KAGAME


Rwanda and other developing countries will not face the immediate repercussions of the global financial crisis currently causing the collapse of banks and other financial institutions in the US and Europe, opined John Rwangobwa.

The Secretary General in the Ministry of Finance and secretary to the national treasury was speaking in an exclusive interview yesterday, while commenting on how the current crisis in the US is likely to affect Rwanda and other developing countries-which heavily rely on western donor aid mostly from the US, Rwangombwa said:
"Currently we have no problem yet, this is basically because we have no pronounced financial market so far," he added however that the crisis would affect international trade in general. "Our international manufacturers and importers mostly get financed by the institutions that are now affected by the crisis, so we might have a situation where the cost of our imports goes up and badly and this has dangerous implications for our balance of payment."

The balance of payment is unfavourable if a country pays more for its imports that earns from its exports, this means that revenue from exports cannot be sufficient enough to pay for imports. This is a bad situation especially for developing countries like Rwanda that mostly rely on imports for most factors of production in the economy.

He said that the crisis could also have wider implications on the flow of aid from developed countries to developing ones which crucially need donor assistance in their development programmes, "the recent decision by the US to inject 700 billion USD is likely to affect their budget for aid, however on the positive note, the crisis could reduce oil prices which is good for us."

In a related development, Rwangombwa said that Francois Kanimba the National Bank of Rwanda governor is currently in Washington with other central governors across the globe attending the Annual Meeting Board of Governors of the World Bank Group on Monday, where the most powerful financial institutions, the International Monetary Bank and The World Bank presented their concerns on the current state of affairs in the international financial industry.

Addressing the governors on Monday, Robert B. Zoellick President The World Bank Group said that the world is currently at an extraordinarily difficult time – a time of uncertainty and insecurity, with a danger that fears posed by the financial crisis push the global economy away from – not towards – a more inclusive and sustainable globalization.
He said that 2008 was a precarious year worsened by a meltdown in financial, credit, and housing markets on top of the continuing stress of high food, fuel, and commodity prices. Since the beginning of the year, there have been violent protests in South Africa, Ivory Coast, Egypt, Chile and Kenya with citizens protesting against central governments for high costs of food items and fuel.

Zoellick said that developing countries will suffer from continuing drop in exports, as well as capital inflow, which will trigger a falloff in investments. Deceleration of growth and deteriorating financing conditions will trigger business failures and increase the risk of banking emergencies. Some countries will slip toward balance of payments crises.
He further cautioned in the limited and contrasting nature of the international aid system, Zoellick said: "Donors bring ideas, energy, and resources, but they also can overwhelm national ownership by developing countries, harming the effectiveness of aid. "
It is during the same-time and city also that the ministers of finance from the G8, a group of the richest nations in the world and the ones responsible for the largest contribution to donor aid were holding their annual meeting.