One of the great tragedies of the present crisis is that it nipped in the bud the longest and most broadly based economic expansion that low-income countries have seen in modern history. These countries were finally reaping the rewards of difficult reforms that go back to the 1980s and 1990s, helped by debt relief and other support. The results were plain to see. During 2000-07, low-income country growth was twice as high as in the previous decade, and inflation fell to single digits. As a result, these countries were finally starting to make inroads in raising living standards and reducing endemic poverty. There was great cause for optimism.
And then came the crisis. Or crises, I should say. For in fact, the low-income countries were besieged by two crises in rapid succession, as the global financial tsunami came hard on the heels of the food and fuel price shock of 2007-08. All of the hard-won gains were suddenly in jeopardy. And the stakes in this part of the world are particularly high, given the potential for human suffering on a wide scale. The effects of lower export volumes, remittances, investment flows, and prices for key export commodities could push hundreds of millions of desperately poor people back (or further) into poverty.
Victims of the crisis
We should remember also that the low-income countries were innocent victims of the crisis. They didn’t make the mistakes of some of the advanced countries, the mistakes that triggered this crisis. Instead, they did many of the right things on the policy front—fiscal positions were strengthened, debt burdens reduced, and comfortable reserve cushions built up in many countries. This makes it all the more important now for the world community to do whatever it can to help.