Global crisis: Longer recovery for Sub-Saharan countries

Although the current financial crisis has tested the credibility of not only the capitalist model of development, it has more than anything else before, tested the application of the Washington Consensus to the limit. With respect to the capitalist model of development, there is no question of a rethink of the same, as it has benefited more people than have lost from it. Losers are always given the so called ‘safety nets’ from taxes paid by winners. This is to prevent the winners from facing a backlash of losers. However, as the current financial crisis eases out, at least going out by rising capital market indices (which generally indicates more demand for securities) as well as property market prices, a number of economists believe that, many countries will only see rates of growth similar to those posted before the crisis after five years. Although this is not a blanket assessment of the situation, it factors into economists’ assumptions and gives rise to a recovery scenario that will be U-shaped at best for western economies. Developing countries however, may take longer given that; even the developed countries which have used all mitigation measures in the book are now facing secondary waves of the crisis that we may witness for a while. During such a crisis, investor risk evasiveness takes on abnormal trends even in the West. In developing countries, such evasiveness is beyond measure, and it is this factor that may see credit delayed to these countries. Where given, it will be very selective, at premium costs such that it will not worth using. Exports from developing countries especially of raw materials will take even longer period to recover, because Western economies have huge stocks of these which will also be used at a slow pace during the recovery process. It is possible to see the tourism industry recover faster. However, with low returns, guests will have to settle for high bargains due their reduced purchasing power over last couple of months of recession. As we factor all these together, developing countries especially in Sub-Saharan Africa, can only wait for longer periods to return to their pre-recession growth rates. With regard to the Washington Consensus, this is certainly a damaged brand, whose tenets are being re-written. This consensus was coined by John Williamson 20 years ago. It put forward 10 reforms including; fiscal discipline, reordering public expenditure priorities, tax reforms, a competitive exchange rate, liberalisation of interest rates, trade liberalisation, Privatisation, deregulation, and property rights. Although these reforms had been intended for Latin American countries that had ostensibly worked for Western economies, were later to be prescribed to other developing countries especially in Africa, where they soon became preconditions for aid, grants, and other forms of funding by multilateral financial institutions. Even private financing institutions in the west co-opted these conditions for these institutions also relied on the pressure by multinational lending institutions on developing countries, to recover their loans. Unfortunately, these reforms were imposed under the ‘One Size Fits All’ approach by Washington-based financial institutions to hapless developing economies, regardless of their socio-economic and political environment, and no wonder then that, they led them into crisis and miseries for their people. Nonetheless, there is nothing much to show for such reforms, even for the Latin American countries of which a number had to abandon/ reverse these very reforms albeit at extremely high economic costs and social unrest. Some economies such as Argentina, almost went bankrupt as a result of exchange rate reforms. African economies on their part, had to swallow the bitter pills, for the choice of reversal of such reforms would have seen a number of these countries go bankrupt. Although the above reforms were viewed as neo-liberal policies by many in academia, practitioners and even policy makers in developing countries, a number of these reforms are blamed for the current financial crisis. Of all reforms however, deregulation especially of financial markets took a direct hit on the same markets it was supposed to enhance their development, and by extension that of the underlying economies. The only lacuna facing developing countries in Africa is that, even when other emerging economies are planning their financial reforms that can move them not only out of the recession, but to the next level of their development, African economies await another consensus to emerge. If the current crisis has not taught our policy makers lessons, and more so to develop our own consensus as to which reforms to implement, financial or otherwise, nothing will. Ends