Emerging nations

Director of the German Development Institute, Dirk Messner is a development economist and political scientist whose areas of specialization include globalization, global governance, development policy and international competitiveness.

An advisor to the German government and European Union, Messner spoke to Deutsche Welle about the effects of the ongoing financial crisis on the developing world.

Deutsche Welle: Why does the global financial crisis have such a dramatic impact on developing countries?

Dirk Messner: There are different channels that link the economic crisis with development processes in developing countries. The first and most important one is that slower growth in industrialized countries has huge impacts on the export perspectives of developing countries. Many developing countries are very export-oriented and slower growth in developing countries means lower exports for developing countries

The second very important element is that the prices for commodities are declining rapidly, and 50 countries around the world depend on the export of a small number of commodity products. These countries are suffering because the prices for these products are eroding. That means growth is declining in developing countries.

How many countries are affected?

The World Bank argues that 40 percent of the 107 developing countries we have world wide are heavily affected. That means the number of the poorest countries worldwide is growing.

The numbers are telling us that in 2009 we will see between 50 million and 100 million more people in absolute poverty, that's people living on less than 1.25 per day.

If you add the 150 million people who were affected last year by the food crisis and are part of the world's poorest people right now we have an additional 250 million very poor people as an effect of the economic crisis that we are muddling through now.

If so many people in developing countries are going to be badly affected by the financial crisis, what does that means for their social adhesion and stability?

There is really a risk that the global economic crisis translates to an economic crisis in developing countries because growth is slowing down and these economic problems translate into social problems because unemployment is rising and many more people are living in really poor conditions of a social crisis. There is a risk that political instability might emerge as the result of social turbulence. So weak democracies in Africa might collapse and we might see even more failing states in southern Africa and also in Asia.

Is that well understood by international leaders, like the head of the Group of 20 nations who recently met in London?

At the moment we are still in a phase where we are starting to discuss social investments in this crisis to avoid social risks. We are not currently discussing the political impacts. I think this discussion will start next year when unemployment and poverty will rise even more in poor countries.

Huge funds have been allocated by the G20 to help developing countries. Do you think that's enough to help the poorest countries or will more be needed?

The International Monetary Fund's $250 billion are credits - not grants - and these credits will be located in countries that have problems with their currency or have trade balance problems. This is an important investment that the industrialized world is pushing forward.

There is another fund for the most vulnerable countries in the developing world to fight poverty. We are talking - more or less - about $50 billion. I would like to see this money over the next 12 months because we have heard such numbers very often over the last years but we haven't seen the transfers afterwards.

Do you fear that not enough is going to be done?

Yes. I really fear that this money will not be transferred. We heard these numbers at in Gleneagles, and so often in G8 meetings and afterward we haven't seen these kinds of transfers.

Does the current crisis offer any opportunities?

I think that every crisis is a chance and every crisis is a situation of huge change. Crisis does not mean stagnation; it means many things are happening at the same time. One of the positive things that we are observing now is the shift from the G8 world, dominated by the industrialized countries, to the G20 world. That's very good because now developing countries are taking part in international decision making, and this is very important in a highly interconnected world.

We also now have the chance to create the institutional and regulatory framework for the financial markets. It has not been possible during the past two decades because the United States and the United Kingdom didn't what that. But now we have the chance.

We now have options to change processes that we need to fix.

Who do you think could be the biggest winners and losers when this crisis is over?

I think the most important immediate losers are the most vulnerable developing countries in Africa. In the middle-term if you talk about power structures in the global economy, I would say that the United States is a loser in this crisis. The United States will be much weaker after this crisis than 20 years ago. The United States now have a very strong and eloquent leader but the economic situation is much worse than during the Clinton era, for example.

Asia, as a continent, is a winner, and China might be the biggest winner in the restructuring of the global economy if the Chinese government would be able to stabilize the country politically and socially.

China hasn't liberalized financial markets to the extent that other countries have. Could that mean that liberalization is not the best way to go in the future?

What we can learn from China and from other east Asian experiences it that a pragmatic approach to a mixed economy of state intervention and markets is very efficient. Countries need to create their own strategies. China has chosen a very pragmatic approach. It has a highly efficient, market-based trade sector but it still has very strict control of the financial sector. This is very comparable with developments we have seen before in Taiwan, South Korea, Singapore and Hong Kong.

It's not about liberalizing yes or no. It's about how to liberalize and about sequencing and not starting on all fronts at the same time. Pragmatism is important and the result might be that we think again about how to organize mixed economies where markets and states find a certain equilibrium.