Response to the Global Financial and Economic Crisis

Photo: Kazuyoshi Nomachi/JICA

Since September 2008, the world has been faced with a financial and economic crisis rooted in the subprime loan problem of the United States (US). The crisis worked its way through the globalized financial markets and brought on a credit crunch across the world. Furthermore, the crisis is having a profound impact on the real economies of countries in the form of trade stagnation, declines in consumption, and declines in employment. The impact on the vulnerable populations in developing countries is particularly severe, and it has been pointed out that the efforts made to date towards the achievement of the MDGs may come to naught.

In Asia, the crisis had a relatively modest direct impact on the financial sector, helped by the economic structural reforms that were implemented in each country after the 1997 currency crisis and the accumulation of abundant foreign reserves in those countries, as well as advancements in regional cooperation in the financial sector, including the Chiang Mai Initiative. Nevertheless, the crisis is having a large impact on the real economy. Asian countries, which are highly dependent on exports in general, are experiencing a decline in exports, falling stock prices, and reduction in GDP growth rates due to the downturn in the global economy. Furthermore, as a result of the crisis, Africa is seeing a deterioration of its national finances, a reduction in the inflow of private capital, including foreign direct investment, and a decline in remittances from migrant workers who are working overseas. This situation has raised serious concerns that these impacts will lead to a slowdown in economic growth or delays in the achievement of the MDGs.

In this context, Japan believes that in order for the global economy to recover, it is important that developed countries take every possible financial and fiscal measure in cooperation with developing countries, as well as further strengthen their development efforts to promote the sustainable development of developing countries through the use of ODA.

With regard to the response to the global financial and economic crisis, at the Washington Summit which was held in November 2008, Japan, ahead of the other countries, expressed that it is ready to lend the International Monetary Fund (IMF) up to US$100 billion, and in February 2009 Japan signed a lending agreement with the Fund. At the London Summit (Note 2) in April 2009, the leaders of developed countries and emerging economies gathered and confirmed the need to make a concerted effort to confront the global economic crisis and take every possible measure, beginning with economic stimulus measures. On development, the leaders agreed to continue their efforts for the achievement of the MDGs and the implementation of their ODA commitments. At the same Summit, the leaders expressed support on the proposal of increasing the capital base of Asian Development Bank (ADB) by 200%. And at the end of the month, it was agreed to triple its capital base from approximately US$55 billion to US$165 billion at the meeting of the Board of Governors of all ADB member countries, which ensured financial resources for ADB to respond to the impact of the global economic crisis and long-term development needs in Asia and the Pacific region.

At the G8 Development Ministers’ Meeting held in Rome in June 2009, the ministers discussed priority items