Economics

I agree with your view on the fact that developing countries cannot entirely decouple themselves from developed economies. It is however in my opinion necessary that the developing economies should have measures in place which can help cushion them or reduce the impact of financial crisis in the developed countries. This can be done through implementation of countercyclical policies which are meant to prevent financial contagion which can cripple domestic financial institutions in developing countries in case of a financial crisis because of the high level of interconnection to the international financial sector. It is important to note that these are only counteracting measures which are to be put in place in case of a financial crisis.

By proposing financing through monetary policy, it does not necessarily mean that a government has to print more money but there are some instruments such as reserve requirement, open market operations like sale of bonds, treasury bills and other securities and manipulation of interest rates for desired effects among others. Lowering of interest rates as a monetary stimulus for instance encourages borrowing hence investments in various sectors.

With regard to protectionist measures, the World Bank states that since the financial crisis began over 66 restrictive trade measures have been implemented and 47 are by members of the G20. This is in total contradiction of the Smooth-Hawley Tariff Act of 1930. The protectionist measures are however minor and I were thinking in the line of developing countries focusing subsidies on domestic banks and financial institutions rather than on foreign bank subsidiaries. These are temporary measures which I believe can reduce the impact of financial crises.

Finally with regard to an insurance scheme, with the IMF and World Bank having difficulties in the containment of financial crisis, I am proposing that in future a devolved fund should be created where developing countries can be able to access funds for development. Such a scheme will be used only for extreme cases of financial crisis. All of these measures are only to be implemented in such an event and are not permanent measures.