Growth Leaders Address ‘Financial Tsunami’ for Developing World

Leaders from the Commission on Growth and Development shared insights on the global financial crisis in a panel hosted by Ricardo Hausmann, Director of the Harvard Center for International Development, at the Kennedy School on April 22. The presentation followed a two-day workshop in which the Commission discussed the crisis and potential actions for policy makers.

Panelists were Michael Spence, Nobel Laureate in Economics, Commission Chair, and Professor Emeritus, Stanford University; Montek Ahluwalia, Deputy Commissioner, Planning Commission, Government of India; and Dr. Boediono, Governor, Central Bank of Indonesia.

Hausmann sought prescriptions for the “financial tsunami” facing industrialized and developing nations.

“If you had asked me that question two months ago, I would have been depressed because we did not have an understandable game plan,” Spence responded. “We now have many of the pieces in place and they are starting to gain traction.”

He pointed to the potential combined effect of stimulus spending and restoring consumer confidence to help stabilize the downward trend.

Ahluwalia commented on the suddenly cloudier outlook for growth giants such as India.

“I don’t think we’re going to end up in a Great Depression because we know better how to manage the situation,” he said. However, he sounded a warning on trade protectionism. “If the rise of protectionism cannot be stopped in industrialized countries, there is serious danger that developing countries going through these difficult times will be subject to pressure. Then you really are on a downward spiral.”

Boedonio also saw Indonesia as better prepared than in the past.

“Our financial sector is much stronger, our policymaking more consistent,” he said. He pointed to the value of political stability to fuel economic growth, and noted that growth creates a rising middle class with increased pressures for political participation.

Political leadership and the right mix of government and private sector activity are key to economic development, according to Spence. This balance affects the current crisis: as consumers and investors postpone activity, governments and banks are temporarily feeding the economy.

“We’re still running on government,” he said. “Once the financial markets think they can see the future, they will stabilize.”

Launched in 2006, the independent Growth Commission includes leaders from government, business, and policy, mostly from developing countries. The Harvard Center for International Development works to advance well-being in the developing world by offering sustainable solutions for growth, empowerment, and poverty alleviation.