Prospects for Growth and Poverty Reduction in Developing Countries

T he effects of the crises of 1997–99, from East Asia to Russia and Brazil, persist in many aspects. In most developing countries growth remains weak and well below precrisis trends. Social dislocations are severe, and have increased not only in Asia but also in other affected countries. Progress in poverty reduction has stalled in the developing world at the end of the 1990s, and the number of poor is rising in most regions. At the same time, recent developments in the global economy have been encouraging, with signs of strong initial recovery in the East Asian crisis economies and continued expansion in the industrial countries leading to a bottom-ing-out of world industrial production and trade. For countries at the epicenter of the crisis in East Asia, corporate restructuring and a restoration of sound financial institutions will need to be addressed in an aggressive manner for growth to broaden and attain sustainability. As well, many commodity and oil-dependent countries, especially in Sub-Saharan Africa, have been affected by extreme volatility in commodity prices and more recent weakness in prices of tropical products. This report reviews the evidence of the social impact of the recent crisis, and more broadly of external shocks, with a particular focus on the poor in chapter 2. The intertwined issues of corporate and financial restructuring and their significance for growth recovery and its sustainability in East Asia are assessed in chapter 3. Chapter 4 explores how two of the groups of countries most affected by recent boom-bust cycles in commodity prices, the major oil exporting and Sub-Saharan countries , have adjusted and assesses the implications for their growth prospects. In forecasts prepared in March, the growth rate for developing countries was estimated at 1.5 percent for 1999—which would have marked the weakest performance for these countries since the debt crisis of the early 1980s. 1 But a gradual build-up in the momentum of developing country growth through 2001 was anticipated to be driven by several factors: the effects of policy measures under-taken in major industrial countries (including interest rate reductions in the United States and Europe, and large fiscal stimulus measures in Japan); early signs of recovery in the crisis countries of East Asia, especially apparent in the Republic of Korea, Malaysia, and Thai-land; and more broadly, an easing of financial conditions in developing countries, evidenced in widespread declines in domestic interest rates and rising equity markets. …