Monday, October 20, 2008

The economic crisis in developing economies

The financial crisis is not restricted to the US and the EU. Developing economies suffer even more as they are often dependent on foreign finance. The NY Times notes that the Ukraine has asked the IMF for 14 billion US$ while Hungary just got 5 billion euro from the European central bank.

The Balkan will not be spared either. Business Week this week published a list of 10 countries in the danger zone. Among them are Serbia and Romania.

Reuters has some economic facts about the Serbian economy. The current account deficit is 18 percent (IMF advice: les than 10%). Foreign investment is artificially keeping the exchange rate high so that there is much more import than export. But of course this is borrowed money that one must be paid back. The Ukraine is already suffering from the hangover of foreign-investment led growth. Serbia may well follow if it doesn't take measures to decrease its trade deficit.

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