The implications of global financial crisis on developing countries-with special reference to Macedonia

This paper discusses the implications of the global financial crisis for developing countries, with special reference to Republic of Macednia. The crisis, through deleveraging and/or flight to quality, spread to those economies whose companies and banks had no connection with the securities linked to the subprime mortgages that triggered the crisis. The hierarchical and asymmetrical nature of the present international financial and monetary architecture caused these movements to have much greater destabilizing effects on the foreign exchange markets of the emerging-market economies. The global financial and economic crisis has demonstrated the need for major reforms in the system of global economic governance. Such reforms are necessary in order to reduce the predominant influence of financial markets in determining the conditions under which governments design their macroeconomic and development policies. The key to greater stability lie in a multilaterally agreed set of principles and rules for exchange-rate management, accompanied by a framework for macroeconomic policy coordination among the systemically important countries. In developing countries and emerging-market economies the use of capital controls would help stabilize the macroeconomic context for investment in real productive capacity and successful integration into the global economy. Besides the statement of Macedonian government in 2008 that Macedonia will not feel the effects of the global financial crises, based on the fact that Macedonian economy and financial and banking sector waren’t integrated enough in the global one, and its liquidity was based on stable sources, one year after Macedonia has already strongly felt the effects of the global financial and economic crisis, and the country has entered the recession. The main reason is that Macedonia is a small country and its economy is based on liberal external trade; on the annual level it reaches about 100% and more of the annual GDP of the country. Key word: financial crises, implications, developing countries, Macedonia