Impact of The Global Financial Crisis: Predictions Gone Wrong

Impact of The Global Financial March 24, 2011Crisis: Predictions Gone WrongAlejandro FoxleySummaryWhen the global financial crisis struck, the purveyors of conventional wisdom had it all figured out. Latin American countries would surely mismanage the crisis, as they have in the past. Economies that established partnerships with developed countries could rely on that “insurance” against instability. The growth rate of East Asian economies would not dip below the rates reached in previous decades. And the growth rate of economies, such as Ireland’s, which had enjoyed a “good boom” prior to the crisis, would rebound quickly and relatively painlessly. Not one of these predictions came to pass.Indeed, one of the striking aspects of the global financial crisis is how often the facts have contradicted what, according to conventional wisdom, was expected to happen. • Most Latin American countries learned lessons from past financial crises and established economic stability through sound macroeconomic policies. As a result, the downturn there lasted only fifteen months, and Latin American economies are expected to grow by 5 percent a year—faster than advanced economies.• Countries such as the Baltic states, which joined the EU in the 1990s, discovered that their embrace of its economic rules and reforms offered little protection from the crisis. Their economies suffered far more than those in Poland and the Czech Republic, which took a more gradual approach ...