Typical street scene in Santa Ana, El Salvador. (Photo: iStock)

Typical street scene in Santa Ana, El Salvador. (Photo: iStock)

IMF Survey: Examining the Crisis Five Years On

May 30, 2012

  • Five years on, many advanced economies still in distress
  • Emerging market, low-income economies were hurt less, recovered sooner
  • Financial sector regulation still incomplete

Five years after the first rumblings in the U.S. mortgage market presaged the greatest global financial crisis since the 1930s, the global economy remains in distress, with uncertainty still looming large, according to the IMF’s Finance & Development (F&D) magazine.

Examining the Crisis Five Years On

Emerging markets, low-income countries that weathered global recession relatively well are now vulnerable to further shocks (art: Lina Liberace for F&D)


Millions of people—especially youth—are out of work in parts of the world, imposing huge social strains on their countries.

The June 2012 issue of F&D examines—from various angles—the causes of the crisis and what lies beyond.

Until households, financial institutions fix their balance sheets, advanced economies are at risk of only halting recoveries (cover art: Seemeen Hashem/F&D)

The magazine, published in six languages, looks at the steps being taken to fix the regulatory system and the impact on the innocent bystanders—the emerging markets and low-income countries that weathered the global recession relatively well but are now vulnerable to further shocks. Until households and financial institutions fix their balance sheets, advanced economies are at risk of only halting recoveries.

Mortgage crisis triggers financial tsunami

It all began in the United States with dodgy mortgage-backed securities. From the first stirrings in mid-2007, it took a year for the global financial crisis to come to a head and for policymakers to realize what a disaster they might be facing. When investment bank Lehman Brothers went bankrupt on September 15, 2008, a financial tsunami hit. The global economy is still recovering from its repercussions.

The causes of the Great Recession were myriad. They included inadequate financial regulation and balance sheets in disarray as financial institutions, households, and governments accumulated too much debt. Most of these excesses were confined to advanced economies.

Only creative and massive policy interventions, especially in the United States, prevented a complete global financial meltdown. Now, with the United States on the mend, the sovereign debt crisis in Europe continues to sap confidence and a new slowdown—or worse—looms.

The Great Depression of the 1930s was worsened by widespread protectionism, as countries sought to shield domestic markets from imports but only succeeded in making things worse for all. At the start of the current crisis, the Group of 20 advanced and emerging market economies warned of such dangers and much overt protectionism was averted. But more subtle protectionism reared up in 2009 when global trade collapsed, subsided in 2010 with a start to recovery, and now appears to be picking up again.

Emerging economies skirt danger

Unlike in earlier global downturns, emerging market and low-income economies were hurt less and recovered sooner than their advanced counterparts in North America and Europe.

Their good fortune was due in part to strong economic policies before the recession that prepared many to fight the downturns. It was also thanks to luck.

The commodity prices on which many of these economies rely remained relatively higher than in earlier recessions. These economies are less tied to their advanced counterparts than they were in the past. And their less-sophisticated financial systems had little of the high-risk debt that sidelined advanced economies’ financial markets. But emerging and low-income economies may be less well prepared to deal with any new crises.

Risks abound. Rising oil and other commodity prices threaten to make it harder to sustain a recovery. Progress in reforming financial regulation is falling prey to resistance and inertia. And according to Pimco CEO Mohamed El-Erian, persistent large global imbalances, with some countries running large and persistent balance of payments surpluses and others in big deficits, create a dangerous if stable—for now—disequilibrium.

In a “Straight Talk” column, Carlo Cottarelli, Director of the IMF’s Fiscal Affairs Department advises a careful and nuanced approach to reining in debt, to avoid snuffing out the growth needed to create jobs.

Also in this issue, F&D looks at job creation in south Asia, access to safe drinking water, the growth of green investment, and the problems of money laundering and shadow economies.

Bonus features

The magazine’s popular People in Economics column profiles Laura D’Andrea Tyson, the first woman to head the U.S. Council of Economic Advisers (under President Clinton). Tyson avers that, despite the drawbacks, greater global interdependence has brought huge benefits.

F&D has just published a compilation online of all the People in Economics profiles published since the feature started in 2003. This collection pulls together 38 interviews with prominent economists and policymakers, including 10 Nobel Prize winners. The magazine will add new profiles as they are published.

Along with F&D’s recently published compilation of Back to Basics presentations of key concepts in economics, the People in Economics compilation is a valuable resource for students and academics.