Stretch of the Economic and Financial Crisis

For an outsider of the financial market like myself, I was oblivious to the impacts of the credit crunch. Even as the subprime crisis broke out, and with the collapse of Bear Stearns, I thought, why should I care, since I am neither a Wall Street monger nor a real estate speculator?

When I took my seminar class on international finance in Fall 2008, my friends and I would watch the latest financial news from the TV in the Grille during break time. We saw how the Dow Jones index dropped from 11,000 before the bankruptcy of Lehman Brothers to10,000… then 9,000… and even below 8,000. Still, while I knew that the plummeting financial market will likely affect my employment prospects, I had no idea about how contagious the financial crisis can be.

From the New York stock exchange, the credit crisis soon spread to European markets. As European and American consumers lost money, they demanded less consumer goods. The emerging markets then also experienced economic shock as orders for garment, electronics and construction materials slowed down; tourism, as well, as in decline.

Now in Cambodia, my work is closely related the development community’s response to the financial crisis. From various published sources, the real growth of Cambodia’s economy is expected to decrease from more than 10% in 2007 to negative in 2009. As garment factories receive fewer orders for shipment, many factories have closed down and more than 500,000 factory workers have been laid off (World Bank estimate). Some industry analysts even estimated 700,000 have been cut. Cambodia’s construction sector, which boomed during the last few years as a result of foreign investment and increased income, has slumped as well. In particular, as Korean currency, won, plummeting in exchange value and the Korean economy performing weakly, constructions projects were forced to stop. In addition, for small and medium business owners, access credit has become more difficult as banks become more cautious in lending. This checklist of negative impacts from the economic downturn can certainly be seen in other small, open economies as well.

Fortunately, with crisis often comes opportunity. (My internship position, for instance, would not come about without the poor economy.) The development community especially sees this crisis as the jump-off point for more efficient and innovative development ideas. With limited resources, the public and NGO sector will likely have to cooperate more with the private sector. Further, instead of holding the hands of their beneficiaries, development agencies will have to empower their target groups to generate income, build sustainable enterprises and walk on their own feet. These positive signs seem to suggest that the economic crisis can lead people to focus on building competitive and sustainable economies in the developing world – a piece of good news amidst bad ones.

Some interesting reading:

Recent New York Times story on the impact of the economic crisis on Rwanda’s construction and tourism sectors: “Just When Africa’s Luck was Changing” (August 1, 2009)

World Bank East Asia & Pacific Update – Battling the Forces of Global Recession (April 2009)

Asian Development Bank Economic Outlook 2009: Cambodia

International Monetary Fund World Economic Outlook – Crisis and Recovery (April 2009)