Senior Vice President and Chief Economist The World Bank

• Main Author: Justin Yifu Lin
• Other Authors: The Pennsylvania State University CiteSeerX Archives
• Format: Text
• Language: English
• Published: 2008
• Subjects: Iceland
• Online Access: http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.502.2616; http://siteresources.worldbank.org/DEC/Resources/84797-1104785060319/598886-1104852366603/599473-1223731755312/Oct_31_JustinLin_KDI_remarks.pdf

Throughout this crisis that has so consumed the attention of the world in recent months, we have watched with grave concern as it cascaded outwards from the sectors originally affected. Alan Greenspan recently called it a “once-in-a-century credit tsunami”, born of a collapse deep inside the US housing sector. But metaphors from other recent disasters come to mind too, as we have watched this great wave overtop one economic levee after another. Instability has surged from sector to sector, first from housing into banking and other financial markets, and then on into all parts of the real economy. The crisis has surged across the public-private boundary, as the hit to private firms ’ balance sheets has now imposed heavy new demands on the public sector’s finances. It has surged across national borders within the developed world, as the people of Iceland know all too well. And now there are reasons to fear that the crisis will swamp emerging markets and other developing countries, cutting into the considerable economic progress of recent years. The developing world – what it has recently achieved, how these achievements are now at risk, and what it must now do – is the focus of this paper. Understandably, perhaps, until now the focus of policymakers has mostly been on the actions of the governments at