Global Economic Crisis: Causes and Impact on Developing Countries

Global Economic Crisis: Causes and Impact on Developing Countries Global economic crises are often triggered by complex factors, ranging from political instability to climate change. Some of the main causes of this crisis include financial crises, commodity price fluctuations, and international trade tensions. For example, the 2008 financial crisis, which originated in the mortgage market in the US, quickly spread throughout the world, affecting many countries, especially developing ones. In developing countries, the impact of the global economic crisis can be seen from several aspects. One of them is the decline in foreign investment. When the global economy weakens, investors tend to withdraw their funds from developing countries to protect their assets. As a result, infrastructure projects that are urgently needed for economic growth are hampered. In the long term, this can weaken a country’s competitiveness. In addition, global crises often result in rising unemployment rates. Many companies are forced to cut employees to survive in an unfavorable situation. This directly affects household income, increases poverty, and worsens social inequality in these countries. With a reduction in people’s purchasing power, domestic demand also decreases, creating a deeper cycle of economic decline. Commodity price fluctuations pose a serious threat to developing countries, which often depend on natural resource exports. In a crisis situation, commodity prices can drop drastically, impacting state revenues that depend on this sector. For example, many countries in Africa that rely on mineral exports, such as copper and oil, are experiencing revenue shortfalls as global prices fall. The crisis also affects the social sector. When government budgets are squeezed, programs vital to education and health are often the first victims. Countries with limited budgets must face a difficult choice between cutting public services or taking on more debt. As a long-term consequence, investment in human capital may decline, which in turn hinders future economic growth. Another reason for the threats that developing countries face when the global crisis hits is their dependence on foreign debt. Many countries with heavy debt burdens struggle to pay installments, especially when their currency exchange rates weaken. This often leads to debt crises resulting in the need for international assistance. International aid programs can help, but often come with strict conditions, including structural adjustments that affect domestic social and economic systems. However, these adjustments may not always meet the specific needs of vulnerable groups most affected by the crisis. Looking at the basis and impact of the global economic crisis, it is clear that developing countries face major challenges. There is an urgent need for risk mitigation strategies and increased economic resilience to face the possibility of a recurrence of the crisis in the future. Strengthening the local sector and economic diversification are very important in preparing developing countries to be able to compete and adapt in an ever-changing global economy.