Global financial crisis It’s not such bad news for unsophisticated economies
In these times of global financial chaos that we have been experiencing in recent days and weeks, it has been instructive to fly (flee?) from a country with a sophisticated financial market (Australia) to one with a far from sophisticated market (Laos). I flew out of Australia on 11th October, the day after what was headlined in the newspapers as ‘Black Friday’, the day the stock market dived dramatically and ending a week of what the newspapers invariably described as ‘carnage’. I flew into Laos on the 12th October, two days before the Annual Boat Race Festival in the capital Vientiane. The city was alive, simply alive.
This year the festival is arguably a bigger and better event than any time in history. At least this would be true, I suggest, in a commercial context. The main road along the Mekong and the side streets off it are lined with hundreds of colourful stalls selling or promoting everything from takeaway food (Lao style), through Nokia mobile phones, Sunsilk shampoo, all the way up to Ford and Toyota cars (pickups); lots of cheap toys and things from China to entertain the kids. Recognising that everything is relative, there was no obvious sign of a financial crisis in Laos, this designated Lesser Developed Country. There was certainly no panic! A glance at the newspapers here and you get the feeling that the global financial crisis was happening on another planet. By the way, the boat races are today (15th October)….and it’s a bank holiday.
All this caused me to reflect on the striking difference between Australia and Laos. Laos does not have a stock market (and probably won’t have one for at least another 5 years, by my reckoning). As a consequence, in times of financial stress, there is not the spectacular and very public crashing of a market, the panic, the fear, the irrational behaviour that that engenders and that paradoxically comes with the sophisticated system I had just left in Australia. Stock markets are by their very nature highly emotional institutions. I think to myself, how fortunate Laos is right now not to have a stock market!
Next day I read in The Economist that the IMF’s latest World Economic Outlook report argues that the economic impact of financial shocks may be bigger in countries with more sophisticated financial markets. Not ‘may be’, I think; definitely. Of course, my view has been based on empirical experience in just two countries. A lot less sophisticated process than the IMF study.
Peter Evans is one of our researchers for Asia; he spends quite a bit of time in the region, being based in Vientiane the capital of Laos.
