IMPACT OF THE INTERNATIONAL FINANCIAL CRISIS ON ECOWAS MACROECONOMIC CONVERGENCE CRITERIA
The international economy has been affected during the last two years by asuccession of crises. The spiral has started with a food crisis which was mainly caused by the increasing use of cereals for the production of biofuel combinedwith a series of bad weather which affected certain production sites. This situation resulted in a considerable rise in the prices of staple food commodities. The drastic rise of the price of energy commodities which occurred during the first semester of 2008 worsened the inflationary pressures
which mainly affected the low and middle income countries. While economic policies were being envisaged so as to curb the effects of this double crisis, another crisis broke out: a financial one with more severe effects.
The signs of this new crisis started in August 2007 with the burst of the real
estate bubble in the USA. It results from the combination of several factors
some of which are related to the preceding crises. Similarly to the past
financial disturbances, the period preceding the crisis was characterized by a
rocketing of the prices of assets which finally proved unsustainable ; a very long
period of credit expansion and consequently an accumulation of debt; the
emergence of new types of financial instruments ; the inability of the regulation
bodies to follow the trend. Among the new factors, we will point out the quick
expansion of the securitization which has negatively impacted on the incentives
for credit suppliers and weakened the credit allocation criteria.
The international economic crisis has put the world economy in a deep
downturn. According to the January 2009 Global economic prospects; the world
economic growth should fall down from nearly 3.5 % in 2008 to 0.5 % in 2009.
The developed countries are enduring the worst recession period since World
War II, their production receding to more than 1.67% in 2009. An economic
growth decline is also forecasted in China, India, Brazil, and in the other
emerging economies from 6.25% in 2008 to about 3.25% in 2009, because of
the fall in exports and the decrease in capital inflows and the fall in raw
materials terms of trade.
In this difficult international business environment, it is advisable to ponder
over the impact of all these disturbances on the economies of ECOWAS
countries in general and over the process of macro economic convergence in
particular. As a matter of fact, it goes without saying that the international
economic crisis adds to the difficulties of the countries relatively to the
achievement and reinforcement of the macroeconomic performance necessary to
sustain the objectives of ECOWAS Monetary cooperation Programme (EMCP). It
is relevant to note that the EMCP’s ultimate objective is the creation of a single
currency. Thus, its priority is the achievement of a rigorous programme of
macroeconomic convergence, mainly through the stabilization of prices, the
restoration of fiscal discipline, the control of the monetary financing of budget
deficit and the maintenance of appropriate levels of gross external reserves.
This study is structured into three parts. The first part analyzes the impact of
these successive crises on the different economic sectors. The second part
examines the effects of these different crises on the accomplishment of the
macroeconomic convergence. As for the third part, it proposes some economic
policy measures aimed at reducing the effects of these crises on macroeconomic
stability and the performances achieved towards the objectives of ECOWAS
Monetary Cooperation Programme