How Has the Asian Crisis Affected Other Regions?

• Author: Evangelos A. Calamitsis/Michael C. Deppler/John Odling-Smee/Paul Chabrier/Claudio M. Loser
• Position: Director of the IMF's African Department/Director of the IMF's European I Department/Director of the IMF's European II Department/Director of the IMF's Middle Eastern Department/Director of the IMF's Western Hemisphere Department

The Asian crisis was the cover theme of the June issue of Finance & Development, which included several articles on various aspects of this topic. It is now possible to provide a preliminary assessment of the impact of the crisis on the rest of the world. The directors of the IMF's five departments covering regions outside Asia provide brief assessments of how the Asian crisis has affected those regions during the past year.

Sub-saharan Africa

Evangelos A. Calamitsis

THE ASIAN crisis has affected sub-Saharan Africa in a number of ways, although its specific impact on economic growth and the external accounts of the region is difficult to quantify. However, combined with internal factors and other external shocks, such as the effects of El Niño and a decline in commodity prices, the crisis in Asia has led to a downward revision of the projected real GDP growth rate for sub-Saharan Africa of nearly 1/2 of 1 percent-to about 4 percent-in 1998, and an increase of some 2 percentage points in the projected external current account deficit (excluding grants) for 1998, which is estimated at 6 percent of GDP.

The decline in world commodity prices has been compounded by weakened demand in Asia and the consequent reduction in its imports, particularly of metals, fuels, and agricultural raw materials, which are important exports from sub-Saharan countries. Thus, the sharp decline in the price of copper has seriously affected Zambia; the drop in the price of gold has hurt Ghana, Mali, South Africa, and Zimbabwe; and the fall in the demand for diamonds has had a major impact on Botswana, Namibia, and South Africa. Similarly, Benin, Burkina Faso, Cameroon, Chad, Côte d'Ivoire, Mali, and Togo have experienced difficulties owing to falling cotton prices. Moreover, as a result of the considerable gains in competitiveness of the affected Asian countries, African producers are likely to face increased competition in third-country markets. This may adversely affect manufactured exports from South Africa and textile exports from Mauritius and Zimbabwe. By contrast, the marked decline in the price of rice has benefited several African importers, particularly in West Africa and the Indian Ocean countries.

The sharp fall in world oil prices has had a negative net impact on sub-Saharan Africa, a net exporter of petroleum products. However, this conclusion masks considerable differences among countries. For the major oil-exporting countries of the region (Angola, Cameroon, the Republic of Congo, Gabon, and Nigeria), the loss in export earnings has been substantial, while the resulting reductions in the import bills of oil-importing countries may, in many cases, offset the adverse impact of declines in their earnings from commodity exports.

The contagion effects of the Asian crisis on currency and equity markets in the region have thus far been limited, partly because of the nascent stage of development of most African financial markets. Although South Africa emerged relatively unscathed from the turmoil of late 1997, pressures on its economy intensified in May and June 1998 and led to a considerable decline in the country's equity markets, a marked increase in yields on long-term bonds, and a significant depreciation of the rand, despite increases in domestic interest rates and central bank intervention in the...