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The crisis in financial markets emerged at an alarming rate. The collapse of the US subprime mortgage market and its repercussions sent shockwaves through global financial markets that have challenged governments and monetary authorities, and will continue to do so over coming months. Against a volatile and uncertain background, this policy brief provides early advice on what the global financial crisis could mean for the Pacific Island economies.
The key message is that the Pacific Island economies are largely shielded from the most immediate effects of the crisis. The region's banking system is reasonably well placed to weather the crisis, mainly because it raises most of its own funds from within the region. The generally sound health of the banking system provides further reassurance.
The global financial crisis, which has made a prolonged and painful recession in the United States and Europe almost unavoidable, will depress demand in several Asia Pacific countries and lower commodity prices. While the latter will provide some relief for the Pacific countries, particularly the most vulnerable nations, it has occurred because of a fall in world demand. The fall in world demand brings new concerns for the region. Lower commodity prices will see the Pacific's export income decline, remittances are likely to ease as source economies face challenging times, and tourism receipts will be adversely affected. The sharp decline in bourses means a number of the Pacific's Trust Funds and superannuation schemes have already fallen in value and face a period of low income.
