The Global Financial Crisis (GFC) and its impact experienced today cannot be seen as a mere event but rather a progression over the time towards the disaster of the economic status of many developed and developing nations. Even though the most acute period of GFC has gone by, the recovery process still remains unsteady. The financial crisis is said to be the most severe economic downturn after the Great Depression in 1930 (WHO 2009:3) and it has led to human and development tragedy. In particular, the developing countries were hit hard by the financial and economic crisis, although the impact was somewhat set backed.
The crisis of industrialized economy spread to developing nations principally through the trade and financial flows and has caused a downturn in the overall global economic growth predictions. Many developing countries did not have adequate resources to stimulate their economy and to safe guard their populations from misfortunes, such as poverty and hunger. In response to the GFC, world stock markets have crashed dramatically and have become highly volatile. Commodity and food prices were significantly reduced. Damages to the US balance sheet caused financial institutions to restrict their credits and households restrained their spending. It has been reported that consumers and businesses confidence hit to very low levels and declines in investment, employment and trade followed soon after. A special report for "America's Money Crisis" stated that at the end of 2008, the total job losses hit to a level of 2.6 million and unemployment rate peaked to 7.2%, evident to be the biggest loss since World War II (CNNMoney.com, David Goldman, 2009). According to statistics, several large financial institution have either collapsed or are in dreadful state that they have been bought over or provided with rescue packages to bail out from their financial systems.
This essay will discuss the global pressure that the crisis has set on developing countries' long term growth potential in terms of the impact on international trade and export, and interest rates and foreign direct investments. The paper continues to talk about the progress towards achieving the Millennium Development Goals (MDGs) after the financial crisis and to what extent it has been jeopardized.
2.0 Overview of Pre - Global Financial Crisis (GFC)
Firstly, an interesting question that rose in everyone's mind is the actual cause of the Global Financial Crisis. In order to answer this question, one should look at the policies that were adopted by the US prior to the financial crisis. The aggressive eased monetary policy by the US and persistently low US federal fund rates and real interest rates were the ultimate reason to the height of the crisis. The expansion of monetary policy increased the ease of financing, which marked a large decrease in federal funds rate from 6.5% to 1.0% [1] from year 2000 to 2003. Subsequently, borrowing became much convenient to all. Between 1997 and 2006, the prices in American housing industry increased by 124% [2] stimulating a boom in the housing market.
Then, we may wonder how did the financial crisis was transferred to the developing countries. The boom of the developed country made an impression to the developing countries that their growth were expanding much further by increased in export revenues and higher commodity prices (See Figure 1). Exports increased as a share of developing countries' GDP from 29 percent in 2000 to 39 percent in 2007 [3] . The low US real interest rates accounted in developing countries to shift toward accumulating large volumes of US assets. Evidently, the flow of foreign direct investment to developing countries boost up, as investors obtained higher returns than the returns earned domestically. Just in the year 2007, net private capital flows to developing countries increased by $269 billion, to a record $1 trillion (See Figure 2).
3.0 The implications of GFC for long term growth potential of developing countries
Section 3.0 highlights the implications of GFC for developing countries with respect to their long term growth potential. In the IMF July 2008 update of the Global Financial Stability Report (IMF GFSR) [4] , the IMF registered a declining growth in the developing countries and a sharp increase in the risk of inflation. Investors had become more risk averse as borrowing abroad became more expensive. The IMF, World Bank and other institutions continually reduced their growth prediction rates for developing countries in Asia, Latin America and most importantly in Africa [5] . High growth rates slowly faded away and many countries were experiencing contraction in their economic production. The World Bank predicted as for the post global financial crisis that growth rates for developing countries in 2009 would fall to less than half the pre-crisis rate [6] .
3.1 International Trade
As we have seen prior to the GFC the export levels in developing countries marked significant increase as a result of high commodity prices in the developed nations. Thus, GDP climbed up and developing countries were experiencing good times of economic growth. In many developing countries, commodities generate a large share of government revenue [7] . The worsening of the financial crisis in September 2008 radically changed economic conditions, leading to an unexpected downturn in production and trade across all the regions (chart 1.7) [8] due to the sudden fall in the prices of commodities. In addition, financing international trade has become more difficult, predominantly for exports from the developing countries because of the rigid capital requirements of banks for their short short-term exposure to low-income countries (Caliari, 2008) [9] .
The IMF projected a growth in world trade volumes of only 4.1% in 2009, facing an immense fall from 9.3% as in 2006 [10] . Overall, economic growth in developing countries declined to an estimated 1.2% in 2009 down from 5.6 % in 2008. The drop has been mainly due to two factors: the decline in national incomes and consumption, and the collapse of trade financing as credit markets seized up. The World Bank estimates that developing countries are expected to grow 7% in 2010, 6% in 2011 and 6.1% in 2012. They will continue to outstrip growth in high-income countries, which is projected at 2.8% in 2010, 2.4% in 2011 and 2.7% in 2012 [11] .
Falling export demand, commodity prices, and capital flows exacerbated and extended the recession. Among developing countries, economies in Europe and Central Asia were affected the most by the crisis, with GDP falling 6.2% [12] . This is largely because of the sharp declines in the oil prices and difficulties in funding current account deficits. The price of commodities, especially copper has fallen dramatically (40% for the price of copper since July 2009) [13] , affecting countries like Nigeria, Zambia, and Bolivia (ibid). However, oil importing countries, including many Asian countries were the top gainers from the fall of the oil price.
In most developing countries, GDP has been recapturing its levels from the financial crisis. Without counteractive domestic policies is utmost needed to encounter global issues such as high household debt, unemployment, weak housing and banking sectors, if not taken care of these sectors are likely to mute the export-led recovery.
3.2 Private Capital Flows & Foreign Direct Investment
The crisis was clearly identified when the US subprime mortgage market collapsed in the early 2007. The catastrophe spread very quickly via the financial system, leading to the failure of several major financial institutions and subsequently degrading the value of capital and significant de-leveraging (WB 2009:2). Therefore, no investors were willing to hold the assets which were dangerously exposed. According to IMF in the World Economic Outlook 2007, "The financial market crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression, inflicting heavy damage on markets and institutions at the core of the financial system." [14]
The Institute of International Finance estimated that capital flows declined to $467 billion in 2008, half of their 2007 level [15] . Further forecasts noted a further sharp drop to $165 billion in 2009.Both portfolio and direct investment have fallen severely following the crisis as investors perceived the investment to be riskier.
The World Association of Investment Promotion Agencies estimated a 15% drop in FDI 2009.
For instance, FDI to Turkey has already fallen 40% IN 2007 and FDI to India dropped by 40% in the first six months of 2008. FDI to China was $6.6 billion in September 2008, a 20% decrease from its monthly average in year 2008. FDI inflows continued to grow in 2008; however it continues to grow at a lower growth rate. A few planned investments, namely in the African continent were put on hold, cancelled or postponed. Mining investments in South Africa and Zambia were put on hold; meanwhile The Ethiopian Electric Power Corporation has indicated that its investment plans will be severely affected due to the crisis [16] .
For most other developing countries, the effects of GFC include the drying-up of credit, investment and private capital market flows. Tighter credit conditions and increased uncertainty are restricting investment in both developed and developing countries. The World Bank estimated that capital flows to developing countries will fall from $1 trillion in 2007 to around $600 billion in 2009. [17] Since most developing countries suffer with scarce resources and limited access to capital, the consequence of insufficient credit will certainly be destructive for developing countries. 1795
4.0 The implications of the GFC for developing economies with respect to their ability to achieve the Millennium Development Goals by the 2015 deadline
Economic growth is necessary for economic development, for elements like health, education and human development. "Development requires the removal of major sources of un freedom poverty as well as tyranny, poor economic opportunities as well as systematic social deprivation neglect of public facilities as well as intolerance or over activity of repressive states…." (Sen 1999). In his statement, Sen explains that economic development is much broader than economic growth, which is only concerned about the rise in output level. It involves in shifting the allocation of resources, eradicating poverty, inequalities and unemployment (Todaro & Smith 2003).
A country's economic development is believed to be related to its human development, which encompasses health and education (Yildirim 2008). Therefore we assume this relationship to be endogenous [18] as we generally expect the development of a country's economy to affect its human development. Several authors claim that the relationship of economic growth and human development is viewed as a two way relationship (Ranis, Stewart & Ramirez 2000).
