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ECONOMY: Poor Sidelined in Rush to Contain Financial Crisis

Abid Aslam

WASHINGTON, Oct 13 2008 (IPS) - The worst market crisis since the 1930s has dominated financial leaders’ talks here, stoking misgivings that the world’s poor are being overlooked.

To be sure, the crisis now threatens a growing number of poor countries so containing it is a priority they endorsed.

Even so, their development needs have been ”largely forgotten” precisely as the hard-won development gains of recent years risk being overturned by a persistent and pernicious financial crisis unleashed in the United States, said David Carew, Sierra Leone’s finance minister.

Kenyan Finance Minister John Michuki demanded increased aid as compensation for developing countries’ suffering at the hands of a crisis they had no hand in creating. He further suggested that wealthy governments be held accountable for their “delinquent” regulation of financial institutions.

“Who will compensate the innocent countries who are going to suffer from this debacle?” Michuki said.

“On the political front, the world imposes sanctions on countries that look delinquent. Is there any more serious issue in the world than the crisis we are facing today?” he added.

Essimi Menye, the finance minister from Cameroon, warned that official aid budgets, which have long fallen short of donors’ stated commitments, will be cut further as the cost of bailing out banks and dealing with economic recession squeezes wealthy governments’ budgets.

”I expect that at first one keeps the umbrella for oneself rather than giving it to the person next to you,” Menye told reporters at the Oct. 11-13 annual meetings here of the World Bank and International Monetary Fund (IMF). ”I think the people of advanced countries have problems because of this crisis and these countries are not going to run into the African savannah to come and help us.”

International charities pressed the wealthy to do just that.

“An estimated 1.8 trillion dollars has been found in a matter of weeks to bail out investment bankers. It is outrageous that the world’s poorest people, suffering daily from soaring food and fuel prices, are still waiting for their rescue package,” said Shefali Sharma of ActionAid.

Rich countries have allowed agricultural aid to fall to only 3.9 billion dollars a year, a sliver of the 30 billion dollars that the United Nations has said is needed to ensure that developing countries achieve food security, ActionAid said in a report.

The world food crisis has hurled 100 million people into hunger, it added, bringing the total number of those facing hunger worldwide to about one billion people – or one person in six.

Oxfam International warned that governments in France, Italy, and Spain appeared poised to freeze or cut aid budgets and called instead for an “aid bailout”.

If donors slash their aid budgets by 25 percent as they did in the global recession of the 1990s, the group said, this would result in cuts of more than 25 billion dollars – enough to deny more than 700 million people access to vital health services. As it is, Oxfam added, aid budgets amount to 0.28 percent of donors’ gross national income – a fraction of the 0.7 percent they have repeatedly promised.

Even were the global economy not, as the IMF sees it, teetering on the brink of recession, as many as 100 million people risk being pushed into poverty by high food and fuel prices, according to the World Bank.

As members of the Development Committee were told in a briefing document: ”The large surge in food and energy prices – and an associated rise in inflation – present major policy challenges for most countries, further compounded by the uncertain global conditions as the financial crisis unfolds.”

The Development Committee advises the bank and IMF on economic development and issues facing poor countries.

Some emerging markets and developing countries already are being hit by the crisis and others face a reversal in capital flows, greater expense and difficulty in obtaining credit, and falling demand for their exports from wealthy markets.

Banking systems in poorer countries will face growing stress if the financial crisis is allowed to persist and to deepen further, said IMF Managing Director Dominique Strauss-Kahn.

Finance ministers from the Group of 24 (G24) developing countries again demanded that the IMF match its policing of borrowers’ economies with stepped-up monitoring of the United States and other advanced economies. And they called on the bank and fund to cough up enough money to help poor countries ride out the storm.

Given the significant losses they stand to suffer as the crisis unfolds, however, G24 ministers acknowledged in a communique that ”preventing macroeconomic volatility from financial spillovers and sustaining continuous growth [are] key priorities for developing countries.” They also sought greater ”flexibility” in setting short-term fiscal and monetary policy.

Michuki, the Kenyan finance minister, chided the IMF for failing to spot the financial chicanery and inadequate regulation that have fueled the crisis.

“Some of us are very concerned because surveillance that should have been put in place by the IMF and the Article IV, which is the [IMF] mechanism to put discipline on the markets, appeared not to have been applied,” Michuki said.

Such misgivings notwithstanding, the bank-fund talks concluded Monday with the broad outlines of international efforts – led by the Group of Seven industrialised economies and endorsed by the Group of 20 developing and advanced economies – to calm the capital markets. And the IMF, until recently grappling with questions about whether it still had a role to play in the global economy, emerged with a renewed mandate to help steer, finance, and oversee those efforts.