Poor take hits too as financial crisis moves beyond the rich
As the world's richest nations debate how to bring a catastrophic financial crisis under control, international groups are warning that its reach now goes far beyond the developed world, dpa reported.
Poor countries in Africa, Asia and Latin America, which are already dealing with a surge in food and energy prices, are now finding it harder to sell goods abroad and encourage investment in their own economies.
Rich nations are falling well behind on their aid pledges as they face problems at home. As many as 30 countries are dealing with severe balance of payment problems - in other words, a shortfall of cash - according to the World Bank.
That lack of investment could lead to a rash of bank and business failures in poor nations, similar to the chaos that has played out since September in the United States and Europe.
As a result, the World Bank has "tentatively" cut its forecast for 2009 growth in developing countries to about 4 per cent - down from an April prediction of 6.6 per cent - World Bank President Robert Zoellick told reporters Thursday.
While that compares favourably with the likely recession many advanced economies will face next year, Zoellick said the slowdown in poorer nations was "so sharp as to feel like a recession."
The International Monetary Fund on Thursday said it was ready to make emergency loans to developing countries to meet the cash shortfall from the broadening financial crisis.
The World Bank may also expand loan programmes in coming months to meet the cash shortfall, Zoellick indicated, but he warned that the financial crisis was also making it harder for countries to deal with sharp increases in food and energy prices.
The World Bank in a report Wednesday said the number of malnourished around the world would increase by 44 million in 2008 to 967 million. High food prices have already sparked riots in dozens of countries this year and threaten to plunge hundreds of millions of people back into poverty.
Dominique Strauss-Kahn, managing director of the International Monetary Fund, warned that wealthy countries "should not respond to the (financial) crisis by cutting aid to the poorest and the more vulnerable countries."
It is still a tough sell. Wealthy governments have yet to convince investors they have a handle on the turmoil in their own countries, despite a series of joint moves to inject capital into financial institutions and the US plan to buy up 700 billion dollars in troubled mortgage assets.
Stocks around the world have continued plummeting. The Dow Jones Industrial Average closed below 9,000 points on Thursday for the first time since 2003. US stocks are down more than 35 per cent from their record highs of one year ago.
Given the uneasy climate, all eyes are on Friday's meeting of finance ministers and central bank heads from the Group of Seven industrial nations in Washington.
In a nod to the broadening scope of the crisis, US Treasury Secretary Henry Paulson agreed to a "special meeting" of the Group of 20 - a wider bloc combining advanced and emerging economies - on Saturday.
Zoellick has expressed some frustration that all the focus has been on wealthy nations, who could more easily handle their own problems. The United States, at the heart of the crisis, has been able to rely on the dollar reserves of other nations, he pointed out.
"Let's have a little empathy for those that are less well off and are going to be struggling with some of these same issues," he told reporters on Wednesday.
"The financial crisis is making it more difficult for developing countries to protect the most vulnerable," he said.