Tags: global | financial | crisis

Global Financial Crisis Riddles World's Poor

Friday, 21 Nov 2008 11:46 AM

By Dave Eberhart

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U.S. airline executives soar into Washington’s Dulles airport in luxury company jets to hustle billions, but at the other extreme of the economic food chain, the global financial crisis ensnares hapless millions in excruciating poverty — with no bailout in sight.

Along with unstable food and fuel prices, “current global economic conditions threaten the gains that have been made to reduce poverty and advance development for large numbers of people,” says Kemal Davis, administrator of the U.N. Development Program.

Dervis’ warning, which the Washington-based Council on Foreign Relations (CFR) points out it its new exhaustive briefing on the subject, is grounded in solid empirical data. But its academic tone masks a grim near future for developing countries as ranks of hungry children and desperate parents swell.

The World Bank estimates that just a 1 percent decline in developing country growth rates traps an additional 20 million people in poverty.

That same institution has reduced its growth forecast for developing countries to 4.5 percent from its previous projection of 6.4 percent, citing a combination of financial turmoil, slower exports, and weaker commodity prices.

Bottom line: Continued tighter credit conditions and weaker growth are likely to cut into governments’ abilities to invest to meet education, health, and gender goals — hitting the poor the hardest, the World Bank concludes.

What’s more, the U.N. World Food Program estimated in September that there are already 850 million chronically hungry people in the world, the CFR briefing notes.

That already gruesome tally could increase by 130 million this year alone, according to the U.N. program.

Not even giant and relatively robust China is immune from the financial morass.

A Question of Social Stability

China’s gross domestic product growth is expected to plunge from 11.9 percent in 2007 to 9.3 percent in 2009, according to the International Monetary Fund’s (IMF) 2008 world economic outlook.

Adam Segal, CFR senior fellow for China studies, says, “This is the first serious slowdown for China in 30 years,” adding that the government knows that to maintain social stability, it must keep generating employment for those migrating from rural to urban areas.

Meanwhile, a slowdown in exports contributed to the closing of at least 67,000 factories across China in the first half of 2008 — propelling idle workers to take to the streets in protest, according to the CFR briefing.

Joshua Kurlantzick of the Carnegie Endowment for International Peace’s China program recently wrote in the New Republic that, if “China’s downturn turns into an outright recession, the country could face its first serious threat to the regime.”

India is in the same precarious boat, but without the reserves of China.

What’s more, the 2008 Global Hunger Index of the International Food Policy Research Institute chronicles that India also suffering from alarming levels of hunger. Adding to the misery factor is the delay of a massive public works project that would have put thousands to work.

As many as half of India’s planned highway-improvement projects, valued at more than $6 billion, could be delayed as much as two years, according to the Wall Street Journal, and as cited in the CFR briefing. India had been banking on private investment to fund around half of the more than $100 billion a year in planned infrastructure development.

At the recently concluded G-20 Summit in Washington, Indian Prime Minister Manmohan Singh, summarized the situation succinctly: “Emerging market countries were not the cause of this crisis, but they are amongst its worst affected victims.

“Recession will hit the export performance of developing countries and the choking of credit, combined with elevated risk perception, will lead to lower capital flows and reduced levels of foreign direct investment,” Singh said. “The combined effect will be to slow down economic growth in developing countries.

“A slowing down of growth in developing countries will push millions of people back into poverty, with adverse effects on nutrition, health and education levels. These are not transient impacts but will impact a full generation,” he said.

Instability in India may rise as the country goes to the polls early next year and opposition groups try to take advantage of the financial crisis to highlight the government’s deficiencies, noted CFR’s Segal and other experts.

No Silver Bullet

If Singh or any of his colleagues were expecting miracles at the Washington Summit, they were greatly disappointed.

What didn’t emerge was any global, coordinated approach to solving the crisis. Instead, members agreed that they looked forward to a broader policy response, pledged to push for a restart of the Doha Round of trade talks, and promised not to erect any barriers to trade and investment.

And the beat goes on.

The disturbing trend is the polar opposite to President-elect Barack Obama’s famous notion to spread the wealth.

What happens domestically in the U.S. remains to be seen, but on the global stage, the ages-old axiom of the richer get richer and the poorer get poorer is as true and reliable as death and taxes.

In fact, a recent report on global income inequality by the International Labor Organization says income inequality, on the rise in most regions of the world, is expected to accelerate because of the global financial crisis.

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