Robert B. Zoellick
Thursday, October 9, 2008
We're meeting at a momentous time. In July, at the G8 summit, I said that developing countries were facing a double jeopardy from the impact of high food and fuel prices. But what was then a double jeopardy is now a triple hit--food, fuel, and finance--threatening not just to knock the poorest people down, but to hold them down.
The events of September could be a tipping point for many developing countries. A drop in exports will trigger a fall-off in investments. Deteriorating financial conditions combined with monetary tightening will trigger business failures and possibly banking emergencies. Some countries will slip toward balance-of-payments crises.
The World Bank economic staff is tentatively forecasting that the growth rate of developing countries could decline from 6.6 percent next year, our April forecast, to closer to 4 percent. Now, this is still a respectable rate of growth, but the deceleration would be so sharp as to feel like a recession. And many countries would do much worse than this broad average suggests. It would be a significant hit.
Over recent weeks, attention has focused on the size of financial packages and on the impact on Main Street. There are Main Streets all over the world. We must look beyond the financial rescue to the human rescue.
Some 28 countries are already fiscally highly vulnerable from the twin shocks of food and fuel. Currently these countries, on average, are set to receive no increase in project and program aid. G-7 countries as a group are still far behind their Gleneagles commitments.
The poorest cannot be asked to pay the biggest price. For the poor, the cost of crisis can be lifelong. Children suffer the long-term consequences from short-term economic shocks. Many never fully recover. We estimate that 44 million additional people will suffer from malnutrition this year as a result of high food prices. And for the children among them, that means lost potential that will never be regained. We cannot let a financial crisis become a human crisis.
In May, the World Bank Group set up a special Financing Facility of $1.2 billion for rapid support for the most vulnerable, hit hardest by the food crisis. We've now programmed $850 million of this, so I am very pleased that Australia has announced a commitment of 50 million Australian dollars for the Fund, but we are going to need more. I also urge European donors to support the proposal by European Commission President Barroso for 1 billion euros to support the poor in need and the small farmers in countries under severe stress due to global food crisis.
We also need to work to protect valuable development gains, especially for those blown off track, and to that end, the World Bank will be providing an additional $25 million in emergency grants for Haiti, hit by the devastating impacts of Hurricanes Fay, Gustav, Hanna, and Ike.
On Monday, I emphasized at the Peterson Institute that we need to modernize multilateralism and markets to deal with these crises. There is obviously no silver bullet to solve this crisis. It was first fueled by bad assets and a lack of information about how and when banks could write down these loans so that markets would begin working again. And now it is fed by a lack of confidence.
Looking ahead to tomorrow, I hope the G-7 meeting will point toward coordinated actions to show that authorities are getting ahead of the curve. Countries will take different actions, customized to their circumstances, yet the actions need to target the same basic problems. The actions need to be coherent and reinforcing, like the cut in interest rates that central bankers around the world put in place this week. And all these actions will still take time to work.
With the rising economic powers, the G-7 countries can work through this crisis by dealing with bad assets, recapitalizing banks, and providing much needed liquidity. They need to work together to fix the financial, regulatory, and supervisory system that failed.
We also need the G-7 and the rising economic stakeholders to help those that are most vulnerable, weaker developing countries slipping toward the edge, and the poorest people with no cushion to sustain in times of trial.
The changing conditions that trigger failure will increasingly be dependent on shifts in the world economy. And just as the crisis has been international because of this interconnectedness, the actions and reforms will need to be multilateral.