World: Poor countries hardest hit by 2008 global crises
Two thousand eight has been a year of global crises. All are interlinked and all are a severe threat to international stability.
The fuel crisis earlier this year caused prices for oil and petroleum to rocket. The food crisis, triggered by a combination of climatic shocks (mainly droughts) and local food inflation, has driven millions of people into poverty and famine.
And, most recently, the financial crisis hit global economies, prompting world leaders to pour more than €2,000 billion into their banks to stabilize the international financial system. Strangely enough, the very same countries are now having difficulties in sticking to their donor commitments and raising €100 billion a year for development aid.
Take a closer look at the figures involved: the US mobilised close to a trillion dollars in guarantees and bailout funds, and the UK rescue package is at least £400 billion. By comparison, it is estimated that we could eradicate world poverty for over two years with €700 billion of development aid.
Many of the most vulnerable countries are strongly dependent on official development assistance (ODA), but predictions foresee a slowdown of up to 30 percent in development assistance due to the economic crisis. In 2007, ODA amounted to $117.5 billion, with half coming from the European Union and its 27 member-states, making it the largest ODA provider by some measure. But despite being a donor leader, in the same year the EU found it increasingly hard to respect its commitment, experiencing a slight downward trend in development aid.
The financial crisis came at a moment when developing countries were already desperately battling to contain food shortages and high fuel prices. Hunger riots in Haiti, the Ivory Coast and Cameroon in early 2008 are testament to the fact that extreme poverty and famine catalyze distress and violence. The worldwide distribution of financial resources has never before been as unequal, with 10 percent of the global population currently holding more than 80 percent of the wealth, while the poorest half has just 1 percent or 2 percent.
Though the economic crisis began in the world’s richest country, its spillover effects will be most tangible in the developing world. Besides cuts in foreign-aid investment, the credit crunch will have major effects on remittances. In countries such as Zimbabwe and Somalia, money sent by relatives working abroad is a lifeline for millions of people, and often their only source of livelihood.
The economic recession has highlighted once again that our current financial architecture is fragile and no longer meets today’s demands. International calls for restructuring the International Monetary Fund (IMF) and World Bank are certainly overdue. However, such reforms must be implemented with particular care and caution so that sustainable economic growth and shared prosperity are guaranteed.
The voting shares within the IMF basically reflect the socioeconomic imbalances in the world. Emerging countries do not have much influence within the IMF and, consequently, can hardly steer the decision-making process.
As an illustration of this, more votes are accorded to Belgium, Luxembourg and the Netherlands than to Brazil, China and India. Given the major role the IMF plays in the developing world, a redistribution of voting shares is inevitable. At the recent G-20 summit, the only African country offered a seat at the table was South Africa. This must change. I strongly believe the African Union must be adequately represented, so that they are able to speak on behalf of millions of people.
Trade liberation is another vital factor in increasing economic growth and sustainability in developing countries, which, at the same time, can have a positive impact on regional integration, as well as governance. In this respect, it is of paramount importance to conclude the ongoing Doha Development Agenda of the World Trade Organization, taking into consideration the different interests and needs of developing countries.
Against this backdrop, one should also think of new sources for financing development aid. Just one example is the long-discussed Tobin tax, a tax levied at each exchange of a currency. This should be the starting point of a debate to find solutions to find the “ways and means” for additional funding for urgent international needs which are independent from donations.
The financial crisis has been a shock for world economies, but it can also be the spark to illuminate new ideas and thinking for development policy. As much damage as this crisis may have caused the world, it gives us a unique historical opportunity to create a system that reflects much better the needs of developing countries. Once put in place, globalization and capitalism can again function as instruments of freedom and emancipation for sustainable and shared prosperity.
Louis Michel is the European Commissioner for Development and Humanitarian Aid.
(http://businessmirror.com.ph)