Credit crisis threatens disastrous squeeze on aid

GENEVA Mon Oct 6, 2008 9:52am EDT

A girl carries her brother as she waits for food distribution in Buge village, Wolayita region in southern Ethiopia in this picture taken on September 8, 2008 and released by the International Federation of Red Cross and Red Crescent Societies (IFRC) on September 23, 2008. REUTERS/Jose Cendon/IFRC

A girl carries her brother as she waits for food distribution in Buge village, Wolayita region in southern Ethiopia in this picture taken on September 8, 2008 and released by the International Federation of Red Cross and Red Crescent Societies (IFRC) on September 23, 2008.

Credit: Reuters/Jose Cendon/IFRC

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GENEVA (Reuters) - Paying hundreds of billions of dollars to rescue the world's financial industry looks set to squeeze humanitarian aid and crimp international efforts to fight disease, feed hungry children, and shelter refugees.

Charitable giving and foreign aid flows are likely to dry up as the global economy sours, with rising unemployment and inflation pinching already-tight household budgets, and as big corporate bailouts push governments to the fiscal brink.

Celine Charveriat, Oxfam's deputy advocacy and campaign director, warned of "disastrous consequences" for poor countries if the bank crisis and related belt-tightening prompt donors to cut aid from a current $104 billion a year, as many expect.

"Donors must not make overseas aid the first victim of the economic crisis," Charveriat said.

Washington in particular would be under severe pressure to pare its international aid spending after agreeing a $700 billion financial rescue package, said Steve Radelet, a senior fellow at the Center for Global Development.

"It is imperative that this pressure be withstood," he said, warning a U.S. pullback could prompt other Western donors to cut their contributions as well, or delay coughing up pledged funds.

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Radelet, a former U.S. Treasury Department official, said financial woes were likely eclipse development issues in future meetings of G8 world leaders, which until recently focused on anti-poverty goals and aid pledges.

"Foreign assistance is not going to have the pre-eminent role that it has had in past years," he told Reuters.

U.N. agencies said they were bracing for a difficult period.

"Will it have an impact? Of course. We are likely to face a period of financial constraint," a World Health Organization official said.

The WHO's campaigns to fight diseases such as polio, malaria, tuberculosis and AIDS are funded by governments and philanthropic institutions, and "both are likely to be affected by the current financial downturn," he said.

Antonio Guterres, the U.N. High Commissioner for Refugees, told donors at an annual meeting Monday that he recognized the financial environment would raise challenges for those who have traditionally funded UNHCR programs.

"At the same time, I must point out that the resources required to support the 31 million people we care for are very modest indeed when compared the sums being spent to bring stability to the international financial system," Guterres said.

"It would be tragic if the funds available to the humanitarian community in general and the UNHCR in particular were to decline at the very time when the demands upon us are increasing so dramatically," he said.

Charitable groups relying on donations from individuals, families and private foundations whose fortunes are invested in volatile financial markets are also worried the credit crunch could make it harder to solicit and secure donations.

"We are in the process of determining where we may feel the impact most," said Jo Hodges of CARE International, which runs anti-poverty programs in 70 countries around the world.

And Encho Gospodinov of the International Federation of Red Cross and Red Crescent Societies said that if donors hold back funding, humanitarian work would suffer.

"We are very, very worried that this could now affect our programs," he said of the financial crisis.

At a U.N. summit in New York last month, where reports of struggling Wall Street banks overshadowed talks between world leaders, French Foreign Minister Bernard Kouchner said the credit crunch had restricted budgets for development aid.

Oxfam's Charveriat said global development aid was already weakening before the economic crisis set in, dropping to $103.7 billion in 2007 from $104.4 billion the year before.

"Aid levels have been falling even under the best economic conditions. This crisis must not be an excuse to cut aid flows further," she said.

And British Prime Minister Gordon Brown also appealed to rich countries not to use the crisis as a reason to not help the poor. "This would be the worst time to turn back," he said.

(Editing by Louise Ireland)

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