World Bank urges G20 policies that help poor

WASHINGTON Wed Jun 23, 2010 8:28pm EDT

WASHINGTON (Reuters) - The World Bank on Wednesday urged the Group of 20 major economies to agree on steps to safeguard the global recovery warning that setbacks will further strain resources in poorer countries.

In a document prepared for the G20 leaders' summit in Toronto this weekend, the World Bank said policies that promote growth would boost economic activity in the world's poorer countries that rely on revenues from commodity exports, worker remittances, foreign direct investment and aid.

The poverty-fighting institution said rich donors are $18 billion short of their aid promises made at a Group of Eight (G8) summit in Gleneagles, Scotland, in 2005, citing figures by the Paris-based Organization for Economic Cooperation and Development (OECD).

The United States, Britain, Canada, Japan, Italy, France, Germany and Russia that make up the G8 meet in Muskoka, Ontario, north of Toronto, on Friday before the G20 meeting.

The Gleneagles meeting promised to provide an extra $25 billion a year for Africa as part of an overall $50 billion increase in financial assistance by 2010. The OECD said the G8 had provided $11 billion of the $25 billion pledged to Africa.

The World Bank urged the G8 to meet their aid pledges to the poorest countries, especially in Africa.

The Bank's report estimated that a half percentage point decline in growth in poor countries -- due to higher capital costs and lower investment from the global financial crisis -- could push another 80 million people into poverty over the next 10 years.

"Despite relatively robust prospects in developing countries, weak demand in advanced economies, combined with more modest capital inflows and limited (official development assistance), may place a large number of developing countries under serious financial strain," the World Bank paper said.

It noted that the debt crisis in Europe, which began with Greece, had so far not affected developing countries' access to capital markets. But it warned that developing countries could face added fiscal strains due to slower growth in advanced economies, modest capital inflows and reduced aid.

Developing countries also risk being crowded out of capital markets by increased borrowing of rich countries that amounted to more than $2.5 trillion in 2009 -- more than seven times the net capital flows to developing countries, the bank warned.

The G20 meeting comes as the World Bank intensifies talks with donor nations to replenish the institution's fund for poor countries, the International Development Association (IDA).

"It is critical that the G20 throws its full support behind the upcoming IDA16 replenishment, which provides essential resources to support the development agenda in the 79 poorest countries in the world," the report said.

It urged donors to meet their aid commitments "to provide adequate international assistance and investment and trade opportunities" to ensure that progress to reduce poverty in poor countries is not lost.