October 12, 2008 / 10:30 PM / 11 years ago

Crisis may set back poorest: World Bank panel

WASHINGTON (Reuters) - World finance and development ministers warned on Sunday that developing countries risked serious and lasting setbacks from the global financial crisis and urged major economies to deliver on aid pledges.

“This is a man-made catastrophe,” World Bank President Robert Zoellick told a news conference after a development committee meeting of IMF and World Bank member countries.

“The actions and responses to overcome it lie in all our hands,” Zoellick added.

World finance leaders on Sunday endorsed an action plan by major economies to chart a course out of the crisis, which began in the U.S. housing market and soon spread to Europe, triggering the most severe downturn in years.

In a communique, the development committee called on the World Bank and its sister organization, the International Monetary Fund, to draw on the full range of their resources to help countries that may encounter problems, not only from the credit crisis, but also from high food and fuel prices.

“The poorest and most vulnerable groups risk the most serious — and in some cases permanent — damage,” the development committee communique said.

The World Bank said it has the capacity to “comfortably double” lending to developing countries in need. IMF Managing Director Dominique Strauss-Kahn repeated that the Fund stood ready to respond with a $200 billion war chest.

Ministers also urged the World Bank to explore all options to help recapitalize banks in developing countries affected by the global liquidity crunch.

The bank’s private-sector lender, the International Finance Corp, said on Saturday it planned a $3 billion fund to help small banks hit by the financial crisis.

BROKEN AID PROMISES

But ministers said big donor nations should not use the turmoil in markets as an excuse to pull back on aid promises to the poor.

African finance leaders pointed to the speed with which the U.S. and Europe have raised billions of dollars for faltering banks but are behind in aid commitments to poor countries.

Higher food and fuel prices have added to the budget squeeze of poor countries. The World Bank has a watch list of 28 countries facing financial strains which spans from Jordan, Lebanon, Cambodia, Sri Lanka to Jamaica, Haiti, Ethiopia, Rwanda, Malawi, Nepal, Fiji and Ivory Coast.

“We must ensure that as governments and the public turn their attention close to home, they do not step back from their commitments to boost assistance,” Zoellick said. “Aid flows must be maintained (and) today’s meeting of ministers was unanimous in that regard,” he added.

European Union aid officials also worry.

“The credibility of the donor community as a reliable partner is clearly at stake,” Louis Michel, the EU’s aid chief, told the development committee. “This is already self-evident when the fledgling pace with which aid for the poorest is increased is compared with the speed with which aid for the richest is mobilized,” he added.

U.S. Treasury Secretary Henry Paulson urged the World Bank and IMF to make every effort to ease the impact of the financial crisis on poorer countries because he said they ultimately will be affected.

“Financial market developments are having an acute impact on advanced countries, and we can expect the crisis to have major ramifications for emerging markets and the poorest countries as well,” he said.

‘THE OTHER CRISIS’

International development group Oxfam said it was disappointed with the outcome of Sunday’s development meeting.

“This weekend’s meeting offered shamefully few solutions for the world’s poorest countries. World Leaders acknowledged there is a global poverty crisis, but they failed to address it,” Oxfam spokeswoman Marita Hutjes said.

Global advocacy group, the One Campaign, said: “The world’s leading economies should not open the door to a solution to the financial crises whilst shutting the door to progress for the world’s poorest countries.”

Developed countries promised to double aid to Africa by 2010 at a leaders’ summit in 2008, but have failed to make good on the pledges. Strains on poorer countries have become especially acute as prices for food and fuel have risen sharply.

Although the prices have declined somewhat, they remain high in historical terms and are likely to stay volatile.

Rising food prices have caused 75 million more people to go hungry, the Food and Agriculture Organization said. Similarly, the World Bank has said food price increases may swell the ranks of the world’s poor by 100 million people.

Editing by Andrea Ricci

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