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World Bank: Economic Crisis Engulfing ‘Once-Booming Developing Nations’

By Pat Garofalo on March 9, 2009 at 12:32 pm

"World Bank: Economic Crisis Engulfing ‘Once-Booming Developing Nations’"

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ap0902090430.jpgYesterday, the World Bank released a sobering assessment of the state of the global economy, “as the crisis that started in the United States engulfs once-booming developing nations“:

The report said that 94 out of 116 developing countries have been hit by economic slowdowns. The World Bank projected that the economic crisis will push around 46 million people into poverty in 2009 through job and wage cuts, as well as declining flows of remittances, the money that foreign workers send to their families. [...] As a result, the report estimates that at least 98 countries may have problems financing at least $268 billion in public and private debt this year.

The World Bank also warned that only one quarter of vulnerable developing countries “have the ability to launch their own stimulus programs or to independently finance measures such as job-creation or safety-net programs,” which “could turn back the clock on poverty reduction by years.”

The World Bank suggested that developed countries “dedicate 0.7 percent of the money they spend on stimulus programs toward a new Vulnerability Fund to help developing countries.” That’s sensible enough. But this report also gets at a wider problem: the lack of global coordination when it comes to addressing the economic crisis.

At an economic summit in London next month “the U.S. will press world leaders to boost emergency government spending to lift the global economy, risking a rift with European nations more concerned with revamping financial regulation.” Indeed, the Brookings Institution has found that the amount of stimulus coming from the G-20 is probably not enough to stem the crisis:

The total amount of stimulus in the G-20 amounts to about $692 billion for 2009, which is about 1.4 percent of their combined GDP and a little over 1.1 percent of global GDP. This is a significant amount of stimulus, but appears to fall short of what is needed to tackle a crisis of the proportion we are currently in.

Brookings warned that this “lack of coordination could reduce the global bang for the buck of individual countries’ policies.” But that’s not to say that Obama shouldn’t follow the Europeans in their desire for “rewriting rules governing financial markets.” A coordinated response all the way around — in terms of stimulus, a banking fix, and future regulations — will make each country’s individual actions that much stronger.

Update

In an interview with Financial Times, Obama economic adviser Larry Summers “urged world leaders to pump more public money into the economy in a co-ordinated effort to boost demand and lift the world out of recession.”

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