Financial turmoil could trigger development catastrophe, UN cautions

1 April 2009

As leaders of the Group of 20 (G-20) nations gear up for their meeting tomorrow, the United Nations is warning that the current global economic crisis threatens to unleash a human development catastrophe in the world’s poorest nations.

Secretary-General Ban Ki-moon will press participants at the London gathering for urgent collective action to boost development and allow people to keep their faith in their future, spokesperson Michele Montas told reporters.

At a meeting today in London on climate change and forests, he reiterated the need for ‘green’ growth – which has the twin benefits of lowering carbon emissions and spurring prosperity – to “jumpstart recovery and generate jobs.”

Mr. Ban, who held bilateral meetings with Indonesian President Susilo Bambang Yudhoyono and the United Kingdom’s Foreign Secretary, David Miliband, is expected to warn the leaders tomorrow that the global recession hurts everyone, but especially the poor, who in some countries spend up to 80 per cent of their incomes on food.

The UN Development Programme (UNDP) has also called on the heads of the G-20 nations to recognize that those most vulnerable to the crisis – which is not exclusive to Europe or the United States – are living outside the spotlight.

Those attending tomorrow’s event “should recognize the human development calamity facing the people of the poorest countries and commit the resources to bail them out,” said Ad Melkert, UNDP Associate Administrator.

Remittances have slumped, trade has collapsed and commodity prices continue to be volatile, plunging more families into extreme poverty and increasing mortality as a result, UNDP said. A 3 per cent drop in gross domestic product (GDP) for developing countries leads to between 47 and 120 more infant deaths per 1,000 live births.

The crisis is a “matter of life or death for many people in the poorest countries,” Mr. Melkert said.

“While the economic recovery may start in 2010, the damage to human development will be severe and social recovery may take us several more years,” he noted, adding that the impacts may be felt as far away as 2020.

The official also pointed out that in past recessions, poorer nations have suffered disproportionately compared to their wealthier counterparts, witnessing falls in health and education indicators. Life expectancy, school enrollment and graduation rates all drop, and in low-income countries, women, children and society’s poorest segments are most likely to bear the brunt of the economic collapse.

Also warning about the impact of the financial crisis on schooling was Koïchiro Matsuura, Director-General of the UN Educational, Scientific and Cultural Organization (UNESCO), who called for greater investment in education.

According to research, extending the average period spent at school by one year will boost per capita GDP by 4-6 per cent, he said. “By injecting resources into education now, not only would we stimulate economic recovery, but we would also contribute to stronger growth in the future and guarantee global stability in the long term.”

New World Bank data shows that developing countries’ economic growth will slow sharply to 2.1 per cent this year, marking a 3 per cent drop from 2008. As a result, some 53 million more people would fall into poverty this year, living on less than $1.25 a day, due to the crisis.

Additionally, the world economy will contract by 1.7 per cent compared to last year’s 1.9 per cent growth, making the first global decline since the Second World War.

“In London, Washington and Paris, people talk of bonuses or no bonuses,” World Bank President Robert B. Zoellick said today in London.

“In parts of Africa, South Asia and Latin America, the struggle is for food or no food.”

He underscored the need for constant innovation in mobilizing resources, citing World Bank initiatives such as the new $50 billion Global Trade Liquidity Programme, which combines a $1 billion investment from the Bank and financing from governments and regional development banks.

Despite calls for new global governance regimes, Mr. Zoellick said that the immediate challenge is to reform, empower and use existing structures more effectively by such means as boosting developing countries’ representation in the institutions.

“If leaders are serious about creating new global responsibilities or governance, let them start by modernizing multilateralism to empower the WTO [World Trade Organization], the IMF [International Monetary Fund] and the World Bank Group to monitor national policies,” he noted.

The World Bank President called on developed nations to invest 0.7 per cent of their stimulus packages in a so-called Vulnerability Fund to help poorer nations and by using existing institutions instead of creating new bureaucracies.

The past six decades have proven that the market can simultaneously lift hundreds of millions of people out of poverty and expand freedom, he said. But they have also shown how “unfettered greed and recklessness” can negate those gains.

“For the 21st century, we need market economies with a human face,” Mr. Zoellick said. “Human market economies must recognize their responsibility to the individual and society.”

For its part, the UN International Fund for Agricultural Development (IFAD) has called on governments to accelerate agricultural development, with the financial downturn pushing millions of poor rural people – into abject poverty.

“We ignore the world’s poor farmers at our peril,” said IFAD President Kanayo F. Nwanze. “As we strive to recover from the current turmoil, these farmers can be part of the solution.”

Given the necessary support, they can drive economic growth and help the world to avert food crises, like the one that shook the world in 2008, he said.

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