Crisis of Food, Fuel, and Finance holding developing countries down [Archives:2008/1203/Reportage]

October 30 2008

Developing nations face a convergence of food, fuel and financial crises as development and finance ministers gathered for the World Bank and International Monetary Fund's earlier this month.

“We are meeting at a momentous time,” said Bob Zoellick President, The World Bank Group

“In July at the G8 summit, I said that developing countries were facing a double jeopardy from the impact of high food and fuel prices. But what was then a double jeopardy is now a triple hit)food, fuel, and finance)threatening not just to knock the poorest people down, but to hold them down.”

Some 28 countries are already fiscally highly vulnerable from the twin shocks of food and fuel, he said, and they are not expected to receive aid increases with G7 countries still behind on their Gleneagles commitments.

Countries already suffering food and fuel price inflation may now also see declines in exports, trade and investment as a result of financial turmoil that is becoming increasingly global, said Zoellick.

“While people in the developed world are focused on the financial crisis, many forget that a human crisis is rapidly unfolding in developing countries. It is pushing poor people to the brink of survival,” Zoellick added.

“The financial crisis will only make it more difficult for developing countries to protect their most vulnerable people from the impact of rising food and fuel costs.”

Number of Malnourished People to Rise

The number of malnourished people globally will grow by 44 million, to 967 million, in 2008, after several countries experienced double-digit food inflation, according to a new World Bank report.

The report, Rising Food and Fuel Prices: Addressing the Risks to Future Generations, is one of several being released just prior to the Annual Meetings that reveal a changing economic landscape after years of steady economic growth and poverty reduction worldwide. (Another background paper discusses fiscal vulnerabilities in developing countries.)

“The events of this year are a wake-up call,” Zoellick said. “The international architecture designed to deal with such circumstances is creaking.”

Zoellick said the world needs a new “multilateral network for a new global economy” with a steering group that includes the G7 and the rising powers of Brazil, China, India, Mexico, Russia, Saudi Arabia and South Africa.

Possible 'Tipping Point' for Developing Countries

Zoellick warned the financial events of September, including the collapse or near-collapse of major banks, could be a “tipping point for many developing countries.”

“The stark reality is that developing countries must prepare for a drop in trade, capital flows, remittances, and domestic investment, as well as a slowdown in growth,” he said.

High food and fuel prices and food shortages hit several countries early this year, leading to riots, hardships, and malnutrition.

In response, the Bank created a $1.2 billion rapid financing facility and called for a New Deal for a Global Food Policy to promote agricultural development and food security in Africa.

The Bank's Global Food Response Program has disbursed $188 million in 19 countries as of October 2, with $663 million earmarked for another 13 countries.

But Zoellick said the international aid system is not keeping pace with the growing needs. The G7 as a whole is behind on fulfilling aid pledges made at the 2005 G7 Gleneagles Summit.

He said a new multilateral network would build a sense of shared responsibility for the health of the global political economy, including climate change, a key topic for discussion at the upcoming Annual Meetings, and stabilizing fragile and post-conflict states. (See Today story and external feature story on the Bank's work on fragile states.)

“We need this mechanism so that countries are not left to fail)with all the human, economic, and political consequences this entails for both them and their neighbors,” said Zoellick.

“”We need it so that global problems are not just mopped up after the fact