ECONOMY: World Bank Reviews Lending Amid Global Downturn

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Oct 2 2001 (IPS) - The World Bank says it is weighing new measures to offset a severe economic blow dealt to the world’s poorest nations by last month’s terrorist attack in the United States.

Long time critics of the international lending institution said they saw nothing novel in the Bank’s plans.

“Right now, the management is reviewing policies on a country-by- country basis,” said Caroline Anstey, the Bank’s chief spokesperson. “Within the coming few weeks there will be a new set of policies that would prevent those countries from falling off the geopolitical map.”

Anstey declined to give the exact details of the changes on the table but said that pouring loans into the poorest countries was “not a good idea” because this “would increase their indebtedness.”

Anstey did not rule out the possibility of easing restrictions on borrowing countries so they could increase budget spending on labour-intensive social and infrastructure projects, long a demand of critics who see the Bank’s policies as negatively affecting jobs in developing nations.

The Bank faced intense criticism from internal and external critics for insisting that Asian countries toe the deficit- reduction line in the wake of the region’s 1997-98 financial crisis.

The Bank, in a preliminary assessment released Monday, said it would pay particular attention to Africa because of its “vulnerability to declining commodity prices”; to the Middle East, where an influx of refugees and political tension were expected; and the Caribbean, where revenues from tourism already have been hit.

According to the Bank, private capital flows to developing countries will fall this year to 160 billion dollars, down from 240 billion dollars last year, reversing the upward trend of the past decade.

Hinting that additional debt relief was possible, the Bank said it would act swiftly to disburse “policy-based adjustment lending, emergency recovery loans” and supplements to existing loans.

This prompted critics to charge there is nothing revolutionary in the Bank’s announcement.

Among these was Stephanie Weinberg of the Washington-based advocacy group Development GAP.

“These are essentially the same policies that proved detrimental to internal consumer demand and production capabilities in poor countries,” said Weinberg. “On the evidence of past experiences with such policies, I’m not optimistic.”

Weinberg’s was among a number of groups here advocating increased aid to small and medium enterprises to help generate jobs, efficient infrastructure projects, and easing the debt burden in poor countries.

World Bank President James D. Wolfensohn, in a statement, said the agency estimates “that tens of thousands more children will die worldwide and some 10 million more people are likely to be living below the poverty line of one dollar a day because of the terrorist attacks.”

“This is simply from loss of income. Many, many more people will be thrown into poverty if development strategies are disrupted,” he added.

The Bank had revised downward its forecast for global economic growth this year prior to the terrorist attacks in developing countries, from 2.9 percent to 2.8 percent. Next year, it expects economies in the developing world to grow by 3.5-3.8 percent, down from 4.3 percent projected before Sep. 11.

With commodity prices forecast to drop 7.4 percent on average this year, and with more declines expected as a result of the attacks, Africa, in particular, may see its number of poor increase by between two million and three million people, according to the Bank. Globally, an extra 15 million people could find themselves living in poverty in 2002.

In the Middle East and Northern Africa, countries may be hit by regional tension, refugee crises, or lower oil prices.

The Bank suggested several steps that could help alleviate the problems facing the world’s most fragile economies.

It called on industrialised nations to increase foreign aid to help reduce poverty because “well-directed aid, combined with strong reform efforts … can also mitigate particular effects of crises, such as terms of trade shocks.”

The bank urged rich countries to meet their long-established but seldom met goal of increasing development assistance to 0.7 percent of gross domestic product (GDP). At present, they spend an average of 0.22 percent of GDP.

Developing countries, meanwhile, should concentrate on structural reforms to attract investment and encourage international trade.

“Substantial trade liberalization,” the Bank said in its assessment, “would provide an additional cumulative income in developing countries of some 1.5 trillion dollars over a decade.”

“Policy responses have to be swift and somewhat bolder in rich and poor countries because of the heightened level of risk to the global economy and they have to be vigilant because the uncertainties associated with future political and military events are unusually large,” said Nicholas Stern, the Bank’s chief economist.