World Bank President Robert Zoellick has called on leaders at Thursday's G20 summit in London not to forget the developing world, warning that the global economic crisis could become "a social and human crisis".
In a Newsmaker speech at Reuters on Tuesday, he urged wealthy governments attending the Group of 20 summit to commit 0.7 percent of their stimulus packages to a "vulnerability fund" to help poor countries weather the economic storm.
"I think it would be a big mistake if this becomes a summit for high finance with silence for the poor," he said. "A commitment to put in place structures and fund safety nets for those most at risk would go a long way towards showing that this 'G' group will not embrace a two-tier world."
The World Bank expects growth to slow sharply in developing countries to 2.1 percent this year from 5.8 percent in 2008, as trade decreases, lending dries up, remittances fall and low commodity prices dent government revenues.
"These events could next become a social and human crisis with political implications," said the World Bank president. "Most attention has been focused on developed countries ... but people in developing countries have much less cushion Â? no savings, no insurance, no unemployment benefits and often no food."
Zoellick gave examples of how poor people are being hit - in the past month, over 4,000 migrant workers have gone back to Bangladesh, and Cambodia has lost 50,000 jobs in its garment industry, mainly affecting young women. Mongolian nomads are suffering as the cost of cashmere - their main cash product - has plummeted 40 percent.
The World Bank vulnerability fund - to which Germany, Britain and Japan have agreed to donate so far - will use existing financing mechanisms, and focus on safety net programmes, investments in infrastructure, and support for small and medium-sized enterprises.
Zoellick said social protection schemes - for example, cash payments for families to send their children to school and for health checks, or food in return for work on public projects - have been successful in pulling people out of poverty at a relatively low cost, often for less than 1 percent of gross domestic product.
He also argued that improving infrastructure in Africa would boost productivity by more than 2 percent, creating jobs and stimulating demand around the world.
"It's time we recognise that an inclusive and sustainable globalisation depends on encouraging multiple poles of growth, including developing countries," said Zoellick. "If developing countries are going to be part of the solution, they have to have seats at the table."
On Tuesday, he announced a $50 billion global trade liquidity programme, urging G20 leaders to support the effort to reverse a sharp drop in world trade volumes.
The World Bank has also launched a $500 million fund, in partnership with a development bank backed by the German government, to lend money to micro-finance institutions. They provide a lifeline to small businesses in developing countries, particularly poor women, but many are struggling to raise capital amid tight credit conditions.
COOPERATION
George Gelber, a policy adviser with the Catholic Agency for Overseas Development (CAFOD), welcomed the World Bank's efforts to raise funds for the poorest countries, but said initiatives should aim to bring about longer-term social transformation, not just short-term relief.
"If leaders were visionary, they might have the idea of providing global social protection, with the richest taxpayers funding a basic level of social welfare, as we do on a national basis," he told AlertNet. "We can't expect (the G20) to create this system, but they could put the building blocks in place."
As with the World Bank's response to last year's food price crisis, Zoellick indicated it is open to working in a network with other aid agencies and civil society groups to curb the impact of the economic crisis on poor countries. That could involve cooperation ranging from consultation - he met this week with 20 to 30 such organisations - to giving them access to Bank funds.
"With the slowdown in the global economy, one of the things a lot of civil society groups have identified is their resources are shrinking, people are donating less," Zoellick said. "So if I can use the existing mechanism from a civil society group to help reach these people in need, then let's do it."
He said governments were providing $42 billion over the three years to mid-2011 for grants and long-term, no-interest loans for poor countries through the World Bank's International Development Association arm, but more support would be needed. The Bank will seek to play a new role as an intermediary between donors and developing countries, he added.
But many aid agencies - and some poor countries - remain wary of the Bank's high-profile involvement in bailing out the developing world. They are concerned that, as in the past, it could attach conditions to the funding it offers to cash-strapped governments, stipulating how the money should be spent.
"We have received no assurances that the World Bank has learned lessons from the part and that it won't apply conditions," said Hetty Kovach, an adviser on development finance at Oxfam. "The G20 needs to get assurances there won't be a repeat of the bad policies prescribed in the past. (Multilateral institutions) need scrutiny themselves."
The World Bank insists it is moving with the times, and undertaking reform to increase the influence of developing countries. "This is both right and inevitable," said Zoellick, adding that the Bank's member countries should go further in rebalancing voting shares and seats on the board, which have been dominated by wealthy donor nations.
Zoellick argued the world has changed radically in the decades since the 1944 Bretton Woods conference created the architecture for a post-war international financial system, and now requires a more inclusive multilateral governance system and a more balanced approach to economic growth.
"For the 21st century, we'll need market economies with a human face," he said. "Human market economies must recognise their responsibilities to individuals and society."
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