Donors Must Boost Aid For Developing Countries

As development experts prepare for the International Conference on Financing for Development in Doha, Qatar, the World Bank is calling on donors to further boost aid as investment in developing countries heads for a “perfect storm.”

“Developed counties policymakers must avoid putting in place policies and structures that undermine the interests of developing countries,” said World Bank President, Robert B. Zoellick. “Courageous steps have been taken by many developing counties governments in recent years to introduce and maintain sound macroeconomic and fiscal policies.

They now find themselves at the mercy of a crisis not of their making. A retreat to protectionism or economic nationalism by developed countries will hurt them even further”.

In a paper prepared for the Doha Follow-up Conference on Financing for Development to Review the Implementation of the Monterrey Consensus, the World Bank said it is imperative that donors meet their Gleneagles commitments to debt relief and scaled-up aid.

At present, G-7 countries are falling $30 billion short of these goals. According to the paper, The Implications of Global Crises on Developing Countries, the Millennium Development Goals, and the Monterrey Consensus, developing countries are facing a "perfect storm," with a convergence of slowing world growth, a withdrawal of equity and lending from the private sector, and higher interest rates.

Investment, the main driver of developing countries growth over the past five years, will be hard hit by the financial crisis, and remittances from developing countries migrants—a powerful poverty reduction mechanism— will likely decline in line with the global slowdown. All this comes in the wake of the severe food and fuel price crises, which placed a heavy fiscal, economic and social burden on many developing countries.

Reflecting deteriorating global conditions, the World Bank has revised its 2009 growth forecast downward.

Developing countries growth in 2009 is now forecast at 4.5 per cent, nearly two percentage points lower than previously estimated; growth in high-income countries, many of which are already in the midst of recession, is now expected to be marginally negative in 2009. The volume of global trade is projected to contract in 2009, the first decline since 1982.

"This is not just about finance, as crucial as that is,” Zoellick said. "In a world where developing countries represent new drivers of global growth, we must learn to listen to their experiences, and we must take better account of their needs. "Financing for development is no longer about the old paradigm of aid dependency or charity, it is about an investment in a stable, prosperous and inclusive future - that means having more and different voices at the table, and accepting that the North must learn to listen to the South."

Heading the World Bank delegation to Doha, Justin Yifu Lin, the World Bank's Chief Economist and the first such appointee from a developing country, said "This unfolding crisis highlights the extent of our global connectedness and has left us in a position whereby, in the next year, developing countries could account for all of the world's GDP growth. In this transformed world, empowering developing and emerging countries is imperative."

"Financing for development should focus more on adapting to countries'conditions and aspirations,” continued Lin. “It should be geared toward working with governments and stakeholders in those countries to support practical economic development programs. Helping nations pursue economic development and long term prosperity should be the goal of development finance. We must not lose sight of this principle amidst the current crisis."

To meet growing needs, President Zoellick has announced that the Bank Group will front load the $42 billion it has available to support low-income (IDA) countries over the next three years, and rely on its strong capital basis to lend up to $100 billion to developing countries over the same period. IFC, the private sector arm of the Bank Group, is also increasing support, doubling the Global Trade Finance Programme to $3 billion, launching a global equity fund with support from the Government of Japan to recapitalize distressed banks, and establishing a new facility to provide roll-over financing to existing, viable, privately funded infrastructure projects facing financial distress.

Meanwhile talks to unstick the Doha world trade round have made some headway, ambassadors to the World Trade Organisation (WTO) have said.

New Zealand ambassador Crawford Falconer, who chairs the WTO negotiations on agricultural products, said that countries have begun to budge from their positions in the wake of a high-level political push for an agreement.

"I have seen some material change, but not all the things I would like to have seen have happened," he told reporters after an evening meeting at the WTO's Geneva headquarters.

U.S. President George W. Bush and other leaders have been pushing for a breakthrough in the seven-year-old WTO talks as a means to bolster the troubled global economy.

A new WTO agreement would cut subsidies and tariffs on a wide range of traded goods and cross-border services, prying open food, fuel, transportation and other markets and therefore encouraging global economic activity.

WTO Director-General Pascal Lamy, has been looking for signs of movement in technical talks between diplomats before inviting trade ministers to Geneva to hammer out a deal in agricultural and manufactured goods the two main areas of the Doha accord.

Talks earlier on Thursday skated over sensitive issues such as the levels of U.S. subsidies on cotton, and a controversial facility to let poor countries shield subsistence farmers during crises, envoys said.

"We had more positive discussions than we had before," Brazil's WTO ambassador Roberto Azevedo said of those talks.

A dispute about the "special safeguard mechanism" for farmers caused a meeting of ministers in July to fail, with India squaring off against the United States and other countries who said the facility could actually close off existing markets instead of opening up new ones.

Azevedo told journalists that in Thursday's talks on that mechanism "there wasn't exactly convergence or agreement, but there was no clear-cut rejection."

"You learn in these negotiations to read between the lines," he said. "There was certainly more engagement, more interaction than there was before."

Diplomats that a ministerial meeting next month could start around December 13, though no dates are expected to be set until Sunday or later.Estimates of the benefits of the WTO accord vary widely. A recent study from the U.S.-based International Food Policy Research Institute said more than $1 trillion of trade was at stake. — World Bank/Reuters