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10.10.2008 Business & Finance

Developing nations face a sudden convergence of food, fuel and financial crises


Developing nations face a sudden convergence of food, fuel and financial crises as development and finance ministers gather for the World Bank and International Monetary Fund annual meetings on Monday.

According to a release from the World Bank office in Accra 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, World Bank President Robert B. Zoellick, has said.
He said: "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.

"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," Mr Zoellick said.

The number of malnourished people globally would 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 release said.

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.

Total Global Food Response Program (GFRP) projects amount to $851 million in 32 countries as of October 2. As of the same date, GRFP has disbursed $188 million to 19 countries. The money is used to feed poor children and other vulnerable groups, provide for nutritional supplements to pregnant women, lactating mothers, infants and small children, to meet additional expenses of food imports or to buy seeds for the new season, the release said.

GFPR is providing $130 million to Bangladesh and $200 million to Philippines in the coming months to help address the food crisis. Beyond GRFP funds, the Bank is approving $90 million in IDA funding for food projects in Ghana, Burkina Faso, Eritrea, Malawi, Burundi and Togo and Madagascar. The Bank is also boosting overall agricultural lending to $6 billion over the next year.

Mr Zoellick said, "the events of this year are a wake-up call," in a pre-meetings address on October 6, adding, "the international architecture designed to deal with such circumstances is creaking".
He 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."
Mr Zoellick warned that the financial events of September, including the collapse or near-collapse of major banks, could be a "tipping point for many developing countries," adding "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".

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

In response, the Bank created a US$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 Programme has disbursed $188 million in 19 countries as of October 2, with $663 million earmarked for another 13 countries.

But Mr Zoellick said the international aid system was 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.

"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 neighbours. We need it so that global problems are not just mopped up after the fact, but anticipated. We need it to develop the habit of dialogue and the necessary relationships of trust before the crisis hits. We need it to shape multilateral solutions," Zoellick said.