WASHINGTON, DC – 2008 will be remembered as a year of extraordinary turmoil. The financial crisis came on the heels of food and fuel crises. Now the world is in the midst of an economic crisis, which will lead to many job losses. Virtually no country has escaped. We are moving into a new danger zone, with heightened risks to exports and investment, to credit, banking systems, budgets, and balances of payments. In 2009, we may see the first decline in global trade since 1982.
As always, the poor are the most defenseless. For developing countries, tighter credit conditions and much weaker growth mean that governments are less able to meet education and health goals, and to invest in the infrastructure needed to sustain growth. Remittances are drying up. Already 100 million people have been driven into poverty as a result of high food and fuel prices, and current estimates suggest that every 1% decline in developing-country growth rates pushes an additional 20 million people into poverty.
Countries are trying to break the credit freeze, bolster financial institutions, ease interest rates, strengthen safety nets, and revive consumption and investment in order to boost business, enable people to work, and lay the foundation for future growth. These steps will be most effective if countries act in concert, in a mutually supportive way. Economic nationalism that seeks gains from the disadvantage of others will trigger ever more dangers. Global challenges require global solutions.
In October, I called for modernizing multilateralism and markets to better reflect the changing world economy and to enable countries to act in concert to address interconnected problems. Looking beyond the old G-7 system, we need a twenty-first-century approach to multilateralism through the dynamism of a flexible network, not new hierarchies of a fixed or static system. ampnbsp;
The new multilateralism must maximize the strengths of interdependent and overlapping actors and institutions, public and private. It should reach beyond the traditional focus on finance and trade, to include other pressing economic and political issues: development, energy, climate change, and stabilizing fragile and post-conflict states. It needs to draw together existing international institutions, with their expertise and resources, to reform them when necessary, and encourage effective cooperation and common action.
Multilateralism, at its best, is a means for solving problems among countries, with the group at the table willing and able to take constructive action together. It needs to draw its strength – and legitimacy – from both broader participation and by achieving results. November’s G-20 summit brought to the table for the first time the rising powers as active stakeholders to address the global financial crisis. They agreed to a good agenda, but the true test will be the follow-up.
It is a positive step that leaders of major developed economies are now meeting with leaders from the rising economic powers. But the poorest developing countries must not be left out in the cold. We will not solve this crisis, or put in place sustainable long-term solutions, by accepting a two-tier world. The goal must be to build an inclusive and sustainable globalization.
Trillions of dollars are now being spent on a financial rescue in the developed world. By comparison, about $100 billion a year is currently being spent on overseas aid. We need a “human” rescue as well as a financial rescue. In this environment, the global commitment to provide development assistance to the poorest countries must be paramount.ampnbsp;
At the World Bank Group, we are scaling up our financial support for those in need. We are speeding up grants and long-term, interest-free loans to the world’s 78 poorest countries, half of them in Africa. Donors last year pledged $42 billion over three years for the World Bank’s fund for these countries, the International Development Association (IDA).ampnbsp; This money is vital if we are to meet the Millennium Development Goals.
In addition, the Bank’s lending arm to developing countries, the International Bank for Reconstruction and Development (IBRD), could make new commitments of more than $35 billion this fiscal year – almost triple last year’s – and up to $100 billion over the next three years. This increase is aimed at protecting the poorest and most vulnerable from harm, supporting countries that face borrowing problems because of broken credit markets, and helping to sustain investments upon which recovery and long-term development will depend.
Our private sector arm, the International Finance Corporation (IFC), is launching or expanding three facilities to help the private sector, expected to total around $30 billion over the next three years. They will address high-priority problems that have emerged in recent months: expanding trade finance, recapitalizing banks in poorer countries, and sustaining infrastructure investment by helping viable projects facing a liquidity crisis.ampnbsp;
At the same time, we will continue special efforts to counter malnutrition and hunger, and provide energy to the poor.ampnbsp; Our newly launched $6 billion Climate Investment Funds will build practical experience with technology, forestation, and adaptation to support the United Nations negotiations on climate change and assist developing countries.
As the world digs out of the current financial and economic hole, we need to look further ahead. Today’s crises reflect the lightning speed of an interconnected world.ampnbsp; The factors that produced this globalization offer great opportunities to overcome poverty, increase opportunity, and open societies.ampnbsp; But we will need a new multilateralism to expand the availability of these benefits to all.