By Merle David Kellerhals Jr.
Washington — The World Bank is calling for greater action by nations to curb the current financial and economic crisis before it turns into “a human and development calamity.”
“There is a widespread recognition that the world faces an unprecedented economic crisis, poor people could suffer the most, and that we must continue to act in real time to prevent a human catastrophe,” World Bank President Robert Zoellick said at an April 26 press conference. The International Monetary Fund and the World Bank have just completed their annual spring meetings in Washington and will meet again in October for their annual joint meeting.
“An additional 55 to 90 million people will be trapped in extreme poverty in 2009. The number of chronically hungry people is expected to climb to over 1 billion this year,” Zoellick said.
The spring meeting follows a meeting of the Group of 20 advanced and emerging economies held in early April in London where world leaders made pledges to boost lending to developing nations by $1.1 trillion. Major governments at the G20 pledged $500 billion for a special IMF emergency fund, which currently has the capacity for $250 billion in emergency lending. The IMF has developed plans to issue about $250 billion in its currency, which is based on the value of the U.S. dollar, the euro, the Japanese yen and the British pound. The IMF also has put forward a plan to issue bonds, which would be similar to U.S. Treasury securities, to raise more funds for short-term financing.
The IMF’s Financial Committee, which is the organization’s policy-making body made up of financial ministers and central bankers, agreed to a set of easier terms for IMF lending to the most stressed economies. IMF Managing Director Dominique Strauss-Kahn said at an April 25 press conference that there is widespread agreement that the IMF has to inject a fiscal stimulus into its system and also that a cleansing of the financial sector, a lifting of debt, is a necessity to get credit flows to resume.
“We first need to get out of the crisis” before there can be talk about what the exit strategy from a fiscal stimulus program will be for the IMF in three or four years, Strauss-Kahn said.
Zoellick said the World Bank would make full use of its International Bank for Reconstruction and Development by increasing lending by up to $100 billion over three years. The World Bank will triple support for social protection, put in place $55 billion of financing for infrastructure and add another $12 billion for agriculture over the next two years to ensure food security.
U.S. Treasury Secretary Timothy Geithner said at the IMF meeting that the current economic crisis demonstrates that interdependence has both benefits and risks, and it also demonstrates the need for a policy response that is quick, forceful and global.
“In London, G20 leaders set the stage for coordinated action in several key areas aimed at restoring global growth: commitments to deliver sustained stimulus on a scale necessary to restore growth, actions to strengthen financial systems and restore the flow of credit, and increased support for international financial institutions,” Geithner said.
Geithner also told officials at the IMF meeting that the United States is committed to returning its federal budget deficits to sustainable levels and addressing serious structural budgetary issues that include health care costs.
Geithner said the Obama administration will seek U.S. congressional approval for up to $100 billion in additional contributions to the IMF emergency fund.