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G-20 beware: no green shoots for the poorest


Talk of green shoots in the OECD countries leaves us wondering whether the financial and economic crisis is behind us. But while the initial panic may be over, talk of an early recovery also seems premature, particularly for those countries on the margins of the global economy where economic dangers still lurk.

Work by ODI confirms that the impact of the financial and economic crisis on developing countries has been significant, with at least two countries facing negative growth in 2009 and a large number of others facing major downward adjustments of pre-crisis growth rates.  The human cost cannot be ignored, with between 50 and 100 million more people trapped in poverty, surviving on less than $1.25 a day and 28 million jobs in Africa alone made vulnerable by the crisis.  

One year on from the failure of Lehmann Brothers and it is becoming clearer that the scale of the resource commitment by the G-20 to supporting developing countries through the crisis, while positive, is not enough.   In June, The World Bank estimated that developing countries need between $352bn and $635bn in 2009 to maintain core spending and restore growth.  Stepping up to address the unfolding food and climate crises will require even more resources.   The G20 London Summit in April promised $240bn, of which $50billion was for the poorest countries. The key challenge for the G20 meeting in Pittsburgh later this week is to consider the scale of its financial commitment to developing countries and to make sure that when recovery does finally take hold, developing countries are not at the end of the queue picking up the crumbs.

ODI today is taking stock of the effects of the crisis on developing countries and, in a new Briefing Paper, asking what action needs to be taken to ensure that developing countries can build back better from this crisis.  Three priorities emerge:

  1. Support recovery by retaining the current fiscal stimuli and holding firm on anti-protectionism. Developing countries need to be pro-active around managing the effects of the crisis and channel additional funding to where the marginal effects are greatest.
  2. Manage volatility through better financial regulation and new financial rules to increase the transparency of capital flows, curb illegal flows and reduce the pro-cyclicality of financial flows to developing countries.
  3. Establish a global compact for crisis resilient growth based on a clear international commitment to providing global public goods, a reformed shock financing architecture and reformed International Financial Institutions, with the key objective of supporting more resilient growth and development strategies.

Evident from this crisis is that the welfare of developed and developing countries is closely interlinked.  It is also evident that neither developed nor developing countries can simply afford to wait for crises to happen: instead, they need to be prepared take pre-emptive action that, above all, protects the poorest and most marginal from bearing the brunt.  This is a very different way of thinking about future economic policy; but one which cannot be ignored.