Global aid ministers warn of risk of rising poverty

[Niels Bohr 72]

Sun Apr 26, 2009 3:06pm EDT By Lesley Wroughton

WASHINGTON (Reuters) - Global finance and aid ministers on Sunday warned that world poverty will rise sharply as more nations fall victim to the financial crisis unless donor countries step up funding for the developing world.

The ministers from the 185 member countries of the World Bank and International Monetary Fund said the crisis should not be allowed to set back progress made in recent years under targets set by the U.N. to halve poverty by 2015.

"A clear message must go out from this meeting, that despite the crisis, we will not allow achievement of the Millennium Development Goals to be jeopardized," German Development Minister Heidemarie Wieczorek-Zeul told the joint IMF-World Bank Development Committee.

"Instead we need to reaffirm, expand and deepen the international alliance for sustainable development," she said.

Developing countries, initially shielded from the direct impact of the financial crisis, are now being hurt just as they were trying to recover from a damaging food and fuel crisis.

An outbreak of a new flu virus that has killed 81 people in Mexico and infected 20 in the United States was being talked about in corridors and could dent hopes for a global recovery, but it was not raised by ministers in the official session.

The World Health Organization warned on Saturday that the swine flu outbreak has the potential to cause a global pandemic.

Asked by Reuters whether the outbreak would impact the global economy, European Central Bank Governing Council member Ewald Nowotny said: "I don't think so but I don't have enough factual information to give a qualified answer to that."

FUNDING DEVELOPMENT BANKS

The focus of the official session remained on protecting the developing world from the most virulent financial global crisis since the Great Depression.

"The international community needs to work together to prevent the current crisis from escalating into a development crisis," China's Deputy Finance Minister Li Yong said.

Ahead of the weekend meetings, the World Bank estimated developing nations faced a financing gap of between $270 billion to $700 billion, and it called on donor nations not to forget promises made in 2005 to increase aid to the poorest.

"Additional resources need to and must be mobilized and effectively deployed in light of increasingly pressing needs," it said.

The World Bank and regional development banks are currently reviewing how much capital they might need to help poor nations weather the crisis and a global recession.

World Bank chief Robert Zoellick has already indicated he may need to call for an early replenishment by rich donors of the Bank's fund for its poor borrowers if the crisis drags on.

U.S. Treasury Secretary Timothy Geithner said it was important to ensure ample funding.

He said the review of each banks' capital needs was also an opportunity to look closer at wider reforms to make them more effective in carrying out their missions to fight poverty.

PRUDENT PLANNING

Venezuelan Planning and Development Minister Jorge Giordani said developing countries worried that the lending capacity of the World Bank could be compromised if the global crisis turns out to be deeper and longer than expected.

"Even though there is still a high degree of uncertainty about the duration and intensity of the current global financial and economic crisis, we should be prudent in our planning," he added.

The World Bank said economic growth in low- and middle-income countries will slow sharply this year to 2.1 percent from 5.8 percent as a deep recession in the advanced economies hits exports.

"This sharp slowdown is likely to seriously set back progress on poverty reduction," the Bank said.

Food and fuel price increases between 2005 and 2008 pushed between 160 million and 200 million more people into extreme poverty, and about half of them will remain poor in 2009 even as prices recede from their peaks, it added.

Recent World Bank analysis also suggests that the current crisis will result in 53 million more people living in extreme poverty in 2009, or 65 million more if a $2 a day measure is used. It said 200,000-400,000 more infants will die each year.

"These numbers will rise if the crisis deepens and growth in developing countries falters further," it added.

(Additional reporting by Anna Willard; Editing by Tim Ahmann)