You will harm the poor – World Bank President warns the rich

Robert Zoellick
Robert Zoellick

Wealthy nations must be careful not to cause more suffering to the developing world as they take bolder steps to bolster their faltering economies, the World Bank president, Robert Zoellick, said  Sunday.

Zoellick warned that poorer countries, already faced with mounting job losses, were vulnerable to the unintended consequences of policies devised to rescue financial markets.

“Developed countries have guaranteed a lot of bank debt,” Zoellick said in an interview while touring the part of Sichuan Province devastated by an earthquake in May. “It’s actually made it hard for developing countries that had good budgetary programs to be able to go to market and issue bonds.”

He added: “It’s important for developed countries to recognize that at some point they’re going to need exit strategies for these guarantees or be able to discipline them. I’m not saying that they should take that step now, but otherwise developing countries will be bearing the brunt of this.”

The World Bank said last week that the global financial meltdown was a heavy burden on developing economies, forecasting 4.5 percent growth next year, down from 6.3 percent in 2008.

“This financial crisis has moved to an economic crisis, and next year it will be an unemployment crisis,” Zoellick said.

He said the recovery could be hindered if countries turned inward in an attempt to save their economies with little regard for others. “I’m worried that the unemployment, particularly as combined with price discounting, could lead to waves of protectionism,” he said.

While praising monetary expansion and fiscal stimulus in the United States and elsewhere, Zoellick said such policies could contain the seeds of future economic problems adding that it would require discipline to rein them in down the road.

Along with potentially swollen budgets, developed countries could find themselves sitting atop another liquidity roller-coaster after injecting huge amounts of cash to get their clogged financial markets flowing again.

Loose monetary policy after the bursting of the technology bubble earlier this decade in part explained the credit boom and bust in the United States that sparked the current financial crisis, Zoellick said.

“You have tremendous liquidity now, much more than in 2001, so when the velocity of money picks up, the central banks are going to have to be able to absorb some of that liquidity,” he said.
Source: Reuters

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