Okonjo-iweala Forum 2009

InterAction 25th Anniversary Forum: The Next 25 Years Start Today SAVING THE POOR FROM THE GLOBAL CRISIS 1 July 9, 2009 Closing Address By Dr. Ngozi Okonjo-Iweala, Managing Director, World Bank

Dear Friends, Ladies and Gentlemen, Good afternoon. Let me first thank InterAction for inviting me to the 25th Anniversary Forum. What a special occasion! It is a great honor for me to be here. A quarter-century of service is a milestone, a worthy cause for celebration. Congratulations, members of InterAction! [Impact of the global crisis on developing countries] We celebrate this occasion at a sobering time in global economic history. We are experiencing the “most serious financial crisis since the Great Depression”. It is not just a financial crisis. Across the globe, we have all seen how the economic situation has deteriorated sharply over the last year. What began with turmoil in some segments of financial markets in advanced economies has turned into one of the sharpest global economic contractions in modern history. Global output is now expected to shrink by 2.9 percent in 2009, the first contraction since World War II. Borrowing a term coined by the

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This is a prepared draft. Please check against delivery.

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IMF, the world has entered a “Great Recession”. Whilst there are recent bits and pieces of sign of green shoots that may or may not have roots, these shoots are mostly in the financial sector, but there is a lag in the real sector which is still showing signs of excess capacity with unemployment figures going up everywhere. The crisis exacts a heavy toll on developing countries. Our latest forecasts suggest that developing country growth will slow sharply moving from 8.1% in 2007 and 5.9% in 2008 to only 1.2% in 2009. When China and India are excluded, GDP in developing countries is projected to fall by 1.6%. Sub-Saharan Africa will grow only by 1%, and Eastern Europe, Central Asia, Latin America and the Caribbean are likely to end 2009 with negative growth. This slowdown threatens the enormous gains in incomes and living standards that have occurred across the developing world over the last decade. Developing countries are faced with rapidly deteriorating economic conditions. The reversal of capital flows, collapse in stock markets, and general deterioration in financing conditions have brought investment growth in the developing countries to a halt. Net capital flows into developing countries fell sharply to $700 in 2008 from $1.2 trillion in 2007, leaving a large gap to fill. International capital flows are projected to fall further in 2009 to US$363 billion. In Africa, capital markets have dried up in many countries. African stock markets have fallen by an average of 40 percent. In my country Nigeria, the capital market, which had been an investors’ delight in the last two years, has now become a source of anxiety. The

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market capitalization of the 303 listed equities, suffered its highest fall in the 48-year history of the Nigerian Stock Exchange, depreciating by 32 per cent by the year end. This is also the first global crisis that started in remittance sending countries and it’ll be developing countries who suffer the fallout. For countries where remittance inflows are large relative to GDP a decline could be devastating. This is true for countries like Tajikistan (45 percent), Tonga (35 percent), and Lesotho (29 percent). People are losing jobs in developing countries. Already 100,000 people in the DRC are out of work because of mine and smelter closures. In Cambodia, the garment industry has laid off 30,000 workers—mostly women. The International Labor Organization (ILO) estimates that global job losses could hit 51 million. In these developing countries, especially the low-income countries, the economic crisis is morphing into a severe human and development crisis. The crisis-related growth slow down is causing immediate adverse knock-on effects on the pace of poverty reduction. Adding to the poverty impact of the food crisis, we estimated that there would be 55-90 million more extremely poor people in 2009 – living on less than $1.25 a day – than expected before the crisis. In Sub-Saharan Africa and South Asia, where the bulk of the world’s poor are located, the growth slowdown virtually eliminates any prospect for continued reductions in the poverty count in 2009. As you all know because you are there on the ground, to people in poor countries, the impact of the crisis is literally a life-and-death matter. Poor people usually have very thin livelihood cushions to tide them over bad times and are forced to run down their

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meager earning assets in order to survive. When bad times come, they are unable to reattain their pre-crisis income levels, leading to reduced access to food. The Food and Agriculture Organization (FAO) has already estimated that more than 1 billion people are now faced with hunger. Behind these numbers, there are real-life stories. Here are some entries I collected from some blogs on the World Bank website mostly contributed by young people in the developing world. •

“In Mexico the crisis is having a tremendous impact on the tourism sector. I have a cousin in Playa del Carmen and she is suffering because they cut her husband's salary by 50 percent, and she was setting up a business to sell jellies, but she can't sell anymore, and owes money for supplies. ”

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“The impact of this scourge is huge in Gabon. In fact, my friends and relatives no longer have jobs. And what's worse is that there is no alternative upstream or downstream, as offers from the SMEs, SMIs, and public institutions have plummeted exponentially.”

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“My country, Pakistan, has been affected by financial crisis... security problems have also eaten & beaten the economy as a whole.”

Under these difficult circumstances, it is often the most vulnerable people who suffer the most, particularly women and children. In many poor countries, when economic situation deteriorates, girls are pulled out of school to lend a hand at finding more money for the household; women lose their jobs and incomes as demand for export s falls away; and mothers can no longer find credit through microfinance institutions and

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are pushed into subsistence work to make ends meet. Children are also victims of economic downturn. Our study at the World Bank shows that if the slow growth persists infant mortality in Africa could rise by an additional 700,000 deaths per year. A new study by the United Nations also shows that the number of underweight children worldwide will rise from 121m to 125m by 2010. Increasingly, children are forced into labor to sustain the family income. [What the World Bank Group is doing] Faced with a grave human crisis in-the-making, we, at the World Bank Group, have moved quickly to leverage our resources with financial support from a variety of public and private sources using a menu of options to meet the needs of those developing countries hardest hit by the crisis. In response to the surging need of our clients, we just had a record-setting fiscal year which ended on June 30. Overall, we committed $58.8 billion to support countries hit by the global crisis, a 54 percent increase over the previous year, and a record high for the World Bank Group. Our IBRD lending almost tripled this year, to $32.9 billion – a new record. IDA commitments hit another record: $14 billion this year, 25 percent more than last year – and over half of these commitments went to sub-Saharan Africa. IFC provided $15 billion in financing for private sector development this year, and half the projects financed were in IDA countries. MIGA issued $1.4 billion in guarantees. Our crisis-response projects have focused on three main areas: social protection to support the most vulnerable; maintaining long-term infrastructure investment to

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provide a foundation for future growth; and sustaining the potential for private sector-led economic growth and creating jobs. This support builds on the work we began last year to counter soaring food and energy prices to respond to broader needs. We increased the Global Food Crisis Response Program (GFRP) ceiling to $2 billion so we can continue to meet additional expenses of food imports, buy seeds for the new season, and provide support to the malnourished and hungry. We established a new Rapid Social Response Program (RSR) to address urgent social needs, and we launched the Infrastructure Recovery and Assets Platform (INFRA) to help developing countries maintain their infrastructure sectors. IFC, the private sector arm of the World Bank Group has also launched a number of important initiatives to promote private sector growth. I want to highlight our close cooperation with international or local NGOs and community-based organizations in response to the food crisis. We have organized several extremely useful dialogues with NGOs to understand the situation on the ground, and InterAction was a key participant. Under the GFRP, many local NGOs are supporting implementation of a range of activities ranging from school feeding programs in Togo, to delivery of essential agricultural inputs to farmers in Somalia, and cash-for-work programs in Sierra Leone. In Tajikistan, NGOs have also played an important role in ensuring governance and accountability in our emergency operations by helping monitor beneficiary selection and monitoring the distribution of farm inputs. [What else can we do to get out of the crisis?]

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Ladies and gentlemen, the record-high amount of lending the World Bank shows that developing countries need urgent assistance at this difficult time. We expect that the requests will only go up in the coming year as the pace of recovery is far from certain. The question I ask myself everyday is that “what else can we do to help address the human plight of those the crisis is hitting the most”. It is also a question everyone here should ask oneself. Let me just share a few thoughts. First, we must be vigilant that the crisis is far from over. While there is some evidence of a financial thaw in the world, there is little hope for a quick recovery. While the fears of another Great Depression are quickly receding, any recovery this year will remain weak. Against this backdrop, we need to mobilize a global and inclusive response to this global crisis. The response must be a global one with attention paid to local specificities. For example, in the emerging market countries, the main focus should be on preventing the financial crisis from spreading by providing countries with more access to capital and improving the liquidity in the financial sector. I want to emphasize the urgent need for assistance in low income countries. At this time, more than ever, mobilization of resources from donors and international financial institutions is needed for the protection of core spending including on education, health, women and children, and critical infrastructure.

Failure to help these low-income

countries would not only generate human crisis, but also endanger security and political stability, especially in fragile and conflict affected states.

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Unfortunately, appetite for more aid is low among the development community. While preliminary data suggests total ODA from DAC members rose to a record of $119.8 billion in 2008, it still fell short of the Gleneagles targets by $20 billion. Given the fiscal predicament donors are facing at home, foreign aid could fall substantially—as happened in Norway, Sweden and Finland when aid fell by 10, 17 and 62 percent respectively during their financial crises of the 1990s. Increasingly, the World Bank Group is stepping forward as a catalyst for action. We participated in G-8, G-20 and UN meetings at the highest levels this year to put lowincome countries on the agenda and keep heads of governments and ministers focused on the poorest people in the world. The upcoming G-20 Summit in Pittsburg will be another opportunity to call for attention and actions on low-income countries. We will continue to work with our partners including civil society organizations to advance this agenda and make the summit a “development summit”. To that end, I invite all of you here to add your voice to our call for more attention on low-income countries and more support for the poorest population in the world. We will lay a number of concrete issues on the table for G-20 heads of state including early replenishment of IDA 16, and we need your support. I also want to make another pitch for empowering women in combating the crisis. As I said earlier, women are often the first to suffer when economies crumble. This is not only unfair, but also bad economics. It is important to protect women in this crisis. But let us not look at women only as victims. We should also see women as agents of change, and understand that to put earnings in a woman’s hand is a smart way to help rebuild the

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economies. Women also reinvest a much higher portion of their earnings into their families and communities than men do, spreading wealth beyond themselves. If done right, we will emerge with a healthier pattern of growth than the one that brought us the crisis. I know many of you are working very hard in this area. I want to tell you that this is the right and smart thing to do especially at this difficult time. Please keep on your good work. I understand that the crisis is also having a big impact on foundations and civil society organizations. I have read report about ActionAid closing its medical clinic in Pakistan and cutting 30 out of its staff of 86 in Malawi. I know a lot of people are nervous and this is not an easy time for all of us. But let us not forget it is more difficult for poor people who are suffering everyday. Let us be innovative and try our best to help. [Working Together in the Post-Crisis World] Let me now step back and think past the crisis. As we all know, crises all come to an end at some point. Indeed, in the bleakness of this crisis, in the depth of this global economic recession, in the midst of endeavors to find immediate solutions, we must look ahead. While it remains uncertain what the post-crisis world would look like, one thing is clear that the world needs an adequate system to minimize reoccurrences of such crises and a system that can effectively manage crises when they occur. Specifically, we need •

A system that does not devastate markets (financial, commodity and agriculture);

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A system that does not leave a billion people hungry;

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A system that protects the environment for future generations,;

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A system that increases productivity and provides jobs for all; and

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A system that protects its women and children.

Achieving this goal entails a paradigm shift on all of us. We must look ahead to new markets, to better and new regulation, to smarter and more equitable trade, and to cleaner, greener and more job creating growth. We must look ahead to growth and development that does not leave billions behind. Not only do actions taken in the developed world have a direct impact on the lives of the poor, we need better mechanisms for sharing the fruits of globalization with those who are less well-positioned to benefit. This is not simply a matter of pragmatism. It is a matter of self preservation for the developed world and of life and death for the developing world. To get there, I believe development organizations like the World Bank and Civil Society Organizations (CSOs) like InterAction are natural allies in promoting a new and more inclusive globalization. I do not think there is a need to spend more time emphasizing the critical importance of our partnership with CSOs such as InterAction. Our common goal in helping poor people fighting against the crisis and battling against poverty will continue to draw us together. [End] Twenty-five years ago, when the widespread famine hit Ethiopia, a group of rock stars stood up and wrote this beautiful and touching song “Do They Know It’s Christmas.” Twenty-five years later, the whole world still remembers this song and the great civil

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efforts behind it. Today, on the occasion of InterAction’s 25th anniversary, the grave economic crisis is offering us a unique opportunity for fundamental renewal and the possibility of a more inclusive and responsible growth for the future. To seize this opportunity, we must act now. To echo the theme of the Forum—The Next 25 Years Start Today, let me quote the great German write Johann Wolfgang von Goethe, “Knowing is not enough; we must apply. Willing is not enough; we must do.” Let’s put our words into action and let’s all work together towards a better future. Thank you very much. Once again, congratulations, InterAction and your member organizations.

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