By Deepal V. Perera in Washington DC
World Bank President Robert B. Zoellick on Thursday called on developed nations to act fast in resolving their own big problems before they become bigger problems for the rest of the world.
Zoellick made these comments at the opening news conference of the annual meetings of the World Bank and the IMF now in progress in Washington.
“A crisis made in the developed world could become a crisis for the developing countries. Europe, Japan and the United States must act to address their big economic problems before they become bigger problems for the rest of the world. Not to do so is irresponsible,” Zoellick said.
He also cautioned that falling markets in developed countries and declining investor confidence would soon hit the economies of the developing countries as the world was now in the danger zone.
“Falling exports were already a worry. Now falling markets and declining confidence could prompt slippage in developing countries investments and a pullback by their consumers too. A fall in developing countries’ domestic demand would mean we would lose their economic engines as drivers of global recovery.”
The World Bank Chief also pointed out that up until recently, developing countries had been the bright spot in the global economy, providing around half of the global growth, while Europe, Japan and the United States have struggled with high debts and high unemployment.
“While developed countries stumble, the situation for emerging markets may be changing for the worse. Since August, we have seen bond spreads for emerging markets increase while their equity markets have declined like those in developed markets and capital flows have declined sharply,” Zoellick said.
He said that developing countries were not well placed as they were in 2008 in withstanding another shock. Their budgets are not so robust that they can simply spend their way out of trouble and some are walking a monetary policy tight rope, balancing price pressures and these new dangers. Add in volatile and high food prices, a particular burden on the poor in developing countries and the threat of rising protectionism, and you can see that developing countries face increasing headwinds.
“If the situation deteriorates further, then developing countries’ growth could turn down, their asset prices could drop and nonperforming loans could increase. With these pressures and prospects, we need to anticipate protectionist pressures, ‘beggar thy neighbour’ policies and risks of a retreat to populism,” Zoellick added.
Accordingly, the World Bank Chief termed the future of the world as a danger zone, stating that in 2008 many people said that they did not see the turbulence coming.
“Leaders have no such excuse now; dangerous times call for courageous people… Some developed country officials sound like their woes are just their business. Not so. I think that a double dip recession for the world’s major economies is unlikely. But my confidence in that belief is being eroded daily by the steady drip of bad news.
The World Bank President pointed out that acting on them would mean honest and difficult discussions with parliaments and publics. “Delay will narrow choices and make them harder and more costly. All of us across developing and developed economies have a stake in how they handle it. In that sense I will use annual sessions’ meetings as a complement to UN meetings in New York to assist countries rent by conflict, for example in the Horn of Africa, Southern Sudan, Cote d’ivoire, Afghanistan and Libya.”