[Reader-list] World Bank Report on 9.11

Shekhar Krishnan kshekhar at bol.net.in
Thu Oct 11 23:59:00 IST 2001

From: <RCastro3 at worldbank.org>
Subject: WB Institutional Release: POVERTY TO RISE IN WAKE OF 
Date: Mon, 1 Oct 2001 10:03:57 -0400

                            POVERTY TO RISE IN WAKE OF
                             TERRORIST ATTACKS IN US
                Millions more people condemned to poverty in 2002

News Release No. 2002/093/S
Contact: Caroline Anstey (202) 473-1800
Cell: (202) 345-3387, canstey at worldbank.org

Available online at:

WASHINGTON, October 1, 2001?The September 11 terrorist attacks in the US will
hurt economic growth in developing countries worldwide in 2001 and 2002,
condemning as many as 10 million more people to live in poverty next year, and
hampering the fight against childhood diseases and malnutrition, the World Bank
says in a preliminary economic assessment released today.

Before September 11, the Bank expected developing country growth to fall from
5.5 percent in 2000 to 2.9 percent in 2001 as a result of slowdowns in the US,
Japan and Europe, and then rebound to 4.3 percent in 2002. But because the
attacks will delay the rich countries' recovery into 2002, the Bank now warns
that developing countries' growth could be lower by 0.5-0.75 percentage points
in 2002.

"We have seen the human toll the recent attacks wrought in the US, 
with citizens
from some 80 nations perishing in New York, Washington and Pennsylvania," says
World Bank President James D. Wolfensohn. "But there is another human toll that
is largely unseen and one that will be felt in all parts of the developing
world, especially Africa. We estimate that tens of thousands more children will
die worldwide and some 10 million more people are likely to be living below the
poverty line of $1 a day because of the terrorist attacks. This is simply from
loss of income. Many, many more people will be thrown into poverty if
development strategies are disrupted."

Ripples Felt Throughout World

Prior to the crisis, the Bank estimated that the US and other OECD countries
would grow by 1.1 percent in 2001 and recover to 2.2 percent in 2002. But now,
GDP growth rates in the OECD could be lower by 0.75-1.25 percentage points in
2002. This assumes that business returns to normal by mid-2002, that consumers
eventually respond to lower interest rates as they have in the past recession,
and that no new events shock the global economy.

Already, there are signs that higher costs and reduced economic activity are
putting a damper on global trade. Insurance and security costs and delays at
customs clearance are among the main factors pushing up the costs of trade.
Major shipping lines, for example, have increased freight rates to India by 10
to 15 percent.

Tourism related trade flows are being hit exceptionally hard. The immediate
impact in the Caribbean is such that 65 percent of the holidays booked for the
Caribbean have been cancelled . The Middle East is also likely to 
suffer a sharp
decline in tourism revenues during the coming winter.

The fallout from the September 11 attacks will affect different groups of
developing countries in different ways, reflecting their particular
vulnerabilities. For the poorest countries that stall or fall into recession as
a result of a decline in exports, tourism, commodity prices, or foreign
investment, the number of people living below $1 a day will rise. In countries
that experience positive but slower growth, fewer people will be able to climb
out of poverty than otherwise would have been the case.

The slower growth and recessions will hit the most vulnerable people in
developing countries the hardest. The Bank estimates that an 
additional 20,000 -
40,000 children under five years old could die from the economic 
consequences of
the September 11 attack as poverty worsens.

As investors flee to safer havens, the already weak flow of capital to
developing countries will decline further and be increasingly concentrated in
countries that are considered to be relatively immune from the crisis. The
pattern established in the 1990s of private capital flows accounting for a much
greater share of developing countries' financing needs is expected to be
reversed in the near term as both equity and lending activities contract in
lower risk countries. This will require greater support from bilateral and
multilateral official sources if the financing needs of a growing number of
developing countries are to be met.

Outside of the US and OECD countries, the ripples from the September 11 attacks
will be felt across all of the world's regions, particularly in countries
dependent on tourism, remittances from populations living overseas, and foreign

The worst hit area will be Africa, where in addition to the possible increases
in poverty of 2-3 million people as a result of lower growth and incomes, a
further 2 million people may be condemned to living below $1 a day due to the
effects of falling commodity prices. Commodity prices were forecast to fall 7.4
percent on average this year, and are likely to fall even more as a result of
the events of September 11. Farmers, rural laborers, and others tied to
agriculture will bear a major portion of the burden. Travel and tourism
represent almost 10 percent of merchandise exports for the region and are also
likely to be disrupted. The 300 million poor in Sub-Saharan Africa are
particularly vulnerable because most countries have little or no safety nets,
and poor households have minimal savings to cushion bad times. About half the
additional child deaths worldwide are likely to be in Africa.

Oil prices are now at $22/bbl, $5/bbl lower than just before 
September 11, after
a brief upward spike following the attacks. Prices of non-oil commodities have
also declined. Many agricultural futures have declined by 5 percent since the
attacks. These declines are likely to set the stage for lower commodity prices,
that are lower by 3 percent for agriculture and 5 percent for metals next year.
These prices have never recovered the levels seen prior to the East Asia crisis
of 1997-98, and now find themselves buffeted by yet another global 
downturn. For
economies that are dependent on commodity exports, particularly for cotton and
beverage exporters, this portends a potentially large terms of trade shock over
and above the impacts of slower growth in GDP.

Aid, Trade and Policies Key to Sustaining Poverty Fight

The Bank's assessment is subject to revision in coming weeks and depends on how
events unfold. But World Bank Chief Economist Nicholas Stern stresses that both
rich and developing countries must be vigorous and vigilant to ensure that the
global rebound occurs next year and continues strongly into 2003.

"Policy responses have to be swift and somewhat bolder in rich and poor
countries because of the heightened level of risk to the global 
economy?and they
have to be vigilant because the uncertainties associated with future political
and military events are unusually large," says Stern. "Maintaining world trade
is more important than ever, especially in the face of an economic slowdown
which is often accompanied by pressures for increased protectionism."

Several steps are crucial in sustaining the global fight against poverty in the
wake of September 11:

· Boost Foreign Aid ? Private capital flows to developing countries are going
down sharply, reversing the trend of the last decade. They are 
estimated to fall
from $240 billion last year to an estimated $160 billion this year. This makes
it even more imperative that governments increase official assistance to fill
the financing gap. Currently, aid claims only 0.22 percent of GNP of the OECD
countries, far short of the 0.7 percent goal agreed to by the international
community. The evidence from the Bank's work on aid effectiveness demonstrates
that well-directed aid, combined with strong reform efforts, can greatly reduce
poverty, and can also mitigate particular effects of crises, such as terms of
trade shocks.

· Reduce Trade Barriers ?Now more than ever, the WTO summit must go ahead, and
it must be a development round, one that is motivated primarily by a desire to
use trade as a tool for poverty reduction and development. Substantial trade
liberalization such as this would provide an additional cumulative income in
developing countries of some $1.5 trillion over a decade.

· More Coordination ? The major industrial countries are likely to have a
greater positive impact if their policies move in the same direction 
as they did
immediately after the attacks. Building additional coordination into 
the conduct
of economic policy, particularly monetary policy, could help counteract large
shocks in the global financial system. Beyond reliance on all-important
automatic stabilizers, fiscal policy may have to be better targeted in the
coming months, particularly in providing assistance to low income groups and to
affected regions, which are most likely to feel the immediate brunt of a
slowdown and disruption.

· Building Social Consensus for Continued Reforms ? Only a limited number of
developing countries can adopt counter-cyclical macroeconomic policies. Most
countries are too small to counteract imported shocks, and many face limited
financing capabilities. For these countries, accelerating reforms to 
improve the
investment climate may help encourage foreign and domestic investment during
this time of heightened uncertainty. Additional financing from the 
financial institutions may help implement pro-poor programs and leverage
directly or indirectly more private investment.

World Bank Group Support

The World Bank stands ready to do its part. Managers and staff?many of whom are
stationed in the field?have been in contact with high-level officials in all
client countries to assure them of the Bank's continued commitment to 
deliver on
previously agreed programs, and to offer help in minimizing and mitigating
adverse impacts from the heightened uncertainty, risk, and volatility in the
current global economic environment.

Work is currently underway to assess needs on a country-by-country basis.
Particular attention is being paid to Africa, given the extreme poverty and
vulnerability to declining commodity prices of so many countries there. The IDA
program, including possible additional debt relief under the HIPC 
Initiative, is
being reviewed, and IFC is paying particular attention to its programs there.
Countries in other parts of the world?especially those directly affected by an
increased influx of refugees or a downturn in tourist receipts?also are getting
special attention.

At the same time, the Bank is reviewing its lending instruments and financial
resources to see how they might be best deployed in current circumstances. The
menu of responses is likely to include quick disbursing policy-based adjustment
lending, emergency recovery loans/credits, and supplements to existing
loans/credits designed to protect essential programs. New investment 
lending and
portfolio restructurings designed to target assistance to newly emerging
priorities and to protect pro-poor programs also are being considered.

Shekhar Krishnan
9, Supriya, 2nd Floor
Plot 709, Parsee Colony Road No.4
Dadar, Bombay 400014

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