There are some forgotten victims of the Nightmare on Wall Street.
Crises like the one we’re experiencing tend to hit people living in poverty the hardest and it will be the case this time around. Developing countries will be hit hard, and people living in poverty in those countries the hardest.
There should be no diminishing the crisis’ impact in rich countries like Australia. But people living in poverty in developing countries, already struggling to survive on miniscule incomes and lacking basic human rights like access to education and healthcare, have limited resources to cope with the impact of this sort of crisis.
This financial crisis comes on the back of what Dominique Strauss-Kahn, the head of the International Monetary Fund (IMF) calls “the other crisis”. This crisis is the triple whammy of the devastating food price crisis, the wide-ranging consequences of the increases in fuel prices and the increasingly evident impact of climate change.
It’s no wonder that over the weekend, the Development Committee, the joint World Bank and International Monetary Fund group, warned: “Developing and transition countries – many of them already hit hard by current high prices for energy and essential foodstuffs – risk very serious setbacks to their efforts to improve the lives of their populations from any prolonged tightening of credit or sustained global shutdown. The poorest and most vulnerable groups risk the most serious – and in some case permanent – damage.”
So how will the poorest, with no savings accounts, no superannuation and no mortgages, be hit so hard?
The credit crunch is likely to lead to increases in the cost of borrowing and risk-averse behaviour, leading investors to withdraw funds from developing country markets. While the bigger developing countries with accumulated reserves and a strong fiscal position, such as China, will probably cope, most people in developing countries will be hit.
It’s also likely that many developing countries will be affected through a decline in export demand from those developed countries which go into recession.
So what is to be done?
Now is not the time to walk away from commitments to international development. The Rudd Government has committed to increase aid spending to 0.5% of Gross National Income by 2015. It is acting on this pledge, significantly increasing aid spending in this year’s budget. The case for good quality aid has been enhanced by the multiple crises, not weakened.
A real danger is that countries could turn inward. Protectionism may return with a vengeance which would be devastating for people living in poverty in developing countries.
The financial crisis should not be used as an excuse for inactivity in tackling long-standing global problems such as climate change.
The world community needs to find a way to examine some of the certainties of the last few years. Surely this crisis has demonstrated the importance of effective regulation, of priortising the ‘real economy’ over the unreal, ‘casino economy’ of Wall Street. Importantly it’s time for a new ethical conversation about what sorts of values should underpin our society and our economy.
Crisis provides the opportunity for leadership. To truly meet the needs of the hour the leadership must look beyond our own backyard.
This opinion editorial appeared in The Australian Financial Review on 20 October 2008.