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Tuesday, March 17, 2009

World Bank: Crisis Hits Developing Nations Harder

Economists and public officials need to be optimistic about the economy. It they are too dour, they just encourage the public to think that they should be replaced. Economists, after all, might be considered a luxury in a down economy. Politicians who predict only hopelessness may be seen as ineffective stewards of their country's finances.

So far, the great majority of analysts and world leaders have said that, while some nations will experience economic contractions this year, the world as a whole will continue to have aggregate GDP improvement. The usual argument is that the strength of large, emerging nations like China and India will offset trouble in the U.S., E.U., U.K., and Japan.

The World Bank is having none of it. According to The New York Times, "In a bleaker assessment than those of most private forecasters, the World Bank predicted that the global economy would shrink in 2009 for the first time since World War II."

In the report, called "Crisis Reveals Growing Finance Gaps for Developing Countries", the organization makes three critically important points. The first is that as developed nations like the U.S. go into the debt markets to finance deficits, they crowd out smaller nations which have much worse debt ratings, effectively denying them access to the capital markets. The next problem is that poor nations will need to depend more on richer ones for items that are essential such as food and medical supplies. The last point is that global industrial production could be down as much as 15% by the middle of this year, compared with 2008, making the strength of the Chinese and Indian economies less dependable.

Taken together, the problems are a Rubik's Cube without an apparent solution. Developed countries with falling GDP and shrinking industrial production may not have the financial resources to right their own economies, and may choose not to afford to help nations which have the unimaginable issues of feeding and housing their impoverished citizens. (Watch a TIME video with the creator of the Rubik's Cube.)

The only immediate solution to this crisis would appear to be a form of global socialism where some portion of the money available though the debt markets to countries like the U.S. and Japan would be funneled to nations like Cambodia and Ukraine. But, recessions have tended to move nations toward Darwinism and away from generosity to those outside their own borders.

The World Bank message is simple but is likely to fall on deaf ears. The natural urge to protect one's own country is likely to trump the act of giving, and getting around that is nearly impossible.

The fact that poor countries can and will be crushed under the wheel of the global recession makes one point extremely clear. There is no league of nations, nor has there ever been one, perhaps because the interests of the largest powers are too widely separated. Since there is no forum to address the issues that could undermine the future health of all countries, the current lack of cooperation becomes a form of fatalism.

The most convenient way for the developed nations to look at the global economic problem is that there is nothing that can be done to prevent some poor nations from disappearing. Other third world nations will return to financial and business infrastructures prevalent decades ago.

It is almost certain that some of the weakest nations in the world will be destroyed by the current economic calamity. It is astonishing that no one in the developed countries has had the courage to speak this truth. That would at least give those countries, likely not to survive, the knowledge that no help is coming. At least, then, they could desperately try find an alternative to outside aid.


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