Countries trying to cope with severe global slump
By MARTIN CRUTSINGER
WASHINGTON— The World Bank, seeking to bolster efforts to fight the worst global economic downturn since the Great Depression, said Thursday it would provide $45 billion over the next three years to support road building and other infrastructure projects in poor nations.
World Bank President Robert Zoellick said the money was designed to support job creation and "help jump start a recovery from the crisis."
The $45 billion is $15 billion more than the World Bank spent on infrastructure efforts in poor nations compared with the three years before the crisis.
When that money is combined with increased efforts from an arm of the World Bank that supports private sector projects, the increased funding could total $55 billion, the World Bank said. The effort is designed to give developing countries the same type of stimuli rich nations are providing to create jobs in the face of massive layoffs caused by the recession.
The World Bank announcement came as finance officials from around the world were gathering in Washington for three days of discussions beginning on Friday that seek to resolve differences over the best approach to take to combat the current downturn.
European nations are still resisting pleas from the United States for greater increases in stimulus spending, while new economic powers like China and India believe they are not getting the recognition they deserve from old-line organizations such as the International Monetary Fund and the World Bank.
Analysts are not looking for breakthroughs on the major areas of disagreement, but they expect officials will find ways to paper over differences out of fear that signs of too much discord could spook financial markets.
Treasury Secretary Timothy Geithner told a Washington audience Wednesday that he was seeing "some signs of stabilization." He also sought to defuse anger that it was poorly regulated U.S. markets that wrecked the global economy.
"We bear a substantial share of the responsibility for what has happened, but factors that made the crisis so acute and so difficult to contain lie in a broader set of global forces that built up in the years before the start of our current troubles," he said.
The discussions are set to get under way Friday with meetings of Group of Seven wealthy nations — the U.S., Japan, Germany, France, Britain, Italy and Canada — followed by talks over dinner that night among the Group of 20 nations, which adds major emerging powers such as China, Russia, India and Brazil to the mix.
In many ways, the task facing Geithner, Federal Reserve Chairman Ben Bernanke and their foreign counterparts is to fill in the blanks from the agreement that President Barack Obama and the other G-20 leaders reached at their summit on April 2 in London.
However, the finance officials may find it just as difficult as the leaders did to patch over all the differences.
The U.S. still believes that countries need to keep pursuing aggressive stimulus efforts in the form of tax cuts and increased government spending to boost demand. European nations contend they already have done enough in this area and they do not want to run up the gigantic budget deficits that Obama has been willing to take on in pursuit of his $787 billion economic stimulus measure.
Another big problem is how to make the numbers from London add up. The G-20 leaders pledged to boost support for the IMF, the World Bank and other international lending organizations by $1.1 trillion. But the biggest chunk of that amount — $500 billion for an emergency lending facility at the IMF — is still short of the goal.
Obama this week asked Congress for authorization to boost the U.S. contribution tenfold to $100 billion, and Europe and Japan have pledged equivalent amounts. However, other major countries, including China, Russia and Saudi Arabia, have not come forward yet with their commitments.
There is hope that the weekend discussions will produce new pledges, but the issue is complicated by the fact that China and other big developing countries like India want to link their increased support to making progress on their long-sought goal for a bigger voice in the operations of institutions like the IMF. This proposal is being resisted by various European nations who would lose some of their current voting powers.
The debate also could hinder efforts to reach agreement on a proposal to sell a portion of the IMF’s vast gold reserves to provide more support for the poorest countries and to expand an IMF currency known as special drawing rights, a move that could provide support to poor nations.
There is general agreement that IMF resources need to be expanded in order to deal with the current financial crisis, which has caused severe hardships in a number of countries. Already the IMF has put together emergency loan programs for Hungary, Serbia, Romania, Iceland, Ukraine, Belarus and Latvia.
Mexico, Poland and Colombia also have announced plans to tap a new, more flexible IMF line of credit designed to support emerging countries that are considered well managed.
Advocates for the poor are urging the finance officials to find ways to resolve their differences and fulfill the commitments made at the G-20 summit.
"What’s happening at this moment is that ... capital is drying up for the poorest countries," said Marita Hutjes, Oxfam senior policy adviser. "We feel it’s part of the responsibility of the rich countries where the financial crisis originated to actually address that problem."
Underscoring the extent of the challenges, the IMF released a new economic forecast Wednesday that projected that the world economy would shrink 1.3 percent this year, the first decline since World War II, and what the IMF called "by far the deepest global recession since the Great Depression."
Private economists said an output decline of that magnitude would leave at least 10 million more people jobless around the world.