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Friday, April 23, 1999 Published at 17:03 GMT 18:03 UK

Business: The Economy

World Bank: 'Help the poor'

Poverty has increased dramatically in crisis-torn countries like Indonesia

The World Bank has called for more help for the world's poor who have been particularly hard hit by the global financial crisis.

[ image:  ]
James Wolfensohn, the World Bank president, said that the slowdown in economic growth had led to a dramatic increase in the number of those in poverty - which the Bank defines as living below $1 per day.

"We are down to about 1.5% growth in our range of countries, down from 4.7% two years. When you have 3-4% population growth, (that) has an obvious impact on per capita income," Mr Wolfensohn said.

The World Bank predicts that the number in absolute poverty by the end of the year will reach 1.5bn - one quarter of the world's population.

The problems for the world's poorest countries have been exacerbated by the fall in commodity prices, which have slid by between 15% and 30% since the crisis began.

"Until we see a pick-up in commodity prices we have still have a real development issue problem, even if world economic growth revives next year," he said.

Debt initiative under fire

[ image: Debt relief has not helped the world's poor]
Debt relief has not helped the world's poor
But the means of helping the world's poor are the subject of fierce debate.

One of the main criticisms has been of the Heavily Indebted Poor Countries initiative, which aims to forgive up to 80% of the debts of 40 of the world's poorest countries that implement economic reform programmes.

Charities like Oxfam and Jubilee 2000 say the programme is too little, too late, and UK development aid minister Clare Short has echoed these criticisms.

She says that the HIPC initiative is fundamentally flawed, because it is aimed only at restoring a country's ability to borrow, rather than considering how much of the government's revenues have been diverted from spending on health and education to pay for debt service.

"We are seeking more use of fiscal indicators in determining debt relief, so that HIPC has a more direct impact on freeing up resources to be switched to anti-poverty spending," she said.

But Mr Wolfensohn says that, with total international development aid of only $33bn, and poor countries' debts totalling $200bn, there is not enough money to do more.

He called the HIPC 'a triumph' saying 'I am very proud we started it.'

[ image: Private lending has plummeted]
Private lending has plummeted
'I am looking forward to seeing the physical and tangible support that we need for debt forgiveness," he added.

Broader social context

Meanwhile the World Bank was challenging its sister institution, the International Monetary Fund, to include broader measures of social stability in any recovery plan.

The World Bank says that creating a trusted legal framework, including the routing out of corruption, is essential for sustainable economic growth.

"If you have laws and a justice system which is very crooked, it is very difficult to bring about a restoration of confidence," Mr Wolfensohn said.

Mr Wolfensohn's views were supported by UK Chancellor Gordon Brown, who called for measures to ensure that countries complied with international codes of conduct on social as well as financial policies. Mr Brown proposed the creation of a 'surveillance unit' within the IMF to provide scrutiny of codes and standards.

Private capital flows

The World Bank is also urging investors to take some of the costs of their often risky investments in thirld world countries.

[ image: Private sector capital flows have dried up]
Private sector capital flows have dried up
All too often when a crisis emerges in the third world , the IMF and the World Bank move in to shore up any bad debts, thereby removing the loss investors can face.

Private capital flows to developing countries outweigh official assistance by a factor of ten to one, with over $300bn of private lending each year.

The volatility of these flows was one the main factors in the severity of the recent crisis, with private flows dropping by half - to $148bn - in 1998.

"My own judgement is that it is simply impossible for the official institutions or government to essentially give an implicit guarantee to private sector investors.

"I don't see that it is very equitable to get the advantage of an enormous profit on risk and then at the first sign of a problem indicate that you are free of it," Mr Wolfensohn said.

But the private financial sector is wary of any compulsion, preferring voluntary agreements with individual countries and better investor relations.

"(Reform) should be based on intensified dialogue and voluntary approaches which take advantage of the dynamics of the marketplace," said John Bond, Chairman of HSBC Holdings and of the Institute for International Finance, which speaks for the global financial community.

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