Page last updated at 15:41 GMT, Sunday, 20 September 2009 16:41 UK

The rich recover as the poor suffer

By Max Seitz
BBC Mundo

The intensive care unit of the world's economy now has fewer patients.

South American woman carrying child on her back
While rich countries make headway the poor are still struggling

Having managed to escape from the recession and find their way back to economic growth, Japan, Germany and France have risen from their sick beds, while the prognosis for the US and the eurozone is looking favourable.

In each of these countries it would seem the substantial doses of state aid injected into the financial sector have done their job, although the struggle continues against unemployment and lack of credit.

However, the economic health of many developing countries in Africa, Asia, and Latin America has worsened and will no doubt remain fragile for some time to come.

'Deeper wounds'

Analysts agree the current crisis is very different from previous ones.

The "tequila effect" in Mexico (1995) and the south-east Asia collapse (1997-1998) had their origins in emerging economies and had a limited impact on the developed world.

This time, in contrast, the crisis began in rich countries and contaminated the rest of the planet, causing upheaval in less-protected areas of the world.

The whole world has suffered to a lesser or greater extent from the collapse of the stock markets, the credit crunch, the decrease in commerce and the downturn in economic growth.

But in the case of developing countries - especially the poorest ones, the wounds have been wider and deeper.

If poor countries already represented a risk to investors, now they are considered even more of a risk
Aldo Abram, Economist

The fall in direct investments, capital flow and remittances has added to the problems they were already suffering from.

Effectively, millions of people who had no hand in bringing about the financial crisis in any way are the hardest hit by it.

"However, there have been different kinds of impact on the developing world," says Sergio Jellinek, a specialist in sustainable development for the World Bank.

"Emerging economies such as those of Brazil, India and China have shown more resistance to the global disorder, " he says.

"And there are also poor nations which, because they are distanced from the international financial markets, have suffered less from the effects of the crisis," he adds.

Less capital

According to the Multilateral Investment Guarantee Agency (MIGA), the flow of direct investments to developing countries will plummet by 30% in 2009, to only $385,000m.

For its part, the Institute of International Finance (IIF) estimates the flow of capital to these countries will fall by 35% during the current year, to a mere $165,000m.

"Poor countries are at an enormous disadvantage, if they already represented a risk to investors, now they are considered even more of a risk. This puts them in a very difficult position," explains Argentine economist, Aldo Abram.

According to Mr Abram, the return of direct investments and capital to developing countries will depend on the recovery of confidence of the rich nations, which in his opinion, will be mid-2010.

Aid at risk?

But the list of symptoms does not stop there.

In previous crises, stronger economies cut back their budgets of bilateral aid to developing countries and many fear that this will happen again in the current crisis.

VITAL SIGNS IN 2009
Global commerce will shrink by 10%
Global economy will contract by 1.3%
The flow of direct investment in developing countries will fall by 30%
Source: WTO, IMF, World Bank

There are no exact figures on the impact the current crisis has had on aid packages to poor countries, but the subject is a worrying one because, for example, Africa is highly dependent on the external aid which represents 9% of the continent's GNP.

The Organisation for Economic Cooperation and Development (OECD), which includes several rich nations, has warned that its members will send fewer funds to the underprivileged regions of the planet.

The president of the OECD's Development Assistance Committee, Eckhard Deutscher, says: "We must not repeat the mistakes of the 90s, when the developed countries drastically cut their aid budgets because of the recession."

Mr Deutscher is not being fanciful. Western economies like those of France, Italy and Ireland announced cutbacks in their bilateral aid programmes at the beginning of this year.

The World Bank estimates that this year between 30,000 and 50,000 more babies will die in Africa alone, as a direct consequence of the worsening economic situation in poor countries.

And according to the UN, the number of people in the world suffering from malnutrition will exceed the current figure of 1,000 millions, some 10% more than 2008.

Sergio Jellinek, of the World Bank admits, "We recognise that more must be done and soon."

In terms of the role the rich countries should play, Mr Jellinek declares: "I believe in the current climate, it is their responsibility to release more funds, because it was in their backyard the world crisis originated."



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