Friday 10 October 2008, San José, Costa
Rica
Q&A: Money Crisis May
Hit Development
Assistance
Sabina Zaccaro
interviews PAMELA COX
from the World Bank
ROME (IPS) - The global
financial crisis and
rising food prices are
certain to impact Latin
America despite the
growth in recent years,
says Pamela Cox, the
World Bank's
vice-president for Latin
America and the
Caribbean.
Latin American countries
are certainly "better
positioned than they
were ten years ago, so
they are certainly
better placed to weather
a crisis, but they are
going to see impacts,
and are already seeing
impacts," she says.
Cox was in Rome last
week to meet
representatives of the
Italian government and
the Rome-based U.N. food
agencies, the
International Fund for
Agricultural Development
(IFAD), the Food and
Agriculture Organisation
(FAO) and the World Food
Programme (WFP), to
discuss joint
commitments to tackle
the food crisis.
IPS: How is the food
crisis affecting the
Latin American region?
Pamela Cox: There
are many impacts on the
region. There is an
economic impact and
there's a human impact.
Latin American countries
have reduced their debt,
they are running budget
surpluses, they have
strengthened their
financial systems and
developed their domestic
credit markets, and
therefore they're
carrying less external
debt. Despite this,
impacts can be seen
already.
Stock markets are down
in the region, we see
currency movements, we
are seeing falling
commodities prices,
which is especially
important for the region
since regional growth in
the last five years has
been much linked to high
commodity prices.
We are seeing
inflationary pressures
because of the high food
and fuel prices, and
countries are feeling
this impact, so probably
they see declining
demand, particularly
those countries that are
linked to the U.S.
economy like Mexico and
the Caribbean. And they
are seeing falling
remittances; Mexico
remittances from the
U.S. are down 12
percent.
IPS: What about the
human consequences?
PC: The poor are
the most affected when
there is inflation, and
are most affected when
food prices go up,
because they can spend
up to 70 percent of
their income on food.
So, in particular we've
been working with
countries on safety nets
for the poor, what you
can do with school
feeding programmes, with
conditioned cash
transfers, what you can
do to bring food prices
down -- for example move
import tariffs on food.
I think if this crisis
goes forward it's not
just how we cope on the
macro side. It's how we
cope on the human side
too.
TerraViva's Ramesh Jaura
speaks with Pamela Cox
IPS: Despite growth,
Latin America still has
high social inequality.
Could that be a cause of
persisting poverty in
some areas? Is the World
Bank addressing this?
PC: In the last five
years the region has
grown an average of five
percent a year. But
despite the fact that
Latin America is a
middle income region, it
is one of the most
unequal regions in the
world. And this has been
very stubborn, very
difficult to reduce.
Inequality is coming
down a bit now in Brazil
with growth, but it is
also because of the
investments Brazil has
made in human capital
and conditional cash
transfers.
We have just released a
tool meant for policy
makers to help target
their public
interventions, and
reduce inequality in
Latin America and the
Caribbean. The Human
Opportunity Index is
based on data
representing 200 million
children, and covers
roughly the last decade,
focusing on basic
services such as
education, water,
sanitation, electricity,
and to what extent they
are equitably
distributed in the
largest Latin American
countries.
These findings are
helping to measure
opportunities in the
region as well as how
those opportunities are
distributed amongst
citizens. Between one
quarter and half of the
income inequality that
we observe among adults
in Latin America is due
to the circumstances
they faced in childhood.
And while their race,
gender and location all
played a role, no
circumstances are more
powerful than their
mother's education and
their father's income.
The HOI (Human
Opportunity Index) has
isolated the areas where
investment pays off. It
shows very clearly which
people in the population
will get the most from
these investments, and
governments can track
this all the time. What
we are trying to do is
give policy makers a
tool to track progress
using real data to show
that public investments
are paying off in
reducing inequality. Of
course, it's up to
governments to use it.
Brazil, Uruguay and
Chile have already asked
for more detailed
opportunity assessment.
IPS: On the global
emergencies again,
President Bush said the
government's financial
rescue plan to bolster
the U.S. economy will
take some time. How does
the World Bank expect
the global markets
crisis to affect Latin
America?
PC: The countries
are in a better
position; financial
regulations are stronger
than they were ten years
ago. That said, we have
already seen currency
movements, and we are
seeing contraction of
credit, which means that
it will be much more
difficult for private
businesses to get
credit.
We will probably see a
decline in official
development assistance
as governments cut back
on their programmes. It
hasn't happened yet but
it could happen.
It's very difficult to
say exactly how the
crisis will end up,
because each day we see
a new development,
something happens and
the markets react.
But the Bank can play a
very important
countercyclical role. We
have some new debt
instruments called
development drawdown
options where we make
the loan but countries
don't have to draw it
down, it just sits there
until they need it;
several countries are
using this. We have the
same instrument for
catastrophes too,
countries can take one
of these out and just
keep it there, and in
case of natural
catastrophes like
earthquake or hurricane,
we disburse.
We are looking at
working with some
countries on the
financial sector,
helping them strengthen
their balance sheet. We
already have heavy
investments in
conditioned cash
transferred programmes.
It is very easy in a
crisis when you have
this set-up to put more
money through these
programmes, so people
can buy more food.
We are also expanding
our investments in
agricultural production
aimed at small farmers.
We have done operations
in Honduras for 300
million dollars, and
then in Argentina and
Nicaragua. There's a
variety of ways that we
can come in and help in
such a crisis.
IPS: Do you think
that the scenario
resulting from this
crisis is going to
change the role of the
World Bank and other
financial institutions?
PC: The role of the
World Bank is already
changing. Over the last
five or six years we
have changed our
approach in many ways.
One strategic theme is
working better with
middle-income clients
and be more responsive
to what they want. We
have done a lot of
innovations in the last
four years, particularly
in Latin America, by
introducing new
financial products in
response to what
countries want. Where
countries want longer
terms, we have
introduced longer terms;
we have introduced these
development drawdown
options, and reduced
their pricing. And we
have helped to develop
domestic capital markets
by issuing in domestic
currencies or doing
swaps.
We are trying to be very
responsive to what
governments want. So, I
think it is a very
different Bank. The Bank
does play a
countercyclical role; we
have a very healthy
balance sheet, we just
placed 25 years bonds at
a very good interest
rate so we obviously can
still land, because we
are essentially working
credit cooperative. We
are in a very good
position to help
countries through this
crisis.
But I have to point out
that the amount of money
we are talking about is
probably beyond just the
World Bank. I mean, we
do on the IBRD
(International Bank for
Reconstruction
Development, the main
component organisation
of the World Bank) side
and IDA side
(International
Development Association)
only about 21 billion
dollars a year globally,
and if you look at
bailout package in the
U.S. of 700
billion...I'm just
giving the order of
magnitude here. So,
obviously we can come
in, but the World Bank's
resources alone would
never be able to
completely stave off the
crisis. |
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