Rich countries need to put more money on the table
by Kelly Dent
Economic Justice Advocacy Coordinator
Oxfam Australia
‘I first felt the impact of the economic crisis in Singapore when my employer reduced the number of days’ work, then I lost my job completely. Before the economic crisis, it was hard but we could make do because I had work abroad... We have to sacrifice our health and nutrition because we need to save...’
Lovella M. Madeja, the Philippines
The figures are bleak. Poor countries, already weakened by high food and energy prices, have seen between 130 and 155 million more people pushed into poverty as a result of the financial crisis and global recession. The International Labour Organisation has warned that as many as 200 million more workers worldwide, mostly in developing economies, may end up in extreme poverty. The Australian Government predicts an extra 60 million people in the Asia-Pacific will be pushed into poverty.
Falling demand for exports means transnational companies are closing factories in developing countries, pushing people to the point of financial ruin. Thirty thousand Cambodian garment workers have been laid off from factories in the city and are returning to rural areas.
In Sri Lanka, Oxfam’s partners are telling us that young women who produce goods for export, including to Australia, are spending up to 80 per cent of their already inadequate income on food. Many workers have been forced to buy lower quality food and reduce their meals from three to two per day.
In China, the government estimates that 20 million workers have had to return to rural areas because jobs are drying up in the cities. A similar pattern is occurring in other Asian countries. The limited focus, in recent decades, on agricultural development and infrastructure investment in rural areas means that the future for many workers and their families is even bleaker.
Families in Indonesia, Bangladesh and the Philippines who rely on money sent back by family members working overseas are having to try to cope with less. Others, like Lovella from the Philippines, have lost their jobs. Migrant domestic, construction and factory workers have been among the first to be laid off in the places like the Gulf countries, Europe and Malaysia.
Without work, many people are returning to their families and communities in rural towns or villages where they will often lack services including affordable health-care, medicine and schools. Women and children particularly suffer when these services are not available.
At the same time as all of this, the price of basic food is again climbing, making it difficult for millions of people to afford basics like rice.
Most developing countries cannot afford the stimulus packages, safety nets, unemployment benefits and healthcare that we in Australia rightly rely on to help us through the hard times.
Without outside help, the global financial crisis will lock many developing countries into a vicious downwards spiral, where falling tax and export earnings and currency devaluations force them to reduce already limited spending, further fuelling the recession.
So what should wealthier countries, like Australia, be doing to resolve this crisis?
When the G20 met in London in early April they announced a US $1.1 trillion boost for the global economy. This included tripling the resources of the International Monetary Fund (IMF) with at least an additional $100 billion in lending by the multilateral development banks and $250 billion for trade finance.
Oxfam estimates this could potentially add up to $240 billion for low and middle income countries (the communiqué promises that $50 billion will be dedicated to low income countries).
Overall, this package is significant for the world’s poorest countries. But it is vital that it is new money, and not recycled promises. It must also be disbursed quickly, without harmful conditions attached.
At $240 billion, the package is also just a tiny fraction of the amount wealthy countries have given to banks in recent bail outs. According to Oxfam’s calculations, the $8.4 trillion pledged by governments around the world to bail out bankers would be enough to eradicate extreme poverty across the globe for almost 50 years.
Oxfam is also concerned that the IMF has been given such a huge increase in funding, without any requirements for it to reform its governance, policy and safeguards. The IMF needs to better reflect the needs of developing countries, rather than continue to push policies based on the neo-liberal views of major Western donors. In many cases, the policies of the so called “Washington Consensus” have not helped developing countries, but have actually made life worse for many people.
The current financial crisis shows that to ensure markets serve people, rather than the other way around, we need greater public control of financial systems. Markets must be transparent and accountable. Financial institutions have a critical role to play in the world economy. However, governments need to deliver regulatory and policy frameworks and put in place the right checks and balances to hold financial institutions to account.
The development banks have not effectively focused on halving poverty by 2015, as they agreed to when UN member states set the eight Millennium Development Goals (MDGs) in 2000. Australia donates significant amounts of money to all of these institutions, and it’s in our interests to push them for reform, so that they are as effective as possible.
When the Rudd Government handed down its budget in May, it delivered a tiny increase in overseas development aid of a hundred thousand dollars. Overall, the budget allocates $3.8 billion for overseas aid. That’s just 0.34 per cent of Australia’s gross national income (GNI), and falls a long way short of what is needed to help people in poorer countries through this crisis. In contrast, Australian military spending in 2008 was more than five times greater than overseas aid.
While the Government deserves recognition for at least maintaining aid levels in the face of the financial crisis, there is a real danger that without extra help, the development gains made towards achieving the MDG’s over the last eight years could be wiped out by the impacts of the financial crisis.
The Government has also reaffirmed its commitment to lift Australia’s aid spending to 0.5 per cent of our national income by 2015. However, to meet this target, it will need to make far greater increases to the aid budget in future years than it did this year. Oxfam is urging the Government to lift its commitment to 0.7 per cent of national income by 2015, in line with its international obligations and what is required to achieve the Millennium Development Goals.
Even while the financial crisis causes a new set of problems, the existing challenges don’t go away. The parallels between the climate and financial meltdowns are striking. The roots of the financial crisis lie in a failure to properly assess risk, an absence of proper oversight and regulation and consumption beyond our means. These are the same causes of the climate crisis, and the world’s leaders will only be able to tackle the threat posed by climate change if they learn the lessons of the financial crisis.
According to the report by British economist Nicholas Stern, unchecked climate change will wipe upwards of 20 per cent off global economic output, plunging hundreds of millions more people into extreme poverty. There is a human and economic imperative for acting.
The Australian Government’s budget statement recognises that a global solution to climate change requires helping the most vulnerable to adapt, and supporting those countries least able to cope. However, the Government hasn’t made any new commitments to help vulnerable communities, which are facing greater droughts, floods, hunger and disease. So far, the only money on the table for climate change adaptation is $150 million over 3 years, which is part of the aid budget. Oxfam’s assessment puts the cost of adaptation and emissions reductions at US $150 billion dollars, making Australia’s fair share of this US $3.5 billion annually.
If Australia is serious about getting a global deal on climate change, then it must be willing to commit greater funds to assist developing countries reduce their own emissions. A global deal to prevent catastrophic climate change will be difficult to achieve without this.
We’re currently witnessing the perfect storm when it comes to world poverty. The financial, climate and food crises will push millions more over the edge, unless wealthy governments, including Australia, put more money on the table and demonstrate they have the political will to overcome these problems.
Source: Australian Options, Issue 58, Spring 2009, pp. 3-4.