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World Bank: Lesser states must help
Bangkok Post – 13 November 2008
PARISTA YUTHAMANOP
Developing economies could play a greater role in lessening the impact from the global recession in 2009 by increasing fiscal stimulus in their countries, according to the World Bank.
Justin Lin, the chief economist for the World Bank, said advanced economies were expected to contract 0.1% in the next year, slowing world economic growth to 1% due to fallout from the financial crisis. World trade is expected to shrink 2.5% in 2009 from this year.
The growth forecast for developing economies in 2009 was revised downward to 4.5% from 6.4% three months earlier in light of slower exports, declines in commodity prices and reversal of investment flows. The World Bank expects greater downside risks.
Mr Lin said the group of 20 largest economies (G20), meeting in Washington this weekend, is expected to conclude that stimulus policies from developing economies are essential to reducing impacts from the crisis. In addition, the World Bank proposes the G20 study strengthening roles of multilateral agencies such as the Bank for International Settlements, the IMF and the World Bank on financial surveillance and create new forms of financial co-operation.
"This is a global crisis that needs to have a global response. Developed and developing countries should join hands. We need to increase participation and voices of the developing countries in this global system," he said.
The global recession represents an opportunity for developing economies to increase fiscal spending on projects that create sustainable growth in the future like infrastructure and the environment, Mr Lin said.
The World Bank expects that East Asia will contribute the most growth of all developing economies, with 6.7% expansion in 2009, compared to 8.8% this year and 10.5% in 2007. Some countries, like China, Vietnam and Russia are expected to be relatively less affected.
"China's economic stimulus package will increase investment in the rural sector, infrastructure, the social safety net and the environment. Because of the measure, China's GDP (gross domestic product) should increase to 9% in 2010 and have a foundation for sustainable growth in the future," Mr Lin said.
China announced over the weekend a $586-billion stimulus package aimed at supporting domestic growth.
Higher spreads on overseas bonds will increase liquidity constraints in developing economies. The World Bank encouraged developing countries to consider easing risk perception in their banking systems and capital markets.
It projected private flows to developing economies will be halved to $530 billion in 2009, as deleveraging and banking consolidation continue.
The World Bank estimates a one percent decline in the growth of developing economies will drive an additional 20 million people into poverty. The commodity price crisis earlier this year pushed 100 million people into poverty, it said.
The World Bank expects the International Bank for Reconstruction and Development to commit up to $100 billion in loans to low-income countries over the next three years. It expects the loans can triple to more than $35 billion this year from $13.5 billion last year.
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