Impact of Resource Scarcity in Developing Countries with the Onset of the Global Recession.

Impact of Resource Scarcity in Developing Countries with the Onset of the Global Recession.Recession is a general slowdown in economic activity over a sustained period of time, or a business cycle contraction. During recessions, many macroeconomic indicators vary in a similar way. Production as measured by Gross Domestic Product (GDP), employment, investment spending, capacity utilization, household incomes and business profits all fall during recessions.
Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation.
Worldwide trade will plummet by nearly 10 percent this year, and output will fall by 2.9 percent, the World Bank predicted in a report .Developing counties will be hit hard by falls in private investment, the Washington-based agency predicted, seeing nearly $1 trillion less in foreign investment this year than they did two years ago. That could leave developing countries hundreds of millions of dollars short of the money they need to finance their foreign obligations, the bank warned."Developing countries are likely to face a dismal external financing climate in 2009," the bank said in a statement accompanying the release of it annual Global Development Finance report.
In 2007, poor countries took in $1.2 trillion in foreign investment. This year the figure is likely to be $363 billion -- less than a third of the record 2007 amount, and just over half last year's total of $707 billion. Industrial production has fallen sharply in the past year, as companies’ worry that people will not have the money to buy their wares. Manufacturing has dropped by 15 percent in the rich world since August 2008, and 10 percent in the developing world excluding China, the bank said. The figures are for private investment in developing countries, not government aid. The World Bank's chief economist called for "bold policy measures" to fight the downturn. The report comes 10 days after billionaire Bill Gates urged industrialized nations to honor aid pledges to developing nations despite the recession.
Economic recession has reversed a 20-year decline in world poverty and is likely to add up to 90 million to the ranks of the hungry in 2009, an increase of six per cent over current totals, the United Nations said on Monday.
The estimate, in a gloomy report on a decade-old U.N. program to set poor countries on the road to solid development by 2015, suggests 17 per cent of the world's 6.8 billion people will be classed extremely poor by the end of this year.
"In 2009, an estimated 55 to 90 million more people will be living in extreme poverty than anticipated before the crisis," declared the report, launched in Geneva by U.N. Secretary- General Ban Ki-moon.
And the study, "The Millennium Development Goals Report," also warned that a recent decline in foreign aid -- despite pledges from rich powers to increase fund flows -- was likely to bring more disease and social disruption in the South.
In a speech to the U.N.'s Economic and Social Council (ECOSOC), Ban appealed to the Group of Eight industrial nations to step up aid, especially to Africa, over the next year, saying their previous pledges had fallen short."I urge the G8 to set out, country by country, how donors will scale up aid to Africa over the next year," Ban said in a speech aimed at the July 8-10 gathering in the central Italian city of L'Aquila which he will be attending."The credibility of the international system depends on whether donors deliver," he added. "Human decency and global solidarity demand that we pull together for the poorest and the most vulnerable among us," Ban told another session later.
G8 leaders, at a summit in Scotland in 2005, pledged to raise development assistance by $50 billion by 2010, half of that for Africa. But aid remains at least $20 billion below the target set out at Gleneagles, he said. Aid can help transform lives, but delays in its delivery, combined with the financial crisis and climate change, are slowing progress, Ban told ECOSOC at the start of a three-week meeting in Geneva.
People living in poverty -- defined by the U.N. as those living on less than $1.25 a day -- have already suffered most from the economic and financial crisis rippling around the globe for nearly two years, the report said."The numbers of people going hungry and living in extreme poverty are much larger than they would have been had progress continued uninterrupted," Ban said in a foreword, although the full impact of recession was not yet known, he added.
According to U.N. figures, in 1990 the proportion of hungry people among the world population was 20 percent, but by 2005 it had declined to 16 percent -- reflecting a rise in prosperity, especially in Asia, driven by booming world trade. The reversal began in 2008, partly due to rising world food prices, the report said, and although the cost of basic products had begun to drop again toward the end of last year that had not made food more affordable for most people around the world. In the report, Ban said it was important to continue programs for improving maternal and infant survival rates and tackling hunger and malnutrition in the young, estimating that in poorer countries over a quarter of children are underweight.

THE IMPACT OF RECESSION WITH SUITABLE EXAMPLES:1. Recession weighs heavily on aid to developing countries:
Developing countries, already hard hit by the global economic downturn, are now facing cutbacks in foreign assistance from traditional donors saddled with rapidly expanding deficits. The worldwide recession has driven 50 million people into extreme poverty, according to the World Bank and the International Monetary Fund, which have exhorted rich countries to live up to, promises to boost development aid.
"There's a risk that these promises will not be kept if the crisis deepens," warned Jose Gijon, head of the Africa-Middle East department at the Organisation for Economic Co-operation and Development. Added Shanta Devarajan, chief economist for Africa at the World Bank: "The fiscal pressure that developed countries are facing, especially to address the problems of their citizens, is so high that it will be hard to get political support to maintain the level of foreign aid."He said a 2005 pledge from the Group of Eight industrialised powers to double aid to Africa, made when the world economy was flourishing, had already fallen about 20 million dollars short of the target before the latest crisis erupted in late 2008. Research had shown that six countries that had suffered an economic slowdown in the 1990s, including Japan and the United States, had in one year cut their overseas assistance by 13 percent.
Aid volumes came to a record last year but have now begun to slide. Italy has reduced its overseas development budget by 56 percent and Ireland by 10 percent while Latvia has abandoned such initiatives altogether, according to the European Network on Debt and Development. Oliver Buston of the non-governmental organisation ONE has noted that in addition to a fall in aid amounts, there has been a worrisome shift "toward more loans and less and less grants," which could trigger a "debt crisis."While the United States is planning an 8.0 percent hike in development aid next year, there are concerns about France, currently the fourth largest aid giver by volume. The 2009 French budget foresees development assistance equivalent 0.47 percent of gross national product, declining to 0.41 percent in 2010 and 0.42 percent in 2011.Although France remains committed to increasing assistance to 0.7 percent of gross national product in 2015, consistent with the United Nations Millennium Goal.
2. Global recession hits Asia's poor
Two major reports on the international economy have been released in the last few days — one from the World Bank, and one by the OECD. Forecasters in these and similar organisations watch each other's forecasts closely so it isn't surprising that on key points, the two reports tell similar stories.
One of the headline figures from both reports is that overall growth in the main rich countries is likely to decline by around 4% during 2009. This is a fairly stunning figure which underlines the huge cost of the policy blunders, especially in the US, which led to the near-collapse of global financial sectors in 2008.
The news is even grimmer for poor countries. Overall, growth in poor countries is likely to remain marginally positive at 1.2% in 2009. This might sound respectable compared to the actual decline of 4% in rich countries. But as I explain in a Policy Brief prepared for the Lowy Institute, mass poverty is a major problem in poor countries in Asia and high rates of sustained economic growth are needed to make any significant dent in the poverty problem.
What is particularly worrying is the sharp drop in capital flows to poor countries which is now underway. The World Bank notes that 'Developing countries are likely to face a dismal external financing climate in 2009' and 'Private debt and equity flows will likely fall short of meeting the external financing needs…by a wide margin, amounting to a gap estimated to range between $US350 billion and $US 632 billion.'
Poor countries need investment to grow. If capital flows drop away sharply, they will be starved of capital and poverty will increase markedly.
3. Sharp decline
Even worse is the loss of export revenue. Here Africa has been especially affected. "A lot of what is happening in the poorer countries is happening below the radar screen," South Africa's finance minister mentioned. His neighbour Botswana, prospering until recently, depends on diamonds for its main export revenues, but has lost 90% of that revenue since last year. In South Africa, meanwhile, he says "you can go to our ports and find iron ore and manganese, aluminium piled up, not going anywhere". "And if you don't have the revenues", he adds, "You can't deliver all of the services". That means teachers, nurses, police will lose jobs, children will not go to school. And whole societies will be undermined. "I fear for social stability, I fear for political stability, and it is happening already" says Donald Kaberuka, head of the African Development Bank, who helped rebuild his country, Rwanda, after the 1994 genocide.
Return of protectionism?
There are serious and obvious risks for wealthy countries here. The trafficking of drugs, and of people, piracy, and conflict, all flourish where governments are insecure and unstable. But whatever the talk of a united global response, there is little sign of it in practice. Take protectionism. No-one is admitting in public that they are turning their backs on free trade. "Everyone's rhetoric is very good," says Minouche Shafik, permanent secretary at the UK's Department for International Development (DFID). "But the reality of some decisions being made is very worrying." And it is precisely the emergency measures being taken in richer countries that can harm those most vulnerable. State subsidies to favoured industries or "encouraging your banks to lend at home or to consolidate at home" are both "protectionist", she adds. "It is a classical problem where individual nations looking after their own interests end up damaging the collective." Rich countries need to do to stabilise their financial systems. The other, trying to make itself heard, is about the very different - but more urgent - needs of the world's poorest people. Although the crisis originated elsewhere, many developing countries are facing a catastrophic loss of income on several fronts. Aid flows are declining as donor governments tighten up. Remittances - money sent home by those who migrate to find work - has been worth more than aid in recent years, but has now gone into sharp decline. In Mexico, remittances flows have even reversed, as families have to send money to support relatives in the US who have lost their jobs.
SOLUTIONS CREATED BY THE UNITED NATIONS TO COMBAT RECESSION:
The UN General Assembly adopted a plan designed to meet demands by developing countries hard hit by the global recession, including stimulus packages worth over 1 trillion dollars. The 192-nation assembly adopted the text without a vote and allowed some countries, including the United States and Canada, to voice reservations about the feasibility of implementing some of the demands.
The adoption of the so-called outcome document capped three days of debate. More than 140 government representatives and scores of non-government organizations spoke, most of them to bemoan the state of the world's financial and economic crisis.
The 15-page document reflected some demands of developing countries as well as least-developed countries. Developed countries for example had the final say about a proposal to more tightly oversee international finance, and the document rejected a proposal to impose new regulations on world finance.
In the final document, rich countries are blamed for causing the recession, and poor countries are portrayed as the real victims. Wealthy nations are called upon to provide additional funding in the form of stimulus seen in the United States and some European nations.
The UN has predicted a fall of 2.6 per cent in the world's gross economic product in 2009, the first such decline since World War II, threatening 'calamitous human and development consequences.'
Creditors are urged to honour their commitments to debt relief in the document, but debtors are also called upon to show a sense of responsibility.
The General Assembly called for increasing global liquidity to help overcome the financial crisis, and underlined the urgent need for the implementation of the first step - an allocation of 250 billion special drawing rights (SDR) for poor countries.
The arrangement allows the recipients to convert the SDR to one of the currencies approved by the International Monetary Fund (IMF), which is responsible for the SDR basket.
Reforms of the IMF and World Bank that allow more developing economies to the decision-making table are seen as key to the success of the proposals, as is strengthening the United Nations system.
The United States pointed out that the United Nations is not equipped to handle some of the tasks mentioned in the document, particularly those dealing with foreign exchanges, the World Trade Organization and the complex funding usually adminsitered by authorities of the World Bank and the International Monetary Fund.
The Czech Republic's envoy, speaking on behalf of the European Union, praised the adoption of the document, and made no reservations.
The US and Canada however were concerned about issues of immigration and debt relief, and they warned the UN not to duplicate the work of other financial organizations like the World Bank and IMF.
One key provision in the document called for the implementation of the commitment of the G20 - the world's wealthiest 20 countries - to provide additional funds of 1.1 trillion dollars to revitalize the world economy. The commitment, which was made in London in April, would give a limited share of 50 billion dollars to low income countries.
During the debate before the adoption, Brazil's Foreign Minister Celso Amorim, whose country's emerging economy appeared brighter than that of many other developing nations, said the UN debate had brought together the world to deal with the recession. G20 member Turkey urged the group to deliver on its promise to make available over 1 trillion dollars to the poor. Envoys from the Pacific small island states said in a joint statement that they were grappling with both the economic downturn and the effects of climate change. The group said it has experienced a significant drop in export demands from customers in the West. 'Our trade balance and official foreign reserve levels will also be negatively affected, compromising our ability to weather economic fluctuations in the future,' the group said.
WHAT COUNTRIES ARE DOING TO COMBAT RECESSION:
The US and Canada have agreed to work closely together to counter the widening global economic recession and avoid erecting trade barriers that would hamper thriving cross-border commerce.
President Barack Obama, on his first foreign trip since he took office Jan 20, said Thursday the US and Canada had a shared commitment to economic recovery and would also jointly act to strengthen the ailing North American car industry.
‘The people of North America are hurting, and that is why our governments are acting,’ Obama said at a joint news conference with Canadian Prime Minister Stephen Harper. ‘We know that the financial crisis is global and so our response must be global.’
Obama said the US and Canada were working closely together bilaterally and within the G8 and G20 - two blocs made up of the world’s largest economies - to see how to restore confidence in financial markets.
Like much of the world, both nations are battling a severe recession. In Canada, the world’s eighth-largest economy, the unemployment rate in January soared to a four-year high of 7.2 percent. That rate was at 7.6 percent in the US, the highest since 1992.
Harper said he and Obama agreed that Canada and the US ‘must work closely to counter the global economic recession by implementing mutually beneficial stimulus measures’.
‘We know, as a small economy, we can’t recover without recovery in the United States,’ he said. While Obama has vowed to combat protectionist impulses, Canada had expressed concerns about the ‘buy American’ provision in the $787-billion US economic stimulus package signed into law this week.
The US measure, which bars foreign manufacturing goods from being used in government projects, was modified in the final bill to assure it doesn’t break existing trade agreements.

QUESTIONS TO ADDRESS:
• How badly is your country being affected by the current global recession?
• To what extent has recession hit the nation in terms of trade, employment, standards of living, credit facilities etc.?
• What are the ways your country is implementing to tackle the problem within its territory?
• If you are a developed nation, do you yield to helping lesser developed nations through aid?
REFERENCE LINKS:
http://search.us.reuters.com/query/?q=Recession+in+poor+countries&st=10&s=USWEB
http://www.marxist.com/economic-crisis-and-poor-countries.htm
http://www.un.org/apps/news/story.asp?NewsID=31365&Cr=economic&Cr1=turmoil