Week of 4.3.09
Interview: Sachs on the G20Jeffrey Sachs, director of the Earth Institute and economics professor at Columbia University, reacts to the decisions made at this week's G20 summit and answers questions on the plight of poor countries in the midst of the global economic crisis.
NOW: Did the G20 nations adequately address the needs of poor countries?
Jeffrey Sachs (JS): No. Other than a reiteration of previous unmet aid commitments, and modest benefits from the increase in IMF liquidity, there was little of note for the poor countries. Attention focused much more on the liquidity needs of the middle-income "emerging market" economies. There is considerable work to do still to put the urgent concerns of the poor countries on the world's agenda. One important ray of hope is the possibility of a new multilateral initiative on smallholder agriculture, to be founded by the UN, US, EU, Spain, and other countries.
NOW: What were the best and worst decisions made at the summit?
JS: The best decisions were to agree on increased liquidity, mainly through the IMF, and to work towards a coherent global standard on financial-market regulation. What was missing was serious attention to the poorest, and any attention whatsoever to exchange rates and the global monetary system (as opposed to financial markets).
NOW: The UN Secretary General asked the G20 nations to back a $1 trillion stimulus plan for developing countries. Is this realistic given that many countries are facing budget shortfalls?
JS: The $1 trillion was to include existing aid commitments, which amount to more than $300 billion over two years, plus commitments on development financing (e.g. for infrastructure) of more than $200 billion over two years, and more than $500 billion in liquidity and trade financing over two years. These are realistic magnitudes.
NOW: How has the global recession affected poor countries?
JS: Poor countries are being hard hit through: falling export volumes, falling export prices, declining remittances, forced repatriation of workers from abroad who have lost their jobs, withdrawals of credit lines by international banks, a collapse of many foreign direct investment projects (e.g. in the mining sector), and the unwinding of various investment funds for Africa and other poor regions. In short, the channels of adverse impact are multiple and very serious. They come on top of existing crises of hunger, poverty, and increasingly unstable climatic conditions.
NOW: What are the unique challenges of impoverished countries right now?
JS: The challenge of the poorest of the poor is to stay alive, and find a way to accumulate capital (natural, physical, social, and human capital) to break out of the poverty trap. The global crisis makes all of this vastly harder than before. Still, it's possible if there is suitable global cooperation and an attention to the power of our technologies in many spheres (health, education, business development, microfinance, and more).
NOW: How concerned are you about protectionism in this climate?
JS: Protectionism is rising, but so far has been kept under control. If the downturn spins much further into collapse, however, the relatively open trading system will come under unprecedented threat.
NOW: The World Bank has warned that social and political unrest in the world's poorest countries if G20 leaders fail them. Which countries are the most vulnerable?
JS: There is a real possibility of rising political instability in many countries, including street violence, coups, assassinations, or political paralysis. Hardships, and especially hunger and high unemployment can lead to despair, violence, and political demagoguery.
We must take care to reinforce cooperation and a global safety net, lest we end up with world-threatening explosions of unrest.
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