The International Monetary Fund and the world's big development banks warned on Friday that emerging and developing countries that lack deep pockets to protect themselves against the crushing impact of a global financial crisis may need help soon.
The joint statement by the global lenders underscores mounting concern within the institutions that global conditions are deteriorating, and emerging market and developing countries are increasingly in the eye the storm. With credit markets still frozen and capital flows dramatically down, there are growing worries that large emerging market corporate borrowers with big rollover needs will not have access to sufficient funding.
"In emerging and developing economies the consequences go well beyond economic contraction or reductions in growth," the lenders said in a statement issued by the African Development Bank. "Unlike the advanced economies, these countries simply do not have resources to bail out their financial or other sectors, to provide a package of stimulus measures, or of social protection," they said.
Despite years of steady policy reform and strong growth, a severe crisis could increase strains on even well-run countries because they don't have the ability to borrow huge sums of money in the way industrial powers like the United States can.
"Emerging and developing countries face the prospect therefore of a reversal of hard-won economic progress and stabilisation, and indeed for some, a risk of a full-blown development and humanitarian crisis," the lenders said. The lenders, which include the World Bank and regional banks, said their own resources would be insufficient to deal with the needs of emerging and developing countries, and called on shareholder countries to recapitalise the institutions.
"We urge shareholders to support those of us who will need to raise additional resources, including through early general capital increases," they said, warning they may need to make cutbacks if more resources are not forthcoming. Their calls come as the Group of Seven industrial countries, which are the biggest funders of the institutions but are all in recession, are meeting in Rome to discuss the crisis.
The IMF has said it needs to double its resources to $500 billion to meet short-term needs, including $100 billion committed by Japan on Friday. In updated figures, the IMF said its lending capacity had been reduced to $143 billion, excluding the new injection by Japan, by increased lending to countries felled by the crisis like Iceland, Hungary, Latvia, Ukraine and Serbia.
Meanwhile, World Bank President Robert Zoellick has said more developing countries are turning to the lender for help to ease constraints from the global credit squeeze and a drop in global trade for the first time since 1982. The World Bank has promised new lending of up to $100 billion over the next three years, and Zoellick has urged donor nations to contribute to a vulnerability fund for poor countries.
New research by the World Bank this week ahead of the G7 meeting showed that the spreading economic crisis will push 46 million more people into poverty in 2009. This is on top of the 130 million to 155 million people pushed into poverty in 2008 because of soaring food and fuel prices.