Sunday, 5 April 2009

Aid groups warn G20 cash may not reach poorest in time

A Cambodian garment worker from a closed Malaysian-owned factory sits in her rented house while waiting for her pay in Phnom Penh, February 2009. Many garment factories in Cambodia are closing as shoppers in the United States, Europe and elsewhere cut back on clothing purchases due to the global financial crisis. REUTERS/Chor Sokunthea
Reuters AlertNet
Written by: Megan Rowling

The new money promised by G20 leaders at Thursday's summit to help poor countries cope with the economic crisis is more than aid agencies had expected. But they are warning it might not filter down to those most in need quickly enough.

The final communique from the London meeting says the G20 will provide $50 billion to support social protection, boost trade and safeguard development in low-income countries. Leaders also reaffirmed their commitment to meet the U.N. Millennium Development Goals and their aid pledges.

Oxfam said the top-line $50 billion figure - mostly a combination of lending through the International Monetary Fund and the World Bank, proceeds from the sale of gold held by the IMF and trade finance - is higher than the $24-41 billion it was calling for.

It also exceeds the 0.7 percent of financial stimulus packages the World Bank had urged wealthy governments to stump up for poor nations, which Oxfam estimates at $12 billion.

"Give or take that not all of it is going to be perfect money - that it won't all be released in a year and it won't all come dribbling down - there's still something there, particularly for the low-income (countries), which we were particularly concerned about," said Hetty Kovach, an Oxfam adviser on development finance.

But the European Network on Debt and Development has criticised the G20 for not detailing how much will be available this year, noting that one section of the communique suggests the money will be disbursed over two to three years.

"If the question is whether this is going to make a difference quickly to poor countries, then the answer is probably not," said George Gelber, a policy adviser with the Catholic Agency for Overseas Development (CAFOD).

The World Bank estimates that lower economic growth rates will trap 46 million more people on less than $1.25 a day this year than was expected before the crisis, and the British government says that figure could rise to 90 million by the end of 2010.

Peter Chowla from the London-based Bretton Woods Project, an advocacy organisation that monitors the World Bank and IMF, noted that the new G20 cash will not go straight to developing nations, with most offered as loans through multilateral financial institutions.

"It's coming in the form of loans, so countries are just going to become more indebted and will just have to pay this money back eventually," he said. "Countries that haven't done anything to cause the crisis will now be faced with the bill."

Chowla said much of the funding will likely have conditions attached to it, as in the past, influencing how governments can use the money and requiring them to build up financial reserves rather than spending as much as they need to on social programmes and protection.

"I think the one downside of what came out (of the G20) was that, although they gave a lot of money to the IMF, they didn't do anything about the IMF's method of lending it, or the conditions and terms they give it on," he told AlertNet.

Aid groups fear much of the G20 money may not trickle down to the poorest people who are being worst affected by the economic crisis as jobs are slashed amid falling trade and income from remittances drops.

They expressed disappointment at the low level of G20 pledges to a "vulnerability framework" established by the World Bank, intended to provide funding for social safety net schemes like pensions and cash transfers. The G20 statement talks only vaguely of "voluntary bilateral contributions" to this fund and investment in "long-term food security".

The British Red Cross says the commitments made at the summit will not cover the anticipated demand for extra humanitarian relief as the financial crisis hits countries already struggling to cope with natural disasters and conflicts.

"The IMF is not and never has been a mechanism for delivering humanitarian aid. There is a very real question mark hanging over how anticipated additional humanitarian need will be met," said David Peppiatt, the BRC's acting international director. "Alongside the financial stimuli, we must make sure those who are already in desperate humanitarian need are not simply abandoned to their fate while the world waits for its economies to recover."

REFORM MORE IMPORTANT THEN EVER

Aid agencies are also calling for faster and deeper reforms in the management of international financial institutions to give poor countries more influence over how their expanding resources are used.

The G20 communique does commit governments to implementing planned reforms of the IMF and the World Bank, which have been dominated by rich nations. "Emerging and developing economies, including the poorest, should have greater voice and representation," says an annex to the statement.

ActionAid says this is more important than ever because the institutions have effectively been put in charge of a huge global fiscal stimulus. "These promises must be kept and poor countries must be given an equal say in the institutions that now hold the world's chequebook," said head of policy Claire Melamed.

Many non-governmental groups remain sceptical about the extent and speed of proposed changes, highlighting reluctance by the European Union and the United States to relinquish control of the organisations.

"Although there were nice words about making sure (the IMF is) reformed and that there are developing country voices, I think that's essentially handing a blank cheque to them, and we really want some guarantees that institution will be held accountable," said Oxfam's Kovach.

On a more positive note, aid agencies welcomed a separate announcement by U.S. President Barack Obama on Thursday that he would ask Congress to back the rapid release of $448 million in aid for vulnerable populations from Africa to Latin America, as well as a doubling of Washington's funding for food security programmes to more than $1 billion.

Mercy Corps said some of the money should be invested in agricultural development, and the administration should use cash-based food aid rather than only sending food commodities overseas.

"This will allow countries to respond quicker and better to food crises," said Heather Hanson, the relief group's director of public affairs. "If we can get money into the hands of people, markets working, and social safety nets established, it is far less likely that families will go hungry."

The United Nations estimates the number of hungry people around the world will top one billion this year because of the combined effects of the global economic crisis and high food prices.

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