Shock Reverberates in Developing World
ROME As many as 40,000 children under the age of 5 will die and some 10 million more people will be condemned to poverty because of the terrorist attacks in the United States on Sept. 11, the president of the World Bank said Sunday.
"We have seen the human toll from the recent attacks, with citizens from some 80 nations perishing in New York, Washington and Pennsylvania," James Wolfensohn said by telephone from Washington. "But there is another human toll that is largely unseen and one that will be felt in all parts of the developing world, especially Africa. We estimate that between 20,000 and 40,000 more children will die worldwide and some 10 million people will be condemned to live below the poverty line of $1 a day because of the terrorist attacks."
Mr. Wolfensohn said the economic fallout from the attacks would cause several poor countries to stall or fall into recession because of a sharp decline in exports, the collapse of tourism and steep drops in commodity prices and investment.
"There is an absolutely clear link between the drop in economic activity and infant mortality and poverty," Mr. Wolfensohn said.
These findings will be released Monday as part of a special World Bank report on the economic impact of the terrorist attacks, an advance copy of which was obtained by the International Herald Tribune.
"When you have a combination of global downturn and severe drops in commodity prices and a huge reduction in international trade, the people who suffer most are clearly in the developing countries," Mr. Wolfensohn said. "And that passes straight through to people living on the margin."
The World Bank report estimates that the impact of the attacks could limit average economic growth among industrialized countries to just 0.95 percent next year.
The International Monetary Fund last week was hesitant to predict in numerical terms how growth would be affected by the attacks, but the World Bank study paints a grim and specific picture of both the economic implications and the drop-off in private capital flows to emerging markets.
Before the terrorist crisis, the bank estimated that the economy of the United States and other members of the Organization for Economic Cooperation and Development would grow 1.1 percent this year and recover to 2.2 percent growth next year. But the figures to be released Monday show that the attacks could shave 0.75 percentage point to 1.25 percentage points from OECD countries' growth in 2002, resulting in growth of just 0.95 percent.
This forecast, the bank notes in its report, assumes that business returns to normal by mid-2002, that consumers eventually respond to lower interest rates as they have in past recessions and that no new events shock the global economy.
Mr. Wolfensohn noted that already there were signs that higher costs and reduced economic activity were putting a damper on global trade. Insurance and security costs and delays in customs clearance are among the main factors pushing up the costs of trade.
As examples of the direct impact of the terrorist attacks on the world economy, the bank says that major shipping lines have raised freight rates to India by 10 to 15 percent and that about 65 percent of vacations booked for the Caribbean have been canceled. It also says private capital flows to developing countries are going down sharply and are forecast to fall from $240 billion last year to an estimated $160 billion for all of this year.
"You can see it in countries highly dependent on commodity exports, where prices are falling," Mr. Wolfensohn said, "or in those highly dependent on tourism such as the Caribbean area, where they go from positive growth straight to recession overnight. This, if you like, is the globalization of poverty."
What will be needed, the World Bank chief added, is greater financial support from bilateral and multilateral sources such as governments and international institutions. He said the new round of world trade talks scheduled to begin in November in Doha, Qatar, would also need to devise ways to help poorer countries to be better integrated into the world trading system.
"I think over the years ahead we need three things to cope with the effects of the terrorist attacks on the world economy," Mr. Wolfensohn argued. "We need more international aid, building up by $10 billion to $20 billion more a year to a total of about $100 billion more in coming years; we need the opening of trade for developing countries, and we need continuing coordination of monetary and fiscal policies."
Apart from the need to provide development money to save the lives of children who will otherwise die from increased poverty in Africa and elsewhere, Mr. Wolfensohn also spoke with an eye on the need for more social equity and political stability in disadvantaged parts of the world.
The relationship between economic decline and infant mortality was found using models pioneered by Lawrence Summers, the former U.S. Treasury secretary who previously served as chief economist at the World Bank.
"Perhaps behind all this is a recognition that we are dealing with 80 percent of the world population which has only 20 percent of world income," he said, "and we have to be conscious of the need for global stability when there is such inequity in the world because the conquest of poverty is also the quest for peace."
An extra $100 billion of aid for developing countries, Mr. Wolfensohn said, would correspond to the goal agreed upon by the international community of raising official assistance from its present level of 0.22 percent of the gross national product of OECD countries to a target of 0.7 percent.