Global Recession Hits the Developing World
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This is the VOA Special English ECONOMICS REPORT.
Both the World Bank and the International Monetary Fund expect the world economy to shrink this year for the first time since World War Two. As recently as January, the I.M.F. had predicted growth of one-half percent. But this week its chief, Dominique Strauss-Kahn, said the world has entered what he called "a great recession."
A new World Bank report says the recession may hurt the developing world the most. Those countries depend on trade for economic growth. But world trade is expected to fall at the fastest rate in eighty years.
East Asia has been hardest hit. In February, exports from China fell twenty-six percent from a year ago.
Rich nations are expected to borrow heavily in world credit markets to finance spending at home. But investors are demanding very high returns if they are willing to lend to the developing world at all. Jeff Chelsky, a World Bank senior economist, says investors are avoiding higher risk debt in a flight to quality.
The bank estimates that up to three trillion dollars of public and private loans in developing countries must be repaid this year. Some nations have enough foreign currency reserves, but others will struggle to find new financing to pay their existing debts.
The World Bank estimates that developing nations will need between two hundred seventy and seven hundred billion dollars in financing. The amount depends on the depth of the recession.
The I.M.F. is seeking to expand its lending ability. And World Bank President Robert Zoellick has called on rich nations to put some of their economic recovery spending into a crisis fund to help poor countries.
Bank economist Jeff Chelsky says the poorest countries are in the greatest danger. They cannot borrow in credit markets and they depend on exports of commodities like crops or minerals. But falling commodity prices mean they now depend more than ever on foreign aid.
Finance ministers and central bankers from major industrial and developing countries meet this weekend outside London to discuss the financial crisis. President Obama wants all countries in the Group of Twenty to coordinate their separate efforts to strengthen their economies. But European Union officials have rejected American calls to spend more.
There was some good news this week, including better-than-expected reports on spending by Americans in January and February. And financial stocks rose after Citigroup reported a profit for those two months.
And that's the VOA Special English ECONOMICS REPORT, written by Mario Ritter. I'm Steve Ember.