Feeling the full force of an economic crisis they didn’t create

ATT65716 13
As always, the current economic crisis is hitting the world’s poorest people hardest. The solution, however, cannot be found through a ‘business as usual’ approach, writes Hans Zomer.
As Ireland is coming out of the coldest winter in 18 years, and is experiencing the worst economic crisis in living memory, it is hard to see any positives in our current predicament. Unemployment levels are reaching record highs, and the government’s finances are in dire straits. Ireland needs to borrow billions of euro abroad, just to be able to keep paying salaries. Across the country, people are losing jobs, and realising that the option of old, emigration, is looking no better than staying put.
As the government is trying hard to find a way out of the crisis, there has been a fair amount of discussion on how we got into this situation in the first place. Commentators are near-unanimous that the causes of the global crisis are the same as those of the crisis that is hitting our country: regulatory weaknesses that allowed credit to balloon out of control, and a lack of corporate transparency that allowed businesses to hide the true state of their finances.
What has been largely absent from the public debate, however, is the realisation that this crisis is hitting poorer countries even harder than it is hitting us, and that the causes of the crises are the very same that have kept developing countries poor for many decades now. In the last twenty-odd years, the international community has resolutely looked the other way while big business exploited the inadequate global financial regulations to the detriment of developing countries.
Huge international corporations were able to minimise and avoid – or even illegally evade – their obligation to pay tax in many of the countries in which they operate. Aid agencies estimate that tax evasion by international business currently amounts to some $160 billion per year – almost twice the amount poor countries derive from international aid.
Around the world, our leaders are trying their best to find a solution out of the current crisis. Unfortunately, they seem blind to the fact that in any crisis, the poor and vulnerable are the ones hardest hit. They seem resistant to considering new ways of doing business and appear rather to be patching up the system that created the crisis in the first place. In fact, many of the measures, such as cutting aid budgets and shoring up the banks without improving corporate governance requirements, only serve to deepen the impact of the crisis on the world’s poorest people.
When world leaders were meeting in Davos earlier this year, aid agencies pointed out that the G8 leaders could relieve the suffering of the 290 million people hit hardest by today’s food crisis if they could give just two extra cents for every €1 they have already spent bailing out the banking industry.
Already hard-hit by soaring food and energy prices that pushed up inflation, poor countries can only look on helplessly as demand for their products dries up and vital remittances by family members in rich countries decline. Foreign investors are increasingly shying away from their markets, which are deemed too risky, and their withdrawal causes risk premiums and interest rates to rise so that African governments have even less room to manoeuvre and respond to the crisis. And now some rich countries – including Ireland – are exacerbating this situation, by cutting their aid budgets, depriving poor countries from their last major source of income.
Irish aid agencies are united in their call for a change of approach. They are calling on our leaders to consider how the economic crisis can be a catalyst for new models of growth and a new way of doing business. World leaders must honour their promises to increase aid. Private sector leaders must strive to minimise the impact on poor people of redundancies and falling demand. And banks should behave more responsibly and make sure money is available for poor countries to invest in vital infrastructure and pursue economic development.
For if there is one lesson that stands out in the current crisis, it is that those countries that have been able to insulate themselves from the highs and lows of the global financial markets are those that are now weathering the storm best. African governments that have resisted the “one-size fits all” recipes of the IMF and World Bank to liberalise and de-regulate seem to be the ones that are now in a good position to respond to the crisis. They must act now, to protect the poor and vulnerable, and they must be given the space – and finance – to deliver for the poor. Ironically, therefore, this might well be the best possible time to invest in overseas aid. Cutting aid now is sure to undo most of the achievements of the past thirty years.
Hans Zomer is Director of Dóchas, the umbrella group for Ireland’s Development NGOs.