Development banks could provide up to $200 billion in financing to help poor nations deal with shockwaves caused by the European sovereign debt crisis, World Bank President Robert Zoellick said on Tuesday.
Speaking ahead of the Group of 20 leaders’ summit in France on Nov. 3-4, Zoellick said developing countries were feeling the impact from the euro zone debt crisis through increased market volatility, weaker demand and signs of shrinking trade finance in West Africa.
“We have estimated with the regional development banks we can provide somewhat over $200 billion in financing, drawing from a full set of tools,” Zoellick said. “The World Bank amount of that is about $115 billion.”
He said European banks were already selling off assets to raise capital and there was a risk they could reduce lending, which would affect countries in southeastern Europe and the Balkans.
Zoellick urged the G20 to act to boost market confidence and commit to actions to bolster global growth and job creation that would also help developing countries.
“It would be very useful if the G20 leaders can send a strong signal on follow-through after the euro zone announcement so as to sustain and build confidence,” Zoellick told reporters.
A new euro zone plan to address the crisis, in part by expanding the firepower of its bailout fund, had bought some time but the challenge was to build and sustain market confidence to avoid further damage, Zoellick said.
He said Greek government plans for a referendum on a new bailout program, which caught euro zone leaders off guard, added to uncertainty in markets and if it failed “it is going to be a mess.”
He called on G20 leaders to avoid domestic political positioning and warned that the world economy was “still wobbly on the edge right now” and could tip very quickly if momentum to tackle the euro zone crisis was not maintained.
One way to boost global growth was to ensure that developing countries were part of any G20 plans to bolster growth and create jobs by increasing infrastructure investments and trade, Zoellick said.
He said Europe and others should “not be looking for a silver bullet from the Chinese” when the per capita income of China was $4,000 per person compared to $38,000 in Europe.
“At Cannes, the countries need to follow through on the euro zone plan, they need to have attention to growth and jobs strategy, and they need to recognize that developing countries are a key source of solutions to the world,” he said.
Zoellick also urged the G20 to act to tackle food price volatility that is hurting the poor. An updated World Bank’s quarterly food price index released on Tuesday showed global food prices remain high and volatile. Volatility hurts farmers because they do not know how to price their products.
The index showed a small dip of 1 percent in September, settling at 5 percent below its February peak, but it is still 19 percent above September 2010 levels, the World Bank said.
“It reveals we are in a period of continued serious volatility, which is especially high in low-income countries,” Zoellick said.
The G20 meeting of leaders from major industrialized and emerging market countries is scheduled to consider actions to help countries manage food price volatility, promote more productive agriculture and get food to the needy fast through emergency regional food reserves.
The World Bank said that a slowing global economy, particularly in the United States and the euro zone, could dampen demand and push food prices lower.
However it also warned that poorer countries would be hard hit by weaker global demand as trade would likely slow, putting pressure on revenues.
“The persistently troubled global economy must be monitored vigilantly because the risk of a global deceleration in demand is real,” the World Bank said.