Institute of Development Studies

The Credit Crunch and Global Poverty

On Tuesday 12 May, researchers from the Institute of Development Studies took part in a panel discussion which looked at the impact the global recession is having on the lives of people in developing countries. The event was chaired by James Deane of the BBC World Service Trust, and marked the third year that IDS has taken part in the Brighton Festival Fringe.

The panel was made up of Andy Sumner, Naomi Hossain and Neil McCulloch, all research fellows at IDS, who answered tough questions posed by the chair and the attendees. They began by spelling out how they see the causes of the crisis and the current situation, and went on to look at how it is affecting the world’s poorest people.

It was explained that the crisis is not simply a ‘credit crunch’, but works through four key factors which increase poverty in developing countries: trade, as demand for exports is reduced; a reduction in private capital flows; a fall in remittances, as foreign workers have lost their jobs or returned home; and finally aid, which is particularly significant for a few countries, and may or may not fall as a result of the crisis.

Naomi Hossain reported on research carried out earlier this year, which involved spending time in communities in Bangladesh, Indonesia, Jamaica, Kenya and Zambia talking to people and finding out what their experiences of the food, fuel and financial crises were. In many cases the increases in the prices of food and fuel which pre-dated the financial crisis were having the worst effects, though the level of people’s vulnerability depended to a large extent on their context, and government policies (e.g. in removing user fees for healthcare). She also emphasised that although aid is a tiny fraction of global financial flows, it is important in supporting social spending on matters such as healthcare and education and hence has an impact greater than that which might be assumed for its size.

The compound effects of the financial crisis, following hot on the heels of increases in the prices of food and fuel in previous years, were noted by all three speakers. Vulnerable people may already have taken cost-saving measures such as selling livestock or withdrawing children from school. The long term effects of these coping mechanisms were discussed; large numbers of young citizens suffering educational, nutritional or health deficits seriously hampers a country’s development. Malnutrition in the womb up until the child’s second birthday causes harm that cannot later be undone; hence, government action to help people cope needs to be provided quickly if it is to be effective.

The financial crisis is interacting with not only the food and fuel crises, but also the effects of climate change and political instability, as well as pre-existing high levels of poverty. In Bangladesh many people are already refugees from climate change, their land having been washed away by river erosion; and in Kenya the after-effects of the election violence in 2007 are still being felt, along with drought-induced famine.

Despite the effects of the crisis, the correlation between globalisation and growth is strong. The effects of growth of the poorest in a society can be variable, and ‘pro-poor’ growth can be hard to achieve; but it remains the case that protectionism, which McCulloch is concerned may be on the increase, is usually bad for development. The important thing is for countries to find a way of integrating with the world economy that works for them.

A range of other questions were debated, including the gendered effects of the crisis, the lack of action on the part of NGOs in crisis-hit communities, and how one can convince the public in developed countries that it is in their interest to continue to support international aid. To hear the event in full please follow the link below.

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