Financial Crisis

Even before the banking collapse, the world’s poor were suffering from a global economic system that produced rising hunger, inequality and the threat of climate chaos. Led by rich countries and powerful institutions such as World Bank and IMF, the world has followed an unjust and unsustainable financial model fuelled by ever-increasing financial debt and a global environmental overdraft.

Now that the bubble has burst, people around the world are losing their jobs, homes and livelihoods. Predictably though, it is the people living in some of the world’s poorest countries who have been hit the hardest – despite being the least to blame for causing the crisis.

The world’s poor are feeling the impact of the financial crisis in four main ways:

• First, as banks stop lending, investment flows into emerging economies have evaporated, leaving governments short of funds and local enterprises lacking vital capital. Many banks in developing countries have been exposed to the same toxic debts as our own banks too.
• Second, as the rich countries plunge into recession, demand for goods from the South has plummeted, leading to surging unemployment in countries that have geared their economies around exporting to Europe and North America. The IMF has warned that the worldwide recession will translate into an additional 55 to 90 million people falling into extreme poverty, with surging unemployment across the global south and developing countries left desperately short of funds to pay for essential public services and social safety nets.
• Third, many advanced economies are now cutting aid – just as poor countries have been forced to slash public expenditure on critical social services.
• Fourth, as unemployment grows, millions of migrant workers around the world are being sent home. For many poor countries, remittances from migrant workers (either domestically or overseas) contribute a huge amount to the national income. Also, unlike aid or foreign direct investment, this income goes straight into the pockets of poor families. Its loss is therefore felt harshly and immediately.

The world’s poor have long suffered from rich countries’ greed. The financial crisis has shown how extreme inequality rests at the heart of global poverty’s stubborn persistence.