As oil and food prices soared in early 2008, Bank President Zoellick warned the world was entering "a danger zone," threatening to undo the gains made in overcoming poverty over the last seven years.
By the summer, the food and fuel crisis converged with a financial crisis, which started in rich countries. At the same time, a historic boom in commodity prices ended as global economic growth slowed, and the financial crisis widened as the year progressed. Developing countries initially seemed to be resilient, but by September it was apparent they were affected as well. As the year drew to a close, the financial crisis was becoming an unemployment crisis.
The Bank's Global Economic Prospects 2009 released in December said global trade was down for the first time since 1982. Global GDP growth would fall to 0.9% in 2009, while developing country growth was expected to decline to 4.5%, the report predicted.
With the financial crisis mounting, Zoellick warned "that we must remain focused on the human rescue for the many millions left behind."
"While people in the developed world are focused on the financial crisis, many forget that a human crisis is rapidly unfolding in developing countries. It is pushing poor people to the brink of survival," he said.
Food Crisis
The global food crisis has pushed 130 to 155 million more people into extreme poverty over the last two years, with an additional 44 million malnourished.
In April, the Bank announced a New Deal on Global Food Policy, which was endorsed by 150 countries. As part of the deal, the Bank created a new $1.2 billion rapid financing facility—the Global Food Response Program (GFRP)—to speed assistance to the neediest countries. As of December 18, GFRP had approved and begun disbursing $851 million, for programs aimed at feeding poor mothers and children and buying fertilizer and seeds in 27 countries.
Zoellick also called on the global community to lift export bans and restrictions for humanitarian food aid, which were exacerbating the crisis and hurting the most vulnerable.
Zoellick announced at the Annual Meetings that the Bank will draw on "the full range of our resources to help developing countries to strengthen their economies, bolster their financial systems, maintain growth, and protect the most vulnerable groups against the impact of the current crises.
In December, the Bank set up a new facility to speed $2 billion to the poorest countries from the $42 billion IDA15 fund. Money is to be used for safety nets, infrastructure, education and health. IBRD, the Bank's arm that lends to middle-income countries, could make new commitments of up to $100 billion over the next three years. And IFC, the Bank's private-sector lending arm, is launching or expanding four initiatives to help the private sector in developing countries.
The way the world tries to solve its economic problems needs to be rethought amid today's global crisis, Zoellick said in a pre-Annual Meeting speech. The multilateral system needs to be modernized to ensure a greater shared responsibility for the health and effective functioning of today's global economy, including climate change and stabilizing fragile and post-conflict states.
"The G-7 is not working. We need a better group for a different time," Zoellick said.
The "new multilateralism" must place an equal value on development as it does on international finance; otherwise, the world would remain an unstable place, he said.
The Bank Group's Strategic Framework for Development and Climate Change was adopted at the Annual Meetings. Following more than five months of consultations with 1,800 participants from 76 countries, the framework defined the Bank Group's role in addressing a problem that is likely to cause the greatest distress to countries least responsible for it.
The Bank also created two new Climate Investment Funds, to which ten industrialized nations pledged $6.1 billion. The funds will scale up energy efficiency, low-carbon technologies such as wind power and solar energy, and pilot new approaches to building climate resilience in countries threatened by climate change, as well as forest investments and renewable energy.
To help the poor in developing countries cope with high and volatile energy prices, the Bank Group started developing a new energy initiative. The initiative was given a boost at the Annual Meetings when the Development Committee, in its final communiqué (pdf), "encouraged the Bank and its partners to move forward with a planned new program—Energy for the Poor—that would provide rapid support for countries' efforts to strengthen social safety nets to protect the poor against the impact of high fuel bills."
Fragile states are the "toughest development challenge of our era," Zoellick said in a recent speech.
One billion people live in countries where the state is breaking down or is overcome by conflict, and where governments are typically unable or unwilling to provide basic services or enough security. Also, many are relatively neglected by the international community and don't receive much aid per capita.
To help these countries, the Bank in April merged two existing funds into a new State and Peace Building Fund and agreed to allocate $100 million from the Bank's administrative budget over the next three years. About 20 countries will receive grants from a first $33 million allocation in fiscal year 2009.
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