The World Bank agreed Sunday to help developing countries strengthen their economies, bolster their financial systems and protect the poor against the financial turmoil in international markets.
Robert Zoellick, the bank’s president, said the contagion affecting the global economy “has been a manmade catastrophe and responses to overcome it lie in all our hands.”
He spoke as the U.S. moved to shore up Wall Street and financial institutions and the 15 countries that use the euro agreed in Paris to temporarily guarantee bank refinancing to ease the credit squeeze.
Speaking at a joint news conference with Zoellick, Dominique Strauss-Kahn, the head of the International Monetary Fund, endorsed the European move and said he expected markets to react favorably, “although you never can be sure what will happen.”
Strauss-Kahn also called for quick implementation of the $700 billion U.S. rescue plan, which includes the government buying part-ownership in an array of banks.
Zoellick said that as the current crisis has unfolded, people in the United States and Europe reacted first with confusion, then anger, then fear.
“Those natural reactions will spread around the world as the impact spreads,” Zoellick said. “We need to take them seriously.”
He said any prolonged tightening of credit or a sustained global slowdown could cause serious setbacks to developing countries’ efforts to improve the lives of their populations. Such countries are already struggling with high prices for energy and food.
“We need concerted global action now not just to deal with this crisis, but to put in place new architecture, new norms, and new oversight to ensure that this crisis never happens again,” he said.
“The poorest and must vulnerable groups risk the most serious—and in some cases, permanent—damage,” Zoellick said. “One hundred million people have already been driven into poverty this year and that number will grow.”
Zoellick said the financial crisis underscored the need for “concerted global action now, not just to deal with the crisis but to put in place new architecture, new norms and new oversight to ensure that this crisis never happens again.”
He said the bank and the IMF must ensure that as governments turn their attention to domestic matters, they do not step back from their commitment to provide billions in aid to poor countries.
“Aid flows must be maintained,” Zoellick said. “Today’s meeting of ministers was unanimous in that regard.”
The head of the bank’s policy-setting committee, Mexican Finance Minister Agustin Carstens, said ministers were unanimous in their view “that the World Bank had to protect the poor and vulnerable in the context of the global financial crisis.” He said the Bank needs to be flexible to address the differing problems faced by poor countries and those with rapidly growing economies.
In remarks to the committee, Treasury Secretary Henry Paulson said global unity was needed, not isolationism and protectionism, which do not offer a way to contain the spreading damage. He expressed concern about the fallout on poor countries.
“Although we in the United States are taking many extraordinary measures to ease the crisis, we are not pursuing policies that would limit the flow of goods, services or capital, as such measures would only intensify the risks of a prolonged crisis,” he said.
U.S. lawmakers, meanwhile, called for fast action—by the administration on a plan for the government to take direct stakes in certain banks, and by Congress on a new economic aid plan.
Sen. Chuck Schumer, chairman of the Joint Economic Committee, said an administration proposal to inject federal money directly into certain banks, in effect partially nationalizing the banking system, “is gaining steam.”
“I am hopeful that tomorrow, the Treasury will announce that they’re doing it. And they have to do it quickly ... markets are waiting,” Schumer said.
Schumer and other Democratic leaders also backed plans by House Speaker Nancy Pelosi, D-Calif., for a session after the Nov. 4 election to consider a $150 billion proposal to boost the economy.
The measure would extend jobless benefits, provide more money for food stamps and finance public works projects, such as rebuilding bridges and roads.
“Yes, we are going to do a stimulus” after the election, said Rep. Barney Frank, chairman of the House Financial Services Committee. The idea is “give the middle class and the average citizen the same kind of relief that we try to give the financial sector,” said Frank, D-Mass., who, like Schumer, appeared on the Sunday talk shows.
President Bush says his administration is doing everything possible to halt the biggest market disruption since the Great Depression of the 1930s.
Associated Press writers Chris Rugaber and Tom Raum contributed to this report.