Event at Brookings

This morning I went to an event at the Brookings Institution about the impact of the financial crisis on developing countries. The main speaker was Dominique Strauss-Kahn, the Managing Director of the IMF.

According to Mr. Strauss-Kahn, the financial crisis has three main waves. First it hit the advanced countries, now it is in the midst of attacking the developing countries such as India and China, and soon it will strike the low income countries in Africa and Latin America. The IMF is very concerned about this oncoming wave because low income countries will have no means with which to protect themselves from the crisis. Instead of implementing their own stimulus bills like the US and Europe, they will have to rely completely on foreign aid from countries that are already desperately trying to keep themselves afloat.

Strauss-Kahn proposed that in order to stop this devastating outcome from happening, aid needs to be given immediately to low income countries. Currently, the IMF is prepared to give $25 billion in aid. This, however, is not nearly enough. The IMF states that in order to repel the crisis from low income nations, $120 billion in aid needs to be distributed. The reason for such a high number is the fact that once the third wave hits these under developed economies, industrialized nations will pull out their investments, leaving behind a huge wealth gap.

Some would ask why such large amounts of aid are necessary in order to save economies hundreds of miles away. The answer is the fact that the onslaught of the third wave will cause 52 million more people to drop into the category of the poorest people on earth. This crisis will not only have economic and social costs, but political ones as well. The IMF and other organizations are concerned that the few stable governments in Africa will not be able to stay afloat, engendering lawlessness and havoc across the continent.

When asked whether or not he believed the IMF should be concerned with the future of developing nations, Dominique Strauss-Kahn stated that low income countries are his main concern at the moment. Since these countries have no voice in powerful organizations such as the G-20, the IMF must act as their spokesperson. Strauss-Kahn also stated that the IMF plays a very important role in the international global economy: that of a firefighter. While it may not seem necessary to call the firefighter when the fire's not blazing, it's important to know where the extinguisher is when the flames begin to spread. Basically, the IMF is currently attempting to stem the effects of the crisis on low income countries before the fire reaches them.