WASHINGTON, Oct. 1 (UPI) -- The terrorist attacks on the United States will not only hurt industrialized nations, but it will also increase poverty levels in developing countries, the World Bank cautioned Monday.
As the global economic outlook remains bleak, at least in the near-term, the international agency warned that the number of people living in poverty is likely to increase by nearly 10 million.
The World Bank anticipates growth in developing countries to decrease by 50 to 75 basis points (half-a-percent to 0.75 percent) as a direct result of the terrorist strikes on New York and Washington.
The agency had forecast gross domestic product of developing countries at 2.9 percent this year, and rebounding to 4.3 percent in 2002. Growth in 2000 had reached 5.5 percent, but the World Bank had already slashed the forecast for this year, predicting that developing countries would suffer the economic slowdown in the United States, Europe, and Japan that had already been taking place.
"Some 10 million more people are likely to be living below the poverty line of $1 a day because of the terrorist attacks," said World Bank President James Wolfensohn. "This is simply from loss of income. Many, many more people will be thrown into poverty if development strategies are disrupted."
Indeed, emerging market investors who had already been reluctant to put their money in only but a handful of developing countries after the global financial meltdown of 1998 are likely to stay even further away from the higher-risk nations following the attacks.
"The pattern established in the 1990s of private capital flows accounting for a much greater share of developing countries' financing needs is expected to be reversed in the near term as both equity and lending activities contract in lower risk countries," the World Bank said.
Africa, which has usually faced the greatest difficulty in attracting foreign investments, will be the region worst hit by the spillover effect of the Sept. 11 strikes, the international agency reported. With commodity prices falling after the strikes, the agency foresees between 2 to 3 million more people living far below the poverty line, namely farmers and rural laborers. Indeed, the World Bank projects agricultural commodity prices to be lower by 3 full percentage points, and metal prices falling 5 percentage points in 2002, which would result in a trade shock that would supersede the impact of a global economic slowdown.
As such, the World Bank emphasized the importance of keeping the levels of world trade relatively high, and advocated further lifting of trade barriers.
"Maintaining world trade is more important than ever, especially in the face of an economic slowdown which is often accompanied by pressures for increased protectionism," said the World Bank's chief economist Nicholas Stern.
The World Bank's assessment of the impact of the terrorist attacks, however, conflicts slightly with that of the International Monetary Fund.
In releasing its biannual World Economic Outlook report last week, the IMF said that while the attacks on the World Trade Center and the Pentagon were tragic, its direct economic impact would likely to limited.
"The attack has taken a terrible toll in human lives, but the direct economic damage- in relation to the overall United States economy, is still relatively moderate," said the IMF's research director Kenneth Rogoff.
He added that while U.S. and global growth would be hurt in the short-term, the world economy would likely begin to recover by June 2002.
Prior to the attacks, the IMF pegged global growth at 2.6 percent in 2001, rising to 3.5 percent the following year. It projected U.S. GDP at 1.1 percent this year, increasing to 1.8 percent in 2002. Whilst the IMF projects global growth to be unable to reach that level in 2002, the agency declined to quantify just how adversely affected world expansion would be.
