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December 2,
2008
The Bailout Dwarfs Spending on Poverty
and Climate Crises
Skewed Priorities
By SARAH ANDERSON and JOHN CAVANAGH
The financial crisis is only one of
multiple crises that will affect every
country, rich and poor alike.
There's also the global poverty crisis.
Tens of millions of people across the
developing world are expected to fall
into extreme poverty and joblessness as
a result of an economic mess originating
in the United States. This is bad news
for workers everywhere, as it means even
more brutal competition in the
globalized labor pool.
And then there's the climate crisis. If
we don't do something about that one, we
could find out what a real meltdown
feels like.
Yet the richest nations in the world
appear fixated almost entirely on the
financial crisis, and specifically, on
propping up their own financial firms.
A new report by our organization, the
Institute for Policy Studies, finds that
the approximately $4.1 trillion that the
United States and European governments
have committed to rescue financial firms
is 40 times the money they're spending
to fight climate and poverty crises in
the developing world.
And as officials head to two upcoming
global summits, there's strong reason
for concern that rich country
governments may backtrack even further
on their aid and climate finance
commitments.
On November 29, the Middle East nation
of Qatar will host a Financing for
Development conference, where
governments will review aid obligations
made six years ago. On December 1,
international negotiators will convene
in Poland to hammer out commitments to
fighting climate change, including
climate-related financial assistance for
developing countries.
The financial crisis has overshadowed
both of these major summits. When bank
failures escalated in September, the
United States and European governments
moved with lightning speed to mobilize
those $4.1 trillion in resources to aid
struggling financial institutions.
For the United States, the total so far
comes to about $1.3 trillion, including
the $700 billion bailout bill as well as
rescues for individual firms, deposit
insurance for failed banks, and
purchases of banks' short-term debts. In
Europe, countries have pledged about
$2.8 trillion for bank loan guarantees
and cash injections.
More Than Development Aid
The combined $4.1 trillion is more than
45 times the sums the U.S. and Western
European governments spent on
development aid last year.
Some individual companies have enjoyed
bailouts that dwarf the size of country
aid packages. For example, the U.S.
government's $152.5 billion rescue plan
for AIG greatly exceeds the $90.7
billion U.S. and European governments
spent on aid to all developing countries
in 2007. And remember when AIG
executives headed off to a luxury resort
a few days after getting their taxpayer
bailout? The tab for that junket —
$440,000 — came to roughly the
equivalent of U.S. food aid last year to
Lebanon, a country struggling to recover
from conflict.
The biggest company-specific bailout —
the $200 billion for Fannie Mae and
Freddie Mac — comes to nearly 1,000
times U.S. economic aid to Haiti, the
Western Hemisphere's poorest country.
The $29 billion for investment bank Bear
Stearns was far more than the U.S.
government's total aid bill of $23.2
billion.
Short-changing countries in such extreme
need will only boomerang back to the
United States in the form of greater
global insecurity and reduced export
markets.
Likewise when it comes to climate
finance, the U.S. and European
governments appear to be a penny wise
but a pound foolish. Europe's new and
additional funding commitments for a
variety of climate-related efforts in
developing countries over the next
several years add up to only $13.1
billion, and very little of this has
been disbursed.
The Swiss government has committed $60
billion to rescue the ailing bank UBS,
which invested heavily in U.S. subprime
mortgage debt. That's more than five
times Europe's total commitments to
climate finance for developing
countries.
The U.S. Congress has not approved a
single dollar of contributions to the
developing world's climate change
efforts. This is in part because the
Bush Administration insisted that such
financing be channeled through the World
Bank, an institution with a poor
environmental track record.
All three crises — financial, poverty,
and climate — underscore the
inter-connectedness of every nation on
the globe. Thus, such extremely lopsided
spending priorities, if continued, will
only come back to haunt the United
States and the rest of the global North
in the long run. The richer countries
not only have an obligation to clean up
the messes they've made abroad. It's
also in our own interest.
Sarah Anderson is Global Economy Project
Director of the Institute for Policy
Studies and John Cavanagh is IPS
Director. They are co-authors of the
report “Skewed Priorities: How the
Bailouts Dwarf Other Global Crisis
Spending” and Foreign Policy In Focus
contributors.
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