Tuesday, 31 March 2009

The unforeseen and catastrophic consequence of global recession

As self-indulgent 'protesters' get ready to gorge themselves on orgiastic violence tomorrow, there is a far more concerning risk of conflict that merits serious attention. As the G20 leaders begin to gather- and discuss a new capital injection into the IMF in order to ensure that the financial maelstrom does not cast emerging economies overboard- failure to respond to the acute situation faced by poorer nations could be catastrophic. To put it simply, conflict and all that goes with it is a far more serious risk in a global recession.

Dan Smith, Secretary General of International Alert, the international peace-keeping organisation, warns of a 'perfect storm.' The number of global conflicts appears to have diminished in recent years from 56 wars in 1990 to 34 in 2007. However, the risk of an increase is significant- conflicts can suddenly appear as if from nowhere, see the Georgia-Russian conflict of last Summer. Moreover, climate change creates a clear and present danger. Smith estimates that there are 46 countries with a population of 2.6billion at risk of armed conflict that is influenced some way by climate change in combination with other factors. Along with poor governance and the risk of conflict spilling over from one country to the next, the volatile world that we suddenly find ourselves in the affluent world precariously inhabiting as a result of financial collapse is nothing in comparison with what is faced in Darfur, say.

Now, the economic situation impacts these lesser developed nations at risk of armed conflict in two main ways. Firstly, the availability of international capital for investment, managing currency flows, and meeting international debt and trading obligations is drying up. Just as an absence of liquidity hits the poorest people in rich societies hardest, it hits the poorest nations hardest. Secondly, the developed world, facing its own economic travails risks turning in on itself and so we may not be alert to the risk of armed conflict.

That is the challenge that the G20 nations face: to deal with their own financial issues while realising the desperate situation that less affluent nations face. The early signs are good, certainly it looks as if the IMF will be bulked up without the sort of draconian international rules that have characterised its bail-outs in the past. However, when that communique is published on Thursday, it must have given serious consideration to removing as many elements of the 'perfect storm' as possible. That will be a key test.

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