In its latest report, “Swimming Against the Tide: How Developing Countries are Coping with the Global Crisis,” the World Bank says that 94 out of 116 developing countries have experienced a slowdown in economic growth. Of those, 43 have high levels of poverty.

And the most affected sectors are those that were the most dynamic not too long ago: Urban-based exporters, construction, mining and manufacturing – the result of shrinking global trade that’s on track to record its largest annual decline in 80 years.

Developing countries are facing a $270 billion to $700 billion financial shortfall. But the biggest private sector creditors are seeing the biggest loan demand for high-income countries, choking their ability to loan to emerging markets. And the emerging economies that can secure loans will face higher borrowing costs and lower capital flows, leading to weaker investment and slower growth in the future, the World Bank said.

“When this crisis began, people in developing countries, especially those in Africa, were the innocent bystanders in this crisis, yet they have no choice but to bear its harsh consequences,” World Bank Managing Director Ngozi Okonjo-Iweala said in the report. “We must look at poor people as assets and not liabilities. The new globalization should mean we adopt new ways of caring for our infants, educating our youth, empowering our women and protecting the vulnerable.”

All totaled, only one quarter of the most vulnerable countries have the ability to finance measures to economic downturn – such as job creation and safety programs. The rest will likely see already drastic poverty worsen, the bank said.

“We need to react in real time to a growing crisis that is hurting people in developing countries,” said World Bank Group President Robert B. Zoellick. “This global crisis needs a global solution and preventing an economic catastrophe in developing countries is important for global efforts to overcome this crisis. We need investments in safety nets, infrastructure, and small and medium size companies to create jobs and to avoid social and political unrest.”

The best way to ease the damage, World Bank Chief Economist and Senior Vice President Justin Yifu Lin says, would be for developed countries to spend a portion of their stimulus plans on developing countries.

“Clearly, fiscal resources do have to be injected in rich countries that are at the epicenter of the crisis, but channeling infrastructure investment to the developing world where it can release bottlenecks to growth and quickly restore demand can have an even bigger bang for the buck and should be a key element to recovery,” Lin said.

The World Bank’s report will be presented at Saturday’s meeting of the G-20 finance ministers and central bank governors.

Source: World Bank: Emerging Markets Will Take Brunt of First Global Economy Decline Since WWII

• South Africa’s central bank cut a half-percentage point from its benchmark interest rate, marking the country’s first interest rate reduction in more than three years, Bloomberg reported. The growing global crisis, rising unemployment and falling commodity prices are hampering growth for the emerging economy.

• Asset manager BlackRock Inc. (BLK) cut 500 jobs, Chief Executive Laurence Fink said Thursday. Many of the job losses were part-time employees, Reuters reported. BlackRock is the largest publicly traded U.S. asset manager.

• Second-quarter profit rose 13% for Empire Co., owner of Canada’s second-largest supermarket chain. Net income rose $53.6 million and revenue increased 7% for the three months through Nov. 1, Bloomberg reported.

• KB Toys Inc. yesterday (Thursday) filed for bankruptcy protection for the second time in four years and plans to hold going-out-of business sales at its stores immediately. The 86-year-old company said in a filing that its debt is “directly attributable to a sudden and sharp decline in consumer sales,” an indication of how poor this holiday season has been for many retailers.

• Light, sweet crude for January delivery yesterday (Thursday) rose $4.46 to settle at $47.98 a barrel on the New York Mercantile Exchange. Oil spiked 12% earlier in the day approaching $49 a barrel.

• Citigroup Inc. (C) and UBS AG (UBS) yesterday (Thursday) agreed to buy back a total of nearly $30 billion in risky auction-rate securities that the Securities and Exchange Commission said the banks marketed to customers as safe. Tens of thousands of the customers bought the auction-rate securities before the $330 billion market froze in mid-February, the SEC said.

• Bank of America Corp. (BAC) said yesterday (Thursday) that it plans to cut up to 35,000 jobs over the next three years. The bank said the reductions are aimed at eliminating redundancies resulting from its merger with Merrill Lynch & Co. Inc. (MER), as well as the recessionary environment.

Source: Global Investing Roundups Friday, December 12th, 2008

The only question was how quickly the money would hit the streets, and Jing Ulrich, J.P. Morgan Chase, said that, “With a healthy fiscal surplus and low government debt, China appears to have considerable resources to ramp up its fiscal spending in a short period of time.”

Weekend news of the Chinese package had lifted equity markets around the world and revived risk appetite, but only momentarily in the U.S. as domestic stock markets ended the day down and the buck—which has been a primary destination for the risk-averse for some time now—gathered some late steam.

China’s plan “could well form the starting point of a coordinated fiscal-stimulus plan as world leaders [the G20] gather in Washington later this week,” wrote strategists at Lloyds TSB.

And it could prove to be a defining moment in the global crisis, thinks Neil Mellor, currency strategist at Bank of New York Mellon. But Mellor wrote that “even if this optimistic scenario ultimately proves to be correct, the inevitable and continued deterioration in global economic data may prove to be a rather overwhelming test of the market’s mettle in the meantime.”

Source: Dollar cuts early losses -  China’s stimulus package the talk of the trade

This from Taipan Publising’s emerging market blog:

Last Tuesday, I told Taipan Publishing Group subscribers in Taipan Insider that one Middle Eastern country was injecting massive amounts of cash into international markets.

That’s not really news nowadays, though, is it? Everyone’s heard of the $7.5 billion Citigroup (NYSE:C) bailout by Abu Dhabi back in November 2007.

But things have noticably been slowing down. When billions of dollars worth of investments get halved in value in less than a year, it makes you think.

Yet for some regions, this credit crunch is an opportunity of a lifetime.

Think about it. You’re an oil-rich nation with foreign currency reserves well into the hundreds of billions. Major global institutions are searching desparately for cash. Their fellow financial institutions are equally cash-strapped.

Suddenly, your country has a lot of power.

Now, who knows how long global financial systems are going to be in crisis… who knows how long major markets are going to wallow at lows not seen in decades. You need to act, and act now to secure your new position as a “Global Player.”

That’s just what some countries, like Abu Dhabi and Qatar, are doing.

Instead of accepting a government bailout, UK bank Barclays (NYSE:BCS) is selling stakes to sovereign wealth funds in Abu Dhabi and Qatar.

These stakes are worth about $12 billion and they will up Qatar’s BCS holdings to 12.7% and Abu Dhabi’s holdings to 16.3%. And while this injection might keep BCS independent from its own government, it sure gives these Middle Eastern countries a big boost in global power standings.

(By the way, another UK bank HSBC (NYSE:HBC) opted not to take UK cash for a bailout. It says it remains one of the most capitalized and liquid banks in the world. But if it does become cash-strapped, I’ve a feeling it’ll tap China’s sovereign wealth fund, CIC for funds.)

So what does a move like this mean for those oil sheikhs with wads of cash burning a whole in the country’s collective pocket?

It means diversification away from oil (and the dollar).  The BBC reported last Sunday, “Shares in the oil-rich Gulf region have fallen back as investors worried about the impact of the global economic downturn on the region.” Meaning falling oil consumption.

But it also means power.

TAQA is one of Abu Dhabi’s smaller sovereign wealth funds with about $28 billion in assets. Peter Barker-Homek is the chief executive. He told the BBC’s Christian Fraser, “Abu Dhabi’s sheikhs are looking beyond the simple financial return: they want to become true global players… Part of our role is really to close the divide between east and west. The end state will be a company that we hope will be one of the top 50 global employers.”

That’s partially why Barclays has chosen to align itself with governments outside the UK. CEO John Varley told Business Intelligence Middle East, “There has been a significant shift in the availability of capital and economic power in the world over the last five years and we’re ensuring we’re aligned with those changes.

That includes, of course, the Middle East, whose sovereign wealth funds will own about 32% of Barclays once this funding deal goes through. (China and Singapore have stakes in the UK bank, as well.)

This could be the year of “Follow the Money” as sovereign wealth funds begin to snap up deals all over the world.

The price certainly looks right…

Source: Middle East Money Funds Busted Barclays

All right, it’s really a digital tiger. But we still
refer to central banks as “cranking up the printing
presses” when we really mean “increasing the money supply.”
The old image of fiat paper money is with us still, so I
refer to China as a paper money tiger.

Mao referred to America as a paper tiger. America
wasn’t at the time. China is today: not weak, but highly
vulnerable. China’s central bank, the People’s Bank of
China, has been pursuing a policy of monetary inflation as
no large modern country ever has in peacetime. Year after
year, M-1 increases at about 20%. This has fueled an
economic boom of unprecedented proportions. This boom has
been a particular kind of economic growth, one weighted
heavily toward exports.

Now this inflation-fueled boom is facing its day of
reckoning: rising domestic prices, especially of rice.
Most of the 400 million residents the booming cities can
afford to buy rice. The poor 900 million of the
countryside are finding it difficult to buy rice. It is
being exported to the cities, where residents can afford to
pay for it.

The response of the government to rising prices has
been to impose price controls on key products. This has
created shortages, as price controls always do whenever a
government’s central bank is inflating.

There is a simple solution. The People’s Bank of
China should cease inflating. It should cease buying U.S.
Treasury debt, Chinese government debt, or any other kind
of debt. But that would produce China’s first post-
Communist recession. The real estate boom would turn into
a bust that would dwarf the recent downturn in the United
States. The flow of millions of people into the cities
would slow. The unemployment rate in the cities would
soar.

Then the riots would begin.

When you think “riots in China,” think “geriatric
Communist oligarchy.” Think “Tibet.”

The oligarchs are riding the paper money tiger. So
are you. So am I.

How should we get off? That is not our decision. How
will we get off? That is the #1 investment question of the
next five years, all over the world.

FOUR THEORIES OF NATIONAL WEALTH

To understand what China has accomplished since 1978,
we must understand the history of modern economic thought.
There have been four main streams of economic thought:
mercantilism, capitalism, socialism, and Keynesianism.

Mercantilism was the dominant economic outlook prior
to Adam Smith’s book, “The Wealth of Nations” (1776).
Mercantilists believed that national wealth is based on
gold. A nation’s wealth increases by means of foreign
trade, but always government-controlled trade. The sign of
increasing national wealth is an increase in the supply of
gold in the national government’s treasury.

The mercantilists believed that a nation increases its
wealth by exporting more than it imports, with gold
imported rather than consumer goods. Goods flow out; gold
flows in. This makes the nation richer.

Smith disproved this theory. Actually, David Hume had
disproved it three decades earlier. He pointed out that
the inflow of gold increases prices in the exporting
nation. Meanwhile, the outflow of gold reduces prices in
the importing nation. As domestic prices rise, a nation’s
exports become more expensive to foreigners. So, it is
able to export less. The system balances itself without
government intervention. Hume’s brief essay was short and
to the point, but it was not widely known or believed
inside elite circles. Smith changed elite opinion over
time: 1776 to about 1846 in England.

Free market capitalism teaches that wealth is based on
consumer-satisfying production, not gold. Wealth is
achieved by free trade, stable money, and open markets.

Socialism is an alternative to both mercantilism and
free market capitalism. It arose in the nineteenth century
and was widely believed by a minority of Western
intellectuals until August 19-21, 1991, when the Soviet
Union’s leaders officially abandoned Communism, confiscated
the Party’s funds, and distributed the money to themselves,
who then sent it to Western banks. (This is not the story
in the textbooks, which steadfastly refuse to follow the
money.)

Don’t you believe it.

I’ll grant you, the alliterative moniker for the crisis cooked up by WFP Executive Director Josette Sheeran was clever – if not downright brilliant: It was picked up by dozens of global news services and was actually featured prominently in quite a few headlines. It’s also one of the most accurate descriptions of a growing global crisis that I’ve ever seen.

You see, the “silent tsunami” is real. And as the damage escalates, the silence will devolve into a grating global cacophony of pain, poverty and protests. The folks at the U.N., the World Bank, and in global capital cities from Beijing to Washington all have vowed to fight back. In Great Britain, the government this week hosted a world summit at its offices on Downing Street.
But there’s a problem. And it’s a pretty big one: You see, even the folks who are planning to battle back against the “silent tsunami” aren’t fully armed in that they don’t really understand all its causes.

Nor do the victims understand the very real steps that they can take to protect themselves – let alone how to offset at least some of the damage by profiting on the very real global trends that have whipped up this worldwide food firestorm.

Let me explain …

Fanning the Flames of a Global Food Crisis

By “silent tsunami,” Sheeran is referring to soaring worldwide food prices – the first truly global food crisis since World War II. The WFP says the crisis already threatens 20 million children in the world’s most-poverty-stricken regions, and has ignited demonstrations and protests in Africa, across Asia, and throughout the Caribbean. This unrest even led to deaths in Haiti and in Cameroon, where civil servant Samuel Ebwelle told a journalist from The Associated Press that the thought of continued escalations in the price of food scares him deeply.

“We are getting to the worst period of our life,” said Ebwelle, 51. “We’ve had to reduce the number of meals we take a day from three to two. Breakfast no longer exists on our menu.”
World Bank President Robert B. Zoellick claims that as many as 100 million people could be forced deeper into poverty. And U.N. Secretary-General Ban Ki-moon says the soaring price of food is undermining a goal of slashing worldwide poverty in half by 2015.

So just how bad is this “tsunami?”

According to the World Bank, worldwide food prices have risen a scorching 83% over the past three years. The price of rice – a staple of daily diets all across Asia – has actually doubled in the last five weeks. [Here in the United States, the Sam’s Club warehouse stores unit of Wal-Mart Stories Inc. (WMT) actually began limiting rice purchases yesterday (Wednesday)].
Research such as the World Bank stats certainly give the crisis a somewhat daunting feel, but it’s when an American consumer takes a look at actual grocery store prices that the impact finally starts to hit home. Consider these prices from a U.S. Bureau of Labor Statistics study:

• A dozen large Grade A eggs that two years ago cost $1.33 now costs a U.S. shopper $2.17 – 63% more.
• A pound of whole wheat bread has jumped 42% during that same period, moving from $1.32 to $1.88.
• A gallon of whole milk has jumped 20%, moving from $3.22 to nearly $3.90.
• And a pound of white flour, a key ingredient in so many things, has soared 39%, from 33 cents to 46 cents.

Add in the impact of rising fuel and energy prices – regular gasoline that consumers use to drive to their jobs or run family errands is up 18% in the past year, while the diesel fuel that powers the trucks and trains that deliver goods from producers to market has soared 44%.

The bottom line is this: In the U.S. market, inflationary forces have struck hard at staple goods – the essentials like groceries, gasoline and healthcare – causing them to soar, while having very little impact on luxury goods that many American consumers are avoiding right now anyway.

Because food and energy costs are backed out of – not included in – the so-called “core” rate of inflation, domestic pricing pressures still look fairly benign, with inflation running at a tad bit more than 4%.

But clearly the “real” inflation rate is much higher. And U.S. consumers and investors know it, because they’re worried – if not afraid.

According to a USA Today/Gallup Poll released yesterday (Wednesday), 73% of the American consumers surveyed cited soaring food costs in the form of rising grocery bills as a concern, while nearly half said that food inflation has caused a “hardship” for their households.

That’s here in the United States. Let’s now take a look overseas, where the rising prices aren’t merely a “hardship” – they’re a disaster.

Causes, Effects, Solutions

The U.N.’s World Food Programme says the soaring food prices will leave a $755 million shortfall in its $2.9 billion budget, forcing cuts in vital programs.
“This is the new face of hunger – the millions of people who were not in the urgent hunger category six months ago, but now are,” Sheeran said. “The response calls for large-scale, high-level action by the global community, focused on emergency and longer-term solutions.”

But here’s the crux of that problem: Before you can fix a problem, you have to understand its root causes. And it’s clear to us that very few folks really see the big picture.
When asked about the causes for the massive run-up in food prices, “experts” listed many of the same catalysts:

• Rising fuel costs.
• The use of certain foods – such as corn – for the creation of biofuels that are being developed to combat global warming and to take up the slack for the increase in conventional fuel prices.
• Rising populations.
• Growing demand from emerging economies – especially China and India.
• Floods and droughts that are being blamed on ongoing climate changes.

Unfortunately, they forgot two causes – and they’re not small: The first is the implosion of the U.S. subprime mortgage bubble, and the second is a greenback that’s so weak that it’s threatening to disappear altogether. Both are part and parcel of inflation.

By creating all the cheap money that created, first, the U.S. Internet stocks bubble and, second, the U.S. housing bubble, the U.S. Federal Reserve essentially created the subprime mortgage bubble. When that burst, as all bubbles must, it created a global financial crisis that forced all the world’s key central banks to create additional liquidity in an attempt to basically bail out the world’s developed economies [and lest we try and blame the United States for all of this, let’s not forget that Great Britain has a humdinger of a housing bubble that’s deflating, but hasn’t quite fully collapsed].