The House of Representative's failure to pass the Wall Street bailout package sent stocks tumbling in late-day trading on Monday, adding more chaos and uncertainty to what is already a very chaotic and uncertain time. It's not clear yet what effects subsequent negotiations will have on the U.S. economy. What is clear, however, is that there is not a whole lot of money being made right now.
This doesn't bode well for the development community - or any community, for that matter. Early indications are that there could be a lot less money out there for development causes. Last week, Bloomberg reported that the now-defunct Lehman Foundation, the charitable arm of Lehman Brothers, gave away $39 million in corporate contributions and grants in 2007. That money is no longer available. Forty million dollars is not that much in the scheme of things, but the failures of many other similar financial institutions significantly deceases the amount of corporate money available for development causes. Even the institutions that survive the downturn are likely to cut charitable giving, as it is often the first thing to go when spending needs to be cut.
A decrease in funding for charitable causes has the potential to cause a ripple effect - less money means fewer projects, which leads to fewer workers being needed to staff these projects. This also leads to fewer resources on the ground, which leads to less help for the people who need it.
The financial crisis also has the potential to destabilize emerging economies where a lot of development work takes place. According to Mauricio Cárdenas, director of the Latin America Initiative at the Brookings Institution, the U.S. economic slowdown could push down the price of the commodities, the main driver of growth in Latin American countries. Cárdenas argues this could lessen some of the gains made by Latin American countries in recent years.
However, Cárdenas notes that the fundamentals of many Latin American countries are strong - "generally sound macroeconomic policies, single-digit inflation and low fiscal deficits," as he puts it. This makes these countries more able to withstand a downturn than others.
It's clearly bad out there, economically speaking, and it's unclear how much worse it's going to get.
How is the economic downturn affecting your development work? Please let us know.
