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Obama: Why Helping Poor Nations Matters

To an older American seeing his retirement savings wither, or to a machinist in Akron, Ohio, worried he may soon lose his job, a deal to pump $1 trillion into the International Monetary Fund so it can lend to poor nations may not seem terribly relevant.

Yet as President Obama emphasized throughout his European trip, America’s future prosperity is very much linked to boosting growth not just in Europe but also in countries as far-flung as Brazil, India and South Africa. That’s why they and other emerging markets came out the clearest winners in London last week, at the G-20 summit meetingof industrialized and developing nations.

For most of the past decade, global savings defied gravity. They flowed upstream—from relatively poor nations like China and South Korea, and petro-states like Saudi Arabia, to the United States, the world’s wealthiest. As Asians saved, Americans were on the receiving end of a massive flood of funds that lowered U.S. interest rates, gave consumers easy terms to borrow money and fed an unprecedented housing and construction bubble.

The subprime loan debacle put a screeching halt to our borrowing binge while many American banks teeter on the edge of insolvency. We slowed down, and so did everyone else.

How to get the world growing again? The most direct approach—getting European governments to follow the U.S. lead and spend billions to create new jobs—was firmly rejected by France and Germany.

So the Obama administration is trying something else: Encourage more international funding so that poor and developing nations like Brazil, Indonesia and India can emerge more quickly from their slowdowns. After all, the more vigorously those nations grow, the more likely they are to buy the goods and services Americans produce—everything from aircraft and construction cranes to architecture software. And that boost in demand, in turn, can take some of the load off the back of American consumers, who used to be the engine of the world’s economic growth but now find themselves hamstrung by growing debt, falling home prices and worries that their own jobs are now vulnerable.

While on his European tour, Obama pointedly reminded Americans that providing assistance to less developed nations represents hardheaded pragmatism, not just fuzzy philanthropy. “Emerging markets have actually been the drivers of economic growth over the last several years,” the president said at a town hall meeting in Strasbourg, France. “If we can get millions of Chinese to prosper, that is ultimately good for us. If we can get all the Indians in poverty to suddenly be able to buy a refrigerator or send their children to college, that will raise everybody’s living standards, because those will be enormous new markets for all of us.

“So it’s not just charity; it’s a matter of understanding that our fates are tied together—not just the fate of Europe and America, but the fate of the entire world,” the president said.

That being said, the G-20 made little collective progress in addressing initiatives to stiffen regulations on cross-border finances or boost liquidity for the world’s largest banks. That puts more pressure on the Treasury Department to show that it is seriously addressing the U.S. banking and credit crisis and that the stimulus package is working before the group reconvenes in New York in September.

Michael Zielenziger writes about banking and the economy.

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