Charity coffers face credit crunch

With the US going through the most significant financial restructuring since the great depression, international aid agencies and NGOs have reason to be wary, observers said.

The likelihood that the US administration will need to divert up to US$700 billion or more to keep US banks afloat seems almost certain to diminish US enthusiasm for large-scale funding of projects abroad. At the same time, rising food and fuel prices are hitting the world’s poor hardest. The World Bank reports that in many developing countries, food prices have risen 83 percent over the past three years.

Liliana Rojas-Suarez of the Center for Global Development, wrote that the ripple effects of the slowdown were likely to be protracted and would not all show up at the same time. She warned that the crisis would cut demand for many goods and commodities that developing countries needed to export to sustain their own economies. The squeeze on international credit was also likely to make investors much more cautious about involvement in new projects.

Photo: International Federation

Red Cross volunteers loading water storage containers for distribution in the worst-hit areas after the May 2008 cyclone in Myanmar. Much of the aid came from private donors

“If a country goes into a recession, it is pretty hard for a development minister to argue that there should be an increase in foreign aid,” said Robert Glasser, secretary-general of CARE International, adding that international aid was more likely to stagnate than come to a complete halt. “Politically, it is usually much easier to stop or delay an increase in foreign aid than to stop it altogether. Usually, at a minimum, they keep the aid flow level and delay the increase.”

Pressure

“It seems inevitable that there is going to be increasing pressure on international development organisations coming from all directions,” Tom Pollak, programme director for the Urban Institute’s National Center for Charitable Statistics, told IRIN. In 2007, the US recorded a record-breaking $306.39 billion in charitable donations. Of that, roughly $10.6 billion went to not-for-profit organisations with international development activities. Another $2.3 billion consisted of corporate international donations of pharmaceuticals and medical supplies.

Jim Yunker, who heads the editorial board of Giving USA, another non-profit group that charts charitable giving, pointed out that US foundations, which are mandated to give 5 percent of their profits from investments, may drop off as their portfolios lose value. However, US foundations only account for around 12 percent of charitable donations. In nearly 53 years that Giving USA has monitored non-profits, Yunker said, there has been a steady increase in philanthropic donations, despite numerous recessions. The greatest drop followed the attacks on the World Trade Center in 2001 but by the end of that year, donations had returned to normal.

Photo: Julius Mwelu/IRIN

Waiting for food aid in Tana River district, Kenya

While it is too soon to see the impact of the US slowdown on development funding from Europe, there have been indications that individual donors are becoming more cautious. “Many people are losing purchasing power,” says Thomas Kurmann, director of communications and fund-raising at Médecins sans Frontières (MSF) in Switzerland. “At the moment, we don’t see any impact at the general level,” he said, “but if we look at the figures in more detail, we can see that some people with lower incomes have stopped donating.” Kurmann said MSF was likely to be more cautious in planning its 2009 budget.

For US NGOs, the downturn on Wall Street is threatening.

"Am I concerned?" says Marshall Burke, senior vice-president for resource development at CARE USA. "You bet! Anyone in the not-for-profit world who isn't concerned is probably asleep at the wheel." Burke said that while CARE was only slightly below its fundraising targets, he had already received messages from a middle-sized foundation that it would decrease allocations because of losses in its investment portfolio.

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