Credit crisis threatens disastrous squeeze on aid

By Laura MacInnis - Analysis

GENEVA (Reuters) - Paying hundreds of billions of dollars to rescue the world's financial industry looks set to squeeze humanitarian aid and crimp international efforts to fight disease, feed hungry children, and shelter refugees.

Charitable giving and foreign aid flows are likely to dry up as the global economy sours, with rising unemployment and inflation pinching already-tight household budgets, and as big corporate bailouts push governments to the fiscal brink.

Celine Charveriat, Oxfam's deputy advocacy and campaign director, warned of "disastrous consequences" for poor countries if the bank crisis and related belt-tightening prompt donors to cut aid from a current $104 billion a year, as many expect.

"Donors must not make overseas aid the first victim of the economic crisis," Charveriat said.

Washington in particular would be under severe pressure to pare its international aid spending after agreeing a $700 billion financial rescue package, said Steve Radelet, a senior fellow at the Centre for Global Development.

"It is imperative that this pressure be withstood," he said, warning a U.S. pullback could prompt other Western donors to cut their contributions as well, or delay coughing up pledged funds.

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Radelet, a former U.S. Treasury Department official, said financial woes were likely eclipse development issues in future meetings of G8 world leaders, which until recently focussed on anti-poverty goals and aid pledges.