Thread: IMF chief warns of war over food

IMF chief warns of war over food

High prices may lead to trade imbalances

Philippine Daily Inquirer, Associated Press, Agence France-Presse
First Posted 01:01:00 04/14/2008


WASHINGTON—The head of the International Monetary Fund (IMF) has warned that if food prices remain high, there will be war and other dire consequences for people in many developing countries.

IMF managing director Dominique Strauss-Kahn added that the problem could also create trade imbalances that would impact major advanced economies, “so it is not only a humanitarian question.”

With governments in Haiti, Egypt and Bangladesh already facing social unrest because of rising food prices and shortages, Strauss-Kahn said Saturday that if the price spike continued, “thousands, hundreds of thousands of people will be starving. Children will be suffering from malnutrition, with consequences for all their lives.”

Development gains made in the past five or 10 years could be “totally destroyed,” he said, warning that social unrest could even lead to war.

“As we know, learning from the past, those kinds of questions sometimes end in war,” he said.

Thirty-seven countries currently face food crises, according to the Food and Agriculture Organization.

On Saturday, Germany’s development minister, who attended the World Bank’s Sunday meeting, called for greater regulation of the global biofuels market to prevent its expansion driving up food prices.

“It is unacceptable for the export of agrofuels to pose a threat to the supply situation of the very people already living in poverty,” Heidemarie Wieczorek-Zeul said in a statement.

She said the world needed new rules that balance goals, including climate change mitigation, food security and social development.

The development group Oxfam, a frequent IMF critic, said rich countries were largely responsible for the food crisis because they had been cutting aid to developing countries and encouraging biofuel production, which, the IMF said, was responsible for almost half the increase in the demand for food crops.

“Rich countries’ demand for biofuel is driving up food prices and is a big part of the problem,” said Elizabeth Stuart, an Oxfam policy adviser. “Meanwhile, by cutting aid levels, they are doing precious little to be part of the solution.”


Strong impact on poor

Strauss-Kahn spoke at a news conference here after a daylong meeting of the steering committee of the 185-nation IMF that dealt with the unfolding global financial crisis that had affected economies around the world.

In its communiqué, the committee noted “that a number of developing countries, especially low-income countries, face a sharp rise in food and energy prices, which have a particularly strong impact on the poorest segments of the population.”

The committee urged the IMF to work closely with its sister institution, the World Bank, and other organizations to provide developing countries with financial support and policy advice to deal with these problems.

The Washington-based IMF and World Bank were established 64 years ago to respectively regulate the global economy and provide aid to poor countries to reduce poverty.


Unusual uncertainties

The finance ministers and central bankers said their meeting took place “at a time of unusual uncertainties surrounding global and financial market prospects. It stresses that the challenges facing the world economy are global in nature, requiring strong action and close cooperation among the membership.”

They said risks to economic outlook “come from the still unfolding financial market turmoil and from the potential worsening” of housing markets and the credit crisis.

“Inflationary risks—notably from higher food, energy and commodity prices—have also risen,” the communiqué said.

The IMF said that in dealing with these risks governments must make sure inflation was kept under control, recognizing that each country’s situation was different but coherent action was necessary.

Another topic on the committee’s agenda was IMF reform. The ministers said changes such as giving developing countries with rapidly growing economies such as Brazil, India and China slightly more of a say in IMF operations “will strengthen the fund’s role in promoting financial stability and international monetary cooperation.”

Strauss-Kahn and Italy’s Tomasso Padoa-Schioppa, chair of the steering committee, welcomed the reforms to the institution’s structure agreed to by the board at the meeting. Strauss-Kahn predicted that the reforms would be approved by enough countries to meet the necessary threshold of 85 percent of the votes later this month.

“I think there is really little chance that we won’t reach the 85 percent,” he said.

Most important decisions at the IMF, such as changing voting rights, and approving calls for more capital, require an 85-percent vote, giving the United States and the European Union effective vetoes. The United States is the largest shareholder with more than 15 percent of the votes.


Multilateral institutions

Strauss-Khan said that following the reforms, the IMF needed to refocus on its mission.

“We now need to stop looking inwards to the problem of organizing the fund itself and spend more time looking outwards to the problems of the world,” he said.

The IMF called for a strong front to put the reeling world economy back on track.

“The global crisis has to be addressed with a global view and by strengthening the role of multilateral institutions,” Padoa-Schioppa, chair of the International Monetary and Financial Committee (IMFC), the IMF’s top policymaking body, told reporters in a briefing.

The IMF said in its statement that “policymakers should continue to respond to the challenge of dealing with the financial crisis and supporting activity, while making sure that inflation is kept under control.”

Unlike the last IMF meeting in October, where internal reforms were high on the agenda, this time the multilateral institution faced a full-blown, and still unfolding, financial shock that began in August amid rising defaults on US high-risk subprime home loans.


IMF expertise needed

Tasked with maintaining global financial stability, the IMF, whose own finances are strained, insists its expertise and global range make it a key player in resolving what Strauss-Kahn earlier called the worst financial crisis since the Great Depression of the 1930s.

The IMF last week warned the global economy was slowing so rapidly it could slide effectively into recession this year and next.

IMF policymakers also welcomed moves by central banks to provide liquidity support to ease strains in the credit markets. Reports from Associated Press and Agence France-Presse