IMF "Cure" for Food Crisis Also a Cause

by Emad Mekay

WASHINGTON - The International Monetary Fund (IMF) says it is responding to the global food crisis by doling out new emergency loans to 15 of the world's poorest nations, mostly in Africa.

But the new loans carry the same controversial conditions, such as tariff and subsidies cuts, that many analysts now agree are partly to blame for the soaring inflation and inability of developing country governments to cope.

Mark Plant, deputy director of the IMF's Policy Development and Review Department, told an IMF publication last week that the so-called Exogenous Shocks Facility (ESF), which the fund uses to disburse fast loans in emergency situations, would be open for business to the world's poorest nations by June.

Already 15 countries are talking to the Washington-based IMF about tapping loans from the programme, which is designed to offset expenses and budget imbalances incurred from shuffling expenditures to ease food prices in poor nations.

"The IMF is preparing a review of the Exogenous Shocks Facility for Board consideration in June," Plant told the IMF Survey.

"But I would underscore that the ESF is available now, if any country needs immediate help," he added.

The IMF official said that in addition to the emergency programme, developing countries suffering high food prices could also receive advance loans from the more traditional Poverty Reduction and Growth Facility (PRGF), the loan framework under which poor countries typically have to agree to revamp their economies in return for IMF cash.

Countries resorting to the Fund's emergency loans for the first time will have to accede to the terms of the controversial PRGF, if they do not have one in place already.

But analysts say that both loan programmes could in fact make a bad situation worse. The conditions that these two programmes share include trade liberalisation, cutting social spending, trimming subsidies to local producers and limiting bailouts to troubled national sectors.

Under those conditions, international financial institutions such as the IMF and its sister institution the World Bank helped force developing countries to dismantle much of their agricultural tariff systems, allowing in huge quantities of cheaper farm goods from Europe and the United States.

Critics say this effectively sabotaged national food security systems and has left poor countries ever more reliant on food imports and defenseless in the face of the latest price increases. Today, according to figures from the Global Policy Forum, nearly three in four developing countries are net importers of food.

"The IMF adjustment programmes forced poor countries to abandon policies that protected their farmers and their agricultural production and markets," said Henk Hobbelink of the international non-governmental organisation GRAIN, which promotes sustainable agriculture and biodiversity.

"As a result, many countries became dependent on food imports, as local farmers could not compete with the subsidised products from the North. This is one of the main factors in the current food crisis, for which the IMF is directly to blame," he added.

According to data from the U.N. Food and Agriculture Organisation, these food import surges have had an especially harsh impact on rural poor and local economies in Africa.

For example, in Cameroon, lowering tariff protection to 25 percent saw poultry imports increase by about six-fold. In Senegal, 70 percent of the poultry industry has been wiped out in recent years because of an influx of European poultry.

And when Ghana cut its rice tariffs from 100 to 20 percent under structural adjustment policies ordered by the World Bank, rice imports to the country increased from 250,000 tonnes in 1998 to 415,150 tonnes in 2003. Domestic rice, which had accounted for 43 percent of the domestic market in 2000, captured only 29 percent of the domestic market three years later.

Rising food prices are having their biggest impact on poor people in low-income developing countries. Rice prices have reached record levels, while wheat prices have nearly tripled and corn doubled since 2000.

Some 33 countries, most in Sub-Saharan Africa, which already carries the world's heaviest debt burden, have been particularly affected. New loans from the ESF could further plunge these nations into the red.

GRAIN also notes that IMF policy advice to eliminate tariffs on some food items, as Plant has advocated, would simply continue to discourage local production and put poor countries even more at the mercy of international commodity markets over which they have no control.

It is unclear whether pushing more funds in the form of new loans in the market will ease prices, although such a move would likely fatten profits for international food companies, traders and speculators.

GRAIN says that Cargill, the world's biggest grain trader, achieved an 86-percent increase in profits from commodity trading in the first quarter of 2008. Another company, Bunge, had a 77-percent increase in profits during the last quarter of 2007, while ADM, the second largest grain trader in the world, had a 67-percent increase in profits in 2007.

As part of its package to deal with the crisis, the IMF is also arguing that poor nations redirect new subsidies only to the poor while removing subsidies to petroleum products, an argument that overlooks the major impact of fuel on food prices.

The IMF insists that it is offering varied advice to suit different countries and avoid destabilising their economies.

"Individual country circumstances will require different approaches calibrated against the nature of each country's shock," said Bill Murray of the IMF's media office in an email message.

But food security activists say that poor nations should reject the advice they are getting from institutions such as the IMF and World Bank and work instead towards "food sovereignty".

The answer to the current crisis, argues Anuradha Mittal of the U.S.-based Oakland Institute, is for developing countries to "break with decades of ill-advised policies that have failed to benefit their people".
© 2008 Inter Press Service