IMF warns of dire consequences of high food prices

MYT 2:52:04 PM

WASHINGTON (AP): The head of the International Monetary Fund warned that if food prices remain high there will be dire consequences for people in many developing countries, especially in Africa.

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 the Philippines among others already facing social unrest because of rising food prices and shortages, Strauss-Kahn said Saturday if the price spike continues, "Thousands, hundreds of thousands of people will be starving. Children will be suffering from malnutrition, with consequences for all their lives.''

Earlier Saturday, Germany's development minister, who is attending the World Bank's meeting to be held Sunday, called for greater regulation of the global biofuels market to prevent its expansion from 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 needs 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 are largely responsible for the food crisis because they have been cutting aid to developing countries and encouraging biofuel production, which the IMF says is 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.''

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

In its communique, 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.

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 communique said.The IMF said that in dealing with these risks governments must make sure inflation is kept under control, recognizing that each country's situation is different but coherent action is 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, the chairman 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.

Strauss Khan said that following the reforms, the IMF needed to refocus on it 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.

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