IMF fears food prices may stir economic mayhem
"Some countries are at a tipping point."
* July 2, 2008 - 5:18PM
The International Monetary Fund has warned poor countries that food prices are likely to remain high and said the escalation in costs had accelerated this year.
In two research papers published yesterday, the fund said sustained increases in food prices would cause wider trade deficits or smaller surpluses and undermine efforts to control inflation.
Worldwide, prices for food commodities such as wheat and rice were 43% higher in April than a year earlier, according to the United Nations Food and Agriculture Organisation in Rome.
The World Bank has warned that the rise in prices could push 100 million people deeper into poverty and provoke civil unrest in more than 30 countries.
"Some countries are at a tipping point,'' IMF managing director Dominique Strauss-Kahn said at the fund's headquarters in Washington.
"If food prices rise further and oil prices stay the same, some governments will no longer be able to feed their people and at the same time maintain stability in their economies.''
Food prices have been surging since 2006, and their climb accelerated in the first quarter of 2008, the fund said.
Strauss-Kahn said food-price inflation "threatens to derail economic stability.''
The fund said governments should avoid food and fuel subsidies to keep down consumer costs.
"The best option in the longer term is to develop a well-targeted social safety net that can protect vulnerable households in the face of rising prices,'' the report said.
The IMF said the international community should help poor countries whose trade deficits are increasing with the cost of imported commodities.
IMF researchers identified more than a dozen countries that were likely to need external support. They include Benin, Eritrea, Ethiopia, Guinea, Liberia, Malawi and the Democratic Republic of Congo.
The fund said that the rising cost of food and fuel in Benin, for example, was likely to cause the current- account deficit to widen by 1% of national income.
Rising food prices were forecast to have a more harmful effect on standards of living in developing countries than rising fuel prices, the fund said.
In large emerging countries, households typically spend more than a quarter of their income on food, while spending less than 10% on fuel.
In many African countries, households devote more than half their income to food, the fund said.
Countries that have cut fuel taxes to cushion the increase in prices have done so at ``substantial'' cost to the taxpayer, the fund said.
"Nineteen countries reported that they decreased fuel tax rates, with a fiscal cost ranging from near zero to 1.3% of GDP and a median cost of 0.3%,'' the fund said.