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|World Bank and IMF Emergency Loans: A Cure or a Curse for the Food Crisis?|
The World Bank's response to the food crisis is a 'fire-extinguisher' approach that fails to address its root causes, argues Eurodad - namely the unregulated process of trade liberalisation, structural adjustment and stringent conditionality implemented by the World Bank and the IMF in the first place.
17th June 08 - Eurodad
The food crisis is unfolding like a tidal wave – or a “silent tsunami” in the words of the World Food Programme’s Josette Sheeran – and the world’s poor are taking to the streets in countries such as Haiti, Mexico, Cameroon, the Philippines and Indonesia. Rich countries and International Organisations have reacted with packages of new funding for food and agriculture and policy advice to the governments most affected by the crisis.
Pledges of funding for food and agriculture proliferate as the three day UN-sponsored summit kicks-off in Rome today. The summit to tackle soaring food prices and has gathered leaders from across the world. This should be, in principle, all good news. And certainly, scaling up aid to the world poorest is a welcome decision in line with the rich countries’ commitments to increase their aid by 2015.
The World Bank announced last week the creation of a “Global Food Crisis Response Facility” that will channel $1.2 billion “to address immediate needs arising from the food crisis.” Moreover, it has also established a “Single Donor Trust Fund” to “provide rapid assistance to the most fragile, poor and heavily-impacted countries” – which has already approved loans for Haiti, Djibouti and Liberia – and a “Multi-Donor Trust Fund to support country efforts to address the crisis, …(including) support for production such as seeds and fertilizers for the upcoming harvests”. Besides, the Bank has tabled several proposals to act as an intermediary in the financial markets for poor countries to access weather derivatives, and the IFC is planning to create the “Global Index Reinsurance Facility” – a company to underwrite weather and other catastrophe risks.
In its turn, the IMF has already agreed with 10 countries, mostly in Africa, to augment their existing arrangements under the Poverty Reduction and Growth Facility (PRGF). Eventually, the IMF could also start using the Exogenous Shock Facility (ESF) which was designed to cover shocks to PRGF-eligible countries, and which has never been used so far. ESF emergency loans would still attach conditions requiring structural reforms, although probably less ambitious than under a PRGF arrangement. Moreover, the Fund is also providing advice to countries affected by the crisis to assess the fiscal, balance-of-payments and income effects of higher food prices.
However, there are some perturbing aspects in the donors’ response to the food crisis. NGOs have repeatedly warned Northern governments that they should scale up their aid and make steady increases, which are sustained in time and predictable in nature. However, this crisis reveals that Northern governments have reacted late, rushed, and – once again – money comes as a fire extinguisher rather than a means to prevent fires and support sustainable development in the world poorest countries.
But even more worrying is the silence around the root causes of this crisis. Yes, indeed, we have heard about drought and poor harvests; increased demand from growing populations; crops being diverted into biofuel production or speculation. But, there is little talk in official circles about a more fundamental cause; and that is the agricultural model promoted since the mid of the last century and the trade liberalisation and structural adjustment policies pushed on poor countries by the World Bank, IMF and others since the 1980s. There is no discussion either on the conditions attached to the new funding channelled to tackle the food crisis, but it seems likely that they will include the same type of conditions that the IFIs have attached so far to their lending will still be in place.
Developing countries disarmed to tackle the food crisis
World Bank and IMF development finance in the structural adjustment era (1980s and 1990s) came attached with conditions to dismantle tariffs and other tools that developing countries had created to protect local agricultural production; lift restrictions on private sector participation in grain movements; remove price controls on agricultural commodities; reduce or remove fertiliser subsidies; and privatisation of state-owned companies.
Agriculture liberalisation and privatisation is not wrong per se, as many state run agriculture schemes had major problems. However, when applied in the context of poor and hunger prone countries, with weak agricultural sectors, unfettered privatisation and liberalisation has opened the door to global agri-business often servicing the needs of Western supermarkets rather than strengthening the productivity of small-scale farmers and food sovereignty of poorer people.
Today, roughly 70% of developing countries are net food importers. And of an estimated 845 million hungry people in the word, 80% are small farmers. Even though the reforms pushed by the IFIs in the 1980s and 1990s may have, in some cases, increased food production, “they have been unable to increase productivity, economies have not substantially diversified away from dependence on agriculture, smallholders’ access to critical inputs such as fertiliser has declined, mainly due to increased prices, and trade liberalisation has generally led to imports rising faster than exports”, outlines the report by Mark Curtis “Deadly Combination: The Role of Southern Governments and the World Bank in the Rise of Hunger” published last year.
In light of the generally poor results of these reforms and their often harmful impact on poor people, the World Bank and the IMF seem to have changed their policy advice and the conditions attached to their development finance. Even though the Bank – and to a lesser extent the Fund – has now again pulled back from a whole-hearted belief that unfettered markets are the answer to all agricultural problems, they are still pushing trade liberalisation and market reforms.
Bad privatisation and liberalisation practices: all too often, and all too recently
As recently as in 2004, the World Bank was still demanding privatisation of the Malawian agricultural marketing board as a condition of a structural adjustment loan. A Malawian civil society campaign coalition expressed its concern that the World Bank and other donors had pushed their agenda on this issue “at the expense of the food security of the poor”. A 2002 report by the World Development Movement clearly acknowledged that “Malawi needs agricultural reforms so as to enhance productivity and food security. There is no doubt either that Government parastatals, such as ADMARC, need to improve their management through reform. But, rather than ensuring that social aims are achieved through accountable government, the IMF and the Wordl Bank have pursued an agenda of austerity, deregulation and privatisation. And when, as in Malawi’s case, there have been disastrous outcomes, they have denied any responsibility.”
In Niger, in 2005, the IMF pushed, as a part of its loan conditionality, to introduce a 19 per cent value-added tax (VAT) on basic foodstuffs and to abolish emergency grain reserves. The VAT introduction was finally dropped after strong social unrest and opposition. On the question of grain reserves, the IMF afterwards claimed that they had never supported or encouraged such abolition. But still, in a loan for Niger approved in 2006, the World Bank attached conditions related to the privatisation of Niger’s irrigation systems, which may seriously burden poor farmers’ access to a precious and scarce resource in a semi-arid country.
Liberalisation of trade regimes and tariff removal has also repeatedly appeared among World Bank and IMF conditions to poor countries during the recent years. 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.
Having asked a number of poor farmers in Ethiopia, Zambia and Malawi, the report by Mark Curtis found that small farmers still face endemic problems such as lack of irrigation, lack of technology and access to inputs. However, it is unclear whether the Bank, the Fund, and other donors, are going to reshape past policies and mistakes and respond to the needs of the poor farmers, or they are going to continue business as usual.
Will the emergency loans fix past mistakes?
Hopefully emergency loans will fix past mistakes. But faith alone won’t do to address structural problems in the agriculture sector of hunger prone countries. If the IFIs want to advertise their emergency financial envelopes as a fix to this crisis, they need to give clear indications that they acknowledge past bad practices and that new development finance will not contribute – as it did in the past – to undermine small farming and food security in poor countries.
It is true that the Bank has pulled back from a dogmatic belief in unfettered markets and that old-fashioned conditions of the 1990s are decreasingly present in current loans. However, with some qualifications, the Bank is still strongly pushing trade liberalisation and market reforms. Eurodad’s recent reports show that more than two thirds of loans and grants from the World Bank’s International Development Association (IDA) approved between 2005 and 2007 still contain conditions require sensitive policy reforms, such as liberalisation or privatisation. And almost a third of all IMF structural conditions during the same period also required some sort of privatisation and liberalisation reform.
The European Union devoted €42 billion subsidies to European agriculture in 2006. This amount almost equals all EU money channelled the same year as ODA (€47.5 billion). Some decision-makers in Europe have recently argued for channelling to countries affected by the food crisis some of the EU budget devoted to agricultural subsidies. However, it is yet to be seen whether Europe will take a bold step towards phasing out subsidies and the dumping of agricultural products in developing countries, and channel these resources for development instead.
If action is not taken urgently, the world could see hunger doubling instead of halving by 2015 as is supposed to happen according to MDG 1. More money is needed, for sure. But conditions and policy advice that comes hand in hand with development finance should take into account past mistakes that have contributed to create and aggravate the current crisis. Moreover, parallel measures should be taken to regulate the global financial system which has allowed speculating on food despite the fact that this commodity is essential for people’s lives. The world has its eyes on Rome today. Not waiting for a miracle. Just for the political will and political reforms needed to save millions from starvation.
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