Food and Financial Crises: Implication on Low-Income Countries

September 16, 2009

In a new CSO roundtable on the global food and financial crises, the IMF talked about how it has stepped up its financial assistance to low-income countries in order to help them deal with this double blow.

The IMF participated in the fifth CSO roundtable on the global food and financial crises organized by the World Bank on September 10, 2009. The roundtable discussed coordinated engagement and resource mobilization to support the United Nations Comprehensive Framework for Action (CFA).

In early 2008, the Chief Executives of the UN established a High-Level Task Force on the Global Food Crisis, under the leadership of the UN Secretary-General. The task force brought together the Heads of the UN agencies, related funds and programs, and the Bretton Woods institutions to develop the CFA. Panelists at the CSO roundtable included Robert Zoellick (President of World Bank); Hugh Bredenkamp, Deputy Director of the IMF Strategy Policy and Review Department; David Nabarro (UNO Assistant Secretary-General); Helene Gayle (CEO of CARE); Lars Thunell (Executive Vice President of the International Finance Corp.); P. Chengal Reddy (Secretary General of the Indian Farmers Association); Tom Arnold (CEO of Concern); and Michael Klosson (VP of Save the Children). Ngozi Okonjo-Iweala (Managing Director at the World Bank), Sam Worthington (CEO of InterAction) co-chaired the event. Some 120 CSO leaders from around the world participated in the event, many via videoconference.

More Resources for Low-Income Countries

In his centerpiece presentation, Robert Zoellick said the food and financial crises have led to increased resources requests from low-income countries (LICs). The World Bank has responded to requests for assistance around several areas: it has identified short- and medium-term policies needed to protect vulnerable groups; expedited financial support to ease the adjustment to a more difficult food environment while expanding financing for longer-term investments in agriculture and social protection; reduced food security-related risks; and collaborated closely with the UN agencies on a common food crisis strategy. Zoellick said that food prices are still relatively high in most places. His message to G20 leaders in Pittsburgh will be to focus more on the food crisis because it will take time for all LICs to return to the growth path.

In his remarks, Hugh Bredenkamp said LICs have been hit extremely hard by the food and fuel and financial crises. The impact of sharply higher food and fuel prices in 2007-08 on inflation, current account deficits and budgets was substantial, and the subsequent financial crisis reduced growth significantly. The IMF has moved quickly to help LICs deal with this “double blow.”

First, the Fund is dramatically stepping up its financial assistance to LICs. It will boost its concessional lending capacity to around $17 billion through 2014. Lending in 2009 and 2010 alone is expected to reach up to $8 billion, four times the historical level and exceeding the G20 call for additional lending of $6 billion over the next two to three years. Second, no interest will be charged on IMF concessional lending through end-2011, and the Fund will provide permanently higher concessionality thereafter.

Signs of a possible food problem have been visible for a while. The world has been consuming more food than it has been producing for a few years, prices have been creeping up, and inventories are at historical lows. And we should not forget that this time around, the food price cycle is positively correlated with the one for oil. Fertilizer and transportation costs are affected by the oil price. And the oil price rose dramatically in a very short period of time.

David Nabarro highlighted the ongoing drought and food crises in East Africa and called for stronger regional and international leadership to deal with the crises. He said that a harmonized international response was needed to support the regional leadership, particularly in Africa.

During the discussion, participants said that food security should no longer be addressed separately from the financial crisis because the two are interlinked. The discussion highlighted the critical role of social protection, and getting donors countries to focus on their commitments to increase aid. Participants said that CSOs should play active role as critical stakeholders who can link commitments and implementations at the national and international levels.