IMF, World Bank warn of long-term inflation, food crunch

Business Materials 10 April 2008 22:19 (UTC +04:00)

(dpa) - Surging commodity prices are leading to serious food shortages in the developing world and prompting a new round of inflationary pressures amid a global economic downturn, the leaders of the International Monetary Fund and World Bank warned Thursday.

IMF Managing Director Dominique Strauss-Kahn warned that there was "a risk of sustained high inflation" due to the rise in food, metal and energy prices over the past year.

World Bank President Robert Zoellick said climbing food prices would set back efforts to reduce poverty by about seven years.

About 33 countries are facing social unrest over food shortages, and malnutrition has also hampered efforts to boost education and lower mortality rates, the World Bank said.

The IMF in a report released Wednesday predicted global growth would slow to 3.7 per cent in 2008 from 4.9 per cent the year before, in part due to an expected recession this year in the United States.

Strauss-Kahn described the twin challenges of dealing with a global economic slowdown and inflation as a battle "between ice and fire" and warned that high food prices risked "undermining all the gains we obtained in reducing poverty."

Food prices have risen 48 per cent since the beginning of 2006, Strauss-Kahn said in a press briefing ahead of the traditional spring meetings this weekend between the two institutions.

The World Bank in a report Wednesday said food prices have risen 83 per cent in three years and blamed much of the rise on the increasing reliance on biofuels as a source of alternative energy. Biofuels rely on food staples such as corn and sugar to produce energy.

"While many are worried about filling their gas tanks, many others around the world are struggling to fill their stomachs," Zoellick said.

Zoellick has called for a "new deal" on global food policy and urged industrial nations to make up a 500-billion-dollar shortfall in financing at the World Food Programme, which many countries rely on for emergency food aid.

The price of rice alone has risen about 75 per cent in the past two months and the cost of wheat has jumped 120 per cent in the last year, taking up an increasing share of families' meagre incomes in the world's poorest nations, the World Bank said.

"This is not just about meals forgone today, or about increasing social unrest, it is about lost learning potential for children and adults in the future, stunted intellectual and physical growth," Zoellick said.

The World Bank and IMF meetings this weekend will focus on resolving the financial crisis, easing soaring commodity prices and reforming voting and other procedures within the two lending institutions.

Finance ministers from the Group of Seven industrial nations meet on the sidelines of the spring meetings in Washington on Friday.