1 May 2008
Commerce Minister Frances Johnson-Morris told lawmakers a fortnight ago that fuel and rice prices would continue to rise in Liberia because they were triggered by world market forces that are outside the control of the Liberian government.
When she addressed the nation this month, President Johnson-Sirleaf reiterated Liberia's impotence in controlling those prices, beside dropping taxes and port levies.
But now, it seems the picture may not remain bleak for long as the global financial watchdog, the International Monetary Fund (IMF), is consulting with policymakers in poor countries to design shock-absorber solutions for the food crisis. The Analyst Staff Writer has been gathering information on the Fund's new initiatives and global concerns.
An IMF Survey online dispatch, Monday this week, said the IMF is working with vulnerable member countries to make a general, and then country-specific assessment of the fiscal, balance-of-payments, and income effects of higher food prices and of higher commodity prices.
The Fund, the dispatch said, is attacking the global hike in food prices price from four fronts including upfront additional financial support to poor affected countries in Africa, policy harmonization, working with exporters, and coordinating with other agencies responsible for the global movement of food.
"Several countries," the dispatch said without naming names, "have asked for extra financial support to cover higher food import costs, and an IMF mission will shortly travel to Haiti to review the country's need for increased financial assistance."
Liberia looms large amongst counties in sub-Saharan Africa that rely heavily on imported rice, to say nothing about petroleum products.
There is desperate fear amongst Liberians that unless the government designed quick solution to rising consumer prices, the nation risks a nosedive into social unrest or upsurge in violent crimes surpassing the current spate of armed robbery. Liberia is currently playing host to Africa's largest ever peacekeeping force and millions of refugees from neighboring Sierra Leone, Guinea, and Cote d'Ivoire.
President Johnson-Sirleaf said during her April 13 nationwide address that her administration has considered plans to boost agro production in collaboration with Chinese investors and local farmers.
She did not say how soon the plans will be launched or to what extent it was prepared to handle Liberia's perennial food shortage exacerbated by 14 years of war and the threatening rise in rice prices.
Whether it is part of her agro boost short-term solution to ask for extra financial support to cover higher food import costs as Haiti has done is also not clear.
What analysts say is clear is that Liberia, as a poor member of the IMF readmitted to the group on the strength of its Interim Poverty-Reduction Scheme (IPRS), could use the Fund's rush to tackle the global rise in food prices as a stepping stone to nip possible domestic food-related violence in the bud and save the country another spate of bloodbath.
The IMF Survey online dispatch say the Fund is exhausting all available options in reaching out to poor countries in Africa and will do everything possible to assist those countries that are committed in policy to save their another round of hardship and poverty.
In this regard, according to the dispatch, countries that have standardized poverty reduction policies and programmes to match those policies may receive priority cooperation.
External Relations Department Director, Masood Ahmed, told an April 24 news conference that the IMF is also 'working with the member countries that are likely to be affected to assess the impact of the higher food prices and of higher commodity prices more generally, on their balance of payments and fiscal situation'.
"The impact of food price increases on the most vulnerable populations, notably the urban poor, has significant social implications-as attested by recent food riots and strikes in several African countries.
Many sub-Saharan African countries have resorted to emergency measures in response to a food price situation that is still evolving," Ahmed reportedly told the press conference.
IMF research, the dispatch said, shows that higher prices for food pose new challenges for African policymakers, in particular, and could have especially adverse effects on the poor because food represents a larger share of what poorer consumers buy.
About 10 countries, mostly in Africa, have raised with the IMF the possibility of augmenting their existing arrangements under the Poverty Reduction and Growth Facility (PRGF) to provide for additional financing to cover the import costs associated with higher food prices.
"We are now discussing those on a priority basis with each of the countries and our objective is that, where it makes sense to indeed augment the PRGF, that we should proceed," Ahmed said.
He said the IMF is further working with the PRGF-eligible countries and with other economies on the appropriate policy response to higher food prices.
While policies need to be determined country by country, according to the Fund's new approach, targeted social assistance is seen as the best initial policy, with other temporary moves-such as tax and tariff cuts on food products-also available as supporting measures.
It said IMF has several financing instruments available to help members cover food-related balance of payments strains. It noted further that stand-by arrangements were designed to help all members address short-term balance of payments problems.
"The Exogenous Shocks Facility was designed to cover shocks to PRGF-eligible countries with a significant negative impact on the economy, such as the ongoing food price shock, and the IMF is considering ways to modify it to enhance its usefulness," it said.
Simultaneous with these measures, according to Ahmed, the IMF has encouraged food exporting members to avoid disruptions to global markets such as through export restrictions on food, and to preserve domestic production incentives.
The Fund is also coordinating closely with the World Bank, the UN system, and with other international agencies and with donors on issues that require regional and international action, including trade policies and the need for additional financing resources from donors.
IMF Deputy Managing Director Murilo Portugal represented the IMF at an April 28 meeting of the UN Chief Executives Board (CEB) that discussed the impact of high food import costs. The CEB groups executive heads of UN system organizations under the chairmanship of the UN Secretary General.
World Food Program (WFP) said April 22 that high global food prices are creating "a silent tsunami", threatening to plunge more than 100 million people into hunger. WFP estimates it needs an additional US$755 million on top of its base budget to cover the increased cost of food and fuel since June 2007-a target backed by the IMF and World Bank.
IMF Managing Director Dominique Strauss-Kahn warned April 10 that a rise in food prices of 48 percent since end-2006 is a huge increase that may undermine gains the international community has made in reducing poverty.
Map displayed at press briefing: countries in red expected to suffer biggest trade balance losses from higher food prices; countries in blue expected to show biggest gains
Strauss-Kahn told a news conference in Washington that policy responses to higher food prices have to be tailored to meet the needs of each country.
In a related development, an April 11 meeting of the IMF's African Consultative Group discussed the impact of high world food and fuel prices and the challenges they present for policymakers in sub-Saharan Africa (SSA) and also globally.
A group statement said the meeting noted that many SSA countries have significant exposures to higher prices for fuel and other commodities, especially food. High food prices risked undermining the gains made by many countries in reducing poverty in the last 5-10 years.
"The speed and size of the price increases have been large. We agreed that policies should aim at helping those least able to cope with high prices, while not jeopardizing hard-won gains on economic stabilization," the consultative group's statement said.
The meeting agreed that the effect of shocks could be mitigated by temporary, targeted subsidies to help protect the most vulnerable, although authorities should ensure that subsidies did not become permanent.
The African Consultative Group, which was formed one year ago to enhance the IMF's policy dialogue with the African Caucus, comprises members of the African Caucus and the IMF's Managing Director. Delegates resolved that countries should avoid distortionary policies such as untargeted subsidies.
Moreover, the meeting observed that direct price and export controls might discourage food production, be difficult to enforce, and drain scarce resources from other critical purposes.
How the fear of infusing distortionary policies into the overall scheme of things will ultimately affect the Fund's new initiatives for poor countries and countries smarting from the scourge of war is not clear, but there are suggestions that extensive action and less diplomacy may help the erase the fear.
There are other ways, IMF chief economist, Simon Johnson, told the World Economic Outlook briefing April 9 this year. "As a way to reduce global pressure on food and energy prices, more open trade policies in those products would be a good start.
Less insular biofuels policy in advanced economies would help relieve some pressure. At the same time, we encourage countries to avoid raising taxes or imposing quotas on their food exports. These reduce incentives for domestic producers and also increase international prices," he said.
A recent IMF studies show the rise in food prices reflecting a mixture of longer-term factors such as food crops being diverted to biofuel production; higher food demand from emerging economies; and higher energy and fertilizer costs.
Temporary factors, such as droughts, floods, and political instability, also contributed to higher food prices. New projections on the effects of higher food prices follow publication of a World Bank-IMF report warning that most countries will fall short on the Millennium Development Goals, a set of eight globally agreed development targets that the international community is aiming to achieve by 2015.
The report said that though much of the world is set to cut extreme poverty in half by then, prospects are gravest for the goals of reducing child and maternal mortality, with serious shortfalls also likely in primary school completion, nutrition, and sanitation goals.
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