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Quick Fixes or Real Solutions? World Bank and IMF responses to the global food and fuel crises

10 December 2008

In May, the World Bank announced the creation of a Global Food Crisis Response Facility (GFCRF) which will fast-track up to $1.2 billion of the Bank's resources within the next three years "to address immediate needs arising from the food crisis." This briefing analyses the Bank’s initial and expected funding under this window and finds that its conditionality and repayment framework are better than most Bank operations, but that the problematic agricultural model promoted by the Bank and others has not been reconsidered.

The Bank needs to turn the crisis into an opportunity to learn that finance can be granted without strings attached and no major drama occurs, as long as the right fiduciary measures are in place and the mutually agreed terms of the contract are respected. Time is also ripe for the Bank to move away from advice that promotes unfettered privatisation and liberalisation of the agriculture sector, and open-up for developing country governments to be able to strengthen the productivity of small-scale farmers and food sovereignty of poorer people.

The IMF’s policy advice, as presented in its June-end paper, spells out a business-as-usual free-market recipe of fiscal, monetary and trade policy recommendations. The central gist of the policy advice is passing the higher prices onward from the state to the consumer in order to ease the external imbalance and budget deficit, tightening monetary policy in order to abate inflation levels, and employing exchange rate depreciation as a "shock-absorber". The Fund’s monetary position is clearly problematic in that it recommends a domestic response to exogenous sources of inflation.

While the Fund’s fiscal policy stance of reducing public spending on subsidies and replacing them with temporary and targeted subsidies and cash programs is justified, the primary emphasis in fiscal policy advice should instead be placed on ways in which low-income countries can possibly increase fiscal space. The IMF has responded to countries facing widening trade imbalances and increased spending for needed imports with a degree of understanding for temporarily wider budget deficits and higher inflation. However, these are temporary flexibilities that phase out after 12-18 months; thus, the IMF is still retaining its traditional restrictive policy thrust of tightening fiscal and monetary policy. The IMF’s Exogenous Shocks Facility (ESF), is meant to provide rapid and concessional financing to countries hit hard by the food and fuel crisis, however the changes made to the program have failed to change the loan program sufficiently to meet financing needs.

Quick Fixes or Real Solutions? World Bank and IMF responses to the global food and fuel crises : 608 Kb