According to a report released yesterday by the IMF, high food and oil prices are having a devastating effect on import dependent, small and middle-income countries. Since January 2007, high food prices cost 33 net food importers $2.3bn or .5% of GDP, while oil cost 59 net oil importers $35.8bn or 2.2% of GDP. IMF head Strauss-Khan says many countries are at a "tipping point."
Inflation is driven by the integration of large emerging economies and is expected to continue even as the U.S. economy slows. Oil prices are expected to remain high for years due to the time needed to develop drilling and refining capacity, while food production will increase more quickly due to price incentives.
Snapshot asks, has the IMF done its part to help the world deal with high inflation?
IMF - Price Surge Driving Some Countries Close to Tipping Point
Financial Times – Trade has saved America from recession
Morgan Stanley – The Oil Shock Debate: Recession, Inflation or Both?
Oxford Energy – Why do oil price shocks, no longer shock?
Rioting has broken out in Egypt, Senegal, Ivory Coast, Cameroon, and Ethiopia and 33 more countries around the world may face instability due to rising food prices. During IMF/World Bank meetings last week, leaders cited the U.S. demand for bio fuels as a major reason for high grain prices. Throughout the weeklong meetings, World Bank President Robert Zoellick repeated the need for more food assistance to poor countries. To date, the United Nations has only received half of the $500 million it said it needed to sustain assistance through the World Food Program.
Snapshot asks, will cutting the U.S. demand for bio fuels sufficiently curb inflation in food prices?
World Bank - Rising food prices: policy options and World Bank Response
Wall Street Journal - Food Inflation, Riots Spark Worries for World Leaders
European Bank for Reconstruction and Development - Fighting Food Inflation through Sustainable Investment
Time - The Clean Energy Scam
A guest post by Ian McAllister
The International Monetary Fund recently released its assessment of world economies and its outlook for 2008 and 2009. In addition to its estimates of unprecedented potential losses--totaling almost a trillion dollars--the report offered a gloomy picture for recovery later this year. More influential may be the report's calls for improved regulation of our increasingly complex financial system.
Snapshot asks, does the IMF have any impact on the regulatory environment in the United States or EU?
IMF Report, Chapter 2 - Structured Finance, Executive Summary
Financial Times - A Risk Shared May Be More Risky
Economist - Fixing Finance
Deutsche Bank - Dr. Josef Ackermann Leads Debate on Globalized Regulation
Financial Stability Forum - Interim Report to G7 Finance Ministers