IMF & World Bank meetings highlight food crisis

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The G20 finance ministers and central bank governors met last week in Washington, D.C., alongside the World Bank and IMF Spring Meetings, and released a communiqué detailing the outcomes. The G20 reiterated that their main objective is to “improve the living standards of all our citizens through strong economic and jobs growth.” Maintaining a focus on reducing global financial imbalances from the 2010 Seoul Summit, the ministers and governors also agreed to a set of guidelines and indicators that would standardize how countries are managing balance sheets.

The communiqué references the importance of implementing the Multi-Year Action Plan created at the 2010 Seoul Summit for various issues including (but not limited to) agriculture, domestic resource mobilization and infrastructure. Looking ahead, the G20 called for reports on these specific issues to be delivered in advance of the 2011 Cannes Summit.

While the G20 addresses several issues, one of the key issues this year is commodity (or food) price volatility and its impact on food security. This is a particularly salient issue since poor people in developing countries spend up to 80 percent of their incomes on food — and high food prices can hit hard at home. At their last meeting in Paris in February 2011, the ministers and governors were explicit about commitments to long-term investments in agriculture to enhance food security. At this meeting, the G20 requested final recommendations from advising groups on agriculture risk management and mitigation strategies in developing countries. Boosting farmers’ resilience to agricultural shocks is necessary for long-term food security in developing countries.

The members also agreed on the necessity for increased transparency in cash and derivatives markets. They called for recommendations on appropriate regulations to curb market manipulation that seems to be putting increased pressure on commodity prices. Increased transparency in the markets will promote price stability. With regulation and supervision, transparency will also reduce the opportunity for market manipulation.

The G20 also affirmed support for the use of innovative finance mechanisms to generate funds for climate change financing. Innovative finance entails resource mobilization beyond traditional development assistance sources to reduce the resource gap for developing countries. One mechanism that is increasingly gaining momentum is the Robin Hood Tax in the UK, which argues for increasing taxes on the financial sector. Other potential mechanisms include leveraging diaspora flows or remittances and unlocking private sector resources and innovation. The G20 tasked the World Bank with analyzing sources of resource mobilization from the public and private sectors, and in bilateral, multilateral and innovative forms. The G20 also prioritized finding effective ways to improve tax information sharing in order to increase financing from domestic resources and reduce dependence on external or donor sources of funding.

Recommendations on how to scale up and diversify infrastructure financing in developing countries are also solicited from the High level panel on infrastructure investment in advance of the upcoming Summit. The January 2011 IMF World Economic Outlook demonstrated that investment in Africa is worthwhile, with a projected growth rate of 5.5 percent in 2011 (especially notable when compared to growth rate in advanced economies of 2.5 percent). Encouraging increased and responsible investment in Africa, specifically private investment, is a difficult but necessary task for long-term sustainable development.

Photo courtesy of the World Bank