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Implication of the financial crisis and food price risks on low-income countries, Speech by Hugh Bredenkamp, Deputy Director, Strategy Policy and Review Department, IMF
September 11, 2009
Good morning ladies and gentlemen.
At the outset, I would like to thank the Bank for organizing this fifth roundtable with civil society, and for inviting the Fund to participate.
The topic is certainly timely and I am particularly looking forward to listening to the views and perspectives of civil society.
A. The Twin Crises
Low-Income Countries (LICs) have been hit hard by the twin crises.
The impact of the sharply higher food and fuel prices in 2007-08 on inflation, current account deficits and budgets was substantial.
The burden of higher food prices, in particular, fell most heavily on the poor and led to civil unrest in a number of countries.
The price surges were followed closely by a wave of shocks associated with the global financial crisis. Specifically, demand for LIC exports has been falling sharply; remittance flows have slowed and are expected to fall in most LICs in 2009; and FDI and other capital flows have declined.
We now expect economic growth in LICs to slow this year to only about half the pre-crisis rate.
B. The IMF’s Response
The extent of this “double blow” hitting LICs has been unprecedented, and calls for a commensurate response from the international community.
The IMF has moved quickly on several fronts to help LICs address the macroeconomic impact of the crises:
First, we have stepped up our financial assistance dramatically.
Second, we have made our financing more concessional. No interest at all will be charged on concessional lending through end-2011, and we will provide permanently higher concessionality thereafter.
Third, we have revamped our lending facilities. Increased Fund lending will be channeled through a new and more flexible set of instruments, better attuned to countries’ diverse needs, and with streamlined conditionality.
Finally, we have helped countries adapt their programs to create more policy space to address the crisis. This includes:
All of this adds up to a response which is more aggressive and far-reaching than any I have seen in my 20+ year Fund career.
Countries’ efforts to mount countercyclical policies come at a price, however, and donor support has not kept pace with the rising financing needs.
Many countries have had to borrow domestically and draw down reserves, when what they need is more highly concessional donor support.
Unless donors scale up aid at least in line with Gleneagles commitments, we see a risk that countries will be forced either to cut spending, even while their economies are still in recession, or to take on unsustainable debts.
These are outcomes we have to avoid.
C. Food Price Risks
Looking beyond the present crisis, we can expect other challenges to emerge, one of which is a possible resurgence in food and other commodity prices:
Thank you very much.
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