Copper mine in Democratic Republic of Congo. The impact of commodity price swings was debated at a top-level IMF seminar (photo: Olivier Polet/Corbis)
IMF–WORLD BANK ANNUAL MEETINGS
At a one-day conference that opened the public agenda for the meetings, participants heard an in-depth debate on commodity prices and inclusive growth—with the spotlight on the devastating effect of price rises on the Horn of Africa which is suffering from food shortages caused by severe droughts.
“Addressing vulnerability is do-able,” said the head of the United Nations World Food Program (WFP), Josette Sheeran, who recently returned from visiting Somalia and Kenya, two of the countries hardest hit by the region’s worst famine in half a century. “We have to combat the cynicism that interventions don’t work,” she added.
Sheeran made her comments immediately after the conference was opened by IMF Managing Director Christine Lagarde. It was attended by leading names from the world of development including two Nobel Prize winners; finance ministers and central bank governors from around the world; and top economists including Paul Collier, Jeffrey Frankel, and Abhijit Banerjee.
Low-income countries determine their fates
Lagarde told the audience that low-income countries faced a “broad and extremely challenging agenda” and that it was for them to take the lead in determining their own future.
“It is up to the low-income countries themselves to chart the course, and set the priorities. And it is up to us—the donor community and the international organizations—to support them,” she said.
In a keynote speech to the audience, which also included top academics and leaders of civil society, Nobel laureate Joseph Stiglitz drew a direct link between commodity price volatility and increased inequality.
“Anyone interested in inequality should be interested in the commodity price volatility we have seen in the last few years,” said Stiglitz.
In sub-Saharan Africa, many countries are heavily dependent on commodities, while rising food prices affect the poor in particular as food makes up a larger proportion of their household income, he said. The poor also have less of a buffer against such price increases, he added.
Rising prices, greater poverty
Lagarde warned that the renewed surge in commodity prices this year could plunge an additional 44 million people into poverty, and she proposed three measures for low-income countries to build up their resistance to external shocks.
The first priority she identified was strengthening self-insurance, which involved building policy buffers by reining in deficits and shoring up reserves in good times. “This builds a cushion for the bad times—and especially for protecting the most vulnerable,” said Lagarde.
She identified two other priorities as strengthening social safety nets, and lastly structural changes to boost longer-term resilience. “Economies that are more diversified—and not overly dependent on a few products and trading partners—are better able to withstand shocks,” said Lagarde.
Commodity price volatility impacts poorest countries
Commodity prices have been particularly volatile over the last decade. At their peak, between 2007–8 commodity prices doubled, before plummeting at the onset of the global recession. This volatility has hit poor countries particularly hard.
Jeffrey Frankel of the Kennedy School of Government at Harvard University said the tendency for low-income countries to adopt procyclical policies often further destabilized their economies.
“Expanding in booms and contracting during recessions exacerbates the magnitude of swings” he said, adding that this tendency had been especially strong in commodity-exporting countries.
But in the last decade he identified a shift. Around one-third of developing countries had now changed to countercyclical policies, he said.
The IMF’s Hugh Bredenkamp said the impact of higher food and fuel prices had been wideranging.
"Low income countries are now less well placed to cope with commodity price shocks than they were prior to the 2008 episode because their fiscal policy buffers have been eroded by the global crisis."
Bredenkamp called for pragmatism in response to future global shocks. “While first best responses are difficult, given the absence of broad social safety nets, it is important that policy responses are cost effective and targeted at the most vulnerable."
More oil producers, growing impact of volatility
Resource-rich economies face a political resource curse making it difficult to manage their natural endowments, said Michael Ross of University College of Los Angeles.
Ross identified a worrying pattern in the political systems of many resource-rich countries including a lack of government accountability, a heightened risk of civil war, and less effective government policies.
With increasing numbers of oil-producers among low-income countries “this means that the issue of the political economy of resource-rich discoveries is likely to get bigger and more important in the coming decades,” he said.
Achieving inclusive growth
In the final seminar of the day, panelists including IMF Deputy Managing Director Min Zhu; Nancy Birdsall of the Center for Global Development; Ray Offenheiser, president of Oxfam America; the Nigerian finance minister, Ngozi Okonjo-Iweala; Tunisian central bank governor, Mustapha Nabli; and the Nobel laureate George Akerlof; discussed how to achieve inclusive growth in low-income countries.
Akerlof said that recent unrest in the Middle East and North Africa would focus greater attention on the issue of inequality by “turning everyone into a citizen” with rights and responsibilities.
The Arab spring is “going to promote this sense of equality and insodoing we will get an economic dividend,” he said.
Mustapha Nabli, governor of the Central bank of Tunisia said that although there had been inclusive–if not high–growth in the region over recent decades, many elements of inclusiveness had been absent including distribution of benefits across different parts of the country and greater opportunities for increasing numbers of graduates. This had been combined with high levels of corruption.
“So we have this combination, and it becomes explosive….and it exploded actually,” he said.
