World Bank loans under fire in food crisis probe
May 15, 2008
By Alison Fitzgerald, Jason Gale and Helen Murphy
Washington and Singapore - "We would wake up with empty stomachs and go to bed with empty stomachs," says Alvarez, who sought help from aid group Mission Lazarus in January. "We couldn't afford the seeds to plant food or the bus fare to buy the food."
Honduran farmers cannot compete in a global marketplace where fuel and fertiliser costs have soared and rice prices doubled in the past year. The former breadbasket of central America now imports 83 percent of its rice - a dependency triggered almost two decades ago when it adopted free market policies pushed by the World Bank.
The country was $3.6 billion (R27.5 billion at current exchange rates) in debt in 1990. In return for loans, Honduras joined dozens of developing nations that abandoned policies that protected farmers and citizens from volatile food prices.
The global food crisis is under examination by the financial services committee of the US house of representatives, which convened yesterday to explore the causes and discuss possible solutions.
Staff said the committee would ask if policies advocated by the World Bank and the International Monetary Fund (IMF) played a role in the crisis.
Governments from Ghana to the Philippines were pressured to cut protective tariffs and farm supports and to grow more cash crops for export, reports by the institutions show.
Got it wrong
"Of course they got it wrong," says Robert Zeigler, the director-general of the International Rice Research Institute, based in the Philippines. "It will work if you're an extremely wealthy country and can import rice at any price. But if you're not an extremely wealthy country, I think that's very poor advice."
The strategy - laid out in a 1989 article by the bank's chief economist for south Asia, John Williamson - became known as the Washington consensus.
"The focus of the liberalisation was on lowering domestic food prices," says Mark Plant, the IMF's deputy director of policy development. The "command and control" policies of governments raised consumer costs and cut farmer income.
Williamson, now affiliated with the Peterson Institute for International Economics, said last week that the ideas were still sound, though they might have been pushed too hard.
"My view is that all those things are good for countries," he said. "But I'm not terribly sympathetic with the World Bank … laying down a list of things countries have to do."
Adrian Fozzard, the World Bank's manager for Honduras, says Honduran agriculture stagnated through the 1980s because of subsidies and market controls, prompting the bank to recommend economic changes.
Rice farmers were protected by the highest import tariffs in the region when Rafael Callejas became president of Honduras in 1990. With a stalled economy, trade barriers were dismantled under a World Bank loan agreement that September, allowing imports to flood the market.
The loan required the reduction of import restrictions and surcharges and the reorganisation of the agricultural finance system, according to European non-governmental organisation network Eurodad, which monitored loan conditions.
Prices paid to farmers fell by 13 percent in 1991 and 30 percent more in 1992, according to the UN's Food and Agriculture Organisation.
In a 1994 internal report, bank officials said: "The privatisation of state silos should be completed; and use of a grain reserve for price stabilisation should not be reinstated."
Tegucigalpa rally
The bank pushed the policies because food prices fell in real terms for at least two decades, and few economists expected it to change, says Mark Cackler, the manager of its agriculture and rural development department. Free trade and open markets remain the best path to competitiveness, he says.
Honduras now has 1 300 rice farmers, compared with more than 20 000 in 1989, according to human rights group Fian.
"The international lending agencies have destroyed the basic grains industry," says Gilberto Rios, the executive secretary of Fian Honduras. "The best land now produces things like African palms, which are not for consumption."
Last month, thousands of activists, students and farmers blocked highways and rallied in the capital, Tegucigalpa, to oppose food hikes and policies that made their country the most open to free trade in Latin America - and one of the poorest in the western hemisphere.
Per capita income rose by 0.5 percent a year from 1990 to 2004, one of the slowest growth rates in Latin America, a report by the International Food Policy Research Institute found.
"Trade liberalisation does not appear to have been much of a boon," the institute said.
African nations such as Mali and Ghana also followed World Bank advice. In 1992, the bank required Ghana to cut tariffs on rice to 20 percent from 100 percent, leading to a tripling of cheap rice imports, says Raj Patel, a scholar at the University of California's Center for African Studies who is due to testify before the committee.
In 2004 the bank advised Ethiopia to stop providing fertiliser and credit to small farmers as part of a debt relief package, and it persuaded Indonesia to dismantle its rice marketing board, according to Elizabeth Stuart, Oxfam International's head of relations with the World Bank and IMF.
In Honduras, farmers are asking the state to reverse policy and provide cheap loans to buy seeds and fertilisersd.
"We haven't seen the worst of it yet; that's to come," says Jarrod Brown, the president of Mission Lazarus.
For Alvarez, help can't come quickly enough. "We want to go back to our land, it's all we have," he says.
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