SOARING FOOD prices could drive hundreds of thousands of people
into starvation, the leaders of the World Bank and the
International Monetary Fund (IMF) have told the world's financial
chiefs, writes
Denis Stauntonin
Washington.
The warning came at the end of a two-day meeting of finance ministers and central bankers who discussed new measures to regulate banks and other financial institutions amid fears that the global credit crisis could deepen.
"We must expect more bumps in the road," US treasury secretary Henry Paulson told the IMF meeting. "Financial markets have been reassessing risk, repricing assets and deleveraging. It took time to build up recent excesses and it will take time to work through the consequences."
Soaring food and commodity prices have hit the poorest countries hardest and both the World Bank and the IMF leaders called for co- ordinated action to prevent a humanitarian disaster caused by high food prices.
World Bank president Dominique Strauss-Kahn and IMF chief Robert Zoellick said that richer countries must help poorer nations to improve healthcare and reduce malnutrition and infant mortality and should increase investment in Africa.
"In the US and Europe over the last year we've been focused on the prices of gasoline at the pump," Mr Zoellick said. "While many worry about filling their gas tanks, many others around the world are struggling to fill their stomachs. And it's getting more and more difficult every day."
Food riots toppled Haiti's government last week and rising food price have also provoked social unrest in Egypt and the Philippines.
Mr Zoellick said that in many developing countries, the poor spend up to 75 per cent of their income on food, so when basic food prices rise, "it hits hard".
Earlier, finance ministers from the Group of Seven (G7) industrialised countries expressed concern about the plunge of the dollar and sterling against the euro, although they stopped short of agreeing to intervene in the foreign exchange markets.
"There have been at times sharp movements in major currencies, and we are concerned about their possible implications for economic and financial stability," the ministers said in a joint statement.
European finance chiefs fear that the sharp rise of the euro could dampen growth in the euro zone, and although the US is relaxed about the dollar's current level against other currencies, it is increasingly concerned about the pace of the decline.
Central bankers hope that the G7 statement will calm markets and slow the dollar's fall, although European Central Bank (ECB) president Jean-Claude Trichet declined to say if it represented a signal that intervention in the market could follow further sharp currency movements.
"The words are like a poem, they speak for themselves," he said.
The G7 endorsed a report from the Financial Stability Forum that identified dozens of reforms needed from global banks and regulators, including more disclosure of the nature of assets held off balance sheet and higher capital and cash reserves to back up such assets.
Banks have already written off $225 billion in bad debts linked to failing US subprime mortgages and other loans, but the IMF estimates that total losses could approach $1 trillion once insurers and others add in their final estimate of the cost.
"All the bad news has not come out yet," Italian finance minister Tommaso Padoa-Schioppa said.
New York Fed president Timothy Geithner admitted that regulators may have relied too much on financial companies and investors to police themselves. "What we have to do is find a better balance between market discipline and regulation. I don't think anybody can look at the system and say we got that right."