IDB announces credit line to alleviate impact of rising food prices

Washington, D.C.— The Inter-American Development Bank (IDB) announced today a $500 million credit line to ease the impact of rising food prices on countries in the region.

The credit line, which is expected to be approved shortly by the executive board of the IDB, will include mechanisms to ensure fast disbursement. Countries will be able to use the funds to strengthen their social protection networks and improve agricultural productivity.

“The risk for the region is very real,’’ said IDB president Luis Alberto Moreno. “If nothing is done, the hard-won gains in the fight against poverty could be undermined.’’

Between January of 2006 and March of this year, worldwide food prices jumped 68 percent on average. The rise has been especially steep for some basic food items. The price of rice doubled, corn increased 128 percent and wheat soared 163%.

“Fortunately, the full impact of external prices will take some time to filter into domestic markets,” said Moreno. “In the meantime, the region has a window of opportunity to implement measures that protect the most vulnerable and encourage greater domestic food production. The region should use this window as an opportunity to further develop its agricultural sector and improve its competitiveness.”

He explained that poor people spend a large portion of their income on food, and that without counter-measures, the impact of rising prices could be especially severe for people in Central America, the Caribbean, and other nations that depend on imported foods.

For example, Moreno said the poorest 10 percent of the Costa Rican population allots 37 percent of its household budget to buy food. In Honduras, 84 percent of the family budget is spent on food.

A sustained increase of 30 percent of six basic food products – wheat, corn, beef, soya, sugar and rice – could push 26 million persons below the extreme poverty line, according to IDB estimates.

Measures recommended by Moreno to avoid this scenario include taking advantage of existing conditional cash transfer programs – which provide periodic stipends to parents who keep their children in school and ensure they get proper health care – or putting such mechanisms in place where none are available.

Half the countries in Latin America and the Caribbean have such conditional cash transfer initiatives. Moreno said governments in these countries should increase payments to offset rising food prices.

“These programs directly increase the purchasing power of the poor, instead of benefiting wealthier consumers, and they provide incentives for more production of food instead of penalizing farmers,’’ Moreno said.

Cash transfer programs also benefit childhood nutrition by improving the quantity and quality of foods purchased by households.

Moreno said countries should bolster their assistance to farmers by providing technical assistance, better credit access and improved port, road and irrigation infrastructure.

To implement these recommendations, the $500 million credit line will support projects that increase rural productivity and investments, and reduce distribution costs.

The IDB also stands ready to redirect previously approved loans to alleviate the impact of higher food prices.

In addition, the IDB has set aside at least $20 million of the Social Fund – a grants program aimed at alleviating poverty – to study ways in which early childhood nutrition and other government programs can be made more efficient.

Finally, the IDB also has access to fiduciary funds created by donor member countries that can be used to finance specific aspects of the food crisis. | Foto: President Luis Alberto Moreno