Posted by Gilmour Poincaree on December 14, 2008

December 14, 2008

by Alison Fitzgerald and Helen Murphy


The silo, which once held thousands of tons of beans and cereals, is now empty. It was abandoned in 1991 after the bank told Salvadoran leaders to privatise grain storage, import staples such as maize and rice, and export cash crops including cocoa, coffee and palm oil.

Outside, at a food stand propped against a tower wall, price increases for grains have whittled business down to 16 customers a day from 80.

“It is a monument to the mess we are in,” says stall owner Rosa Chavez.

About 40 million people joined the ranks of the undernourished this year, the Food and Agriculture Organisation (FAO) of the UN said this week, bringing the estimate of the world’s hungry to 963 million of its 6.8 billion people.

In addition to natural causes, the recipe for famine included corrupt governments and companies that profited on misery. Another ingredient was the World Bank’s free market policies, which have brought poor nations like El Salvador into global grain markets, where prices surged.

Jeffrey Sachs, the director of the Earth Institute, said: “The World Bank made one basic blunder, which is to think that markets would solve problems of such severe circumstances. But history has shown you need to help people to get above the survival threshold before the markets can start functioning.”

Created in 1944, the World Bank spent much of its first 35 years dispensing low-interest loans, grants and advice to poor countries with an eye toward promoting self-reliance.

In 1980, the bank’s executives began attaching conditions to loans that required “structural adjustments” in the recipients’ economies.

The mandates were designed to get poor countries to cut import tariffs, reduce the government’s role in enterprises such as agriculture and promote cultivation of export crops to attract foreign currency.

The philosophy, known now as the Washington Consensus, assumed that importing basic grains would be inexpensive and that poor farmers could earn more producing exports.

Food prices had fallen for years and few economists thought that would change, said Mark Cackler, the manager of the bank’s agriculture and rural development department.

Then in 2007 and the first half of 2008, an index of 60 food commodity prices compiled by the FAO rose 82 percent. Costs have since eased, but were still 20 percent higher on November 1 than at the end of 2006.

The spike hit hard in countries that that took structural adjustment loans, like El Salvador. Its central bank said the sum total of loans was “not available”, but the agriculture ministry did give a gauge of their effects. The country was an exporter of rice 20 years ago; now it imports more than 75 percent of its needs.

Consistently wrong

East Timor’s president, Jose Ramos-Horta, said the World Bank gave “consistently wrong advice”. The 1996 Nobel peace prize winner added: “It is their advice – that buying externally is cheaper than producing – that has resulted in this.”

Current and former World Bank officials say small countries hurt their own agriculture industries by suppressing prices, taxing farms, inflating exchange rates and favouring urban development. They reject the assertion that structural adjustment loans hurt self-sufficiency.

World Bank spokesperson Geetanjali Chopra said the institution did not agree that “this crisis was caused by these policies. This crisis was caused by much more than underinvestment in agriculture.”

Still, FAO data show imports of basic grains climbed in nations such as Honduras and Ghana after they eliminated agricultural subsidies, sold off grain stores or cut tariffs to get World Bank loans in the 1990s.

In Honduras, 23 000 rice farmers went bankrupt after the government cut import duties, according to human rights group Oxfam International. Honduran farms now supply 17 percent of the domestic demand for rice, down from 90 percent before.

In Ghana, the World Bank required a tariff reduction on rice to 20 percent from 100 percent. Imports tripled, said Raj Patel, a scholar at the University of California.

Uma Lele, a World Bank economist between 1971 and 2005, said the free market policies were a sharp turn from the bank’s earlier efforts to develop poor countries’ agriculture and self-reliance.

Former bank president Robert McNamara introduced the structural adjustment concept in 1979 as he urged rich nations to open their markets to poor countries’ exports.

“Developing countries will need to carry out structural adjustments favouring their export sector,” he said in a speech in Manila.

Pierre Landell-Mills, a bank economist at the time, said officials were frustrated that their farming investment through the 1970s was not paying off, especially in Africa.

The “preferred solution”, he said, was to dismantle state marketing boards, shrink governments and remove barriers to entrepreneurship.

McNamara approved the first three structural adjustment loans in 1980. By 1985 they made up more than a quarter of the World Bank’s total lending, according to Kyle Peters, its country services director.

Free market principles were on the rise in the US and the UK, the bank’s major funders. Alden Clausen, appointed by the US to succeed McNamara in 1981, was sure “you could fight poverty better if you get the policies of a country right. I loved structural adjustment loans, and I made a lot of them,” he said.

As these loans grew, the portion of the World Bank’s lending devoted to agriculture fell, to 8 percent in 2000 from 30 percent in 1980. Last year, farm-related loans made up 12 percent of its $24.7 billion book.

“One of the reasons we have problems today is because of the cuts in agriculture,” said Montague Yudelman, the director of the bank’s agriculture unit under McNamara. “If they’d made a continuously high level of investment, we’d have been in much better shape.”

By the late 1980s critics began saying the bank was fostering poverty and dependence.

In 1995, just 30 days into his tenure as bank president, James Wolfensohn promised changes. In a meeting with 12 non-profit organisations, he heard their argument that 15 years of adjustment lending had wiped out small farmers in Africa, Latin America and Asia.

A different way

“I am looking for a different way of doing business,” Wolfensohn, who led the bank until 2005, told them.

The bank’s commitment to free-market principles didn’t waver.

In 2000, as a condition for a $6.8 million agriculture loan in East Timor, the bank demanded that state-funded agricultural service centres be privatised and rejected money for a public grain silo, according to Tim Anderson, a political economy lecturer at the University of Sydney.

In 2001 several non-profit groups released a report saying the policies “have undermined the viability of small farms, weakened food security and damaged the environment”.

In August 2004, James Adams, the World Bank’s head of operations policy, declared the end of structural adjustments, saying the bank had “abandoned the prescriptive character of the old policy”.

The next year, the bank demanded that Niger privatise its irrigation systems, according to a report by non-profit coalition Eurodad. The condition “has seriously damaging effects on poor farmers’ access to a precious resource”, says the 2007 report. The group found economic policy conditions were attached to 71 percent of loans and grants.

In this year’s World Development Report, the bank acknowledges that limiting state participation in agriculture has hurt small farmers.

Bank president Robert Zoellick has promised to double agriculture spending while touting free trade as a solution to rising food prices.

Poor countries remain sceptical. In world trade talks in Geneva in July they insisted on their right to raise tariffs to protect domestic agriculture, stalling the negotiations.

El Salvador, meanwhile, has invested about $240 million in agriculture since 2004. Agriculture minister Mario Salaverria said: “The World Bank had a very short-term vision. It could not have been more wrong.”

His country must regain self-sufficiency, he said. “We can stop using our cars because of price increases, but we cannot stop eating.”



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