[stop-imf] World Bank/IMF 'Destroyed Basic Grains' in Honduras

[robert weissman]

World Bank 'Destroyed Basic Grains' in Honduras

By Alison Fitzgerald, Jason Gale and Helen Murphy

May 14 (Bloomberg) -- Fidencio Alvarez abandoned his bean and corn farm
in southern Honduras because of the rising cost of seeds, fuel and food.
After months of one meal a day, he hiked with his wife and six children
to find work in the city.

"We would wake up with empty stomachs and go to bed with empty
stomachs," said Alvarez, 37, who sought help from the Mission Lazarus
aid group in Choluteca in January. "We couldn't afford the seeds to
plant food or the bus fare to buy the food."

Honduran farmers like Alvarez can't compete in a global marketplace
where the costs of fuel and fertilizer soared and rice prices doubled in
the past year. The former breadbasket of Central America now imports 83
percent of the rice it consumes - -a dependency triggered almost two
decades ago when it adopted free-market policies pushed by the World
Bank and other lenders.


The country was $3.6 billion in debt in 1990. In return for loans from
the World Bank, Honduras became one of dozens of developing nations that
abandoned policies designed to protect farmers and citizens from
volatile food prices. The U.S. House Financial Services Committee in
Washington today explored the causes of the global food crisis and
possible solutions.

The committee examined whether policies advocated by the bank and the
International Monetary Fund contributed to the situation. Governments
from Ghana to the Philippines were pressured to cut protective tariffs
and farm supports and to grow more high-value crops for export, reports
by the Washington-based World Bank show.

Haiti Pressure

The IMF pressed Haiti, as a condition of a 1994 loan, to open its
economy to trade, Raj Patel, a scholar at the Center for African Studies
in the University of California at Berkeley told the committee. When
trade barriers fell, imports of subsidized rice from the U.S. surged,
devastating the local rice farmers, Patel said.

"That is very odd," said committee chair Barney Frank, a Massachusetts
Democrat. "For anyone to have looked at Haiti at that time and thought
that it was a functioning economy is a sign I think of ideology going
rampant."

"Of course they got it wrong," said Robert S. Zeigler, director-general
at the International Rice Research Institute, southeast of Manila. "It
will work if you're an extremely wealthy country and you can import rice
at any price. But if you're not an extremely wealthy country, I think
that's very poor advice."

'Command and Control'

The bank's strategy -- summed up in a 1989 article by its chief
economist for South Asia, John Williamson --became known as "The
Washington Consensus."

"The focus of the liberalization was on lowering domestic food prices,"
said Mark Plant, the IMF's deputy director of policy development in
Washington. Governments' "command and control" policies increased
consumer costs and cut farmer income, he said.

Williamson, now affiliated with the Peterson Institute for International
Economics in Washington, said in a May 9 interview that the ideas are
still sound, though they may have been pushed too hard by the World Bank.

"My own view is that all those things are good for countries," he said.
"But I'm not terribly sympathetic with the World Bank going in and
laying down a list of things countries have to do."

Highest Tariffs

Honduran agriculture stagnated through the 1980s because of subsidies
and market controls, prompting the bank to recommend economic changes,
said Adrian Fozzard, the institution's manager for Honduras.

Rice farmers in Honduras were protected by the highest import tariffs in
Central America when former president Rafael Callejas took office in
1990 with the economy stalled. The trade barriers that helped the
country meet more than 90 percent of domestic demand were dismantled
under an agreement for a World Bank loan in September that year,
allowing cheaper imports to flood the market.

The requirements for the loan included eliminating import restrictions
and surcharges and reorganizing the agricultural finance system,
according to Eurodad, a network of 54 European non-governmental
organizations that was granted access to the World Bank's loan database
to monitor loan conditions.

Prices Plunge

Prices paid to farmers fell by 13 percent in 1991 and 30 percent more in
1992, according to the Food and Agriculture Organization in Rome.

In August 1993, the World Bank advised Honduras to adopt a second round
of economic changes as part of another loan, according to Eurodad. Those
conditions included eliminating all price controls and cutting tariffs
further.

"Remaining trade and price controls should be eliminated," bank
officials said in a 1994 internal report. "The program of privatization
of state silos should be completed; and the use of a grain reserve for
price stabilization should not be reinstated."

The report's author, Daniel Cotlear, now a World Bank economist for
Latin American and the Caribbean, declined to comment for this story.

The bank pushed the policies because food prices fell in real terms for
at least two decades, and few economists expected that to change, said
Mark Cackler, manager of its Agriculture and Rural Development
Department. Free trade and open markets remain the best path to
competitiveness, he said.

"There are actually opportunities to reduce protectionism that have a
beneficial impact," Cackler said.

Tegucigalpa Rally

There now are 1,300 rice farmers in Honduras, compared with more than
20,000 in 1989, according to human rights group FIAN.

"The international lending agencies have destroyed the basic grains
industry in Honduras," said Gilberto Rios, 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 protest food prices
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 January report by the
International Food Policy Research Institute found.

Not 'a Boon'

"Trade liberalization does not appear to have been much of a boon to the
Honduran economy," the Washington-based institute said in the report.

In the Philippines, the World Bank encouraged the country, the world's
biggest importer of rice, to stop striving for self- sufficiency and
instead to diversify into crops like tropical fruits which have greater
export value.

It approved a $60 million loan in 2004 to help the Philippines'
Department of Agriculture become more market- oriented, diversify crops
and stimulate private investment.

A World Bank Group technical working paper in June 2007 said the
government shouldn't stockpile grain to stabilize prices. Rather, it
should keep enough on hand for disasters and social welfare programs. It
also advocated opening the domestic market to competition by cutting
tariffs.

Philippines Reverses Course

Philippine President Gloria Arroyo now says the country has to change
course toward being able to feed itself.

"We must move toward more self-sufficiency, not necessarily 100 percent,
but more self-sufficiency, less import dependence on rice," she said
last month.

African nations including Ghana and Mali similarly 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,
Patel said.

In 2004, the bank advised Ethiopia to stop providing fertilizer 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 in Washington, who is the head of relations with the
World Bank and IMF for Oxfam International, the U.K.-based alliance
fighting poverty.

Now farmers are asking the Honduran government to reverse policy and
provide cheap, long-term loans to buy the seeds and fertilizers they
need to survive.

The government of Honduras yesterday asked the IMF to send a team to the
country to examine how the rising food and fuel prices are affecting the
economy and whether they should reconsider some aspects of a current
economic program, the IMF said in a press release.

"We haven't seen the worst of it yet; that's to come," said Jarrod
Brown, president of the Mission Lazarus. "They need help now."

For Alvarez and his family, help can't come quickly enough.

"We want to go back to our land, it's all we have," he said.