/ 1 January 2002

IMF’S Koehler says US, EU trade policies perverse

INTERNATIONAL Fund chief Horst Koehler on Thursday called American and European trade policies ”perverse,” urging an end to cotton and sugar subsidies that obstruct this impoverished West African nation’s efforts to beat poverty.

Speaking in a nation which is the world’s most efficient cotton producer, Koehler noted that the United States spends more to subsidise American farmers producing cotton that the value of the entire cotton output of sub-Saharan Africa.

”I know that the United States alone is spending $2 billion (annually) for its cotton subsidies …, more than the total production of sub-Saharan Africa of cotton and the same goes for sugar in the European Union — they are spending more than 2 billion euros in Europe for sugar subsidies,” Koehler told cotton producers and business leaders here.

”I think this is something perverse and we need to change it,” he said of the existing US trade policy, adding that European trade subsides were, ”a huge (gravy) train for finance ministers and devastating for developing countries.”

Using blunt language, the IMF’s managing director said such trade distortions made a mockery of efforts to reduce poverty and made any real progress impossible.

”If we are not to give you better trade opportunities then maybe the fight against poverty is lost from the beginning,” Koehler said, adding that rich nations should, ”Do what they preach to others — liberalise and open up their markets.”

Koehler has used a five-day tour in Africa this week to highlight what he sees as glaring inequalities in global trade. But his comments are particularly pertinent in Burkina Faso, a landlocked nation whose name means the land of honest people.

An IMF and World Bank study to be published later this year reveals that if cotton prices were not distorted by subsidies, Burkina Faso could cut the number of people living in poverty in half in just five or six years. Subsidies account for about a third of incomes among American cotton farmers, which total more than $35 000 on average. By contrast the average person in Burkina Faso lives of less than $1 a day.

The IMF and World Bank study says if cotton prices were at the average price of the last 100 years — about 30 cents above current levels of about 66 cents a pound — poverty in this tiny country could be cut in half in just five or six years.

Locals at a breakfast forum with Koehler said they were appreciative of his comments but sceptical that anything would change. Privately the IMF’s staff concedes that while the U.S. Treasury Department favours more trade openness, the U.S. Department of Agriculture is against such moves – a dynamic present in many rich nations.

Cotton price declines have had such a severe impact on the local economy that the IMF and World Bank last month agreed to grant Ouagadougou $930 million of debt relief. It was the first country to which the lenders gave exceptional debt relief to take account of plunging commodity prices.

Koehler said rich countries should also slash tariffs on more profitable finished goods such as clothing, or processed foods like chocolate. Only then, he said, would poor countries be able to make real inroads in developing their own economies and become less dependent on outside help.

Koehler also bashed rich countries for only setting aside a quarter of one percent of economic output for overseas development aid — well below their common 0.7% target. Increasing aid to 0,7% of economic output would send assistance to poor countries soaring to about $150-million from just $50-billion today.

Current aid levels are six times less than the more than $300-billion of trade subsidies rich nations pay their farmers to prop up domestic agriculture. Rich countries recently pledged to increase aid in an effort to halve the number of people living in poverty by 2015, but Koehler said those promises would be wasted if trade barriers were left intact.

Koehler said countries like Burkina Faso could only beat poverty by boosting economic growth from about 5% to 6-8%. But he said with current trade barriers, ”I cannot see the possibility of increasing growth to 6-8%.”

As the IMF chief nears the end of a five-day tour of Tanzania, the Democratic Republic of Congo, Ivory Coast, Burkina Faso and finally Ghana on Friday, he expressed weariness at all the money and time being spent on merely talking about poverty while millions in Africa remain poor.

He told aid workers, United Nations officials and diplomats on Wednesday he was ”uneasy about the hundreds of thousands of round-tables around the world where all the same intellectual people gather around and talk about poverty reduction.”

He said his frustration stems from the fact that while he knows how to beat poverty, the amount of international aid is subject to the whims of his major shareholders and he lacks the power to make them change their trade policies. – Reuters