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Asia: ADB Warns On Food, Pledges Aid

The Asian Development Bank (ADB) has announced emergency funding to help poor countries struggling with increasing food prices. At its annual meeting in Madrid, the bank has also warned that soaring food prices could keep rising and stifle economic growth in the region.

Speaking on the first day of the gathering, ADB President Haruhiko Kuroda said the new aid will come in the form of soft loans for the governments of countries hardest hit by the global food crisis.

Kuroda told a news conference on May 3 that the loans will help countries subsidize the price of food staples for the poor.

He said the amount for the bank's financial aid would be "sizable, but not enormous." However, he declined to give an amount, saying it will depend on requests from poor countries.

Kuroda warned that "the cheap-food era may be over," saying that prices of rice, for instance, have nearly tripled in the past four months. He said Asia's poor are particularly vulnerable to rising prices for staples such as rice, because most of their spending goes toward food.

"Combined, 75 percent of expenditure of the poor would be affected by price [and fuel] inflation," Kuroda said. "And you can imagine how big the impact is likely to be on those poor people."

The ADB said in a report issued in Madrid that nearly 1.7 billion people in Asia are living on $2 a day or less. The report said higher food costs mean higher inflation, which will reduce consumption, savings, and investment.

Asia has been experiencing rapid economic expansion, which reached 8.7 percent last year. The bank forecasts growth at a still-robust 7.6 percent in 2008, excluding Japan, despite slowdowns in the United States and elsewhere.

But this is to come with inflation expected to hit 5.1 percent across Asia this year, the highest level in a decade, in part due to the rising cost of food.

Meanwhile, Asian states will see their fiscal deficits worsen because of the need to provide subsidies to offset rising food and energy costs for the poor.

Coming Out Against Subsidies

A number of Asian countries have imposed price controls or restrictions on food exports in a bid to secure domestic supplies. But the bank said this can backfire by discouraging farmers from planting, thus reducing supplies and raising prices.

Kuroda said the ADB believes "targeted interventions" to protect food entitlements of the most vulnerable and poor are more effective to mitigate the immediate impact of rising food prices.

He also criticized plans by Southeast Asian countries to set up an OPEC-style rice cartel, saying it is better to let market forces operate freely.

In addition, the ADB chief spoke against oil subsidies. "Many developing countries in Asia as well as other parts of the world have oil subsidies and this is not a very effective way to help the poor people," Kuroda said.

The bank also wants developed countries to stop paying subsidies for production of biofuels, saying it makes staples more expensive.

Rising use of biofuels, greater demand for food, poor harvests, and higher fuel costs have been blamed for the price rise.

The four-day meeting of the ADB's board begins in earnest on May 5 and will bring together about 3,000 delegates, including finance ministers, academics, and members of other multilateral development agencies.

Donor countries have pledged $11.3 billion to the bank's Asian Development Fund, its key poverty-alleviation mechanism, for 2009-12, a 60 percent increase over the last four-year period.

The Manila-based bank was created in 1966 to fight poverty in the Asia-Pacific region. Every other year, the bank and its 67 member states hold their annual meeting in one of its member countries that are outside the region.

compiled from agency reports