Posted on: Nov 07, '09
Who will save the world - Fighting Hunger, Rising Oil Prices and Inflation at the G-8
Who will save the world - Fighting Hunger, Rising Oil Prices and Inflation at the G-8
A Japanese shop employee holds a souvenir mailing envelope featuring caricatures of leaders of G-8 countries: Will the club be able to come up with answers to the three crises that threaten to create mass turmoil?
As far as billionaires go, Richard Rainwater, 65, of Texas, is pretty run of the mill. His assets are valued at an estimated $3 billion (€1.9 billion), placing him squarely in the mid-range of the American super rich.
A mathematician by academic training, Rainwater is a visionary -- famous for being the "capitalistic cowboy of the 1990s," because 11 years ago he sold lucrative shares in diverse companies and, together with others, invested a further $300 million in an energy market that was shaky at the time. The Dot-Com Internet crash and recent real estate crises did little to hurt him, and his company Rainwater was recently pleased to announce a $2 billion profit.
Back in 1997, a barrel of crude oil cost only $20. The price has since exploded and today stands at $144 on the global market. But forward-looking Rainwater sold its oil interests when the price reached $129 and the company is, at least for now, avoiding oil. Rainwater views the turbulent activity on commodities exchanges as a distant observer and is astonishingly critical of it. If things go on as they have been, he recently told Forbes magazine, the survival of humanity could be at stake.
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.The world has already been shaken by three recent financial crises. As a result of the real estate crash in America, banks and insurance companies around the world are getting hit. On top of that, the prices of the world’s most important goods are being driven up -- for both energy sources and food. And the more expensive commodities get, the further they accelerate the process of global inflation.
Inevitably, Third World and emerging industrial nations are getting pulled into these crises. The World Bank and International Monetary Fund made opening their internal markets to Western capital and products -- including food and consumer goods -- a pre-condition for obtaining loans. And now this.
In Vietnam, only recently considered to be a South Asian tiger economy, the inflation rate is currently 25 percent. In June, the population had to spend 74 percent more on food than it did just one year ago. Workers are striking for higher wages in many parts of the country.
Diesel prices in Bangladesh have risen by one-third to about 80 US cents per liter; the price of natural gas has risen by two-thirds. Of the country's population of 145 million, 58 million must make ends meet with less than $1 per day.
In Thailand, protesters blockaded streets because of the devaluation of the baht, which is painfully inflating import prices. Fears are increasing of a renewed Asian crisis.
In India, protests are becoming ever more frequent. Train lines are being blocked. Schools are being closed. And last week millions of truck drivers went on strike after the government in New Delhi reduced fuel subsidies, a new policy which affects not only diesel prices, but also those for cooking oil , Vegetable prices have gone up by a whopping 100 % , pulses and beans by more than 200 % and there is respite on horizn from either the government or the lethargic beuracracy.
Fastest growing economic power India is battling against an inflation rate of 11.6 percent. In Pakistan that rate is 19.3 percent, 20.2 percent in Iran, and Russia, Serbia and Bulgaria are registering rates of about 15 percent. In 50 other counties, the rate is greater than 10 percent.
If Germany, for example, were to experience the 30 percent drop in consumer buying power now being seen in Ethiopia or Venezuela, it would mean the recipients of the country’s highest benefit for the long-term unemployed, currently at €378 ($594) per month, would see their purchasing power slashed to €264 within one year.
All attention is now being focused on Japan’s Hokkaido island. Starting Monday, the chief leaders of the G-8 states will converge in the island city of Toyako to discuss a gamut of issues that could hardly be any more complicated. How, for example, do you repress the potential destructive power of a globalized economy? Is the capital system headed for a collapse? And how do you rescue the world from this triple crisis -- and by what means?
Astonishingly, the world’s eight biggest industrial nations didn’t even want to put these issues at the center of their agenda at first. Japanese Prime Minister Yasuo Fukuda, 71, lacked the courage or perhaps power to place the issue of the triple crisis on the agenda. Instead he focused on climate change and Africa, the same issues adopted by his predecessor, German Chancellor Angela Merkel, who hosted the last G-8 conference at Heiligendamm in 2007 on the Baltic Sea coast.
A malnourished boy in Ethiopia: Rising prices will have "serious consequences for security and food supplies of needy and poor families in urban and rural areas in developing countries."
However, in April, British Prime Minister Gordon Brown wrote to the Japanese and called for the global food situation to be addressed at the meeting. Merkel also recognized the need for action. Quietly, they called together an inter-ministerial working group. They informed G-8 chairman Fukuda as well as the heads of state and government of the other member countries of their findings last Monday.
SPIEGEL obtained a copy of the six-page letter, which addresses the fundamental problems with the befitting seriousness and will now guide the G-8 discussion.
Rising prices will have "serious consequences for security and food supplies of needy and poor families in both urban and rural areas in developing countries," it states. Food shortages and conflicts over the control of and access to natural resources could "endanger democratization, destabilize states and spiral into international security problems."
In addition to "demographic and economic growth," and "changing consumer eating habits" in the Third World, the authors also attribute the ever-expanding farming of plants for fuel as a culprit behind the price explosion. Finally, the devaluation of the dollar and speculative trading with futures are also having a significant influence on the level of and fluctuations on food prices."
Merkel’s advisors assume that prices for grains, rice and oilseeds will become a little less expensive, but not by a great degree. At the same time, they are expecting even greater price fluctuations. In the G-8 advisory paper, they recommend:
■an increase in agricultural productivity -- primarily in developing countries, where it has only represented, on average, 1 percent of industry
■that assurances be made that the hardest hit are provided with access to food and financial aid
■that supplies of seeds, manure and farming equipment are provided quickly (preferably to states that put such aid to "good use" and responsibly).
■The immediate lifting of export restrictions to, for example, countries like India
The German government believes that the world's 30 poorest countries need to come up with an additional $20 billion for food imports to cover the shortfall of supplies -- a development that would massively aggravate their existing deficits. Merkel's government wants the International Monetary Fund to ensure that these states remain solvent. In order to cope with the "dramatic nature" of the crisis, global food production must also be increased -- especially in the world’s poorest countries. The German government is arguing that it would be prudent for rich countries to invest in agriculture in those countries.
This year alone, Merkel has announced, Germany will make $750 million available to help guarantee food supplies for these countries. In Tozako, she is expected to push for the creation of an agricultural task force at the UN level as well as a plan for further action.
A truck-driver's strike in Mumbai, India: Is everything that we said was right yesterday wrong today?
Berlin's proposals are in no way new or revolutionary. Nevertheless, they do represent ways in which the major industrial nations are actually pushing to deal with these major problems.
As with Heiligendamm one year ago, German Chancellor Merkel is also setting the tone at this G-8 summit. But will the club be able to undertake the appropriate measures? After all, hunger is just one aspect of this three-fold problem.
The aim is to undo a Gordion knot, preferably without violence. A hard line needs to be taken with the hedge funds, which have been recklessly enriching themselves; the markets need to be adjusted and regulated. But which rules should be applied? And which supervisory mechanisms can be justified without further spreading the damage?
The fact, for example, that the billion-strong Chinese population is eating more meat and consuming more gasoline than before and that demand is growing is the result of tremendous economic growth. The Middle Kingdom has allowed investors into its country and quality of life is rising -- it's a textbook example. The thousandth McDonald's franchise in China will soon erect its Golden Arches to the delight of the company’s US headquarters in Illinois.
Still, the recent boom in investment and consumption in Beijing and Shanghai has recently been identified as one of the causes of the growing global imbalance. One reason is that China is becoming a more formidable competitor in the scramble for finite resources like crude oil. The fact that the country is also eliminating farming land on a daily basis to make way for industry is also now being viewed critically because by contributing both to the reduction of its own farmlands and thus global agricultural areas, China must now consequently import corn, soy and wheat.
Indeed, China's long march from an agrarian country to the industrial power it is today is starting to show its dark side. Should this industrial development, once so praised, now be condemned?
In order to keep important economies on track, completely contradictory measures are being undertaken in the short-term. The Federal Reserve in Washington, for example, is lowering its leading interest rate in order to boost the US economy. By doing so, it willingly accepts the inflation that comes with it. At the same time, the European Central Bank does the opposite -- raising interest rates last Thursday to 4.25 percent in order to bring inflation (currently at 4 percent in the euro zone) under control.
In the meantime, the IMF is calling for more rigiorous financial market controls, more detailed bank reports and better risk management at financial institutions and ratings agencies. IMF chief Dominique Strauss-Kahn believes "the need for public intervention is becoming more evident."
For its part, as the world learned on Friday, the World Bank has been sitting on a report since April that concludes that farming of plants used for biofuels has had a far greater impact on increasing food prices than previously believed. But the report has been kept under wraps in deference to the US government, which has been decrying growing demand for food in China and India as the cause of soaring prices rather than demand for biofuels at American and European gas stations.
The large majority of experts is, at the very least, united in their belief that the boom times are over and that the reins need to be tightened, especially amongst speculators. Governments will have to take a stronger role in controlling the markets again. Now it's up to the G-8 representatives to draw reasonable conclusions and make reasonable decisions based on the Merkel paper and other analyses
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