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Asia Fears Lost Decade, Unrest from Food Price Shock

Reuters
Sunday, 4 May 2008 | 11:09 PM ET

Soaring food prices may throw millions of Asians back into poverty, undo a decade of gains
and stoke civil unrest, regional leaders said as they urged a boost to agricultural production to meet rising demand.

Asia -- home to two thirds of the world's poor -- risks rising social tension as a doubling of wheat and rice prices in the last year has slammed people who spend more than half their income on food, Japanese Finance Minister Fukushiro Nukaga said during the Asian Development Bank's annual meeting.

If food prices rise 20 percent, 100 million poor people across Asia could be forced back into extreme poverty, warned Indian Finance Secretary D. Subba Rao.

"In many countries that will mean the undoing of gains in poverty reduction achieved in the past decade of growth," Rao told the ADB's meeting in Madrid.

The ADB estimates that about 20 percent of people in Asia are presently living on less than $1 a day -- the international definition of extreme poverty -- compared to more than 60 percent who did so in the mid-1960s.

A 43 percent rise in global food prices in the year to March sparked violent protests in Cameroon and Burkina Faso as well as rallies in Indonesia following reports of starvation deaths.

Many governments have introduced food subsidies or export restrictions to counter rising costs, but they have only exacerbated price rises on global markets, Nukaga said. "Those hardest hit are the poorest segments of the population, especially the urban poor," Nukaga told delegates.

"It will have a negative impact on their living standards and their nutrition, a situation that may lead to social unrest and distrust," he added.

The ADB estimates the very poorest people in the Asia Pacific region spend 60 percent of their income on food and a further 15 percent on fuel -- the key basic commodities of life which have seen their prices rise relentlessly in the last year.

Poverty Time Bomb

Japan is one of 67 ADB member economies gathered in Spain to discuss measures to counter severe weather and rising demand that have ended decades of cheap food in developing nations.

The Asia-Pacific has three times the population of Europe -- around 1.5 billion people -- living on less than $2 a day.

Rice is a staple food in most Asian nations and any shortage threatens instability, making governments extremely sensitive to its price.

But the steadily rising cost of providing fuel and food subsidies harms budget finances, puts at risk the macroeconomic stability international investors demand in return for buying government bonds and, in some cases, curbs the access nations have to global financial markets.

Indonesia, for example, has pledged to reduce its budget deficit by cutting fuel subsidies ahead of planned global bond sales this year worth around $12 billion.

"We have to reduce the budget deficit for investor confidence," Anggito Abimanyu, a senior Indonesian fiscal policy official told ADB delegates on Sunday, saying that fuel and electricity subsidies of $20.5 billion this year hampered efforts to raise money on international capital markets.

Decade-high inflation, driven by food and raw materials costs, has topped the agenda of the ADB's annual meeting.

The Manila-based multilateral lender has had to defend itself from U.S. criticism it is focused on middle income countries and has neglected Asia's rural and urban poor.

Smaller countries such as Cambodia urged the ADB to focus its lending on the poorest Asian states.

The Bank on Saturday called for immediate action from global governments to combat soaring food prices and twinned it with a pledge of fresh financial aid to help feed the Asia Pacific region's poorest nations.

Leading members Japan, China and India backed long-term ADB strategy to provide low-cost credit and technical assistance to raise agricultural productivity.

The United Nations said the rural poor represented a political time-bomb for Asia that could only be defused by higher agricultural investment and better technology.

"Unless you can look at the plight of the poorest farmers in the region and how they are going to add to the numbers of very poor, very deprived people, we are unnecessarily going to create a problem that will erupt into a political crisis," said Rajendra Pachauri, head of the U.N. panel on climate change.

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