Inflation controllers

Saturday, 7 May 2011 00:00 -     - {{hitsCtrl.values.hits}}

INFLATION is a common problem in many countries, particularly those in South Asia. With large populations and high-growth economies that could lead to commodity bubbles and larger capital flows, the challenge for keeping basic essentials affordable has literally become a fight to the death.

As the UN Economic and Social Survey of Asia and the Pacific 2011 (ESCAP) – which was launched in Sri Lanka on Thursday – warns, broad-based policies and reforms need to be implemented for growth momentum to continue.

The report warns that if these high oil and food prices continue, it will reduce up to 1% of GDP. This means that around 42 million extra people will become poor. This is in addition to 19 million who became poverty-stricken in 2010. Such a situation could seriously delay the achievement of the Millennium Development Goals and make the challenges of development more serious.

The report advises that governments should maintain buffer stocks of essential foods, strengthen the public distribution system and social protection for the poor. Focus on agriculture and regional food banks as well as increased trade between south-south partners was recommended.

Stronger regulation of the commodity markets in the region would assist to control food prices, a problem that Sri Lanka continuously grapples with. In fact inflation is almost reaching double digit figures despite the lapse of only four months in 2011. Speeding up the formulation of the South Asia Association for Regional Cooperation (SAARC) food bank would give relief to millions of poor in the region as well as giving an option to beleaguered governments.

Protecting farmers and ensuring that their produce gains a fair price as well as reducing post-harvest losses is of incredible importance. Recently the dumping of 70,000 kg of vegetables hit the front page of newspapers and prompted the President to order building of cool rooms. However, it is clear that these plans will not be implemented for many months resulting in thousands of kilos being wasted on a daily basis.  As the report points out upgrading distribution systems is of paramount importance to ensure that goods reach people at the right time.  

Globally the ESCAP report calls on the G20 countries to regulate commodity markets to prevent sudden price fluctuations and discipline the conversion of food to bio-fuels. It calls on oil producing countries to benchmark prices. The medium term challenge is to boost demand within developing countries and this can be done by encouraging the poor to consume more, thus increasing their standard of living as well. Governments should establish institutions and infrastructure for regional trade and lower trade costs.

Preferential trade agreements need to promote trade across sub-regions and not just within them says the report pointing out that even though around 170 bilateral and multilateral trade agreements exist in the Asia Pacific region few encourage trade across sub-regions. Moreover, ensuring that income from exports filters down to grass root level and promotes basic standards of living are also aspects that needs to be considered.

A larger focus on IT is necessary not only to make the work force more competent, but also because it would break the barriers to information. Countries such as China are using technology to increase their agriculture production and the report encourages other countries to follow suit. These are some points that the policy makers, private sector and Government can focus on to minimise a malady that is crippling growth.