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Double Jeopardy: Responding to high food and fuel prices
G8 Hokkaido-Toyako Summit
2 July 2008
World Bank

Acknowledgements: FANRPAN acknowledges the World Bank website as the source of this report: www.worldbank.org


Introduction

For the first time since 1973, the world is being hit by a combination of record oil and food prices. Such record oil and food prices are a destabilizing element for the global economy because of their potentially severe growth, inflation and distributional effects. In terms of their impact on income distribution, inflation and poverty, high food prices are of greater and more immediate concern than high fuel prices. However, the challenge of crafting appropriate policy responses to the food crisis is made much harder in a context of rising oil prices and ensuing fiscal and balance of payments pressures. The next few months will be critical for stemming this joint crisis and avoiding any potential ripple effects.

Compared to the earlier price increase in oil that occurred between 2003 and 2005, developing countries are more vulnerable to the recent increases. The terms-of-trade effects of the combined food and energy price increases since January 2007 are in excess of 10% of GDP in more than 15 countries and the room to maneuver on the macroeconomic front is limited. Continued high and volatile food and fuel prices will aggravate inflationary pressures, constrain fiscal expenditures for vulnerable groups and further endanger the poor. As underscored by G8 Finance Ministers, the high food and energy prices pose a serious challenge to global economic stability and growth, and risk reversing years of progress in many poor countries.

The International Community is facing an unprecedented test: the question is whether we can act swiftly enough to help those most in need. For globalization to work fully, it must be inclusive and sustainable. This means acting now in the interests of the poor who are most affected by this double jeopardy of food and fuel crisis, and who are least able to help themselves. The G8 Hokkaido-Toyako Summit has the potential to spark accelerated action. We call on it to do so.

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