The Bolivian government will today distribute $100 million in loans to small farmers producing beef, poultry and grains, as part of a drive to combat rising food prices. This is the latest example of drastic measures by governments across the continent to tame the inflationary tiger, which is roaring louder than at any time since the early 1990s. Food and fuel prices are particularly volatile.
La Paz hopes that its measures will help to bring annualised inflation – which reached 31.4% in February and fell to 11.6% in March – down to single figures.
Today’s loans are the first to be disbursed via the new National Agency to Promote Food Production, which is managing a $600 million fund, to foster domestic food output and rebuild productive infrastructure damaged by recent flooding.
Bolivia has also prohibited the export of foodstuffs, including beef, chicken corn and soy-based cooking oil.
Planning Minister Graciela Toro said that there are some economic sectors, such as the soy industry, where production is concentrated and a handful of companies are speculating to consumers’ detriment.
Finance minister Luis Arce told Emerging Markets in Miami that the food production loan programme is “part of a long-term solution to meet demand and keep prices down”. Measures implemented so far “have already had an effect”, and the government believes it will now be able to keep inflation in single digits.
La Paz is not the only government to resort to stern measures. In Peru, president Alan Garcia’s government in recent weeks eliminated or slashed tariffs on more than 500 items, mostly food products, and lowered the tax on fuels, to control inflation.
Food accounts for 47.5% of the items in the basket Peru uses to measure inflation – only the Philippines is higher at 49% – so the increases in prices for wheat, soybeans and corn, have contributed to a jump in inflation, which was 1.04% in March.
“Inflation is not a cancer, but it is a serious problem,” Julio Velarde, president of Peru’s Central Bank, told Emerging Markets in Miami. “Most troubling is that this is an imported inflation because of food and fuel prices.”
Velarde anticipates that inflation, annualized at 5.5%, should begin to decline mid-year and approach the bank’s annual target of 3% for 2008. The bank will decide next week whether to raise interest rates, currently 5.25%, and the reserve level in dollars, now 40% of total deposits.
The bank’s board meets April 10. Analysts expect the bank to raise the rates, the third time this year, as result of Peru receiving an investment grade ranking from Fitch last week. The move has sparked a round of investment, which, in turn, could create inflationary pressures.
Venezuela, where inflation at 24% is the highest in the region, has also been implementing policies to curb food shortages and minimise other consumer prices. This has included questionable moves such as nationalizing slaughterhouses and, last week, the cement industry.
As of April, Venezuela has also adopted a new way to measure inflation, tracking prices in 15 cities, instead of just Caracas. New items, including mobile phones and DVDs, are being adding new items to the basket of products measures.
“We believe the results will be seen in the second semester”, Venezuelan deputy finance minister Gustavo Hernandez said.