 |
EURASIANET.ORG: CENTRAL ASIA AND CAUCASUS: GOVERNMENTS RELY ON OLD-STYLE METHODS TO CONTAIN INFLATION
Soaring inflation rates across the former Soviet Union are causing food price to spiral upward.
The International Monetary Fund (IMF) and other international financial institutions have cautioned that despite impressive economic growth in CIS member states, the threats to social stability posed by galloping inflation remain strong, and that these dangers should be addressed via stringent fiscal policies. But many governments are resorting to Soviet-style fixes on foodstuffs in the face of consumer concern over rising costs.
In many Central Asian and Caucasus states, the inflation rate has hit double digits. In Kyrgyzstan, for example, it reached 20.1 percent during the January-October period in 2007, the National Statistics Committee announced. The figures for Uzbekistan are unreliable; officials claim the country has a 2.9 percent inflation rate, but the IMF believes it will stand at 12.2 percent, according to the Fund’s Regional Economic Outlook for the Middle East and Central Asia. In Kazakhstan, inflation was 13.4 percent for the first 10 months of 2007, according to the State Statistics Agency.
The story is similar in the Caucasus. In Georgia, the country’s statistics agency reported inflation at 11.2 percent. It was roughly the same in Azerbaijan -- 11 percent.
Governments have worked hard to forestall public concern over the rising cost of everyday items, particularly flour and bread, and have sought to reassure shoppers that goods will remain affordable.
Both Kyrgyzstan and Tajikistan rely on wheat imports from Kazakhstan, which has lately found it more lucrative to export surpluses to China and India. Reports from Tajikistan, where inflation is running at 14.9 percent, say the price of a 50 kilogram bag of flour has risen by 20 percent over the last year. The Chairman of the National Bank of Tajikistan, Murodali Alimardonov, recently made public comments aimed at preventing panic buying. “Because of the increase in the prices of flour and wheat, rumors started spreading among people that their prices will continue to increase,” Alimardonov said. “These unfounded rumors caused an unjustified fuss among people. So I state with full responsibility that no shortage of flour and wheat is expected in Tajikistan.”
In Uzbekistan, which is scheduled to hold a presidential election on December 23, regional media outlets have reported that the price of flour has skyrocketed in recent months, rising between 10 percent and 37 percent depending on quality. Scattered small-scale protests and panic buying have been reported throughout the region.
In Kyrgyzstan, a Food Security Council was established following a spike in bread prices over the summer, when monthly grain imports from Kazakhstan grew too expensive. In October, Kyrgyz President Kurmanbek Bakiyev characterized price stabilization measures in the country as “insufficient and inefficient.” He went on to urge officials to improve procurement and distribution operations, and cautioned against “any possible or actual mishandling, or improper distribution of public reserves.”
According to the United Nation’s Food and Agriculture Organization, grain prices have increased as a result of ever-increasing demand. “[Grain] supplies are much tighter than in recent years while demand is rising for food, as well as feed and industrial use. Stocks, which were already low at the start of the season, are likely to remain equally low because global cereal production may only be sufficient to meet expected world utilization,” says the latest FAO’s Food Outlook Report. And although cereal production is up slightly in 2007, it is still less than what was produced in 2005.
Ali Gurkhan, editor of the latest FAO report, said a “supply shock” coupled with shrinking stockpiles contributed to rising prices this year. He added that changing consumption habits, caused by economic growth in developing countries, had created greater demand for grain, dairy and meat products across the board.
Meanwhile, some economists describe the mechanisms used to stabilize prices as “unsophisticated” responses to long-term supply problems. Such responses include the creation of trade barriers. Russia, for instance, has simply frozen food prices and propped up domestic supply with a 10 percent export tariff on wheat and a 30 percent export tariff on barley. Similarly in Azerbaijan -- where the price of a ton of grain now stands at $315, whereas in June it cost $210 -- a VAT on grain imports was scraped in September to keep the price of bread steady.
Vladimir Kvint, an American economist and specialist in emerging markets, said that governments have made a series of “tactical mistakes” that have exacerbated the situation. “For example, Russia relies too much on imported food, 35 percent of Russian food is imported, yet 27 percent of its labor force is employed in the agricultural sector. I wouldn’t call it a crisis just yet. But, because this is an election year, there are more rubles in the economy, some 30 percent more. This will increase demand, and the government will have to make good on election promises, so prices are likely to increase,” he said.
Though the poorer segments of Kazakhstani society have experienced hardships, the country’s agricultural sector has generally benefited from the rising demand for wheat and flour exports. Over the first two-thirds of 2007, the country saw flour exports rise roughly 50 percent, to almost 1 million metric tons. Despite the benefit it has derived from rising prices, Kazakhstan is a strong proponent of coordinating CIS food-security policies.
“On the one hand, the rise in prices for agricultural products is a problem, but on the other hand, this is a great opportunity for Kazakhstan, with 43 percent of the population living in rural areas,” the Kazinform news agency quoted Prime Minister Karim Masimov as saying following a CIS meeting November 22. [For background see the Eurasia Insight archive].
Deirdre TYNAN
Eurasianet.org, December 6, 2007
|
|
|
