No time for improvisation – Newspaper Kommersant No. 53 (7498) of 03/29/2023

Commodity price fluctuations that reduce food and energy security can seriously affect long-term economic growth, according to a new report prepared by the IMF for the G20 countries. Analysts record that in the current “alarming situation” state authorities often choose quite radical and at the same time illiterate measures to contain it. The fund urges countries to act in a consolidated manner so as not to exacerbate the ongoing fragmentation of the global economy and minimize the long-term adverse effects of commodity price volatility.

Although global food and energy prices continue to decline from their peaks in March last year, continued volatility in commodity prices still remains high and threatens global food and energy security, according to a new IMF report. The constant fluctuation of raw material prices leads, in particular, to higher prices for imported goods in domestic markets – and results in high inflation. As part of the fight against it, the G20 countries consistently tightened their monetary policy throughout 2022, the IMF reminds: interest rates in most countries (both developed and developing) grew quickly and synchronously. Some states, trying to support their own production, limited trade flows and developed a policy of protectionism. The IMF estimates that 17% of the measures implemented by the G20 countries were related to food prices, 48% were related to energy prices, and although some of these measures were canceled, they managed to seriously distort pricing, due to which the real contribution of raw materials to prices for food and gas is difficult to assess. In most countries, the desire to regulate the situation in the short term was in no way correlated not only with long-term, but also with medium-term goals, both global and national ones, analysts emphasize.

In the context of growing fragmentation of the economy, which IMF Managing Director Kristalina Georgieva once again recalled last week, the Fund is proposing measures to help countries get out of the current crisis. The key task on which the monetary policy of countries should be tied is to contain inflation. The IMF supports monetary policy, in which interest rates remain high until the decline in inflation becomes “clearly visible”, but other measures taken by governments raise questions and concerns among analysts. Thus, it is recommended to cancel those that are associated with limiting the impact of high world commodity prices on domestic food and energy prices – they can be replaced with more effective targeted support for the most vulnerable households. This will help reduce budgetary costs, which is especially important for economies with a high level of public debt. In addition, according to the IMF, an understanding of real prices will contribute to a faster return to relatively stable energy prices, on the one hand, and stimulate the development of alternative energy, on the other.

Some actions to overcome the crisis should be taken by countries “not just simultaneously, but jointly,” the IMF emphasizes. Among them, for example, ensuring unhindered international trade. The report cites a grain deal as an example of successful cooperation in this area. Recall, although the Russian side still has questions about the fulfillment of its conditions, the UN FAO in one of the latest reports reiterated that the “Black Sea Initiative” helped to contain grain prices and support developing countries (for more details, see Kommersant on March 10),— it was these arguments that were among the main ones on the eve of its extension on March 18.

Christina Borovikova