IMF | ukwatch.net

Empire of the Vanities

Ellie Keen — Sat, 05 Jul 2008 16:52:08 +0000

An outrageous story of greed, lust and structural adjustment

In the run up to the annual meet and greet by world leaders (and ensuing mass insurrection on the other side of the police lines) at the G8 summit in Hokkaido, Japan, it’s time we took another look at the Group of Eight (the USA, UK, Germany, Italy, France, Canada, Japan and Russia).

The G8 has been top of activists’ hit lists since the '90s when the leaders of the world lorded it over the planet, playing the world’s population like puppets on its strings through the WTO, the IMF and the World Bank, keeping the deck of international power and capital firmly stacked in favour of the rich.

The G8 is sometimes known as the G7 plus Russia - which has been the odd man out since it joined (due more to its ownership of thousands of nuclear weapons than its position on the global rich list). It is the one international forum that brings together the world’s trade and financial institutions. Simply put it’s the world’s biggest cartel.

Throughout the ‘90s, via innocuous sounding edicts such as the ‘Treaty Regarding Property Rights (TRIPS - keeping knowledge locked away amongst a handful of electronics and bio-tech firms) and ‘Structural Adjustment Policies’ (a euphemism for the looting of entire economies by modern day corporate privateers), the world was fully under the control of USA and its allies. The Soviet Union had been defeated by the power of Democracy Inc. and the US had no rivals anywhere. It was economic liberalism and US-style democracy all the way, with Slick Willy Clinton at the helm. It was the ‘End of History’, as triumphantly proclaimed by right wing thinkers.

Mission Accomplished?

But it all turned out to be a little premature. In the twilight months of the Bush administration, the G8 looks more like a global spectator than the sole player. Across the world countries that the West had gotten used to ordering around have begun to dance to their own tune. Even ‘reliable’ US allies like Saudi Arabia aren’t afraid to say ‘no’ to the US’s face (they recently they turned down a request to release more oil into the global markets despite Dubya’s personal intervention). Around the world the battle for drug patents has basically been won by the third world drugs producers (Brazil, Thailand, India) after the G8 realised that neither the western pharma companies or the WTO could stop them.

Latin America has now pretty much thrown out the IMF and their ilk, refusing to sup from the poisoned chalice of Structural Adjustment any more. During the ‘80s and ‘90s Argentina followed the dictates of the IMF & World Bank faithfully, only to be rewarded with the total collapse of their country’s economy - banks and factories closed overnight, and the Argentinian people responded with massive strikes and worker occupations of bankrupt factories (See SchNEWS 350). The elites of Argentina sensibly saw which way the wind was blowing and stepped aside to make way for the centre-left (and hardly revolutionary) government of Nestor Kirchner, who chucked out the IMF, WB, WTO and their advisors and refused to listen to the financial advisors who predicted doom and catastrophe. They were wrong, and since they stopped listening to the globalists both the Argentinean economy and average standard of living (not the same thing by the way) have gone up and up.

Since then two-thirds of Latin America has followed suit, and the hemisphere, once America’s back yard, has begun to make faltering steps towards integration - independent of the gringos - via organisations such as MERCOSUR and the (much more ambitious) Bolivaran Alernative for the Americans (ALBA).

But even this is just the tip of the iceberg. The economies of Asia, traditionally heavily dependent on the Americans, still remember the battering they took in the late 90s during the collapse of the ‘Asian bubble’. Since then they’ve made sure that there's plenty of extra dosh in their state coffers, ensuring that no matter how bad things get they don’t have to go down the path of short term gain for long term pain of IMF loans.

The lack of customers has effectively ruined the IMF. From a budget of over $100 billion four years ago, they can now barely scrape together $10 billion, most of which now goes to just two countries: Turkey and Pakistan. The organisation which once played the role of global loanshark is now feeling itself the pinch. Once Turkey pays off the last of its outstanding loans, the IMF will basically run out of fresh sources of cash from the world’s poor.

The net result of the failure of these US created and led institutions is that the G8 has lost control of global policy, in what even people inside the establishment are calling ‘a guerilla assault on the Washington Consensus.’ There’s still plenty of countries that are suffering horrendously from the same privatise-and-be-damned ideology of neoliberalism, but the tide is noticeably turning. States from China to Bolivia are turning state coffers over to internal development and poverty reduction, and in the process creating markets outside of the control of the G8.

Stuggling against the tide the G8 is bringing in some of the larger non-western countries into the fold, intending to co-opt them into selling out the rest of the developing nations and making it worth their while to play ball according to US/European rules. The so-called ‘Outreach Five (not the latest boy-band) consist of Brazil, China, India, Mexico and South Africa. Last year, whilst the black block was busy shutting the city down, the G8 nations were kick-starting the ‘Heiligendamm Process’ aimed to get these countries on board. The problem (from the G8’s perspective), is that these countries aren’t likely to leave it at the level of discussion. They’re demanding an ever larger slice of the pie.

End of an Error?

Just about the only place where you can see the aggressive introduction of old-school neoliberal policies on weaker nations is in the countries occupied as part of the ‘War on Terror’. In Afghanistan - and especially Iraq - entire state industries were privatised with a stroke of the American Proconsul’s pen. Water, health, education, industry were all declared open for the attentions of multinational corporations. The result has been as brutal as it has been predictable. Iraq’s public services (once the best in the Middle East) were destroyed almost overnight, spiralling its population further into poverty and easing Iraq’s population into armed resistance that has all but destroyed American plans for Iraq. It is to nobody’s surprise that the oil laws being drafted by the ‘sovereign’ state of Iraq allow for the return of all the major US oil companies, 36 years after they were kicked out by Ba’athist nationalism.

The Iraq war looks more like one last desperate throw of the dice by a visibly weakening empire. Bush’s legacy may well be that the United States is now seen as a fundamentally dangerous country that smaller nations can band together against. In the process this has created organisations such as the Shanghai Cooperation Organisation (China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan – See SchNEWS 551) which now holds joint military exercises “to fight back against new threats and challenges.” They also have an energy policy, the Asian Energy Security Grid, which has the potential to effectively counter US control the Middle-East’s oil.

With this shift in global political power the West is likely to get increasingly desperate as their economies go down the pan and oil resource pressures start to bite. The likely consequences may not be pretty as the US and its allies up their military spending and repression to counter the largely phantom threat of terrorism. But it's reassuring to SchNEWS that there are still those in the beast of the belly willing to counter it.

* More info on G8 in Japan: www.jca.apc.org/alt-g8/en and http://a.sanpal.co.jp/no-g8

Breaking the Chains

tim — Thu, 22 May 2008 23:31:47 +0000

In May 1998, 70,000 people from across Britain and the world formed a human chain around the G8 summit in Birmingham demanding an end to developing country debt.

It was a huge demonstration on an issue which had received little public attention, made all the more impressive by the huge range of people who showed up for the protest. They came from all walks of life and from all points on the political spectrum.

The issue of debt was catapulted to the top of the G8 agenda, leading over the years to a whole programme of debt cancellation for some of the poorest countries in the world. It was a turning point in the ability of ordinary people directly to pressure world financial institutions.

Ten years later, $88 billion of debt has been wiped out, but stringent economic conditions have been attached by international financial institutions the World Bank and IMF, including trade liberalisation and privatisation.

These conditions mean that debt cancellation in itself has become a form of domination to those countries participating. For example, the IMF refused to allow Zambia to employ more health-care workers, even when the Canadian government offered to foot the bill for five years. Malawi was similarly declared "off track" for daring to borrow money from domestic banks to deal with food shortages caused by a drought.

So harsh are many of these conditions that some countries, such as Kyrgyzstan, Bhutan, Laos and Sri Lanka, prefer not to enter the debt relief scheme.

And, although $88 billion has been cancelled, poor countries are still shelling out more than $100 million a day in debt payments on a total external debt stock of $2.7 trillion.

For every $1 that developing countries receive from rich countries in aid, they return $5 in debt repayments.

Based on an "ethical poverty line" estimating that everyone needs $3 per day to live on, we have calculated that around $400 billion of debt is still "unpayable" - governments cannot repay that debt while still providing basic services to their people and abiding by their human rights obligations.

The debt issue put global economic issues on the protest agenda in Britain for the first time. Since then, the WTO, World Bank, IMF and a host of other institutions have come under attack for the injustice and iniquities being visited on the developing world by globalisation. But debt remains key to understanding the globalisation process.

The genesis of the crisis lies in a world economy saturated by dollars in the 1960s and '70s, as the dollar replaced gold as the currency of exchange, and the world paid for a growing US budget deficit.

When oil-exporting countries in OPEC reduced oil supply in 1973 and oil prices soared, much of this profit was again deposited in dollars in Western banks. Banks, eager to reduce the supply of dollars, to prevent a collapse in the dollar price and to make profit, lent out more money to developing countries, many of which were newly liberated from colonialism. Little thought was given to how useful these loans were or to whom they were being lent.

Then, Ronald Reagan came to power in the US. Interest rates soared and the price of commodities, on which many poor countries depended, slumped. Poor countries earned less for their exports and paid more interest on their loans. They had to borrow more simply to repay the interest. The debt crisis was born.

Today, these debts are like a new form of empire and lie behind all manner of problems facing the world, from the food crisis to climate change.

Take Haiti, the poorest country in the western hemisphere, which, in recent weeks, has been gripped by violent protest against the rise in food prices.

Haiti still owes $1.3bn to international creditors like the World Bank. Some 40 per cent of this was run up by Papa Doc and Baby Doc, who stole parts of these loans for themselves and used the rest to repress the population. When the US flew Baby Doc out of Haiti in 1986, he is estimated to have taken $90m with him.

In the 1980s and '90s, like all indebted countries, Haiti had to follow structural adjustment policies designed by the World Bank and IMF, including cuts in government expenditure on health and education, privatisation and the removal of import controls. Indigenous Haitian industries were wiped out.

In 1995, the IMF forced Haiti to slash its rice tariff from 35 per cent to 3 per cent, enriching US business through soaring imports. A country that was self-sufficient in rice is now dependent on foreign imports at the mercy of global market prices.

Today, 80 per cent of Haiti's population live in poverty as defined by the World Bank, earning under $2 a day, and the average life expectancy is just 52 years. Yet Haiti failed to qualify for debt relief under the heavily indebted poor country initiative, which was established in 1996 to make the debts of the most severely indebted poor countries more sustainable.

It has recently been allowed to join, but it could spend several years jumping through economic hoops until its debt stock is cancelled. So, while some Haitians are reportedly eating dirt to quell their hunger, their government is forced to send almost $1m each week in debt service to wealthy banks supposedly established to fight poverty.

Study after study has shown that the debt which has been cancelled has translated to money being used to eradicate poverty.

In Uganda, for example, debt cancellation allowed the government to abolish school fees, leading to a doubling of enrolment and almost completely eliminating a pattern whereby girls were denied the opportunity to go to school because it was too expensive. It is estimated that nearly 20 million Africans are in school today largely because of savings afforded by debt cancellation.

This treatment must be extended to the remaining countries that require cancellation. On top of this, much of the remaining debt is unjust and should be cancelled outright on the grounds of illegitimacy.

The Suharto regime in Indonesia was reputed to be one of the most corrupt and brutal governments in modern times. Suharto stole up to $35bn from his country and killed up to 1 million people in political witch-hunts, yet the World Bank still lent it $30bn. Today, the Indonesian people continue to pay $2m every hour for their former dictator's debt, while 100 million Indonesians live in poverty.

In a similar way, the Democratic Republic of Congo continues to pay ex-dictator Mobutu's debt and South Africans continue to pay apartheid debt.

We call for an immediate end to unpayable and unjust debt, as well as root-and-branch reform of the international lending system in order to prevent a future debt crisis from occurring.

Ten years on, justice requires debt cancellation more urgently than ever.

IMF and OECD: Europe will be hit hard by US recession

tim — Mon, 21 Apr 2008 12:11:35 +0000

Reports issued by the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) warn that the United States is entering into a recession and reject all claims that Europe will be able to avoid severe economic dislocations as a result of America’s worsening situation.

The OECD meeting in Paris this week estimated that global losses from the US subprime mortgage crisis would surpass $440 billion. This was a sharp upward revision of its previous estimate of $200-300 billion.

Europe was more vulnerable than many thought to the global financial markets crisis, and would be especially so if trouble spread to the equity derivatives markets, officials said on April 15.

The OECD’s estimate of likely bank losses ranges from $350 billion to $420 billion, based on different assumptions as to the amount of distressed assets the banks will be able to recover. Assuming a 40 percent recovery rate, the OECD estimated losses in excess of $422 billion, of which $87 billion would be borne by US banks—$60 billion by commercial banks and the rest by investment banks.

These losses would ripple throughout the world. A third of the collateralised debt obligations (CDOs) and other financial instruments based on US residential mortgage-backed securities (RMBS) that are tied to sub-prime markets have moved offshore, mainly to Europe, the OECD said.

Forbes magazine, commenting on the OECD report, noted: “More dangerous still, it said, was another area so far not hit by the crisis that spilled out of the subprime market last August—capital-guaranteed financial products with exposure to equities and based on complex operations-replication programmes.”

The OECD stated that a $1 trillion equity derivatives market based on these products had developed between 2003 and the start of this year.

These instruments are the basis for many of the savings products offered by scores of retail banks and building societies. Europe is the dominant force in these Constant Proportion Portfolio Insurance (CPPI) products.

Thomas Weiser of the OECD said one of the big risks now was that economic growth could be hit by loss of capital at banks which played a key role in the wider economy. He called for massive injections of cash by the world’s central banks.

The IMF described last summer’s crisis in the financial markets as “the largest financial shock since the Great Depression.” It stated that the world’s bankers have created a pool of $1 trillion in toxic debt, twice the sum estimated in earlier projections.

The IMF’s conclusions are conservative, given such a description. It predicts that the US will go into a “mild recession” this year, with growth of around 0.5 percent, even after the economic stimulus package from the Bush administration and sweeping cuts in interest rates. It warns that there is a one-in-four chance of a full-blown global recession over the next 12 months. At best, it forecasts that world economic growth will fall to 3.7 percent for the next two years.

The IMF issued particular warnings that house price inflation in several European countries, including Britain and the Netherlands, where housing was said to be 30 percent overvalued, would make them more susceptible to the global downturn.

Britain has long been recognised as the European country most exposed to the economic turmoil unleashed in the United States and most heavily dependent on world financial markets. The IMF downwardly revised UK growth figures from the Treasury’s estimate of 2 percent this year and 2.5 percent next to 1.6 percent for both 2008 and 2009, the worst performance since the last recession ended in 1992.

After nationalising Northern Rock and injecting £50 billion of liquidity into the markets, the Brown government and the Bank of England plan to risk billions more, emulating the US Federal Reserve by taking over bad mortgage debts from banks in return for secure government bonds.

House prices in Britain already fell by 2.5 percent last month and are expected to decline by as much as 10 percent this year. Britain’s Royal Institution of Chartered Surveyors reports that the number of residential property agents saying prices declined exceeded those reporting gains by 78.5 percentage points in March, the worst since records began in 1978.

Britain is also labouring under staggering levels of personal, unsecured debt.

Total UK unsecured debt is £1.3 trillion—more than the rest of the European Union put together. Lorna Bourke, writing in Citywire, rejects claims that the present housing crisis is not as bad as that in the 1990s, when there were 78,000 repossessions a year, because unemployment is lower. She notes that “In the early nineties high unemployment created by the collapse of the debt market in 1987 and rising inflation meant homebuyers could not meet their mortgage obligations. Does that sound familiar?”

Credit card debt is much greater than it was in 1990. Financial analysts Mintel have reported that mortgage costs in Britain trebled during the past 10 years and now account for 25 percent of consumer spending, compared to 14 percent a decade earlier. The debt management company TDX Group estimates that the number of people struggling with debt is set to double during 2008. Around one million people have unsecured debts totalling £25 billion, averaging a staggering £25,000 each. Some 60 percent is owed on credit cards, with the rest mainly in personal loans.

London’s role as a financial centre will translate into a massive and relatively immediate impact from a global economic downturn. JPMorgan Chase analysts estimate that 40,000 City of London jobs could be lost as a result of the credit crunch, doubling the forecast by the Centre for Economics and Business Research.

Amongst the cuts already announced are 900 jobs at UBS, the European bank worst hit by the credit crunch, representing 10 percent of its London workforce. Merrill Lynch has warned of 450 imminent job losses in London.

Initial signs have emerged of a rise in unemployment from its present 1.6 million. Although the claimant count rate fell by 1,200 in March, the previous month’s 2,800 decline was revised to show a 600 increase—the first since September 2006.

Sterling has hit repeated all-time lows against the euro, which is presently worth more than 80 pence. The Bank of England has cut interest rates to 5 percent in an attempt to stimulate the release of credit by banks and building societies.

Europe’s economic powerhouse, Germany, does not at first appear to be in such a precarious position. Its exports continue to rise, even though the euro has dramatically risen in relation to the dollar.

But there are clear signs of troubles ahead, of which the €4.3 billion losses incurred by the Bavarian State Bank (BayernLB) from its dealings on the US subprime mortgage market, as well as the billions lost by SaxonyLB and WestLB, are only a foretaste. These banks, partly owned by the federal government and various German states, are to be bailed out to the tune of €30 billion—at taxpayer expense.

According to Der Spiegel, this is only the tip of the iceberg. It wrote on April 2, “The end of the crisis is not in sight: According to one study (by business advisory group Ernst and Young) German banks have hidden away rotten credits in their books—amounting to a total sum of €200 billion.”

This week, four leading German economic think tanks cut their forecasts for growth this year to 1.8 percent, down from the 2.2 percent they predicted last October, and projected even slower growth of 1.4 percent next year. The German government is less confident still, predicting growth of just 1.7 percent this year.

The Financial Times reported April 14 the views of several leading European industrialists that the worst effects of the credit crunch will not be felt for six months.

Peter Löscher, chief executive of Siemens, said, “I don’t see any impact at the moment. But I have no doubt it is coming, probably in 6 to 12 months’ time.” Wolfgang Reitzle, chief executive of the Linde industrial gases group, added, “It will happen with a time lag ... of maybe a year.... We are in the most critical business environment in decades.”

Gareth Williams of ING Financial Markets stated, “This [financial] quarter is going to be pretty horrible. But the worst will come in the fourth quarter.” Teun Draaisma of Morgan Stanley is forecasting a 16 percent drop in earnings over the year and an “earnings recession in Europe.”

Germany and Europe, with a monetary system based on stability and spending targets, are particularly fearful of the impact of runaway inflation and angry over how the US Federal Reserve is pumping money into the economy.

An article in Der Spiegel from April 14, entitled “The Madness of Ben Bernanke,” gave full vent to these tensions. Comparing Alan Greenspan and Ben Bernanke, the former and current heads of the Federal Reserve, to Siegfried and Roy, it described their “pumping easy credit into the system” as “a crazy policy that will worsen the crisis.... The aim is to keep on financing consumer spending and even to stimulate it further—for reasons of patriotism. There’s a word for this policy—madness.”

The strong euro has not so far done major damage to the European economy, particularly because it has reduced the cost of dollar-priced oil imports. But companies reliant on dollar sales such as Airbus have been hit and a “pain threshold” will eventually be breached.

More long term, the divergence of policy between the Fed and the European Central Bank (ECB), which has kept interest rates steady, cannot but destabilise the global economy. The dollar’s decline also means that its repayment of debts has less value, punishing US creditors in Europe and elsewhere.

Inflation is a major problem for Europe, now running at a record 3.6 percent in the euro zone. The ECB has set its main policy rate at 4 percent, but fears that inflation will make this unsustainable. Food and energy price rises alone added 1.6 percentage points to March’s inflation figures.

Jorg Kramer, chief economist at Commerzbank AG in Frankfurt, told the International Herald Tribune, “The Fed is not so interested in inflation, currently. They have a bigger problem: recession.” But he warned that “someday, this crisis will be over” and inflation will necessitate drastic action.

The Fed’s benchmark rate is currently at 2.25 percent and a further cut is expected. Krämer said he expected Bernanke to cut the fed funds rate to 1.25 percent by June.

The “fight against inflation” is always a codeword for moves to cut the wages of the working class. German government and bank officials are complaining of recent high wage settlements being unsustainable, including a meagre 8 percent agreement in Germany’s chemical sector that is staged over two years and barely matches the official inflation rate.

In Britain, Prime Minister Gordon Brown has imposed a 2.5 percent pay ceiling throughout the public sector, already provoking strikes involving hundreds of thousands of civil servants and teachers.

Draconian attacks are being prepared in France, where dissatisfaction with the country’s economic performance in ruling circles is most pronounced. Prime Minister Francois Fillon has cut the official forecast for gross domestic product (GDP) growth in France in 2008 to 1.7-2.0 percent from a previous estimate of “around 2.0 percent.” The right-wing administration of Nicolas Sarkozy has announced public spending cuts of €6-7 billion annually to run for a three-year period in 2009-2011. But with a public deficit running at €1.2 trillion in 2007, far greater attacks must be anticipated.

Amid mounting food crisis, governments fear revolution of the hungry

tim — Tue, 15 Apr 2008 13:30:27 +0000

Last week’s meetings in Washington of the International Monetary Fund, the World Bank and the Group of Seven were convened in the shadow of the worst financial crisis since the Great Depression of the 1930s. While Wall Street’s turmoil and the deepening credit crunch dominated discussions, leaders of the global financial institutions were forced to take note of the growing global food emergency, warning of the threat of widespread hunger and already emerging political instability.

The seven major capitalist powers in the G-7—the US, Japan, Germany, Britain, France, Italy and Canada—made virtually no mention of the global food crisis, referring in only one brief reference to the risk of “high oil and commodity prices.” Instead, they focused on the stability of the financial markets, promising measures to shore up investor confidence.

The IMF and World Bank, however, felt compelled to acknowledge the emerging worldwide catastrophe, in part because while these agencies are instruments of the main imperialist powers, they must posture as responsive to the needs of all countries. It would be too revealing for them to focus exclusively on the fate of major finance houses, while ignoring the fact that hundreds of millions across the planet are being threatened with starvation.

More decisive, however, is the realization that this crisis confronting the most impoverished countries and poorest sections of the world’s population is threatening to unleash a revolution of the hungry that could topple governments across large parts of the world.

Even as the IMF and World Bank were meeting, the government of Haiti was forced out in a no-confidence vote passed in response to several days of demonstrations and protests against rising food prices and hunger that swept all the country’s major cities. Clashes between protesters and United Nations occupation troops left at least five people dead and scores wounded and saw crowds attempt to storm the presidential palace.

Food prices in Haiti had risen on average by 40 percent in less than a year, with the cost of staples such as rice doubling.

The same essential story has been repeated in country after country, from Africa to the Middle East, south Asia and Latin America.

* In Bangladesh, on Saturday, some 20,000 textile workers took to the streets to denounce soaring food prices and demand higher wages. The price of rice in the country has doubled over the past year, threatening the workers, who earn a monthly salary of just $25, with hunger. Scores were injured in clashes with police, who used gunfire in an attempt to disperse the crowds.

* In Egypt, protests by workers over food prices rocked the textile center of Mahalla al-Kobra, north of Cairo, for two days last week, with two people shot dead by security forces. Hundreds were arrested, and the government sent plainclothes police into the factories to force workers to work. Food prices in Egypt have risen by 40 percent in the past year.

* Unions and shopkeepers staged a two-day general strike in the West African nation of Burkina Faso last week to protest high prices. The strikers demanded a “significant and effective” cut in the price of rice and other stables.

* Several hundred demonstrators marched on parliament in Phnom Penh, Cambodia April 6 to protest food price hikes. The cost of a kilogram of rice has risen to $1 in a country where the average income is barely 50 cents a day. Police armed with cattle prods broke up the protest.

* Earlier this month, in the Ivory Coast, thousands marched on the home of President Laurent Gbagbo, chanting “we are hungry” and “life is too expensive, you are going to kill us.” The country has seen food prices soar by between 30 percent and 60 percent from one week to the next. Police broke up the protest with tear gas and batons, injuring over a dozen people.

Similar demonstrations, strikes and clashes have taken place in Bolivia, Peru, Mexico, Indonesia, the Philippines, Pakistan, Uzbekistan, Thailand, Yemen, Ethiopia, and throughout most of sub-Saharan Africa.

With terrifying rapidity, hundreds of millions of people all over the planet have been confronted with the inability to obtain the basic necessities of life. The global capitalist market is dictating intolerable conditions for masses of people on every continent, provoking a worldwide eruption of class struggle.

It is the concern that this struggle will spin out of control that found expression in the statements of concern issued by the IMF and World Bank leaders together with finance ministers and central bank chiefs gathered in Washington.

“If food prices go on as they are today, then the consequences on the population in a large set of countries, including Africa, but not only Africa, will be terrible. Hundreds of thousands of people will be starving. Children will suffer from malnutrition, with consequences all of their lives,” Dominique Strauss-Kahn, the International Monetary Fund managing director, told an April 12 press conference in Washington.

He warned that governments “will see what they have done totally destroyed and their legitimacy facing the population destroyed also.” Strauss-Kahn added: “So it’s not only a humanitarian question. It is not only an economic question. It is also a democratic question. Those kind of questions sometimes end into war.”

“In just two months,” World Bank President Robert Zoellick said in an opening speech to the meeting of finance ministers, “rice prices have skyrocketed to near historical levels, rising by around 75 percent globally and more in some markets, with more likely to come.

“In Bangladesh, a 2-kilogram bag of rice,” he said, holding up such a bag, “now consumes about half of the daily income of a poor family.”

He added that wheat prices had increased by 120 percent, more than doubling the cost of a loaf of bread.

“If food prices go on as they are today, then the consequences on the population in a large set of countries ... will be terrible,” said Zoellick.

The “international community will also need to take urgent and concerted action in order to avoid the larger political and security implications of this growing crisis,” United Nations Secretary-General Ban Ki-moon told international finance and trade officials at a UN meeting following the weekend talks in Washington.

The United Nations Special Rapporteur on the Right to Food Jean Ziegler offered among the bleakest prognoses for the continuing crisis. “We are heading for a very long period of rioting, conflicts (and) waves of uncontrollable regional instability marked by the despair of the most vulnerable populations,” he told the French daily Liberation Monday.

He pointed out that, even before the present crisis, hunger claimed the life of a child under the age of 10 every 5 seconds, and 854 million people in the world were seriously undernourished. What was now posed, Ziegler warned, is “an imminent massacre.”

While finance ministers from the US and Europe indicated agreement that the crisis was severe, there was no indication that the major capitalist powers have any plan to mount the kind of effort needed to stave off a humanitarian catastrophe.

The White House announced Monday that it is releasing $200 million in emergency food aid in response to a World Bank appeal for funding to make up for the shortfall in food assistance caused by soaring prices. The amount—roughly what the US spends in half a day on its war to conquer Iraq—is less than a drop in the bucket in the face of the looming global catastrophe.

In the end, the crisis is a product of the capitalist market itself. It is not a matter of too many mouths to feed or too little food to supply human needs. Food is available, but the market has driven prices to a level out of reach for a growing portion of humanity in the most oppressed countries, and at the same effectively slashing the living standards of workers in the more advanced capitalist world.

This process is driven by a number of factors, including climatic ones, such as the impact of a draught in Australia on wheat production and a flood in Bangladesh on rice. There is also the rise in demand, particularly from growing middle class layers in India and China.

But more fundamental is the effect of speculation in food as a commodity—like oil and precious metals. It has become a haven for financial investors fleeing from paper assets tainted by subprime mortgages and other toxic credit products. The influx of buyers drives prices and makes food unaffordable for the world’s poor.

“Fund money flowing into agriculture has boosted prices,” Standard Chartered Bank food commodities analyst Abah Ofon told the media. “It’s fashionable. This is the year of agricultural commodities.”

Speculation in food as a commodity has been sharply accelerated by the decline in the value of the dollar, soaring oil prices and the promotion of biofuel production in the US and elsewhere. This attempt to generate a new investment “bubble,” based on the fraud that somehow turning corn into ethanol represents a “green” alternative to fossil fuels, has driven up the price not only of corn, but other grains, while diverting a major share of food production into a more profitable venture.

Subsidized by the US government, American farmers have diverted fully 30 percent of corn production into the ethanol scheme, driving up the cost of other, more expensive, grains that are being bought as substitutes for animal feed.

“When a biofuel policy is launched in the United States, thanks to subsidies of $6 billion, of bio-fuels that drains 138 million tons of corn from the market, the foundation is laid for a crime against humanity to satisfy one’s own thirst for fuel,” the UN Special Rapporteur on the Right to Food Jean Ziegler told Liberation.

This assessment was repeated by India’s finance minister, Palaniappan Chidambaram, who declared, “When millions of people are going hungry, it’s a crime against humanity that food should be diverted to biofuels.”

US officials dismissed the charges, insisting that biofuel production was only one factor among many and indicating that there is no plan to change Washington’s policy.

Country after country has been left vulnerable to the global commodity price surge by “free market” policies implemented at the demands of Washington and the international financial agencies such as the IMF and World Bank over the past quarter century.

The closer integration of the economies of the oppressed countries into the world market has been accompanied by their increasing concentration on specialized export crops, while tariff barriers have been demolished, opening the way to subsidized agricultural staples from the more advanced countries capturing local markets.

Now, attempts by individual national governments to remedy the problem within their own borders—often taking the form of commodity producers erecting barriers on exports—have served to exacerbate the crisis internationally, driving food prices even higher, while triggering protests by farmers in countries stretching from India to Argentina. According to a recent World Bank survey, at least 58 countries have implemented at least some form of food-trade protectionism.

What is emerging in the crisis over food prices is a tumultuous manifestation of a breakdown of the global capitalist order. The catastrophe facing billions of people around the globe cannot be resolved within the confines of a system based on private profit and the nation state.

The revolutionary implications of this crisis are beginning to dawn on elements within the ruling establishment itself. In an article published Monday, the influential US magazine Time noted: “The idea of the starving masses driven by their desperation to take to the streets and overthrow the ancien regime has seemed impossibly quaint since capitalism triumphed so decisively in the Cold War... And yet, the headlines of the past month suggest that skyrocketing food prices are threatening the stability of a growing number of governments around the world.”