IMF`s Koehler demands rich nations end agriculture subsidies

International Monetary Fund chief Horst Koehler kicked off a tour of Africa on Monday, telling the world`s richest nations to practice what they preach and open their markets to agricultural products from impoverished African nations.

At the end of a day crammed with meetings with President Benjamin Mkapa, local politicians, business leaders and aid workers, the IMF managing director said that if the United States, Europe and Japan maintain their current trade policies, Africa will remain mired in poverty despite progress on economic reforms.

"The lesson learned from these meetings today is - that it is no longer possible to sustain the agricultural policy in the advanced countries, an agricultural policy which de facto means closed markets, policies in the advanced world that amount to $300 billion of trade-distorting policies," Koehler told a news briefing.

"If this is not going to change, all our efforts against poverty will remain not satisfactory," he added.

Koehler`s comments came at the start of a five-day African tour in one of the world`s poorest nations, which is suffering from depressed commodity prices, a desperately inadequate infrastructure and an HIV/AIDS epidemic that afflicts about 15 per cent of the population.

Throughout the day Koehler listened to suggestions from a cross section of society ranging from cabinet ministers to women`s rights advocates about how to best tailor poverty-reduction programs for countries like Tanzania.

Several people complained that the 80 per cent of Tanzania`s population that live in rural areas rely on agriculture to eke out their meager living but cannot sell their products to the world`s most lucrative markets. After one European Union official spoke, Koehler scorned him, saying, "You did not touch on agriculture, I`m sure on purpose.

"There will not be a breakthrough against poverty if there is not more rapid progress in the world in the agricultural area," he said, citing Europe, Japan and the United States as the biggest culprits.

While there has been some loosening of European and US restrictions recently for basic commodities, tariffs on more profitable processed foods remain high. African nations can sell primary goods, like cocoa beans, to Europe without impediment but still face stiff tariffs on sales of finished foods such as cocoa butter or chocolate.

In Tanzania, agriculture accounts for half of economic output and 85 per cent of exports, employing 82 per cent of the work force. With annual per capita income of just $240, more than half of its 32 million population live in abject poverty.

The $300 billion of trade subsidies rich nations pay to their farmers is six times more than the $50 billion that advanced nations set aside for assistance to help poor nations like Tanzania tackle poverty.

Koehler has increased pressure on rich countries to tear down trade barriers after donor nations pledged to increase aid at a recent summit in Mexico in an effort to halve the number of people living in poverty by 2015. But he said those promises would be largely wasted if trade barriers were left intact.

Tanzania launched an economic reform program after being a closed socialist economy and has benefited greatly from IMF largess. The East African nation won $3 billion in debt relief last year, cutting its debt servicing costs by 54 percent, and also secured a poverty reduction loan two years ago worth almost $170 million. That aid came in return for progress on stabilizing the economy, cutting inflation and making inroads on corruption.

In return, Tanzania has promised to press ahead with reforms and pledged to spend the money saved from debt relief on education and health programs.

Despite economic progress and solid growth of about five per cent for the past two years, the country still seems unlikely to cut its poverty rate in half any time soon. Since 1990, the number of people in Tanzania living in poverty has actually risen marginally.

But Koehler insisted the war against poverty could be won if economic growth were boosted by seven per cent annually, which he said would require a better financial and banking system and foreign direct investment, among other things.

Some at the meetings called for even more debt relief and possibly debt cancellation. But Koehler said debt cancellation would harm Tanzania`s long-term prospects by cutting off access to global financial markets, which would be needed if it were ever to become a middle-income country.

Koehler also signed an agreement with Mkapa to set up a new center in Dar es Salaam to offer technical help and training to Tanzania, Kenya, Ethiopia, Rwanda and Uganda. The centre, to open by September, will be the first of five in Africa to offer free advice to governments that request help developing their economic expertise.

After the signing, Koehler was questioned by reporters about Tanzania`s $40 million purchase of an air traffic control system, which critics have said makes a mockery of the money granted by donors in debt relief and low-interest loans.

Koehler refused to get dragged into the controversy, saying, "We should look forward, not back." But Mkapa insisted he had a right to spend revenues as he sees fit, saying, "That kind of prioritization is the preserve of an independent government."