IMF calls for farm subsidy cuts

by Andrew Walker BBC Economics correspondent in Burkina Faso

This is one in a series of pieces from Africa, where Andrew Walker is travelling with IMF head Horst Koehler.

The International Monetary Fund boss Horst Koehler has come to Burkina Faso - the 'land of honest people,' as the name means in one of the indigenous languages.

It is no longer possible to separate the fate of rich and poor countries

Hans Koehler, IMF managing director

He has taken the opportunity to renew his call for the rich countries to be more consistent in their trade policies, reduce their farm subsidies, and improve trade opportunities for developing nations.

Mr Koehler said that the $2bn (£1.2bn) the US alone spends on cotton subsidies is worth more than the total cotton production of sub-Saharan Africa.

He was speaking in Ougadougou, the capital of this West African nation, the fourth stop on his five-country tour of the continent.

He also slammed the European Union for spending 2bn euro on subsidising sugar, another important crop for Burkina Faso. He described the situation as perverse.

Warm welcome

No surprise then that these views have got a warm welcome in Burkina Faso.

Selestin Tiendrebeogo, the Director General of the Association of Burkinabe Textile Companies, blames the subsidies for driving down world cotton prices.

And he says that under market-oriented economic programmes agreed with institutions such as the IMF, countries like Burkina Faso can't level the playing field with similar subsidies of their own.

Mr Koehler - like James Wolfensohn, boss of the IMF's sister organisation the World Bank - has become increasingly assertive in criticising the trade policies of the rich world.

He is visiting Africa to look at progress in reducing poverty under IMF lending and economic policy programmes.

Drive for growth

To make a real dent in poverty, he thinks African economies need to grow at 6% to 8% a year - compared to less than 4% in the last five years.

Trade is a major vehicle for change, he said.

Burkina Faso is one of the poorest countries in West Africa, and, like much of the continent, its economy is dominated by agriculture.

Mr Koehler wants it to have better opportunities to sell its crops abroad.

Economists say that Burkina Faso has the capacity to make very rapid increases in its cotton production if US subsidies were reined in.

Burkina Faso has been hit hard by weak commodity markets, with cotton prices falling particularly sharply.

That was one factor in the IMF and World Bank's decision two weeks ago to grant Burkina Faso additional debt relief.

Diversification

Mr Koehler also wants developing nations to diversify their economies, so that they are not so exposed to commodity price fluctuations.

One obvious place to start is processing the commodities - converting raw cotton into textiles and clothing - locally.

And here's another issue for Mr Koehler to bang the trade policy drum on behalf of developing nations.

They usually face higher tariffs when they export processed goods to the rich countries than when they sell the raw commodities, a phenomenon known as tariff escalation.

Here again, Mr Koehler wants the rich countries to change their ways.

Mr Koehler says it is no longer possible to separate the fate of rich and poor countries.

If the poor have no hope, it will backfire on the industrial world, he says.

The prime responsibility is on the developing countries themselves to adopt policies that encourage business.

But the rich must respond, he says with changes in trade policy and with more aid.

If they achieved the United Nations target of an aid budget equivalent to 0.7% of their economies, development spending would treble from its current level of around $50bn a year.