Fearing unrest, bank steps in to help Central America

WASHINGTON — Trying to get ahead of potential unrest because of rising food and energy prices, the Inter-American Development Bank on Tuesday announced a new $500 million line of credit for six Central American nations and the Dominican Republic.

The announcement came on the heels of several emergency measures taken by Mexico and other Latin American nations to ensure that anger over rising food prices does not spill onto streets and perhaps send a new wave of immigrants northward.

Pointing to what he said was a 68 percent rise in global food prices in the first three months of 2008, IDB President Luis Alberto Moreno said that the price of rice doubled, corn was up 128 percent and wheat jumped 163 percent.

Not all of these higher prices have been passed through to the consumer, but in Central America and other poor regions most all family income is spent on food. In Honduras, 84 percent of the family budget is spent on food, the IDB said.

Higher prices literally mean the consumption of less food. And history shows a hungry mob is an angry mob.

"The price shocks are not transmitted immediately, so that's why it is so important that we act now," Moreno said Tuesday in a breakfast interview with several reporters. He added that "we are reacting at a time when there's (still) time to act."

Roughly 17 million Central Americans live below the poverty line, and the IDB, Latin America's development bank, fears that number could swell by another 9 million if food prices continue climbing.

The IDB money will be used by governments for food aid and to boost rural zones where farming is possible but where most men have left to find work in cities or abroad.

"Our countries need a big investment in social and agricultural projects, but our governments can't afford that," Guillermo Zuniga, Costa Rica's finance minister, said in a news conference.

Violence over rising food costs has exploded into the streets of Egypt, Haiti and Bangladesh this year, and there are reasons to worry of more problems in the traditional U.S. backyard.

First, the Central American nations of Guatemala, Honduras, El Salvador, Panama, Nicaragua and Costa Rica are net importers of oil, diesel and gasoline. So is the Dominican Republic. That means the price of transporting people and goods, or to fuel tractors, is going skyward. A barrel of oil is now selling at about $130, up threefold since 2004.

Several Central American economies also depend greatly on earnings sent home from guest workers and undocumented laborers in the United States, but these payments are shrinking as the U.S. economy teeters near recession.

Put these factors together, and Central America could soon become a political tinderbox that sends even more illegal immigrants to the United States.

"It might be ... the spark that lights the dry grass," said Santiago Levy, an IDB vice president and former Mexican deputy finance minister.

In the 1990s, Levy helped develop "conditional cash transfer" programs that are now popular throughout the Americas and even in New York City. The programs aim to bolster anti-poverty aid by giving government checks to citizens with conditions attached, such as requiring poor children to attend school or having an entire family get regular medical checkups to prevent the spread of disease.

Mexican President Felipe Calderon announced over the weekend a series of measures aimed at easing the blow of higher food prices. He waived import duties on wheat, beans, rice and certain fertilizers. He halved the tariff on imported powdered milk and offered the poorest Mexicans a temporary food subsidy.

On Monday, the Dominican Republic announced it would spend $40 million to subsidize the price of rice, milk and chicken over the next three months. This is about what the Caribbean nation has already spent this year on similar efforts, according to Spanish news agency EFE. Similarly, Nicaragua has waived its import duties on beans.

In an important move to ease fears of food shortages, Japan agreed late last week to release 200,000 tons of rice from its reserves to help out the nearby Philippines. A large rice producer, Japan traditionally imports rice to keep in reserve in case of hard times and arguably to protect its own growers from competition.

Japan's reserves total about 1.5 million tons of imported rice, a negative for global prices now that demand is strong and supplies are tight.

Federica Narancio of the McClatchy Washington Bureau contributed to this article.