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Fernandez Attacks Energy Speculation

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Dominican President argues for regulating food and energy price speculation.

BY ALEJANDRA LABANCA

President Leonel Fernandez of the
Dominican Republic called for a new global consensus to guarantee the stability of food and energy prices.

Speaking at the Latin Trade Symposium in Miami on Friday, Fernandez blamed market speculation for the hike in energy and food prices which pushed 150 million people into poverty in 2009. “The sharp spike in food prices has raised the number of starving people in the world beyond the 1 billion people threshold,” he said.

In 2008 the cost of food for countries with low income and a deficit of food went up 35 percent compared to 2006, the president said.

According to Fernandez, between 2006 and 2008 the price of rice rose by 127 percent, that of wheat by 136 percent, that of corn by 125 percent, that of soybeans by 107 percent, that of milk by more than 80 percent, that of beef by more than 60 percent and that of chicken by more than 50 percent. Increases have continued since then, he added.

“All of this amounts to an indescribable tragedy. It generates anguish, disquiet and despair among people and nations and contributes gradually to breed a state of widespread discontent which tends to turn into a threat to social peace and stability,” he said.

Food and energy prices have also experienced a high degree of volatility in the last few years.

Fernandez minimized the influence of causes usually mentioned to explain the recent upward trend in commodities prices such as climate change, the use of crops to make biofuels, a reduction in the availability of storage facilities for these products or the increase in world population.

“We will not dispute the veracity of each of the aspects previously mentioned,” he said, but “there is an essential aspect which international analysts and the media have practically ignored or have paid very little attention to… speculation, one of the factors with the greatest bearing on the current international financial system which [according to] prestigious experts and renowned scholars has affected the price of food products between 30 and 40 percent.”

Fernandez said speculation is rampant thanks to the transformation of futures markets and the excessive deregulation of what he called “this modern world of a casino economy.”

“In lieu of physical, tangible products, as the tradition has held, now the prevailing manner of conducting operations is through the purchase and sale of [a piece of] paper,” he said.  He warned that, despite the world crisis, “the conditions that made the oil and food price increases possible… have not disappeared and we are at risk of seeing this repeated in a not too distant future.”

Fernandez said new increases would be a source of social tension and political instability. “Averting repeated future increases in commodity products traded in international futures markets requires a new global consensus to guarantee the stability of prices,” he said.

He commended UN Secretary General Ban Ki-Moon for taking a leadership role in the G8 and G20 meetings, where he stressed the negative consequences of speculation in the food markets and pushed for final declarations that would express the need to make commodities derivatives markets more transparent and to subject them to increased regulation and oversight. Fernandez also praised measures taken by the international community to address the food crisis, such as the establishment of a UN High-Level Task Force on the Global Security Crisis, which produced the Comprehensive Framework for Action (CFA), a resolution that called for a strengthening of international oversight over the food and futures markets to enhance their transparency.

“Promoting, drafting and applying regulation and oversight mechanisms at the national and international levels, as are identified in the UN and G20 framework, is of the essence to defend the positive role of basic commodities futures markets,” he concluded. 

      

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