Dominique Strauss-Kahn NO ONE FEELS THE PAIN OF SOARING COMMODITY prices more keenly than the poor, who spend half or more of their income on food. With no relief from high food and fuel prices in sight, feeding the hungry today is clearly the first priority. Many low and middle-income countries are now at a tipping point. Their challenge is ours: it is to ensure adequate food supplies while preserving the gains in poverty reduction, achieved in recent years through faster growth, low inflation, and better economic management. The impact of the rising cost of living is felt everywhere. In the developed world, people worry mostly about oil, now trading above $135 a barrel. But in low and middle-income countries, the rising cost of food is the top concern. In developing countries, 40% of people are already undernourished, and that share could rise rapidly. Global food inflation almost doubled last year, and it is getting worse. Balance of payments pressures are also severe: if oil prices stay at current levels and food prices continue to rise, some 56 low-income countries stand to lose reserves amounting to more than half a month of their imports. This places huge pressure on the world's poorest countries. And these pressures are unlikely to abate much in the foreseeable future. Supply remains very tight, especially for oil, and fast-growing low and middle-income countries will continue to drive strong demand for commodities. As for food, supplies have fallen, leaving the world ever more at the mercy of the weather. Moreover, rising biofuel production in the US and the EU will continue to add to price pressures. So how should the world deal with this dual price shock? Every country is different and exact policy prescriptions will vary considerably. But the universal challenge for all low and middle-income countries will be to find ways to feed the hungry without also feeding inflation or running out of foreign exchange. What emerges is a picture of difficult trade-offs. From an economic point of view, it makes sense to pass on the full price increases to consumers because this will encourage producers to increase supply and consumers to reduce demand. At the same time, the poor, who bear the brunt of the price shock, must be protected. The best way to do this is to develop a well-targeted social safety net. Countries also have to be mindful of the macroeconomic consequences of their actions. A critical challenge is to contain inflation. Some countries may need to tighten monetary policy to avoid higher food and fuel prices producing more general price increases. Some net food and fuel importers are likely to need a real exchange rate depreciation. Fiscal policy also needs to reflect each country's economic situation. Some countries can finance measures to help the poor by loosening their fiscal positions, while others may need to either raise revenues or cut spending elsewhere. The need for support from the international community is most pressing in countries that find it difficult to accommodate higher spending. Trade is another critical issue: global food markets must be kept open. Some key food producers have recently resorted to export restrictions. While the urge to secure the national food supply is understandable, such policies export hunger and make the global problem worse by discouraging production. Therefore, export taxes and bans should be removed so that producers and consumers can adjust to higher prices. Tariff reductions can help by reducing trade distortions and mitigating price increases. In this context, a successful conclusion to the Doha Round, including on agriculture, is absolutely essential. The IMF is already providing policy advice and financial assistance to help vulnerable countries respond effectively to this crisis. But a broad multilateral approach is key. The global community must ensure that food and finance reaches the most affected countries as quickly as possible. We need to recognise the severity of the challenge now facing so many countries and help them implement relief measures that do not jeopardise economic stability. Their challenge is ours. (The author is Managing Director, IMF)