UNDP's Dervis sounds warning on global inflation

United Nations Development Program (UNDP) head and former Economy Minister Kemal Dervis yesterday cautioned that developing countries like Turkey could face severe problems in controlling inflation and money supply due to the expansionary economic policies of developed countries seeking to protect themselves. "This may cause us a lot of headaches in the next two or three years," he told Britain's Financial Times. Dervis, who helped Turkey's economy emerge from its 2001 crisis with a successful economic stabilization program, also said that the urban poor in developing countries were already facing an "inflation tsunami" from soaring food and energy prices, making them up to 25 percent poorer in less than a year. Stressing that developed economies are facing the new phenomenon of rising commodity prices at a time of recession, or at least slowdown, and that liquidity in the system is looking for an outflow, he said, "But how can you tighten your monetary policy in an emerging market when the Fed (US Federal Reserve) is lowering interest rates? Countries like Turkey and Brazil, which have been fighting inflation for years, are now facing a real inflationary danger that does not result from a macroeconomic cycle but from the need to bail out the financial sector." He added, "We did not see this coming. We are all a little bit guilty. A year ago very few people were warning about this, although the trends were already there."