World Bank warns Latam against food price controls

OTTAWA, June 20 (Reuters) - Latin American countries should think twice about imposing wide-ranging price controls on groceries to combat rising food price inflation, a policy that can backfire at a later date, the World Bank said on Friday.

Mexico became the latest country to seek relief for its citizens by subsidizing food, announcing on Wednesday it would freeze prices on some 150 food products.

Brazil, Venezuela, Mexico and and others also subsidize fuel prices. Others in the region have taken or are studying other mechanisms to protect the poor, many of whom can no longer afford to feed their families amid skyrocketing global energy and food prices.

"We're not against subsidies, but subsidies need to be targeted and effective, efficient and affordable," said Pamela Cox, the World Bank's vice-president for Latin America and the Caribbean.

"It's very hard to do that with generalized price controls in any economy," she told reporters during a visit to Canada.

Cox said that food price inflation was a "very big issue" in nearly every country in the region and that some countries would struggle as a result. Overall, the World Bank sees economic growth in Latin America around 4.5 percent this year.

But that growth could come under threat in the longer term if governments adopt the wrong anti-inflationary policies now, she warned.

Some types of subsidies can become too costly for governments to maintain but difficult to abandon, even when the inflation threat dissipates, and steal finances away from much-needed investments like infrastructure, she said.

"If countries are making a trade-off between short term consumption subsidies now versus the longer term investment that you need, we would be concerned that, if subsidies remain and if they eat up large amounts of the budget, it could have a larger term impact on growth in the region," she said.

Cox advocated more reliance on government programs that give cash to the poorest segments of the population, rather than blanket price subsidies. (Reporting by Louise Egan; editing by Rob Wilson)