Finance : Inflation Increase In Belgium

KIEV, May 19 (Reuters) – Belgian inflation could hit 3.5 percent in 2008, Finance Minister Didier Reynders said on Monday, citing rising prices at home and across the euro zone as his number one concern.

“The first concern for the moment is inflation,” Reynders said in an interview with Reuters on the sidelines of the European Bank for Reconstruction and Development’s annual meeting.

“In Belgium we have 3.5 percent (inflation) as forecast for this year and we are an advance indicator for the euro zone. We are quite concerned about Belgian inflation.”

The Belgian budget was built on a government forecast for inflation of 3 percent. The Belgian central bank has forecast inflation for the year at 2.9 percent.

Euro zone finance ministers have expressed their concern in recent days about rising inflation, fuelled by food and energy prices.

Euro zone inflation was running at an annual clip of 3.3 percent in April.

But data last week from Germany showing Europe’s biggest economy expanded at its fastest pace in 12 years in the first quarter of 2008 has encouraged some optimism about the economic outlook.

“There have been some good figures in Europe for the first quarter — in Germany, Belgium, France,” Reynders said.

German deputy finance minister Thomas Mirow said earlier on Monday in an interview with Reuters that German growth was likely to be more than 2 percent this year, above previous forecasts of 1.7 percent.

Reynders said the global problem of rising food prices and particularly the impact on poorer citizens was likely to eat into government budgets.

“We will have in many different countries in the coming months revisions of budget targets for 2008.”

CURRENCY RATES

He said the euro/dollar exchange rate, which hit a record high of $1.6018 on April 22 and poses a threat to euro zone exports, could not be tackled without a change to China’s currency regime.

“We need to have more open and frank discussions with China about the necessity… to go to a more flexible situation,” Reynders said.

The U.S. has said the yuan <CNY=> needs to continue rising. Manufacturers complain China’s currency is so undervalued it gives Chinese exporters an unfair advantage.

Reynders said the global credit crunch, while showing signs of improvement in the United States, was likely to have more impact on the euro zone economy in the second half, as the crisis spreads to banks across the globe.

“We are at the end of the first round, we will see a second round of effects in some financial institutions,” he said.

“We have seen a distribution of risk from the U.S. to the entire world.”

Reynders was in Kiev as Belgium’s representative of the EBRD, which on Monday voted in a new president, German deputy finance minister Thomas Mirow.

Several of its members expressed the problems that rising food prices were causing to their economies.

Reynders said multilateral lenders needed to do more to boost food production.

“We need to take some measures to help people with very low incomes, we need to focus activities on agriculture.”

Belgium agreed along with the other shareholder members of the EBRD — drawn from 61 countries together with the European Union and its European Investment Bank lending arm — to review whether Turkey should join as a recipient of funds from the eastern European development bank.

The EBRD was set up in 1991 to help the former communist countries of central and eastern Europe develop market economies, mainly via private sector investment.

The Czech Republic has already stopped receiving funds from the EBRD, and seven other countries which joined the EU in 2004 are due to graduate in 2010.

Reynders echoed a U.S. call for a second look at the bank’s future, as fewer countries need its help.

“We need to prepare a review about the role and direction of the EBRD, it is important to have better collaboration with the EIB (European Investment Bank),” Reynders said.

There have been suggestions that the EBRD could be shut down or merged with the EIB.