[stop-imf] IMF continues poverty offensive, while defending structural adjustment

[Robert Weissman]

http://www.imf.org/external/np/speeches/2000/031400.htm

	Making Globalization Work for All
Remarks by Mr. Eduardo Aninat
Deputy Managing Director of the International Monetary Fund
At the German Foundation for International Development
Berlin, March 14, 2000
Ladies and gentlemen, I am honored to join you in your reflections on
economic policy and poverty reduction, and thankful for the opportunity to
comment on the role of the IMF in social issues and how this will evolve.
Our dialogue today is one of a number of exchanges taking place on this
topic, exchanges that are being increasingly enriched by the voices of a
broad cross-section of humanity, including those of the poor themselves.
>From Copenhagen to Libreville, from Beijing to Cancun, we are hearing
calls to dramatically reduce poverty and make globalization work for all.1
Yes, global per capita output has risen by 90 percent since 1970. But in
Africa, the level of real per capita income today is lower than 30 years
ago, while in the Middle East and Latin America, the real income of
developing countries has risen but at a slower pace than in industrial
countries. Overall, the number of very poorthose living at less than $1
per dayhas stayed roughly the same over the past decade; only limited
progress has been made in reducing the share of the world population
living in poverty.
What can we do to alleviate this unnecessary human suffering and end this
squandering of human potential? A new spirit seems to be alive in the
international community. African leaders meeting in Libreville in January
committed themselves to confront poverty head-on, with the help of their
development partners. In fact I must lend testimonyhaving been an active
participant in the African summitthat I had not seen before that date such
a strong and deeply felt commitment of African leaders to embrace change.
Their resolution echoed pledges made at UN conferences, notably the 1995
Copenhagen pledge to reduce by half the proportion of people living in
extreme poverty by 2015. 
Fortunately, the world economic outlook offers a hospitable backdrop.
After two years of slowdown related to the crises in Asia and other
emerging market countries, worldwide growth will now approach 4 percent
this year and could well continue at around that rate into the coming
years. 
Moreover, we have a promising confluence of events.

*	The revolution in communications is changing the way we interact
and do business, opening up unprecedented opportunities and boosting
growth of factor productivity and incomes; 
*	The increasing globalization of markets offers a very potent force
to raise living standards through quickening the pace of investment, job
creation, and growth; and 
*	By the end of the 1990s we witnessed a widespread convergence and
meeting of minds on the virtuous connections between democracy and market
forces, and between political freedom and economic freedom, giving us a
much-needed basis for economic and human development in more sustainable
ways.


We must take advantage of these favorable developments to craft economic
and social policies that are mutually reinforcing. In this, all of us have
a role to play.
In my remarks today, I would like to focus on the IMF's role and how we
can all work together to once and for all deliver on our pledges.
The IMF's role
So how does the IMF fit into the picture? A key element of the IMF's
mandate, as laid out in the Articles of Agreement, is to contribute to the
promotion and maintenance of high levels of employment and real income. To
this end, the IMF promotes conditions for what is called "high-quality
growth." This concept was explained last month in Bangkok by then-IMF
Managing Director Michel Camdessus at UNCTAD X who defined it as:

*	growth that can be sustained over time without causing domestic
and external financial imbalances; 
*	growth that is people-centeredthat is accompanied by adequate
human capital investment, particularly in education and health, to take
full advantage of the tremendous leverage of human development on growth
and welfare; 
*	growth that, to be sustainable, is based on a continuous effort
for more equity, poverty alleviation, and empowerment of poor people; and 
*	growth that promotes protection of the environment, and respect
for national and local cultural values.


We have long known that sound macroeconomic policiespolicies that promote
low inflation, realistic and stable exchange rates, and reasonable fiscal
burdensall do favor growth. We have also long known that sound
macroeconomic policies and growth-enhancing structural reforms are pro
poor since growth is the single most important source of poverty reduction
and, also, an important source of financing for targeted social
expenditure. For instance, in Chile during the 1990s, four-fifths of the
achieved 50% increase in real per capita social expenditure was accounted
for by accelerated growth2. 
In addition, low inflation enhances income equality and benefits directly
and in particular the poor. Inflation is, in fact, the most unfair of
taxes as it falls heavily on those deprived of bargaining powers and
formal compensation mechanisms such as indexation. 
At this stage, many developing countries have successfully tackled the
"first generation" reforms, aimed at establishing macroeconomic stability
and rekindling growth. These include removing distortions in exchange rate
systems; opening up trade and payments systems; removing price controls;
and liberalizing production and marketing systems, especially in
agriculture. 
However, despite some progress most developing countries have not yet made
enough headway with "second generation" reforms, aimed at truly
positioning countries to take better advantage of globalization. These
include reforming the financial sector, privatizing state enterprises,
improving the quality and delivery of social services, rethinking the role
of the state, and establishing good governance (including transparency and
accountability).
One reason for this delay in "second generation" reforms now appears to be
the concomitant need to tackle head on their social implications. What is
the new element here? There is the increasing acceptance that causation
between growth and poverty reduction also runs in the other direction.
That is, poverty reduction and social equity feed back into growth.
Without poverty reduction, it is difficult to sustain sound macroeconomic
policies and structural reforms long enough to eradicate inflation and
increase the rate of growththere is unlikely to be the political will to
persevere. Also, policies that help the poor directly, such as investing
in primary education and basic health, boost their potential to contribute
to collective wealth and to benefit from faster economic growth itself.
Thus, what is needed is a virtuous cycle of poverty alleviation, sustained
growth, and higher saving, investment, and productivity. All this does not
happen overnight, of course. But it can happen in a reasonably limited
period of time. If I might be permitted to offer another example from my
own country: in about a decade, poverty in Chile has fallen drastically,
from 45 percent of the population in 1987 to 23 percent in 1998. This was
achieved in an environment of strong economic growth and price
stabilitywhich led to real wage growth of more than 3% per year and the
rapid expansion of employment. Social outlays were increased and carefully
targeted, and protected and inefficient sectors opened up to competition
and mobility.
Social safety nets and public social expenditures
But while essential growth-oriented reforms generally benefit the poor,
some poor and vulnerable groups can be hurt in the transition process. To
guard against this, the IMF works hand-in-hand with policymakers to ensure
that cost-effective social safety nets are in place. Indeed, these are
needed to protect against temporary surges in unemployment and income
loss, whether it be from the transition effects of these reforms, cyclical
downturn, or even crisis. The importance of this was brought home by the
1997-98 financial crises, which saw many of the affected economies
unprepared to deal with the social fallout. With encouragement from the
Bretton Woods institutions, Indonesia adopted a rice subsidy program and a
public works program, and Korea broadened and strengthened its
unemployment insurancea critical prerequisite for labor market
flexibility. But valuable time was lost as policymakers scrambled to
identify those hardest hit there, and to put together the institutions
needed to implement adequate social safety nets.
What steps can be taken to avoid a repeat of this situation? A recent
review of IMF involvement in social issues suggests:3

*	more up front analysis of the likely social impact of key
macroeconomic and structural reform measuresthis needs to be done before
the adjustment and reform programs are being formulated; 
*	introducing appropriate social policy instruments before the onset
of crises and with economic reforms; and 
*	adequate follow-up of performance and monitoring of safety nets.


Along this line, Mexico, for example, has launched an innovative
anti-poverty initiative called PROGRESA, the integrated Program for
Education, Health, and Nutrition. It represents a significant break from
the past in two key ways. First, it targets rural areas, instead of
focusing merely on urban areas. Second, it makes cash transferswhich are
conditional upon school attendance and preventive health care
guidelinesinstead of relying on the often cumbersome direct provision of
goods by public sector entities. Early studies suggest that PROGRESA is
helping to boost household consumption where needed and encouraging demand
for schooling and health services from the targeted population. 
A second area where the IMF works with policymakers to cushion the impact
of reforms is protecting public social expenditures, particularly for
health, education and housing. Indeed, education has proved to be the
single most important factor explaining differences in long-term growth
performance, poverty reduction, and social equity across countries and
regions. What is the IMF's record in this area? A recent survey of 66
countries from 1985-98 found that education and health care spending rose
by an average of 2.1 percent a year in real per capita terms. Moreover,
these increases have, on average, gone hand-in-hand with improvements in
the most critical social indicators. 
Some added IMF initiatives 
But, of course, much more needs to be done, especially in the poorest
countries, which is why two new initiatives are now well under way. First,
the IMF, together with the World Bank, agreed at its September 1999 Annual
Meetings to put poverty reduction at the heart of the programs supported
by the two institutions in the 75 poorest member countries. The key
innovation in this new approach is to derive programs from a comprehensive
strategy for poverty reduction drawn up by governments, with the
involvement of a broad range of key stakeholders, including civil society
and the donor community. 
The strategy, which is laid out in the so-called Poverty Reduction
Strategy Paper (PRSP), provides a focused policy agenda and promotes
government accountability by fostering a national dialogue on economic and
social policies. There is added hope that this will result in programs
that command a greater degree of public support than in the pastthe key
here being the emphasis on "ownership" of the major economic choices by
civil society. The PRSP will identify those priorities for public action
that can achieve the greatest impact on poverty reduction, with concrete
monitorable goals. It also addresses the critical and complex issues
related to enhancing good governance and supporting transparency in
policymaking. Moreover, since this process now forms the basis for the
financial support of the IMF and World Bank (and, we hope, other creditors
and donors) it should help achieve better coordination of external
assistance (aid) and more effective use of debt relief. 
What does this mean in practice for the division of labor between the Bank
and the IMF? The Bankalong with the regional development banks and UN
agencieswill take the lead on discussions with authorities on the design
of policies aimed at poverty reduction. The IMF will seek to ensure that
these social and sectoral programs aimed at poverty reduction can be
accommodated and coherently financed within a supportive,
growth-enhancing, low inflation, macroeconomic and budgetary framework. 
This does not at all mean that the IMF will now determine, for example,
how many clinics a government should build, or what student/teacher ratio
is appropriate for a country's schools. But the IMF will help governments
focus their attention on key spending priorities and, where appropriate,
make the case for greater financial assistance. 
To further help the heavily indebted poor countries (HIPCs), several of
which are in Africa, the international community has agreed to provide
deeper and faster debt relief, which is expected to be gradually available
to more countries (36 instead of 29). The external debt burdens of the
beneficiary countries, in aggregate, will be cut by more than half,
reducing their debt to sustainable levels and freeing up more resources
for the fight for poverty reduction. This is an opportunity that no
eligible country can afford to miss!
But the poorest countries cannot rebuild themselves in an environment
where the richest countries give with one hand while holding back with the
other. The industrial countries must move quickly to eliminate all trade
barriers to the exports of goods and services of the poorest countries.
They must also join others to launch a new round of multilateral trade
negotiations, with better trade (and growth) opportunities for developing
countries into the medium term. They should boost aid flows from their
current low levels, make medium-term commitments to aid provision, channel
help to countries pursuing the right policies, encourage long-term flows
of private capital, and ensure that debt relief is truly additional in the
net financing sense. 
* * * *
In closing, let me express a final remark on the present momentum. As the
international community works together to craft sound economic and social
policies we must remain aware that we are being graced with a rare window
of opportunity to really make a difference now. Of course, all the
initiatives and lofty pledges are bound to raise hopes and expectations,
and if they are not to be dashed, policymakers will have to act quickly
and decisively.
First, they need to keep the momentum for change alive. This means truly
delivering on the promised international initiatives. And then reinforcing
and broadening the resultsfor example by continuing to open up the global
trading system. Complementary efforts will be clearly needed at the
national level, with pro-poor policies well implemented and sustained in
time.
Second, we need to curtail the notion of our abstract, pervasive, and
totally anonymous notion of the state and the public sector, and make it
more attuned to the needs of civil society, NGOs, and society generally.
But we must also maintain stability and order to assure the predictability
and the certainty produced by the rules of the game in a democracy. Thus,
policymakers need to be prepared to manage the tensions and contradictions
that will inevitably arise, at the regional and local levels, from
structural reforms and the ongoing process of globalization. This means,
at a minimum, good governance, supplying basic public social goods, and
fostering solidarity. The latter implies a sense of moral justice. One
that ensures that disparities are reduced, and those hardest hit
compensated by the society at large. 
There is a bias for hope: together, we can and will make globalization
work for the poor, so as to channel the conflicts, the tensions, and the
hard impacts on dispossessed and marginalized groupings (amongst them the
poor) in modern societies. After all, history has proven it is not the
elites or the powerful that bear the main costs of disarray, lack of
stability, inflation, unemployment, and social shock.

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1Refers to The Copenhagen Declaration on Social Development and Program of
Action at the World Summit for Social Development Linkages, March 1995;
Libreville Declaration at the Conclusion of the Summit of African Heads of
State and Government on the Economic and Social Agenda for Africa at the
Dawn of the Third Millennium, Jan. 2000; Beijing Declaration and Platform
for Action at the Fourth World Conference on Women, Sept.1995; and Joint
Ministerial Statement III Western Hemisphere Finance Ministers Meeting,
February 2000, Cancun.
2See Aninat et.al., "Addressing Social Equity Issues in Policymaking:
Lessons from the Chilean Experience", in Tanzi et. al. Eds., "Economic
Policy and Equity" (IMF, 1999)
3See Social Issues in IMF-Supported Programs, 2000, IMF Occasional Paper
No. 191.