[stop-imf] IMF explains its role in poverty reduction

[Robert Weissman]

This is one of the clearer explanations, from the IMF's point of view, of
the new and improved, kinder, gentler IMF.

Robert Weissman
Essential Information			|   Internet:	rob@essential.org

>From http://www.imf.org/external/np/speeches/2000/061500.htm

Strengthening the Focus on Poverty Reduction

Remarks by Mr. Eduardo Aninat
Deputy Managing Director of the International Monetary Fund

At the Development Policy Forum
Berlin, June 15, 2000

Ladies and gentlemen, I am honored to open this international policy
dialogue on poverty reduction and debt relief. We all know the problem,
one of the greatest faced by mankind today: 1.2billion people worldwide
living on less than $1 per day, a number that has held roughly unchanged
over the past decade and threatens to rise in the years ahead. What we
need is a solution, and here, perhaps we can draw inspiration from the
famous inventor, Benjamin Franklin. For it was on this day, in 1752, that
he is said to have tossed a kite into the sky with a key tied to its
string and proved that lightning contained electricity. It was a small
step, achieved with simple means, but it was catalytic enough so as to
transform our very existence. 
So what step can we, the international community, take to transform the
existence of the world's poor? I would like to suggest that perhaps we,
together, have started that step by last September adopting a new approach
to poverty reductionone that builds on decisive good practices in
countries and in donor agencies. The emphasis now will be more on the poor
countries themselves taking the lead in setting their own priorities and
defining their own programs through participatory processes, with the full
involvement of the international community.
What is really different in this approach? Why should it deliver better
results than old, past efforts? And how will debt relief tie in? I will
try to answer these questions in my remarks today, but first a little
background on why we are even headed down this road.
Origin of stronger poverty focus
Quite frankly, the old approaches were not yielding the hoped-for results
in most parts of the world, including Africa and much of Asia. In1995, the
international community formally pledged to reduce by half the proportion
of people living in extreme poverty by2015, achieve universal primary
education in all countries, reduce infant mortality rates, and improve a
number of other social and environmental indicators. But a few years
later, despite important progress on many fronts, it was clear that the
chances of meeting these pledges were becoming slimmer. The regional
variations have been great, with East Asia and the Pacific ahead of
schedule, particularly on poverty reduction, but the other regions behind
schedule.
Another influence was the greater recognition of the mutually reinforcing
nature of growth and poverty reduction. We had long known that sound
macroeconomic policies favor growth. We had also long known that sound
macroeconomic policies and growth-enhancing structural reforms favor the
poor, since growth is the single most important source of poverty
reduction and an important source of financing for targeted social
outlays. For instance, in Chile during the1990s, four-fifths of the
achieved 50percent increase in real per capita social expenditure emanated
from accelerated growth.
But there now is greater acceptance that causation also runs in the other
direction. Poverty reduction and social equity feed back positively into
growth. Without poverty reduction, it is difficult to sustain sound macro
policies and structural reforms long enough to eradicate inflation and
increase the growth ratethere is unlikely to be the political support to
persevere. Indeed, for countries with a high proportion of the population
in poverty, it is difficult to increase growth without tackling poverty
directly. Also, policies that help the poor directly, such as investing in
primary education and basic health, boost their potential to contribute to
output and help speed up economic growth itself.
Yet another influence was the new lessons that we were learning on what
works best when countries make poverty reduction a central objective of
development efforts. We learned that there is no unique formula for
success. But embracing the following actions are more likely to lead to
better results: analyzing poverty and working on its determinants,
choosing policy actions with the highest poverty-reducing impact,
exercising good governance, taking ownership of policy programs, and using
participatory processes to set and actively monitor results.
What is different?
For these reasons, the international community last year adopted a new
approach to poverty reduction. The key innovation is deriving programs
from comprehensive strategies for poverty reduction drawn up by individual
governments, with the involvement of a broad range of key stakeholders,
including civil society and the donor community. The strategy for each
country, which is to be laid out in its so-called Poverty Reduction
Strategy Paper (PRSP), will provide a focused policy agenda and promote
government accountability by fostering a national dialogue on economic and
social policies.
Here I would like to emphasize that this is a collaborative effort of the
international community, with each partner playing a vital role. The World
Bank, along with the regional development banks and UN agencies, takes the
lead on discussions with authorities on the design of policies aimed at
poverty reductionincluding social safety nets to protect the poor and
vulnerable. The IMF will do its part by supporting economic policies that
provide a conducive environment for sustainable growth.
So what is new in this approach, a question raised by many in the
development community? Let me answer from the IMF's perspective, focusing
on five key elements.
First, we have changed the objectives of the IMF's concessional lending
facility to explicitly include poverty reduction. For that reason, we
reshaped the facility, previously known as ESAF, into the Poverty
Reduction and Growth Facility (PRGF). What this means in practice is that
we will help countries ensure that economic policies are pro-poor. Under
the PRGF, countries will devise medium-term budgetary frameworks that
contain explicit and specific poverty-reducing policies. The IMF will rely
on the World Bank and other multilateral regional development banks for an
assessment of the priorities included in these budgets and their costing.
We will then help to ensure that these outlays are consistent with the
available financing and with macroeconomic stability and faster,
sustainable growth. If available financing is insufficient to meet
priority spending needs in countries where additional resources could be
used effectively, we will actively support countries in seeking additional
resources from the donor community. 
Second, there will be a much wider participatory process in the design and
monitoring of poverty reduction strategies. This should bring benefits
such as broad-based agreement within the country on priority goals, public
services that reflect the needs of the poor, and better government
accountability. For some countries, like Bolivia, Tanzania, and Uganda,
the new programs offer an opportunity to take these processes even
further.
Third, the content of country programs should change in a number of ways:

*	There should be better availability of key information, both
qualitative and quantitative in the design phase, as countries are
encouraged to improve their statistical base, with technical assistance
from donors, if possible. In recent years, almost 60percent of the PRSP
program countries have already completed poverty assessments; but major
data gaps still exist for the rest.

*	There should be more systematic analysis of the social and
distributional impact of macroeconomic and structural policies before
these policies are put in placehere we count on the World Bank for
guidance. This will help ensure the effective implementation of social
safety nets.1

*	There will be a shift to more pro-poor spending and service
delivery in public expenditure programs. This should translate into higher
outlays on primary education and health, or in the productive sectors and
rural infrastructure. Of course, how well the funds are spent matters as
much as their size. Indeed, as we have seen in Chile, well-targeted
outlays can significantly improve income distribution.2

*	There will be greater variation across countries in the pace and
sequencing of reforms. But here, a word of caution: donorsand the
international financial institutionshave a responsibility to be explicit
about the sorts of reforms they will continue to favor. They must also
give countries greater discretion to experiment and, even, to fail: more
room for ownership! 

*	There will be greater attention paid to monitorable results. This
will require the selection and tracking of key outcome indicators, and
thus the institutional capacity to do so. The benefit should be more ex
post evaluation of reforms, with the results thus fed into new
policymaking.

*	There will be greater emphasis on transparency, accountability,
and good governance.

Fourth, the relationship between countries and external partners will
change in a number of ways. This includes fully respecting country
ownership by basing our programs on country strategies, and showing more
flexibility in balancing program quality and country ownership. This means
that the conditionality associated with donor support must evolveit should
be in support of objectives that emerge from the government's program; it
should emphasize more the results rather than the intermediate process;
and it should be selective and focused on the key issues and constraints
for poverty reduction. Let me say that I am comfortable with the notion of
country ownership of national strategies coexisting with conditions set by
development partners for their support of a country's strategy. We should
also see better donor collaboration, with all donors basing their
operations on the PRSPs. 
Finally, there is bound to be a change in the research agenda. We need to
fill some important gaps in our knowledgesuch as generating more evidence
on the links between policy actions in different sectors and their
anti-poverty effect, and the impact of economy-wide policies on individual
sectors and families. The latter research needed is important for
developing better assessments of effects on the relative distribution of
incomes. Again, in this area, we will rely on the World Bank. 
Why should we expect better results?
Which brings me to the next major question: Why should we expect better
results this time around? I would like to suggest that there are several
reasons, all of which stem from its holistic nature.
One reason for optimism is that the PRSPs will be specifically designed to
ensure that macroeconomic policies are consistent with social goals.3
Country programs will continue to place a high value on sound, stable
macroeconomic policieslow inflation, realistic and stable exchange rates,
and reasonable fiscal burdenswhich are critical for higher saving and
investment, and higher growth. 
Another reason is that we not only have stronger evidence that growth is
critical for poverty reduction but we also have stronger evidence that a
focus on growth alone is not enough. Where poverty is endemic, it persists
because the poor do not have adequate access to the benefits of growth,
lacking assess to basic social services, essential infrastructure, and
income and employment opportunities. Poor governance also diminishes
growth's potential impact on poverty. Economic opportunities for the poor
will expand only where there are improvements in empowerment and security
of the poor, and the enhanced approach puts the emphasis on government
actions to enable the poor to benefit from this growth more fully.
We should also see big gains from the stress on explicit and monitorable
shifts toward pro-poor, pro-growth policies in public expenditures. This
should include explicit emphasis on greater accountability of public
resource use, reliance on outcome indicators as an additional way of
tracking efficiency of spending, and greater involvement of the poor in
the design stage. 
Another reason for higher expectations is the likelihood that structural
reforms will actually be implemented, thanks to greater efforts to explain
and build consensus, improve their sequencing, and build up institutional
capacity. These reforms are vital for increasing the efficiency of the
economy and attracting private investment.
Another reason for optimism is that the PRSPs, if well designed and
properly implemented, should give donors better assurances that the funds
will be well used. We expect that this will help to reverse the downward
trend in official development assistancefor let there be no mistake, the
poorest countries will continue to depend on official donor financing for
some time to come. That source of financing should continue to be kept
active. Moreover, the PRSPs, by providing a consistent framework for donor
intervention will help to reduce duplication of efforts and hopefully
encourage donors to provide financing for the overall strategyin turn,
helping countries to better plan ahead. 
Finally, we should take heart from the fact that the stronger focus on
poverty includes a stronger debt relief initiative for the heavily
indebted poor countries (the HIPCs)a topic to which I will now turn.
How does debt relief fit in?
The enhanced HIPC Initiative promises deeper, faster, and broader debt
relief, eventually embracing 36 countries instead of the original 29. This
should result in a reduction of their external debt burdens, in aggregate,
by more than half. And when traditional debt relief mechanisms are
factored in, the ratio rises to two thirds. But any debt relief program
will do little if it fails to attack the root causes of the debt buildup
in the first place. For that reason, the enhanced initiative makes country
formulation of a PRSP an integral part of the process.
Of course, more generous debt relief brings with it higher costs. For
multilateral creditors, this will come to around $14billion in1999 net
present value terms, of which the IMF's share is $2.3billion, two thirds
of which is now in place.4 But for the other multilateralsexcluding the
IMF and the World Banka financing gap of around $5.5billion remains, and I
cannot stress strongly enough the urgency of countries fulfilling their
commitments.
Is the debt relief process moving quickly enough? Or, as some of our
critics would charge, are the IMF and World Bank delaying by insisting on
rigid or unreasonable conditions? Let us take a look at some of the early
cases where there have been delays. In Republic of Congo, Ethiopia,
Guinea-Bissau, Niger, and Sierra Leone, the hold up has been due to armed
conflict. In Cte d'Ivoire, it was governance issues and political unrest.
In Guinea, Guyana, Mali, Mozambique, and Zambia, it was major slippages in
economic, social, and structural programs. None of these problems, I would
submit, represent "rigid or unreasonable conditions."
Certainly, if there is reason to seriously question the appropriate use of
resources freed through debt relief, delays willand shouldoccur. The HIPC
Initiative, after all, can only solve the debt problem if conditions are
in place to prevent a renewed accumulation of unsustainable debts.
Nonetheless, the IMF and World Bank hope to speed up the process with the
recent establishment of the new Joint Implementation Committee, which
oversees implementation of the HIPC Initiative and PRSPs, and provides a
means of resolving any differences in approach that may arise. Moreover,
countries need not wait for PRSPs to receive relief. They can adopt
interim-PRSPs; indeed, implementation of the PRSP is only needed for the
final, irrevocable granting of relief.
Of course, there will be tradeoffs to weigh: speed versus a comprehensive
and full participatory PRSP. And for that reason, we should not create
unrealistic expectations! What is critical is ensuring the debt relief is
not a wasted opportunity, especially for the poor. 
* * * * *
So where does this leave us? Not surprisingly with a list of challenges.
How do we help countries avoid macroeconomic problems given the risks of
large shocks? How do we weigh the tradeoffs of speed versus ownership? How
can we ensure donor financing is additional? Should donors finance PRSPs
as a whole rather than favorite projects? How can we improve the patchy
record of implementation? 
These are just a few of the many questions that policymakers and donors
must grapple with. For they must also contend with a host of other
factorsranging from armed conflict and environmental degradation to the
devastating impact of AIDS. The challenge is almost overwhelming, but
perhaps, going back to my earlier reference to Benjamin Franklin the
inventor, we can at least take one simple but decisive step that will
truly make a differencesimulating a lightning rod to help protect the
poorest and most vulnerable from major adverse external shocks.

------------------------------------------------------------------------
1The social safety nets in IMF-supported programs have included new
temporary arrangements-such as temporary subsidies and public works
programs-as well as existing social protection instruments adapted to the
needs of target groups, such as pensions and other permanent social
security programs. 
2Although the wealthiest20percent of the population receive over 15 times
more "self-generated" income than the poorest20percent, this ratio falls
to 8.5 when cash transfers and health care and education spending is
included. 
3Full PRSPs have been completed for Uganda and Burkina Faso, and Interim
PRSPs for Albania, Bolivia, Honduras, Mozambique, Sa Tom and Prncipe,
Senegal, and Tanzania. Interim PRSPs or PRSPs are in the final stage of
preparation for Benin, Central African Republic, and Niger. 
4See table.


HIPC InitiativeEstimates of Potential Costs by Creditor 
(US$billion in1999 NPV terms)
 	Updated 
Costing Exercise 
(32 countries) 1/

 	1999 terms

Total costs
	28.2

Bilateral and commercial creditors
	14.1

Multilateral creditors


World Bank 
IMF 
AfDB/AfDF 
IaDB 
Other

	14.1 
6.3 
2.3 
2.2 
1.1 
2.2
Source: HIPC Initiative: Update on Costing the Enhanced HIPC Initiative,
December7,1999.
1/ Excluding Ghana, which has not requested HIPC Initiative assistance,
and Liberia, Somalia, and Sudan. Based on the application of retroactivity
to end-1998 data, the latest available at the time of endorsement of the
enhanced framework, as discussed in the July1999 Modifications paper.


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