[stop-imf] IMF and World Bank Told To Stop Peddling Discredited Policies

[Robert Weissman]

The Guardian [UK]
Wednesday June 19, 2002

IMF and World Bank told to stop peddling discredited policies

100m more must survive on $1 a day

By Charlotte Denny and Larry Elliott

More than 100m people in the world's poorest countries will be dragged
below
the basic subsistence level of a dollar a day by 2015 as they become
ensnared
in globalisation's poverty trap, the UN warned yesterday.

An in-depth study into the world's 49 least developed countries rejects
claims that globalisation is good for the poor, arguing that the
international trade and economic system is part of the problem, not the
solution.

"The current form of globalisation is tightening rather than loosening the
international poverty trap," the study warns.

As markets become more entwined, the UN says the world economy is becoming
increasingly polarised and the least developed countries are being left
behind.

Shut out of more lucrative markets by western trade barriers, they depend
on
cash crops for survival, but the prices of their main export goods have
crashed over the last two decades. Living standards in the least developed
countries, which depend on basic commodities, are lower now than they were
30
years ago.

"International policy needs to give more attention to breaking the link
between primary commodity dependence, pervasive extreme poverty and
unsustainable external debt," the UN says.

Simplistic calls for poor countries to open their markets will not help
them
escape the poverty trap, according to the study.

Trade's poverty trap

"Contrary to conventional wisdom, persistent poverty in poor countries is
not
due to insufficient trade liberalisation," the study says. In fact in the
poorest countries, trade accounts for just over 40% of GDP - higher than
the
average for rich countries.

"The problem for the least developed countries is not the level of
integration with the world economy but rather the form of the integration,"

the report says. "For many LDCs external trade and finance relationships
are
an integral part of the poverty trap."

Despite efforts by western donors to tackle the third world's loans burden,

the poorest countries are still lumbered with unpayable debts. The 23 least

developed countries have a debt burden which is unsustainable, according to

the World Bank.

The UN says that servicing the debt overhang is swallowing official aid
budgets. "Aid disbursements have increasingly been allocated to ensure that

official debts are serviced," the study says.

"In this aid/debt service system, the development impact of aid is being
undermined."

Widespread poverty is itself contributing to economic stagnation. With most

households earning barely enough to survive, there is no spare cash for the

investment that might help countries break out of the poverty trap.

"Low income leads to low savings, low savings lead to low investment and
low
investment leads to low productivity and low income."

The UN says the number of people living in extreme poverty in the least
developed countries is greater than had previously been thought. The study
calculates that 307 million people live on less than a dollar a day, a
number
which is set to rise to 420 million over the next decade and a half.

The study underlines the scale of the challenge global leaders set
themselves
two years ago when they promised at the UN's millennium summit to halve the

number of the world's population that live on less than a dollar a day by
2015.

None of the 49 least developed countries is on track to meet the poverty
reduction target.

Although it warns that the extent of poverty has been underestimated, the
study manages to strike an upbeat note, insisting that with better
policies,
rapid gains in living standards could be achieved. Poor countries should be

allowed to abandon the economic adjustment programmes they were forced to
adopt in the 1990s by the IMF and the World Bank.

Countries must "shift from adjustment-orientated poverty reduction
strategies
to development-oriented poverty reduction strategies," the study says.

It adds that widespread poverty in the least developed countries could be
cut
by two-thirds over the next 15 years, if the right policies were adopted.