Toward faster poverty reduction By Mr. Ebrima A. Faal and Mr. James Droop
International Monetary Fund and World Bank Representatives in Guyana
Guyana Chronicle
January 20, 2002

IN RECENT years, the international community has shown itself increasingly determined to tackle the scourge of poverty, one of the greatest challenges facing the world today.

The rapid deceleration of world economic growth last year, coupled with the far-reaching impact of the September 11 terrorist attacks in the United States, have increased the urgency of international cooperation to attack poverty and promote durable economic growth that benefits the poor.

For our part, the International Monetary Fund (IMF) and World Bank are keenly aware of the major role we can play in fighting poverty. Our membership is global-183 countries, nearly half, of which have average per capita incomes of less than US$1,000 per year. Both institutions continue to provide substantial assistance to the poor countries through policy advice, on-site technical expertise, debt relief, and virtually interest-free loans to support implementation of policies.

While some countries have made tremendous strides toward reducing poverty after decades of such assistance, it is clear that poverty has not been reduced fast enough in many others. And in some countries, it is increasing. One reason is that many of the poorest countries have been burdened by external debt that they are incapable of servicing. That is now being addressed through the Heavily Indebted Poor Countries Initiative, which, together with other debt relief programmes, is expected to eliminate US$35B of debt in net present value terms. That is equivalent to about two-thirds of the total debt of the 24 countries, mainly in Africa, that already have benefited. The resources released are now available to attack poverty.

But also very important, it has become evident that poor people themselves often have been excluded from vital decisions about policies affecting their own future. That is why, in late 1999, the World Bank and IMF, deepening their partnership, introduced a new approach to helping countries in their poverty reduction efforts.

The new approach to assistance for poor countries has a number of novel features:

First, it is specifically targeted at reducing extreme poverty, especially improving the lot of those struggling to live on less than one U.S. dollar a day.

Second, it is designed to build in each country a national consensus on how best to tackle the problems of poverty and gain domestic support for reforms. Low-income countries applying for debt relief or new low-interest loans from the IMF and World Bank need to develop their own Poverty Reduction Strategy Papers (PRSPs) based on broad consultation within each society-including the poor themselves. This will help to ensure that the problems are understood and the remedies, as far as possible, agreed upon. Those remedies ideally will involve new priorities in government spending aimed at redirecting scarce resources to poverty reduction.

Third, the new approach embraces a new concept of partnership between low-income countries and their external partners. The PRSPs offer the basis for a coordinated approach by external donors, and give countries a way to channel donors’ help where it is most needed. The expectation has been that the PRSP approach will help to improve the quality of the programmes supported by the Fund and Bank, and to increase support for those programmes within the countries.

Guyana is currently finalising its own PRSP that sets out a 'home-grown' approach to ensure that debt relief makes an enduring contribution to poverty reduction.

The PRSP builds on existing processes, including the over-arching National Development Strategy, a civil society document which sets out a long-term vision for the country. The PRSP also draws on an extensive consultation process, held over five months in mid-2001, which involved discussions at the local, regional and national level. These discussions were open to all sections of society, and included women, youth, and indigenous people. In all, over 200 consultations were held involving over 8,000 people.

The findings from these discussions were incorporated into a draft PRSP, which was further discussed at a national level consultation in October 2001. The draft PRSP reflects the key priorities that emerged from the consultation process, and as a result gives greater emphasis to such fundamental concerns as employment, governance, especially at the local government level, and the adequate provision of basic services like health, education and water.

The Fund and Bank have worked hard with our members to make this approach fully operational, although not always with complete success. It is perfectly understandable that this new process will experience growing pains, so there is much to learn for officials from both the poor countries and the Fund and Bank. We are now taking a close look at how we have done, inviting the public to help us better understand what has worked and what has not, and to see how the approach can work better.

To that end, both institutions will, for four days in mid-January 2002, bring together in Washington officials from poor countries, administrators from donor agencies, and representatives from civil society groups, both North and South, to learn from each other.

We shall hear the views of those who have participated in the formulation of the PRSPs. Indeed, certain themes have already emerged from a series of consultations around the world over the past few months. When the Executive Boards of the IMF and the World finally convene in March to consider changes to the PRSP process, there are a number of key questions they will need to address. For example, have the participatory processes established by national governments met their objectives? Is the new approach to poverty reduction moving in the right direction? Will it really change the way the poor countries and the donor community-including the Bank and the Fund-do business with each other?

Ultimately, each poor country must take the lead in the design and implementation of its poverty reduction strategy. Good policies begin at home, including a serious effort to address governance issues. But country strategies are only one part of the global effort.

The January conference will also demonstrate to the rich countries how much more they need to do. There is a growing campaign, supported by both World Bank President James Wolfensohn and IMF Managing Director Horst Köhler, to press the industrial countries to open their markets to exports from poor countries and increase their foreign aid far above current levels. The poverty reduction effort must be central to all policies.

It is only through international cooperation that we will be able to deal with this crucial issue. Without a bright future for the poor, the future will be dim for the rest of the world.