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Getting serious about global poverty

Rodrigo de Rato is Managing Director, International Monetary Fund.

by Rodrigo de Rato

Institutions and governments, like people, make bold resolutions at the beginning of every year. But, for the millions who face the crushing burden of poverty, mere proclamations that help is on the way are not enough to create jobs or foster development. This year, the international community must move decisively from pledges to action in the effort to reduce poverty. What will this require?

In 2005, the international community renewed its commitments to help the poorest countries meet the United Nations’ Millennium Development Goals (MDG’s), which aim to halve poverty by 2015. These commitments include significant increases in debt relief and aid. While there has been progress on implementing debt-relief measures, the international community must follow through on the other part of its pledge, by delivering increased aid and promoting its better use.

Multilateral lenders have long understood the importance of debt relief to poverty reduction. Indeed, the joint IMF-World Bank Heavily Indebted Poor Countries (HIPC) Initiative was launched in 1996 to coordinate efforts by multilateral organizations and governments to reduce poor countries’ debt burdens to sustainable levels. So far, the results are encouraging.

Before the HIPC Initiative, eligible countries spent, on average, slightly more on debt service than on health and education combined. Now, debt in the 28 countries for which relief has been approved has declined by an average of two-thirds, while their expenditures on health, education, and other social services have risen to almost four times the amount of debt-service payments.

In 2005, the international community went further, agreeing on the Multilateral Debt Relief Initiative (MDRI), which will write off 100% of many poor countries’ debts to the IMF, the World Bank, and the African Development Bank. As a result, just this past December, the IMF approved immediate, full relief for 19 countries – including 13 in Africa, four in Latin America, and two in Asia – on all outstanding debt to the Fund disbursed before January 1, 2005. Other countries are eligible, and the IMF is helping these states make rapid progress to qualify, with total debt relief expected to be more than $5 billion.

As with the HIPC Initiative of which it is a part, the MDRI will do more than reduce debt: it will free up resources that can be devoted to poverty reduction and economic development. In 2006, for example, Zambia will see its debt fall by almost 10% of GDP, leaving more resources available for development. Similarly, Guyana will have its debt reduced by more than 8% of GDP. The level of debt relief will be even greater once the World Bank and the African Development Bank finalize their own programs in the months ahead.

Nevertheless, the debt relief now being implemented will only provide a small part of the assistance, both financial and technical, that low-income countries need to meet the MDG’s. If they are to be met, donors must also deliver on their commitments for significant increases in aid.

The IMF has long called on donors to meet the internationally accepted target for overseas development assistance of 0.7% of GDP. Some donors have now promised to do so, though only over time; others are not ready to go that far, but have promised more aid than they currently give. The international community must show that it will follow through on these promises. Donors must provide the help that developing countries urgently need.

At the same time, we must ensure that low-income countries use debt relief and aid efficiently. One priority is to ensure that large, new infusions of aid do not produce unintended economic outcomes, such as rapid currency appreciation or inflation, which would make recipient countries’ exports less competitive. Another priority is to ensure that low-income countries that are striving to meet the MDG’s, and which have large financing requirements, avoid a new spiral of indebtedness. The gains from MDRI debt relief will amount to precious little if low-income countries emerge from their debt burdens only to start the cycle anew by amassing fresh debt.

But recipient countries must complement donor efforts, and continue to do their part as well, by maintaining a track record of reform and sound macroeconomic policies, and by making the best possible use of the higher levels of assistance. Outside efforts can help reduce poverty, but it is, ultimately, the efforts of low-income countries themselves to sustain strong economic performance, improve governance, and develop stable and effective institutions that will have the most important impact on reducing poverty. Low-income countries can also improve their prospects by strengthening their fiscal management, fostering private-sector development, and liberalizing trade.

If we keep our promises, 2006 can be a year of hope for those who have little else than the dream of a better life.

Copyright: Project Syndicate, 2006.
 www.project-syndicate.org

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Sometimes a piece just speaks for itself

Phil, I understand where you're coming from. I've seen others over time make a similar comment that a lack of comment on a particular post signals a lack of interest in the topic. It isn't necessarily the case that 'diarists don't care. Sometimes a piece just speaks for itself, at least that is what I found reading this one.

Does anyone care?

Around 340,000 human beings have now died through poverty since this piece was posted.

Craig R Ed.: I do.

Shame on us

Rob Wearne, since you posted your comment around 150,000 human beings perished from hunger of which three quarters were children. Not our kids, other people’s kids.

Your sole comment stands as sorry testimony that those who contribute to this site don’t care or if they do care simply don’t want to talk about it.

Thanks Rob for at least making the effort. As for the rest of us, including yours truly,  we should be ashamed of ourselves.

The IMF and World Bank are the Problem.

The comment by Rodrigo de Rato in regard to defeating the “spiral of indebtedness” in poor debtor nations is extremely disingenuous.

The IMF and the World Bank by their very nature of guaranteeing the loans of creditors and then prescribing policies that destroy economic growth are the real villains in the war against global poverty.

In this fight against poverty it is not free trade that is to blame but the mercantilist policies of the west that have enriched the elite in the first and third worlds at the expense of both their populations.

The late Jude Winniski is his review of John Perkins book “Confessions of an economic hit man” hit the nail on the head by stating:

“Over the years, the process has been corrupted, with both the IMF and World Bank becoming controlled by the multinational corporations and their banks.

“If the countries that borrowed from Chase or Citicorp could not pay back interest or principle and did not worry about stiffing the private bankers, they would have to swallow the non-performing loans. The solution was to have the IMF, looking for something to justify its existence, step in to collect the debt. All it had to do was persuade the US Congress to ante up billion or two of taxpayer dollars to fill their coffers (and “replenish” them from time to time). They could then go to the deadbeat country and say, “We will give you this money so you can pay Chase and Citicorp what you owe them, but you will have to raise taxes on your own people and devalue your currency as the conditions for the loan!”

Getting serious about global poverty means getting serious about dissolving the IMF.

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