The new IMF focus on poverty: are hopes warranted?

The new IMF focus on poverty: are hopes warranted?

Has the IMF appropriated too many areas of responsibility?

This article finds that:

  • the concern for the poor in Third World countries shown by the IMF is primarily a response to criticism of its policy recommendations, which has grown increasingly louder over the past years
  • combined with its meager success in improving growth, the IMF has been criticized even by former World Bank chief economist Joseph Stiglitz for sticking to its strict stabilization conditions for too long
  • the poverty reduction strategy papers initially embrace long-standing World Bank concepts about how to mitigate the worst social consequences of structural adjustment policy. Cushioning measures such as social funds and employment programs are intended to help the poorest segments of the population while structural adjustment programs are being implemented. However, the experiences with measures to ease the social consequences of structural reforms have been rather disappointing so far
  • the IMF retains its power to define the macroeconomic objectives of the structural adjustment programs. Moreover, with the PRSP approach, the IMF and the World Bank have gained access to the funds freed by debt relief as part of the enhanced HIPC initiative (that includes resources stemming from both multilateral and bilateral debt). For both institutions, this represents a further gain in power, which they could well use at a time when their authority is dwindling
  • The IMF’s faith in additional cushioning measures indicates that the Fund is not willing in the future to change its way of thinking about its macroeconomic “recommendations” and targets. It will continue to accept the negative social effects of its programs
  • the papers on implementing the new IMF and World Bank poverty reduction strategy contain, at best, contradictory statements about the future direction of macroeconomic conditions. On the one hand, poverty reduction is declared to be an overarching objective of development strategy, and it is emphasized that the causes of poverty are specific to each individual country, complex, and multidimensional. On the other hand, the authors stress in countless places that there are elements in the strategy, which can be generalized, in particular rapid stabilization and traditional structural reforms
  • despite an abundance of empirical evidence to the contrary, the Bretton Woods organizations continue to trust in an automatic trickle down of economic development to the poor and cling to the misguided and long refuted conviction that there is a direct correlation between economic growth and poverty reduction
  • the PRSP approach contains a fundamental contradiction. It encourages more national ownership (the countries formulating their own strategy papers) contrasts with the policy of conditionality, which continues to exist. The final decision for or against debt reduction or new loans lies with the IMF and World Bank executive committees. They leave themselves the option of rejecting national poverty reduction papers when the strategies do not conform to their views about “sensible economic policy.”

The article concludes that:

  • before future economic reforms can be directed towards fighting poverty, the reasons for the failure of previous structural adjustment programs must first be thoroughly analyzed
  • the IMF has appropriated too many areas of responsibility and should confine itself again to its core functions. The new focus on poverty, which the IMF initially announced with much fanfare, could very well have negative repercussions for the Fund

[author]

Please note: This particular article starts on page 35 of the main document.

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