Will WB, IMF strategy increase poverty?

Poverty reduction is the buzzword today of the multilateral agencies as well as the donor community. They have suddenly discovered that the big problem in developing countries is poverty. The terminology has changed from poverty alleviation to poverty reduction. There may be a big difference to these agencies in the two phrases but the difference is likely to be indistinguishable for the poor themselves. The alleviation of poverty means that the condition of poverty would be eased without reducing the numbers in poverty. Poverty reduction on the other hand, means the reduction in the numbers in poverty.

The fact is that over one billion people all over the world feel the pain of poverty. A large proportion of them lives in South Asia. The precise number estimated by the World Bank is that 522 million people in South Asia lived in poverty in 1998. This constituted 40 per cent of the population of South Asia. In Sri Lanka, the proportion in poverty is estimated to be 25 per cent of households.

The poverty reduction objective is no doubt non-controversial, noble and laudable. Perhaps that is the reason why these international agencies have adopted it. Perhaps it has also been adopted, as their policies have not succeeded in reducing global poverty. They have been perhaps responsible for enhancing poverty.

The controversial issue is not the objective of poverty reduction, but the means and strategies that are adopted to attain it. The orthodoxy of policies of the International Monetary Fund (IMF) and World Bank has been that the best and possibly the only means of reducing poverty is economic growth.

There can be no doubt that economic growth provides the capability for a country to tackle the problem of poverty. Economic growth over time also tends to reduce poverty. Yet, the important issue is whether the policies imposed on the developing countries of the world by these agencies do not themselves increase poverty. Are the policies of the IMF and World Bank in fact pro-poor or are they expected to increase poverty in the name of economic growth and then at some distant date expected to reduce poverty?

This is the question that must be addressed. The World Bank and the IMF would point out that the countries that were more open in their trade and financial policies, had higher growth rates, and reduced their poverty.

The best illustration of this is that East Asia that had higher growth and more poverty reduction. This has been so for the past two decades, as well as the more recent period in spite of the East Asian Financial Crisis. Between 1987 and 1998, the number of poor people in East Asia reduced by a significant 33 per cent. In contrast, in South Asia, the number of the poor increased by 10 per cent during this period.
This evidence is quoted to support the policies of the IMF and the World Bank. It is indeed a superficial and partial explanation that could be misleading. The World Bank's own study, 'The Asian Miracle' gives ample evidence to demonstrate that it was not only market friendly policies that resulted in the growth of these countries. The interventionist policies of the state had an important bearing on economic growth and distribution.

Besides this, one must not lose sight of the initial conditions that enabled a better distribution of the fruits of growth. Above all the international environment was far different in the 1980s than that of today.

The ultimate goal may be the reduction of poverty, but the means adopted must also ensure that poverty is not increased. The means and the goals could in fact be contradictory. This aspect of the current strategies for poverty reduction must be looked into.

If the IMF and the World Bank, in particular, are really concerned with poverty reduction, then they must take a dispassionate view of their overall policies to see whether they reduce the gap between the incomes of developed and developing countries and whether they benefit the poor within the developing countries.

Despite all the rhetoric of poverty reduction, international agencies have hardly done anything to change their policies. Poverty in countries like Sri Lanka has a multiplicity of causes. These must be addressed. Otherwise, even with economic growth, we are likely to see the rich getting richer and the poor getting poorer. Of course if the economy fails to grow it would be much worse. The poor are likely to remain poor always.

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