Combating Poverty or Promoting Development ? On the growing convergence on the need for other policies

12 September 2010 by Francine Mestrum


Twenty years after the World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

introduced – for the second time – its proposals for poverty reduction strategies and ten years after the adoption of the Millennium Development Goals and the Poverty Reduction Strategies Papers, some very difficult questions remain: Why is poverty such a persistent problem? What are its root causes? Why do some countries have success and others have not? And most of all: how to correct the situation?

Whatever the recent UN, World Bank and UNDP UNDP
United Nations Development Programme
The UNDP, founded in 1965 and based in New York, is the UN’s main agency of technical assistance. It helps the DC, without any political restrictions, to set up basic administrative and technical services, trains managerial staff, tries to respond to some of the essential needs of populations, takes the initiative in regional co-operation programmes and co-ordinates, theoretically at least, the local activities of all the UN operations. The UNDP generally relies on Western expertise and techniques, but a third of its contingent of experts come from the Third World. The UNDP publishes an annual Human Development Report which, among other things, classifies countries by their Human Development Rating (HDR).

reports on the MDGs say: extreme poverty may have been reduced, but this is only thanks to China and India. Looking at the World Bank statistics, one has to note that extreme poverty in Subsaharan Africa has almost doubled between 1981 and 2005. The MDG Summit that will take place in New York end of September has nothing to celebrate.

Numerous reports have been published these past years, first in order to conceptualize poverty, then in order to define the strategies, finally looking at the results. Most of the time the conclusion is: yes, there has been progress, but not everywhere and much more has to be done. One question however never is examined: what are the causes of this poverty? Why is it that half of the world population lives in poverty? Why is it that almost one billion and a half people live in extreme poverty? And how can one say that extreme poverty is receding, while hunger is rising?

These are not easy questions, but very important ones.

On Friday 3 September, UNRISD, the UN Research Institute for Social Development, published its flagship report ‘Combating Poverty and Inequality. Structural Change, Social Policy and Politics’. Its results deserve to be widely discussed.

UNRISD sees a couple of shortcomings in the poverty reduction strategies, such as the fact that inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. remains the major priority of macro-economic policies, the fact that imposed social policies are targeting the poor, the fact that the Bretton Woods institutions have no understanding of the policies that are needed for reducing poverty … Well, let us be honest, these are all cautious ways to say that neoliberal policies cannot reduce poverty.

Poverty outcomes, according to UNRISD, are the result of the development trajectories. Or, in other words, it was wrong to dissociate poverty reduction from economic and social development, and this was confirmed by different speakers during the event.
Different speakers pointed to the ‘truths’ about poverty reduction, but also to the failing evidence: there is no evidence that ‘good governance’ contributes to poverty reduction, there is no evidence that micro-credit contributes to poverty reduction, there is no evidence that property rights and land titling contributes to poverty reduction, and there is no evidence that the ‘bottom of the pyramid’ strategies can help poor people…

What is needed, according to one speaker is heterodox macro-economic policies, the development of productive capacity, broad based income growth and a more important role for a developmental state. 80 % of the PRSPs in Africa say nothing about employment, whereas productive employment with decent wages is indeed the road to lift people out of poverty. PRSPs, according to another speaker, are not different from the structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/
programs.

This was music in my ears, as you can imagine. All the criticism on these poverty policies was repeated by UN civil servants and academics at a formal event. And in fact a convergence is growing among different UN organisations to demand different policies.

The UNRISD report is particularly strong in demanding universal social policies, in pointing to the need for more policy space and for reducing income inequality, in noting the weaknesses of corporate social responsibility strategies, in elaborating on basic income grants.
Social policies can contribute to economic growth as well as social welfare. In order to be transformative, social polices cannot be confined to a residual role, they must address the broader economic, social and political goals. They aim at redistribution, production and reproduction.

A universal social protection floor, with basic old age and disability allowances, child benefits, access to essential care and social assistance and a 100 days work scheme, does not have to cost more than 3,7 to 10,6 % of the gross domestic Product GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
of low income countries.
The origin of this report is a research of 1995 on the social effects of globalization: ‘States of Disarray’. This was followed by a second report in 2000: ‘Visible Hands. Taking Responsibility for Social Development’. Today, the UN Department for Economic and Social Affairs has also published some very interesting documents on another kind of policies that can tackle development and go beyond poverty reduction. The UN Economic Commission for Latin America has a long tradition of critical reports. UNCTAD UNCTAD
United Nations Conference on Trade and Development
This was established in 1964, after pressure from the developing countries, to offset the GATT effects.

and the ILO each demand, from their respective perspectives, different policies in order to promote economic and social development.

We know who is missing and we know who has power: the World Bank and the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
. How long will they be able to resist this serious research? When will they allow countries to rebuild their states, to introduce progressive income taxes and universal social policies? Let us hope the MDG+10 Summit in New York will take note of this convergence and start to re-orient the policy priorities.


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