A quarterly magazine of the IMF

June 2002, Volume 39, Number 2

As the twentieth century drew to a close, there was a growing realization among development practitioners that a fundamental change in approach was needed to achieve the international development goals by the target date of 2015—including halving the number of people living on less than $1 a day, reducing maternal and child mortality rates, and universalizing primary education. Despite unprecedented gains in living standards in some countries over the past few decades, poverty continues as a harsh reality in too much of the developing world.The causes lie in part with poor country governments that have not followed through on the policies and programs needed to accelerate growth and eradicate poverty. But they also reflect the uneven record of development assistance and protectionist trade policies and agricultural subsidies in industrial countries, which have dampened profitable investment and growth in the developing world.

Amid the failures, however, there have been islands of good practice and a growing body of evidence on aid effectiveness. These have served as the basis for some radical changes in the international community's approach to poverty reduction, starting in 1998.

• One hundred eighty-nine countries came together at the United Nations Millennium Summit and pledged to act individually and collectively to make the Millennium Development Goals a reality.
• The UN System, bilateral donors, and the international financial institutions all moved to align their assistance programs in support of poverty reduction and the Millennium Development Goals.
• The World Bank launched the Comprehensive Development Framework, emphasizing the interdependence of all elements of development and the importance of country ownership of development agendas.
• The IMF and the Bank decided to base their debt relief and concessional lending on national poverty reduction strategy papers (PRSPs) prepared by low-income countries with the participation of all key stakeholders.
• The IMF replaced the Enhanced Structural Adjustment Facility (ESAF)—its concessional loan facility—with the Poverty Reduction and Growth Facility (PRGF), which explicitly targeted poverty reduction as an objective.
• The IMF and the Bank beefed up the debt initiative for the heavily indebted poor countries (HIPCs) to provide deeper and faster debt relief and to strengthen the link between debt relief and poverty reduction.

Although these efforts are at an early stage, it is not too early to take stock of the lessons learned and to make corrections where needed. In this spirit, the IMF and the World Bank have just completed a review of the initial two years' experience with the PRSP process and the PRGF, drawing on internal evaluations and extensive international consultations. These reviews sought the views of those with firsthand knowledge of the PRSP process and PRGF-supported programs: participating governments, international organizations, other aid agencies, and civil society organizations around the globe. Respondents were invited to provide written evaluations and voice their opinions at regional forums as well as at the January 2002 International Conference on National Poverty Reduction Strategies, which was organizaed by the IMF and the Bank.

The two articles that follow describe the PRSP and PRGF reviews in detail. Overall, the reviews reaffirm that the PRSP process is becoming the main vehicle for organizing national and global efforts to reduce poverty and that the PRGF is making good progress in aligning the IMF's efforts with the PRSP approach. Moving forward, the key challenges are to better monitor the rate of progress for each country, bearing in mind the country's starting point; to flesh out the concept of pro-poor growth; and to be aware of the social and political costs of macroeconomic and structural reforms and pay more attention to the design of compensatory measures, making technical support a high priority. And all involved need to be realistic about how much can be achieved within tight institutional constraints. In the end, success will be judged by whether we have helped to raise the living standards of the poor and ensured a better future for all children.