Views & Commentaries

Making Globalization Work for the Poor

By Masood Ahmed
Deputy Director
Policy Development and Review Department, IMF

The Independent, London
December 12, 2000

Reproduced with permission of The Independent (original version)

The word "globalization" stirs powerful emotions. Some see it as highly beneficial—a key to more opportunities and higher living standards across the world. Others see it as a malign force that increases inequality within and between nations, disempowers the weak, threatens employment and living standards, and increases poverty.

Most people agree that the forces driving globalization—technological change, lower communication and transport costs, increased trade and financial integration among countries—are powerful. But they need to be harnessed to make globalization work for the good of all, particularly the poor and marginalized.

Today's central development challenge is to improve the lives and prospects for the nearly three billion people now living in poverty. Over 1.2 billion of them live in abject poverty, on less than a dollar a day. Only if the economies in which they live grow faster can the lives of this enormous group of people be improved. Globalization can contribute to this faster growth. But it also increases the need for stronger policies and institutions at the national level. And it means that the international community must adapt the way in which it assists poor countries.

Developing countries and aid agencies alike are recognizing the need for a new approach. A central element of this approach is to bring a much stronger focus to bear on poverty reduction in national economic development programs. And aid agencies are increasingly recognizing the need to align their assistance with these nationally owned strategies.

The approach can draw on the successful experience of countries like Uganda, which has moved close to universal primary education in under a decade. Others like Burkina Faso, have called for a new form of partnership with development agencies based on the concept of national ownership. And Ghana, Kenya, Mozambique, Sao Tome and Principe, and Tanzania have all explicitly stated that poverty reduction is the central goal of their development strategies.

What characterizes the new approach?

Open policy formulation: policies must be more transparent and—above all—country-driven, with the international financial institutions and other donors playing an active but supporting role.

Participatory processes: each national strategy is expected to spring from a clear understanding of the specific nature and causes of poverty in each country. Consultation with civil society is essential since the poor themselves are often best placed to identify priorities for action.

Accountability: public consultation will also help to improve monitoring and accountability. Waste, corruption, and ineffective control of public expenditure have been major factors behind the dismal state of public services in many low-income countries. Addressing measures to these problems is critical.

The IMF and the World Bank have been working over the past 15 months to align their operations with the new approach. Their provision of concessional money to poor countries is being linked to the design and implementation of national poverty reduction strategies. The Bank and the Fund are also working together to ensure that their efforts are consistent and firmly grounded in their respective areas of expertise. For the IMF that means macro-economic policy and reforms of fiscal, monetary, and financial systems; for the World Bank, structural and social policies.

The IMF has introduced a new lending window for low-income countries, the Poverty Reduction and Growth Facility (PRGF), geared directly to support countries' poverty reduction strategies. It makes poverty reduction and faster growth an explicit objective of programs supported under the facility and, hence, a criterion for evaluating the success of those programs.

Supporting national poverty reduction efforts is essential but it is not enough. Many poor countries also have unsustainable debt burdens. Reducing their debt to more manageable levels has become a worldwide campaign in the run up to the Millennium. The enhanced Heavily Indebted Poor Countries (HIPC) Initiative is the key international tool for reducing poor country debt.

Recently released data show that the first 11 countries to benefit under HIPC will see their total indebtedness reduced by about two-thirds when combined with other debt-reduction initiatives. Their debt service payments will decline by at least 25 percent between 1999 and 2001. By the end of this year, some 20 countries are likely to benefit from over $30 billion of debt relief under the Initiative.

What more can be done by the international community to reduce poverty?

First, the volume and effectiveness of aid must be increased. A lot of good research has been done on the impact of aid. It confirms that aid has a huge impact in countries that have high levels of poverty, if the right economic and social policies are in place. Allocating more aid to reforming countries will both generate results on the ground and help to build support for raising the volume of aid flows.

Second, and most constructive of all for long-term development, all countries can act to lower the trade barriers that keep out the exports of the developing countries. To benefit from globalization, poor countries need to be able to sell their exports in a truly global market. Over time, this will also help them to access private capital and become less dependent on aid.

Two further issues are particularly important in Africa: the HIV/AIDS pandemic and armed conflict. In addition to their human cost, both of these issues are taking an economic toll on too many African countries. Both merit concerted international action.

In 1996, the United Nations adopted a set of international development goals designed to halve the number of people in absolute poverty by 2015. We must not lose sight of that objective even as we recognize that getting there will require persistence, hard work, and a partnership of concerted international action and determined policy implementation in the countries themselves.

To this end, the IMF is committed, in the words of its Managing Director, to being an active part of the workforce to make globalization work for the benefit of all.