The new focus reflects a recognition that a more comprehensive policy approach is needed to deliver consistent and broad-based inroads into poverty in developing countries. We have long known sustained growth requires sound macroeconomic policies, structural policies conducive to private-sector activity and the working of markets, and well-designed social safety nets to protect the poor and vulnerable against any transitional fallout from reforms. Promoting and supporting these policies have been, and will remain, the IMF's primary contribution to reducing poverty in the developing world.
Indeed, much has been achieved over the past decade. Growth rates of real per capita income in countries supported by the IMF's concessional loan facility (ESAF) have risen sharply since the mid-1990s - to rates almost double those of other developing countries. Key social indicators have also improved, in part because ESAF-supported programmes have provided for increases in health and education spending averaging 4 per cent a year in real per capita terms.
But it has become increasingly apparent that much more needs to be done to achieve faster and broader-based poverty reduction. Countries need to adopt policies that allow the poor to benefit from growth, by expanding their economic opportunities. Pro-poor policies - such as investing in health, education, rural infrastructure, and private-sector development - also boost growth.
Naturally, the diagnosis and prescriptions for poverty reduction are likely to differ in many respects from country to country, underscoring the need for a national debate in which all voices can be heard, not least those of the poor. To this end, countries seeking to benefit from enhanced debt relief under the initiative for the heavily indebted poor countries (HIPCs), or wishing to draw on concessional lending facilities in the IMF and World Bank, will now be assisted in drawing up a new document called a comprehensive poverty reduction strategy paper (PRSP). This signifies important changes in the way we do business.
The PRSP will be government-led, in close collaboration with the IMF and World Bank. It will identify key obstacles to faster growth and poverty reduction, specify realistic and monitorable poverty goals, and set out the macroeconomic, structural and social policies the country intends to adopt to meet those goals. The needed financing will also be clearly identified.
With these ingredients, a PRSP can fulfill several important functions. First and foremost, it will provide a transparent policy agenda for the country itself, promoting government accountability and serving as a vehicle for a continuing national dialogue on economic and social policies.
Second, the PRSP will be the framework that integrates all IMF and World Bank lending operations in the country concerned. For the IMF's part, the policy programmes we support under our new Poverty Reduction and Growth Facility - which is replacing ESAF - will draw directly from the PRSP. Third, the PRSP will allow a clear connection to be drawn between debt relief and poverty reduction, thereby playing a central role in the enhanced HIPC Initiative, which in turn underpins the new poverty strategy.
In September, the international community agreed to provide more extensive relief to more countries (at least 36 instead of 29), on a quicker path. This will speed up progress in reducing external debt to sustainable levels - the goal is to reduce the debt burdens of these countries by more than one half - and free up more resources for poverty reduction. Of course, the more generous debt-relief package will come with a higher price tag.
Overall costs are now expected to more than double to $28bn (in present- day dollars) from $12.5bn, with the IMF's share rising to $2.3bn from $1.2bn. Following recent decisions by the Executive Board, the IMF is in a position to begin to make its contribution to the strengthened HIPC Initiative as countries qualify for assistance. However, much remains to be done to lock in all the necessary financing for all multilateral creditors.
How can industrial countries help to further the cause of poverty reduction in the developing world? First, they need to take bolder steps to open up their economies to exports from the poorest countries. These exports should have unfettered and guaranteed access to industrial country markets. Trade can do as much - if not more - than debt relief to foster development and reduce poverty.
Second, the industrial countries should step up their efforts to help the countries involved bring peace to war-torn regions. This includes restraining the sales of military equipment to sensitive regions, abolishing the provision of export credit for military purposes, encouraging national maximum levels for military outlays, and co-operating in the interdiction of the smuggling of raw materials and natural resources to finance armed conflict.
Third, they need to ensure that the extra funds for debt relief are truly additional - not financed out of existing aid budgets. They also need to increase aid flows from their current low levels and focus these flows more on poorer countries pursuing the right policies, using PRSPs as a guide. And they need to lengthen the duration of aid commitments, so that recipients can implement poverty- reduction strategies with confidence that the needed external financing will be available.
All this is a challenging agenda. But if we can succeed in ensuring that all resources - not just debt relief - are effectively used toward poverty reduction, we can rebuild the constituency for aid in industrial countries. A virtuous circle of effective aid use, leading to higher aid flows to the best performers, in turn lifting the inhabitants of these countries out of poverty once and for all - now that would be a result of which we could all be proud.
Jack Boorman is the Director, Policy Development and Review Department, IMFReuse content