A new study released today by UNCTAD (From Adjustment to Poverty Reduction: What is New? (1)) takes a close look at the renewed efforts by the multilateral financial institutions to tackle poverty in Africa. The change of heart is welcome. After almost two decades of applying structural adjustment programmes, poverty levels in Africa have risen, slow and erratic growth are the norm, rural crises have intensified and deindustrialization has damaged future growth prospects. But has there been a change of mind? The study suggests that a careful, frank and independent assessment of the effects on economic growth and income distribution of the packages on offer is required if they are to deliver on their promises. And any fresh policy initiatives must be matched with adequate external resources, debt reduction and better market access if they are to succeed.
What is new in the current approach?
The PRSP (Poverty Reduction Strategy Papers) approach reaffirms the need for structural reforms designed to accelerate the integration of the region into the global economy through liberalization, deregulation and privatization, as the key to sustained and rapid growth. But it also recognizes that stabilization and adjustment policies may exert a temporarily adverse impact on the poor, thus requiring safety nets and targeted spending programmes to mitigate that impact. And because growth may not automatically trickle down to the poor, the new approach gives greater emphasis to the public provision of primary education and health care. It also emphasizes the principle of policy “ownership” based on wide-ranging consultations with civil society and the poor, intended to avoid “slippage” in implementation. However, ownership seems to be confined to the design of safety nets without extending to macroeconomic policies and development strategies.
Adjusting to growth
Based on an examination of 27 PRSPs in Africa, the UNCTAD study concludes that the macroeconomic and structural adjustment policy content of these papers shows "no fundamental departure from the kind of policy advice espoused under…the Washington Consensus".
According to the study, inflation is not the principal economic challenge in most African countries, and macroeconomic policies should be designed with growth in the forefront; this means making monetary and fiscal regimes a good deal more sensitive to the goal of raising productive investment. The study also warns against "quick poverty fixes" that redirect public spending to social sectors at the expense of other types of public investment. It concludes that "where there are trade-offs between public spending in priority and non-priority areas, they should be closely scrutinized from the point of view of their overall impact on growth". In this context, the study notes that social impact analysis has not yet been included as an integral part of PRSPs.
Rapid trade and financial liberalization is still expected to increase the access of the poor to financial and other assets that could allow them to escape from poverty. But any explanation of how this happens is missing from the PRSPs, and the record in Africa should caution against simple pronouncements. The study argues instead for proper sequencing of reforms in line with institutional capacities, effective regulation and management of capital movements, and limited, time-bound protection for certain industries so as to provide an opportunity for actively nurturing the development of the industrial sector.
The UNCTAD study welcomes the attention given to raising standards of education and health care. However, the recommendation to combine fully funded primary education and basic health care with across-the-board user fees for higher levels of education and health care suggests a misplaced faith in markets as the fairest way to deliver on these goals. The study shows that increased public expenditure across all levels remains the surest way of reducing income inequality, although differentiated subsidies and user fees and a progressive tax system would ensure that the rich pay more for the provision of such services.
Improving governance: more ownership, less control
The new approach puts considerable emphasis on improving governance as a prerequisite to sustained growth. While the UNCTAD study welcomes the greater sensitivity to institutional features contained in the papers, it says that there should be no illusions about the pace at which institutions can improve, nor should there be any doubt that imposing a common institutional standard on countries with varying conditions is likely to be counterproductive. And the idea that fighting corruption by diminishing government resources and responsibilities will bring the desired improvements is off- target, the study contends. It calls for a focus on quality government, not smaller government.
A closer scrutiny of the current strategies finds that reconciliation of country ownership with ever-increasing conditions attached to aid and debt reduction, going well beyond the original rationale of protecting the financial integrity of the multilateral financial institutions, is proving to be difficult and thereby casting a shadow on whether policies are truly “owned” or merely designed to be acceptable to the exigencies of lenders. A considerable pruning of the political conditionalities that have mushroomed in recent years is recommended; of the 114 conditions which, on average, are attached to multilateral lending to countries in sub-Saharan Africa, almost three quarters are governance-related.
International support will be crucial, UNCTAD maintains. Access to developed countries´ markets remains essential if African economies are to grow out of poverty; despite some recent initiatives, trade barriers are still excessive. The financing gap facing African economies is just as daunting. The recent pronouncements at the International Conference on Financing for Development and at the G-8 Summit promise a reversal of the decline in resources but fall well short of the additional $10 billion needed in annual aid to kick-start African growth. And the debt overhang persists despite the longstanding efforts of the international community to design acceptable programmes and timetables. The study calls for a fresh and bolder approach on all fronts, with growth rather than charity the motivation for recasting international rules of engagement in the fight against poverty.