World Bank, IMF Can't Take Credit For World Poverty Drop

by Emad Mekay

(IPS) WASHINGTON -- Global poverty has declined over the past 20 years but the successes are not in countries that have closely followed the advice of the World Bank and its sister institution the International Monetary Fund (IMF), a new study shows.

According to the World Bank's own 'World Development Indicators 2004', which surveys the state of development around the globe, the proportion of people living on less than one dollar a day in developing countries dropped by almost half between 1981 and 2001.

The 416-page report shows a fall in the absolute number of people living on less than a dollar a day in all developing countries from 1.5 billion in 1981 to 1.1 billion in 2001.

That is a reduction from 40 to 21 percent of the world's population.

But the report reveals that most of the success in fighting poverty occurred in Asian countries, particularly India and China that, together, were responsible for lifting 500 million people out of poverty.

At the same time, the record in regions with large World Bank and IMF programs, such as Africa, Latin America, Eastern Europe and Central Asia, has been poor.

"Economic growth in China and India has delivered a dramatic reduction in the number of poor," said World Bank Chief Economist Franois Bourguignon told reporters Friday. "But other regions have not enjoyed sustained growth and, in too many cases, the number of poor has actually increased."

In China, where gross domestic product (GDP) per capita increased five-fold since 1981, the number of extremely poor people fell from over 600 million to slightly more than 200 million, or from 64 percent to 17 percent.

In India, 359 million people -- 35 percent of the population -- were living in dire poverty in 2001, down from 382 million, 55 percent, in 1981.

In marked contrast to East and South Asia, poverty actually rose in sub-Saharan Africa, where many countries closely follow IMF and World Bank lending plans.

Since 1981, a 13-percent contraction in GDP per capita in sub-Saharan Africa resulted in a near-doubling of the number of people living on less than a dollar a day, from 164 million to 314 million, or from 42 to 47 percent of the region's population.

In Eastern Europe and Central Asia, too, high unemployment and declining output in many of the formerly centrally planned economies drove extreme poverty rates up from near zero in 1981 to six percent by 1999.

The number of people living on less than two dollars a day in Eastern Europe and Central Asia rose from eight million (two percent) in 1981 to over 100 million (24 percent) in 1999, dropping back to slightly more than 90 million (20 percent) in 2001.

In the Middle East, which includes obedient disciples of the policies of the international financial institutions (IFIs) such as Egypt and Jordan, the number of people living on less than two dollars a day rose from 52 million to 70 million.

In Latin America the number of people living on less than a dollar a day rose from 36 million to 50 million during the same period, but remained constant as a percentage of the total population, at around 9.7 percent.

The number of people in the region living on less than two dollars rose from 99 million to 128 million, a slight decline from 26.9 percent of the population in 1981 to 24.5 percent in 2001, despite decades of their governments adhering to IMF and World Bank-backed policies.

Yet, bank officials here used the lower poverty figures to push for greater adoption of its policies, which range from privatization of public assets to an end to protections and subsidies of local industries and cuts to social spending.

But critics of the two institutions were quick to note that India and China are not exemplary disciples of the IMF and World Bank economic blueprint.

"It's astounding that they can hold up these statistics and drive the conclusion that they do," said Rick Rowden of ActionAid USA.

"While it's true that India and China have implemented some degree of the liberalization and the privatization agenda, particularly in recent years, the question is, to what degree?" he added.

"And what the record really shows is that they have introduced these reforms at a very gradual level after many years of state protection and state support for industries first, which is unlike Uganda and Venezuela or Paraguay."

The critics say while it is true that the two countries are among the biggest recipients of World Bank loans, most of them are tied to specific projects or to broad program support, in the case of India, which do not carry the usual set of conditions associated with the balance of payment programs being implemented in Africa, Latin America and the Middle East.

"It's absolutely not the case that either China or India have followed the typical reform package recommended by the fund and the bank," Kevin Watkins, head of research at Oxfam International, said in a telephone interview from the United Kingdom.

"Neither of them has liberalised their capital account, which is what the IMF was going around the world recommending a couple of years ago. Both of them have liberalised relatively slowly. In the case of China, the liberalization didn't start until after the economy had already gone on to a higher growth path," he added.

The activists also pointed out that the two countries are politically very powerful.

"Frankly, India is not a country that would react kindly to the type of advice which the World Bank and the IMF traditionally dispense in Africa," Watkins said. "The leverage of the IMF and the World Bank in a country like India, let alone China ... is as close to zero as you can get."

Using the poverty figures to promote their policies also contradicts the latest Human Development Report of the United Nations Development Program (UNDP), released in June 2003, which contains extensive discussion on the harmful effect of policies advocated by the IMF and World Bank, such as user fees for education and health care, efforts to privatise water and cut social subsidies.

Also contradicting the World Bank's interpretation of its own data is the fact that the countries that have not done well in the fight against poverty have in fact been the most faithful followers of bank and IMF policies, particularly in Africa, Latin America and the Middle East.

Middle Eastern countries, including Egypt, and Latin American nations, like Argentina and Bolivia, have followed the IFIs' advice to the letter -- cutting subsides, opening up their economies for trade and selling public assets. Yet they have poor poverty reduction records, the study reports.

For example, in 2000 spending on subsidies had been reduced to 51 percent of total government spending in Europe and Central Asia, 36 percent in Latin America and the Caribbean and a mere 14 percent in the Middle East and North Africa. Yet such spending accounted for 59 percent in high-income economies.

"If you look at the parts of the world that have been most affected by the conventional IMF, World Bank prescriptions of rapid liberalization on trade and capital accounts, you'd have to point to Africa and Latin America, both of which have performed disastrously in terms of growth, and in terms of poverty reduction and in terms of income distribution," Watkins said.

Yet as he released the report here, the bank's Bourguignon urged poor nations to adopt "much more openness to trade, and more widespread policy reforms."

This is not what should have happened, the analysts say.

"If anything the reduction in poverty in India and China is a testament to what can be achieved if you do not implement these policies favoured by the IMF and the World Bank," Rowden said.