A billion people, including at least two-thirds of those in the 49 least developed countries (LDCs), are taking part in a massive social experiment. Will Poverty Reduction Strategy Papers (PRSPs), the current centrepiece development strategy for LDCs, help them escape from extreme poverty? Are PRSPs, as currently designed, likely to promote sustained growth?

A report by the UN Conference on Trade and Development (UNCTAD) provides an international comparative analysis of poverty in the LDCs. UNCTAD suggests that the full potential of the PRSP approach to poverty reduction is not being utilised and that the Highly Indebted Poor Countries (HIPC) initiative is half-hearted. It also argues that persistent poverty should not be dealt with by targeting the bottom 20 per cent of the population of LDCs, but instead by raising the living standards of the majority.

The report shows that extreme poverty is pervasive and persistent in most LDCs and that the rate is highest in those LDCs that are dependent on primary commodity exports. Most LDCs are caught in an international poverty trap. International trade and finance relationships are reinforcing the cycle of economic stagnation and poverty. Current forms of globalisation are tightening the poverty trap.

PRSP designers needs to realise that structural adjustment did little to reduce poverty in the 1990s. The incidence of extreme poverty did not fall in LDCs undertaking structural adjustment programmes, even in those countries that implemented them well. Where productive capacities, markets and an entrepreneurial class ready to invest in production are all underdeveloped, structural adjustment cannot deliver accelerated and sustained economic growth at rates sufficient to have a significant impact in poverty.

UNCTAD argues that the initial assessment of the 34 full or interim PRSPs, produced by March 2002, indicates that the process may have become more consultative but that many emerging PRSPs risk repeating past mistakes. The report notes that:

• PRSPs, like structural adjustment programmes, prioritise short-term stabilisation over long-term development, with tight credit ceilings and restrictive fiscal policies.
• They pay little attention to trade issues.

First-generation PRSPs will increase the exposure to intensely competitive global markets without encouraging the development of productive capacities necessary to compete.

National ownership is weakened by the nature of policy conditionality and weak donor alignment behind national strategies.

The report argues it is naïve to expect that an economy where four out of five people are living on $1 a day will behave like a perfectly competitive market and that economic activities will automatically spring up if the government gets out of the way and allows the national ‘market’ to interact with the rest of the world.

UNCTAD urges the international financial institutions and northern donors to support the formulation and implementation of development-oriented (rather than adjustment-oriented) poverty reduction strategies and to:

• increase and accelerate debt relief and deliver it through simpler mechanisms
• be open-minded about the strategies LDCs choose to put in their PSRPs
• increase aid and ensure that ODA flows have a higher degree of predictability on a longer time basis
• provide technical assistance to enable LDCs to understand their rights and obligations under WTO accords
• deal with restrictions on small and medium businesses accessing bank credit
• assist LDCs to develop capacity in financial auditing and accounting, economic forecasting and debt management.

Source(s):
‘The least developed countries report 2002: escaping the poverty trap,’ UN Conference on Trade and Development, by the UNCTAD Secretariat, 2002 Full document.

Funded by: UNCTAD

id21 Research Highlight: 15 May 2003

Further Information:
Charles Gore
Team Leader Least Developed Countries Report 2002
Senior Economic Affairs Officer
UNCTAD
Palais des Nations
1211 Geneva
Switzerland

Tel: +41 22 907 5944
Fax: +41 22 907 0043
Contact the contributor: charles.gore@unctad.org

UNCTAD, Switzerland

United Nations Publications
Two UN Plaza
Room DC2-853
Dept. PRES
New York
NY 10017
USA

Tel: +1 800 253 9646
Fax: +1 212 963 3489
Contact the contributor: publications@un.org

United Nations

Other related links:
'Climbing the ladder: involving the poor in poverty reduction strategies'

'PRSPs investigated: structural adjustment in another guise?'

'The IMF and World Bank: undermining democracy and rolling back the state?'

'PRSPs: should they carry a health warning?' from IPHN

'IMF/World Bank Poverty Reduction Strategy: effective, participatory and locally owned?'

See the World Bank site on poverty reduction strategies and PRSPs

More from the PRSP Document Library