IMF, World Bank Reforms Leave Poor Behind, Bank Economist Finds By Mark Drajem
Washington, Nov. 7 (Bloomberg) -- The poor in developing countries are often better off when their governments ignore the policy advice of the International Monetary Fund and World Bank, according to a study by a World Bank economist.
That conclusion by William Easterly, who in the past has co- written papers with IMF Deputy Managing Director Stanley Fischer and U.S. Treasury Secretary Lawrence Summers, calls into question one of the main objectives of the two global lenders -- fighting poverty.
China, India and other countries that don't follow IMF and World Bank economic programs have seen more of their people lifted out of poverty in times of economic growth than have nations that take the advice of the Washington-based lenders, according to the research, to be presented at an IMF conference later this week.
"A lot of the countries that have gotten a lot of lending from the IMF and World Bank are worse off," Easterly said in an interview, citing Zambia and the Philippines. "I don't think the record is real encouraging."
To be certain, when developing nations see their economies shrink, the poor are often cushioned by IMF and bank loans, he found.
Advocates for the poor have long complained that IMF and World Bank advice to countries to cut government payrolls, lower trade barriers and raise interest rates benefits rich residents of those countries and foreign investors, while hurting the poor.
Harsh Criticism
That criticism turned increasingly harsh, and even violent, in the last year, with the IMF and World Bank meetings in Washington in April and Prague in September disrupted by protesters.
That has prompted the lenders to repeatedly underline their concern about poverty, with bank President James Wolfensohn and IMF chief Horst Koehler calling on rich nations to open their markets and forgive developing-country debt.
The bank -- whose Washington headquarters is inscribed with the words "a world free of poverty" -- has also redoubled its efforts to research the effect of its lending on the poor. Easterly's work is part of that effort.
"This is not the most convenient finding from the point of view of the World Bank's image," Easterly said.
He said the poor don't have the skills to benefit from the new businesses, the cheaper imports and the high-technology jobs that often come with IMF-backed economic overhauls.
"The World Bank and IMF affect the modern, formal economy, but the poor are not in the modern, formal sector," Easterly said. "The poor live on the margins."
Conditions Attached
The two lenders often work together in lending to poor and transitional economies such as Kenya, Russia and Indonesia. They have lent to about half the world's nations, attaching conditions such as deficit-reduction targets or the sale of state-owned assets.
IMF and World Bank policy-makers say their reforms often generate necessary short-term pain for long-term gain.
Selling the state-owned brewery in Tanzania, for example, meant workers lost jobs and citizens complained about foreign ownership of a national landmark.
Yet Tanzania Breweries Ltd. now produces export-quality beer -- and has shifted from a drain on the state treasury to the impoverished nation's largest taxpayer.
World Bank economist David Dollar said Easterly overstates the influence of World Bank and IMF conditions, and so finds negative effects where there's really little impact.
"I don't think we have that much effect on policy," Dollar said.
Still, Dollar said Easterly's findings point to the best way to rework the loans.
"Originally, these things were meant for attacking short- term shocks," and that is the way they have been successful, Dollar said. "The proper role for these programs is short-term."
Business Cycle
Easterly's study looked at business cycles of about three years, comparing the numbers of people with incomes of $2 a day in countries that had IMF lending programs with those that did not.
During times of economic growth, the poor didn't gain as much in countries in which the IMF lent money as they did those in places with no programs, although they weren't hurt as badly in recessions, according to the study.
"Expansion under (IMF, World Bank) adjustment lending is less pro-poor, while contraction under adjustment lending is less anti-poor," Easterly wrote.
Easterly dismissed the charge that he's focusing on the short- term pain in recipient countries that are merely headed for long- term economic gains. He cited countries such as the Philippines and Tanzania that borrow for decades.
The Philippines, which has been borrowing from the IMF for almost 40 years, last month withdrew plans to borrow $314 million from after the fund refused to allow the government to raise its budget-deficit target.
The next week, Markus Rodlauer, the IMF's chief for the Philippines, said "you can never say never" about a resumption of the program.
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