A quarterly magazine of the IMF

June 2002, Volume 39, Number 2

The international community is rallying around the aim of reaching the Millennium Development Goals—including halving the proportion of people suffering extreme poverty—by 2015. At each gathering of financial and political leaders, communiqu�s are hammered out that commit all countries to doing whatever is needed for this cause. But surely we have heard such lofty promises before—why should skeptics sit up and take note? Moreover, even if there is the political will—which some may view as not entirely clear—are these goals even achievable? The June issue of Finance & Development weighs in on this topic by asking what the biggest obstacles to poverty reduction are and how we can overcome them.

We begin with a look at issues in the measurement of poverty. How do we know if poverty is declining? Measurement may seem straightforward, but Angus Deaton of Princeton University suggests in a provocative Point of View that it's actually a tricky business, as exemplified by the controversy surrounding India's poverty counts. Next, we take stock of the global community's new approach to poverty reduction, which was launched two and a half years ago. It centers on poverty reduction strategy papers (PRSPs)—essentially road maps poor countries prepare themselves after consulting their constituents—to help them target poverty reduction more effectively through public policies. One of the first countries to prepare a full PRSP was Bolivia, so we traveled there to get the firsthand impressions of some of the key people involved.

How about the other pieces of the poverty puzzle? On debt relief, an IMF study shows that the ability to borrow abroad can benefit economic growth and thus poverty reduction, but that, beyond some point, additional debt ceases to enhance growth and, instead, slows it down or actually reduces output. Michael Kremer of Harvard University takes up the cause of "odious debt," suggesting that there be independent judges of odiousness to help countries not currently eligible for debt relief that have plausible claims that their debts are illegitimate and thus should not be repaid. On foreign aid, we learn that the greater amounts being pledged by industrial countries —although they have yet to materialize —could pose absorption challenges for the poorest recipients unless they are channeled appropriately. On social safety nets, we examine studies that verify that the poor bear the brunt of government spending cuts and are the hardest hit when financial crises strike, making the need for automatic protection essential.

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Also in this issue, Kenneth Rogoff, the IMF's Economic Counsellor and Research Department Director, ponders why the exchange rates for the dollar, the yen, and the euro are so fickle in Straight Talk —his regular column that debuted in the March issue of F&D. We also look at a major IMF study on the value-added tax, which has been adopted by over 120 countries. And we explore the policy implications of a major World Bank study on a decade of transition in Eastern Europe and the former Soviet Union.