Global Policy Forum

IMF and World Bank told to stop peddling discredited policies

By Charlotte Denny and Larry Elliott

More than 100m people in the world's poorest countries will be dragged below the basic subsistence level of a dollar a day by 2015 as they become ensnared in globalisation's poverty trap, the UNCTAD warned yesterday.

An in-depth study into the world's 49 least developed countries rejects claims that globalisation is good for the poor, arguing that the international trade and economic system is part of the problem, not the solution.

"The current form of globalisation is tightening rather than loosening the international poverty trap," the study warns.

As markets become more entwined, UNCTAD says the world economy is becoming increasingly polarised and the least developed countries are being left behind.

Shut out of more lucrative markets by western trade barriers, they depend on cash crops for survival, but the prices of their main export goods have crashed over the last two decades. Living standards in the least developed countries, which depend on basic commodities, are lower now than they were 30 years ago.

"International policy needs to give more attention to breaking the link between primary commodity dependence, pervasive extreme poverty and unsustainable external debt," UNCTAD says.

Simplistic calls for poor countries to open their markets will not help them escape the poverty trap, according to the study.

Trade's poverty trap

"Contrary to conventional wisdom, persistent poverty in poor countries is not due to insufficient trade liberalisation," the study says. In fact in the poorest countries, trade accounts for just over 40% of GDP - higher than the average for rich countries.

"The problem for the least developed countries is not the level of integration with the world economy but rather the form of the integration," the report says. "For many LDCs external trade and finance relationships are an integral part of the poverty trap."

Despite efforts by western donors to tackle the third world's loans burden, the poorest countries are still lumbered with unpayable debts. The 23 least developed countries have a debt burden which is unsustainable, according to the World Bank.

UNCTAD says that servicing the debt overhang is swallowing official aid budgets. "Aid disbursements have increasingly been allocated to ensure that official debts are serviced," the study says.

"In this aid/debt service system, the development impact of aid is being undermined."

Widespread poverty is itself contributing to economic stagnation. With most households earning barely enough to survive, there is no spare cash for the investment that might help countries break out of the poverty trap.

"Low income leads to low savings, low savings lead to low investment and low investment leads to low productivity and low income."

UNCTAD says the number of people living in extreme poverty in the least developed countries is greater than had previously been thought. The study calculates that 307 million people live on less than a dollar a day, a number which is set to rise to 420 million over the next decade and a half.

The study underlines the scale of the challenge global leaders set themselves two years ago when they promised at the UN's millennium summit to halve the number of the world's population that live on less than a dollar a day by 2015.

None of the 49 least developed countries is on track to meet the poverty reduction target.

Although it warns that the extent of poverty has been underestimated, the study manages to strike an upbeat note, insisting that with better policies, rapid gains in living standards could be achieved. Poor countries should be allowed to abandon the economic adjustment programmes they were forced to adopt in the 1990s by the IMF and the World Bank.

Countries must "shift from adjustment-orientated poverty reduction strategies to development-oriented poverty reduction strategies," the study says.

It adds that widespread poverty in the least developed countries could be cut by two-thirds over the next 15 years, if the right policies were adopted.

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