Abstract

Sound economic policies favor both growth and the poor. The contribution of macroeconomic and structural reforms to long-run economic growth and poverty reduction is now well established. Research has demonstrated that low fiscal deficits and price stability promote economic growth,6 and economic growth is the most significant single element that contributes to poverty reduction.7 Macroeconomic adjustment generally benefits the poor.8 Dismantling product and factor market rigidities helps reduce poverty by increasing not only the supply of essential goods, but also the poor’s access to them.9 In addition, based on cross-country studies, there is increasing evidence that lower inflation also enhances income equality (Milanovic, 1994; Bulír and Gulde, 1995; Sarel, 1997; Bulír, 1998; and Guitán, 1998).

Sound economic policies favor both growth and the poor. The contribution of macroeconomic and structural reforms to long-run economic growth and poverty reduction is now well established. Research has demonstrated that low fiscal deficits and price stability promote economic growth,6 and economic growth is the most significant single element that contributes to poverty reduction.7 Macroeconomic adjustment generally benefits the poor.8 Dismantling product and factor market rigidities helps reduce poverty by increasing not only the supply of essential goods, but also the poor’s access to them.9 In addition, based on cross-country studies, there is increasing evidence that lower inflation also enhances income equality (Milanovic, 1994; Bulír and Gulde, 1995; Sarel, 1997; Bulír, 1998; and Guitán, 1998).

Two Social Sector Issues

Nevertheless, in the short run, measures needed for macroeconomic stability can adversely affect some poor groups, while helping other such groups. For example, currency devaluations may hurt the urban poor who consume imported grains, while helping low-income smallholders producing export crops in rural areas. Mitigating the adverse effects of reform programs on poor groups should be an important aspect of the IMF’s policy advice and program design.

The size and quality of public social spending can affect long-run growth and poverty reduction. The relationship between public social spending, growth, and poverty reduction, however, is complex and dynamic, involving many other factors, including private spending on education and health care. Forging a consensus on a proper balance between macroeconomic stabilization and sound public spending through a participatory dialogue among the government, civil society, and the international community can be facilitated by establishing social and poverty reduction programs that are integrated into a sustainable medium-term budgetary framework.

Key Steps in the Evolution

Over the years, the IMF has taken a progressively more active stance on social policies to ensure that they are well integrated into IMF-supported programs and IMF policy advice. The IMF has strengthened the integration of social policies into its operations by establishing the Structural Adjustment Facility (SAF) in 1986 and its successor, the Enhanced Structural Adjustment Facility (ESAF) in 1987, and the Initiative for Heavily Indebted Poor Countries (HIPCs) in 1996 (Box 2.1).10

A key element of these new instruments has been the collaborative role of the World Bank. The IMF and the World Bank have collaborated through the Policy Framework Paper (PFP) in the ESAF and through the joint HIPC Initiative. More broadly, the IMF has intensified collaboration with other international agencies that have social policy expertise. IMF staff has participated in international social policy forums relevant to the IMF’s economic policy advice. For example, the staff contributed to the discussion at the 1995 World Summit for Social Development in Copenhagen and recently to UN/OECD/World Bank discussions on a core set of international development goals and indicators (Box 2.2). The IMF also has organized conferences on Income Distribution and Sustainable Growth (1995) and on Economic Policy and Equity (1998) (see Tanzi and Chu, 1998; and Tanzi, Chu, and Gupta, 1999). In addition, IMF management and staff have engaged the representatives of civil society groups, including labor unions, NGOs, and religious groups, in a dialogue on social concerns and IMF policy advice. For example, meetings with such groups are now commonplace during staff missions or at headquarters.11

Evolution of the IMF’s Social Policy Advice

Recent Evolution

Specific operational guidance has been provided to the staff of the IMF through Executive Board discussions and guidelines.

  • In the mid-1980s. Board discussions were held on poverty, fiscal policy, and income distribution in IMF-supported programs.1

  • In 1993, the Executive Board considered issues concerning the design of social safety nets and their integration in adjustment programs, and in the mid-1990s the composition of public expenditures.

  • In September 1996, the Interim Committee (now the International Monetary and Financial Committee) stressed the need for an enhanced approach to social sector policies in a declaration entitled Partnership for Sustainable Growth. It states that “because the sustainability of economic growth depends on development of human resources, it is essential to improve education and training; to reform public pension and health systems to ensure their long-term viability and enable the provision of effective health care; and to alleviate poverty and provide well-targeted and affordable social safety nets.”2

  • In June 1997, guidelines for improving the monitoring of social expenditures and social indicators were issued to IMF staff. The social indicators to be monitored included the core set of international development goals and indicators laid out in the March 1995 “Copenhagen Declaration on Social Development and Program of Action” of the World Summit for Social Development. Also, several of the recommendations of a recent external evaluation relating to the social aspects of the ESAF are being incorporated in ESAF-supported programs,3 including through a pilot program for enhanced World Bank-IMF collaboration launched in 1998. Under this pilot program. World Bank and IMF staff work with six countries to make deeper assessments of the social impact of adjustment policies and to address these effects in the design of the countries’ IMF-supported programs.

  • More recently, especially in the aftermath of the Asian financial crisis, the Managing Director, Michel Camdessus, has stressed the need for a social pillar in the architecture of the international financial system.

Current Developments

  • The World Bank was requested by the Development Committee in October 199S to develop general principles of good practice in social policies, and a paper was discussed at the Spring 1999 Meeting of the Development Committee. The President of the World Bank, James Wolfensohn, has also proposed a Comprehensive Development Framework, A social pillar would need to be founded on a strong statement of social objectives by countries in their policy frameworks, supported when needed by external financial and technical assistance.

1 See, for example, IMF (1996) and various Development Committee documents.2 See IMF (1996).3 See IMF (1997) and Abed and others (1998) for the internal review of ESAF.

International Social Development Goals and Performance Indicators

Goals of Social Development

Since the early 1990s, various global UN conferences have established goals for social policies, as well as for the environment, human settlements, human rights, drug control, and crime prevention. In particular, the Copenhagen Declaration on Social Development (March 1995) laid out a program of action that, among other things, included the goals of eradicating poverty, promoting social integration, and achieving universal and equitable access to education and primary health care.

Key goals of social development are, by the year 2015, to

  • reduce the proportion of people living in poverty by at least one-half relative to 1993;

  • achieve universal primary education in all countries;

  • make progress toward gender equality by eliminating gender disparity in primary and secondary education (to be achieved by 2005);

  • reduce maternal mortality rates by three-fourths and reduce infant and child mortality rates by two-thirds relative to 1990; and

  • provide access to reproductive health services to all individuals of appropriate ages.

Indicators for Measuring Progress

Several sets of social indicators have been identified in various forums to assess social development and monitor key social development goals. Examples of such sets of social indicators are

  • the OECD/UN/World Bank core set of working indicators of international development goals;1

  • the Common Country Assessment (CCA) indicators of the UN Development Assistance Framework (UNDAF);

  • the UN/CCA Task Force on Basic Social Services for All (BSSA) indicators; and

  • the UN Statistical Commission’s Minimum National Social Data Set (MNSDS).2

The IMF has been supportive of these efforts.

The OECD, World Bank, and UN, in cooperation with developing countries and bilateral donors, have established the following working set of core indicators on social development:

  • Poverty: share of the population living below $ 1 a day in purchasing power parity terms; the poverty gap (the resources needed to lift all those below the poverty line out of poverty); prevalence of underweight children under 5 years of age; and the share of the poorest 20 percent in national consumption.

  • Education: net enrollment rates in primary education; completion rate of fourth grade of primary education; and literacy rate of those between 15 and 24 years of age.

  • Gender equality: ratio of girls to boys in primary and secondary education; ratio of literate females to males (ages 15 to 24).

  • Health: infant mortality rate; under-5 mortality rate; maternal mortality rate; percentage of births attended by skilled personnel; contraceptive prevalence rate; and HIV prevalence in pregnant women aged 15 to 24 (for lack of data, currently the overall HIV prevalence rate is used).

In addition, the OECD/UN/World Bank core list includes 6 environment indicators, as well as 10 background indicators of development, such as adult literacy rate, total fertility rate, and life expectancy.

The CCA/UNDAF list includes all indicators in the OECD/UN/World Bank core set, but for some development goals, the list has a more extensive scope, including, for example, more indicators on gender equality and women’s empowerment, child welfare, and food security. In addition, the CCA/UNDAF list has indicators relating to employment, housing, drug control, and crime prevention.

Compared with the CCA/BSSA and MNSDS sets, the OECD/UN/World Bank list is more extensive and includes a wider range of social development indicators. However, the CCA/BSSA and MNSDS sets also include some indicators not found in the OECD/UN/World Bank list, such as average years of schooling (MNSDS) and access to primary health care services (BSSA).

All these sets are intended to be used flexibly, and need to be adapted to the specific circumstances of the country to which they are applied. Indicators may be added if they capture an aspect of social development not included in the sets, while lack of data may require that some indicators be omitted.

1 Available via the Internet: http://www.oecd.org/dac/indicators/htm/tables.htm.2 These indicators and their definitions are available in the World Bank’s World Development Indicators database and in the UN Development Program’s (UNDP) Human Development Reports, which are available via the Internet:http://www.undp.org/hdro/indicators.html#developing.

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