A Strategy for Poverty Reduction
(03/97, SOC-103, En, Es) See also Poverty and Inequality
This strategy (GN-1894-5) was formally considered by the Board of Executive Directors and the management of the IDB on February 24, 1997.
Abstract
This paper provides the broad outline of a strategy for poverty reduction. It first describes a strategy for the countries themselves, and then discusses actions that the IDB should take to assist in the implementation of that strategy. It argues that from an income perspective, the basic strategy for eliminating poverty is to help the poor earn their way out of poverty. An important role of government is to choose policies that will induce the private sector--the source of most employment--to create better-paying jobs for the poor. But the government can and should do much more than this. In addition to providing a minimum safety net for the least fortunate, it can directly supply many of the basic necessities that define a minimum standard of living, including safe water and sanitation systems, basic education, and access to health services.
The report explores options in such areas as agriculture, microenterprise, the construction of infrastructure, and the promotion of exports produced with unskilled urban labor. It discusses human capital formation, including education, health and gender-related issues. And it concludes with a look at Bank activities in such areas as information gathering, policy research, country programming, and lending and technical assistance.
The report's Introduction is presented below.
Introduction
The distribution of income in Latin America has always been very unequal, implying that poverty has been far above what would be expected given per capita income. The debt crisis of the 1980s exacerbated the situation. Income fell, inequality increased and the number of people living in poverty rose by at least 40 million or 22 percent during the decade. The urban poor and those living in certain countries, such as Brazil, Peru and several of the smaller resource-dependent countries of Central America and the Caribbean, were hit the hardest by falling living standards. These countries accounted for 85 percent of the increase in poverty over the decade even though they contained less than one-half of the region's population in 1980. Urban poverty rose by almost thirty million, accounting for 70 percent of the total increase. Poverty reflected overall macro economic conditions. Those countries that adjusted early and then recovered, such as Costa Rica and Colombia, managed to reduce their poverty indices over the decade. By contrast those that fell into a destructive cycle of inflation and recession, such as Brazil, Argentina, Peru and Venezuela, or which were unable to find a successful growth strategy, such as Bolivia, Guatemala, Honduras and the Dominican Republic, had very large increases in poverty.
Now that a recovery from the crisis is underway in most countries, reducing or alleviating poverty has become one of the most pressing tasks facing the region and the Bank. The purpose of this paper is to provide a broad outline of a strategy for poverty reduction. It has two main sections, first a descrip tion of a strategy for the countries themselves, and second a discussion of the actions that the Bank should take to assist in the implementation of that strategy.
It should be noted at the outset that given the diversity of conditions in the region, no single set of policies can be applied to all countries. This paper spells out a general approach to the poverty prob lem. But the specific details of how this approach can be applied in key sectors (such as rural develop ment, microenterprise, indigenous people, social investment funds and gender) will be discussed in sector strategy papers. Country papers and poverty assessments will show how the approach can be applied under differing local needs and conditions.
To think clearly about the poverty problem, it is necessary to first agree on what is meant by poverty. The basic definition of poverty is a lack of access to or command over the basic requirements for a minimally acceptable standard of living. That is, a person is poor if he or she has insufficient food or a lack of access to some combination of basic educa tion, adequate health services, clean water, safe sanitation systems and even a safe area in which to live. Economists typically use income as a proxy measure for poverty since income provides the means to guarantee adequate levels of all the other basic necessities. That is why most poverty strate gies, including this one, devote so much attention to income generation as the main solution to the poverty problem.
From the income perspective, the basic strategy for eliminating poverty is to help the poor earn their way out of poverty. To do that the economy has to expand the number of jobs available to the poor and increase the productivity or earning power of the poor in those jobs. Most such jobs will be created in the private sector. The role of government is to choose policies which will induce the private sector to create better paying jobs for the poor.
But the government can and should do much more than this. In addition to providing a minimum safety net for the least fortunate, it can directly supply many of the basic necessities that define a minimum standard of living. Even when the private sector is unable to create enough good jobs to reduce the level of poverty as measured by income, the government can guarantee basic education and access to health services for the poor. It can also build safe water and sanitation systems and guarantee public safety in poor neighborhoods. In short, the government, through the provision of public goods can directly improve the living conditions of the poor. This could go a long way toward reducing the social tension that results when the market economy fails to increase the income of the poor.
Consider first the strategies that will help the poor earn their way out of poverty. All of these strategies will work by raising the wage or income that can be earned by unskilled, poor workers.
Last updated: 05/08/07
