Academic journal article MACLAS Latin American Essays

The Honduran Poverty-Reduction Strategy

Academic journal article MACLAS Latin American Essays

The Honduran Poverty-Reduction Strategy

Article excerpt

In the aftermath of Hurricane Mitch, which caused an estimated $3.8 billion in damages to the economy in October 1998 (Honduras 1999:4), (2) Honduras was declared eligible for external debt relief under the Highly Indebted Poor Countries (HIPC) Initiative adopted in 1996 by the International Monetary Fund (IMF) and the World Bank. (3) Under accelerated debt-relief procedures adopted in 1999, Honduras reached its HIPC "decision point" in July 2000, when the IMF and World Bank accepted its interim Poverty Reduction Strategy Paper (I-PRSP) and the IMF approved the Government's macroeconomic-policy and structural-reform performance under an economic program supported by a three-year Poverty Reduction and Growth Facility (PRGF) loan signed in March 1999. The PRGF provides Honduras concessional balance-of-payments assistance of SDR 156.75 million (about $198 million at the SDR exchange rate on January 1, 2002) over a three-year period. (4) Achieving decision-point status allowed Honduras to gain partial, interim access to external debt relief.

To reach its "completion point" and gain full access to the external debt relief programmed under the HIPC Initiative, (5) Honduras must continue to comply with the conditionality established for its PRGF-supported economic program as well as implement its completed PRSP in a satisfactory manner for at least a year. Although the third year of the PRGF was supposed to have begun in March 2001, compliance problems with some conditions delayed its start until October 5, 2001, when the IMF accepted the final version of Honduras's PRSP (Honduras 2001); the World Bank accepted the PRSP on October 11. If Honduras successfully implements its poverty reduction strategy, it will be able to reach its HIPC completion point as early as October 2002.

This paper discusses recent trends in the incidence of poverty in Honduras, in its various dimensions, as well as the structure and content of Honduras's poverty reduction strategy, or Estrategia para la Reduccion de la Pobreza (ERP). (6) It also examines the participatory process under which the ERP was prepared. Finally, it considers the challenges Honduras will face in arriving at its HIPC completion point and meeting the ERP targets for 2015.

The Dimensions of Poverty in Honduras

The ERP explicitly considers poverty to be a multidimensional concept. In other words, income-based measures of poverty need to be supplemented by other indicators of well-being that provide more insight into the various manifestations of human deprivation. This concept of poverty reflects what is now a broad international consensus. As long ago as 1990, the World Bank's annual World Development Report (WDR) examined poverty not only in its income dimension but also in terms of low achievements in education and health status (World Bank 1990). The WDR for 2000/2001 broadens the concept of poverty to include vulnerability and exposure to risk as well as voicelessness and powerlessness (World Bank 2001).

A broad definition of poverty is important for policy purposes because it makes clear that a focus on economic growth and rising average incomes--while necessary and of primary importance for reducing poverty over the long run--does not attack all of the root causes of poverty, as will be made clear below. Still, income-based measures of poverty are an appropriate starting point for examining the incidence of poverty in Honduras and how it has changed since 1990.

Income-Based Measures of Poverty

Income-based poverty indicators in developing countries must be interpreted with a great deal of caution. International comparisons are especially risky for a variety of conceptual, methodological, and measurement problems that I have discussed elsewhere (USAID 1999:38). It is best under these circumstances to focus on trends in the incidence of poverty in a particular country according to an indicator whose definition and measurement is reasonably consistent over time. …

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