2005) How best to link poverty reduction and debt sustainability in IMF-World Bank Models

ABSTRACT This paper attempts to provide an economic model in the context of develop-ing countries to address the policy strategies related to poverty reduction. With a view to deal with the shortcomings of the existing approaches as regards poverty reduction, this paper develops a model on the basis of the policy framework of the IMF and the World Bank to show how demand growth can be a crucial mechanism in determining the potential rate of growth, and then to suggest ways in which poverty—conceptualised officially in abso-lute terms with a subjective cut-off point (e.g. US $1/$2 a day), and a new objective measure in terms of consumption deprivation—can be linked with the key policy variables contained in the adjustment programmes. A strategy of investment in infrastructure and in human development, and improving access to credit markets, particularly in rural areas to encourage or ‘crowd in ’ private investment is a precondition for growth and poverty alle-viation. Debt relief can only provide a temporary, not a sustainable, solution to the problem of reducing poverty. KEY WORDS: Stabilisation; growth; poverty reduction; debt sustainabilit