The Honduran poverty-reduction strategy.

Publication: MACLAS Latin American Essays

Publication Date: 01-MAR-02

Bookmark this article Print this article Link to this article Email this article Digg It! Add to del.icio.us RSS

COPYRIGHT 2002 Middle Atlantic Council of Latin American Studies

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.

A satisfactory although far from perfect income-based indicator of poverty is available in Honduras from the multipurpose household surveys that have been conducted, semi-annually in most years, for more than a decade. A reasonably consistent measure of the incidence of poverty is available since 1991, and these figures are provided in Table 1. Some international observers would maintain that the data in Table 1 overstate the incidence of poverty in Honduras, as the figures seem high compared to other countries with similar levels of income and patterns of income distribution. (7) Precisely because of the noncomparability of data among countries, the trend shown by these data is more interesting than the level of poverty they suggest.

The meaning of this trend, however, is not entirely clear. The high 1991 figure--nearly 75%--may have been a temporary spike reflecting the effects of the release of repressed inflation in 1990 when the exchange rate was devalued and various price controls were eliminated or reduced. If one accepts this to be the case, then the reduction in poverty since the early 1990s is relatively modest--from about 70% to about 65%--and roughly in line with what one might expect given the relatively slow economic growth experienced by the country over these years. (8)

Moreover, the actual decline may have been even less that what the figures in Table 1 show. Calculations by the World Bank indicate that the rise in real incomes reported by the household surveys between 1991 and 1999 partially reflects improvements in the measurement of income over this period. Comparisons between data from the household surveys and the national accounts suggest that the degree to which the surveys underestimate income was reduced over these years. In other words, part of the increased real income reported by the surveys reflects a gradually more complete measurement of income, rather than an actual increase. On the other hand, both the level of GDP and its growth since 1990 are likely underestimated, in part because the national accounts do not fully account for the very rapid growth of the maquila (assembly) sector. If the GDP growth rate were indeed higher than reported, the World Bank's downward adjustments to the income growth reported in the household surveys are overstated. Taking these various considerations into account, a reasonable conclusion is that the incidence of income-based poverty in Honduras has declined over the last decade, but not by much.

Table 1 shows that rural poverty has averaged nearly 14 percentage points higher than urban poverty since 1991, and has shown less of an improvement. Rural-urban differences, and the lack of improvement in rural areas, are even more evident in the data on extreme poverty (households with insufficient income to acquire enough food to meet minimum nutritional requirements), which continues to affect nearly half the country's population, and about 60% of rural residents.

Unsatisfied Basic Needs

Poverty may also be defined in terms of the satisfaction of "basic needs," which of course may be defined in many different ways. The Honduran household surveys provide data on six such basic needs: potable water;...

Read the full article for free courtesy of your local library.