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«The importance of MDGs for Nicaragua 1. The “Millennium Declaration” was unanimously adopted by the 189 member countries of the United Nations at ...»

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Nicaragua: The “Millennium Development Goals” (MDGs) and the

IMF program

By Adolfo José Acevedo Vogl (economist)

The importance of MDGs for Nicaragua

1. The “Millennium Declaration” was unanimously adopted by the 189 member countries of

the United Nations at the conclusion of the Millennium Summit held in New York in

September 2000. In the declaration, all signatory states undertook to spare no efforts to

“free our fellow men, women and children from the abject and dehumanizing conditions of extreme poverty”.

The declaration incorporated a list of eight “Millennium Development Goals” (MDGs). At the same time, the MDGs include 18 measurable and time-bound targets.

Millennium Development Goals Goal 1: Eradicate extreme poverty and hunger Target 1: Reduce by half the proportion of people living on less than a dollar a day Target 2: Reduce by half the proportion of people who suffer from hunger Goal 2: Achieve universal primary education Target 3: Ensure that all boys and girls complete a full course of primary schooling Goal 3: Promote gender equality and empower women Target 4: Eliminate gender disparity in primary and secondary education preferaably by 2005, and at all levels by 2015 Goal 4: Reduce child mortality Target 5: Reduce by two thirds the mortality rate among children under five Goal 5: Improve maternal health Target 6: Reduce by three quarters the maternal mortality ratio Goal 6: Combat HIV/AIDS, malaria and other diseases Target 7: Halt and begin to reverse the spread of HIV/AIDS Target 8: Halt and begin to reverse the incidence of malaria and other major diseases Goal 7: Ensure environmental sustainability 1 Target 9: Integrate the principles of sustainable development into country policies and programmes; reverse loss of environmental resources Target 10: Reduce by half the proportion of people without sustainable access to safe drinking water Target 11: Achieve significant improvement in lives of at least 100 millon slum dwellers, by 2020 Goal 8: Develop a global partnership for development Target 12: Develop further an open trading and financial system that is rule-based, predictable and non-discriminatory, includes a commitment to good governance, development and poverty reduction – nationally and internationally Target 1 Address the least developed countries’ special needs.

This includes tariff- 3:

and quota-free access for their exports; enhanced debt relief for heavily indebted poor countries; cancellation of official bilateral debt; and more generous official development assistance for countries committed to poverty reduction Target 14: Address the special needs of landlocked and small island developing States Target 15: Deal comprehensively with developing countries’ debt problems through national and international measures to make debt sustainable in the long term Target 16: In cooperation with the developing countries, develop decentand productive work for youth Target 17: In coopertation with pharmaceutical companies, provide access to affordable essential drugs in developing countries Target 1 In cooperation with the private sector, make available the benefits of new 8:

technologies – especially information and communications technologies These Goals are understood as specific commitments to achieve poverty reduction in its different dimensions (income poverty, hunger, diseases, lack of adequate housing and exclusion), while promoting gender equity, education and environmental sustainability.

They also represent commitments to make progress in the fulfillment of fundamental human rights set out in the “Universal Declaration of Human Rights”.

In order to achieve these “Goals”, developing countries in association with developed ones shall make considerable efforts and allocate huge resources to be invested in their fulfillment. The importance of these goals and also the dimension of efforts required to achieve them, implies that the economic and social policy of developing countries should necessarily place the fulfillment of MDGs as their top priority.

The importance of achieving the MDGs for a country like Nicaragua is quite evident.

Nicaragua is among the poorest countries in Latin America, together with Haiti, Bolivia and Honduras.

At the same time, the country registers higher-than-expected “income poverty” levels if compared to per capita income levels. In fact, Nicaragua shows a much higher percentage of people living on less than US$2 and US$1 a day (measured in terms of PPP) than Honduras and Bolivia, notwithstanding that per capita income levels in the three countries are quite similar.

–  –  –

This outstanding difference between poverty indicators in both countries is due to the fact that poverty levels in terms of income, not only depend on average per capita income levels but also on the way in which such income is distributed among the different sectors of the population.

In this case, the income poverty rate for the population – measured by the % of people living on less than US$2 and US$1 a day – is much higher in Nicaragua than in Bolivia and in many other poorer countries across the world, since income distribution in Nicaragua is noticeably more unequal.

Therefore, poverty reduction policies should lay special emphasis on measures aimed at achieving a more equitable distribution of income.

2. Another important feature with regards to Nicaragua is the fact that children (as rated by UNICEF) make up 51% of the population. Given this high proportion of child population - 4 out of 10 Nicaraguans are of school age – education, just on account of this, should represent a key priority for Nicaragua’s society.

Contrary to this, the country shows a particularly marked backwardness in the area of education with respect to the Latin American average and even to countries that are as poor as Nicaragua within the region. In fact, if we compare for example Nicaragua’s education indicators with those of Bolivia, we find that in all of them Bolivia is placed in a much better situation than Nicaragua.

Thus, while the net primary school enrolment rate in Nicaragua reached 80% in 2005 – a level similar to that registered in the world’s poorest countries, which are on average nearly twice as poor as Nicaragua – in Bolivia, a country which in relative terms is as poor as Nicaragua, this indicator amounts to 95%. The net secondary school enrolment rate in Nicaragua stands only at 41% - this rate implies that 6 out of 10 young people of secondary school age remain out of the education system – and is similar to that registered in Mozambique – an African country with a per capita income 40% lower than that of Nicaragua –, while the net secondary school enrolment rate in Bolivia reaches 71%.

The primary school completion rate stands at 100% in Bolivia, versus 74% in Nicaragua (the world’s lowest-income countries reach on average 71%).

3. At the same time, Nicaragua’s social spending per capita in 2002-2003 (US$68 per capita in 2000 dollars) nearly halved Honduras’ social spending per capita (US$126 per capita) and halved that of Bolivia (US$136 per capita), countries which in relative terms are as poor as Nicaragua.

1 It is difficult to find such large percentages of people living on less than US$2 and US$1 a day, even in the world’s poorest countries. Maybe the country that stands closer to Nicaraguan rates is Malawi, whose per capita GDP (in PPP) is five times lower than that of Nicaragua. In Malawi, 76% of people live on less than US$2 a day, and 42% on less than US$1 a day, compared to Nicaragua’s 79.9% and 45%.

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Finally, the rate of undernourishment (hunger) among Nicaraguans amounts to 27% of the population, while the average rate in the world’s lowest-income countries stands at 24.6% and in Latin America at 10.2%.

4. It is evident that the future of our societies shall not be possibly better than the present of its children and youth; therefore, it should be equally obvious that the lack of capacity to currently address their basic needs it is nothing but a sure way to mortgage their future and that of their families and our own societies.

Future prospects are hardly promising for a country that leaves 7 out of 10 early school-age children, 2 primary school-age children and 6 out of 10 young people of secondary school age without educational opportunities, while it offers those attending the public education system a poor quality education.

An extremely unequal income distribution which translates into a high proportion of people that should live on less than US$2 and US$1 a day, unavoidably results in very large sectors of the population – comparatively larger than in countries showing lower levels of inequality – being devoid of any possibility of having access to basic social services by their own means.

This will strongly affect children which in numeric terms make up most part of the population living in low-income households due to the high fertility and dependence rates that are characteristic of such households.

In a situation like this, key relevance is gained by public policies that become materialized through Public Budgets when it comes to making up for deep inequalities, thus ensuring a trend towards the universal access of citizens to quality education and health care. By means of this, the country is also assured the provision of the essential human capital required to be able to recover basic perspectives for the future.

Public policies should also lay special emphasis on achieving a progressive tax structure, which may allow to obtain the revenue needed to finance the levels of capital and human development investment required in order to enable the large sectors of excluded population to have access to good-quality social services.

As acknowledged by Rodrigo Rato, IMF Managing Director, according to statements made during his visit to newspaper El Comercio, Peru, “IMF: taxes in Latin America are ‘unfair a distorting’ (February 21, 2005)”, the tax system in Latin America is both nd inefficient and inequitable. Tax systems in the region are inefficient due to the fact that tax collections on average only account for 16.8% of GDP (a level just reached by Nicaragua in 2004), and “it is impossible to develop neither social policies nor development policies, nor policies of any kind with such tax management”.

They are also regressive: “one of the most important obstacles is posed by a ‘very bad’ tax system in most countries, where those who have less should pay relatively more than rich 4 people to the State, thus perpetuating extreme inequality in the region. Instead of collecting taxes according to income, some governments depend on taxes on consumption, such as the VAT, which affect the whole population on an equal basis”.

Other well-known economists agree on this: “Latin American countries, above all Central American ones, have very low levels of taxation. It is a widespread opinion among the international community that in countries showing such inequalities, as is the case in most Central American countries, it is up to the wealthiest sectors of society to undertake more commitments to the poorest ones by means of increased taxation” (José Antonio Ocampo, UN Under-Secretary General for Economic and Social Affairs and former Executive Director of ECLAC).

"(In Latin America) the rich have long fought against taxation needed to increase investment in the education and health of the poor, perpetuating deep social divisions and leaving many people without the health and skills that global competitiveness requires” (Jeffrey Sachs, special development advisor to the UN Secretary-General, coordinator of the recent UN report on the Millennium Development Goals, Project Syndicate)

IMF “conditionality” constrains the achievement of MDGs

5. The achievement of MDGs, in the case of Nicaragua – as in the case of many developing countries – is closely constrained by the relationship of the country with the IMF. In fact, in the case of less developed countries, it should be expected that IMF programs, which severely constrain the whole framework of economic and social policies, should also have as main purpose to contribute to the achievement of these Goals, which were unanimously adopted by Heads of State from all over the world.

In particular, Nicaragua has maintained agreements with the IMF since 1992, when it signed a Stand-By agreement with this institution. Later on, the country adopted two ESAF programs with the IMF, which were then replaced by the recent PRGF programs, which operate within the IMF’s Poverty Reduction and Growth Facility. As a whole, the country has already accumulated 14 years of consecutive programs with this institution.

The main difference between an IMF’s PRGF Program and the more conventional “Stabilization and Adjustment” Programs is that PRGF programs were theoretically intended to support the poverty reduction efforts of those highly indebted poor countries to be accepted within the framework of the HIPC Initiative.

A PRGF Program supported by the HIPC Initiative implies that the country in question should draw up a “Poverty Reduction Strategy”, which would supposedly represent the core of the program. At the same time, the HIPC Initiative should be releasing significant resources, previously allocated to external debt payment, which would provide the additional financial margin required to face the increased social spending needed for poverty reduction. 2 2 “An underlying principle of the HIPC Initiative is that all the additional funds made available through the

Initiative be converted into additional spending on poverty reducing activities” (World Bank, “Nicaragua:

Public Expenditure Review”, December 2001). On the other hand, this is stated on the Agreement signed

between the Government of Nicaragua and the Paris Club with regards to the relief granted by the latter:

"Nicaragua is committed to devote the resources freed by the present exceptional treatment of the debt on priority areas identified in the country’s poverty reduction strategy".

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