The poverty reduction strategy paper of Honduras and the transformations of neoliberalism.

Ruckert, Arne

Introduction

With the introduction of the Poverty Reduction Strategy Paper (PRSP) development approach in 1999, the international financial institutions (IFIs) have reacted to some of the criticisms raised against structural adjustment policies (SAPs), and more broadly the neoliberal development paradigm, particularly relating to the social impacts of neoliberal reforms and the lack of ownership of development policy. Initially greeted with great hope not only by the international donor community but also by large segments of civil society, recent evaluations of the PRSP process, even by the IFIs themselves, have been more somber (e.g., International Monetary Fund [IMF] and World Bank 2005; IMF 2007). Not surprisingly, most IFI critics have argued that PRSPs represent "old wine in new bottles" or "policy window-dressing," and that PRSP implementation has resulted in little significant changes in neoliberal development policy (e.g., Fine 2001; Cammack 2004; Fraser 2005; Soederberg 2005).

A decade into the PRSP process, this article provides a comprehensive look at the PRSP approach and arrives at slightly different conclusions than most IFI critics. It argues that recent changes in IFI development policy have resulted in the emergence of a more inclusively oriented neoliberal development regime that combines the emphasis on sound macroeconomic policy with more interventionist social policy. To substantiate this argument, the article traces the similarities and differences between SAPs and PRSPs, and excavates the transformative elements of the Post-Washington Consensus (PWC) and its most visible policy tool, the PRSP. The article draws on and conceptually elaborates the notion of "inclusive neoliberalism" (Craig and Porter 2004, 2006; Ruckert 2006, 2007; Macdonald and Mahon 2009), and uses a case study of Honduras' experience with the PRSP process to empirically substantiate the claims surrounding the transformations of neoliberalism. (1) Inclusive neoliberalism arguably represents a new phase of more socially interventionist and ameliorative forms of neoliberal governance that selectively combine little-modified macroeconomic neoliberal policies with more interventionist and expansive social policies to attenuate the social impacts of neoliberal reforms and prop up (increasingly failing) market mechanisms.

The article proceeds in three parts. It first provides a brief introduction to the PRSP approach and discusses the various ways in which PRSPs are expected to differ from earlier SAPs. This section develops the idea that a more inclusively oriented neoliberal world development order has been emerging with the turn toward the Post-Washington Consensus. This discussion draws predominantly on policy advice emanating from various World Bank publications, especially the Sourcebook for Poverty Reduction Strategies (Klugman 2002a, 2002b). The second part contains a discussion of Honduras' experience with the PRSP approach and is largely based on semi-structured interviews conducted in Tegucigalpa in 2005. The main goal of this section is to delineate the various substantive similarities and differences between Honduras' PRSP and previous generations of adjustment policies. This discussion documents the continuity in macroeconomic policy between SAPs and PRSPs, and shows that (neoliberal) conditionalities have mushroomed in the PRSP process, despite IFI claims regarding the "streamlining of conditionality" linked to the notion of country ownership (Khan and Sharma 2001). This section nevertheless shows that Honduras' PRSP also promotes some "progressive" social policy elements, aimed at better including the poor into capitalist market structures, such as the expansion of existing social safety nets and the provision of conditional cash transfers (CCTs).

In the third section, the article focuses on the procedural differences between SAPs and the PRSP, discussing the role of civil society in the elaboration of the national PRSP. While inclusion into the political process through extensive consultation is a cornerstone of the PRSP approach, the actual participation of civil society in Honduras turned out to be extremely shallow. The article concludes by suggesting that the policy changes linked to the introduction of the PRSP approach do not amount to a paradigm shift, but should rather be seen as experimental forms of poverty management within the (highly exclusive) neoliberal order, with the aim of strengthening and extending neoliberal governance modes by way of socially re-embedding (increasingly failing) market mechanisms (Maxwell 2003; Weber 2006).

The PRSP Approach and the Emergence of Inclusive Neoliberalism

The PRSP approach surfaced in the late 1990s as part of the larger shift from the Washington to the Post-Washington Consensus, and in combination with the Comprehensive Development Framework (CDF), first propagated by the World Bank under the leadership of James Wolfensohn. The CDF represents the overarching policy framework under which PRSPs, the most visible policy tool of the PWC, operate. The CDF emphasizes the interdependence of all elements of development--social, structural, human, economic, environmental, and financial--and advocates a holistic long-term strategy, focusing on three pillars in particular: poverty reduction and the poverty sensitivity of all development policy; country ownership; and civil society participation in the development of all PRSPs (Wolfensohn 1999; Klugman 2002a, 2). Despite the claim of country ownership, the IFIs have identified a number of "best practices" in the two volumes of the Sourcebook for Poverty Reduction Strategies that they expect developing countries to follow in the implementation of PRSPs. In the Sourcebook, the IFIs note that "[w]hile the shift to country ownership will allow more leeway in terms of policy design and choice, acceptance by the Bank and the IMF boards will depend on the current international understanding of what is effective in lowering poverty," especially in relation to macroeconomic policy (Klugman 2002a, 4).

The IFIs also lay out in more detail in the Sourcebook what they consider to constitute "sound macroeconomic policy" that should be universally applied in all developing countries. At the heart of the macroeconomic policies promoted by the IFIs in the Sourcebook are the well-known suspects of the Washington Consensus, especially trade and financial liberalization, privatization, fiscal prudence and low inflation, civil service reform, and deregulation of labour markets (Klugman 2002b, 4). Although neoliberal policies of privatization and liberalization generally remain privileged in the Sourcebook, the World Bank and the IMF nevertheless more openly acknowledge the significant negative side effects of these policies than in the past, and articulate the need to compensate more effectively those negatively affected by neoliberal adjustments. For example, in its discussion of trade liberalization, the World Bank maintains that "complementary policies--particularly the provision of an effective social safety net--are therefore necessary to minimize adjustment costs and to help make trade reform work for the poor" (Klugman 2002b, 33). Additionally, sequencing of trade liberalization is perceived as an alternative to speedy across-the-board liberalization, as it will allow market participants to slowly adapt to their new market-driven environment (Klugman 2002b).

Similarly, while the World Bank might have taken a more poverty-sensitive stance on privatization, it does not break with the neoliberal logic of commodification but suggests that developing countries should subsidize those that cannot become "normal customers" and effectively participate in market transactions, after public utilities have been privatized (Klugman 2002b). What is more, all proceeds from privatization processes are expected to be invested in poverty reduction programs and conditional cash transfers to the poor (as discussed in more depth later in this article). These pro-poor elements could be understood as material incentives so as to make neoliberal restructuring processes less controversial and build local support for IFI-sponsored privatizations (Vetterlein 2007). However, the limits to social compensation are set by the overall expenditure framework that, in practice, continues to be largely dictated by the IMF and remains in line with monetarist thinking, thus strictly limiting the extent to which governments can freely spend on social compensation efforts (Gottschalk 2005). Therefore, a central contradiction of inclusive neoliberal policy arguably lies in the incompatibility of neoliberal macroeconomic and poverty-sensitive social policies (McKinley 2005), an issue that will resurface in the discussion of Honduras' experience with the PRSP process.

Similarly to the policy framework component, which prescribes the types of macroeconomic policies that developing countries are expected to implement, there is a process component outlined in the Sourcebook that emphasizes the importance of civil society participation in the elaboration of national PRSPs. In fact, one of the declared aims of the PRSP process is to broaden the participation of civil society and especially of the poor, ensuring the broad involvement of all elements of the domestic constituency. This is also considered to be one of the crucial dimensions differentiating the PRSP approach from previous structural adjustment reforms (Brown 2004, 238). The inclusion of civil society through participation in the elaboration of the PRSP arguably represents the second key pillar of inclusive neoliberal development policy. Although the idea of civil society participation is not an entirely new element in IFI discourse, it nevertheless has reached a new level of operationalization with the PRSP (Fraser 2005, 321).

Unlike with the policy component of the PRSP, however, there is no clear outline of what represents proper participation, and an in-depth analysis by the IFIs of participation and the extent to which Civil Society Organizations (CSOs) and the poor participated in the formulation of PRSPs remains absent. What is more, the mechanisms of participation can be varied according to the Bank, including participatory research (i.e., perceptions of the poor), information dissemination, consultation--informal and structured--and the formation of committees and working groups on issues dealt with in the PRSP (Klugman 2002b). The Bank also stresses that the participatory process itself will vary greatly from country to country because of each developing country's unique set of political and social institutions, and an idiosyncratic history of civil society participation. As is highlighted in the World Bank's Sourcebook: "[T]here is no blueprint for participation, especially at the macro-economic level. On the contrary, there are a number of choices given a country's particular context, its starting points, what is considered feasible in that country and what outcomes it hopes to achieve" (Klugman 2002b, 238). This raises the question of why participation has been included at all if the Bank will not properly evaluate the extent to which the voices of non-governmental organizations (NGOs) were incorporated into national PRSPs. In this context, critical voices have argued that the main goal of civil society participation might not lie in the incorporation of alternative ideas into the PRSP, but rather in the co-optation of NGO voices, with the ultimate goal of disarming criticism and creating a stronger consensus around the content of the PRSP, whose (inclusive neoliberal) parameters have been largely defined by the IFIs in the Sourcebook before participation even begins (e.g., Fraser 2005; Mouelhi and Ruckert 2007).

To sum up, there are both a number of substantial similarities but also important discontinuities between orthodox neoliberal policies promoted through SAPs during the eras of the Washington Consensus and the inclusive neoliberal policy mix emerging under the Post-Washington Consensus and articulated in the Sourcebook. Most notably, both policy regimes promote "sound macroeconomic policies," espouse a belief in market- and export-driven development, best expressed in the push for further liberalization, deregulation, and privatization, and overall support market solutions to the developmentproblematique. At the same time, the Post-Washington Consensus remains deeply conservative in fiscal and monetary matters. Yet, while many IFI critics have questioned the extent to which the shift from SAPs to PRSPs is real, and not merely rhetorical, it is also clear that the PRSP approach has implied a minor shift in the focus of development policy from the economic to the social sphere, by acknowledging that poverty reduction cannot be achieved without sustained government interventions and more active social policy.

This progressive turn is most visible in the promotion of social safety nets and the provision of (currently though still very limited) cash subsidies to the poor through conditional cash transfer programs, and the intrusion of IFI conditionalities into the social realm. (2) At the same time, the Heavily Indebted Poor Country (HIPC) debt relief initiative requires (under the banner of "aid additionality") that all resources freed up in developing countries through debt relief must be spent on social service delivery to the poor and poverty reduction programs, which must be additional to pre-existing social programs. (3)

This turn in IFI development strategy can be conceptualized as a move toward inclusive neoliberalism, defined as the grafting of a positive liberal emphasis on empowerment and participation onto lit tle modified neoliberal macroeconomic policies (Meltzer 2009, 102), and creating a new policy mix that allows neoliberal reforms to persist by way of a shallow re-embedding of markets through the promotion of greater citizenship participation and social inclusion through consumption subsidies (Craig and Porter 2006, 12). To further illustrate the emergence of inclusive neoliberal development policy and empirically document this shift on the ground, the following section will interrogate Honduras' experience with the PRSP process.

Macroeconomic Continuity in Honduras' Poverty Reduction Strategy

Honduras entered the PRSP process as one of the few Latin American countries that qualified for the Heavily Indebted Poor Country (HIPC) debt relief initiative. Given the lackluster performance of the Honduran economy during the implementation of SAPs in the 1990s and the failure to significantly reduce the levels and depth of poverty, Honduras' participation in the HIPC initiative was expected to free up resources for social investments previously committed to debt servicing and provide space to develop a nationally owned development strategy in a participatory process that would lead to better economic growth performance and concomitant poverty reduction (IMF and International Development Association [IDA] 2000). (4) How to invest the savings from debt relief is outlined in Honduras' PRSP, which the government started to develop in 2000 and which was delivered to the IFIs in August 2001.

The arrival of the PRSP approach arguably marks a new era in Honduran politics, following a period of sustained transformations in the 1990s, characterized by state retrenchment and the implementation of IFI-style structural adjustment policies (Robinson 2003, 119). As part of this neoliberal transformation, government spending was reduced significantly, through the cutting of more than 20,000 government jobs and the shrinking of government budgets. This period also witnessed the beginning of the liberalization and deregulation of the economy as import tariffs were significantly reduced, interest rates deregulated, interest rate ceilings abolished, and consumption taxes raised, while corporate and personal income taxes were slashed (for a more detailed discussion see Robinson 2003). Nevertheless, a whole range of neoliberal reforms promoted by the World Bank in the area of private sector participation were not enacted during the 1990s, as the privatization of public utilities lacked support within the Honduran Congress and traditional civil society actors upheld their opposition to the liberalization and privatization agenda of the Callejas administration (Cuesta 2007, 337). However, some of these (strongly contested and successfully opposed) neoliberal policy elements have returned in the PRSP process as conditions attached to debt relief and were finally implemented.

In fact, in macroeconomic terms, the PRSP contains few surprises and continues with the belief, grounded in the Washington Consensus, that rapid economic growth is the key to sustainable poverty reduction. The PRSP articulates the ambitious goal of GDP growth of 4.5% over the period of 2001-09. This is a rather ambitious goal given the poor economic performance of the Honduran economy over the past 15 years when per capita GDP growth has averaged 0.6%. The two key factors singled out in the PRSP for explaining this poor growth performance are low labour productivity linked to low levels of educational attainment and the concomitant scarcity of human capital, and high population growth (Government of Honduras 2000, 36). Interestingly, there is no discussion of the way in which Honduras is (unevenly) integrated into the global economy and thus dependent on a very narrow range of export commodities, and there is no mention of the failure of neoliberal policies to induce significant economic growth in Honduras throughout the 1990s.

Given the lacklustre economic performance during the reign of SAPs in Honduras, it is surprising that at the heart of the economic growth strategy outlined in the PRSP is the notion that the series of [neoliberal] economic measures adopted during the 1990s have had a positive impact on the growth of the Honduran economy and that the completion of structural adjustment policies will be instrumental to the revival of the economy (Government of Honduras 2000, 2001). In fact, the most important measures identified to boost economic growth include further deregulating and opening up the economy to external investors and products, and the completion of those structural adjustment measures that had not been completed prior to the PRSP process due to popular resistance, such as the privatization of important state enterprises, and the further liberalization of trade.

Regarding privatization, the PRSP notes that the government aims to promote greater participation of the private sector in the provision of public services (Government of Honduras 2001, iv). This is in line with expectations from the IMF articulated in the Poverty Reduction Growth Facility, the IMF's counterpart to the PRSP, and the decision point document of the HIPC initiative where a number of performance criteria are linked to the privatization of state utilities. (5) These include the privatization of telecommunications (Hondutel), the privatization of electricity distribution (ENEE), the privatization of water and sewer management, and the privatization of port facilities and the issuance of airport concessions (IMF and IDA 2000, 10). These privatizations are politically very sensitive as both Congress and CSOs have in the past raised concerns regarding the social impacts of them. In fact, most NGOs argue that poverty and social impact analyses (SIAs) should be conducted prior to any further privatization (Interview Interforos, Tegucigalpa, 21 July 2005). While the privatization of state utilities has been promoted largely unsuccessfully in the past due to popular resistance and the Congress's hesitant approach to privatizations, directly conditioning debt relief upon a number of state utility privatizations has meant that several privatization processes were finally completed during the implementation of the PRSP. Various politicians have publicly noted that their hands have been tied, as Honduras desperately needed access to debt relief funds and hence had to comply with IFI demands regarding privatization (Interview UNAT [La Unidad de Apoyo Technico de la Presidencia], Tegucigalpa, 25 July 2005).

Regarding trade liberalization, the IFIs note in the HIPC decision point document that "there is a need for further trade liberalization (reduce dispersion of rates and rationalize protection in the agricultural sector)" as dispersion of tariffs translates into high effective protection rates (IMF and IDA 2000, 47), while acknowledging the achievements made during the 1990s, the decade of intense structural adjustment in Honduras. These "achievements" include the liberalization of export restrictions and the steep reduction of average simple tariffs (see also Government of Honduras 2001, 32). In the realm of finance, liberalization had been largely achieved in the mid 1990s with immense negative side effects for small producers, in particular punitive real interest rates and lack of access to credit. The PRSP (in line with the Post-Washington Consensus) focuses on the adequate regulation of liberalized financial markets and highlights the need for prudent oversight of financial markets, largely disregarding the negative social side effects of financial liberalization. The reform proposals include the implementation of new regulations on banks' connected lending, risk-weighted capital, external indebtedness, and open foreign exchange positions (IMF and IDA 1999, 52), but fail to address the issues of access to credit by small enterprises and agricultural producers.

Other key factors that, according to the PRSP, have in the past undermined the economic performance of the Honduran economy are macroeconomic instability and fiscal imprudence (Government of Honduras 2001, 23). The PRSP highlights that competitiveness has been negatively affected by macroeconomic instability, and it promises to adhere more closely to the monetary guidelines stipulated in the agreements between the IMF and the Honduran government. However, the goal of bringing down inflation rates in Honduras is less ambitious than in many other developing countries, with the Honduran government aiming to arrest inflation rates in the single digits (Government of Honduras 2001, iv). Since controlling inflation through monetary policy is difficult in most developing countries, most PRSP documents emphasize prudent fiscal policy as the key to containing inflation (Gottschalk 2005, 431).

This is also the case in Honduras, where prudent fiscal policy is presented as crucial for ensuring macroeconomic stability. In fact, the paramount goal of fiscal policy is to facilitate macroeconomic stability and produce balanced budgets, to be achieved by tightly controlling state expenditures, in particular the growing wage bill of the public sector. To this end, further civil sector reform is necessary in the view of the IFIs, which would allow the Honduran government to revisit wage-setting criteria for civil servants (IMF and IDA 2000, 45) and limit the wage bill to 7.5% of GDP (IMF and IDA 1999, 54).

One of the key criticisms of the original PRSP has been the lack of an effectively articulated accumulation strategy with clear priorities (Cuesta 2007, 341). The government attempted to address this issue in the revised PRSP of 2004, where it acknowledges the need to better invest into the productive infrastructure (Government of Honduras 2004). While the original PRSP predominantly focuses on sound (i.e., neoliberal) macroeconomic policies and investments in social infrastructure to raise labour productivity, the revised PRSP highlights the need to make investments into the productive infrastructure. These investments into the economic and productive infrastructure (ports, highways, telecommunication, and irrigation systems) and the promotion of trade integration are also touted as catalysts for pro-poor growth. Finally, tourism is identified as another catalyst for pro-poor growth, as indigenous and rural communities can market themselves to ecological and adventure/cultural tourists. What is interesting is that the government claims (in line with IFI thinking in the PRSP Sourcebook) that these infrastructural investments and free trade are inherently pro-poor in nature.

Overall, the macroeconomic framework articulated in the PRSP arguably deviates little from the well-known Washington Consensus in terms of monetary and fiscal targets, and continues to promote policies that have been related to growing poverty and inequality, such as private sector participation in the provision of social services, trade and financial liberalization, and "sound" (read: neoliberal) fiscal policy--policies that not only crippled the economies of the developing world but also increased inequality and poverty over the last two decades (Weisbrot, Baker, Naiman, and Neta 2001). To some degree, this is ironically acknowledged in the PRSP process as it is recognized that the state should play a more active role in addressing poverty and improving the social inclusion of the poor.

Social Inclusion Through Better Social Investments

In fact, the Honduran PRSP acknowledges that "although structural adjustment seeks to establish long-term positive effects on production growth rates and therefore on poverty reduction, in the short term, while the economy is being reoriented, some measures can have negative effects on vulnerable groups" (Government of Honduras 2001, 30). What is more, with the introduction of the PRSP process, IFI conditionalities increasingly go beyond macroeconomic policy and have started to intrude into the realm of social policy, including measures such as the erection of social safety nets and increased social investments in education and health. As the following discussion will highlight, the Honduran PRSP and IFI conditionalities indeed contain a number of initiatives that fit well with the inclusive neoliberal policy paradigm that is currently emerging in the world development order.

A number of conditionalities attached to the granting of debt relief explicitly aim at pro-poor spending targets and social investments. For example, to arrive at completion point of the HIPC initiative, the IFIs expect the Honduran government to strengthen the basic health services for the poor by improving access through focusing on the neediest and deliver a package of basic health services to at least 100,000 beneficiaries in poor communities (IMF and IDA 2000, 13). What is more, the pilot social safety net that was erected in response to the social dislocations caused by adjustment measures in the 1990s is expected to be expanded and better targeted at the most needy, with greater participation by the poor in project planning. Moreover, all proceeds from privatizations must be channeled into poverty reduction projects and programs, while education is expected to be improved through the implementation of community participation in the management of schools in at least 1,350 schools (IMF and IDA 2000, 14).

Those specific goals are to be achieved through significant increases in investments into the health and education sector, which will not only help to lift the poor out of poverty but will also contribute to augmenting human capital, thus attacking the productivity malaise of the Honduran economy (Government of Honduras 2001, 35).

Paramount to achieving this is the the Programa de Asignacion Familiar (PRAF), or Family Assistance Program, a CCT program that was initiated in 1990 as a social safety net to compensate the poor for lost purchasing power and to ease the burden of macroeconomic adjustments, with financial support from USAID and the Interamerican Development Bank (IDB 1998, 1). However, the PRAF was restructured in 1998, and with the introduction of the PRSP it was renamed PRAF-IDB Phase II. The program was expected to be significantly expanded through the PRSP process, using debt relief funds in an effort to better address the educational and health needs of poor households (IMF and IDA 2000a, 14). The stated goal of the program is "to increase the accumulation of human capital among children of the very poorest families and thereby help to break the cycle of poverty" (IDB 1998, 1). The PRAF contains a number of cash transfers in the area of education and health to families living in extreme poverty, subject to observance of certain rules and conditions, such as regular school attendance and health clinic visits.

In 2005, Honduras reached the completion point of the HIPC initiative after complying with all but one conditionality, financial sector reform, in particular the application of the Basle Core Principles to the banking sector (IMF and IDA 2005, 17). Thus, where previous agreements between the IFIs and Honduras failed to convince the government to implement the most fiercely contested neoliberal policies (such as utility privatizations), the HIPC initiative and the PRSP process finally succeeded, and liberalization and privatization policies were pushed through the Honduran Congress. The promise of debt relief served as an incentive to implement neoliberal policies that were only partially implemented in the past.

Finally, although some of the pro-poor elements of the inclusive neoliberal model can be identified in the Honduran PRSP, the actual implementation of Honduras' PRSP has not lived up to the expectations and goals articulated in the PRSP, especially in relation to poverty reduction. In the HIPC completion point document, the IFIs welcome the "broadly successful implementation of the PRSP, both in terms of poverty-reducing spending and of improvements in the PRSP indicators" (IMF and IDA 2005, 10), and note that three out of four monitorable goals have been met in 2004. Also, overall PRSP spending has been on the rise and the education and health sectors received significant injections of new money, bringing the level of social spending up from 44% of GDP in 2000 to 49% of GDP in

2002 and 51% in 2004 (Dijkstra and Komives 2009, 15), providing further support for the argument that neoliberal policies have become more inclusively oriented. What is more, many poverty alleviation programs received new funding as a rising share of GDP has been devoted to poverty reduction, increasing from 7% of GDP in 2000 to 8.4% in 2004 (Government of Honduras 2005, 27).

However, aggregate data can be deceiving and have to be disaggregated to paint a meaningful picture. In a more recent poverty analysis the IFIs do just this and argue that only 54% of all PRSP spending actually ended up supporting the poor and complain that PRSP spending has a relatively low level of targeting in Honduras (World Bank 2006, 76). This is an astonishing finding that shows that almost half of the money freed up through debt relief that was expected to benefit the poor was allocated to the non-poor. Similarly, Dijkstra and Komives estimate that the richest 40% of households together absorbed more than 30% of PRSP expenditure (2009, 16). Thus, it is no wonder that actual poverty reduction results have been largely disappointing and progress on social indicators has been mixed. Between 2000 and 2004, the monetary poverty rate remained almost unchanged, as extreme poverty decreased mildly from 49% to 44.6%, while poverty decreased even less significantly from 66% to 64.2% (IMF and IDA 2005, 11), before dropping in 2006 and 2007, however, to just over 60%. Nevertheless, this level is above the stated poverty reduction goal, which was to reduce income poverty to 57% by 2007. At the same time, there has been some progress on reducing infant mortality rates, and overall school enrollment improved mildly. Yet, inequality increased rapidly in the PRSP era and a whole range of social indicators have either deteriorated or not improved noticeably, such as maternal mortality rates and access to potable water and sanitation (Sistema de Informacion de la Estrategia para la Reduccion de la Pobreza 2009).

The less than stellar performance in the early PRSP period (2000-04) might be linked to the fact that little funding was available to implement the PRSP during 2002 and 2003; a fully funded PRSP that better targeted the poor might have been much more successful in reducing poverty. However, it is the IFIs that are partly responsible for the lack of resources in the early PRSP phase, as they temporarily decided to cut Honduras off from concessional funding in response to what the IMF considered to be an unsustainable fiscal deficit in 2004. This predisposition to privilege macroeconomic over social concerns shows the continuity between inclusive neoliberalism and earlier orthodox neoliberal thinking. Given the insurmountable contradictions and tensions between neoliberal macroeconomic policy and pro-poor social policy, and the failure of the export-oriented neoliberal accumulation model to induce economic growth in the past, it is unlikely that inclusive neoliberalism will in the future be more successful at reducing poverty levels in Honduras.

Civil Society Participation in the Formulation of the PRSP

Inclusion in the political process, in particular civil society participation in the elaboration of poverty reduction strategies, is the second key pillar of the emergent inclusive neoliberal development model. Honduras has had little experience with civil society participation in the formulation of government policy prior to Hurricane Mitch in October 1998. In the aftermath of Hurricane Mitch, however, CSOs played an important role in the coordination effort to provide emergency relief to the affected population and to rebuild the country (Dijkstra 2005). In fact, the government created a new permanent forum for exchange to facilitate CSO participation in the reconstruction process: the Commission for Civil Society Participation. Thus, Mitch marked a new era in the participation of CSOs, with national CSO coalitions such as Espacio Interforos emerging, which also became key players in the PRSP process. Initially, these coalitions attempted to influence the Plan for National Reconstruction and Transformation by lobbying their government, as well as the wider donor community in an ad hoc manner (Possing 2003, 23). However, this participation was somewhat institutionalized through the founding of the Foro Nacional de Convergencia (FONAC), an institutional space where NGOs and the government come together to develop a consensus surrounding national development initiatives reached by CSO participation and dialogue between civil society and the government.

Part of this emerging participatory culture was a social audit process that involved the installation of a Support and Supervision Commission that would include three civil society representatives whose main task was to ensure "that there is no corruption in the contracting and performance of reconstruction work" (Government of Honduras 2000, 85). Finally, the Honduran government has also promoted local government participation in the process of reconstruction, above all in community projects, so that communities can adjust the content of the projects to their idiosyncratic needs (Government of Honduras 2000).

As Dijkstra points out, the growing role of CSOs in Honduran political life is related to the pressure that donor countries and the IFIs put on the Honduran government to include civil society groups in the coordination of emergency relief and the reconstruction of the country in the aftermath of Hurricane Mitch (Dijkstra 2005, 450). This pressure must be placed in the context of strong discontent with neoliberal policies and the lack of legitimacy of SAPs within civil society, and concerns about rampant corruption inside the Honduran bureaucracy. Integrating CSOs into the policy-making process is seen by the IFIs as an important step toward building a national consensus surrounding the neoliberal accumulation model, and enhancing transparency of the political process (Klugman 2002b).

While the PRSP was developed over the period from October 2000 until April 2001 when the Honduran government presented the draft to the public, the consultation process lasted from December 2000 until April 2001. The organization of the participatory process was in the hands of the Social Cabinet in collaboration with the Commission for Civil Society Participation (Government of Honduras 2001, 3). This Commission included representatives of the National Convergence Forum (FONAC), Espacio Interforos, the Association of Honduran Municipalities, the Federation of Private Development Organizations of Honduras (FOPRIDEH), and the Chambers of Commerce and Industry of Tegucigalpa and Cortes. However, FOSDEH (Foro Social de la Deuda Externa y Desarollo de Honduras) and Espacio Interforos, two key umbrella NGOs representing a significant part of Honduran civil society, and in particular those left-leaning voices critical of the neoliberal accumulation model, withdrew from the Commission in April 2001 as they felt that their opinions were either not taken into consideration or marginalized by others. Instead, both organized an alternative consultation process out of which an alternative PRSP document emerged that will be discussed later in this article.

The government organized a total of 11 meetings in Tegucigalpa and 19 at the regional level (Government of Honduras 2001, 3). At these meetings, approximately 3,500 people entered the direct consultation process through civil society organizations. The government claims that the participants in PRSP workshops were largely representative of Honduran society, as participants included small farmers, blue-collar workers, market and ambulatory salespeople, teachers, media representatives, businessman and women, farmers and ranchers, ethnic groups, and women's organizations (Government of Honduras 2001, 4). Moreover, NGOs, churches, universities, employers' associations, unions, and community organizations were also present at these meetings. Thus, most sectors of Honduran civil society were invited to the table, a fact that deserves mentioning as there had previously been a noticeable divide between the government and various CSOs. This adumbrates that the Honduran state indeed made an effort to at least engage critical voices during the PRSP process. The comments provided by CSO members at these meetings were collected and recorded in the form of matrices according to the topics discussed. The same procedure was applied to the written proposals submitted by CSOs. Afterwards, the government incorporated the comments it deemed appropriate, "evaluating them according to technical criteria related to economic and social viability, for later consideration for incorporation into the PRSP" (Government of Honduras 2001, 5). The Honduran government lists a number of CSO ideas that it claims were integrated into the PRSP, such as the inclusion of poverty estimates at the local and regional level; the identification of vulnerable groups with a high incidence of poverty; the determinants of poverty related to adjustment and stabilization measures; adjustment of policy measures in the educational field to reflect the consensus on the issue reached in FONAC; access to the means of production and to markets for rural farmers; expanding the list of specific groups to be targeted to include people with disabilities; and finally strengthening the sustainability of the strategy (Government of Honduras 2001).

What is particularly interesting is that the government acknowledges that many CSO ideas were left out of the PRSP owing to their contested nature and lack of consensus around them. This applies, for example, to agrarian reform, which did not enter the PRSP even though it is considered by many NGOs to be the key to fighting poverty in Latin America, but this also includes proposals surrounding agricultural insurance and electoral reform. Moreover, policies that in the opinion of the government have a track record of failure were also excluded, such as subsidized-credit programs, price controls, and artificial non-market stimuli (Government of Honduras 2001, 6).

The IFI's evaluation of civil society participation in the formulation of the PRSP is surprisingly positive, given that two of the most prominent NGOs with a broad support base withdrew from the process in April of 2001, and many dissenting voices surfaced within the Honduran civil society landscape in the middle of 2001. The IFIs conclude in the Joint Staff Assessment (JSA) of the participatory process that the process has been "very broadly based" and "the dialogue and consultation process have been intensive," although recognizing that results have been mixed as some groups, while endorsing the process, have criticized elements of the PRSP (IMF and IDA 2001, 3). Surprisingly, the JSA does not mention that two key NGOs withdrew from the participation process owing to their perception of lack of space to meaningfully participate in the policy formulation.

In my interviews, the majority of NGO representatives disagreed with the rosy picture of CSO involvement painted by the Honduran government and the IFIs, and highlighted that the macroeconomic chapter in particular was completely left out of the consultation process. In fact, one could argue that a split emerged in Honduran civil society between those voices close to the government and financially dependent either directly on the central government or on resource-rich international donors, such as FOPRIDEH and FONAC, and those more organically connected to the base of Honduran society and more independent from external funding, such as Interforos and FOSDEH. While representatives of FOPRIDEH and FONAC seemed content with the participation process, Interforos and FOSDEH were extremely disappointed by the nature of the process, and in April of 2001 completely withdrew from the Commission for Civil Society Participation and the overall participatory process so as to ensure that the PRSP would not be perceived as a legitimate document with broad CSO support, given the exclusionary nature of the macroeconomic policies promoted in the strategy. In an analysis of the process and experience of the preparation of the PRSP in Honduras, FOSDEH explains that the PRSP "does not incorporate the suggestions from civil society" and that "considering the flaws of the governmental approach, Interforos begins the process to generate a PRSP from within civil society" (FOSDEH 2001, 6). Given the distrust for the government and concerns that the government would not be open to the suggestions made by many NGOs, Interforos thought that a parallel PRSP consultation process would be necessary. (6) This process would allow the voices of civil society to be articulated more clearly, without being filtered or censored by UNAT experts (Interview Interforos, Tegucigalpa, 21 July 2005). The stark contrast between the official PRSP and the alternative PRSP that emerged within civil society in 2001 will come to the fore in the following discussion of the alternative poverty reduction strategy.

In March 2000, Interforos began a parallel civil society-led PRSP consultation process, which it organized in close collaboration with the Association of Non-governmental Organizations. This exercise culminated in the publication of an alternative civil society poverty reduction strategy. (7) The overall message emerging from the alternative PRSP differs substantially from the policies articulated in the official PRSP. The poverty diagnostic provided in the official PRSP is criticized for failing to highlight the exclusionary nature of the macroeconomic model that has been pursued in Honduras over the last two decades, as this model "has rapidly accelerated the process of social exclusion which translated into the accumulation of a massive social deficit," and "with the application of SAPs beginning in 1990, social exclusion has intensified" (Interforos 2000, 29-31). (8) Moreover, Interforos argues that while social investment funds might alleviate severe suffering, they do nothing to break the cycle of poverty as they do not adequately address the root causes of poverty. These root causes lie in the poor's exclusion from the productive process, the unequal distribution of wealth, and the exclusionary nature of the political process (Interforos 2000, 7, 32).

Moreover, the alternative PRSP highlights the need for the reregulation of the financial sector that would allow small producers and farmers to be reconnected to financial markets. The privatization of state enterprises has also been subject to fierce CSO criticism in the alternative PRSP. For example, the privatization of Hondutel, the state-owned telecommunications company, has been criticized by many NGO representatives as Hondutel has the potential to become a key player in the Central American telecommunications market and remains highly profitable (Interview, Bloque Popular, Tegucigalpa, 27 July 2005). What is more, Hondutel played a key role in covering the fiscal deficit of the government in 2001 and thus substantially contributed to the financial health of the government. Another highly contentious topic in Honduras is the privatization of the electricity sector. Led by El Bloque Popular, a number of unions have been at the forefront of the fight against privatization of the state electricity provider (ENEE), and the alternative PRSP strongly criticizes the attempt to put such a strategic industry into the hands of private investors.

While there are numerous differences between the official PRSP and the alternative PRSP, there are also points of convergence and agreement between both documents. For example, the official PRSP acknowledges the need to increase investments in the formation of human capital, and to make primary and secondary education affordable to all Hondurans, also a key demand of many CSOs in the PRSP process. Human capital and investments in the health infrastructure are, however, key ingredients of the Post-Washington Consensus, and consequently have been heavily promoted by the IFIs themselves. It is thus not surprising that most developing countries have included a promise to substantially increase education and health spending in their poverty reduction strategies. All in all, there is little evidence that CSO ideas that do not fit with the IFI's inclusive neoliberal model have been included into the PRSP, and that civil society participation has been more than information-sharing and consultation on previously elaborated documents (see also Cuesta 2007; Dijkstra 2005; Dijkstra and Komives 2009). Thus, while the IFIs have attempted to engage CSOs through the participatory process in an effort to create a nation-wide consensus on the PRSP, the government and the IFIs were ultimately unwilling to incorporate macroeconomic ideas that lie outside the parameters of the inclusive neoliberal framework that guides their lending behaviour.

Conclusion

Honduras' experience with the PRSP process provides some support to those voices that view the PRSP process as window-dressing for neoliberal policies and underscore the continuities between SAPs and the PRSP approach. With the implementation of the PRSP in Honduras, highly contested elements of neoliberal reforms, in particular utility privatizations, were finally completed, after having been successfully resisted by the Honduran Congress and counter-hegemonic civil society actors for years. The promise of debt relief served as an incentive to finally implement policies that were only partially implemented in the past. At the same time, the IFIs were willing to derail the PRSP process in order to force the Honduran government to cut its government wage bill and reduce the fiscal deficit. This clearly demonstrates that orthodox monetary management was privileged over poverty reduction and other social goals, and that the IFIs have instrumentalized the PRSP process to further entrench neoliberal practices in Honduran society.

Nevertheless, there are also important differences between previous SAP agreements and the PRSP, which corroborates the claim that neoliberal development policy is increasingly displaying inclusive tendencies. Social expenditure soared significantly with the introduction of the PRSP process as various social spending conditions have been attached to the PRSP. In particular, Honduras was expected to more effectively provide social services to the poor in the areas of health care and education, by using resources freed up through debt relief. This intrusion of conditionality into the social sphere is a novelty, as previous agreements did not contain spending targets in the area of poverty reduction and social expenditure. Even more surprisingly, the 2004 IMF agreement stipulates that poverty expenditure has to increase by 0.6% of GDP on an annual basis for Honduras to remain in good standing with the IFIs (IMF 2004, 21). This is supposed to guarantee that government spending cuts, if necessary, do not harm the poor. Finally, the expansion of the social safety net in Honduras through targeted subsidies in the form of CCTs further demonstrates that the IFIs are now making an effort to more seriously address the negative social side effects of neoliberal adjustments so as to make their interventions less controversial.

However, despite the newfound attention to social issues, the PRSP of Honduras has been largely unsuccessful at achieving both of its main goals: reducing poverty and engendering a policy consensus amongst a wide variety of stakeholders surrounding the PRSP. The lack of support from numerous NGOs is not surprising, given that the development strategy that emerged out of the PRSP process is built on a fundamentally flawed neoliberal economic model that was severely criticized by local NGOs in the past and delivered neither substantive economic growth nor poverty reduction results during its implementation in the 1990s (Cuesta 2007, 336). What is more, as critical NGO perspectives were largely left out of the PRSP, and participation was considered to be a meaningless exercise by many NGOs, a broad-based consensus on the PRSP could not be generated. Notwithstanding, the PRSP process has arguably consolidated and institutionalized the political space for citizens and civil society to participate in decision-making processes, even if this participation was severely limited in substance and consequently failed to create a true sense of ownership among the NGO sector.

At the same time, the case of Honduras demonstrates the severe limitations and multiple contradictions of inclusive neoliberal policies in general as the attempt to redress poverty from within a neoliberal macroeconomic framework is likely doomed to failure. A successful poverty reduction strategy would require a different poverty analysis than the liberal emphasis on the paucity of human capital provided in the PRSP. Rather, what would be needed is an analysis that acknowledges other structural, class, and global politico-economic factors as determinants of poverty, and suggests ways to overcome these--in particular, the redistribution of land, productive resources, and wealth at the domestic level--and reshape the global governance landscape through institutional reforms, in particular the democratization of the World Bank and the IMF.

Despite these failures, the PRSP has maintained its position as a central point of reference in national policy dialogue in Honduras up to this point, and most stakeholders remain committed to the implementation of the PRSP, despite deep disagreements over the content of the strategy (Dijkstra and Komives 2009). Thus, the PRSP demonstrates that even without generating a policy consensus, it has been effective in keeping poverty reduction goals high on the priority list of the government. However, while many civil society actors demonstrate a clear interest in the continuity of the strategy, they also articulate the need to significantly revise the PRSP in line with suggestions from CSOs, in order to break more meaningfully with the neoliberal policies that continue to be at the heart of the PRSP process.

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Interviews

Mossi, Bante. World Bank. Tegucigalpa, 15 July 2005.

Conseo, Egojenio. FONAC. Tegucigalpa, 19 July 2005.

Reina, Ruben. FOSDEH. Tegucigalpa, 19 July 2005.

Gallardo, Glenda. UNDP. Tegucigalpa, 20 July 2005.

Mateo, Maite. Interforos. Tegucigalpa, 21 July 2005.

Puerto, Margarita. CIDA. Tegucigalpa, 21 July 2005.

Coreo, Efrain. UNAT. Tegucigalpa, 25 July 2005.

Arguiles, Jose Leon. FOPRIDEH. Tegucigalpa, 26 July 2005.

Vasquez, Benjamin. Bloque Popular. Tegucigalpa, 27 July 2005.

Notes

(1) Very little academic research has focused on Honduras' experience with the PRSP process, except for Dijkstra (2005) and Cuesta (2007).

(2) For a cogent feminist critique of CCTs in this journal, see Luccisano (2006).

(3) The HIPC initiative is operationally linked to the PRSP process as countries can only qualify for debt relief once a PRSP has been presented to the IFIs and substantial progress has been made on implementing the PRSP.

(4) Debt service obligations have consistently been higher throughout the 1990s than social expenditure in the case of Honduras (IMF and IDA 1999, 11), a situation that is expected to be rectified through the HIPC initiative. In fact, in 1996, debt-service as a percentage of social expenditures reached an astonishing 220%, signaling that more than double the amount of government money was flowing into debt repayments than into social service expenditure (IMF and IDA 1999, 12).

(5) After qualifying for the HIPC initiative, all countries first reach what is called decision point, at which time "trigger conditions" for being granted debt relief are established. After three years of compliance with World Bank and IMF programs, observance of all trigger conditions, and the implementation of a Poverty Reduction Strategy Paper (PRSP), countries reach the completion point. This is the point when all HIPC debt is irrevocably cancelled.

(6) The experience of an alternative civil-society-led PRSP consultation process, with the publication of a people's PRSP, is not unique to Honduras, as most other Latin American PRSP countries have also seen the emergence of parallel PRSP processes and the subsequent publication of alternative PRSP documents (see Mouelhi and Ruckert 2007).

(7) The alternative poverty reduction strategy is called Estrategia de Combate a la Pobreza (Interforos 2000).

(8) All translations of Spanish documents are my own.

ARNE RUCKERT

University of Ottawa