The policy of the Ethiopian government is to create the conditions necessary for sustained economic growth. Farmers have reacquired the economic freedom of price, of production, and of settlement. The government aspires to an agriculture-led industrialization and focuses its attention on food security, rural savings, and labor formation issues. The government holds all land and issues long-term leases to tenants. The 1996 economic reform plan promoted free markets and liberalized trade laws as essential to economic growth. Increased military expenditures during 1999 and 2000 largely due to the war with Eritrea threatened stability.
Ethiopia's per capita income is the second lowest in the world, according to the International Monetary Fund (IMF), at about $100. In 2001, Ethiopia reached its decision point under the IMF/World Bank Heavily Indebted Poor Countries (HIPC) initiative, and was to receive $1.9 billion in debt relief. Also in 2001, Ethiopia negotiated a three-year $115 million Poverty Reduction and Growth Facility (PRGF) Arrangement with the IMF, due to expire in March 2004. Although there was a bumper crop in 2000–01, the prices of coffee and cereals fell in 2001–02, and agricultural output was lower. Since July 2002, a severe drought affected Ethiopia; over 15 million people in Ethiopia and Eritrea alone were at risk of starvation in 2003.