For Madagascar the challenge is clear: unless the country can close the gap between performance and potential, poverty will continue to affect a large share of the Malagasy population for many generations. To a large extent, escaping from the poverty trap requires Madagascar to put in place the conditions that would enable it to attain high economic growth rates. Action in two main policy areas is required: 1) fostering a supply response for private sector development; and 2) redefining the role of the public sector. Madagascar needs to focus on measures to gain investor confidence, both domestic and foreign. Areas for action concern eliminating corruption, restoring the credibility of the judiciary, and creating an investor-friendly administrative and regulatory environment with minimum discretion by the state. In addition to these policies likely to provide results in the long term, Madagascar may benefit from mechanisms that aim at rapidly increasing the confidence of the private sector, even if these are temporary solutions (for example, an effective arbitration system for resolving commercial disputes). As to the role of the public sector, it should be redefined and modernized, with actions being required on revenues, expenditures, and institutional and organizational areas. Madagascar also needs to reverse its attitude towards foreign direct investment; opening up the country to technologies and know-how is required for high growth and enables access to foreign markets.