The agenda for this meeting covers important issues that face the World Bank as it seeks to strengthen its core mission: to support developing countries efforts to reduce poverty. The international target of halving the proportion of people living in absolute poverty by 2015 is ambitious even daunting. But continued progress towards this objective is a moral imperative; it requires renewed commitment and effort by us all.
In addressing this challenge, we need to draw lessons from experience, strengthen what has worked and be open to innovative new approaches. We welcome the continuing efforts of both the World Bank and the IMF, under its new Managing Director, to refine and develop their work. We also welcome this years World Development Report, with its emphasis on the opportunity, empowerment and security dimensions of poverty. But we must not forget the most important single development lesson of the past fifty years. Sustained economic growth is the most powerful weapon we have against poverty. Successes in reducing poverty during the past decade were achieved largely in countries with open economic policies that promoted broad-based growth. Although growth alone is not always enough, significant reductions in poverty can not be made without it. It is no coincidence that poverty has fallen fastest in East Asian countries with policy environments that encourage the efficient functioning of markets. While much of East Asia suffered setbacks toward the end of the 1990s, economic recovery in most of the region has been relatively strong. And it is noticeable that recovery has been most robust in countries, such as Korea, that have made the most progress in adopting wide-ranging financial and economic reforms.
Heavily Indebted Poor Countries Initiative and Poverty Reduction Strategy Papers
One year ago, this Committee endorsed an Enhanced HIPC Initiative that called for deeper, broader and faster debt relief and for strengthening the link between debt reduction and poverty alleviation. Over the past six months, ten countries have qualified under the Enhanced Initiative and will receive interim debt relief. Another ten are expected to reach this point before the end of the year. Although no cause for complacency, this is substantial progress. But the Bank and the Fund need to accelerate the momentum they have helped establish. I therefore strongly welcome the new arrangements that have been announced by the President of the Bank and the Managing Director of the IMF to review regularly the handling of individual cases.
We also need to ensure debt reduction leads to real outcomes in poverty reduction. In some countries, there are serious problems of conflict and governance that need to be addressed to provide a basis for debt relief. And in all countries there must be assurance that funds freed up by debt relief will be spent on credible poverty reduction programs. Poverty reduction strategy papers are an appropriate framework to ensure that a comprehensive and participatory approach is taken to this task. Commitments made by countries need to be clear, specific and monitorable. But the conditions imposed must also be realistic and achievable.
The cost of debt relief is significant. Financing remains critical. While considerable pledges have been made, they have not yet all been confirmed and contributed. It is important that they be paid in a timely way. We will need to work together to meet the further funding required after the first few years.
Addressing the Global Dimensions of Development (Global Public Goods)
It has long been recognised that many development issues flow across national borders and need to be tackled on a wider basis than at the country level. The Consultative Group on International Agricultural Research is an example of a cooperative global effort that has, over the years, made a huge contribution to development, including through initiating the "green revolution". Combating communicable diseases is another area where action may need to be organised on a cross-border, regional or global basis.
New needs for regional and global initiatives are emerging, such as from the rapid spread of HIV/AIDS or the promotion of new information and communications technologies. At times, the needs may appear to exceed the capacity of the existing international institutions. Where there are consequences for poverty reduction and development, the Bank can play an important role addressing these issues. Interventions should be selective, disciplined, pragmatic and focused closely on those issues that have the greatest impact on its core mandate of sustainable poverty reduction. The role to be played by the Bank in specific issues will require careful evaluation by shareholder governments on a case by case basis. It will also be important to focus on using existing mechanisms more innovatively.
Supporting Country Development
Although the Bank is likely to play an active but selective role in global or regional issues, country based lending will remain at the center of its operations. It should keep its approaches and instruments for such lending under regular review to ensure they remain attractive and suited to the needs of its members in a rapidly changing environment.
This constituency welcomes the establishment of a Task Force to examine the role of the Bank in middle-income countries. Many middle-income countries have improved their attractiveness to private sector lenders, and the international capital markets can offer alternative sources of funds, albeit at times for limited amounts, for limited durations and at a higher cost. The review needs to consider how to reflect this greater access to private flows in the Banks strategies so as to make best use of its resources for economic development and poverty reduction. It also should examine: the administrative costs to borrowers of undertaking Bank loans; the extent to which the Bank should have a capacity to provide crisis lending in support of the IMF programs; and the needs of smaller states and those middle-income countries that still have limited access to private finance.
There is a case for making greater and more flexible use of program lending and to support the Banks proposals to introduce poverty reduction support credits for International Development Association borrowers underpinned by country assistance strategies linked closely to Poverty Reduction Strategy Papers. This should improve coherence among the Banks various processes and facilitate coordination and complementarity with the IMF in the preparation of programs.
The Comprehensive Development Framework (CDF)
Experience has long shown that for poverty reduction efforts to be effective, interventions must be set within a clear and strategic policy framework; development plans must be owned by governments and people; governments, donors and civil society need to work in partnership; and there must be clear monitoring of results and effective accountability. The CDF approach has helped to reinvigorate these principles of vision, ownership, partnership and accountability and provided a practical basis for their application. Beside the formal pilots, the CDF approach has already been taken up informally in many areas of the Banks activities and it underlies the Poverty Reduction Strategy Papers.
This is not to say that application of the CDF approach is simple. Quite the contrary. But the approach does emphasise the key areas in which efforts need to be directed to make poverty reduction more successful. In particular, lack of institutional capacity is a significant constraint. This is a particular problem for small states, such as the Pacific island countries. Significant efforts are required to build capacity and to minimise the pressures donors place on recipient governments. Much also needs to be done to establish how best in practice to apply the principles. A full evaluation will take time and will raise complex methodological issues. In the meantime, it is sensible to proceed on a pragmatic basis, allowing for differences in circumstances and the need to obtain acceptance by those involved.
The Banks Role in the International Financial Architecture
We welcome the recent statement by the President and the Managing Director clarifying the relative roles of the Bank and Fund. As they have acknowledged, the Bank must concentrate its efforts on its core mandate for poverty reduction and supporting long-term development. But top-level statements need to be accompanied by improved cooperation at the working level and in country. The joint implementation committee for the HIPC initiative has been a welcome initiative. The joint committee on financial sector issues also appears to be operating effectively to handle problems when they are identified.
It is important that East Asian countries continue the task of rebuilding and restructuring their domestic financial and corporate sectors following the crisis. Such reform is crucial to sustained recovery and the Bank should continue to play its part in conjunction with the IMF and the Asian Development Bank.
Discussions of international financial issues are devoting greater attention to problems associated with tax havens and money laundering. . Effective solutions will require the close involvement of the countries concerned. Many of these countries are small and have limited capacity. The Bank should be willing to provide technical support in appropriate cases.
Trends in Resource Flows to Developing Countries
The increase in private resource flows to developing countries over the past year, although modest, is to be welcomed. But in considering the resources available for development, we should not overlook the important role trade can have in generating growth and reducing poverty. This is an issue that we have discussed extensively at previous Development Committee meetings. Progress, however, has been slow. Restricted market access in wealthier countries has limited significantly the ability of developing countries to grow further and reduce poverty. This is particularly true for agriculture products, which face very high barriers despite being the mainstay of many developing economies. As a joint World Bank/ IMF study demonstrated, the complete liberalisation of global agricultural trade could yield benefits to developing countries of over USD 40 billion per year. This is equivalent to almost eighty per cent of total world aid flows. Especially at a time of prosperity, when developed countries are gaining rapidly from integrating more fully into a global economy, we should be working to make sure a wider range of people are able to share in such benefits.
The IBRDs Financial Capacity
Greater strength in the global economy has allowed the Bank to start rebuilding its financial capacity. Although this will take time, the improvements achieved to date are welcome.