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Statement Prepared for the Development Committee of the World Bank and International Monetary Fund
The Honourable James M. Flaherty,
Minister of Finance of Canada,
on behalf of Antigua and Barbuda, Bahamas, Barbados, Belize, Canada,
Dominica, Grenada, Guyana, Ireland, Jamaica, Saint Kitts and Nevis, Saint Lucia,
and Saint Vincent and the Grenadines
Washington, DC, April 23, 2006
It is striking that one key theme discussed by Ministers this weekend is
similar to what my own government has identified as an important domestic
priority. In particular, I would highlight the Government of Canada’s
commitment to strengthening its system of public governance to increase
accountability. Accountability is a universal issue, transcending national
boundaries. Given their mandates and relationship with their members, the
Bretton Woods institutions have a strong role to play in promoting
accountability and good governance.
Strengthening accountability is a shared responsibility. Donors and
developing countries must work together to ensure that aid is used effectively
to achieve concrete development results. Appropriate monitoring of policies is
key to ensuring that we stay on track in fulfilling our commitment to achieve
the Millennium Development Goals (MDGs). In recent years, we have seen a
stronger collaboration between the Bank, the United Nations and the Organisation
for Economic Co-operation and Development in developing a broader global
monitoring framework to track progress in meeting the individual MDGs. However,
more can be done to improve this process.
Measuring Results
Measuring results is a key element in the development paradigm. The
collection of accurate, timely, useful statistics is critical to gaining an
accurate understanding of progress achieved and the challenges that remain.
Timely and reliable statistics are a key input to a results agenda.
As a national capacity to gather and assess statistics is
critical to our efforts to monitor progress towards the MDGs, we must continue
to support the Bank’s Statistical Capacity Building Program.
As part of Canada’s approach to development, the Canadian International
Development Agency and Statistics Canada are working more closely together to
help developing countries strengthen statistical systems, institutional capacity
and planning. The strength of individual countries’ statistical agencies
should be regularly assessed and supported by increased technical assistance.
Given its importance in monitoring progress towards the MDGs, we would like to
see countries’ statistical capacity routinely appraised in the context of
Country Assistance Strategies.
Reaching the MDGs—A Shared Responsibility
By any measure, we are still too far from reaching the MDGs in too many parts
of the world. We are encouraged that significant progress
is being made in aggregate, due in part to the relatively favourable economic
environment. However, we are concerned that progress has been uneven across
countries and regions, with many being left behind, particularly in Sub-Saharan Africa.
In the relatively short period
remaining until 2015, it is clear that we need to strengthen our efforts to
ensure that the promise of the MDGs translates into reality for the world’s
poorest citizens.
Canada is strongly committed to working in partnership
with developed and developing countries, in an environment of mutual
accountability, to reach the MDGs by the 2015 target. Reaching the MDGs will
require greater efforts by developed countries to increase aid effectiveness and
to ensure that aid is delivered in ways that support strengthening developing
countries’ governance structures. It will also require efforts on the part of
developing countries to strengthen governance and accountability, to manage
their economies more effectively, and to follow through on national poverty
reduction strategies.
Ireland has also made strides in ensuring its aid dollars work better.
Ireland has set a target of increasing its international assistance to 0.5 per
cent of gross national product (GNP) by 2007 and to 0.7 per cent of GNP in 2012.
It is well on track to meeting these targets, with assistance projected to reach
0.47 per cent of GNP in 2006. In Ireland, the increase in aid of over 24 per
cent in 2006 is the largest additional amount of funding that has ever been
provided in any one year. Ireland’s Official Development Assistance (ODA)
budget has more than quadrupled over the last decade, rising from 0.30 per cent
of GNP in 1996 to 0.47 per cent in 2006.
Canada and Ireland both supported the Multilateral Debt Relief Initiative
(MDRI), which has been implemented at the International Monetary Fund (IMF) and
is being implemented at the International Development Association and the
African Development Fund. We are committed to maintaining the financing
capacities of these institutions. Ireland will address this by paying its entire
share of the MDRI in 2006. Canada has already paid its share of the IMF’s
costs. It will be critical to ensure that this debt relief frees up fiscal space
for important investments in areas such as health and education. In this
context, we will want to ensure that the MDRI and the associated Debt
Sustainability Framework do not lead to any adverse impacts on the flow of
transfers to developing countries.
We need to ensure that this assistance is used effectively, and that any
increase in aid resources translates into a commensurate increase in poverty
reduction. Mutual accountability between donors and recipients is critical to
promote the partnership spirit from the Monterrey Consensus. Developing
countries must improve their performance to attract financial support, through
both ODA and private sector investment, and to improve their domestic resource
mobilization. For their part, donors need to do a much better job of supporting
developing country ownership of poverty reduction strategies, aligning
assistance to developing country priorities and coordinating assistance efforts
with recipient countries and with each other. The 2005 Paris Declaration on Aid
Effectiveness lays out a practical, action-orientated roadmap to improve the
quality of aid and its impact on development. At the international level,
it constitutes a mechanism through which donors and recipients of aid are held
mutually accountable for meeting partnership commitments. At the country level,
the Paris Declaration encourages donors and partners to jointly assess their
mutual progress in implementing agreed commitments on aid effectiveness.
I would also reaffirm the importance of more concentrated efforts within the
context of the World Trade Organization Doha Development Round to ensure that
developing countries gain market access, which is key to achieving the economic
growth required to meet the MDGs. Since the launch of the Round in 2001, serious
challenges have arisen and important milestones have been missed. Clearly, we
need to make significant progress on these negotiations to realize the promise
of the Doha Development Round and reap its benefits. We need to work
collectively to reach our goal of achieving substantive reductions in tariffs
and agriculture subsidies by the end of the year. We expect the IMF and World
Bank to strengthen their engagement under the "Aid for Trade" agenda
as a necessary and complementary element to help countries benefit from further
trade liberalization.
The Challenge of Governance
The composition of the Bank’s lending portfolio has been shifting over the
last decade, with a greater focus on those countries with a proven commitment to
use assistance effectively. We know that strong policy environments,
institutions and governance are essential for aid effectiveness. Countries with
strong performance can absorb higher levels of aid and are likely to be more
effective in converting aid into economic growth and poverty reduction.
Providing effective development support to countries with poor governance
records remains a key challenge for the World Bank. The Bank has identified
corruption as one of the single greatest obstacles to economic and social
development. It undermines development by distorting the rule of law and
weakening the institutional foundation on which economic growth depends. The
harmful effects of corruption are especially severe on the poor, who are hardest
hit by economic decline, most reliant on the provision of public services, and
least capable of paying the extra costs associated with bribery, fraud and the
misappropriation of economic wealth.
As the Bank continues to tackle issues of poor governance, we need to ensure
greater clarity in the Bank’s approach and a consistent application of its
policies to borrowing members where weak governance, including corruption, is
judged to represent significant risk. To this end, we look forward to early
consideration by the Executive Board of a set of guidelines that will steer the
Bank’s operations in high-risk countries.
A Strategy for Middle-Income Countries
I would also like to address middle-income countries (MICs), where we have
seen progress in achieving the MDGs. An example, highlighted in the Global
Monitoring Report, is in the area of education, where there have been
significant improvements in primary education completion rates. However, there
remain significant disparities within MICs and we cannot be complacent.
While the Bank’s role in low-income countries (LICs) is well understood,
the institution’s role in MICs is more complex. Many of these countries have
access to alternative sources of financing that elude the LICs. Since a majority
of the world’s poorest live in MICs, the Bank must remain involved; however,
its engagement must be clearly based on its comparative advantage. The World
Bank’s poverty reduction focus must be the touchstone of the Bank’s efforts
in these countries.
We see several areas where the Bank’s strategy in MICs can be improved. The
Bank has recognized that complex operational procedures are a burden for
borrowing countries, and it has made recent progress in reducing transaction
costs, speeding up delivery of support, and reducing or eliminating
conditionality of investment operations. More progress is required, however, in
simplifying procurement and disbursements. Greater attention must be given to
the Bank’s role in synthesizing and disseminating knowledge and advice to
MICs.
Another area where we urgently need progress is in financial sector reform.
Strong financial sectors are the best defence against financial crises and the
impact they have on the poorest. Strong financial sectors are also needed to
channel financing to the poorest to enable them to help themselves. Despite
years of Bank lending to these countries for financial sector reform, stronger
financial sectors have not been developed in many MICs. In defining its strategy
for financial sector development in MICs, the Bank should set performance
targets, such as healthier banking sector balance sheets and increased lending
to small and medium-sized enterprises.
A results-driven approach to MICs means that over time we should see these
countries become less dependent on aid dollars and able to attract more private
sector financing, including through foreign direct investment (FDI). Currently,
only five emerging market economies receive 60 per cent of all FDI inflows to
developing countries. I would like to see the Bank’s work focus on increasing
the number of recipients of significant FDI over the next decade.
Meeting the Needs of Small States
Efforts to advance the development agenda cannot overlook the particular
challenges of small states, including those in the Caribbean. We know these
states are highly vulnerable to damage from recurring hurricanes, particularly
in their low-lying coastal areas. Immediate attention is needed for small island
states to help mitigate the risks of natural disasters. To this end, the World
Bank’s efforts to study possible insurance schemes for public assets and the
International Finance Corporation’s work to find new mechanisms to insure
private dwellings are critical. We will continue to support the Bank’s
development of this new approach to comprehensive catastrophe risk insurance in
the Caribbean and other small states, and call upon other donor governments and
the private sector to join these efforts.
A longer-term challenge is the transfer of existing and new technologies
required for adaptation to new weather patterns, particularly in the key sectors
relating to agriculture and associated water resource management. However, these
countries also face other challenges. These include faster-than-anticipated
erosion of trade preferences, which are severely impacting several small states;
the challenges of complying with more rigorous financial services regulations;
and the underlying problem of small domestic markets aggravated by geographical
dispersion. The latter leads to high per-unit costs, precludes economies of
scale, raises transportation costs and undercuts efforts to foster regional
integration. The World Bank has an important role to play assisting small island
states to meet these challenges.
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