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Ottawa, April 29, 2001
2001-045 

Statement Prepared for the Development Committee

The Honourable Paul Martin
Minister of Finance for Canada

April 30, 2001
Washington, D.C.

Delivered text is official version.

A few years ago the American author Francis Fukayama declared "the end of history." With the collapse of communism, liberal capitalism, which is leading to greater globalization, was supposed to be the only viable model of development. Yet as we have been frequently reminded in recent years, many do not see it that way. Indeed, proponents of globalization often find themselves on the defensive.

Criticisms of globalization centre on two themes: instability and inequality. First, while globalization may promote growth, the system is unstable and prone to crises – crises that can in a flash wipe out years of progress, and crises whose effects are felt disproportionately by the poor and most vulnerable of society. Even in periods of strong growth too many are left behind. Globalization, it is argued, increases inequality both within societies and among nations.

Yesterday, in the International Monetary and Financial Committee, we reviewed the progress we have made in strengthening financial systems to reduce the international financial system’s vulnerability to crisis. Today our focus is on the need to address poverty in the world. This is not to suggest that the World Bank has no role to play in strengthening financial systems; clearly, it does. But in the fight against poverty, the Bank has a critical role because, above all else, poverty reduction is the Bank’s business.

Poverty Reduction is the Bank’s Business

Participation in the global economy offers a way out of poverty for millions. According to many indicators of development and quality of life, we have made enormous progress over the last 50 years, yet the bare fact is that 1.2 billion people – one-fifth of the world’s population – live on less than a dollar a day. In some regions – Africa in particular – the share of the population living in poverty actually increased over the 1990s. A system that allows this to persist will always have its legitimacy questioned.

At the United Nations Millennium Summit in September 2000, world leaders endorsed a set of international development goals that, among other things, called for world poverty to be cut in half by 2015. This was a strong and clear message that we all must go beyond simple rhetorical responses and devote resources to achieving these goals. The move by the Bank to link its own three-year business plan to the achievement of the seven international development goals is therefore a very welcome step.

The enormity of the task that has been set for us was brought out for us last year in the World Development Report 2000/01: Attacking Poverty, the Bank’s landmark report on the causes of and possible approaches to poverty.

Obviously, growth is essential for poverty reduction. To combat poverty effectively, all of us need to reduce inequality through strategies that go beyond just the promotion of growth. We need to focus on the broader institutional context and address social barriers to disadvantaged groups, including women and minorities. We need to address pressing health issues: some 7.5 million children die annually in the perinatal period; 30 per cent of the world’s population lacks access to safe water and sanitation systems; and infectious diseases disproportionately ravage the world’s poorest.

Education is the Key to Greater Equality

Investment in human capital is the cornerstone of any strategy to reduce poverty because it expands opportunity for all, including the poorest. The literature on sources of growth is unambiguous in documenting the direct contribution that access to quality education makes to a society’s growth and development. Studies by the World Bank have shown that the largest single contributing factor to economic growth in East Asian "tigers" over the last three decades was primary education. Access to education is fundamental to more equitable distribution of opportunities for the poorest. Denied access to education, the poor are robbed of their right to participate fully in the economic, political and cultural life of their countries.

Education is a fundamental human right and ensuring access to quality education is the obligation of all governments. The Universal Declaration of Human Rights and the Convention on the Rights of the Child state that every child, youth and adult has the right to benefit from an education that will meet their basic learning needs. Yet today more than 113 million primary-school-aged children do not attend school. This problem disproportionately affects girls, who represent more than two thirds of this number. Furthermore, more than 150 million children in school drop out before they have completed five years of education. This represents enormous opportunities lost to individuals and a substantial waste of potentially productive resources for their societies. Enrolling children in school is just the beginning; providing quality, inclusive, relevant and learner-oriented education is a major challenge in developing countries.

Governments and international institutions have recognized the need to act more quickly. As a result, in April 2000 the World Education Forum adopted the Dakar Framework for Action. Endorsed by more than 180 countries, this framework reaffirms the international community’s collective determination to achieve the goals of the Education for All initiative, including the international development goal of universal primary education, by 2015 as well as achieving greater gender equality in primary and secondary schooling by 2005.

Education and training are important elements of the Ireland Aid program. Assistance ranges from grants towards the construction of schools and the training of public servants within their own countries, to funding for training students from developing countries in third-level institutions in Ireland. The availability of a young, well-educated workforce has been a key component of Ireland’s industrial development policy, in particular in the attraction of international mobile investment and the provision of high quality employment. Ireland believes that investment in education pays rich dividends, and its own success is a testament to the validity of this belief.

For Canada’s part, basic education is a key priority for our bilateral Official Development Assistance (ODA) program. The Canadian International Development Agency (CIDA) plans to quadruple its investments in basic education, and in doing so will join forces with its developing country partners and other donor agencies to meet the challenge of providing by 2015 all children with access to and with the opportunity to complete good quality primary education and to eliminate gender disparities in education by 2005.

Progress over the last year in implementing the Dakar Framework has been disappointing. Despite an increased focus on education by many development assistance agencies, implementation of the Dakar Framework suffers from weak co-ordination at the international level. Furthermore, delivery of programming in the field is marginal and many countries have not yet assumed ownership. Developing country leadership on expanding educational opportunities, therefore, is paramount. Achieving our education goals in many countries will require a greater share of public expenditure targeted to education as well as an improvement in the effectiveness of the delivery and use of these resources.

Recognizing that domestic resources will be insufficient to allow governments to realize these education goals, the Dakar Framework calls for a global education initiative that will mobilize development co-operation resources for education, support national education plans and target assistance to countries that are committed to expanding education opportunities to the poor. Specific priority has been accorded to the countries of sub-Saharan Africa, South Asia, other least developed countries and countries in conflict and reconstruction. We cannot afford to waste more time. The need for action is immediate and the resource pressures are not insurmountable. Of all the international development goals, those relating to education should be within our grasp.

With over 35 years’ experience throughout the developing world in the field of education, the Bank is a store of invaluable expertise for developing countries. We look to the Bank to continue to enhance the role it plays in helping broaden access to education to the poorest. Indeed, the Bank has identified education as a "cornerstone" of its overall mission to help developing countries combat poverty. We therefore call on the Bank to work more closely with UNESCO, UNICEF and other agencies to follow through on the actions agreed at Dakar. We ask the Bank, working closely with the agencies implementing the Dakar Framework, to report back at the fall 2001 meeting of the Development Committee on progress.

The Role of Trade

Trade is an essential contributor to growth. Developing countries must deepen their involvement in the global economy to expand the benefits of globalization. For this reason, the least developed and most vulnerable countries, in particular, need assistance in building greater trade capacity. The Bank has the ability to assume a key role in assisting developing countries but, until very recently, we have not made trade capacity-building a strong priority in its operations. This needs to change. The Bank needs to work more closely with developing countries to ensure that trade is an integral part of the Poverty Reduction Strategy Paper (PRSP) process.

We welcome the Bank’s three broad objectives for its trade work: (a) provision of policy analysis and advice on how to help developing countries meet multilateral trade commitments and take advantage of their own trading opportunities; (b) assistance in using regional trading arrangements among developing countries; and (c) support in designing policies that will expand the benefits of trade to low-income groups. This is a good beginning, and we look forward to rapid movement on these objectives and encourage the Bank to make stronger efforts to mainstream trade in its lending and policy advisory operations. In Canada’s view, the Bank should place a particular premium on building regulatory capacity and human capital needed to strengthen the export sector.

Canada, Ireland and the countries of the Caribbean see the Integrated Framework for Trade-Related Technical Assistance as both an important instrument for the assessment of trade capacity needs in developing countries and as a model for inter-agency partnership in a key sector. The World Bank is now assuming a more prominent role in the Integrated Framework. Ireland, Canada and the Caribbean countries strongly support the concept of the establishment of a Trust Fund at the United Nations Development Programme to help finance pilot projects under the Integrated Framework. Moreover, both Canada and Ireland are active participants in the international effort to assist developing countries participate in the World Trade Organization (WTO) dispute settlement process. Canada is a charter member of the Advisory Centre on WTO Law that assists developing countries avail themselves of their rights under the WTO dispute settlement mechanism. Canada and Ireland have both committed financing to this body.

Members of our Caribbean constituency have had to grapple with a number of important policy concerns related to their integration in the global trading environment, given the complexities arising from a more open and rules-based global trading system. Many continue to recognize the critical importance of trade and development for poverty reduction, and have taken far-reaching steps at the macroeconomic level to achieve sustainable growth as a necessary precondition for reducing poverty. In addition, there has been further liberalization of trade regimes. Nevertheless, the substantial benefits from these actions have not been fully realized, thereby threatening further marginalization from the global trading regime. Therefore, the enhanced role which is envisaged by the Bank in the area of trade and development could serve to support the actions undertaken at the local and regional level. One of the major areas in which the Bank could be most effective is by supporting "behind the border" issues such as capacity building, institutional strengthening and further sectoral reforms – in order to ensure that small states can take full advantage of the opportunities that globalization presents.

The Role of Aid

1. Progress on HIPC

Development needs are enormous and external development assistance can only reinforce local programs and actions. The significance of the Heavily Indebted Poor Countries (HIPC) Initiative is that it puts increased resources in the hands of some of the poorest countries in the world to expand the delivery of health and education and other social services. When the Development Committee last met, our challenge was to meet our target of bringing 20 countries to the decision point, and at the time this seemed a daunting task. In this context, Canada challenged bilateral creditors to institute a moratorium on debt payments by reforming HIPCs to provide interim relief until they reach their completion points. In January 2001 Canada introduced such a moratorium. To the credit of the enormous efforts of HIPC countries themselves and to hundreds of dedicated Bank and Fund staff, the 20-country target was even exceeded. The Bank and Fund estimate that as a result of our collective actions on HIPC, US$1 billion will be freed up for social sector spending over this year and next in HIPC countries.

We now must ensure that there will be sufficient resources to finance remaining debt relief when these 22 countries, and all others, reach their completion points. While great progress has been made in finding the resources to finance this initiative, more remains to be done. In light of the special needs of small regional multilateral development banks, Canada has provided US$10 million to the HIPC Trust Fund for use in offsetting HIPC payments to the Central American Bank for Economic Integration. This brings Canada’s total contribution to the HIPC Trust Fund to US$112 million, the second largest paid-in contribution to this fund.

The Government of Ireland also strongly supports the HIPC Initiative and, more importantly, is concerned about the longer-term sustainability of HIPC country debt service following HIPC debt relief. Ireland believes that the economic projections on which the Bank and Fund assess sustainability need to be carefully examined. For HIPC countries afflicted with HIV/AIDS, further assessment of debt sustainability is particularly important. To date Ireland has contributed US$12 million to the HIPC Trust Fund and, through Ireland Aid, will be contributing an additional US$5 million this year. Both Ireland and Canada provide all of their bilateral development assistance on a grant basis.

2. Beyond HIPC

While more remains to be done on fully implementing the HIPC Initiative, it is time we also begin to devote more attention to the post-HIPC world. Debt cancellation for the poorest countries was never thought to be a panacea. At most, it offered them a chance to address some of the challenges that they faced in developing their economies. More has to be done to ensure these countries are put on a path of sustainable, poverty-reducing growth.

Country-Led Development is Effective Development

As we have learned from decades of development experience, financing is only part of the poverty reduction and development equation. Development financing is most effective when it provides close support to well-conceived and well-implemented nationally driven development strategies. And nationally driven development strategies are most likely to succeed in countries committed to democratic principles and good governance practices. Parliamentarians from across the political spectrum have an interest in strengthening governance, and the newly formed Global Organization of Parliamentarians Against Corruption (GOPAC) can play an important role in bringing governance and anti-corruption policies to the forefront of national policy agendas. We appreciate the Bank’s support for GOPAC.

Canada reiterates its strong support for nationally driven development strategies as embodied in the Comprehensive Development Framework and in PRSPs. One of the key messages of the World Development Report is that involving all segments of society in the policy process and debate is essential for more equitable distribution of the benefits of growth. Formulation of national poverty reduction and development strategies must involve the poor themselves, and developing country governments must have the capacity to elaborate and implement these strategies. The Bank and other development co-operation agencies have an important role to fulfill in helping these countries to build this capacity.

We also recognize the potential role that programmatic lending – which would streamline conditionality and target financing directly to social programs of developing country governments – could play in supporting poverty reduction. This, however, is a critical policy issue that has not been sufficiently discussed. We need to give careful consideration to this option; our views and those of the Bank must be informed by open consultation with developing country governments and non-governmental organizations, especially those organizations that represent the poorest in these countries.

Special Challenges of Post-Conflict HIPCs

The HIPC countries that have already reached their decision points are, in many respects, the easiest cases. Those HIPC countries that have yet to reach their decision points pose additional and difficult challenges. Ten are either in or are emerging from conflict. Post-conflict HIPCs have had neither the time nor the opportunity to establish any governance, poverty reduction or economic policy track records.

We welcome efforts by both the Fund and the Bank to provide technical assistance to post-conflict HIPC countries. We recognize the difficult task that these institutions will have to perform in applying the HIPC framework to post-conflict countries. On the one hand, the capacities of these countries to use resources effectively may be limited, and such resources could be diverted to either directly or indirectly supporting high military spending. On the other hand, however, the needs of their populations are great, and quick action satisfying those needs may represent the best hope for lasting peace. Can we really ask them to wait for three years or more for their HIPC decision point? The Bank and Fund need to work closely with others, and especially the United Nations, to determine on a case-by-case basis the appropriateness and scale of support.

Canada believes that the debt moratorium it advocated in September in Prague and implemented in January might be one way to help resolve this dilemma. Canada has extended its moratorium only to those countries that are committed to peaceful development and good governance. We can and will extend our moratorium to countries currently in conflict once those conflicts have ended and when their governments have demonstrated their commitments to these ideals, whether or not they have reached a HIPC decision point. Canada urges other bilateral donors to do likewise.

Middle-Income Countries

We welcome efforts by the Bank to heighten its development effectiveness in middle-income countries, and we have taken full note of the recommendations contained in management’s report to the Development Committee on this issue. We fully agree with the need for the Bank to strengthen collaboration with development partners in these countries. Given that they are home to nearly 80 per cent of the world’s poor, close Bank co-operation with middle-income countries is crucial to meeting global poverty reduction objectives.

While the Bank’s overarching goal remains poverty alleviation, the Bank needs to be focused and selective at the country level given the wide diversity within the middle-income country group. Hence, a major challenge ahead in operationalizing the recommendations of this very useful report is the extent to which various elements of the strategy can be applied across the broad spectrum and diversity of middle-income countries. These are not easy decisions for the institution, given the many competing demands. However, we believe that the report sets the broad framework within which the Bank can make its operations more effective in support of nationally driven development and poverty reduction programs. We would caution, however, against adopting a one-size-fits-all approach and introducing additional burdens on countries.

3. The Global Struggle Against HIV/AIDS

Canada, Ireland and the Caribbean countries place a very high priority on the international effort to combat HIV/AIDS and welcome the Bank’s intensified response to this, as outlined in the document presented to the Development Committee. This disease threatens to undo decades of development progress worldwide and to undermine our efforts to achieve the international development goals. The rate of infection of the adult population in the Caribbean is second only to that of sub-Saharan Africa, with potentially devastating economic and social consequences for the small island states. We very much welcome the plan by the Bank, announced by President Wolfensohn in Quebec earlier this month, to provide up to $150 million to support the Caribbean region’s efforts in fighting the spread of the disease over the next five years.

4. The Need to Improve Donor Co-ordination

In committing to the principles of country ownership, development co-operation partners – both bilateral and multilateral – must change their own development thinking and practices. This means listening to their developing country partners and adjusting their business practices accordingly.

One area where progress in donor co-ordination is urgently needed – but sorely lacking – is in the simplification and harmonization of donor procedures. Today donor agencies impose upon their developing country partners a bewildering array of individual policies and procedures – in everything from numerous visiting missions to differing requirements for procurement, country and sector strategy formulation, appraisal, financial and physical reporting, monitoring and accountability. A typical African country benefits from 600 assistance projects. Complying with donor requirements for these projects, however, can involve the preparation of 2,400 quarterly reports and over 1,000 donor monitoring missions annually. This burden, particularly for poorer and smaller countries, is unconscionable. It increases costs for both clients and donors, reduces development effectiveness, diverts scarce developing country administrative resources and makes local ownership difficult to achieve.

Steps to Improve Assistance Harmonization

But bilateral efforts alone will not suffice. To move the harmonization agenda forward, we need action by each and every one of us in a number of areas:

• The Bank needs to play a stronger role in advancing harmonization by working with other multilateral banks, UN agencies, and bilateral donors and aid recipients, to develop good practice standards for procurement, financial management and environmental assessment.

• Harmonization procedures could begin on a pilot basis in a small number of countries. The World Bank, along with other multilateral and bilateral development agencies, could agree on common country-focused objectives and assistance targets, and on the means of measuring the results achieved. This would require greater flexibility from donor governments as well as a "buy-in" from national auditors charged with reviewing government spending.

• All donors should consider creating a forum to include developing countries in aid harmonization discussions. This forum could be aided by the OECD Development Assistance Committee Task Force on Harmonization of Donor Practices.

• Most importantly for local ownership, donors need to place greater focus on capacity building for recipients so that they are better able to manage aid themselves. Without this strengthened capacity, harmonization will not be sustainable.

• Finally, we encourage all donors to increasingly harmonize their delivery of assistance with borrower planning and budgetary processes.

All donor agencies, therefore, can contribute to reducing administrative burdens on both clients and themselves by continuing to move towards more programmatic approaches to development that place a greater emphasis on aid co-ordination and local ownership. CIDA is also exploring consortium approaches with others donors, which should allow even greater streamlining of donor administration.

Ireland’s Development Assistance Priorities

The Government of Ireland is reviewing its development assistance program in light of the commitment that Irish Prime Minister Ahern made at the United Nations Millennium Summit to achieve the UN ODA/GNP (gross national product) ratio of 0.7 per cent by 2007. The aim of this review is to put in place policies and management structures that will support this objective. Ireland is rapidly expanding its development assistance program and has targeted an interim ODA/GNP ratio of 0.45 per cent for 2002. Achieving this interim target assumes a 55-per-cent increase in Irish Official Development Assistance.

Ireland Aid has been at the forefront in developing flexible, programmatic approaches to development assistance in partnership with others. Ireland’s development assistance program is untied and heavily involved in sector-wide approaches in a number of African countries. Over the past five years the Irish program has been decentralized and the number of Irish expatriate staff involved in the program has been drastically reduced.

Looking Forward

Combatting poverty, reducing inequality and expanding the benefits of a more open international trading system are moral imperatives that bind developing countries, developed countries and international institutions. We have recognized this by endorsing the international development goals. Resources for this task are scarce and need to be used effectively. Neither donors nor clients can afford the multiple requirements imposed on assistance – there is an urgent need for greater harmonization of donor assistance requirements. But the most important lesson on aid effectiveness that we have learned is that assistance must be targeted to support country-owned programs and priorities. The Bank has a critical role to play in assisting developing country governments committed to poverty reduction by supporting social and economic programs in such areas as education and health, by improving the capacity of the world’s poorest countries to participate more fully in the global trading system, and by working with all of us to improve substantially donor co-ordination.