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Ottawa, April 27, 1995
1995-039

Notes for remarks by the Honourable Paul Martin, Minister of Finance and Governor for Canada, to the Development Committee of the World Bank

Washington, D.C.
April 27, 1995

Delivered text is official version

We have been asked to focus on the financing of infrastructure in our opening remarks. I will comment on this issue shortly. I want, at the outset, however, to provide you with a perspective on the review of international institutions which will be a major topic of discussion during the G-7 Summit in six-weeks' time.

Institutional Review

Canada thinks it particularly appropriate that this issue should be so front and centre at a Summit we will be hosting. Multilateralism and multilateral institutions have always been very important to us. Canadians know it is in their interest that multilateral systems function well and fairly. They also feel strongly that nations large and small must be able to participate in multilateral institutions knowing they are based on principles of equity and co-operation. There have been many words written and spoken on the evolution of the international financial institutions. But when I strip the commentary down to essentials, I find a strong element of support and an overwhelming interest in ensuring continued relevance.

This is not surprising.

When you reflect on the design of the Bretton Woods family of institutions, you see clear evidence of continuity, stability and flexibility.

The record speaks for itself. Public confidence has permitted the Fund to respond to numerous financial and economic crises over the past fifty years. Public confidence has also permitted the multilateral development banks to function as financial intermediaries between capital markets on the one hand and developing countries on the other. When you consider how the MDBs provide investors with a secure rate of return on funds used for economic development, you are looking at classic win-win intermediation.

Of course, key to retaining public confidence is results, and the capacity to cope with changing times. Here I also sense an awareness of recognised achievement.

Certainly, the Fund has demonstrated a capacity to respond both to crisis situations of a systemic nature and to longer term fundamental economic and financial problems.

The World Bank Group, for its part, has learned lessons from both what works and more importantly, what doesn't work. Paradigms have shifted. Quite often, the Bank has prompted and promoted those shifts. It has provided intellectual leadership and put its money where its mouth is. Identifying the causes of poverty and marshalling the Bank's knowledge, skills and resources to reduce its scale and severity is one prime example. Private sector development as a key factor in encouraging private capital flows is another as is recipient involvement as an essential element of sustainable development. The Bank - and its regional counterparts - can certainly take full credit for advancing many countries along the complicated road of development.

And so, when the Summit turns to the question of institutional review, the approach will resemble preventative and curative medicine, not radical surgery. A certain refocussing and improving of operations appears warranted, but fundamental restructuring does not. Attention will therefore centre on ensuring continued adaptability, relevance and effectiveness, all essential factors in a world where donors are facing significant fiscal constraints.

My remarks to the Interim Committee yesterday touched on concerns relative to the Fund which will likely be discussed in Halifax. Let me use this occasion to indicate likely themes affecting MDBs. Briefly, I would note the following:

• The need to refine priorities and to reduce overlap between institutions.
• The requirement for a sharpened focus on sustainable development practices, poverty-reduction and private sector development.
• Recognition that recipient countries must participate in every sense of the term and that ownership of development priorities is essential.
• The absolute need to channel concessional resources to those who need them most and can use them best and those who show real commitment to poverty reduction as opposed to non-productive investments such as military spending.

If the lessons of the past fifty years have taught us anything, it is the need to listen and learn. Markets send powerful signals about what works and what doesn't. So do recipients of development assistance. Sound development requires full participation and recognizable partnerships. Similarly, institutions designed to promote development must also be partnerships in form and substance. Their sustainable relevance demands that all stockholders be involved. How else can they retain public confidence? Discussion at the Halifax Summit will recognize this essential point.

Infrastructure Development

At last week's APEC meeting, I was particularly struck by a concrete example of how important partnerships will be in responding to future development needs. The subject was infrastructure development which is critical, not only for long-term economic growth, but also for achieving sustained poverty reduction. Some one billion people still lack access to clean water. Another two billion suffer from inadequate sanitation. The estimate of financing needs for physical infrastructure in Asia alone is one trillion dollars over the next five years.

It is clear that the public sector can no longer finance these massive needs. Nor that this is the best use of public resources.

We need to look at better and more imaginative ways to attract private sector investment to infrastructure projects. Innovative financing mechanisms should shift the burden of risk from the public to the private sector.

But let's not fool ourselves. If private sector interests are to be involved they must be promised the possibility of an adequate rate of return. They also require predictable legal systems and greater efforts to clean up the regulatory morass which is too common in too many countries. In short, we need to cut red tape.

On their part, the MDBs, if they are to support this effort, must work together and with bilateral donors more effectively. This holds true whether the concern is for effective leverage of resources or for providing much-needed technical assistance. I was staggered to read that developing countries could save more than $50 billion a year through better operational maintenance of existing infrastructure. In this day and age - indeed in any day and age - such waste is unacceptable.

Multilateral Debt

Mr Chairman, multilateral debt will be discussed later. It remains a problem. I am convinced that assistance should be provided for those countries willing to make tough policy decisions and to stay the course. I support the proposed strengthening of the Fund's Enhanced Structural Adjustment Facility supported by modest IMF gold sales. I also believe we could strengthen the Bank's Fifth Dimension Facility.

We should, as well, support the establishment of similar arrangements in the regional banks.

Closing

Mr Chairman, Canada is convinced that now more than ever the international financial institutions are vitally important to the multilateral system. I sense the support that exists for this view. I think it exists because the IFIs have proven their capacity to deal with the sometimes extraordinary demands put upon them in a manner totally consistent with the multilateral concept of partnership. That partnership, how to extend it, and how to improve it will form the basis for our discussion in Halifax.