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Ottawa, October 2, 2004
2004-059

Statement prepared for the Development Committee of the World Bank and International Monetary Fund

The Honourable Ralph Goodale,
Minister of Finance of Canada

Washington, D.C.

Check Against Delivery

The Bretton Woods Institutions Remain Key Players

Sixty years ago, finance ministers assembled in Bretton Woods and created the World Bank and the International Monetary Fund (IMF), endowing them the noble mandate of raising economic growth and increasing economic and financial stability, thereby reducing poverty. These remain worthy goals. While many have witnessed unprecedented growth and prosperity over the last six decades, hundreds of millions remain marginalized. The Bretton Woods Institutions are needed now more than ever to support international efforts to promote peace and prosperity for all citizens of the world. But much has changed in sixty years and, to achieve these goals, the institutions must adapt and reform to serve clients, especially those in Africa, better.

Need for a Stronger Focus on the Millennium Development Goals

We are at a critical juncture. Given the long lead times between program and project approvals and their impact on reducing poverty, we need to increase our efforts now in order to ensure that we meet the Millennium Development Goals (MDGs) by 2015. As the largest single source of development finance for the world’s poorest countries, the World Bank has a critical role to play in helping us achieve the MDGs. We must also ensure that resources are targeted wisely to achieve maximum results. We are fully convinced that a major effort is needed now, and both developing and developed country partners must strengthen their collaborative efforts to fulfill the commitments we made in Monterrey.

The Challenge of Africa

Making headway in reducing poverty in Sub-Saharan Africa remains our greatest challenge. If we fail Africa, we fail the Millennium Challenge. Africans need the international community to join together in support of the New Partnership for Africa’s Development to focus on the needs of the continent. In August 2004 I visited South Africa, Mali, Tanzania and Nigeria. I was reminded of Africans’ urgent needs and aspirations. African men and women, girls and boys want—and deserve—the same things as all of us—a home, enough food to eat, good health, education, a job, respect for their rights, and most important of all, a secure environment that will promote opportunity and foster hope. Our discussions must take into full account the challenges facing Africa. Three years ago shareholders of the International Development Association (IDA) again agreed to direct half of IDA resources to support African development. We need to renew this commitment for its fourteenth replenishment (IDA14). We need to listen to Africa and to be flexible and practical in our approaches.

Strong Foundations for Growth and Private Sector Development

Growth will depend on the deepening of sound economic policies, improved governance and a more open global trading environment. We welcome the adoption of the Doha Round negotiating framework in July 2004. Although many difficult issues remain, this development gives hope for renewed momentum in meeting the Doha development agenda with its promise of raising millions out of poverty. The IMF and World Bank must continue their efforts to support this process through advocacy and analytical work and through building local capacity to enable countries to respond to the opportunities created. They should assist countries in their transition process through support for safety nets for those who will be disadvantaged. We encourage the World Bank and IMF to continue their support for low-income countries in mainstreaming trade-related issues through the Poverty Reduction Strategy Paper (PRSP) process and in their operations.

Equally important, the United Nations (UN) Commission on the Private Sector and Development has stressed that "poverty alleviation requires a strong private sector. It is the source of growth, jobs and opportunities for the poor." The lack of key elements of the investment climate, particularly in the rural economy, result in high costs that inhibit the emergence of small-scale entrepreneurs and traders and deny the poor the opportunity to participate in economic growth. Clearly, private investment (both foreign and domestic) will be attracted in sufficient volumes and produce results only if there is an enabling environment, where the conditions in which businesses operate are transparent and predictable and where there is appropriate governance, sound macroeconomic policies, fair competition, good physical and social infrastructure, smart regulations and the rule of law. In this regard, we welcome the progress that many member countries have already made, often with the assistance of the World Bank Group, in strengthening business environments as well as in addressing investment climate issues and infrastructure bottlenecks. Attention paid to the lessons of past experience has been invaluable in these efforts.

We need to build on recent successes to promote more business-conducive policies and to provide access to affordable infrastructure services. One message came through strongly and clearly during my recent trip to Africa: improving infrastructure, especially in the transport and energy sectors, is key to promoting private sector development and poverty reduction. Africans across the political and business spectrum all underscored the vital importance of reducing the cost of doing business. The Bank-IFC "Doing Business" project has proven its worth as a benchmarking tool and has led to reforms in some 30 countries with unimaginable benefits to farmers and informal sector entrepreneurs with micro and small businesses. We strongly support the innovative spirit behind the municipal finance pilot, the Grassroots Business Initiative, and the practical work on public-private partnerships to provide accessible and efficient infrastructure services. The Bank and IMF are definitely well-positioned to offer the kind of support African countries need to improve access to affordable infrastructures and therefore provide an enabling environment for economic growth.

Financing Development

Mobilizing sufficient resources to support development programs remains a pressing challenge, but one worth tackling head-on as more than 1 billion people living on less than one dollar a day depend on our collective efforts. Canada has delivered on its Monterrey commitment, increasing international assistance by 8 per cent per year. Ireland, in moving towards achieving the UN target of 0.7 per cent of gross national product, has doubled its Official Development Assistance budget since 2000.

We must find practical solutions to mobilize additional resources and to work together to maximize their contribution to poverty reduction. Remittance flows, estimated at US$100 billion per year, are an important source of financing, and measures should be taken to facilitate the flows to help families and small businesses and to maximize their poverty reduction impact. Redoubling the International Finance Corporation’s and the Multilateral Investment Guarantee Agency’s efforts to catalyze private sector investment is also essential.

Real increases in Official Development Assistance are essential for achieving development and progress towards the MDGs in least developed countries in general, and Sub-Saharan African countries in particular. IDA and the African Development Fund are also particularly important for these countries. IDA is a crucial instrument, as it provides the largest share of external financing for the poorest countries’ efforts to meet the MDGs. IDA also serves as a cornerstone of the development process when the depth of its technical capacity and policy underpinning for its programs are harnessed to build a country-owned, performance-based and demand-driven approach, conceived and implemented in collaboration with other development partners. Since its establishment in 1973, the African Development Fund—representing an enduring partnership for development between African countries and the donor community—has become an important source of funding and technical assistance for some 40 low-income countries in Africa. Importantly, the African Development Fund has become a key player in regional cooperation and integration initiatives. We need to ensure that the timely conclusion of the IDA14 and African Development Fund X replenishment exercises is our number one priority.

Improving the Effectiveness of Aid

Resources must be invested wisely to maximize their poverty reduction impact. Harmonization around country-level instruments such as joint general budget support and Sector Wide Approaches (SWAps) is critical. We welcome the World Bank’s increasing involvement and co-ordination with bilateral donors at the country level in SWAps and Poverty Reduction Support Credits, and urge continued progress. We also welcome the UNAIDS "Three Ones" initiative, which promises to improve co-ordination of assistance to HIV/AIDS programs, and we urge all national and international agencies involved in HIV/AIDS support to commit to its principles.

We recognize the progress made in integrating client priorities and needs in World Bank and Fund operations. Their business plans now better reflect country priorities as detailed in country-owned strategic documents, especially the PRSPs, which are now seen as the country-level operational framework for progress towards the MDGs.

As the development partners increasingly rely on the PRSPs, the policy content of these strategy papers, their pro-poor focus and the consultation process must be strengthened even further. These strategies should pay more attention to the social impact of macroeconomic choices, to rural development and growth, and to sectors where poor women as well as poor men are most economically active—such as smallholder agriculture. Particular attention should also be given to building capacity in PRSP processes for mainstreaming gender equity and to the empowerment of women as a means to achieving it.

Increased donor support may hinge on a better understanding of absorptive capacity challenges in client countries. Absorptive capacity is a multidimensional and dynamic concept, which differs among countries and specific cultural circumstances. Some constraints can often be addressed relatively quickly. Others require extensive technical assistance, often from the international financial institutions. Careful attention, therefore, should be paid to capacity-building needs of countries and institutions in project design and country assistance programs.

Critical Attention to Debt Sustainability

As we invest more heavily in development, we must not repeat past mistakes. The Heavily Indebted Poor Countries (HIPC) Debt Initiative has taught us an invaluable lesson on the financial and social costs of debt overhang. Our experience with the Initiative also underscored the need to adopt a dynamic, forward-looking perspective on debt sustainability. The Initiative and the long-term debt sustainability work undertaken by the World Bank and the IMF must take into full account the difficulties facing many African countries.

Twenty-seven countries are already benefiting from relief under the HIPC Initiative and are having their overall debt stock reduced by two-thirds. Their debt service as a percentage of exports has also been substantially reduced to an average of 10 per cent. Savings from lower debt-service payments have contributed to a substantial increase in poverty-reducing expenditures. However, the experience of the HIPCs has shown that for most countries the relief received has not been sufficient to sustainably resolve the problems of excessive debt burdens. Careful attention should continue to be paid to prudent and sustainable management of borrowing on the part of the countries and of lending by development partners, and further debt relief will be required.

The HIPC Initiative remains a valuable instrument to give other heavily indebted poor countries a fresh start, namely by freeing up fiscal space for productive investments. Eleven countries most affected by conflict have yet to be considered for HIPC assistance. We therefore support the proposed extension of the sunset clause, which will give them until 2006 to initiate the process.

The key to poverty reduction is broad-based and pro-poor growth. For most HIPCs, deeper reforms are necessary to promote long-term growth. Over the short and medium term, while reforms will require funding, this may come in the form of loans that will add to the financial burden of the poorest countries. Development finance must be provided strategically and responsibly, either on highly concessional terms or on a grant basis, in order to protect the gains of the HIPC Initiative and to minimize the risk of debt distress. We recognize the progress made in fine-tuning the framework for debt sustainability analyses and support that such analyses be jointly conducted by Bank and Fund staff in partnership with the country authorities. For this initiative to work, developing countries and their developed partners, as well as other multilateral development institutions, must participate fully. Besides the importance of joint work by Bank and Fund staff, the process and results of the debt sustainability analyses must be fully transparent, available to all, and used by all. The recent decision to publish country ratings from the World Bank’s Country Performance and Institutional Assessments, a key input of these analyses and of the IDA resource allocation system, is an important step in this direction.

Having the results of these analyses inform the lending decisions of IDA and the Poverty Reduction and Growth Facility (PRGF), as well as those of other development partners, is vital to ensure that unsustainable borrowing is avoided. We urge Executive Directors and IDA Deputies to fully consider the merits of the proposed debt sustainability analysis operational framework and to refine it as appropriate with a view to having it guide lending decisions during the IDA14 period. Future PRGF arrangements should also take into proper account the conclusions of these debt sustainability analyses.

Special Approach for Small Island States

Stability in growth and debt sustainability are major challenges facing small island states, especially those in the Caribbean region. The devastation brought upon the Caribbean islands by Hurricane Ivan underscores the vulnerability of these small states. Over the last decades, many countries of the region undertook wide-ranging market-oriented policy and institutional reforms. However, from the perspective of sustaining growth, the results have been well short of expectations. The World Bank and IMF could do better in terms of providing economic and financing policy advice based on a comprehensive understanding of special small state policies and circumstances. In 2000 the World Bank endorsed the task force study on small states, which confirmed that small states face special development challenges and therefore need more focused attention. In this vein, the World Bank and IMF need to recognize the region’s specificities and undertake more rigorous social and economic analysis to provide for a comprehensive understanding of the forces underlying growth, which will help inform policy-making and development assistance. This includes the need to examine the issue of debt sustainability of middle-income small states. At the same time, attention should continue to be paid to the critical building blocks of sustainable growth, namely quality infrastructure, human capital development and technological know-how.

Looking Forward

Little more than a decade remains until 2015. Scrutiny of our actions and policies will only increase as we come closer to the deadline for meeting the MDGs. It is encouraging that we know that, on a global scale, we will likely meet the goal of halving global poverty. However, the challenges of meeting this target at the country level, especially for most African countries, are daunting. In this global effort against poverty and despair, all development partners have critical roles to play. The Bretton Woods Institutions are needed now more than ever and they, more than ever, need to heed the voices of their smaller shareholders. Developing and developed countries, the public and private sectors, democratic institutions, and civil society must all work closely together and improve the focus of our efforts to guarantee a better future for the world’s poorest.