58th meeting of the Development Committee of the World Bank, October 5, 1998
Statement by the Hon. Halldór Ásgrímsson, Minister for Foreign Affairs, Iceland,
on behalf of the Nordic and Baltic Countries
Responding to the Asian Crisis ? Development Priorities and the Role of the World Bank
The rapid growth of private capital flows to developing countries during the 1990s came to a sudden halt last year with the Asian crisis. Now we can all admit that the structures of multilateral and national financial controls were insufficient to meet the changes in the global markets. The still deepening crisis and its spillover effects on Russia and other emerging markets has called for an extensive response from the international community. The IMF and the World Bank play central roles in providing financial and policy support to the affected countries.
The Asian crisis cannot solely be dealt with through an injection of financial resources. The restructuring of the financial and corporate sectors and inclusion of social dimensions are equally important issues and must be essential elements in any medium- to long-term strategy for sustainable growth.
The Nordic and Baltic countries note with special concern the alarming deficiencies in the social sectors. Hence, the importance of Bank Group involvement in social development becomes crucial. Short-term actions should focus on securing food supplies, generating employment, and protecting education and health services for the poor. These efforts to alleviate the immediate social hardship should rapidly translate into structural and financial support for broad-based job-creating development. Long-term actions should aim at enhancing social services and strengthening social security systems. In this context, we note with interest the proposal to draw up a code of good practice on social policy.
Reforms are primarily the responsibility of the affected countries themselves. We are therefore pleased to note that governments are converting their experience into practical measures for readjusting economic and financial management. Both the Bretton Woods Institutions have a role in helping the affected countries through the restructuring process, the IMF by assisting with economic stabilization and emergency lending, and the Bank by providing advice and finance for longer-term reforms and restructuring.
Lack of accountability and transparency in the corporate sectors, combined with unhealthy interaction between the public and private sectors, are some of the root causes of the crisis. The Nordic and Baltic countries expect active joint Bank-Fund involvement in improving governance as a central element in maintaining and implementing sound economic policies.
We are also concerned about the environmental impact of the crisis, which should be closely monitored. The Bank Group needs to become more active in promoting sustainable environmental management in the affected countries.
Addressing Problems of Heavily Indebted Poor Countries and Post Conflict Countries
The Nordic and Baltic countries continue to be strong supporters of the HIPC Initiative. We welcome the two-year extension of the HIPC entry deadline. The extension can enable the initial HIPC countries to meet entry requirements and provides an opportunity for additional potential HIPC countries to seek to join the Initiative. We are still concerned about the uncertainty over the financing of the Initiative and stress that equitable and fully proportionate burden sharing among creditors must be applied. Furthermore, we underline the urgent need to secure the financing of the ESAF arrangement, where the G7 countries have a special responsibility.
We urge the Bank to put more emphasis on the social dimension and poverty reduction efforts within the HIPC Initiative. Even if a simple one-to-one link between debt relief and social expenditure is inappropriate, it must be ensured that the resources freed through the debt relief operations are translated into improved social services and poverty reduction efforts.
The HIPC-initiative aims at exit solutions, at debt sustainability for a number of indebted countries. Now that we are entering into a post-HIPC era for the first eligible countries, we would like to draw attention to the fact that many of the countries will be left in a vulnerable position. This is the case in particular against the background of falling commodity prices. We encourage debtors and all creditors to undertake efforts to secure that countries do not re-enter into an unsustainable debt-situation.
We welcome the work aimed at enhancing World Bank assistance to countries emerging from conflict. We believe that such assistance could contribute to financial and political stability in post-conflict countries. There is a need for a certain framework which takes into account all appropriate mechanisms and instruments. We consider HIPC and IDA to be central in this effort.
The effort to assist post-conflict countries must be a concerted effort, conducted in the spirit of partnership, inviting the United Nations and other multilateral institutions, as well as bilateral organizations, to participate in a coordinated process. We emphasize that the exercise must be based on a fair burden sharing among creditors.
We encourage the Bank to proceed with the work on post-conflict assistance and expect to see a strategy presented to the Development Committee at its 1999 spring meeting.
The 1989 Concordat still provides a basis for cooperation and division of responsibilities between the Bretton Woods Institutions. The Asian crisis has, however, highlighted the need for enhanced cooperation. One cause of present disconcerted action appears to be a lack of appropriate mechanisms for ensuring early consultation and involvement. We urge the management of the two institutions to expand cooperation and introduce more concrete measures to improve practices.
Collaboration at all levels is particularly important when both institutions are involved in policy-based lending to the same country. It is essential to have early and close coordination of the Fund's macroeconomic policy advice and the Bank's advice on structural issues. We welcome the issuing of joint documents discussed by the two boards. We also welcome increased use of joint missions as a means of strengthening coordination.
We underline the need for better collaboration between the Bank and the Fund in low-income countries. Strengthened partnership in these countries can be a crucial factor in helping governments succeed in their efforts to carry out difficult economic and institutional reforms. Closer collaboration will also facilitate a more systematic integration of social dimension and poverty aspects in programs supported by the two institutions.
World Bank Net Income Dynamics
The first priority in any discussion on income dynamics must be to ensure that the Bank maintains its financial soundness and its capacity to respond adequately to its clients development needs. The amount of capital required to achieve this end is difficult to assess. Therefore, we welcome the President}s proposal for a thorough review of the Bank}s need for capital
We emphasize the importance of the developmental role of the Bank and its strong commitment towards the financing of IDA and HIPC.