Meeting of the IBRD Development Committee of the World Bank
H.E. Mr. Halldór Ásgrímsson, Minister for Foreign Affairs, Iceland, on behalf of the Nordic and Baltic Countries
Washington D.C., April 17, 1998
Implementing the Major Recommendations of the MDB Task Force Report
1. The Nordic and Baltic countries welcome the progress made by the MDBs in implementing the recommendations of the MDB Task Force Report. Important steps have been taken since the DC spring meeting in 1996 to increase coordination and harmonize policies. We commend the MDBs for having proved able to respond to the challenges posed by a dynamic and rapidly changing global environment.
2. As global capital markets evolve, the role of the MDBs is changing. One of the main challenges is to assist in establishing an enabling environment for private sector development and to attract private capital flows to countries and sectors where these are scarce. MDBs should also continue to provide capital to the social sectors. The MDBs have a role both in contributing to integration and in avoiding marginalization of the developing countries. In light of the current financial crisis in Asia, the MDBs should help reform financial sectors in the countries concerned.
3. Considerable strengthening of coordination between the MDBs has already been achieved. This work is important also in transition countries, where the World Bank should collaborate closely with institutions like the EC, EIB, EBRD, and NIB. The challenge for the MDBs in developing countries is now to further coordination at country level, and at the same time reduce inefficiencies in the development system. When concrete steps are taken to rationalize work the partnership concept should be kept in mind under the leadership of the borrowing country to the extent possible and in cooperation with other MDBs, the UN, bilateral donors, the private sector and the civil society. In the same spirit, the World Bank should develop the Consultative Group Meeting concept further. These meetings should become more of a regular forum for policy discussions and coordination with partners.
4. The MDBs should, in line with the on-going work on aid-effectiveness in the OECD, develop indicators enabling an appropriate evaluation of the impact of their respective operations.
5. The Nordic and Baltic countries commend the World Bank for the increased emphasis on high priority areas, such as human resource development, capacity building and environmental issues. The recently presented strategy for the financial sector is much welcomed and needs now to be implemented. We welcome the strong commitment to combat corruption and improve governance. We expect to see a forcefull implementation of the policies on the ground. Furthermore, we are concerned about insufficient focus on gender equality. Another concern is a lack of a strategy on private sector development.
6. The recommendations on poverty reduction were quite specific in the Task Force Report. We believe that the progress report could have been more detailed on achievements made in this area. The forthcoming World Development Report 2000 will provide a good opportunity to come up with constructive proposals on the continued fight against poverty. In this context we welcome the consultative process initiated by the Bank.
Implementation of the HIPC Initiative
7. The Nordic and Baltic countries strongly support the HIPC Initiative. We regard it as a fundamental building block in the global effort to ease and erase part of the debt burden of the poorest and most indebted countries. Our main concern today is how the initiative is being implemented. To be successful coordinated efforts and strong support from all parties involved are necessary.
8. Several members in our constituency have already made large contributions to the HIPC Trust Fund. Continued strong support from all creditor countries, including the larger ones, is required.
9. In our view it is crucial that the fundamental principle of proportional burden sharing among all creditors is maintained. It contradicts the basic principles governing the Initiative to let certain creditors be bailed.
MIGA Capital Increase
10. We note with satisfaction that agreement has been reached on the General Capital Increase for MIGA in line with the consensus reached at our meeting in Hong Kong. It is now up to the MIGA Council of Governors to finalize the Capital Increase. The Nordic and Baltic countries have during these discussions advocated the need for MIGA to analyse and improve the development effectiveness of its operations. Our interest for this does not stop with the Capital Increase. It is of utmost importance that development effectiveness is guiding MIGA`s operations on a daily basis.
Implications of the Asian Financial Crisis
11. The Nordic and Baltic constituency welcomes and supports the efforts made by the World Bank Group and other IFIs to stabilize the financial situation in Asia.
12. The financial crisis in Asia has severe social consequences which are still evolving. The crisis hits the poor and vulnerable directly by loss of jobs, increased food prices, and reduced social services. The environmental impact is also a cause for deep concern as it may further undermine sustainable development in the region.
13. The financial crisis has revealed that weak domestic financial sectors and poor corporate governance can undercut years of economic achievements in countries with sound macroeconomic policies. It is therefore important to draw lessons from the ongoing crisis. One such lesson is that future Country Assistance Strategies should take into account strengthened reviews of structural policies within these fields.
14. The crisis has also revealed the importance of transparency and sound governance. An unhealthy mixture of public and private interests is one of the fundamental causes of the crisis. The IFIs are well positioned to help governments in their efforts to create a regulatory framework for the financial sector and a more transparent environment for interaction between government and the private sector.
15. The role of the World Bank Group in the current crisis is to attend to both immediate needs and long-term structural and sectoral matters. The Nordic and Baltic countries acknowledge that the Bank has already taken steps to help governments identify policy options and take actions. The Bank operations should be aimed at helping the affected countries to build proper legal and regulatory frameworks, strengthen institutional capacity and create an environment conducive to private investments. In addition to financial and corporate sector restructuring, the Bank must play a leading role in helping countries manage the social consequences of the crisis.
16. The World Bank Group must strengthen its capacity in financial sector development. Our understanding of the anatomy of the Asian crisis is still in the formative stage. We urge the Bank to forcefully implement its new strategy for the financial sector. This is important both for crisis prevention and the ability to deal with similar situations in the future.
17. Sharing of responsibilities and reinforced cooperation between IFIs must be underlined. Improved collaboration through an early sharing of information and close cooperation already in the analysis and diagnosis phase between the Bank and the IMF is of vital importance. Experiences from Asia have shown that a more systematic collaboration will be needed between the World Bank Group, the IMF and the Regional Development Banks as well as the BIS in the future.
World Bank Net Income Dynamics
18. The Nordic and Baltic countries stress that the primary goal of the World Bank is to catalyze development and reduce poverty, not to maximize income. The development aspect should be the focus of all considerations as regards the World Bank's income dynamics. Thus, we stress that the burden of measures taken to resolve the issue of income dynamics must not be placed on borrowing countries only. Interests of all members must be balanced.
19. It is of great importance that the Bank maintains its financial integrity. The reserves are a means to provide the Bank with the necessary financial strength. Therefore, its reserves must be kept at an appropriate level based on the credit risks but not by a wish to increase income.
20. The specific issue of income dynamics should be considered in the context of continued strong commitment of the Bank towards IDA. Another important use is the financing of the HIPC Initiative.