LICUS Initiative - Questions and Answers with Sarah Cliffe

What is the purpose of this Trust Fund?

The Trust Fund will help the most severe LICUS countries that have been marginalized from assistance by the international community to strengthen institutions, initiate basic economic, social and governance reforms, and build capacity for social service delivery. Because they are in arrears with the Bank, in the past we weren’t able to assist domestic reformers in these circumstances in their efforts to find a path out of crisis.

Initiating positive change in these countries is difficult, since they have low institutional capacity and often face complex political barriers to change. Rapid assistance is therefore very important to avoid the risk of reversal when reforms are in early stages. This Trust Fund will allow the Bank to come in quickly and provide modest but strategically targeted assistance.

Can you give us examples of countries that may qualify for this assistance?

Sudan is one of the countries in arrears to the Bank that has recently made encouraging progress in its peace process. It’s very important that the Bank, with other donors, comes in early to help the Sudanese to establish or strengthen the institutions they will need to realize a peace dividend in economic and social terms. The Trust Fund can help support these urgent capacity needs.

Another example is the Central African Republic where, following the change of regime in March 2003, the authorities have made some initial progress along a roadmap to the return of democracy and economic recovery, supported by dialogue with the European Commission and other donors. The Trust Fund would enable the Bank to work in concert with national stakeholders and other donors on priority needs in support of that transition, for example to build capacity for economic management improvements or address urgent social needs such as HIV-AIDs.

The Trust Fund has been approved by the Board of Directors. What happens next?

Because the Fund is financed by a transfer from surplus, it needs to go to the Board of Governors for approval of the transfer before disbursements from the Fund can be made. We estimate that approval by the Governors will be in March. Many of these countries have urgent needs; we therefore expect proposals for some countries to be approved right after we hear from the Governors in order to get activities going on the ground as soon as possible.

Why is there an emphasis on Low Income Countries Under Stress at this time?

In the last two or three years, there has been increasing attention from the donor community to the problems of the most marginalized countries. We all realize that aid is used more effectively in countries with stronger policies and institutions. But it is important not to leave behind the weaker countries.

LICUS countries include almost 500 million of the world's most disadvantaged citizens, so while progress is difficult, it is critical to move towards meeting the Millennium Development Goals. We can’t afford to allow some countries to drop out of networks of aid, trade and investment - this increases the gap between rich and poor worlds and risks breeding insecurity, through regional or global spillovers of conflict, organized crime and epidemic diseases.

Before the LICUS initiative, the Bank likely would have disengaged, until these countries had achieved a turnaround in their governance situation. But autonomous recovery is very difficult for these societies, and disengagement has had a poor track record in achieving positive change. Staying engaged means that we can keep our country analysis up to date and be ready to move in quickly to assist when opportunities arise. We cannot do this on our own, but the Trust Fund will help us to remain part of international assistance efforts in the most marginalized countries.

Does helping these countries go against the Bank’s emphasis on anti-corruption and transparency? Can this incur questions from our critics?

Weak policies and institutions create vulnerability to corruption, so this is a major challenge in many LICUS countries. But disengagement doesn’t solve the problem. In fact, it removes a source of external scrutiny of public funds. The LICUS task force placed a strong emphasis on transparency, in particular in areas such as the management of natural resource revenues.

In the most severe LICUS, such as those that will be supported by the LICUS Implementation Trust Fund, we won’t be providing large volumes of funds where financial systems are weak. Rather, we would focus on targeted capacity-building to improve resource management and transparency, or on small demonstration projects to provide examples of accountable use of public resources in areas such as community driven development or social services.

We also need to take a pragmatic approach. Where government expenditure systems are reasonably strong, we should work to strengthen those systems. But where government systems are particularly weak or where a new administration is emerging after a conflict, it may make sense for the country to rely on non-government institutions during a transitional period while basic capacity is being built within the state.

What’s the difference between this initiative and the existing Post Conflict Fund?

The Post Conflict Fund is designed to support discrete interventions in a wide range of conflict-affected countries, some of which are LICUS and some of which are not. It was not designed to carry the burden of more intensive transitional capacity building programs, where other Bank instruments are not available.

However, there are close links between the conflict prevention and reconstruction agenda and the LICUS agenda. By basing the Trust Fund in the Conflict Prevention and Reconstruction (CPR) Unit, we are working to ensure the two initiatives are complimentary. We have also benefited greatly from close collaboration with the CPR in supporting country strategy development.

Is the Bank working with other donors on the LICUS Trust Fund initiative?

Close donor coordination in particularly critical in LICUS countries. Their resources are scarce. Society doesn’t have the capacity to successfully implement multiple, fragmented aid programs. The Trust Fund will help to foster close donor coordination by giving priority to country programs, which are part of a coordinated multi-donor effort.