Paul Wolfowitz

World Bank President

February 28, 2006

Thank you very much. Thank you for the warm introduction. Thank you and all of your colleagues for the very warm hospitality we've been enjoying here in Prague today. I am not talking about the weather. I am talking about the friendly atmosphere and the beautiful city. I am glad to have an excuse to come to Prague, but this is an especially good excuse to come to celebrate a unique occasion, which is the Czech Republic's graduation from the World Bank.

The Czech Republic graduated from needing World Bank assistance because of the remarkable economic progress that has been made since the Velvet Revolution, and especially in the last few years under the leadership of President Vaclav Klaus.

This country's social and economic transformation would not have been possible without the hard work and determination of the Czech people and with courageous decisions by Czech officials. I want to extend my heartfelt congratulations to all of you, people and government alike, for these remarkable achievements and to thank you for setting an example for other countries who hope to achieve the same success.

Today, the Czech Republic has much to celebrate. You stand in the top rank of middle-income countries, with a per capita income that has increased by more than 50 percent in just the last four years, from just under $6,000 in 2000 to over $9,000 in 2004.

The Czech Republic is Central Europe's best destination for international investors, with foreign investments ranging from 5 percent to 15 percent of GDP in the last five years.

For the people of this country, this strong economic performance has translated into a higher standard of living. Life expectancy increased from 71 years in 1990 to 75 years in 2003, well above the average for middle-income countries. During this same time, infant mortality dropped dramatically from 11 per 1,000 to only 4 per 1,000. And throughout this period, I suppose one of the positive legacies of the old Europe is that throughout this period, the ratio of girls to boys in primary and secondary schools has exceeded 100 percent. Maybe that is why you do so well.

As the Czech Republic moves from being an aid recipient to an active development partner, it is also becoming an important player in global efforts to combat poverty. Since 1993, it has been a regular donor to the International Development Association, the World Bank's concessional lending arm, which assists the poorest countries in the world--especially those in Sub-Saharan Africa.

The Czech Republic has also been a valuable partner to the World Bank Group and to the IMF in developing advanced tools to strengthen financial sector institutions--not only for the Czech market but also for use in other countries. In fact, as you heard earlier, the contributions of the Czech Republic were discussed during the last two days at the Conference on Institutional Foundations for Sound Finance.

Only a few countries outside of Central Europe have been able to make such a remarkable turnaround in recent years. The Czech experience carries valuable lessons for many countries--countries that want to achieve the same results through economic reform.

It is demonstrated successes like yours--not mere textbook economic theories--that can bring us one step closer to helping the poor people of the world seize economic opportunity and enjoy the prosperity that so many of us take for granted.

Middle-income countries like the Czech Republic are indispensable to the mission of the World Bank Group to fight poverty worldwide, and they are valuable not only for the lessons of experience.

When countries like yours open your borders to goods and migrant workers from poorer neighbors, middle-income countries bring stability and prosperity to their region. A recent World Bank study showed that workers' remittances from Russia to Tajikistan could reach up to almost 30 percent of gross domestic product, bringing higher income for many families in Tajikistan where per capita income is barely $200. Middle-income countries also help integrate markets and contribute to the upgrading of shared roads and infrastructure.

In Southeast Europe, countries like Bulgaria, Croatia, Macedonia, and Romania are working with poorer neighbors like Albania, Bosnia, Moldova, and Serbia to boost trade across their borders by cutting transport costs, fighting corruption, and modernizing customs administration.

Many of the global challenges we face today like trade, clean energy, debt relief, or fighting the spread of avian flu and HIV/AIDS, demand increased levels of international cooperation and international support. And we are seeing many middle-income countries step up to their responsibilities in supporting the global public goods agenda.

Slovenia, which also graduated from the World Bank just two years ago, is actively contributing to the program to eliminate onchocerciasis, more commonly known as river blindness, and the Global Fund for Aids, Tuberculosis, and Malaria. And Russia recently announced that it will forgive nearly $700 million of debt owed to Russia by 16 of the poorest countries in Africa.

But despite the successes, many middle-income countries still face the daunting task of overcoming extreme poverty. Today, more than one-third of the world's poor live in middle-income countries. When we're talking about the poor, we mean extreme poor, by definition people living on less than $1 a day or less than $365 per capita per year. That's not poverty. That is extreme poverty.

In the past year, I visited three countries that have some of the largest numbers of poor people of any countries in the world, successful countries nevertheless--Brazil, China, and India. Each of these countries in different ways has achieved impressive development success, but each of them also have large pockets of extremely poor people with living standards similar to those found in the poorest countries in the world.

In fact, there are more people living in extreme poverty in those three countries combined than in all of Sub-Saharan Africa put together. When I walked through a slum, or what they call a favela, in the city of Sao Paulo in Brazil, the financial hub of Latin America, you couldn't help but be struck by the enormous contrasts. There was glamorous, successful, financially important Brazil standing side by side with some of the most impoverished that you could find anywhere.

Stark contrasts between rich and poor exist even right here in emerging economies of Europe. Poland is home to five of the poorest regions in the European Union. And vulnerable groups like the Roma of Central Europe continue to suffer disproportionately from poverty because they lack access to basic services and opportunities to improve their living conditions.

Just last night I had the privilege of meeting with some young Roma leaders who had been lucky enough to get decent education, indeed to go to university. And in their energy and their intelligence and their ambition, you could sense what might be possible if educational opportunities remain available to all of that community. Not only they would benefit, but all of Europe would benefit.

To fight poverty, to fight that kind of social exclusion, middle-income countries need strong institutional capacity. But many countries with a high level of capacity in national institutions have much weaker sub-national institutions, or they have weak processes within otherwise well-performing institutions.

When uneven capacity exists in public institutions that support private sector development, it hurts the prospects for accelerating growth and for tackling poverty, hunger, and disease, providing poor people a chance to improve their lives and to provide a better future for their children.

And even successful countries are often still held back by policies that handicap the private sector. Even in Lithuania, for example, which has one of the best business climates of any middle-income country anywhere, private businesses are still often burdened with red tape, and that reduces their chance to create employment opportunities, including employment opportunities for the poor people who need it the most. In Lithuania, for example, it takes 151 days to obtain the licenses needed to start a business and 154 days to enforce contracts. And that's one of the good performers. In other, less business friendly middle-income countries, doing business can be much more cumbersome.

There are many people who argue today that the World Bank has no business working with middle-income countries because they are rich and they have access to so much private capital. I don't agree. Let me tell you about one conversation I had in China which to me is part of the answer.

When I was visiting Beijing this past spring, I asked senior Chinese officials whether the World Bank could still play a useful role in their country, given the extraordinary economic performance of China in the last 20 years. Their usual answer, indeed their invariable answer was a very strong "yes," followed by saying, "It's not just the money, it's not just the loan. It isn't even the money is the most important thing. It's what we learn from the relationship. It's what the Governor of the central bank called the `soft factor.'"

But it was one answer from a mid-level official in the Ministry of Finance that particularly captured my attention. He said, "When we launched our economic reform program, we learned that we need to introduce modern accounting standards. But we couldn't have modern accounting standards without accountants." So as part of a World Bank program to build a cadre of accountants, he spent six months in Chicago, Illinois, and another six months in Cleveland, Ohio, training with private firms.

Now, those of you who know those two cities--and I studied in one of them and grew up near another--it's colder than Prague. You don't go there unless you're a serious person. This was a serious program. Training accountants is a very important part of building the institutional capacity that permits countries to achieve the kinds of success that in very different ways - the Czech Republic in one and China in another - have achieved.

We take some pride that the World Bank Group can be a vehicle for that kind of learning. We are both contributing to and learning from successful poverty reduction programs, particularly in middle-income countries, that can be replicated elsewhere. And a greater part of the conference that we've held here in the last day and a half was how to learn more from the Czech experience in building sound financial structures in ways that could be translated to other countries.

More than ever, we are focused on supporting middle-income countries, helping them to meet their development challenges--by helping them to build strong institutions.Development is about more than just labor and capital. It's about institutional development, and that has become, I think, increasingly clear.

We also, in what some might call our traditional role, are partnering with infrastructure ministries, with environmental institutions, and with other government agencies to design and implement projects that have impact on the ground. In Poland, for example, we are investing in roads as well as helping roads agencies to manage their investments and maintenance.

We are supporting the efforts of countries to build transparent and accountable public institutions so that the private sector can flourish and create jobs. Latvia has improved its investment climate by easing government inspections on businesses, just to name one example.

And we are building a long track record of establishing competitive procurement systems--not just in our projects, but also with local institutions. That was one of the points made to me by officials in China. Another example, four years ago the Philippines introduced e-procurement, Internet-based procurement in the public sector, and we have already seen cost savings of as much 40 percent in some cases as a result of increased competition.

Today, we celebrate an evolving partnership with the Czech Republic that has given us at the World Bank Group some valuable lessons about how to improve our work in all the middle-income countries where we work.

One is the value of an overarching objective to which the World Bank can contribute. Here in Czech Republic and elsewhere in Eastern Europe, that overriding objective was accession and successful integration into the European Union. Only by tailoring the content and timing of our advice to the key objectives of the country we're working with can we remain truly valuable to our middle-income partners.

But simply sharing an overarching goal is not sufficient. A second lesson from the Czech experience points to the need for sustained engagement on both sides, with frequent monitoring to ensure that the limited resources of the World Bank are being spent in ways that really make a difference in the lives of the poor.

The Czech experience demonstrates that special effort is needed to ensure quality and continuity in our own staffing and at the same time to maintain our ability to respond quickly and effectively.

Finally, the World Bank partnership with the Czech Republic has demonstrated the value of cost sharing. By organizing and funding the broad dissemination of virtually all the outputs of the World Bank program, the Czech authorities demonstrated their conviction that the program was relevant and timely.

In recent years, this cost-sharing approach has been adopted elsewhere and has huge potential for delivering results that might not be possible if we attempted to work only with World Bank resources. For example, Kazakhstan and Thailand have both shared in the costs of analytical work, and Algeria has had a cost-sharing program to improve water management. This country is small in size, but it is large in accomplishment and large in spirit, and large in the example that it is setting to the rest of this region and the rest of the world. I made my first visit to Prague 15 years ago, and one could dream at that time, but it was hard to imagine what this country might achieve and did achieve in the next 15 years. I came here for a remarkable conference that former President Havel had organized. I think it was the first and last joint meeting of Defense Ministries of NATO and the Warsaw Pact. It was marked by a mutual spirit of harmony, which I guess did bode well for the future.

Former President Havel was a remarkable leader, an inspiration not just for this country but for all of us. In his first public address as President, he said, "I dream of a republic independent, free and democratic; of a republic economically prosperous, yet socially just, in short, of a humane republic which serves the individual and which therefore holds the hope that the individual will serve it in turn. Of a republic of well-rounded people, because without such it is impossible to solve any of our problems, human, economic, ecological, social or political."

The hard work of your people and your leaders to achieve former President Havel's dream is both a lesson and an inspiration for the rest of us.

As the World Bank Group, has served the Czech Republic, I share former President Havel's dream that the Czech Republic will serve the developing world in its turn. It's been an honor and privilege to work with you as a recipient of World Bank support, and we look forward to a close and continuing relationship with the Czech Republic as a donor and, even more important, as a source of valuable knowledge and experience to poor countries in the world.

Thank you very much.