Development Committee Chairman Alberto Carrasquilla Barrera, World Bank President Paul Wolfowitz, and IMF Managing Director Rodrigo de Rato
Sunday, April 23, 2006
P R O C E E D I N G S
MR. HANLON: Good afternoon and welcome. Thanks very much for joining us for this news conference that marks the conclusion of today's meeting of the Development Committee of the World Bank and the International Monetary Fund. I'd like to wish a very special welcome to Alberto Carrasquilla, the Chairman, who has presided over his first Development Committee meeting today. Congratulations, sir, and welcome.
MR. CARRASQUILLA: Thank you.
MR. HANLON: Of course, we will also be hearing from World Bank President Paul Wolfowitz and International Monetary Fund Managing Director Rodrigo de Rato. They will be taking your questions, obviously, but first, Chairman Carrasquilla will have some opening remarks outlining the conclusions of today's meetings.
MR. CARRASQUILLA: Thank you.
Good afternoon. I would like to be very brief so that we can get into the question and answer session as fast as possible. It was a very lively and very useful discussion we had today on two topics: the first topic, clean energy and development. I think the important point to note there is the broad support for the World Bank balanced approach in addressing the issue, the central issue.
The World Bank has proposed to focus on three elements: the developing country energy needs is a substantial problem that needs to be faced; secondly, the efforts to control greenhouse gas emissions is most relevant in any development debate that we may have in the future, and thirdly, we have to learn how to cope, and the international financial institutions have a key role to play in helping developing countries adapt to the realities of climate change.
The second area of discussion that we had had to do with the Global Monitoring Report. The central focus of our discussion today was the way in which countries are advancing toward meeting the Millennium Development Goals. There was, broadly speaking, good news to be had. The pace at which the countries are advancing towards meeting the goals is favorable.
The kinds of challenges that remain, however, are very big. The unequal distribution of the success stories that we have is a source of worry, and in that context, we discussed the issue of governance with special emphasis. Members reaffirmed the principle of mutual accountability and welcomed the recent progress made in reducing income poverty in many regions of the world.
The main challenges, as I mentioned, is the uneven progress made in the advancement of these Goals, and of course, there is a lot of progress that has to be made in other areas. Many developing countries will fail to meet the MDGs, in particular, those related to human development, if we remain on current trends. A lot of effort has to be made, and the Members of the Development Committee were especially concerned about this reality and placed great emphasis on solving this
On the topic of aid volumes, Members welcomed the rising trend that we have observed in recent years, not only from the OECD Development Assistance Committee Members but also from new partners in this effort. Members noted the key role of the World Bank and the IMF in helping countries ensure that increases in aid volumes can be absorbed effectively and used for what they are supposed to be used.
Effectiveness was a central concern in the discussion. Members called for rapid progress in implementing the framework agreed in the Paris Declaration for Enhancing Aid Effectiveness. Donors and other development partners need to improve the quality of aid, modalities of aid delivery to reduce volatility, achieve greater predictability, and provide stronger alignment with national Poverty Reduction Strategies.
Country ownership of the efforts was especially emphasized. Members asked the World Bank and other partners to intensify their coordination at the country level and to ensure country ownership.
In terms of another very important topic, results and outcomes, Members emphasized the need for the multilateral development banks to strengthen results orientation and to strengthen, for instance, the statistical and related institutional capacity in order to understand not only the current situation but the main trends. Members noted the importance of continued development progress in middle-income countries and emerging market countries in general and asked the Bank to refine and enhance its engagement strategy there.
Governance, as I mentioned, was a central issue of the entire debate. Members agreed that promoting good governance is key in assuring that the increasing volumes of aid that many countries have committed to is crucial. These include fighting corruption and enhancing mutual accountability frameworks, and those are seen as essential to achieving the Millennium Development Goals.
Members noted the diagnosis in the Global Monitoring Report that a significant level of corruption is a symptom of poor governance. Members called on the Bank to lay out a broad strategy for helping Member countries strengthen governance and deepen the fight against corruption.
And the Multilateral Debt Relief Initiative was another subject of discussion and is of keen interest to the Members of the Development Committee. The approval of the required resolution by IDA Governors was especially important in our discussions. Donor countries need to secure their financing commitments. This was especially emphasized.
The Development Committee called on the Bank and the Fund, in consultation with the membership, to bring forward proposals to further refine debt sustainability in the current framework for low-income countries as well as for middle-income countries and to support growth and avoid accumulation of unsustainable debt levels and in this context, to further elaborate and implement an approach to deal with the issue of free riding.
On trade, the Committee urged all World Trade Organization Members to step up efforts to reach a successful conclusion to the Doha Round by the end of this year. Members welcomed the significant increase in donor commitments in aid for trade and looked forward to the works of the Bank and the Fund to operationalize aid for trade.
I would leave it there, and I think those were the main topics in the two areas of discussion that we had.
MR. HANLON: Okay; President Wolfowitz?
MR. WOLFOWITZ: Thank you.
We had a really excellent session, and I want to thank Chairman Carrasquilla for a terrific job in your first time in this assignment. Thank you very much.
I'm going to confine my comments to the main subject that we discussed with respect to the Global Monitoring Report, and that is the twin issues of aid effectiveness and governance. Last year, donors generously pledged to double aid to Africa and substantially increase aid overall, with the promise to improve our coordination and effectiveness to deliver concrete results. In return, recipients committed to strengthening governance, accountability, and transparency in managing resources.
Efforts to improve aid effectiveness cannot be separated from strengthening governance systems. When governance systems fail, service provision weakens, corruption increases, and growth is undermined. The Global Monitoring Report proposes a framework that helps to define governance and proposes tools for monitoring it. The Report also argues compellingly that the best check against corruption is to strengthen governance systems supported by regular monitoring.
Simply uttering the word corruption drives headlines, but the real issue that we are addressing at the World Bank Group is how to promote good governance and accountability within our lending and project portfolios and in step with our development partners so that we can drive results for the poorest people in the world.
I agree strongly with the comments that I heard today from many of our partners on the need to develop a common approach to improving and monitoring governance. If each donor and each partner country has a different policy and a different system, we will have no policy at all.
Over the coming months, we are committed to working with all of our shareholders to develop the framework of such an approach that can be discussed at our Annual Meetings in September in Singapore. But we have to be realistic. We can't expect that a single anticorruption standard would work in the broad, complicated development environment that we operate in every day. And we should not confuse having zero tolerance for corruption with a requirement for perfection in order to work with us. No country has achieved perfection when it comes to corruption; it is doubtful that any ever will. But what we can expect is progressive improvement over time.
In conversations over the past few days and in the meeting this morning, I've listened to a number of good ideas that I think can help bring us closer to reaching a consensus on governance. Let me summarize them along four key issues: first, the European Development Commissioner, Louis Michel, urged that we work on a common diagnostic tool. In the decades since Jim Wolfensohn first called attention to corruption as a cancer on the development process, indicators and tools and analytic approaches have proliferated.
But if you ask six members from any multilateral development bank, six staff members from any multilateral development bank how they would identify and analyze the building blocks of good governance, I imagine you would get at least six different answers, maybe seven. So we need to think about what policy tools can be used and which ones can be improved.
Which leads me to the second point: we need to focus on building policies and institutions that prevent corruption before it undermines development. Punishment after the fact can never keep pace with the human temptation for self-enrichment. Institutions and practices that prevent and deter are much more important for long-term success.
Third, improving public financial management is essential for good governance, and that includes a range of activities, from training auditors to computerizing public payrolls. And engaging civil society is also a key ingredient. Parliamentarians, NGOs, the media, and a wide range of other groups must have access to information in order to be able to track funds and hold officials accountable.
In my meeting with the African Governors of the Bank yesterday, Nigerian Finance Minister Ngozi highlighted the importance of improving countries' ability to trace and recover stolen funds. An effective system for doing so would help deter large-scale corruption and provide justice for countries that have been harmed in that way. It would also, I might point out, underscore the fact that dealing with this problem is a responsibility of the developed countries every bit as much as the developing countries.
Finally, it is important to recognize that suspending lending is a stopgap measure, not a long-term solution. I am convinced that we cannot merely impose our own solutions. We need to work in partnership with countries to develop mutually agreed solutions and support developing countries in taking ownership of the process.
As Hilary Benn noted this morning, this phase of the exercise may be the most difficult, because we need to weigh how to address an issue such as fraud on a project that otherwise seems to be delivering significant benefits to the poor. But as I have said many times before, we need to keep in mind that corruption is not just a developing country problem. Developed countries carry an equal responsibility. For every bribe-taker, there is a bribe-giver, and often, that comes from a developed country.
We need to do more to address that issue and to hold private corporations accountable for exporting corruption to developing economies. At the Bank, we have been publicly blacklisting firms from both developed and developing countries that engage in corruption in our projects. These lists are available to our development partners and to stakeholders and to the public on the World Bank Website.
These are complex and nuanced issues, but as the African Governors said to me yesterday, we must to develop a common approach if we want to deliver results for the poor. It is an effort that will take some time. When the Bank Group took on the question of developing a safeguard policy for protecting indigenous peoples, it took nine years to reach agreement among stakeholders. Work on the Extractive Industries Transparency Initiative took three years and, in fact, is still a work in progress in terms of signing countries up to implement these standards.
Good governance is perhaps an even greater challenge in terms of the number of stakeholders, the variety of challenges in country conditions, and the complexity of the issues. Corruption will continue to attract headlines, but governance and accountability are the real story, a story with the power to transform the lives of the world's poor.
MR. HANLON: Thank you, sir.
And Managing Director de Rato?
MR. DE RATO: Yes, very briefly, good afternoon.
First of all, I want to welcome Alberto Carrasquilla as the new Chairman of the Development Committee and to commend him for his excellent handling of the meetings today, and I think that Paul Wolfowitz has been clear that these have been very excellent meetings.
I think that it is very encouraging that this year's Global Monitoring Report tells us very clearly that there are signs of progress over the past year towards achieving the Millennium Development Goals, and I think that is an incredibly important finding. But at the same time, we all know that we need to step up our efforts even further if we want to achieve those goals.
There has been a great deal of discussions in these meetings both yesterday at the IMFC and today at the Development Committee about the risks of the global economy, mainly or most importantly global imbalances and high oil prices and devolution of interest rates.
I want to underline that an unwinding of these imbalances would hit the low-income countries very hard, so it is important that a coordinated action to face global imbalances is put forward. In this context, I would like to underline, too, the need for every country to resist protectionist measures and ensure an outcome of the Doha Round that can support our efforts to reduce poverty.
In my report this morning to the Development Committee, I noted the progress made by the International Monetary Fund since our last meeting in September in implementing a number of initiatives that are of significant importance to the low-income countries. Let me mention some of them: approval of Multilateral Debt Relief, and I would like to take this opportunity to welcome and congratulate the World Bank's Board and its President for their endorsement this weekend of the approval of this initiative also at the Bank and at the same time also the approval or the endorsement by the IMFC of the Medium-Term Strategy of the Fund, which includes important steps toward making our work with the low-income countries more focused and I had the chance of mentioning here to you yesterday.
I have assured our membership yesterday at the IMFC and today at the Development Committee that all the resources that the Fund can bring to bear will be put in practice in this critical period so that the international community can count with us to achieve the Millennium Development Goals.
Thank you very much.
MR. HANLON: Thank you very much, Mr. de Rato.
Now, it is time for your questions. If you could please identify yourself, wait for the microphone to get to you; I believe they should be coming around, and also, if you could indicate, please, which member of the panel you would like to address your question, that would be very helpful.
QUESTION: Thank you very much. My question is to both Mr. Wolfowitz and Mr. de Rato. You are talking about the progress which is being made in advancing the goals of the Millennium Development, but what is lacking is what is it that these institutions will do to assist those Members that are lagging behind in meeting these MDGs?
MR. WOLFOWITZ: Well, first of all, I think that to say a little bit more about the progress, because I think it is encouraging, and I think it is particularly encouraging in Africa that we have seen now three years of sustained growth, obviously not in every country but roughly 5 percent a year. It needs to be more, but that is a significant improvement.
And we are trying, in fact, to apply extra resources in those cases where countries really are making best use of them. I think that is one way to move toward the Millennium Development Goals.
Another way to do it, and we had a press conference here yesterday to talk about this Education for All Initiative, excuse me, on Friday, and that is a program that tries to say we are putting together coherent, long-term policies in individual countries to bring primary education for all students and then trying to get donors to commit funding them not on a year-by-year basis but on a sustained, long-term basis that allows countries to hire staff, hire teachers, make the kind of long-term investments that are essential to meeting that.
But as I say, there has been progress. There has been reduction in child mortality. I am hopeful that with the additional resources that have been committed by the donors and with more effective use of those resources, we can make real progress.
MR. DE RATO: I just want to add to what Paul just said that I don't think it's accurate to say that we are not advancing. I mean, as you can see in the Global Monitoring Report this year, things are moving. But I think that we are all aware that first of all, they're not moving all countries at the same speed, and even at the actual rate, they have to be moving for many years and probably accelerate.
In that respect, first of all, I think debt relief is going to be a very important step, and I am very proud of both institutions to respond to the manner of the international community and debt relief. I think that our Poverty Reduction Strategy and Poverty Reduction Facilities are extremely useful for countries in their own strategies to reduce poverty. I think that in the work of the Fund, our work with all the countries engage and also with the donor community to make aid more effectively applied and absorbable by the countries is certainly very straightforward, and all of the measures that the Fund is doing in low-income countries are producing important results.
And there were some examples today in the Global Monitoring Report regarding, for instance, the fact that macroeconomic stability is really translating itself in higher growth; that is a fact right now; Africa is growing more because it more stable macroeconomically speaking and that strengthening public management expenditures is reducing corruption. So in that respect, things are moving, but you're right: we need to work much more, and we have to be aware that there is a big challenge ahead of us.
MR. HANLON: Yes, sir, in the front row, please.
QUESTION: [Inaudible] India Globe and Asia Today.
First of all, you must really be doing good: no demonstrations, no noise, nothing this year compared to last year.
QUESTION: My question is that first, how as far as the World Bank and the IMF are concerned, how India is doing financially and what is the future, and second, you said, Mr. Wolfowitz, that corruption is a cancer in the society around the globe. How can we root out this cancer, which is growing as for corruption around the globe and especially in poor countries and also how to raise the standards of poor countries, because poor are getting poorer, and rich are getting richer?
MR. WOLFOWITZ: First of all, I think overall, India is doing impressively well, and it's a very encouraging story of how a very large country with an extraordinarily diverse population can make real inroads in poverty reduction and in development with a democratic system, and I think that's encouraging.
I think Indian officials that I talk to aren't satisfied with the 7 percent or so that they're doing, but I must say that is impressive already, and I think they are making every effort to do more.
And as I said in my opening comments, the problem with corruption, which is a problem that affects even the richest countries in the world, is one that can't be eliminated overnight. You have to tackle it progressively.
And I think many of the countries we're dealing with are doing that. I just came back from Indonesia, and it's almost a national preoccupation is the fight against corruption, and from the President on down to ordinary people in the street, it's something that Indonesians believe needs to be tackled in order to tackle the problem of poverty in their country, and I have seen that in many other countries in the world, including India.
MR. DE RATO: Yes, very briefly, I just want to say that not only India has what I would like to call an impressive record of growth, this year and next year, moving between 7 and 8 percent, but it is doing that with very low inflation, so that shows that the Indian economy is becoming much more efficient.
If I had to say what is the key for the future, we believe that maintaining this macroeconomic stability and deepening reforms. We have seen some very encouraging announcements by the Prime Minister regarding further liberalization of financial reforms, and certainly, infrastructure is certainly a challenge for India and improving the business climate as to attract more foreign and domestic investment.
MR. HANLON: Harry in the front row, please.
QUESTION: Harry Dunphy, Associated Press.
Mr. Wolfowitz, we understand that several European countries raised questions about the emphasis that you are placing on fighting corruption in the Development Committee communiqué. Are you concerned that these objections will blunt your efforts in this area?
MR. WOLFOWITZ: Actually, I think there is a strong consensus among all shareholders that this is a problem that we need to address. It's a problem for the poor people who are our biggest concern, and it is a problem for the taxpayers of developed countries who help to pay our bills. And I think everyone around the room this morning said it's a problem we need to address, and I think everyone equally agreed that it is a complex problem, one that requires a range of instruments to deal with it and one, as I said in my opening comments, that has to be solved progressively over time. It's not going to be solved overnight.
MR. HANLON: Yes, sir, please, in the front. Thank you.
QUESTION: Fernando [inaudible] from Folio de Sao Paolo, Brazil.
My question is about corruption, again, to Mr. Wolfowitz, please. Last week, in Brazil, the general attorney accused like 40 people very close to President Lula of corruption. It's the biggest scandal in a lot of years in Brazil. Does the World Bank intend to reevaluate the programs that they have in Brazil, and are the good macroeconomic policies enough for the World Bank to keep it?
MR. WOLFOWITZ: We evaluate our programs everywhere in the world and try to do our best to make sure that they are free of corrupt influence, and I am not aware of any problems in our projects in Brazil, including some very impressive ones like the Bolsa Familia program that helps to bring direct cash to poor people in exchange for bringing their children to school.
In fact, it is in the nature of that program, since it checks up on how the recipients are performing with respect to bringing their kids to school that you have a certain built-in safeguard right there. As I said, you can't expect a standard of perfection. We are going to operate in a lot of countries around the world, in some of whom this is a serious problem, but that doesn't mean you can't manage projects in an intelligent way and produce good results.
MR. HANLON: Thank you.
Krishna in the front row, please.
QUESTION: Krishna Guha, Financial Times. A question for Mr. Wolfowitz, please, two parts, if I may.
First of all, could you flesh out a little bit more as to what you think a framework or a sort of set of guidelines for dealing with the corruption issue might look like, given that you've already cautioned us that you can't have a sort of one size fits all approach? And secondly, you talked about the importance of public financial management programs as part of institution building. Can you tell us how many such projects the Bank is, in terms of countries, the Bank is involved in at the moment, and are you making a commitment to increase that today?
MR. WOLFOWITZ: There's no way to answer that question in anything less than a three-hour lecture, but let me say I think it's important to stress that one tends in these discussions to focus on how to sort of root out corruptors and punish corruptors, and that's certainly part of any strategy, and part of any strategy needs to be to try to keep our own activities as free from any corrupt influence as we can manage.
But that is not the most important part of the strategy. The most important part of the strategy will be, to use the jargon of this institution, capacity building, helping countries to build up the kinds of institutions that prevent corruption in the first place.
And I was very struck when I visited China in October hearing Chinese officials describe how, over the last 20 years, we've helped them to develop not only standards for accounting but training accountants. You can have the best standards in the world. If you don't have the people to administer them, it doesn't do you much good.
So I think, if I had to make, since I don't have the three-hour lecture, a short summary, as I said before, I think more emphasis needs to be placed on building institutions and preventing action than on more headline-grabbing effort of punishing misbehavior, although that's essential.
I can't tell you the number of countries where we have this kind of effort going, but in fact, just give me a second, it's significant, and it's not only in public sector financial management, but the Bank has been pioneering work to improve standards for private financial institutions to prevent the kind of banking collapse that took place in Southeast Asia, particularly in Indonesia in 1998.
And when I was in Prague in February, we held a conference on that subject, since the Czech Republic has become a kind of model of how that can be done.
MR. HANLON: Okay; additional questions?
QUESTION: Thank you; Bill McQuillen at Bloomberg News. A question for Managing Director de Rato.
With the reforms of the IMF that were spoken about yesterday, particularly the multilateral consultations, is the IMF taking away some of the responsibilities or really the relevance of the G-7?
MR. DE RATO: Excuse me?
QUESTION: With the reforms, the reforms that were announced yesterday, the multilateral consultations, are these some of the responsibilities that should have been done by the G-7, dealing with issues as they come up on a larger scale?
MR. DE RATO: No, I don't think so. First of all, multilateral responsibilities or international responsibilities of international institutions are responsibilities of those institutions, not of individual countries. The G-7, like the G-24, the G-20, or the G-10, are groups of countries that discuss things of their interest, and all of them, of course, contribute to what I think is a very healthy discussion in the international community, but neither of them have a global constituency that represents all countries.
That is something that the World Bank in the scope of development and the International Monetary Fund in the scope of macroeconomic stability do have. So in that respect, I think it is perfectly understandable that when countries get together, they discuss their interests and probably part of the international agenda, but this is broader than that.
MR. HANLON: I think we have time for a couple more questions.
QUESTION: Paul Blustein, the Washington Post, a question for Mr. Wolfowitz. I want to press you on something that you were asked about yesterday on debt relief. Now that you have cleared this last hurdle in granting debt relief to the 18 or I guess 17 of the 18 countries, will the bar be set a bit higher for the next batch, specifically with regard to governance and corruption issues? Do you anticipate applying some of the principles that you've talked about in some more rigorous way to those countries than have been done for the first group that reached the completion point?
MR. WOLFOWITZ: I think in many cases and perhaps most cases, we have standards that have already been set at the decision point, and I think fairness requires you set a standard, and then, you hold people to it, but you don't keep raising the bar in midstream. So I don't think it's a change, but I think what is new now is a recognition of what is called the free rider problem, the problem that now that these countries have complete debt relief, they should not get back into a position where they borrow heavily and improvidently and end up being once again heavily indebted with debt burdens they can't sustain.
And that, I think, is going to take a lot of attention. It is going to take a lot of cooperation between our two institutions to monitor the sustainability of the debt going forward, and that's a subject that we have begun discussing here, and we will obviously have a lot of work to do going forward.
MR. HANLON: Okay; final question; gentleman here with his hand up, third row.
QUESTION: [Inaudible] of Russia. I have got a question for Mr. de Rato, a follow up to the question about the multilateral discussions. Let us assume that this framework is already in place. What do you think would be the role of the IMF in these discussions? A moderator? A controller? Maybe an enforcer?
MR. DE RATO: The role of the IMF in these discussions, in these consultations, is the same that the IMF has in Article IV consultation. So when we visit a country, and a mission of the IMF goes to a country annually to assess the macroeconomic and financial situation of the country, it engaged in important work and consultations with the government, also in many instances with other areas of society, but specifically with the government.
Once that is done, the staff of the Fund, in an independent manner, produces a report that is shared with the government in which there is not only an analysis but is also clearly policy recommendations and challenges, and that report is discussed at the Board; well, some similar framework, not necessarily essentially--not identical, but that similar framework will be established, and we are starting working on it tomorrow. So we will know more about it in a few days.
But you can think of consultations with different governments on issues not so much of macroeconomic domestic policy but linkages and spillovers among systemic countries and how those can be addressed in a cooperative manner, and then, of course, part of that process will be the Board and the IMFC.
MR. HANLON: Ladies and gentlemen, thank you very much for joining us this afternoon.