September 15, 2006
P R O C E E D I N G S
MR. HANLON: Thanks very much. Good morning. Welcome to the Annual Meetings of the World Bank and the International Monetary Fund. Thank you very much for joining us this morning. President Wolfowitz will begin with brief opening remarks, and then he will take your questions. Please identify yourselves and the name of your organization. Our time is brief, so let’s get started.
MR. WOLFOWITZ: Thanks.
I’d like to just start with three main points, and first of all a reminder to everybody of why we are here, and it may take a little reminding, because when you live in the comfort of a five-start hotel, it isn’t always easy to remember that around the world, there are a billion people trying to survive on a dollar a day, going to bed hungry at night, often without adequate shelter and with inadequate medical care.
Our purpose in the World Bank is to try to do as much as we possibly can to deliver assistance to those people, and to the governments of those countries, to help those people have a chance to escape from poverty.
In one respect, being here is symbolically important, because the success that we see around us in Singapore and more broadly in East Asia is a reminder that there is a path out of poverty; there is a path from poverty to prosperity. In the last 25 years, some 400 million people – I think about three-quarters of them in this part of the world – have escaped poverty because of successful development. And it does make it one of the most hopeful chapters in the history of the fight against poverty and gives us some real hope for progress in the future.
But that path from poverty to prosperity has a lot of obstacles along the way, in many respects in which the international community and in particular my institution has an obligation to help countries overcome that.
You know when you talk to people here and in some of the other countries in this Region, they will emphasize first and foremost that the way out of poverty is through hard work and good policies, and certainly that’s true, but that’s only part of the picture. And even Singapore and Japan, even China and Korea, in their early stages of development received substantial development assistance from the World Bank and from individual donor countries. And the poorest countries of Africa I think are much less well-positioned, both geographically, economically, and even in terms of their recent history and the devastation of war and civil war that has dragged countries like Liberia down to such a difficult situation. And particularly, I mention Liberia. There is a country that is just at the very start of that road – I visited there in July – it is impressive to see the commitment of President Johnson-Sirleaf and the reformers in her Government to try to get on the – forgive me for saying it over and over again – on that path to prosperity. But they really need a hand up, and that hand up needs to come in the form of assistance from the development community.
We have at the World Bank in that particular case moved - by our standards - extremely quickly and come up with assistance for them. But I would say in general for countries in that fragile condition, we need to be able to be more flexible.
At the other end of the scale – and we’re going to address this in a paper with the Development Committee –the countries like China that no longer need concessional assistance from the World Bank, but still have substantial need for the resources and particularly the expertise that the Bank brings to bear as a global institution. we are looking at how we can do a better job of both responding at that low end, if you like, for the countries in desperate need, but also being more sophisticated at the high end for countries that are progressing at spectacular rates of growth and whose sophistication is growing at the same time.
Secondly, I have said in the past and I’ll repeat it here, I believe that Sub-Saharan Africa has to be the first priority of the World Bank – not the only priority but the first priority – because in this 25 years when 400 million people have escaped poverty, 600 million people in Sub-Saharan Africa have been going backward. That’s a tragedy for the individuals, and it is an unhealthy trend for the world as a whole.
What I also can say after a year and after visits to some ten African countries, is that one of the pleasant surprises in this job has been to discover not only that Africa has enormous needs, which I knew, but that there is real progress being made in quite a few countries and that the commitment by many African leaders to good governance is real, that the demand by people in Africa for progress and effective government is strong and growing, and that more and more governments in Sub-Saharan Africa are holding themselves accountable to their people for results, as they should.
Last year at the Gleneagles Summit in Scotland, the eight industrialized countries made a commitment to double aid to Africa. Prime Minister Blair called it “a deal for a deal”–that is to say, increased assistance in return for increased performance, improved performance. And I want to say today that I think the improved performance is there, and the increased assistance has got to come. I think the donors are in danger of falling short on that promise, and I would urge them to step up their efforts.
There are some five African countries that have already presented to the Development Assistance Committee of the OECD credible plans for making use of resources beyond what is available to them, and there are many others in the wings that could make good use of additional resources.
So one of the things from my remarks at this meeting is going to be to please step up to those pledges, please, when the time comes next year for beginning to talk about the 15th round of International Development Association (IDA) replenishment – we do it every three years – we need not just to meet the record level of IDA 14, we need to exceed it.
Third, let me just say a little bit about the subject of governance, which has gotten a lot of attention, and it is going to be a major subject of discussion. In the Development Committee, we’ll be addressing the Bank’s Strategy Paper on Governance and Anti-Corruption. First of all, the purpose is not to find a reason to cut back on lending; to the contrary, it is to make the quality of our lending better and to make sure that the lending and grant-making that we do goes where it is supposed to go, which is to help the poorest people of the world.
I think the numbers speak for themselves that we are not cutting back on lending. In fact, last year was a record year for the Bank, particularly for our concessional arm which is IDA; it went up some 9 percent to $9.5 billion, the highest level of IDA assistance ever, and nearly half of that, $4.7 billion, went to Africa, which is a 20 percent increase.
The other, in some respects bigger, increase and very promising sign was the International Finance Corporation (IFC), our private sector arm, which increased its lending by 25 percent to a record level of $6.5 billion, including I think it was, a roughly 50 percent increase in lending to Africa.
And the International Bank for Recontruction and Development (IBRD) came in at the highest level in seven years, with $14.2 billion.
So I think those numbers speak for themselves. We are not looking to cut back on development assistance; we are looking to increase it. And as I just said a few minutes ago, I think the need will be even greater in coming years.
Secondly, in addressing the issues of governance, this is not some idea that we invented at the World Bank. What is striking to me is that when you go to Indonesia, the President of Indonesia is talking about the need for improved governance and fighting corruption. Indeed, he was, some people would say, elected on that platform. You can go around the world – the President of Nigeria is making a strong effort to deal with corruption and taking on corrupt officials at a level that was unheard of in his country.
And it is not just at the level of presidents. It is taxicab drivers in Indonesia and Nigeria and developing countries around the world, ordinary people, who will tell you that if we’re going to succeed, if we’re going to develop, if we’re going to get out of poverty, the money has to go where it is supposed to go and not to line the bank accounts of rich and corrupt individuals or officials.
So, governance is really at the forefront of people’s minds. In fact, when the Blair commission, the UK Commission on Africa, reported last year - a commission that included, by the way, two African heads of government - they identified weak governance as the biggest obstacle to development in Africa.
I think, going back to my earlier comments, it’s not the only obstacle. Money is needed, resources are needed – but it needs to go in the right place.
Third, we simply can’t afford to turn a blind eye when we do encounter corruption in our projects. It not only means the money that should be going to build clinics and build schools and provide adequate housing for the poor instead is going to enrich corrupt individuals, and it is siphoned off from where it ought to go.
In fact, sometimes it’s not just a waste of money; it sometimes leads to buildings that collapse or to medicines that are harmful being given to pregnant women. These are not hypothetical examples; these are real ones.
But I think what has characterized the difficult cases that we have dealt with over the past 12 months is that most of the governments, virtually all of the governments that we deal with, want to tackle these problems. And when we say, “Here is the problem,” and we present it in a firm and clear way, we have been able to come up in a flexible way with solutions and safeguards that allow us to go ahead – because the purpose here is not to cut back. The purpose is to engage. The purpose is to make resources available to the people who make good use of them and to encourage forward movement.
And then, finally, to be clear about this, the taxpayers who provide us with the support – whether it is taxpayers in France or Japan or the UK or the United States–-demand, as the Articles of Agreement of the Bank demand, that our money goes for the purposes intended. And I think that with this new strategy, we are in a very strong position as we go to ask for more money, as we will be doing, to say, “We can give you reasonably good assurance that the money you have given us and the money you will give us is going for the purposes intended.”
Before I take questions, just one last comment on this important issue of attendance by civil society organizations at these meetings. We have had really, I think, recordbreaking levels of participation and planning, some 500 civil society organizations have been accredited to participate in these meetings, and as I have said on several occasions, and the (IMF)Managing Director has said on several occasions, it is really unfortunate that the Government of Singapore seemed not to be honoring the Memorandum of Understanding to admit delegates that were accredited. In meetings with the President and Prime Minister yesterday, I raised the issue of members of civil society who had been accredited and were being excluded from our meetings. And last night, the Prime Minister said that based on the Bank and Fund vouching for these people, they would look at each case individually and open the door to let them in. I hope that will happen expeditiously and completely, and we’re waiting for further developments.
MR. HANLON: Okay. We’ll take your questions. Please limit it to one question as we have a lot of people here.
We’ll start –- ma’am, in the front, please. Just wait for the microphone, and here we go.
QUESTION: Good morning, sir.
I have a question for you. The first question is that you said that, in part, the mission of the World Bank is to help the developing countries. So do you think that you are responsive enough to their needs?
And in the case of Vietnam, the World Bank assistance of U.S. $8 million per year. But you see, I think that in comparison with other Asian developing countries, it’s just half, for example of Indonesia. So do you think that it’s responsive enough?
But you see that it is, I think that in a comparison with other Asian developing countries, it’s just hard--for example, Indonesia--so you do think it is positive enough?
MR. HANLON: I’m going to limit it to one question, if we could.
QUESTION: Oh, one question by one. Thank you.
MR. HANLON: Thanks.
MR. WOLFOWITZ: You know, my new Managing Director, Mr. Daboub, has just visited Vietnam. His experience, he was Finance Minister in El Salvador, which has a very different economy. It’s been very successful, based on--I guess one could say in both cases we are seeing market principles applied, but in very, very different ways, and it brings home to me what I’ve come to think is one of the wisest comments on the development process that has been made in decades, and that was Deng Xiao Peng’s famous statement, “It doesn’t matter whether the cat is black or white as long as it catches mice.” And what we’re seeing, I think, is many countries finding different paths along the way, based on their own situations, and I think it’s very important.
I think we in the World Bank, if I can use the word “we” loosely, because I wasn’t there ten years ago, but I think over the course of the last ten years have learned to be a little less prescriptive and a little more open to what countries tell us will work in their countries. My first visit as president was last year to Nigeria. I spent a full day with the governor of Bauchi State there, and at the end of the day he said, “Well, I’m glad you’re not one of these Ph.D.’s from Ivy League universities in the United States who come and tell us how to solve our problems and they don’t stay long enough to even understand what our problems are.”
I think it’s very important that we work with countries and help support them in things that they think work, and I must say that Mr. Daboub came away from Vietnam just very impressed with what’s happening. And on your basic question of how resources get allocated, we are trying to do it in the best possible way and in the fairest possible way and in a way that is as objective as we can be, so it’s not based subjectively. I mean, you mentioned Indonesia; it’s not a secret that I like Indonesia a great deal, but that doesn’t affect how our allocations work. Our allocations are supposed to be based on a combination of need and performance.
The fact that we have to allocate I think underscores the fact that we can’t tolerate the misuse of our funds. If lending is going in a place where it’s not going to the poor and is instead enriching corrupt officials, there are plenty of honest officials and honest governments. Even in some difficult countries, there are honest ministries -- and we want to make sure that we -- and they need more money, we want to make sure it’s going there.
MR. HANLON: Yes, sir, gentleman in the front with the pad.
QUESTION: Thank you. Regarding the anti-corruption strategy, do you have any concerns that the wave of corruption in Brazil -- we have almost one-third of the Congress being investigated now -- can affect the World Bank programs there? Are you taking some measures regarding this subject?
MR. WOLFOWITZ: What I can say is, I mean, not just in Brazil but everywhere -- we try to look very carefully at our programs -- and no one has brought to my attention any current problems with programs in Brazil. I realize this issue is a big one in your country. In fact, I talked about it with President Lula, and I’m not here to start commenting on Brazilian politics, but I do think that when you have these problems -- let’s take Indonesia. I was ambassador there for three years; that’s what I was alluding to. I mean, the whole country understands that corruption is a big problem, and it’s not something you’re going to solve overnight. You don’t move from endemic, deeply-embedded corruption to the standards of -- we could pick our favorite examples. I mean, certainly not the United States. The United States still has a lot of problems, too. I sort of think of Switzerland, but I’m sure the Swiss have some problems.
But the point is you don’t solve these things overnight. You can over time make real progress, and I think in the case of Indonesia, for example, and I think it’s true also in Brazil, a sensible strategy for improving governance is one that would address the difficulties of the courts and address the challenges of both underpaid court officials and how you begin to correct that problem.
Again, we are working with countries, not by way of punishment but by way of reinforcing. In Mexico when I visited there, we’re engaged with the Mexican Government on a Freedom of Information program; we’re engaged with them on a procurement program that will help reduce corruption in government bidding. So our view has to be not of the current issues that you refer to but supporting long-term strategies for making progress.
MR. HANLON: I’ll try to move around the room just a little bit. The gentleman on the far left.
QUESTION: Pacific Island States have very fragile economies and don’t necessarily have the financial resources to sustain a fight against corruption.How can the World Bank be able to help Pacific Island States to take on corruption?
MR. WOLFOWITZ: That really underscores the point that you’ve got to recognize that in fragile states like the ones the question refers to, the level of problem that the administration can handle, the number of trained, capable officials may be very limited. In fact, one of the things we are looking at in Liberia is how to provide incentives for some of the capable Liberians who left the country during the civil war period to come back to strengthen those ministries. In fact, I’m very proud to say that the finance minister there -- who is an impressive, outstanding woman -- was until recently an employee of the World Bank who decided to go back to her country -- left a comfortable job with us to go back and help Liberia get on its feet.
Something else that we need to do, though, when people like her or like President Johnson-Sirleaf are undertaking challenging reforms, we need to find ways to get money out there much more quickly than our normal practice so that the people begin to see some results so that reform becomes a self-fulfilling, virtuous circle, rather than a downward spiral.
MR. HANLON: In the back.
QUESTION: Mr. Wolfowitz, you just said someone told you they were impressed you are not like some of the Ivy League economists who prescribe and then go off. Well, Transparency International, the anti-corruption watchdog, says the World Bank is also not doing enough to engage civil society in the countries that are concerned. How would you respond to that?
MR. WOLFOWITZ: I guess I don’t accept that premise. In fact, we are working very hard in engaging civil society because we believe it is often one of the best mechanisms for ensuring transparency and accountability, and there are even demonstrations of success in a number of areas where if the simple mechanism of letting people know and letting civil society know what money is supposed to be going for schools in a particular district will vastly increase the amount of money that actually gets to where it is supposed to go.
I’ll give you another example: Recently, we had a challenge in Ethiopia because of the very tense political situation there that ran some risk that people would see one way or another that our assistance was favoring one political group over another. We were able to work successfully with the government and with civil society to come up with something we call the “Protection of Basic Services Program” that involves civil society on a very large scale in monitoring the results of the basic services that we will help finance. So I am not sure what they had in mind, but certainly we think of civil society as an important partner in this process.
MR. HANLON: Yes, sir, in the fourth row from the back, please.
QUESTION: Let me recall your observations made during your visit last year to Bangladesh. You made the observation that large infrastructure targets are increasingly becoming a tempting target for politicians to help finance elections, election spending.As Bangladesh’s next general elections are just around the corner, would you push for election reforms in election financing? Thank you.
MR. WOLFOWITZ: Let me just say that what I believe is that large infrastructure projects -- not just increasingly but in the past -- indeed have been unfortunately -- maybe because there’s a lot of money involved -- I don’t think that -- let me just say, whatever I -- what I believe is that large infrastructure projects, not just increasingly but in the past, indeed, have been, unfortunately, maybe because there’s a lot of money involved, they are classically known as a potential target of corruption. So much so, I think, that it was one of the reasons why, in the mid-1990s, the World Bank largely got out of infrastructure lending.
I wasn’t really aware of that until I came into this job. And one of the things that was very striking in my first encounters with leaders from developing countries was a plea for the Bank to increase its infrastructure lending, and certainly in these desperately poor countries not only in Africa but particularly in Africa, the infrastructure needs are staggering – roads don’t exist, ports don’t exist, and in some cases – in many cases, actually – we’re talking about countries where the challenges of geography are particularly severe so that, for example, I believe the statistic is that a producer in central Africa will have to pay something like five times the cost to ship a container the same distance that a producer in China would pay, which obviously is an incredible burden on competitiveness.
I remember being told in Pakistan that products that are competitive when they leave the factory gate in Lahore are no longer competitive internationally by the time they get to Karachi because of high transportation costs, partly caused by weak infrastructure.
So we needed to get back into that business. We are getting back into the infrastructure business. But one of the things I insisted on was learning the lessons of the past and trying to make sure that we build into our projects at the beginning the kinds of safeguards that will help –- you never have 100 percent guarantee –- but help to ensure that corruption does not become a major tax on these big projects. That’s what we can do. Electoral reform, I’m sorry, I think is not our job.
MR. HANLON: The gentleman at the far side, please.
QUESTION: Thank you, sir. Mexico News. I have a question that I want to ask in Spanish, please.
[Interpreted from Spanish] My question is for Mr. Wolfowitz. We will have a new President in Mexico shortly. What do you consider to be the challenge to Mexico to reduce poverty in the next six years, which affects some 50 million people?Thank you.
MR. WOLFOWITZ: I’m sorry. What was that number–you said it affects how many? What was the number you gave–how many?
QUESTION: [Interpreted from Spanish] Fifty million people.
MR. WOLFOWITZ: For those of you who don’t have earphones, the question was Mexico is going to have a new Government soon, and what are our views about what Mexico needs to do to reduce poverty in that country, which affects some 52 million people, I think you said.
It is a very good question, and again I guess I would repeat the general principle, which is that it is going to be up to the Mexicans and their Government. What the Bank can do is give our best advice and, in some cases, provide resources.
I certainly think that part of our best advice would be to say you need to address the investment needs of the poorest parts of your country. I was in Mexico earlier this year, and I visited the richest State, Monterey, and the poorest State, Guerrero, and the needs for just basic things like roads and schools in Guerrero are really quite overwhelming. And we are talking now about a country with a per capita income of some $7,000, I think, per person. So I believe that we can help some with resources, but there clearly needs to be more investment, I think, by the Government in particularly the poorer parts of the country.
But secondly also, it is my impression – and I am not an expert–that a number of reform efforts really need to go further and that Mexico would be more competitive internationally if things like the cost of using telephones were lower, and I think that’s probably a matter of introducing and allowing more competition. But this is not something for the World Bank to come in and give a dictate about. These are complicated, difficult questions.
What we do try to do – and we are doing this, I think, in a very important way around the world with our report called the “Doing Business Report” –- is to try to tell governments in as clear and understandable and honest a way as we can what we think are the obstacles that are holding back the development of the private sector in their countries.
I remember specifically in the case of Mexico, the finance minister told me that the analysis in that report had helped them to think through what changes were needed and helped them to convince their Congress of what changes were needed.
MR. HANLON: We have time for a couple more questions. Philip, second row, please.
QUESTION: Thank you. Philip Thornton from The Independent Newspaper in London.President Wolfowitz, we seem to be in an extraordinary situation where the United Kingdom, a member of the G-7 and a generous donor to the World Bank, is actually threatening to withhold finance from the Bank because of its criticism of a failure to address the issue of conditionality. I was wondering if you could tell us how this row has gotten so far out of control and what you’re going to do about it, and at the same time address the UK’s criticism of your corruption agenda, please.
MR. WOLFOWITZ: Well, I guess there are several premises that I’d have problems with. I don’t think it’s a “row,” and I don’t think it is out of control. And let’s be clear – we’re talking about two different issues–the conditionality issue and the governance and anti-corruption issue. Let me address both.
On the subject of conditionality, I think Hilary Benn and I are in complete agreement that the World Bank in the past has been -- the Governor of Nigeria said it – too full of prescriptions for countries about what they had to do and too inclined to force those prescriptions on them. But I think we have learned a lot from experience, and I think we agree that the whole approach has to be much more one of helping countries find what works and then embracing programs that they take ownership of. If they don’t feel that it is their program, if you try to force them to do it, it is bound not to succeed, is my own view.
So we came up last year, before I got here, with a new strategy for addressing this problem of conditionality. And I believe that produced the release of some 50 million pounds, and the next tranche of 50 million pounds depends on implementation of that report, and we are due with a report later this year that I hope and I’m reasonably confident will in fact show that that new policy is being implemented to my satisfaction and Mr. Benn’s satisfaction.
So I think –- I understand the concern, I share the concern – but I think we are dealing with it.
On the question of the governance and anti-corruption strategy, I frankly don’t see a difference. I have read the DFID report; I think it is a very strong, very clear report. I think we both agree that the approach here is that governance is very important, that tackling corruption is very important, that the way you do it is not by punishing and withholding money; the way you do it is by engaging, by helping countries strengthen their systems for dealing with these problems, by working with civil society organizations that will support transparency and accountability, and frankly, by coming up with new and imaginative ways for dealing with this. And I would just cite as one very impressive example the Government of Indonesia has developed a Community-Driven Development Program with some advice and help from the World Bank that has been – it’s called the Kecamatan Development Program –that has been so successful that the Government has just decided to do it on a national scale, I think putting something like a billion dollars a year into this program that has local communities deciding on what projects they want to invest in and then monitoring the results.
As a global institution, one of the things we can do is take the experience that has been learned in Indonesia and help other countries, countries as far away as Ethiopia, learn from that experience and develop Community-Driven Development Programs that suit their circumstances.
So the approach is a positive one, it is one of engagement, and I think you’d have to work hard to find a significant difference between the DFID paper and the Strategy Paper that we presented to the Development Committee.
MR. HANLON: And we’ll take a final question, please.Joseph, in the front.
QUESTION: I write for the East Africa Newspaper.What I wanted to ask you, Mr. President, after you visited Africa, and you say Sub-Saharan Africa is of priority, in my country, we have made progress, the GDP has been growing, but what we see now is we have a power crisis. What should countries like Tanzania do in such cases where you have had development, and now you face such? Can we access, say, funds from the fund that was created this year, the Catalytic Growth Fund, so that we could maybe take measures against such shocks like the energy crisis that we are having right now?
MR. WOLFOWITZ: I think your question points out the fact that I said before that we need more resources than we have. And one of the places those resources are needed is infrastructure investment, including in energy. And not only in Africa, also in Latin America, there’s a demand for regional infrastructure projects because many of these, to be successful, need to cut across national boundaries. And that’s the place where I think World Bank resources could be particularly effective if we had more.
It’s probably also the case, and I know it’s the case in Tanzania, that there are issues also about pricing policy, and that electricity is heavily, heavily subsidized. And that leads to probably unrealistic demand for electricity. And I think it also leads to some informal allocation of electricity that probably would not come under the heading of good governance. So you need to tackle the policy problems at the same time that you tackle the capacity problems.
But I believe that if we had more resources to work with governments like Tanzania, it would also be easier for them to take some of those reform measures.
MR. HANLON: Once again, thank you very much, ladies and gentleman. We appreciate your time.