As delivered

Ladies and gentlemen,

Allow me first of all to commend the organizers of “ Globaliseringskonferansen” for their efforts. The thematic and geographic scope of this conference is truly global.

I. Introduction

Globalization is an issue on which opinions always differ while indifference is rare. Some will argue that globalization is the most promising force in the fight against poverty – and that the reason why it has not worked so far is that there has not been enough of it. Others see globalization as an economic temptress – promising riches to everyone but only delivering to the few.

Whether we like it or not, our approach to globalization will have to echo Groucho Marx’s response when asked about his views on sex: “ I think it is here to stay.”

Regardless of where we stand on the issue of globalization we all have one goal in common: to prevent the marginalization and exclusion of the poor. If billions of people are worse off due to globalization, we have failed.

Therefore, the forces of globalization must be kept in check by global governance, by strengthened global bodies, by intensified multilateral cooperation. A globalized world without rules of the road only benefits the strongest. The best way to limit the undesirable effects of globalization is to increase and strengthen multilateral cooperation through the instruments and organizations available. If we are not pleased with the existing instruments for multilateral cooperation, we have to reform them – not dismantle them. Global governance in the interest of the world’s poor depends on strong and functioning multilateral institutions.

My task here today, however, is not to address the entire issue of globalization. Instead I will talk about how the International Finance Institutions are adapting to a changing global environment – a central issue whenever and wherever globalization is discussed.

The title of this seminar poses the question whether the World Bank and the IMF have changed? My one-syllable answer to that question is yes. In fact, they’ve gone through a veritable “structural adjustment programme” – to borrow one of their own terms. The interesting question is how have they changed? It will come as no surprise to you that I firmly believe that the International Finance Institutions are moving in the right direction. Having said that, it is also highly legitimate to ask whether the changes are deep enough – and far reaching enough – for these institutions to make a real contribution in the war against poverty.

As long as 1.2 billion individuals are still suffering under the unjust and unworthy conditions of extreme poverty, I see no reason for complacency. Whether we are World Bank representatives, NGO activists, interested citizens or government representatives, we must all ask ourselves how we can contribute more effectively to the most important task of this century – the fight against poverty.

The World Bank and the IMF clearly have a role in this endeavour. On this point I would like to quote Trevor Manuel, the finance minister of South Africa:

"If you really want to make the poor suffer, get rid of the World Bank and the IMF. They are today the only financial institutions that are willing to lend money to the poorest countries. No private bank will lend one single dollar to them because they are not creditworthy. If they are left with this as the only alternative, the conditions that will be in place will be such that the poor have never seen anything worse. Why? Because the free market forces will be at play, private banks are not in the mercy-business. There will be no mercy in terms of concessional or grant lending.”

According to the South African Finance Minister, the World Bank and the IMF are obviously doing things right – in terms of providing needed capital. But doing things right is to no avail unless you do the right things. As I see it, the real litmus test for the international financial architecture is whether it is an effective instrument in the fight against poverty. What we should focus on is whether the World Bank and the IMF are doing the right things right in this perspective.

Of course, the Finance Institutions are far from perfect – they will never be perfect – but they are there, they are needed and they are wanted. Now we have to use them for what they are worth to the benefit of the world’s poor.

The structural adjustment policies of the 1980s were not the answer to the needs of the poor. Economic reforms were necessary, but the structural adjustment programmes went way too far. The World Bank and everyone else have acknowledged this. Thus, the structural adjustment policies of the past are exactly that – a thing of the past. How, then have the International Finance Institutions changed?

II. Positive changes in the way the IFIs operate

The positive changes we have seen in recent years in terms of how the International Finance Institutions operate simply must be recognized. It is a major breakthrough that the World Bank and the IMF have signed up to the Millennium Development Goals (MDGs). It is very significant that these two institutions have committed themselves to examining their policies in relation to these goals. These are unprecedented steps forward in the way that the Finance Institutions are approaching global poverty challenges. Although there is no reason to doubt their intentions, we will use every opportunity to remind the World Bank and IMF governors of their MDG commitments.

I am pleased to note that the current policy statements coming from the World Bank are very much aligned with Norwegian development policy. The Bank’s overarching objective is the eradication of poverty. Country ownership and active participation from civil society are seen as indispensable. The social dimensions of development are emphasized. Pressure from NGOs and the grassroots level in the South has no doubt contributed to these changes, but so has pressure from member countries, like Norway.

The emphasis on the poor countries’ own development strategies – PRSPs – as the basis for assistance is perhaps the most profound change. This reflects the acknowledgement by the World Bank and the IMF that the war on poverty will fail unless the country itself is in the driver’s seat. Secondly it is understood that all aspects of poverty – economic, social and political – must be addressed in a comprehensive and integrated fashion. An important feature of the PRSP process is that it emphasizes participation by civil society and empowerment of the poor. The current approach of the Bank is not only about social and economic development – it is also about democratization and human rights. It is now understood that poor people not only suffer from physical and human deprivation, but also lack a voice in decisions that affect their lives. On this I would like to offer a quote from a poor person in Uganda:

“ When one is poor, she has no say in public and feels inferior. She has no food, so there is famine in her house; no clothing and no progress in her family”.

This statement of despair and hundreds of similar sentiments would not have been heard without the World Bank’s “Voices of the Poor” initiative. By interviewing 60,000 poor women and men from 60 countries, the World Bank has demonstrated a strong willingness to understand poverty from the perspective of the poor themselves. This initiative is in itself a testimony to the scope of the changes that the International Finance Institutions are undergoing.

The PRSP approach also underpins the HIPC – the debt relief initiative for the poorest countries. By freeing up 50 billion dollars – I repeat: fifty billion dollars – for poverty reduction purposes, the HIPC is making a difference in the lives of millions of poor people.

The PRSP process represents a major break with the past – a break with the much-criticized structural adjustment programmes designed and introduced over 20 years ago. The early programmes were based on the assumption that economic growth would more or less automatically “trickle down” and benefit the poor, and that the problems were of a short-term nature. The World Bank and the IMF have acknowledged that this approach did not deliver. Economic reforms were – and are still – necessary, but the programmes of the 1980s did not recognize the complexity of the problems, nor were they tailored to the needs of individual countries.

A key criticism of structural adjustment – and rightly so – was that it led to budget cuts in health and education. Today the situation is the reverse. The PRSP process has shifted the focus towards massive investment in human resources – in health and education for the majority of the people. Today the World Bank is the largest contributor in all these areas. Attention is now on the interlinkages between the macro-economic and social dimensions of development. This has prompted the World Bank and the IMF to focus more on how macro-economic policies impact poverty and social conditions. Measures are being taken to apply what is termed “Poverty and Social Impact Analysis” systematically in World Bank and IMF programmes in poor countries – to ensure that macro-economic policy is in line with the fight against poverty. This is long overdue. The aim is that this type of analysis will provide a basis for critical debate and facilitate policy changes.

There is also a remarkable shift in the view on the role of the state. The World Bank and the IMF both acknowledge that economic growth and social development require a functioning state, a sufficiently strong state, a state that delivers services to its people, a state that fights corruption. They advocate the decentralization of power and the involvement of civil society. Good governance in terms of strengthened public expenditure management is a critical aspect of the current approach. Not least as a means of rooting out corruption and ensuring adequate financing for the social sector.

Against this backdrop, how can anyone continue to equate the current conditions for World Bank and IMF support with the structural adjustment programmes of the past? Today we are talking about the implementation of country-owned poverty reduction strategies, designed with the active participation of civil society. Thus, rather than wasting time on discussing past practices and terminology, we should focus our energy on what is needed today.

There is a saying that “ if it ain’t broke don’t try to fix it”. Well - 1.2 billion people are broke – and we must try to fix it! Status quo is not an option. On this everyone agrees. Whether the current policies of the International Finance Institutions are called “pro-poor reforms” or “structural adjustments” is beside the point – whether the policies contribute to poverty eradication isn’t. For instance, countries that are repeatedly hit hard by economic shocks due to primary commodity dependence must diversify their economies in order to reduce their vulnerability. This may very well be termed “structural adjustment”, but economic diversification is an absolute must in the efforts to achieve and sustain pro-poor growth. Vulnerability and repeated shocks perpetuate poverty. Something is broke and it needs to be fixed.

The Bank is currently updating its guidelines for adjustment lending so that they reflect the changes in policy and new approaches to development. Today the World Bank and the IMF are much more open and transparent than a few years ago in terms of policy options. Adjustment lending, which gives more leeway to the countries themselves, is more flexible than traditional project lending. This entails a shift away from the so-called “Washington consensus”, where the World Bank and the IMF were criticized for forcing through one-size-fits-all policies – or blueprints – that were not adapted to country-specific circumstances. The role of the World Bank and the IMF today is to advise and support the authorities in their policy formulation and implementation – not to prescribe standard solutions.

A paper on the update of the guidelines for adjustment lending is to be found on the Bank’s web site. The public at large is invited to make comments. I urge you to take this opportunity to express your views and make constructive suggestions on how the World Bank – and we as owners of the Bank – should approach this issue.

The PRSP process is still in its infancy. The road ahead in terms of implementation is full of challenges. We have to realize that in many poor countries, longer-term capacity and institution building is required in order to implement effectively the principles underpinning the PRSP approach.

While the direction and momentum of the policy changes have been very promising, translating them into operational activities and results on the ground is a daunting task. The World Bank and the IMF have rightly been accused of being arrogant in the sense that they pay too little attention to ideas and work initiated by others. The World Bank and the IMF are mammoth institutions and there’s no denying that there are vested interests in both of them that are trying to hang on to old ways. What is more, the relationship between the two institutions has been contentious at times and they have had their fair share of controversies.

The World Bank is a development institution with a comprehensive policy agenda. The IMF has a global clientele in that it also covers industrialized countries, but a much more limited scope in terms of policy – focusing on macro-economic and monetary issues. Thus, the profound changes that I have just discussed have influenced the World Bank in a more system-wide and far-reaching manner than the IMF. However, in order to win the fight against poverty, both institutions must adjust and deliver according to their commitments.

A country must be a member of the IMF in order to receive assistance from the World Bank. This reflects the recognition that long-term development efforts are doomed to fail unless there are sound macro-economic policies in place. This does not mean that measures prescribed by the IMF should be seen as the only options. There is validity to the claim that the IMF, during the 1990s, continued to apply standard approaches that paid insufficient attention to the specific circumstances of individual countries – while the World Bank, for its part, adopted more diversified policies. This inevitably led to inconsistencies in the way the institutions addressed the challenges of poor countries. The tensions reached their climax during the Asian crisis in the late 1990s.

Since then, the collaboration between the IMF and the Bank has been strengthened. Today the two institutions form a much more united front in the fight against poverty. The PRSPs constitute the backbone of both IMF and Bank support for the poorest countries. Both institutions realize that strong country ownership is crucial for successful reforms. They are now simplifying the conditions relating to their assistance, and they intend to make sure that those conditions are realistic and closely linked to the national priorities set out in the PRSPs.

III. Concerns to be addressed

Despite encouraging trends, there are a number of concerns that need to be addressed. More must be done to better align IMF activities with the principles behind the PRSP process. As in the Bank, policy changes have not sufficiently taken root at the operational level. At the country level, it seems that the IMF and others sometimes continue to work in parallel rather than in partnership.

The so-called anti-globalization movement has often found inspiration in views expressed by the former World Bank chief economist Joe Stiglitz in their attacks on the International Finance Institutions, in particular the IMF. Indeed, Stiglitz's views are interesting and thought-provoking. Still, it often seems that he is cited out of context. And needless to say, his views by no means represent the one and only truth, as many seem to think.

As should be clear from what I said a few moments ago, I agree with Stiglitz that the IMF has made mistakes over the years. In many ways, the criticism from NGOs and others is understandable. However, it often appears that the complaints are out of synch with the major changes that have been made to IMF policies and approaches over the past few years. The critics tend to ignore three indisputable facts:

• the IMF has strengthened its focus on poverty reduction and country ownership,
• it is committed to systematically assessing macro-economic policies in order to ensure that they benefit the poor, and
• the IMF is a key partner in the HIPC Initiative, which will free up huge sums for poverty reduction measures

As I have already stressed there are important challenges ahead with respect to the IMF’s – and the World Bank’s – implementation of their poverty reduction agenda. These challenges legitimize concerns that must be dealt with in a serious manner. This being said, we have to base any action or push for change on an up-to-date analysis and proper understanding of how the institutions operate right now. Constructive criticism based on knowledge and analysis will always be welcome. In fact it is needed in order to help the International Financial Institutions to align their working methods and policies with the challenges facing the poor countries.

Despite the challenges as regards collaboration, I cannot subscribe to the notion that a rift is currently emerging between World Bank thinking and that of the IMF. This notion is based on outdated views of the state of affairs in terms of policy change. On the other hand, the persistence of such views may also be a signal that the institutions must get better at explaining their respective contributions to the fight against poverty.

I would also like to address the last question asked in the programme for this seminar: “Are they (the IFIs) democratically accountable to any satisfactory extent?”

This is a tricky question, given the fact that the institutions are owned by a nearly universal range of countries that are as diverse in terms of democracy and openness as they are in economic and social development. Many of the poorest countries are not exactly beacons of political freedom and human rights. Moreover, board members of the World Bank and the IMF from poor countries do not necessarily advocate approaches that would benefit the poor in their own countries in terms of participation and empowerment.

In my view the PRSP process represents a real strengthening of the influence of the poor countries in the World Bank and the IMF. Assistance from the International Finance Institutions – now and in the future – is to be based on national development strategies, or PRSPs. The PRSPs are owned by the countries themselves and are supposed to be designed through participatory processes. The PRSP process could thus make the International Finance Institutions, the donors and the governments of the developing countries more accountable to the needs of the poor.

A number of suggestions have been made of ways to enhance the voice of the poor in the World Bank and the IMF. Strengthening capacity in the African constituency offices in the International Finance Institutions could be an option. Together with other countries we are currently looking at ways to address this issue.

IV. Conclusion

In conclusion, I would like to reiterate my one-syllable answer to the question posed in the seminar title: Yes, the World Bank and the IMF have changed. NGO criticism and pressure on the Bank to reform have undoubtedly been important factors leading to the changes we have witnessed over the last few years.

The current president of the Bank, James Wolfensohn, has fronted the changes that have taken place in the institution over the last decade. Under his leadership, the Bank has become a more open organization, willing to listen to the views and experience of others. He has invited other actors, not least NGOs, to dialogue. The Structural Adjustment Programme Review Initiative was a result of his challenge to NGOs to suggest areas for joint efforts.

The NGO community has a crucial role in terms of bringing the debate on international development and the fight against poverty forward. NGOs are uniquely well placed to keep a critical eye on what’s going on. Influence, however, is contingent on constructive dialogue. Retrospective criticism will get us nowhere. Changes and improvements that have actually been made must be recognized. Knocking down open doors is a waste of time and energy.

We all need to join forces in order to achieve the Millennium Development Goals and to win the war on poverty. Winning this war is the true test of the International Financial Institutions, of our development partners, of us as donors and of the NGO community. The war on poverty is a struggle for justice, dignity and liberty for 1.2 billion people. It’s about helping people to help themselves. Failure is not an option. We can neither afford nor allow failure!

Thank you for your attention.