Minister of International Development Anne Kristin Sydnes

Nordic/Baltic statement at the World Bank/IMF Development Committee Spring 2000 meeting

Development committee meeting, April 17 2000

The implementation of poverty reduction strategy papers and the HIPC initiative

The Nordic and Baltic countries welcome the introduction of the Poverty Reduction Strategy Papers (PRSPs), and wish to emphasise the following:

Increased ownership and partnerships:

1. The concept of PRSPs must be one of genuine ownership and partnerships, and should be an operationalisation of the fundamental principles of the Comprehensive Development Framework (CDF). This is underscored by the government’s responsibility for drawing up its own strategy and the donors’ commitment to act upon it. The key concept of ownership signifies a genuine political process, involving governments and elected parliaments. The Nordic and Baltic countries firmly believe that long-term sustainable development cannot be achieved without national ownership of poverty-oriented development strategies.

2. The principles for broad domestic participation and consultative processes with other relevant stakeholders in the development of national poverty reduction strategies, laid out in the proposal by the Bretton Woods institutions, is central to create real ownership.

3. A genuine PRSP process must be the baseline for lending both for the World Bank and the IMF. The national Poverty Reduction Strategy should be the starting point for all donors and creditors, bilateral and multilateral alike, and they should commit themselves to provide their support within the framework of the national Poverty Reduction Strategies. This is not least valid for the Regional Development Banks. The Bretton Woods institutions have a central role in supporting the partner countries’ efforts in creating development partnerships.

Holistic approach:

4. The PRSPs integrate macro-economic, structural and social policies in one package. This holistic approach together with the principles of national ownership and partnership is what makes the PRSPs a powerful tool to help developing countries in their efforts to reduce poverty and promote growth.

5. The PRSPs have an obvious bearing on the countries that qualify for debt relief under the HIPC Initiative. Through the PRSPs it will be easier to ensure that resources freed through debt relief are aimed at poverty reduction and other development measures.

At its present stage the concept of the Poverty Reduction Strategy Paper has, however, given rise to some concerns in the Nordic and Baltic countries:

The link between PRSP and HIPC:

6. The introduction of the PRSPs should not unduly delay the enhanced HIPC initiative, which aims at ensuring broader, deeper and – not least – faster debt relief. Achieving nationally owned poverty reduction strategies that are compatible with medium to long term economic frameworks requires flexibility in the way the PRSPs are linked with HIPC. The political and participatory process must be given time to allow true ownership to be developed. Concerning the question of whether an annual progress report on PRSP implementation should constitute a condition for the completion point, we are pleased to note that this element – following the recent agreement in the World Bank Board – will be applied flexibly and revisited later this year. The Nordic and Baltic countries are prepared to decide on HIPC debt relief based on an interim PRSP as long as the country in question has indicated clearly a commitment to develop a fully fledged PRSP.

National ownership:

7. The Nordic and Baltic countries firmly believe that it is necessary to build on existing strategies for development and poverty reduction in the countries themselves – if appropriate strategies exist, for example the PEAP in Uganda or the TAS in Tanzania – to achieve national ownership. We know that without ownership, even the best strategies are not implemented. Over the years we have learnt that blueprints imposed from the outside do not favour ownership and real partnership. The Nordic and Baltic countries fear that the PRSP-process runs the risk of being jeopardised if we do not put an even stronger focus on the issue of ownership.

8. It is important to be aware that the strategies themselves are not subject to formal approval by the Boards of the IMF and the World Bank. Rather, the Nordic and Baltic countries find it necessary to maintain a distinction between national poverty reduction strategies and the Bretton Woods institutions assessments of these strategies. The assessments of the strategies and the national processes should be endorsed by the Boards and subsequently provide the basis for the operations of the Bretton Woods institutions in a given country. Other actors, multilaterals and bilaterals alike, should clarify their procedures on how to translate the PRSP into their development cooperation efforts.

9. The BWIs should develop broad and transparent guidelines on how to assess a country’s PRSP.

Additionally:

10. The Nordic and Baltic countries find a need to strengthen partner capability in poverty and socially related statistics, and in analysing the impact of policies and institutional reform. Such capacity building is central to the achievement of a sustainable and effective implementation of the PRSPs. The Bretton Woods institutions should be prepared to contribute to capacity building if called upon to do so by the government concerned. It must be clear that, when preparing PRSPs, governments should be free to request assistance from any partner – be it the Bretton Woods institutions, regional development banks, the UN or bilateral donors.

To conclude:

11. The development and implementation of the PRSPs require close and frequent interaction between the World Bank and the IMF at all levels. Such cooperation and coordination shall ensure coherent treatment of the various borrowing countries based on the specific mandates of the two institutions.

12. The Nordic and Baltic countries are prepared to contribute actively at all levels in the fulfilment of the PRSP exercise. We encourage all other actors – whether recipients or donors– to do the same.

Intensifying action against HIV/AIDS

13. The Nordic and Baltic countries welcome the increased efforts of the World Bank in addressing the increasing problem of HIV/AIDS. The pandemic should not only be viewed as an health issue, it goes to the core of economic development. The inclusion of this item on the agenda of the Security Council in January, and now on the DC-agenda is very timely to promote the necessary strong political commitment and a recognition of the tragic effects that the accelerating HIV/AIDS pandemic is having on human, social and economic development in many parts of the world.

14. The seriousness of the situation calls for broad, concerted action, both in its social developmental dimension and its medical dimension. At the international level we must increase our efforts to develop and make available affordable drugs for prevention and treatment. Political will and commitment, as well as more resources, are needed to confront the issues. As one of seven co-sponsors of UNAIDS it is essential that the Bank acts in partnership with the other co-sponsors, with the African Development Bank and with national governments. The Partnership Against HIV/AIDS in Africa is an important step in this direction.

15. To intensify the action against HIV/AIDS, the World Bank must integrate such action into its regular work. In countries that are seriously affected by the pandemic efforts to limit the spread of HIV/AIDS must be an integrated part of the Country Assistance Strategies and PRSPs. The link between poverty and HIV/AIDS needs to be more emphasised. Efforts to combat the pandemic should also be reflected in a country’s poverty reduction strategy.

16. Building on lessons and best practices, the World Bank and its partners should work to spread knowledge of how HIV is transmitted and information on ways to prevent it. This requires a willingness to discuss issues such as sexuality and death in an open and frank manner. A gender perspective must be brought into the analysis of the problem, talking not only of affects on women, but also of male behaviour and the responsibilities of both sexes. Social and cultural dimensions have a bearing on the spread of the disease and must be taken into account. It is therefore essential that efforts to combat HIV/AIDS are nationally owned.

17. The whole society needs to be involved to effectively limit the spread of HIV/AIDS. Education is a key tool in this respect. The private sector and trade unions need to be involved, through spreading information to and provide protection of their employees and members, and through support to community programs.

18. The World Bank should also work to ensure that people with HIV/AIDS receive appropriate care and that their human rights are fully respected. People living with HIV/AIDS can be an important resource in the fight against the pandemic, not least in terms of mobilising community support for preventive measures.

Financing the enhanced HIPC initiative

19. Full financing of the enhanced HIPC initiative remains an unsolved problem. This calls for immediate attention.

20. While working to ensure full financing of the enhanced HIPC, the Nordic and Baltic countries would like to underline the importance of the additionality of debt relief, the maintenance of the financial integrity of multilateral financial institutions, and the importance of a reasonable burden-sharing.

21. Last September this committee agreed that "financing of debt relief should not compromise the financing made available through concessional windows such as IDA." (Development Committee Communiqué, September 27, 1999, para 7). To this effect, the World Bank was asked to "work actively and closely with the whole group of donors and other MDBs to ensure that financing is mobilised to fully fund HIPC debt relief over the long term." (Development Committee Communiqué, September 27, 1999, para 8). To this date, appropriate modalities to achieve this have not been identified.

22. In view of worsening poverty trends and declined ODA transfer, the Nordic and Baltic countries see a real danger in integrating negotiations on HIPC financing into replenishment processes of concessional development funds. The Nordic and Baltic countries therefore see a need for a formal and transparent negotiation process – clearly distinguished from future replenishment negotiations in IDA and other similar development funds – with the whole group of donors to ensure full financing of multilateral debt relief under the HIPC mechanism.

23. The Nordic and Baltic countries are prepared to discuss this urgent matter further, starting at the IDA 12 midterm review meeting in Lisbon in June.

24. Even stronger leadership on this issue from the World Bank is welcomed. In this regard the Nordic and Baltic countries would like to have clear figures on the financing needs of the enhanced HIPC, when such financing is needed, and how the negotiation process for HIPC financing will be laid out.

Report of the task force on small states

25. The problems faced by small states can differ in nature from those faced by other developing countries, and donors and creditors should help these countries to participate on equal terms with other developing countries in the global community. This underlines the need for a flexible approach by the World Bank in order to meet the special needs of each and every borrowing country.

26. The work of the World Bank to help small states should build on the efforts and experience of the UN with Small Island Development States and Landlocked Countries. Any further efforts in this field need to be closely coordinated with the UN and the WTO, and with the Regional development banks.

27. The availability of modern technology has large potential impact on the economic development of small states. The World Bank should encourage efforts to adapt information technology in small states.

The ibrd’s financial capacity

28. The Nordic and Baltic countries find that the Bank at present has the financial capacity to fulfil its core mission: to reduce poverty and improve living standards through sustainable growth and investment in people, in developing and transition countries, all over the world.

29. The Nordic and Baltic countries do not see merit in a General Capital Increase at this stage. It should be noted that the Bank can expect large reflows from the emergency loans given in the aftermath of the financial crises. Put to good use, these reflows can help to strengthen the financial capacity of the Bank.

30. To strengthen its position the World Bank should make certain that its products and services continue to be of such a quality that they meet the needs of the borrowers. Performance based lending helps strengthen the Bank, and the quality of the loan portfolio acquires relentless attention.

31. In the long run, a number of issues might give merit to revisit the capital adequacy of the Bank, for instance the role of the Bank in the international financial system - not only in relation to the IMF, but also in relation to the increasing private sector flows.

The role of the world bank in international financial architecture

32. The Nordic and Baltic countries strongly believe that the Bretton Woods Institutions should remain true global institutions. The two institutions are central to the international financial system. The World Bank should remain lending-based.

33. The pillars of a stable international financial architecture are sound economies run by accountable and socially responsive governments. The Bank’s role as a long term external partner and lender in support of essential reforms in the macro-economic, structural and social domains is indispensable.

34. The Nordic and Baltic countries have advocated that the international financial system have to integrate all relevant interrelated macroeconomic, social, financial and structural issues in order to efficiently enhance crisis prevention and management. There is a need to create better modalities for cooperation and sharing of responsibilities between the World Bank and the IMF, optimising on the comparative advantage of each institution.

35. The Nordic and Baltic countries find it important to strengthen the cooperation between the two institutions. Efforts to do so have recently been made and the joint Financial Sector Assessment Programs are welcome, albeit not sufficient steps in the right direction.

36. Economic development and poverty reduction in countries in transition and developing countries depend, among other things, on the existence of adequate national and global financial market structures and financial policies. The World Bank has an important role to play in assisting in the establishment of financial, institutional and judicial structures in borrowing countries. The IMF should remain the leading institution for maintaining macro economic stability and managing financial crises.

37. The World Bank should take an active part in strengthening social security in developing countries. These are needed to enable the poor to make more rational choices and take action to overcome poverty as well as to protect the most vulnerable groups. They are also needed to enhance stability and make countries more resilient in the face of economic shocks.

38. Good governance is central to the creation of stable financial environments. The World Bank Group should continue to address the issue of governance in its operations, not least should the bank group facilitate the development of strong corporate governance in emerging economies.

Trade policy for development and poverty reduction

39. The Nordic and Baltic countries attach great importance to trade as an engine for development. Empirical evidence indicates that trade encourages growth and facilitates development and poverty reduction. It leads to more competition, which reduces prices, weakens the power of vested interests and provides more opportunity for more people.

40. The least developed countries – which have not benefited sufficiently from the increase in private flows to developing countries – are becoming increasingly marginalised in world trade. This is due both to failed domestic policies in developing countries and to protectionist measures in developed countries and other developing countries. Developing countries have often lacked the human resources, administrative capacity and institutional frameworks needed to take advantage of existing trade opportunities. There is ample scope for further liberalisation, in both developing and developed countries. The Nordic and Baltic countries are firm supporters of bound duty-free and quota-free market access for products originating in Least Developed Countries.

41. The Nordic and Baltic countries firmly believe that lower barriers to trade is in the interest of all countries, and that enforceable and stable multilateral trade rules are of particular importance to the smaller trade nations. We thus deeply regret that the participants at the WTOs Ministerial Conference in Seattle were not able to agree on a mandate for the launching of a comprehensive round of trade negotiations.

42. A new, comprehensive round of trade negotiations should be launched as soon as feasible. The new round should put special emphasis on the interests and needs of the developing countries, and especially the LDCs. Developed countries should do their part to ensure that developing countries participate actively and forcefully in the next round of negotiations. The Nordic and Baltic countries would also like to underscore the importance of full implementation – within agreed time frames – of the Uruguay round commitments in favour of developing countries. We are however, willing to consider extended implementation periods for developing countries, and in particular LDCs.

43. The World Bank, for its part, should facilitate the structural and institutional reforms that must accompany trade policy measures. This will in turn help to enable the private sector in the developing countries to respond to the new opportunities. Trade needs to be more mainstreamed in the operations of the World Bank, for instance in the country assistance strategies.

44. It is of paramount importance that the international donor community and relevant international organisations (especially the World Bank, IMF, UNDP, WTO, UNCTAD and ITC) achieve a more efficient coordination of their programmes for technical assistance to developing countries. The Nordic and Baltic countries, in this respect, welcome the Integrated Framework as a first step toward creating a more coherent and comprehensive approach when extending aid to the least developed countries in the trade area. We believe that the CDF and PRSP processes could serve as instruments for improved coherence among the main actors in the development field. The World Bank could offer advice on commodity risk management.

45. While trade has clearly a long-term welfare increasing effect, the possible negative short and medium term social consequences of trade reforms must not be ignored. The potential social impact must be taken into account when planning and implementing trade strategies. Where possible policies should be formed to offset negative effects on vulnerable social groups. Issues such as poverty reduction, environmental concerns, gender and labour rights issues should be considered further when formulating overall trade policy recommendations.