Statement by Minister of International Development, Ms Anne Kristin Sydnes, Norway on behalf of the Nordic and Baltic countries

Development Committee Meeting

25 September 2000

Over the last few years we have seen a change in development thinking and work. Firstly, more emphasis has been placed on the efforts of the developing countries themselves, through concepts such as Performance Based Lending, the CDF and the PRSPs. Secondly there is a greater understanding of the need for partnerships and better coordination of development efforts, between all development practitioners as well as with the private sector. Finally there has been a focus on how to assist countries to benefit from a globalised economy, by removing constraints to trade and investments, such as unsustainable debt burdens.

We must intensify our efforts in all three areas. We must transfer more responsibility and ownership to the countries concerned. We must harmonise donor procedures and align our efforts with national poverty reduction strategies. We must assist countries in tapping the benefits of a global economy while avoiding its pitfalls. We must assist the HIPC countries in making their debt burden sustainable, and ensure that resources thus freed are spent on poverty-reducing measures.

The three main directions of our work are inextricably linked. Increased ownership will not be possible without greater donor coordination. Nor will increased ownership produce the desired results in the absence of enabling external conditions. At the same time national efforts and ownership are the foundation on which all other development efforts must build.

For the World Bank to fulfill its part of this important work and to continue to play a vital role in both low- and middle-income countries, we need to thoroughly discuss and decide on its strategic directions, where selectivity is key. We need to review our instruments to better support holistic poverty strategies. We need to ensure that we have the correct tools to provide global public goods. We need to understand how we, as an institution adapt to increased local ownership. The current decline in World Bank lending raises the issue of the strategic role of the Bank. This DC meeting provides a starting point for this vital discussion. Based on this discussion we expect Management to propose how the Bank should deal with the three areas I started out mentioning.

The Comprehensive Development Framework, The Poverty Reduction Strategy Papers and The Hipc Initiative

1. The introduction of the Comprehensive Development Framework established a set of principles on how to achieve better results in the development work through increased coordination between the development actors and with the leadership of the country itself. The Poverty Reduction Strategy Paper is the main tool of the poor countries to implement these principles nationally. They are the new basis for debt relief through the HIPC initiative, and will be the basis for World Bank lending to the poorest countries.
2. The Nordic and Baltic countries are prepared to make every effort to support the fulfilment of these initiatives. We urge the Bretton Woods institutions, the UN, the regional development banks and other donors to do their part. The international community must stand firmly united behind the important HIPC initiative and the use of Poverty Reduction Strategy Papers.
3. Major challenges remain ahead for the CDF approach and the PRSP process as an increasing number of countries for the first time are about to shape their own development strategies. We are hopeful that application of the Joint Staff Assessment criteria of the PRSPs will minimize the tension between achieving real PRSP-ownership on one side and Bank/Fund assessment on the other side. Interim assistance and a flexible timeframe and approach for developing PRSPs deals with the tension between securing faster debt relief through HIPC while ensuring a broad and deep participatory PRSP-process
4. To achieve sustainable results we all must take seriously the concept of partnerships. Insufficient donor coordination constrains the implementation of country-owned poverty reduction strategies. For the Bank in particular this will mean working through others and standing aside to let others play the leading role when appropriate. For ourselves, as development actors, it means to harmonise and streamline donor procedures. We strongly support the work of the OECD/DAC on this topic.
5. We consider it especially important that the Bretton Woods institutions set a good example of partnerships when assisting the countries in the development and implementation of their PRSPs. We trust that the macro-economic recommendations of the IMF and the social and structural recommendations of the World Bank are complementary, and that both institutions seek to fulfil the development goals put forward in the national poverty reduction strategies.
6. The challenge of making PRSPs truly country owned and country driven remains. There is a large potential for improvement in our partnerships with the developing countries. Progress so far shows that the Bank – as well as other donors – are too hesitant in transferring responsibility for and ownership of development to the borrowing countries. Ownership demands participation, which takes time and capacity. We must all assist countries in building that capacity.
7. We foresee that countries will update and improve their poverty reduction strategies on a regular basis, taking advantage of the experience gained not least through the CDF process. It will take considerable political will and considerable time to reach the stage where PRSPs are fully integrated into the political and budgetary processes and a smooth and efficient interaction with the broader donor community is firmly in place.
8. In the final analysis the PRSPs will only succeed if they become the joint focus of country-led and donor-supported development efforts. The Nordic and Baltic countries support a flexible interpretation of the requirement of the HIPC countries to be subject to one-year implementation of the PRSP. The development efforts must be based on increased capacity building, fundamentally streamlined donor procedures and strengthened participatory processes that do not undermine existing democratic structures. The country itself must assume responsibility for the division of labour between the various donors. This strengthened ownership will produce a firmer commitment to reform than measures imposed form the outside.
9. We are strong supporters of the initiatives. The challenge now is to keep up the momentum of these initiatives and to make sure that what happens on the ground is consistent with what we are saying on the policy level.

Financing of The Hipc Initiative

10. The Nordic and Baltic countries are deeply concerned that the financing requirements of the HIPC framework remains unresolved. All major donor countries must take their fair share of the financing of the enhanced HIPC initiative. The countries in my constituency will follow this closely. Furthermore, debt relief must not come at the expense of concessional lending to developing countries.
11. The Nordic and Baltic countries have urged that a formalised process be established to secure the unmet cost of the multilateral development banks. The breakthrough made in Lisbon in June this year, when donors agreed to address the long-term financing requirements of the HIPC Initiative, is encouraging. We now look forward to the establishment of the formalised process back to back but separate from the IDA replenishment negotiations.

Supporting Country Development: World Bank Role and Instruments in Low- and Middle-Income Countries

12. We agree that the World Bank should maintain its presence in both low and middle income countries. Yet the declining trend in World Bank lending poses questions regarding the relevance of the Bank´s loan instruments. Against this background, the discussion that has been initiatited regarding the Bank’s future strategy and instruments is critical. We look forward to innovative proposals from Management as a basis for the next DC-meeting.
13. The Nordic and Baltic countries welcome the establishment of the task force on middle income countries. In its work the task force should carefully examine how the Bank can better assist middle income countries in overcoming inequality and poverty. We wish to see flexible instruments that are priced and tailored to meet these countries needs. We are anxious to see a renewed and deeper commitment to private sector development, notably in the transition economies. The task force will explore a shift to programmatic lending in middle income countries. This requires a thorough analysis of all the implications of such a shift notably as regards budget sustainability and country creditworthiness.
14. The suggested Poverty Reduction Support Credit seems a promising lending instrument in support of the PRSPs. Its main new feature is the move to programmatic lending. Through the introduction of PRSPs and PRSC we are undertaking a policy shift. The possible effects of such a shift and the greater demands on budget management, transparency and accountability that this new instrument requires of client countries require further scrutiny.
15. Yet there seems to be a hesitation within the Bank to take the consequence of the recognised need for more comprehensive, long-term programmatic support. The report on the role of the World Bank says nothing about which types of instruments should be dropped from the Bank’s arsenal. The Nordic and Baltic countries call for a thorough discussion by the Board to identify what kind of lending the Bank should offer.
16. The Nordic and Baltic countries would welcome a more extensive discussion of the role of the World Bank, based on the recommendations put forward in Assessing Aid, on partnerships and cooperation with other actors, on the definition of the Bank’s comparative advantages, on its mandate and in the light of the increased ownership on the part of the countries themselves. The World Bank does not have a leading role in every country and every sector.
17. The Nordic and Baltic countries are in favour of the proposal that all country assistance strategies submitted to the Board for IDA-eligible countries should be based on a PRSP. However, the date for this to take effect, 1 July 2002, should be regarded as a goal and not as an absolute deadline.

Progress Report on The Bank’s Role in The International Financial Architecture

18. The Nordic and Baltic countries support the focus of the World Bank on structural and social issues in the international financial architecture, and emphasise the importance of continuing to anchor the actions of the World Bank in its poverty mandate. Sound financial and social structures in a country limit its vulnerability to and increase its ability to respond positively to financial instability and mitigate any negative social repercussions. The World Bank has an important role in each country in supporting robust financial systems that effectively and efficiently allocates financial capital to productive investments. Together with sound financial and macro-economic policies this promotes the attraction of investors.
19. Poor governance structures were among the causes of the financial crisis of 1997-98. In our joint efforts to improve the functioning of the international financial architecture, it is imperative to promote good public and corporate governance, and the World Bank has an important role in these efforts.
20. We welcome the recent progress in strengthening the cooperation between the World Bank and the IMF. There is, however, room for closer cooperation between the Bank and the Fund in emerging markets and in the poorest countries. The PRSP is a good basis for their joint efforts. As is the ongoing work on "Reports on Observance of Standards and Codes" and the "Financial Sector Assessment Programme." The current efforts to enhance the cooperation between the World Bank and the regional development banks should be stepped up.

Poverty Reduction and Global Public Goods

Many of the problems that cross borders have to be addressed through international collective action. This underlines the importance of partnerships and the relevance of the multilateral system. It is vital that actions at the global level are guided by the normative work of the respective lead agency, such as the UN on the environmental conventions. The World Bank should build its global commitments on partnerships with the UN, WTO and other development partners.

21. The main justification for the Bank’s involvement in global action is its poverty mandate, its expertise and knowledge in fields where it has a comparative advantage as well as its ability to leverage private capital flows. This is where the Bank should concentrate its efforts. The relationship between the Bank and the UN in promoting, defining and financing global public goods needs clarification. The Bank must develop a strategy for its involvement in global public goods.
22. It is important to strike the right balance between the Bank’s spending on global programmes and its spending on national programmes that provide global benefits. The Bank’s main priority must be the country focus, while its involvement in collective global action should be seen as complementary to this.
23. More analysis on the long-term implications of the financing of global public goods is necessary. The Nordic and Baltic countries encourage the World Bank to strive to attract new financing. We should aim at creating additionality when financing global public goods. The high level event next year on "Financing for Development" can help us in this endeavour. We strongly support the active participation of the World Bank in the preparations for the event.
24. The collective effort to combat communicable diseases and especially HIV/AIDS is a clear-cut example of a global public good. For the World Bank to contribute to the action against HIV/AIDS, it must not only look for ways to step up its own efforts. It must make sure that its efforts are coordinated with those of other involved actors, in particular with the other co-sponsors of UNAIDS. At the country level, this means working through the UN theme groups on HIV/AIDS. The International Partnership Against AIDS in Africa is a good example of how to promote a global public good.
25. The new Global Alliance for Vaccines and Immunisation (GAVI) is an innovative partnership that holds great promise. It brings together multilaterals, governments and the private sector in a broad alliance. GAVI has great potential, and helps ensure the financial additionality that is being sought.

Update n IBRD’s Financial Capacity

26. The Nordic and Baltic countries finds the present financial capacity of the World Bank to be satisfactory in a short-term perspective. However the Nordic and Baltic countries wish to highlight the need for a broad discussion on the long-term implications of a smaller loan portfolio and an increase in non-lending operations and how these factors impact the Bank´s financial base.