- International Activities -

Statement Prepared for the Development Committee of the Boards of Governors of the World Bank and International Monetary Fund

The Honourable Jim Flaherty, Minister of Finance for Canada,

on behalf of Antigua and Barbuda, Bahamas, Barbados, Belize, Canada, Dominica, Grenada, Guyana, Ireland, Jamaica, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines

Washington, DC, April 15, 2007

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Our discussions this weekend have a common theme: ensuring that the Bretton Woods institutions remain relevant and effective in an evolving global economy. Both the International Monetary Fund (IMF) and World Bank face situations in which many middle-income members that have traditionally relied on international financial institution financing are now increasingly able to access private markets. While this is a testament to the success of the development process, most of these countries continue to suffer from large and persistent pockets of poverty. The development issues associated with low-income countries, including fragile states such as Afghanistan and Haiti, also continue to pose challenges. And for all borrowing countries, there is a strong desire for a more effective voice to reinforce developing country ownership of World Bank lending programs and policy advice.

As discussion of IMF reform continues to gather steam, we need to constructively review the challenges facing the World Bank to ensure that it can continue to effectively and credibly fulfill its poverty reduction mandate. Recently, the Government of Canada announced a three-point program for enhancing the focus, efficiency and accountability to ensure the effective use of aid resources in our international assistance efforts. These principles are equally valid for international institutions.

1. Focusing on Areas of Comparative Advantage

Our first priority is strengthening focus. Shareholders are looking to the Bank to sharpen its priorities and improve the focus of its operations. This will require a candid assessment of the budgetary pressures and spending trade-offs as well as a stronger focus on results. The Bank's strategic vision must be aligned with its core competencies and comparative advantages. In this vein, we look forward to the Bank's forthcoming analysis on its long-term strategy to identify priority actions and internal capacity to promote global poverty reduction efforts over the next 10 years. We would stress that it will be critical for this exercise to take full stock of the Bank's two-pillar development strategy-improving the investment climate and empowering people-to ensure that it can successfully meet these new challenges and take advantage of new opportunities.

As recommended by the report of the United Nations Secretary-General's High-Level Panel on UN System-Wide Coherence, the Bank, IMF and UN must work more closely together to remove unnecessary duplication and build on their respective strengths. In this regard, there are two areas of comparative advantage where we see the Bank playing an increasingly important role.

Provision of Global Public Goods

While much of the Bank's work is undertaken at the country level, the institution also has a critical role to play in addressing issues that transcend national boundaries. In 2000, the Development Committee asked the Bank to focus on five broad priorities for global collective action: communicable diseases, economic governance and financial stability, the environmental commons, trade integration and the knowledge revolution. In our view, these issues are even more important today. Moreover, to the extent that the financing for public goods is critical for poverty reduction, there is even a larger role for the Bank.

Let me take this opportunity to also commend the Bank for several of its recent initiatives. In particular, we welcome:

• The recent launch of the innovative Advance Market Commitment (AMC) initiative for a pneumococcal vaccine, to which Canada contributed $115 million. The discovery of such a vaccine is expected to save more than 5 million lives in the developing world by 2030. Ireland will follow the progress of this initiative and participate as an observer in subsequent AMC discussions.
• The ongoing work of the Extractive Industries Transparency Initiative (EITI), to which Canada contributed $750,000 for this year. The EITI strengthens the transparency and accountability of resource-rich developing countries for the revenues received from foreign companies.
• The recent launch of the Caribbean Catastrophe Risk Insurance Facility Trust Fund, to which Canada contributed $20 million. The facility provides small Caribbean countries with risk insurance against natural disasters-insurance is not currently available from private markets.
• The Bank's Action Plan on the Clean Energy for Development Investment Framework, which addresses the issues of energy access, mitigation and climate change. Going forward, the Clean Energy Investment Framework will need to be mainstreamed into the Bank's work and anchored in its client-driven Country Assistance Strategies.
• The Bank's recent initiative to establish a Trust Fund for Statistical Capacity Building, to which Canada is contributing $6 million over the next three years. Improved statistical systems are essential for accountability, evidence-based policy development and the assessment of aid effectiveness.

Going forward, the Bank will need to clearly identify its areas of comparative advantage and adopt a collaborative approach in the provision of global public goods.

Promoting Gender Equality

The World Bank also needs to play a critical role in supporting women's economic empowerment. At our 2006 Spring Meeting, Canada strongly encouraged the Bank to fulfill its commitment to develop a gender action plan that is integrated into its broader activities. Canada commends the Bank for having launched its Gender Equality as Smart Economics Action Plan, which outlines the Bank's comparative advantages in and commitments to achieving the gender equality and women's empowerment Millennium Development Goal. To underscore the importance of this work, Canada has contributed C$1.5 million to support this plan. We strongly encourage the Bank to devote the resources necessary to ensure full implementation of the gender action plan.

2. Effective Aid for Differing Development Needs

Our second priority is improving efficiency. At the World Bank, this means providing aid that effectively addresses a spectrum of development needs. The 2005 Paris Declaration describes aid effectiveness in terms of a new partnership for development based on the principles of local ownership, alignment and harmonization, managing for results and mutual accountability. In addition to ownership, countries need the capacity to deliver their development agendas. The World Bank's report on Harmonization and Alignment for Greater Aid Effectiveness recognizes the importance of building strong institutional capacity and the important role that the Bank must play to achieve sustainable development results.

The Challenge of Africa

Now, more than ever, we have an opportunity to make real progress in Sub-Saharan Africa as governance reforms, higher commodity prices, increased aid flows and debt relief have significantly improved the region's economic outlook. To take advantage of this opportunity, we must carefully consider those areas where donors and the Bank can have the largest developmental impact.

A key area is improving debt management policies and enhancing debt sustainability. The Heavily Indebted Poor Countries and Multilateral Debt Relief Initiatives have provided the world's poorest and most indebted countries with an unprecedented opportunity to focus resources on poverty reduction. It is critical that we use this opportunity wisely and avoid the re-accumulation of unsustainable debt and another lend-and-forgive cycle.  

Going forward, the Bank and IMF need to undertake a more rigorous analysis of mechanisms that can signal when a country's debt accumulation threatens to become unsustainable. This should involve transparent guidelines for borrowers and creditors, which encourage responsible financing practices and create incentives for the provision of more accurate and timely data to the World Bank's Debt Reporting System.

Investments in health and education are also key to ensuring that people can take advantage of stronger economic conditions. At the Annual Meetings in September, Canada joined the Netherlands, Norway, Sweden and the United Kingdom to release a statement in support of broad-based long-term predictable financing in education in order to realize the full potential of these investments. Canada is a strong supporter of the Education For All - Fast Track Initiative (EFA-FTI), which encourages donor and recipient countries to work in a spirit of partnership to achieve the education Millennium Development Goals. Last year, Canada announced a $25-million contribution to multilateral assistance through the EFA-FTI. This is in addition to the $240 million that Canada had earlier committed under its bilateral aid program in support of the EFA. We look forward to a successful meeting in Brussels in May.

Failed and Fragile States

Successfully reintegrating failed and fragile states into the global economy represents another major challenge. Almost 500 million people live in fragile states, with about half of these populations earning less than a dollar a day. Canada, Ireland and the Caribbean welcome the decision to include fragile states as a special theme in the IDA15 replenishment exercise. A key issue is how the International Development Association (IDA) can best help fragile states to strengthen their institutional capacity and improve their governance structures. Weak capacity and governance not only hinder development, but also limit aid allocations under IDA's Performance-Based Allocation System. We must give priority to early efforts to build capacity in post-conflict countries and, as a matter of prevention, other fragile states. Analysis is also needed on possibly expanding the financial instruments IDA has available to meet the needs of fragile states, including both duration and eligibility for post-conflict allocations. A well-targeted and monitored capacity-building plan should be a central piece of the Bank's overall reform program and Country Assistance Strategies in post-conflict and other fragile states. Further, we strongly suggest close cooperation with the UN in setting the stage for international efforts in early recovery and medium-term reconstruction.

IBRD Partner Countries

We welcome the World Bank's recent evaluation of its role in International Bank for Reconstruction and Development (IBRD) partner countries. The Bank's engagement in these countries must be based on its comparative advantages and reinforce the institution's poverty reduction mandate. A key comparative advantage of both Bretton Woods institutions is the provision of technical assistance to strengthen both economic policy-making and institutional capacity. This is clearly the best way to ensure that conditionality is kept at a minimum, while improving investment climates and reducing income inequalities.

While more can be done to streamline lending operations in many IBRD partner countries, we would underscore the continued need to maintain strong project social and environmental safeguards. These strong standards are critical to ensure that the Bank's operations continue to have a strong developmental impact. It follows that the Bank needs to exercise caution that these standards are not eroded in countries, which have access to financing from private financial institutions.

Small States

Efforts to advance the development agenda cannot overlook the particular challenges facing small states, particularly in the Caribbean region. The Bank has an important role to play in assisting small states to position themselves for success in an increasingly globalizing world. There is a clear need for additional analytical work on options to promote competitiveness, diversification and increased trade. The continuing loss of critical skills in many small states as a result of migration also presents an important challenge. Support for human resource development is crucial as these countries expand services and other exports in which they have a comparative advantage. On the related issue of remittances, we encourage the Bank to continue to work with other international financial institutions and partner countries to better understand these arrangements and improve their effectiveness. To that end, we look forward to upcoming work by the World Bank on the Canada-Caribbean remittance corridor.

3. Enhancing Accountability Through Improved Governance

Our third priority is increasing accountability. At the World Bank, we aim to do this in a variety of ways, including through governance reforms. The World Bank and IMF have different mandates, and it is not necessary for governance reform at the two institutions to proceed in lockstep. However, there is a clear need to assess how best to enhance the voice of developing countries within both institutions. The discussion in the Bank should include consideration of how to improve transparency and accountability of selecting the President, the scope to increase staffing resources for African Executive Board constituencies, and how developing countries could be encouraged to take up their full IDA subscriptions. The institution also needs to review how best to attract qualified developing country candidates to senior management appointments. On this point, I would congratulate the Bank on its recent appointment of two dynamic African women as new Vice Presidents.

In moving ahead with governance reforms, the differences between the two Bretton Woods institutions also need to be respected. In particular, World Bank reforms must appreciate the Bank's capital structure and ensure the preservation of the IBRD's credit rating in international capital markets.

Conclusion: Ensuring a Strong Institution Going Forward

In closing, it is essential that the World Bank remain a strong and viable institution in a changing global economic environment. It has been almost a decade since the Bank's financial situation was reviewed by an independent committee in the wake of the Asian financial crisis. For my part, I believe that serious consideration could usefully be given to a new exercise that would review the implications of the growing access of many middle-income country members to international capital markets for the Bank's longer-term financial situation, as well as current proposals to consider more active risk management practices as a way to bolster its net income in the coming years.