Ottawa, April 17, 2005

Archived - Statement prepared for the Development Committee of the World Bank and International Monetary Fund

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The Honourable Ralph Goodale,
Minister of Finance of Canada

Washington, D.C.

The year 2005 marks the fifth anniversary of the Millennium Declaration and the 60th anniversary of the inaugural meeting of the Boards of Governors of the two Bretton Woods institutions. The world has changed immensely since 1945 and development issues now have increased urgency. At today's meeting, we are taking stock of progress being made towards achieving the Millennium Development Goals (MDGs). The Committee seeks to increase international momentum to mobilize additional resources for development and to put in place measures to enhance the effectiveness and impact of scarce aid dollars.

Millennium Development Goals: From Consensus to Momentum

The international community is at a critical decision point and needs to strengthen efforts to ensure that we meet the MDGs by 2015, especially in Sub-Saharan Africa. We need to scale up to realize our vision of a more prosperous and inclusive world where all children are schooled, healthy and well nourished, where people have an equal opportunity to realize their full potential wherever they are born.

This year's Global Monitoring Report (GMR) is encouraging, since it is clear that some progress has been made, that the MDGs are still within reach, and that with additional effort, we can be successful. The report is also sobering in its indication of the efforts that are needed but currently lacking to achieve the Goals, both by the developing countries and development partners.

The five-point agenda identified in the GMR for accelerating progress towards the MDGs is a step broadly in the right direction. There is no doubt that the issues of anchoring the MDGs in national development strategies, spurring and sustaining private sector led economic growth, scaling up service delivery, realizing the development promise of trade, and increasing aid and its effectiveness are essential outcomes that will require collective action. The job now for the development community will be to focus on how each partner can make the most effective contribution to reach these goals.

The Challenge of Africa

This five-point agenda is especially pertinent to Africa, where needs are greatest and one out of two people lives in extreme poverty. We welcome the decision of the International Development Association (IDA) to continue to allocate half of its resources to benefit Africa during the IDA14 period (July 2005-June 2008).

The recent work of the Commission for Africa builds on that of the New Partnership for Africa's Development and the G8 Africa Action Plan, and is consistent with the GMR agenda. The Commission's recommendations are bold and comprehensive, and would achieve tangible results on poverty reduction and economic growth. While making clear the vital importance of African leadership on its own development issues, most notably on governance and security, the Commission's report sets out an ambitious agenda for development partners in Africa, with each contributing where they can be most effective.

Canada's leadership on Africa has included the 2002 G8 Kananaskis Summit, which resulted in the G8 Africa Action Plan and led to the creation of the C$500-million Canada Fund for Africa. Six of the Canadian International Development Agency's nine countries of focus are in Africa, including Ethiopia, Ghana, Mali, Mozambique, Senegal and Tanzania. This commitment to Africa has continued with our 2005 budget announcements, including a doubling of aid to Africa over five years. Over C$340 million has been allocated to health initiatives that will prevent and treat diseases like HIV/AIDS, malaria and polio, and over C$200 million will be provided for additional debt relief to support the world's poorest countries.

Small States

Our efforts to advance the development agenda should take into proper account the special challenges of small states. They face significant challenges due to their vulnerability, susceptibility to natural disasters, lack of adequate transport links, limited economic diversification, and limited capacity to respond to unforeseen shocks. We welcome the decision of IDA to increase its financial support by raising the minimum IDA allocation by 10 per cent from SDR 3.0 million to SDR 3.3 million during the IDA14 period. We endorse management's commitment to undertake selective, targeted and flexible knowledge activities in these countries, making greater use of quick-response policy notes and increased regional approaches where appropriate. Finally, we urge further World Bank efforts to attract the best staff to work on small states. We support its initiative to mobilize resources and develop innovative approaches to satisfy the capacity-building and financing needs of small states.

Mobilizing Resources for Development

Mobilizing sufficient resources to support development programs remains a pressing challenge. While difficult, the most efficient way is increasing aid directly, beyond the pledges already made. Other innovative financing proposals, especially those that would facilitate private contributions, could also be explored. The 2005 Global Development Finance Report provides some useful suggestions to bring other resources to bear on development, including the tremendous gains from global trade reforms; South-South aid, trade and investment; remittances; and the increasing volumes of official development assistance from civil society.

Members of my constituency are doing their share in this regard. Canada is on track to meeting its Monterrey commitment to double international assistance funding by 2010-11 compared to the 2001-02 level. Ireland, in moving towards achieving the United Nations (UN) target of 0.7 per cent of gross national income, has doubled its official development assistance budget since 2000.

Both Canada and Ireland participated fully in the 14th replenishment of IDA, which was successfully concluded in February 2005. Canada increased its contribution by close to 40 per cent, providing C$954 million over three years. Ireland increased its contribution from about SDR 35 million to over SDR 58 million, representing a two-thirds increase. With strong support from Canada, Ireland and other donors, IDA will be able to increase funding for its programs by 25 per cent over the previous replenishment-the largest expansion of IDA resources in two decades.

The new resources will underpin important innovations in IDA's policies for poverty reduction, which include a strong focus on growth and the private sector, a new framework to link the provision of grants to the risk of debt distress, and a stronger accountability framework based on results and transparency. The importance of partnerships and donor coordination and harmonization is strongly emphasized. Finally, a key aspect of IDA's financial support to poor countries is the strong and transparent link to country performance on economic policies, governance and poverty reduction efforts. 

Strengthening our collective commitment to trade liberalization and a successful Doha round is an integral component of facilitating private sector led economic growth and a key building block for financing development and accelerating progress towards achieving the MDGs. The Global Economic Prospects 2004 noted that a good agreement that lowers tariffs and non-tariff barriers, in both developing and developed countries, could stimulate worldwide increases in income and lift millions out of poverty. A successful Doha round, for example, could generate up to US$600 billion of additional income by 2015 shared by both developing and developed countries and lift 140 million people out of poverty by 2015. This was also a key message of the Commission for Africa report.

The World Bank should continue its research and advocacy work in support of a constructive pro-development outcome to Doha. We would also encourage the World Bank's efforts aimed at ensuring that developing countries capture a fair portion of the gains from trade, namely through work in support of trade capacity building, intra-regional trade, trade facilitation and infrastructure development.

The explicit recognition of trade capacity building as a prerequisite to fully reap the benefits of trade liberalization could allay some of developing countries' concerns with Doha. These are the so-called "behind-the-border issues," including overcoming supply-side constraints, promoting effective enabling investment and business climates, as well as strengthening trade-related services such as finance. Both the World Bank and the International Monetary Fund (IMF) will need to give increased attention to supporting countries in their adjustment process, especially in the small states of the Caribbean. Finally, the successful implementation of the Economic Partnership Agreements between the African, Caribbean and Pacific states and the European Community is very important for the Caribbean.

Making Development Dollars Go Further

Development effectiveness entails a strong domestic commitment to the MDGs and development more generally. Accordingly, governments must own their development programs, communicate reforms with their constituents, and work closely with development partners. Donors also need to continue efforts to coordinate and harmonize policies and practices, provide additional resources without compromising debt sustainability, and develop more efficient ways to support development efforts of recipient countries.

Aid Effectiveness

We welcome the outcome of the Second High Level Forum on Aid Effectiveness in Paris. We also welcome the joint commitments in the Paris Declaration, particularly to build developing partner country capacity where it needs reinforcing. It is important that the World Bank continue to play a leading role in promoting coordinated and harmonized aid delivery at the country level both as an advocate and through leading by example. The World Bank should prepare and implement its own harmonization action plan, working together with developing countries as well as other donor agencies, bilateral and multilateral. The work done in the Development Assistance Committee of the Organisation for Economic Co-operation and Development (OECD-DAC) in this respect would be useful.

The role of developing country governments in aid coordination is central and critical. We welcome the initiatives of the Governments of Tanzania and Zambia to undertake joint assistance strategy-planning processes together with their respective donor communities. It is important that these countries' pioneering work become examples of how coordinated approaches result not only in more effective aid delivery but also in more effective development as measured by progress in sustained poverty reduction.

We must continue to work to strengthen the Poverty Reduction Strategies (PRS) process by broadening their policy content, strengthening their pro-poor focus and improving the effectiveness of the participatory processes through which they are prepared, including greater involvement of parliamentarians and civil society. The tradeoffs involved in macroeconomic policy need to be analyzed and discussed in PRS processes and more attention given to implementing policy in sectors where the poor are economically active in order to support pro-poor growth. Where conditions are appropriate in terms of policy frameworks, capacity and governance, developing partner countries may wish to develop credible, costed Poverty Reduction Strategies that scale up to achieve their MDG targets by 2015 and that can serve to attract greater levels of support.

The current OECD-DAC work aimed at strengthening the poverty-reducing impact of assistance in agriculture, infrastructure and private sector development will assist us all in ensuring that our increasingly coordinated aid results in greater impact on poverty.

Focusing on Poverty Reduction Instead of Repaying Old Debt

The Heavily Indebted Poor Countries (HIPC) Debt Initiative has helped 27 countries erase some US$54 billion in debt, reducing their debt burdens by some two-thirds and allowing them to increase markedly critical social expenditures. Canada and Ireland have contributed significantly to the successful implementation of the HIPC Initiative through bilateral contributions to the HIPC Trust Fund. In March 2005, Canada contributed a further C$34.4 million to the HIPC Trust Fund to support the full participation of all multilateral development banks in delivering their share of debt relief. Canada continues to cancel all eligible residual claims against reforming countries exiting the HIPC process.

Canada and Ireland feel that more needs to be done to help reforming low-income countries focus on poverty reduction instead of repaying old debt. Both countries agree on the need for further debt relief by IDA, the African Development Fund, and possibly the IMF. In February 2005, Canada announced its commitment to cover the debt-service obligations of eligible reforming low-income countries to IDA and the African Development Fund. Canada urged other donors to do the same. Additionally, Canada called on donors to agree on the need to provide further IMF debt relief and to identify the best way to finance this cost. The benefits would be available until 2015 to all countries that have completed the HIPC process and to other low-income (IDA-only) countries that have the ability to use these savings for development. This provides poor countries with immediate fiscal space to implement their poverty reduction strategies.

Minimizing the Risk of Future Debt Distress

Debt sustainability is an important part of the broader debate on global financing for development that must involve developing countries, the United Nations system and donors. Many low-income countries have struggled to maintain their external debt at sustainable levels while also trying to meet development objectives such as the MDGs. The Bank and Fund's work on the long-term debt sustainability framework will be an important input to the UN High-Level Summit. In this context, it is important to ensure that the work on debt sustainability is carried forward under the broader rubric of the work on financing for development so that it does not result in resource crises for countries at risk of debt distress.

Over the course of 2004, the World Bank and IMF introduced a new Debt Sustainability Framework in Low-Income Countries, which seeks to make that challenge less difficult by providing guidance on new lending to low-income countries whose main source of financing is official loans. Based on this work and the lessons learned under the HIPC Initiative, Canada and its partners supported a new grant program at the Asian Development Fund. In late 2004, Canada and other donors agreed to a new grant allocation framework linked solely to debt distress indicators for both IDA and the African Development Fund going forward.

Work to further enhance the debt sustainability framework for low-income countries should continue at both the World Bank and the IMF in 2005. We look forward to revisiting the issue of linking the provision of IDA grants to the debt sustainability framework and to discussing the linkage between exogenous shocks and debt distress at the IDA14 mid-term review.

Responding to Exogenous Shocks

The Indian Ocean tsunami disaster exemplifies the vulnerability of many developing countries, especially small states, to natural disasters. Natural disasters have devastating consequences for the survival, dignity and livelihoods of individuals, destroy critical infrastructure, and force sub-optimal allocation of resources away from regular investments to reconstruction and rehabilitation efforts. Reducing the risk and minimizing the impacts of such natural hazards has preoccupied the development community for decades.

Mainstreaming risk reduction into development programming is a key component to minimizing the impact of disasters. We welcome the Bank's efforts to mainstream disaster risk reduction into Country Assistance Strategies and the steps taken to promote its integration into Poverty Reduction Strategies. The Bank needs to continue its efforts in this regard.

We also welcome the Bank's review of its role in assisting members respond to shocks with a view to developing concrete proposals for discussion at the IDA14 Mid-Term Review. Funding of disaster prevention and mitigation initiatives can have tremendous returns. Quick and less disruptive means to fund the necessary adjustment after a disaster can help countries and their citizens recover quickly. Besides suggestions for a shock facility and options to enhance flexibility within the IDA financing framework, we would encourage the staff to examine the issue through a modern risk management perspective. This could include mechanisms that pool risk for some types of shocks such as natural disasters across countries, include a role for donors to contribute to risk reduction activities before disasters strike as well as after, but also provide incentives through co-payments, re-insurance and other means for affected countries to undertake risk mitigation.

President Jim Wolfensohn

Canada, Ireland and the Caribbean states I represent appreciate greatly the leadership you have shown on development issues over the past 10 years.

Under your guidance, the World Bank has become a more dynamic and effective organization. It is a partner to both developing and developed countries and to governments, the private sector and civil society. It has supported international efforts to improve education and health outcomes, combat the HIV/AIDS pandemic, and reduce the unsustainable debt burdens of the world's poorest countries. It has drawn international attention to the most urgent and important issues of our time-corruption and conflict, gender equality, environmental protection, security, economic development and the special challenges of Africa and small states.

The World Bank's development approach has evolved considerably. The World Bank has become much more effective and focused on its overarching goal of a world without poverty. It increasingly emphasizes (i) poverty reduction and the needs of the poor; (ii) country ownership by putting national development strategies at the centre of development cooperation and by increasing the use of country systems; and (iii) partnerships between recipient countries and development partners. This has resulted in a very significant improvement in collaboration between the World Bank and bilateral donors at the country level.

Looking Forward

We welcome President-designate Paul Wolfowitz and urge him to continue and strengthen the approach President Wolfensohn has pioneered, especially the Bank's primary focus on poverty reduction and emphasis on partnerships and donor coordination and harmonization. My constituency underscores the critical importance of maintaining the multilateral and consensus-building nature of the World Bank and ensuring that all members have a voice in decision making.

A decade remains until 2015. We urge both institutions to be bold and strategic in the comprehensive review of their roles in member countries, their financial and capacity-building assistance, and their global development and financial advocacy and monitoring work in order to maximize their contribution to the MDGs and prosperity around the world.