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

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The Honourable James M. Flaherty,
Minister of Finance of 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 23, 2006

It is striking that one key theme discussed by Ministers this weekend is similar to what my own government has identified as an important domestic priority. In particular, I would highlight the Government of Canada's commitment to strengthening its system of public governance to increase accountability. Accountability is a universal issue, transcending national boundaries. Given their mandates and relationship with their members, the Bretton Woods institutions have a strong role to play in promoting accountability and good governance.

Strengthening accountability is a shared responsibility. Donors and developing countries must work together to ensure that aid is used effectively to achieve concrete development results. Appropriate monitoring of policies is key to ensuring that we stay on track in fulfilling our commitment to achieve the Millennium Development Goals (MDGs). In recent years, we have seen a stronger collaboration between the Bank, the United Nations and the Organisation for Economic Co-operation and Development in developing a broader global monitoring framework to track progress in meeting the individual MDGs. However, more can be done to improve this process.

Measuring Results

Measuring results is a key element in the development paradigm. The collection of accurate, timely, useful statistics is critical to gaining an accurate understanding of progress achieved and the challenges that remain. Timely and reliable statistics are a key input to a results agenda.

As a national capacity to gather and assess statistics is critical to our efforts to monitor progress towards the MDGs, we must continue to support the Bank's Statistical Capacity Building Program.

As part of Canada's approach to development, the Canadian International Development Agency and Statistics Canada are working more closely together to help developing countries strengthen statistical systems, institutional capacity and planning. The strength of individual countries' statistical agencies should be regularly assessed and supported by increased technical assistance. Given its importance in monitoring progress towards the MDGs, we would like to see countries' statistical capacity routinely appraised in the context of Country Assistance Strategies.

Reaching the MDGs-A Shared Responsibility

By any measure, we are still too far from reaching the MDGs in too many parts of the world. We are encouraged that significant progress is being made in aggregate, due in part to the relatively favourable economic environment. However, we are concerned that progress has been uneven across countries and regions, with many being left behind, particularly in Sub-Saharan Africa. In the relatively short period remaining until 2015, it is clear that we need to strengthen our efforts to ensure that the promise of the MDGs translates into reality for the world's poorest citizens.

Canada is strongly committed to working in partnership with developed and developing countries, in an environment of mutual accountability, to reach the MDGs by the 2015 target. Reaching the MDGs will require greater efforts by developed countries to increase aid effectiveness and to ensure that aid is delivered in ways that support strengthening developing countries' governance structures. It will also require efforts on the part of developing countries to strengthen governance and accountability, to manage their economies more effectively, and to follow through on national poverty reduction strategies.

Ireland has also made strides in ensuring its aid dollars work better. Ireland has set a target of increasing its international assistance to 0.5 per cent of gross national product (GNP) by 2007 and to 0.7 per cent of GNP in 2012. It is well on track to meeting these targets, with assistance projected to reach 0.47 per cent of GNP in 2006. In Ireland, the increase in aid of over 24 per cent in 2006 is the largest additional amount of funding that has ever been provided in any one year. Ireland's Official Development Assistance (ODA) budget has more than quadrupled over the last decade, rising from 0.30 per cent of GNP in 1996 to 0.47 per cent in 2006.

Canada and Ireland both supported the Multilateral Debt Relief Initiative (MDRI), which has been implemented at the International Monetary Fund (IMF) and is being implemented at the International Development Association and the African Development Fund. We are committed to maintaining the financing capacities of these institutions. Ireland will address this by paying its entire share of the MDRI in 2006. Canada has already paid its share of the IMF's costs. It will be critical to ensure that this debt relief frees up fiscal space for important investments in areas such as health and education. In this context, we will want to ensure that the MDRI and the associated Debt Sustainability Framework do not lead to any adverse impacts on the flow of transfers to developing countries.

We need to ensure that this assistance is used effectively, and that any increase in aid resources translates into a commensurate increase in poverty reduction. Mutual accountability between donors and recipients is critical to promote the partnership spirit from the Monterrey Consensus. Developing countries must improve their performance to attract financial support, through both ODA and private sector investment, and to improve their domestic resource mobilization. For their part, donors need to do a much better job of supporting developing country ownership of poverty reduction strategies, aligning assistance to developing country priorities and coordinating assistance efforts with recipient countries and with each other. The 2005 Paris Declaration on Aid Effectiveness lays out a practical, action-orientated roadmap to improve the quality of aid and its impact on development. At the international level, it constitutes a mechanism through which donors and recipients of aid are held mutually accountable for meeting partnership commitments. At the country level, the Paris Declaration encourages donors and partners to jointly assess their mutual progress in implementing agreed commitments on aid effectiveness.

I would also reaffirm the importance of more concentrated efforts within the context of the World Trade Organization Doha Development Round to ensure that developing countries gain market access, which is key to achieving the economic growth required to meet the MDGs. Since the launch of the Round in 2001, serious challenges have arisen and important milestones have been missed. Clearly, we need to make significant progress on these negotiations to realize the promise of the Doha Development Round and reap its benefits. We need to work collectively to reach our goal of achieving substantive reductions in tariffs and agriculture subsidies by the end of the year. We expect the IMF and World Bank to strengthen their engagement under the "Aid for Trade" agenda as a necessary and complementary element to help countries benefit from further trade liberalization.

The Challenge of Governance

The composition of the Bank's lending portfolio has been shifting over the last decade, with a greater focus on those countries with a proven commitment to use assistance effectively. We know that strong policy environments, institutions and governance are essential for aid effectiveness. Countries with strong performance can absorb higher levels of aid and are likely to be more effective in converting aid into economic growth and poverty reduction.

Providing effective development support to countries with poor governance records remains a key challenge for the World Bank. The Bank has identified corruption as one of the single greatest obstacles to economic and social development. It undermines development by distorting the rule of law and weakening the institutional foundation on which economic growth depends. The harmful effects of corruption are especially severe on the poor, who are hardest hit by economic decline, most reliant on the provision of public services, and least capable of paying the extra costs associated with bribery, fraud and the misappropriation of economic wealth.

As the Bank continues to tackle issues of poor governance, we need to ensure greater clarity in the Bank's approach and a consistent application of its policies to borrowing members where weak governance, including corruption, is judged to represent significant risk. To this end, we look forward to early consideration by the Executive Board of a set of guidelines that will steer the Bank's operations in high-risk countries.

A Strategy for Middle-Income Countries

I would also like to address middle-income countries (MICs), where we have seen progress in achieving the MDGs. An example, highlighted in the Global Monitoring Report, is in the area of education, where there have been significant improvements in primary education completion rates. However, there remain significant disparities within MICs and we cannot be complacent.

While the Bank's role in low-income countries (LICs) is well understood, the institution's role in MICs is more complex. Many of these countries have access to alternative sources of financing that elude the LICs. Since a majority of the world's poorest live in MICs, the Bank must remain involved; however, its engagement must be clearly based on its comparative advantage. The World Bank's poverty reduction focus must be the touchstone of the Bank's efforts in these countries.

We see several areas where the Bank's strategy in MICs can be improved. The Bank has recognized that complex operational procedures are a burden for borrowing countries, and it has made recent progress in reducing transaction costs, speeding up delivery of support, and reducing or eliminating conditionality of investment operations. More progress is required, however, in simplifying procurement and disbursements. Greater attention must be given to the Bank's role in synthesizing and disseminating knowledge and advice to MICs.

Another area where we urgently need progress is in financial sector reform. Strong financial sectors are the best defence against financial crises and the impact they have on the poorest. Strong financial sectors are also needed to channel financing to the poorest to enable them to help themselves. Despite years of Bank lending to these countries for financial sector reform, stronger financial sectors have not been developed in many MICs. In defining its strategy for financial sector development in MICs, the Bank should set performance targets, such as healthier banking sector balance sheets and increased lending to small and medium-sized enterprises.

A results-driven approach to MICs means that over time we should see these countries become less dependent on aid dollars and able to attract more private sector financing, including through foreign direct investment (FDI). Currently, only five emerging market economies receive 60 per cent of all FDI inflows to developing countries. I would like to see the Bank's work focus on increasing the number of recipients of significant FDI over the next decade.

Meeting the Needs of Small States

Efforts to advance the development agenda cannot overlook the particular challenges of small states, including those in the Caribbean. We know these states are highly vulnerable to damage from recurring hurricanes, particularly in their low-lying coastal areas. Immediate attention is needed for small island states to help mitigate the risks of natural disasters. To this end, the World Bank's efforts to study possible insurance schemes for public assets and the International Finance Corporation's work to find new mechanisms to insure private dwellings are critical. We will continue to support the Bank's development of this new approach to comprehensive catastrophe risk insurance in the Caribbean and other small states, and call upon other donor governments and the private sector to join these efforts.

A longer-term challenge is the transfer of existing and new technologies required for adaptation to new weather patterns, particularly in the key sectors relating to agriculture and associated water resource management. However, these countries also face other challenges. These include faster-than-anticipated erosion of trade preferences, which are severely impacting several small states; the challenges of complying with more rigorous financial services regulations; and the underlying problem of small domestic markets aggravated by geographical dispersion. The latter leads to high per-unit costs, precludes economies of scale, raises transportation costs and undercuts efforts to foster regional integration. The World Bank has an important role to play assisting small island states to meet these challenges.