Washington, DC, April 26, 2009
Archived - Statement Prepared for the Development Committee of the Boards of Governors of the World Bank and International Monetary Fund
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The Honourable Jim Flaherty, Minister of Finance for Canada,
on behalf of Antigua and Barbuda, the Bahamas, Barbados, Belize, Canada, Dominica, Grenada, Guyana, Ireland, Jamaica, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines
The financial and economic turmoil that began in advanced economies is now truly a global crisis that is spilling over into developing countries, and with serious repercussions. This meeting of the Development Committee is an opportune time for us to discuss the risks for developing countries and share views on what can be done to help.
It is now clear that for many countries, the effects of the crisis are being felt sooner and are harder than expected. Over the last few months, the International Monetary Fund (IMF) and World Bank have adjusted their growth projections for developing countries downwards rapidly and sharply, with negative growth now projected for Latin America and the Caribbean, Central and Eastern Europe, and Central Asia.
The crisis is hitting developing countries from a number of directions—a deterioration of trade, sharply lower commodity prices, and a serious fall in private capital flows, foreign direct investment and remittances. This is made worse by the fact that the crisis is following on the heels of a global food and energy crisis that has drawn down the fiscal space that existed in many countries. The risks in terms of deepening poverty, child mortality and loss of development progress are significant.
Staving off an extended global recession and promoting early recovery is of primary importance in containing the impact on all countries, whether advanced, middle-income or low-income economies. In this respect, leaders provided a strong response at the London Summit on April 2, 2009, including commitments in the four highest priority areas: fixing the financial system and getting credit flowing, implementing coordinated stimulus activity, avoiding protectionism and strengthening financial market regulation. Restoring global growth to a sustainable, balanced path is the most significant thing members can do to help mitigate the impact of the crisis on developing countries.
At the same time, assistance to help developing countries through the turmoil will be critical. The World Bank Group and IMF have begun responding to needs and working to improve the tools they have available. We need to ensure that the World Bank and IMF can play a counter-cyclical role through the crisis, providing additional assistance to developing countries through the economic downturn. This is not only a matter of providing a higher volume of assistance, but also of having the right tools to provide assistance that is timely and targeted to the most vulnerable populations. At the same time, however, we need to be mindful of avoiding a new build-up of unsustainable debt levels in low-income countries and not jeopardizing the financial sustainability of the international financial institutions themselves. Finally, it remains important to make progress on governance reforms at the World Bank to strengthen it as a platform for international cooperation.
World Bank Group Assistance
We very much support the concrete actions taken by the World Bank Group and IMF in this respect. For the World Bank, this includes the near tripling of lending from the International Bank for Reconstruction and Development (IBRD) to provide up to $100 billion over three years, the crisis response facilities set up by the International Finance Corporation (IFC), and the new Vulnerability Financing Facility to fast-track funding to low-income countries for critical social and infrastructure spending, food security and social safety nets to protect the most vulnerable. We commend the Bank for moving quickly on these initiatives, for exploring innovative responses and for its efforts to mobilize broad participation by donors and the private sector.
We note that small island states in the Caribbean region have been particularly hard hit by the fuel, food and economic crises. These events have caused a significant fall in remittances, inflation in essential food items, and negative growth in their tourism sector. We hope to see the World Bank direct more resources to these countries, especially with the new crisis mechanisms in place, and we urge it to develop innovative approaches to assist these countries and to look at what policies might be unduly constraining their access to financing.
Canada stands ready to assist developing countries through the crisis. We are providing US$200 million to the IFC's Global Trade Liquidity Program to help counter the ongoing collapse of trade finance in the developing world.
Last year, Ireland was the sixth-largest aid donor in the world in per capita terms. Notwithstanding recent difficult decisions in relation to adjustments of the Irish overseas aid program, this is likely to be maintained in 2009. Ireland remains very much engaged in overseas development, with a clear emphasis on hunger, food security and poverty alleviation, especially in Africa.
At the time of the United Nations (UN) Summit last September, Ireland launched the Report of the Hunger Task Force, which was warmly welcomed and focuses on three areas where action can have a great impact: increasing smallholder agricultural productivity in Africa; targeting maternal and infant under-nutrition; and making hunger eradication a priority at both the national and international level. Ireland also announced, in January 2009, that the eradication of hunger would become a cornerstone of the Irish aid program, and appointed a Special Envoy for Hunger to assess the international response to the global food security crisis and advance measures to tackle this challenge. Ireland is also actively working with the UN Secretary-General's High Level Task Force on the Global Food Security Crisis, and is keen to see the development of a new partnership that can put hunger at the top of the political and development agenda.
IMF Assistance for Low-Income Countries
The IMF has an essential role to play in assisting those with urgent balance of payment needs and we therefore welcome the action it has taken to promptly implement the outcomes of the London Summit, including the proposed doubling of access limits for low-income countries in a manner that is consistent with debt sustainability. Looking ahead, the IMF has laid out an ambitious work plan to thoroughly review its low-income country facilities and financing framework to ensure that it has the right tools to help the poorest and most vulnerable respond to this and future crises. I am encouraged by the direction in which this work is headed, and I encourage the Fund to work with the Executive Board to complete this review process rapidly.
As the international financial institutions and donors continue to explore ways to mobilize additional resources to help low-income countries through the crisis, it will be important to keep in mind the need to avoid a new build-up of unsustainable debt levels. We must be mindful of safeguarding the significant progress achieved under the Enhanced Heavily Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative. We believe that the emphasis should be on providing additional resources to low-income countries in the form of grants, and proposals to provide more non-concessional resources to low-income countries should be approached with great caution, as countries' risk of debt distress could shift in line with deteriorating economic conditions.
World Bank Financial Sustainability
As a financial institution, the World Bank has itself been affected by the crisis, with the result that, should this be a prolonged crisis, the IBRD and IFC will experience pressure on their capital adequacy and ability to generate net income, including for continued contributions to support the International Development Association. It is essential that the IBRD and IFC remain financially healthy and viable in order to play their critical role in economic growth and poverty reduction, and we ask management to fully assess the implications of a prolonged crisis on the resource adequacy of these institutions and the role they will be able to play in crisis response. Management should bring forward a range of measures to strengthen the IBRD and IFC's financial positions, for consideration by the Executive Board.
World Bank Governance Reforms
The economic crisis underscores the need for the international community to work together, and in this respect the World Bank and IMF play a critical role as both are key platforms for international cooperation and dialogue. A clear demonstration of this is the central role they are playing in monitoring the impact of the crisis on developing countries, bringing it to the attention of the international community and encouraging action. These institutions are important assets for the international community, and it is important that we ensure their legitimacy and effectiveness for the future. An important part of this is completing the World Bank's governance reforms.
This includes the ongoing work to improve the voice and participation of developing countries in the institution's decision-making processes. We were very supportive of the agreement reached last fall to add a third seat on the Executive Board for Sub-Saharan Africa and to double "basic votes" to increase the relative voting power of the poorest and smallest member countries. Within this constituency, the governments of Ireland, Jamaica, Barbados, the Bahamas and Saint Lucia have already formally ratified this agreement and others, including the Government of Canada, are now taking necessary steps to do so.
Over the next few months, we will actively participate in shaping a further phase of reforms, focused on a review and realignment of shareholding. We believe that an equitable shareholding alignment would be best achieved through the regular and reliable application of a World Bank-specific formula that has global economic weight as its foundation, but may also include other relevant factors given the institution's development mandate.
In addition, we note the importance of the work being done by the Executive Board on internal governance reforms, to support efficient and effective Executive Board decision-making, and to ensure that it provides strong oversight, accountability and strategic direction, while also leaving World Bank management with enough flexibility to respond to changing recipient country needs and circumstances in a timely manner.
We also strongly believe that the heads and senior leadership of the international financial institutions, including the World Bank and IMF, should be appointed through open, transparent and merit-based selection processes, regardless of nationality. We are pleased that many members have expressed support for this.