Istanbul, Turkey, October 5, 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
We would like to thank our host, the Turkish government, for having us here today in this beautiful and historic city.
The financial and economic crisis has underscored just how valuable it is for us to have strong international financial institutions to support us in global cooperation. These institutions have been instrumental in alerting us to the challenges facing developing countries through the crisis and have been on the front line in responding to their needs.
This meeting comes at an important juncture. We have worked hard over the last few months to ensure swift action. The multilateral development banks have ramped up their lending significantly and are on track to meet the goal set at the London Summit of providing $100 billion in additional financing. They have also set up specialized crisis facilities to tackle critical gaps, such as food security and trade finance. And, shareholders have helped to support this with capital and other financial contributions.
We now have an opportunity to harness this momentum to move forward on key institutional reforms. In this regard, I want to reiterate the importance of strengthening the legitimacy, credibility and effectiveness of the World Bank Group. We need to take the steps necessary to ensure that this institution meets all three of these essential tests if we want it to continue to serve as a strong platform for our cooperation into the future.
- A legitimate World Bank Group requires that voice and representation reflect the economic realities of the 21st century.
- A credible World Bank Group requires sufficient resources and responsive toolkits.
- Finally, an effective World Bank Group requires a strategic and accountable governance structure.
It is important that we continue to move forward on the World Bank Group's voice and participation reforms and meet our goal of reaching a final agreement by spring 2010.
Last fall we reached an agreement on phase one of these reforms. We now need to follow through with it, and to do so, we need members to signal their formal acceptance. Many of the members in our constituency have done so, including members from the Caribbean, as well as Ireland. I am pleased to say that Canada has taken many of the steps required for formal acceptance and we intend to complete the process as soon as possible.
On phase two of these reforms, including the realignment of shareholding, we think it is worth taking stock of the progress we have made so far. In our view, we have taken two very important steps forward. First, we have broad recognition that the World Bank should finally have its own unique formula for representation and that the past practice of basing it loosely on International Monetary Fund quotas and making ad hoc adjustments is no longer adequate. Second, we have support for this to be a dynamic process, so that representation can reflect the natural evolution of our global economy. This will provide the foundation to move over time towards parity in voting power and beyond, between developed and developing countries. At the Pittsburgh Summit, Leaders agreed that in this phase there would be an increase of at least 3 per cent of voting power for developing and transition countries.
Developing a formula that is acceptable to the membership as a whole and is right for the Bank as a financial institution will require a lot of work over the next six months. In Pittsburgh, Leaders also laid down key principles to help guide this exercise.
First, as the World Bank is a financial institution, economic weight should remain the primary foundation for the shareholding formula. The formula should be dynamic in order to take into account changes over time in economic weightings.
Second, the formula should take into account the relative strengths of donors' contributions to the International Development Association (IDA), in order to provide incentives to maintain strong support.
Third, there is a need to be fair to everyone in this exercise, which means setting one standard from which under-represented countries will move up and over-represented countries will move down in shareholding, regardless of whether they are categorized as a developed or developing country. That said, we support the preservation of the voting power of the smallest and poorest states, to ensure an adequate minimum level of voice.
And finally, voice must be matched by responsibility. In this regard, it will be critical that new shares have an appropriate paid-in portion, so that we are all making equal effort to support the Bank's financial capacity.
The efforts of the World Bank Group in responding to the crisis should be recognized—it moved quickly to more than triple lending and put in place innovative, specialized crisis facilities such as the Global Food Response Program and the Global Trade Liquidity Facility. By being flexible and creative, the World Bank Group has succeeded in front-loading a large amount of resources.
The World Bank Group's vigorous response has placed pressure on its resources and we are open to a dialogue on its financial capacity—it must have enough resources to address the crisis and fulfill its important mandate post-crisis.
However, several important factors remain unknown at this point. The path of the recovery is unknown, and this has a great influence on what its financing needs will be going forward. It is also unclear how much of the $1.5 billion in paid-in capital that is currently in an unusable form at the Bank will be released as usable equity. We also do not know how much capital will come in through the upcoming voice reform agreement.
As the World Bank Group does not face an immediate financing shortfall, however, we can take the time necessary to evaluate its long-term needs and do a comprehensive analysis of all possible solutions, including temporary ones. We should consider how mechanisms such as contingent capital could be used to increase World Bank lending at times of crisis. On this same timeline, we can also look at whether the current pricing model is sustainable.
Credibility also requires the World Bank Group to have a toolkit that is responsive to the needs of its clients. Through the crisis, the Bank has made a lot of effort to help developing countries protect public expenditure programs and implement urgent measures. But we need to continue strengthening the Bank's crisis response capabilities, especially in the predictability and flexibility of its financial support. In particular, the Bank has had limited flexibility in responding to the needs of low-income countries, and we need to look at options to address this. An important consideration is how to provide assistance through times of difficulty without creating future debt sustainability problems.
With respect to fostering a more strategic and accountable governance structure, we think the internal governance reforms led by the Executive Board's Committee on Governance and Administrative Matters are very important. The reforms aim to lift the Executive Board and senior management out of transactional procedures to allow them to focus more on setting strategic direction. However, we need to make sure that we follow through properly on these, and we believe it would be useful to confirm in the spring that full implementation has been achieved.
Another area for continued attention is deepening the country-led development model and enhancing the Bank's ability to listen and respond to its client's individual needs. In this respect, true decentralization of decision making is critical, including in fragile states. We believe we also need more opportunities to hear directly from borrowing countries about their experiences with the Bank. In this respect, we would ask management to strengthen the voice of borrowing countries in the IDA replenishment discussions, including new ways of facilitating real dialogue and collaborative generation of ideas.
Finally, I want to reiterate my support for open, merit-based and transparent selection processes for the heads and senior leadership, irrespective of nationality, at the World Bank Group and at all other international financial institutions.
In conclusion, the crisis has demonstrated the importance of international cooperation. The international financial institutions, including the World Bank Group, are a concrete manifestation of that cooperation and it is incumbent on the membership to ensure that they are capable of supporting and sustaining our collective efforts. This requires that we work together to strengthen their legitimacy, credibility and effectiveness.