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Statement of Treasury Secretary Lawrence H. Summers
at the Development Committee of the
World Bank and the International Monetary Fund
Prague, Czech Republic

September 25, 2000

List of Development Committee Statements
Development Committee Communiqué


The global economic environment, so important to the economic fortunes of the developing countries, is stronger today than it has been in many years, with stronger and more broad-based growth across most of the industrial and emerging economies. In the major industrial countries, low interest rates have been supported by an environment of low inflation and improved fiscal policies, especially in the United States. And just two years since what was widely believed to be the most challenging situation in global financial markets in fifty years, private capital flows are returning to emerging market economies. Signs of greater differentiation by investors between countries are emerging, and we are seeing a welcome increase in the share of flows in the form of direct foreign investment.

For all that it would be a serious mistake to consider that all of the risks and challenges were now behind us. Structural reforms will be needed in many emerging economies for a strong and more inclusive recovery to be sustained. The rise in the price of oil has the potential to affect the poorest countries adversely. And, perhaps most important, this time of extraordinary economic prosperity in the US and other countries is still a time when fully half of the world's people live on less than two dollars a day. The overarching global imperative to work to combat poverty and support successfully economic development in the poorest countries must gain added urgency today, when HIV/AIDS, conflict and other catastrophes are helping to reverse years of development gains in many of the poorest countries. Mortality rates in a number of African countries are now rising rapidly, after several decades of decline, and adult life expectancy is returning to levels not seen since the 1950s.

It is a central lesson of history that rapid economic growth is absolutely essential to rapid or long-lasting reductions in poverty. But history also teaches that growth requires more than a stable macroeconomic environment. Three other elements are also crucial First, governments need to put in place the institutions and rules that will allow markets to function well. Second, they need to make public investments with particularly high social returns, especially girls' education and basic health services, including immunization coverage for all children. And third, governments need to promote an effective rule of law, through good governance, transparency, and support for the emergence of a healthy civil society. This basic framework for promoting human development can and must be our touchstone as we chart a course for the development institutions going forward.

Framework for Operational Reforms in the MDBs

The World Bank and the regional development banks remain at the core of the international effort to address the formidable economic and development challenges facing developing, transition, and emerging economies. The MDBs have compiled an impressive track record of adapting and improving their operations in order to improve their effectiveness in promoting poverty reduction and economic growth. The challenge now is to build on that progress and to press forward with the substantial additional work necessary to strengthen the capacity of the institutions to deliver enduring results.

The United States remains committed to working with Management and other members to strengthen the MDBs going forward, to improve their impact, sharpen their focus, and ensure that the institutions are effectively positioned to meet new challenges and new expectations. We encourage the Committee to engage on this issue in a collaborative spirit.

We believe the contribution of the MDBs to development progress can be strengthened by a shift in emphasis in several key areas:

  • The approaches underway to elevate poverty reduction as the overarching objective of their programs in the poorest countries should be applied consistently and implemented vigorously.

  • Priority should be given to supporting human development, particularly through targeting greater resources to core investments in high development returns, such as basic education and health services, access to clean water, rural development infrastructure, and to building the institutional underpinnings necessary for market-led economic growth.

  • We commend President Wolfensohn's pledge to support the Dakar Framework goals by increasing World Bank lending for primary education by 50 percent in the coming years and providing support to countries in drafting education action plans. It is important that the Bank report to Ministers by the Spring Meetings on the progress and future plans for assisting countries in this crucial area.

  • The MDBs should reinforce their efforts to ensure greater selectivity, both across sectors and countries, and to substantially improve their performance in delivering clear and monitorable development results. In particular, performance-based allocation frameworks should largely drive MDB resource commitments for all borrowers.

  • The borrowers' policy environment must be fully taken into account, including governance issues and the quality and components of fiscal expenditures.

  • The MDBs' current loan pricing policies should be reexamined with a view to promoting a more selective focus on investments with the highest development, poverty reduction and transition returns. We look forward to a comprehensive review by the World Bank of its lending terms, including the scope for greater differentiation of terms across different investments and borrowers, and the implications of alternatives for its income and balance sheet.

  • Additional steps should be taken to increase MDB transparency and accountability—including by further increasing public access to information.

  • We believe there is substantial scope, in all of the institutions, to strengthen internal fiduciary auditing and budget procedures, as well as evaluation and supervision capacity.

  • Full compliance by the institutions with established safeguard and due diligence policies must be assured, which will require the establishment of compliance units to ensure more effective mechanisms within the context of each institution.

  • Greater attention should be paid to the environmental impact of core lending, including structural and programmatic lending.

  • Operational collaboration across the MDB system, in concert with other donors , including the UNDP and other specialized agencies, should be deepened, focusing closely on areas of comparative advantage and value-added. Within the MDB system there is ample scope for greater collaboration on core diagnostic work, development effectiveness, evaluation, and the adoption of uniform procurement rules and procedures of the highest standard.

Global Public Goods

We welcome the growing recognition of the need to pay greater attention to development investments providing cross-border benefits. Global Public Goods tend to be underfunded and undersupplied, particularly in those areas where the most benefits would accrue to developing countries. We believe the World Bank and the regional development banks can make a major contribution in this area in ways that complement established priorities for poverty reduction.

We believe there is considerable scope to expand MDB investment in three core areas: (1) stemming the spread of infectious and childhood diseases, (2) protecting the global economic environment, and (3) creating developmentally relevant knowledge in sectors such as agriculture. To be effective, selection of priority areas for increased Bank engagement must remain firmly grounded in the traditional criteria—consensus on need, value added, catalytic role, and comparative advantage.

HIV/AIDS must certainly be a particularly high priority component of any program to address communicable diseases. The epidemic's catastrophic impact now in Africa, where it is reversing the hard-won economic gains of so many countries, also threatens much of Asia and other regions. We therefore commend recent efforts that will substantially strengthen the Bank's engagement on this most urgent issue, particularly the World Bank's pledge to triple its lending for communicable diseases and its recent provision of a $500 million program to combat HIV/AIDS in Africa.

There is also an urgent need for the Bank and its partners to accord major attention to other more easily preventable infectious and childhood diseases that continue to pose fundamental health risks and cause early death, squandered potential, and stunted development.

  • Regional and global actions to preserve and protect environmental resources are an integral component of poverty reduction with major long-term impacts on health and other key aspects of human development.

  • Most of the poor live in rural areas, which also tend to have the highest concentrations of extreme poverty. While it will be very difficult to replicate the scale of the impact international agricultural research had in the green revolution, there is still substantial scope for agricultural research to harness the large untapped potential of this sector for raising growth and incomes.

The diversity of institutional arrangements needed to address the variety of important global public goods is great and underscores the importance of effective donor collaboration. We see responsible selectivity and partnerships as fundamental to an expanding program of Bank support. In assessing its options for such a program, the Bank should accord high priority to working with its partners to identify those public goods in which it clearly has a comparative advantage as well as those areas that are best addressed by other institutions, including UN agencies.

While the Bank's regular lending can continue to address Global Public Goods at the country level, the Development Grant Facility (DGF) already complements country lending with broader effect. We believe it is an appropriate vehicle for expanding the Bank's support for core Global Public Goods such as combating infectious diseases, protecting the environment, and promising agricultural research. To that end, we see a compelling case for an early increase in DGF funding, targeted to these areas, and urge the Bank to identify internal resources for this purpose.

We urge the Executive Board to follow up on our Development Committee discussions with the aim of integrating a selective but action-oriented Global Public Goods agenda into the Bank Group's Strategic Framework. We would like to see this issue placed on a "fast track" and suggest an interim Management report to the Board by the end of the year.

We also favor inclusion of the Bank's operational program for Global Public Goods on the agenda of our April 2001 Committee Meeting as a progress report and with the option remaining open for additional Ministerial consideration.

Intensifying the Fight against Financial Abuse

We accord major importance to greater and more concentrated efforts to combat financial abuse and to strengthen the role that the World Bank can play in more systematically incorporating financial abuse concerns in its work with member countries. There is a natural fit between the World Bank intensifying its financial abuse work and its mandate in areas of financial sector reform, promoting good governance, and fighting corruption.

Abuses such as money laundering, inadequate bank supervision, and corruption undermine the credibility and efficiency of the international financial system. They also pose a threat to our development agenda in that they lead to distortions in the allocation of resources, curb productivity growth and incomes, and undermine financial systems and institutions. Combating these abuses is an integral part of effective development and institutional capacity building that requires action at both a country and a global level.

The Bank is uniquely well placed to work with the International Monetary Fund, the regional development banks, and member countries to strengthen its analytical and diagnostic work on financial abuse issues, including in its Country Assistance Strategies, social and structural policy reviews, and stand alone financial sector analyses. The Bank's engagement in assisting countries design and implement programs of corrective action also provides clear value added, and it conforms well with the growing international consensus—most recently demonstrated at the APEC Finance Ministers' meeting in Brunei, the Okinawa Summit in July, and the Western Hemisphere Finance Ministers' meeting last February in Cancun—on the need for better coordinated and more effective international programs in this area.

We urge the Bank, Fund, and regional development banks, and all their members, to work with us in helping to institutionalize efforts to fight financial abuse as part of their on-going operations and within the scope of their financial issues mandates. In this regard, we call on the Fund and Bank to prepare a joint paper on their respective roles in combating financial abuse for discussion by their Boards before the Spring Meetings and ask them to report to the Spring IMFC/Development Committee Meetings on the status of their efforts.

The Bank's Role in the Poorest Countries

The enhanced HIPC Initiative is an integral part of the broader development agenda, and provides a unique opportunity to encourage reform and improve the economic prospects of those poorest countries committed to sound policies. When combined with the right economic and social policies, debt relief can make an important difference. The PRSP process is intended to complement HIPC by establishing the solid policy foundation for HIPC and other poor countries, and their development partners, to build the growth and poverty reduction frameworks needed to deliver sustainable results.

The enhanced HIPC Initiative and the PRSP process continue to merit our strong support and engagement. We welcome the very significant progress made in both areas. We also recognize that it takes time to develop the appropriate national policies and the right institutions and practices to reap the full development potential of debt relief. There is much at stake for the poorest countries; it is crucial to "get it right." While I share the desire to have eligible countries qualify for debt relief as rapidly as possible, the desire for speed cannot supersede the need to ensure lasting development results.

We recognize and very much appreciate the priority and work that the staff and management of both the Bank and the IMF have given to translating HIPC and PRSPs into positive development outcomes. On my June trip to Sub-Saharan Africa, I was also impressed by the strong sense of commitment demonstrated by the governments of Mozambique and Tanzania to establish credible poverty reduction strategies, and the opportunity the framework has opened for broad civil society particpation in shaping country strategies. The commitment being shown in other countries, such as Bolivia, is also encouraging.

As the process moves forward, it is important not to lose sight of the fact that one of HIPC's core< objectives is to enhance countries' future prospects for debt sustainability. There is a need for a more fully articulated framework to assess the implications of this debt sustainability for the scale and composition of new lending. Clearer constraints on new public sector borrowing on non-concessional terms for a period after HIPC debt relief should be considered. Further restraint on concessional lending may also be warranted, including through greater recourse to grant financing.

We believe the Bank should take the lead in setting the priority social and structural conditions to operationalize the new development framework set out in a borrower's PRSP (or I-PRSP). We therefore support in principle the concept of a discrete instrument parallel to the Fund's PRGF that would set out and be based on the priority social and structural conditions that are now often embodied in the PRGF—as long as such an instrument is used selectively and with appropriate safeguards. The Poverty Reduction Support Credit (PRSC) should be the Bank's principal device for coordination of policy and consolidation of fast-disbursing assistance. It should not be additional to the currently programmed level of adjustment lending.

We do not believe that it would be appropriate for the introduction of PRSCs to necessarily lead to a strategic shift in Bank operations to budget support. This would have profound implications for the Bank and poses a major fiduciary challenge. Administratively, it may be much easier for the Bank to provide budget support than to try to implement discrete investment programs. But there is no question that the risks of inefficiency and waste, without adequate accountability, are also higher. Any assistance instrument, including budget support, needs to be appropriate to the institutional capacity, accountability, and policy environment of both the recipient government and the Bank.

It is therefore crucial that any new lending instrument for providing budget support be carefully structured to:

  • phase in (tranche) support based on performance, not just commitments, against a set of credible benchmarks;

  • provide for detailed annual reviews by the Board, with Board votes on whether to proceed to the next year's program and disbursement based on prior year's performance;

  • ensure that these reviews specifically examine performance under the PRGF (just as we would expect reasonable linkage to PRSCs in PRGF reviews);

  • integrate and build upon ex-ante due diligence and diagnostic work, including Public Expenditure Reviews, Country Financial Accountability and Procurement Assessments, Poverty and Environmental Assessments, and Social/Structural Reviews, and sectoral policy analysis.

  • include a mechanism to track and report on performance of reforms, budget and expenditure shifts, efficiency gains, and poverty impacts from the operation; and

  • be grounded in the Bank's country assistance strategy, which itself must evolve into a more strategic vision for implementing a credible growth strategy.

World Bank Role and Instruments in Middle Income Countries

We very much support the increased priority the World Bank is giving to reassessing its role in middle income countries and to determining how it can best assist these countries to address the economic and social weaknesses that constrain their access to private finance. The Bank's initiative to establish the Task Force on Middle Income Countries is timely and welcome, and we hope it will lead to a more selective lending framework focused on facilitating graduation. We expect the Task Force also to consider the potential role for differentiated pricing according both to country and to the activity being funded.

The Bank retains an important role in supporting long-term development and reform in these countries, but its activities should be more sharply defined and more systematically focussed on adding value that the private markets cannot. This means helping countries to build strong, open financial systems, with the institutional and legal framework for well functioning domestic capital markets, insolvency regimes, and better corporate governance, so that they can reduce their need for official assistance over time. It also means helping countries to improve the efficiency of their public expenditures and to strengthen social sector investments and targeting to better address poverty and inequitable lack of opportunity. We also believe that the Bank, and its regional counterparts, should reduce the share and volume of their lending to the more advanced emerging market countries over time, with graduation as a clear objective.

As with low-income countries, budget support/programmatic lending should be based on appropriate fiduciary and diagnostic work. Before the United States could endorse a significant movement by the Bank in this direction in its lending operations, we would need to be convinced of the merits of this approach in terms of development effectiveness relative to other forms of lending. Pricing will be a crucial element. We would also want to see a full discussion of the institutional and operational changes that would be required within the Bank to ensure effective use of resources, including the monitoring mechanisms, fiduciary framework, and performance criteria that would accompany such lending.

The Comprehensive Development Framework

The Comprehensive Development Framework (CDF) represents a major effort by the Bank to increase the development effectiveness of its lending. We have long supported the basic principles that underlie this approach: providing assistance in the context of a clear, long-term strategy; ensuring borrowing countries' responsibility for making their own choices; selectivity and close coordination among donors in providing support; and full accountability for results. Effective donor coordination is vital to development results, and harmonization among aid agencies can enhance their effectiveness as long as it is based on the highest possible standard.

We believe the Bank and its borrowers were prudent in initiating the CDF as a "pilot" in selected countries to determine how it would work in practice before replicating the approach on a more general basis. As the Bank's reports to the Board and to the Committee demonstrate, the challenges lie where they always have: on the ground, in producing enduring results. Overall, as the Bank's reports note, it is difficult to draw any definitive conclusions about the additional development impact of the CDF framework. In large part, this reflects the difficulty of measuring implementation and results, as well as extracting "lessons learned", after only eighteen months of operational experience.

The pilot experience underscores the many difficult and complex operational problems that still have to be to be addressed before the model can be replicated more generally in Bank operations. These include the major constraints posed by the lack of government capacity, the lack of involvement and capacity by government units other than finance ministries, and the lack of cultures supporting participation in many borrowing countries concerned by the reports' findings on the negative attitudes of some pilot governments regarding the participation of civil society. As to donor coordination, although many aid agencies have indicated their support in principle for the CDF approach, old attitudes and ways of doing business strongly persist.

In this connection, we believe a more careful assessment of CDF experience is needed before an informed decision can be made on use of the CDF as the basis for any significant changes in the Bank's organization, policies and procedures, and resource allocations. We therefore welcome and look forward to the longer-term assessment of the CDF DEC and OED are preparing.

We specifically disagree with the view that CDF necessarily requires programmatic lending. Such lending will be effective only in countries with the capacity and fiduciary framework to ensure effective resource use. It is also critical that the Bank adhere to its own fiduciary and "safeguard" policies and not delegate these to borrowing governments. Environmental and other safeguard standards, along with an accountable process for monitoring and evaluating compliance, must be maintained at the highest level.

Finally, I would like to add a note of caution about the concept of "country ownership." There is no question that countries have the ultimate responsibility for their economic and development management, and that full country engagement and commitment are vital for aid to have a significant and positive impact. Yet fact that a country "owns" a particular set of priorities does not in itself automatically validate their economic viability.

It is surely right for the development community to operate with a presumption that countries should not be forced to adopt policies they cannot support. But it is also essential that we and the Bank, as stewards of scarce development resources, also own the programs we support and make our own assistance decisions on the basis of a roadmap ensuring real and sustainable development results. Where that is the case, we will be enthusiastic and supportive partners. When it isn't, we should direct our efforts and resources elsewhere.

We look forward to further discussions of appropriate steps to take us closer to realizing the CDF vision.

IBRD Financial Capacity

Management and Governors have a shared responsibility to safeguard the Bank's financial soundness and its risk bearing capacity. This is fundamental to our ability to provide effective support for the Bank's evolving development mandate. We therefore appreciate the Background Note updating Ministers on the IBRD's Financial Capacity and are pleased that the Bank continues to operate on a firm financial basis.

We continue to believe that none of the non-concessional MDB windows should expect new capital increases. We believe that the adoption of more selective, performance-based lending programs will provide a large and flexible contingent financial capacity for the IBRD and its regional counterparts to respond effectively to borrowers affected by future disruptions in private market finance.

We believe MDB financial crisis lending should be limited to exceptional cases: in such cases, MDB support can be critical to the success of recovery programs by helping to minimize long-term economic damage, sustain and restore development momentum, and contribute to intensified economic reform and restructuring. We see the MDBs as particularly well-positioned to provide significant value added in the effort to: (a) avoid unnecessary contractions in fiscal expenditure; (b) restructure banking and other financial institutions; and (c) minimize the adverse impact of the crisis on the poor by, for example, strengthening social safety nets.


The challenge of global poverty can be overcome if countries, supported by the international community, make the sound policy choices available to them. No country will succeed without the right policies in place. And the lesson of history is that to be effective, external assistance needs to be targeted on countries and policies with a genuine commitment and proven capacity to deliver results.

The task of poverty reduction remains formidable but awareness and concern around the world on the need to improve the effectiveness of efforts to address the problem have never been higher. There is also probably more policy agreement on "the right way forward" than ever before, and commitment to invest in the capacity building needed to enable countries to apply these approaches in their own country circumstances. The question is how quickly and how effectively we can all move to translate our knowledge, our concern, and our commitment into action.