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
- 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
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
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
- 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
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
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
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
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