Transcript -- Press Conference - HIPC Debt Relief Programs and Poverty Reduction
April 23, 2001
Monday, April 23, 2001
Masood AHMED, Deputy Director, IMF Policy Development and Review Department
John PAGE, Director of Poverty Reduction, The World Bank
Jacob KOLSTER, Program Manager, HIPC Unit, The World Bank
Caroline ANSTEY, World Bank Chief Spokesperson and Moderator
MS. ANSTEY: Good morning, ladies and gentlemen. I think we'll get start so that we don't keep you inside too long on this beautiful day. Welcome to this briefing on HIPC and on PRSP.
I have a distinguished panel on my left and right. To my left is Masood Ahmed, who is the Deputy Director of the IMF's Policy Development and Review Department. To my right is John Page of the Bank, who is Director of Poverty Reduction in the PRM Vice Presidency, and to his right is Jacob Kolster, who is Program Manager for the HIPC Unit.
I think I will call on Masood to speak for five minutes, and then John and Jacob will follow on from that.
MR. AHMED: Thank you very much, Caroline, and thank you all for coming to this press briefing.
What I thought I might usefully do, just to get the process started, is just take five minutes and orient you a little bit on the various papers that are all sitting outside. It's a big wad of papers and I'll give you a little sense of what they're about.
There is a progress report on the HIPC Initiative, and a paper on the PRSP approach. That's two papers. Then there are two more specialized papers, one looking at long-term debt sustainability for the HIPC countries, and one looking at how to support post-conflict countries, particularly in relation to accessing debt relief through the HIPC framework.
Finally, there is a joint note from the President of the World Bank and the Managing Director of the IMF to the Development Committee and the International Monetary and financial Committee (IMFC), former Interim Committee which summarizes these various papers on the low-income country agenda, and also sets out an overview of their vision of how they want to move forward in supporting these countries.
Let me now make four points about these papers. The first one, on the PRSP approach, the basic message that is in the joint note and in the supporting documentation is that the PRSP approach has now begun to take hold widely in a large number of countries. Over three dozen low-income countries are now engaged in developing their own poverty strategies, building on their national consultation processes, building on their own poverty data.
Also, over the last six months it has begun to be more used by other donors, other than the Bank and the Fund, in designing and organizing their own support. Notably the European Union and the UNDP have over the last six months moved to integrate their own operations within the framework of country-led poverty strategies that are set out in the PRSP.
The second point I want to make is about how the Bank and the Fund have, over the last six months, moved to alter or modify the way in which we provide our support to countries within the PRSP framework, in particular within the Fund. As you know, as part of a broader effort, Mr. Köhler has been spearheading to focus the Fund's activities. There has been in the Fund Board a set of discussions about streamlining and focusing Fund conditionality and focusing on Fund programs. This is very much, in low-income countries, within the framework of PRSPs.
In the Bank, there has been a lot of progress in developing a new instrument of Poverty Reduction Support Credit, which will then be a way of providing a complementary instrument to the PRGF and in the Fund so that the two institutions would be able to support countries in their respective areas of responsibility. I'm sure John will say a bit more about that.
The third point on HIPC. The most visible achievement in some sense over the last six months has obviously been the number of countries, 22, which reached their decision points by the end of last year. But I think an equally important achievement, looking ahead, is going to be the progress that we have made over the last six months in trying to lay the foundations in the HIPC countries to ensure that the debt relief and the other resources that are being provided are used effectively to address poverty reduction.
As you recall, earlier this year there was a discussion in the two Boards of tracking HIPC expenditures, strengthening public expenditure management in the low-income countries, and now, more recently, amongst the set of papers that you have outside, there is a paper on looking at how to build on the HIPC Initiative to assure long-term debt sustainability for the poorest countries, including through the provision of concessional financing going forward.
A final point on post conflict. This is obviously related to the HIPC Initiative in the sense that the majority of HIPC-eligible countries that have not yet come to their decision point are countries that have either recently merged from conflict, or are already still embroiled in it. Therefore, the focus of the paper is very much on what can be done to support these countries in building the track record of performance that will enable them to access and use debt relief effectively.
The issue of conflict is obviously a much bigger issue than debt relief, and the papers recognize that this is only one element of that agenda. But it is also very clear that for the Bank and the Fund to support these countries, including as part of the HIPC Initiative, we will need to step up the technical assistance that we can provide to these countries.
There is a specific proposal from the Fund, which the Fund Board endorsed last week, which is to set up a facility to provide Fund emergency assistance to post-conflict countries on a concessional basis, and we are looking for financial support from bilaterals to make that possible.
The last thing I want to say is that, as all of these papers, and particularly the joint note emphasize, the range of issues that we are looking at--whether it is debt relief or the PRSP framework--is very much a part of the more comprehensive approach to support low-income countries, which is a two-pillared sort of approach, building on strengthening efforts in the countries themselves to address the obstacles to growth and poverty reduction that they can deal with, complemented by more focused, deeper, stronger, more timely support from the international community through the provision of concessional assistance and very much also stress efforts to open markets to the exports from this set of countries.
That just gives you a little bit of an overview of the different papers. I believe my colleagues will, no doubt, give much more precision to some of the content of individual documents.
MS. ANSTEY: Thank you, Masood.
I will hand over to John, but before I do so, let me just remind everyone that all the Development Committee papers, some of which are joint papers with the Fund/ World Bank, are all public now. They are all released on our web site, so if you can't find them here, you can find all the papers on www.worldbank.org and www.imf.org. Thank you.
MR. PAGE: Let me just take a few minutes and tell you a bit about where we stand with respect to the poverty reduction strategy papers. At least in terms of the Bank's time-tables, this is a very new program. We really began in the fall of 1999, at the Annual Meeting, so it's about 18 months in progress. As Masood has said, it is picking up pace and we think gaining a good deal of momentum, not only in the Bank and Fund, but also in the international community at large.
I think the origins of this effort are interesting and important, because they really draw together three strands of thinking that were occurring in the second half of the 1990s. The first is the comprehensive development framework, which as you know has become the business model, really, for the Bank, emphasizing country ownership, a broad-based understanding of development challenges, the need to have a long-term vision of where a country wishes to go in terms of poverty reduction and economic development, and the critical need for us to work in partnership together to support that vision.
At the same time that we were coming to grips on how to implement the comprehensive development framework, the World Development Report for 2000-2001 came out, looking at poverty reduction both in terms of the challenges that remain for the global community to reduce the absolute number of poor and poverty from the 1.2 billion number that you heard in the past, and an understanding that the dimensions of poverty reduction transcended our traditional economic view to bringing together the need to create economic opportunities to empower the poor, and to protect them from vulnerability, from shocks.
To that, one could also add the aid effectiveness literature in the second half of the 1990s, where to my mind the single most important lesson is that processes of economic change that are not owned by the countries that try to implement them simply are not sustained and do not succeed.
Put that all together and what you have is a framework which we call the Poverty Reduction Strategy Process, embodied in the Poverty Reduction Strategy Paper. It is intended to be country-owned, to evolve through a participatory process involving members of civil society, organized groups, members of the political opposition, if you will, and national consensus to the extent that it's possible on the critical challenges for poverty reduction. It should be long term. It should involve more than a simple macroeconomic framework, or a simple structural and social framework. It should bring these two components together.
It quite clearly needs some monitorable outcomes. Again, this represents the aid effectiveness literature. It's not just what we put into the process but, really, what comes out of the process that's important. How are we going to link poverty reduction efforts to such things as the international development goals, reducing poverty head counts, improving maternal mortality, increasing the number of children who are in schools.
Finally, again critically, it can't work by the Bank and the Fund's means alone. It has to be done in partnership both with countries and with their development partners.
Add all that up and you've got a very new way of doing business for the Bank and the Fund, so we really do have an experiment going on over the last 18 months. We recognize that this would not be an easy process to do, nor would it be one that could be done quickly. So we have defined something which we have called an interim poverty reduction strategy paper. It is used as a device to allow countries to enter into the process of developing their own poverty reduction strategy, while at the same time maintaining access to HIPC debt relief and to concessional assistance from the Bank and the Fund.
Over time, we intend to move toward a situation in which all of those countries who are availing themselves of concessional relief, either through IDA at the Bank or through the PRGF, the Poverty Reduction and Growth Facility, at the Fund, will have undertaken poverty reduction strategy exercises and done what we call full poverty reduction strategy papers.
To date, we have completed 32 interim poverty reduction strategy papers. Those have been discussed and reviewed by the Boards of the Bank and the Fund, and found broadly to be a suitable basis for continued support.
We have four full poverty reduction strategy papers, all four in Africa, of varying degrees of participation and quality, but all four again which were judged by the Boards of the Bank and the Fund to be satisfactory in terms of providing a basis for continued HIPC debt relief, to reach a HIPC completion point for the PRGF or for IDA.
To give you a few insights that we think we have learned from the process to date--and again, with a caution that we're very new in this process and continuously learning--the first is that perhaps the most important element of this is really trying to link public actions to outcomes. That is truly an important challenge, both for the countries that are trying to develop these papers, and for the Bank and the Fund in trying to assist them in doing so.
Broadly speaking, I can only conceive of two types of public actions that fit into this framework. The first is policy changes, which we have discussed a great deal and which really form the basis of many of the adjustment programs of the 1980s and 1990s. The second area is public expenditures. In both areas, we in the Bank and the Fund are trying to help our country partners to do a better job of understanding the linkage between these two sets of public actions and poverty outcomes.
In the domain of policy choices, by trying to look in a more systematic and thorough way at the social impact of policy choices--something that international civil society has been after us to do for some time, really trying to assess what the impact on various groups, the poor and other vulnerable groups are, and of the kinds of macro-economic and structural policy changes that have characterized our policy advice to countries over the last two decades.
In the areas of public expenditure, we have been asked by the civil societies of many of these countries, and by our owners, our shareholders, to help countries do a better job of tracking public expenditures and understanding the actual impact on the ground of budgetary changes that take place at the level of the national budget. These are both areas in which we are actively engaged in both developing tools and trying to help countries learn how to do a better job to help themselves.
The second area which is really building, and I think which is very gratifying, not only to us in the Bank and Fund, but also extremely important to our country partners, is in the area of partnerships with other development agencies. Here I would like to highlight three points.
We have begun to work much more collaboratively with the UN system, particularly with UNDP, but also with other agencies of the UN system, to try to bring the strategy processes that the UN system and we in the Bretton Woods institutions have together and deploy them in support of these poverty reduction strategy exercises.
We are also trying to fit our country strategies--the UN development assistance framework, the Bank's CAS, and the Fund's PRGF--together to provide a concrete network of support to the public actions that are identified in the poverty reduction strategies, and do so in a more coordinated fashion.
Our colleagues in the European Union have accepted the poverty reduction strategy paper as the basis on which they will design their assistance strategy for the ACP countries--Africa, Caribbean and Pacific Island countries--which are their low-income country equivalent of our IDA or PRGF client base. Here again, we need to work with them, but we are evolving a way of trying to coordinate both our analytical work and our assistance so that we don't place undue demands on countries for multiple reporting to another important development partner.
I couldn't pass by without mentioning our active engagement with the NGO community. Many of the organized international advocacy NGOs are engaged in what I would call close surveillance of the PRSP program. We are very actively engaged in a dialogue with them. We don't always agree, either on the process of the program or the outcomes, but I do think that, in contrast with Bank and Fund programs in the past, we are much more open to civil society and much more engaged in active and fruitful dialogue with them than we've been in the past. Here I would particularly highlight our interactions with them on this issue, which is difficult, the social impact of proposed policy changes.
Finally, let me simply end by saying that all of us recognize that this is not something that we do once and walk away from. We believe that, with continued building of this process, this can become a permanent feature of the way in which the Bank and the Fund engage, and will be a permanent process of learning.
We are obviously dealing with, as Masood said three dozen. I would double that number. We're dealing with about 60 to 70 countries over the next five years who will be actively engaged in this process. We will perhaps see as many as 20 poverty reduction strategy papers in the coming year.
These will be at very different levels in terms of participation, in terms of country strategy, in terms of objectives. We have to learn from all of these and assist all of these countries to get better. So, in contrast with many of the bureaucratic programs of the past, where we've declared victory and walked away, here I think we're in for the long haul and we will learn as much from this process as the countries that we're trying to support. Ultimately, I think it will greatly improve our effectiveness in delivering aid and our engagement in processes of economic change.
MR. KOLSTER: Yes. Let me just add a few words, specifically on HIPC, and just to follow up on Masood and John, the first point and emphasize what Masood suggested. HIPC is delivering. I think some of you may recall that two or three years ago, Oxfam sort of published a list of three or four points that in their view would be required to be met in order for the debt relief initiative to really succeed.
As it actually turns out today, all those points have been met as far as the 22 countries have been delivered for decision point today. In terms of the fiscal criteria that Oxfam set out, Oxfam suggested that the ratio should be brought down to around 10 to 15 percent, actually on average for the next two or three years for the 22 countries we have, we are below 12 percent. As far as debt service to export ratios are concerned, again, the Oxfam criteria for success was around 10 to 15 percent. We are below that. We are below 10 percent. And, finally, in terms of the stock NPV debt to exports, we are on average significantly below the 150 percent criteria that Oxfam set out two or three years ago.
Now, Oxfam has moved the goalpost since. We're still trying to catch up with the new goalpost, but we have met the old one which was set out two years ago.
So I think it's fair to say that the initiative is delivering. I don't want to repeat the numbers. You all have them there printed.
The second point I want to make is, if you want to be simplistic about it and narrow about it, you could say HIPC is actually just a financial vehicle. Where HIPC really touches the ground is where John has given you a five-minute introduction; that's the PRSP, the expenditure programs, et cetera. And where it stays on the ground over the long term is, if you want, to put it simplistically, in the question of whether these countries that we are dealing with are actually staying sustainable from a debt point of view.
And I think John went out of his way to explain that the process of formulating and implementing PRSPs is not an easy process. It's a process which I would say involves significantly the other side of the equation, namely, the governments in question.
In terms of long-term sustainability, you all have the little paper we produced in front of you, and I think I want to note that what the HIPC Initiative does is basically bring the countries in question under treatment to a situation where they would have a good chance to carry on and remain sustainable over time. However, there are very critical conditions involved in order for that to happen. One, as we've lined out in the paper, is the policies that the country is implementing. If the same policies that have been on average implemented over the past 20 years continue in the future, there is no guarantee for debt sustainability in the future. That should be clear to all of us.
Secondly, if the countries in question do not gain access, even more so than they have had in the past, to concessional resources from the donor community, well, it will be very difficult for them to implement the programs that they have discussed and agree upon with the rest of the world, the rest of the donor community.
And, finally, if these countries, as Masood laid out, if these countries do not gain access to the international market, well, it's going to be very difficult to produce the kind of export growth rates that we would all like to see them have.
This is just to suggest to you that, one, HIPC is delivering; however, looking ahead, there are a number of very important conditions that need to be fulfilled, which are out of our hands, if you wish, in order for these countries to remain sustainable over time.
MS. ANSTEY: Thank you, Jacob.
Let me throw it open to the floor. Before I do so, let me just tell you that we will have a transcript up on the Web I guess within a couple of hours.
We have some rolling mikes. If you could please identify yourself and your media outlet, it would be very helpful for the gentleman preparing the transcript. Thank you. Yes?
QUESTION: Damian Milverton with Dow Jones. Two questions, the first for Masood. In terms of progress on the front of opening up industrialized country markets for the poorer countries to actually take advantage of perhaps a rebuilt economy where they can start exporting, do you see much progress on that as yet? Is there even the kernel of some sort of development there? And what might we expect out of the G-7 at the end of this week on that sort of line? Will it be similar rhetoric or will it be something perhaps a little more concrete, would you think?
Secondly, for Jacob, in terms of groups like Oxfam setting goalposts and then moving them, do you agree that that in a way is providing an initiative for Bank and Fund movement that perhaps had also been other--perhaps not lacking in the past, but hadn't been institutionalized within the process and, therefore, is proving to be quite beneficial, if somewhat frustrating?
MR. AHMED: Let me take the question on market access. I think that there is now some reason to think that people are focusing on the issue of market access in a more urgent way. As you know, there have been a couple of initiatives. The EU all-but-arms initiative, even with the phased-in opening on three projects, is a very important initiative. Some other countries, like New Zealand, small but important in terms of signaling, have also moved forward.
There is the LDC 3 conference that's coming up in May where there's going to be a lot of focus on market access. As to what's going to come out of the G-7, I have no information and wouldn't attempt to predict. But what I do see in looking around and talking to people is the sense of a recognition that providing market access to the poorest countries and doing so on a more urgent basis, following the example of the kinds of things that have been happening, is an important part of the agenda for this year.
MR. KOLSTER: Yes. I think the answer is yes. I think Oxfam has done a wonderful job in terms of giving wake-up calls to the World Bank and the IMF and many other institutions in this business, if you wish. And I'm entirely appreciative of that effort.
My point here, though, is I think it's important that the focus move at this point, and I can tell you an anecdote. I was in Benin ten days ago, and there was a conference on debt and AIDS. And most of the participants there were local, from the Francophone African countries. And their main focus was financial resources, and they had all stories to tell that they have come up to the Ministers of Finance prepared to go to battle for an increase in financial resources for programs to fight AIDS. And, to their surprise, their Ministers of Finance were turning around, saying, look, we're all prepared; in fact, we actually do have the resources. Now you tell us how to use those resources.
And the guys from the Ministry of Health turned around and said, Gee, we hadn't prepared ourselves for that question.
The issue here is the resources--you have around $1 billion, which has been liberated for the 22 countries in question over the next three years on average, annual average. And if you wish, the Bank and the Fund, I'm sure, would be more than prepared to accept that 40 percent of that would go into AIDS, for example. But the issue is that those programs have to be developed and prepared, and that's where the focus ought to be now. The financial resources, I would venture, are there and they are available. It's the programs which make proper use of those resources that currently are lacking. That's the point--that's where I would like, if I could advise Oxfam, that's where I would like Oxfam to focus.
MS. ANSTEY: Thank you. Damian, just to make one small point, we do have--the Bank has a very good paper on leveraging trade for the poorest countries, which is presented to the Development Committee, which also makes the point, as well as market access, that OECD countries now spending on average--I think it's something like in total $300 billion a year on agricultural subsidies, almost equivalent to the GDP of Sub-Saharan Africa. So those issues about market access are on the agenda for the Development Committee next week.
QUESTION: I'm Anna Willard from Reuters. There have been a couple of reports recently suggesting that the Bank and the Fund could afford 100 percent debt relief for some of these countries.
Is there any appetite at all for that within the Bank and the Fund?
MR. AHMED: There have been a couple of reports to that effect, and it's also something that we've been obviously looking at, even in the context of trying to think about issues for poor countries. And we've come to the conclusion that there is not a sense of a way to proceed, and we've come to that conclusion primarily for three reasons.
The first reason is that after the HIPC Initiative, the excess burden of unsustainable debt which the HIPC countries face is taken away. So just, for example, Jacob was giving you a set of numbers about what happens in the HIPC countries. But if you look at the HIPC countries after the HIPC Initiative, their debt burdens in terms of stocks are brought down to the average of other poor countries, and their debt service numbers are actually significantly better than other poor countries.
So going further on canceling the debt of the HIPC countries raises problems of equity vis-a-vis other poor countries who have the same levels of debt as the HIPC countries have after the HIPC Initiative but who wouldn't be covered. So the first issue is simply one of equity. It's not fair to the poorest countries who are not part of HIPC.
The second reason why we've come to the conclusion that it's not a good idea is that if you try and expand the scope to cover all the poorest countries, should then be the logical next step say, well, why don't you do it for all poor countries, then the magnitudes become such that it's not only completely unaffordable for the Bank and the Fund, but it would actually mean--for example, speaking for the Fund, in the case of the Fund, we would have to then close down PRGF as a facility because it's a revolving fund, we'd have to cancel that money, and pull out of support for the poorest countries. The poorest countries, all the ones that we've talked to, don't think that's the outcome that they want. So countries themselves don't see that as a good avenue.
And the final reason is that when you actually look at the way in which the resources of the international institutions are organized and used in terms of--as I mentioned in the case of the IMF, it's like the revolving character of the resources. In the case of the World Bank, there is a set of reserves where they are very targeted and used for enabling the Bank to function in terms of providing the support to middle-income and low-income countries that it does. It's not possible to take away those large amounts of money from these institutions and leave them functioning as they currently are.
So, for those reasons, we have actually come to the conclusion that it's not a sensible idea to move forward with cancellation of debt for the HIPC countries.
MS. ANSTEY: I would just add to that, and then hand over to Jacob if he wants to say anything more, by giving you an example of IDA. IDA, as you know, finances nearly half of its commitments, about $6.5 billion annually, from repayments and investment income. IDA has no provisions for losses arising on its credits to members, which means that any write-off is a dollar-for-dollar write-off.
So if you went to 100 percent debt relief, in effect, your credits would be cut in half. That means either you would have to reduce your lending by half or you would have to have your shareholders double their contributions to IDA, which in this present political climate seems highly unlikely.
MR. KOLSTER: Yes, I just want to put a bit of drama to it, suggesting that if you look--the IMF aside, but if you look at the World Bank and the other development banks, they're basically credit cooperatives. The Bank is a global credit cooperative. And the idea, the notion that you can actually create net additional financial flows to the developing countries by decapitalizing these credit cooperatives is--I mean, it's simply a notion that is created out of a lack of understanding of how those credit cooperatives function.
If the agenda is to liquidate the multilateral development bank system, well, then, Wolfensohn has said it many times: be my guest. I mean, let's get that on the table. And that's where Masood's point, actually all our customers, all the developing countries, have been very forceful in saying that is indeed not in our interest.
But that is the only way you can squeeze additional resources out of these institutions, basically by chipping away on their financial integrity, and ultimately, if you go as far as Masood suggests, which is the logical conclusion, unless you want to be very arbitrary and unfair about it, if you extend 100 percent debt relief to the 60-plus countries that are considered low-income today, you're basically going to liquidate the multilateral development banks.
As far as the Bank is concerned, the World Bank, we're talking about $30 billion, and that is $3 or $4 billion more than our equity capital at this point. So it will be wiped out. And it will mean 80 percent of IDA resources, which--again, there could be a political decision to do that, but that would mean 80 percent of IDA would be gone. And if you want to have anything in IDA, well, you have to go back to the only place where additional resources can be created, I'm sorry to say, but that is through tax revenues from the rich world, through increased aid budgets in the rich world, through increased contributions from the rich countries to the multilateral development system or through bilateral aid. It is the only way you can create additional resources.
QUESTION: Emily Schwartz, Bloomberg News. I wanted to follow up on the previous two questions.
First, can Mr. Ahmed address the IMF position, whether it would consider seeking funds to expand PRGF resources to the extent to which it would be possible to write off all of the IMF's debt. It sounds like, from what Ms. Anstey said, that if IDA were increased, it might be viable, although she doesn't think that IDA could be increased in the political climate.
And then on the OXFAM front, OXFAM you said moved the goal post. I think what they're saying is that they're concerned that the World Bank is looking at an average on some of these indicators rather than what the debt loads have turned into in each individual country, and they are asking that every country be at that goal. They are also criticizing your estimate for future growth for exports and economic growth and export growth.
How do you respond to those concerns?
MR. AHMED: Let me focus on the first question, but I'd like to say a word on the second, perhaps after Jacob has addressed it.
On the question of whether we want to expand resources available in the PRGF, we don't have any current proposals to seek an expansion in the PRGF resources. But even if we were, the other issues that I raised about how those resources could be most effectively used, whether they should be used to cancel or forgive some part of existing debt of some subset of poor countries or whether they should be used to provide new flows to old poor countries on the basis of how effectively they can use them stays very much on the table.
So I think the issue, primarily the question that I want to come back to, is the first point I raised which is the issue of equity, and the second point I raised, which is how effectively can you use limited resources? What's the best way? Is it through debt relief or is it through providing new flows. I think those points will stay on the table.
MR. KOLSTER: Your point, on average, and individual countries were not, but we're talking about very few countries who are actually significantly outside, on the wrong side of that average. In terms of debt service to export, we are basically talking about Mauritania and Niger, and there are some technical reasons for that.
And on the fiscal indicators, you do have a few countries which are outside, but it's relatively limited. So I'll say in the range that I gave you, we are, by and large, 9 out of 10 countries are within the range that OXFAM provided us two/three years ago.
In terms of the optimistic growth forecast, I have two points. One is, as you know, the debt relief that is provided under the HIPC is no longer based on projections. Hence, whether they are optimistic or not has no influence on the actual debt relief assistance provided under the HIPC.
Now, to the fundamental question which we are all grappling with, is whether the estimates of growth, in terms of exports, GDP, et cetera, is optimistic. Two points: One is it is actually, on average, certainly in terms of exports, it is not significantly above the average that we've seen over the past five to eight years.
Two, yes, they are policy scenarios. This is what we call it in technical lingo. They are scenarios based on the assumption that the policy reforms which are agreed upon with the government in these countries are implemented. Hence, they are optimistic in the sense that, on average, in the past, the policies that were agreed upon were not implemented. Hence, the growth rates which were projected in the past did not transpire.
So, when you say it's optimistic, yes, it is based on the assumption that the policies are implemented and that they take effect. You, I'm sure, will be able to come in 5 to 10 years and tell us, well, you see, it didn't pan out. Well, that's almost in the nature of things, if you want, that a number of these programs are, I would say, without being I think any of my colleagues would accuse me of being terribly cynical, they are bound to go off track. That's at least what history tells us.
But in a going-in position, the assumption is that they will be implemented. Hence, the policy, if you want, scenarios and the growth rates that you see.
MR. AHMED: I did, actually, want to comment on that. I think averages, as Jacob was saying, you know, averages are interesting to summarize data, but at the end of the day, each country wants to look at its own numbers. So I think it's perfectly legitimate to ask what does it look like for each country, and I'd encourage you to look at, in the paper on long-term debt sustainability, look at Table 5, which is on Page 24.
And what it tries to show is it gives you the individual country-by-country assumptions. What are we projecting in terms of growth rates? What are we saying in terms of the availability of new financing and what are the outcomes looking ahead? And you do see some variation.
But there are a couple of things that struck me when I was looking at those numbers before the Board discussion last week, where, as you might imagine, a lot of our own Executive Directors are facing the same questions. One thing that struck me very much was that, even though the averages show an improvement, future, looking ahead for GDP, for example, for the 22 countries, is about 5.5 percent average growth rate. Look at the past, it's about 3 percent. So it was a big increase.
But it's actually driven largely by four or five countries which had very difficult times in the 1990s. I'll give you the names of those five countries, which you can look at in the table. They are Cameroon, Guinea-Bissau, Rwanda, Sao Tome and Zambia. All have zero or negative growth rates in the 1990s for a variety of reasons, which is set out in the paper.
Looking forward, we're actually expecting them to show more or less the same kind of performance as the other countries. But because they go from this very poor performance to much better performance, to the same performances for the others, the averages get shifted. And for the other countries, as Jacob was saying, in fact, the numbers, looking ahead, are not hugely different from the past, and there's good reason to believe why there should be some improvement in performance.
So I think it is important to look at country-specific numbers, and it is important to see how some countries can actually drive average trends to try and get a better sense of it.
The other point I wanted to make in that context is to refer you to another figure. It's figure 2 on Page 19, which looks at what is the debt-to-export ratio of these countries going to look like 10 years from now and how much of that is due to the debts that they already have compared to the debt that they plan to take on starting now. So it's new debt.
And, in fact, what that shows is that in every case, a new debt has a big impact on the outcomes 10 years from now. And what that means to say is not that this new debt is not worth taking on. Obviously, they're taking it on because it is part of a strategy to borrow resources, use it productively and finance the growth. So it's part of an often sensible framework, but it is the framework over which decisions have yet to be made. It's not a predetermined outcome that 10 years from now some of these countries would have the debt indicators that may raise issues of vulnerability.
If it turns out that things are not going as well as one envisages, then their borrowing strategy would also get affected. So I would encourage you to look at that little picture, which tries to show what happens to the debt. In every case, as I say, old debt, if you look at the old debt, the ratio of that to exports falls well below 150 very quickly now and stays there.
QUESTION: Jean Doublet from AFP.
If I understand you correctly, what you're telling us that the IMF nor the World Bank will be ready to make a step further for the four or five countries which are now paying more to service the debt than it can spend on health or education.
MR. AHMED: Let me give my version at the outset.
The World Bank and the IMF are ready to help all of these countries find resources to finance their development expenditures, including health, including education, including social expenditures. Financing those expenditures can come either from providing debt relief or from providing new financing, in terms of concessional support from these agencies or grants from bilateral agencies.
If you, again, look at that same table, what it also shows is the projected current account deficits for these countries. And what you'll see is that in some of these countries, just to give you one example that I mentioned, Guinea-Bissau, for the next five years, they are projected to run 20 percent of GDP as a current account deficit financed from donor support, grants and new money. That's much, much larger than their health and education expenditure. The same country, Guinea-Bissau, has 80 percent of its debt actually written down under the HIPC initiative.
So I'd say that the general answer is we can provide support to countries for financing development expenditures not simply through one instrument, debt relief, but through a combination of debt relief and new financing. That, in these countries, when you look at the numbers, you will see that there is new financing being provided to enable those expenditures to be made, and in virtually all of these cases, you will see that there is a quite large current-account deficit being financed by development financing that is helping them to make those expenditures.
MR. PAGE: I just wanted to come back to an issue that we raised in the introductory remarks, which is that where effective programs in education, health, rural development exist, where they've been defined by national governments and where they have the buy-in of their populations, we have generally found that the international community is willing to step forward and finance those programs.
So, to re-emphasize a point that Masood and Jacob have made and to try to make the connection between the debt relief initiative and the poverty reduction strategy initiative, the challenge that's before us now, is perhaps more to deal with helping countries to develop effective programs and use their money well than it is to focus on additional financial engineering mechanisms to increase resources. It is only through showing real progress, real improvements in the lives of poor people, more children in school, fewer maternal deaths, a better life, that we will ever have the opportunity of mobilizing the kind of political support that we need in order to increase the totality of the aid effort, however you slice the financial engineering.
So I think it's very important to keep in mind that much of what we in the Bank and the Fund are trying to do is not as much to shift the focus, but to deepen the focus on the quality of our programs and the quality of our engagement in order to actually provide a sounder basis to the populations of the rich countries, to help increase the total amount of resources that are available for good development programs.
QUESTION: Mr. Ahmed, you mentioned at the beginning that you had made significant progress this past year on having some of these countries use their savings well. Would you give us some examples and which of these 22 countries is making the progress thus far and are any of them on track to be free of dependents on aid?
MR. AHMED: What I said at the time, in response to your question, was that over the past six months I think we made a lot of progress in trying to put into place in each of these countries now a strengthened mechanism for tracking not only the resources that are flowing in from HIPC, but also the in-house resources that flow in from donor support. And you should recognize also that much of this money is beginning to flow now, in the last two or three months. So it's a bit early to be making projections or reaching judgments on which country is using their resources most effectively to support debt relief.
What you will see, though, is in the documents on HIPC progress reports, a lot of discussion of examples across countries as to how expenditures in health and education, rural roads are going up. And in the aggregate, these expenditures in the social sectors for these 22 countries have gone up by about $1.7 billion, expected to grow by $1.7 billion in the budget amount for this year, compared with about $1 billion of initial debt relief, which makes the further point that, in fact, they are not simply using the debt relief to increase social expenditures, but they are also redirecting the component of other aid flows towards increasing social expenditure, and that's the leveraging point that Jacob made earlier on about how HIPC can contribute.
Now, in terms of what is the likelihood of these countries reaching, growing out of aid, if you like, I think for all of these poorest, heavily indebted countries, growing out of aid is clearly an objective that is some years away.
What the exercise that the PRSP approach tries to do is to leave a basis for a strengthened, sustained pro-poor performance and faster growth, and lay the beginnings of providing more private sector activity. That should then enable them to progressively begin to access markets, but we need to be clear that accessing private capital flows, debt-creating private capital flows, is something that is basically some years away for many of these countries.
QUESTION: This is Peter Sisler from DPA.
I was wondering, John, you had mentioned that there are 60 to 70 countries you could be working with. I'm wondering how are your resources going forward? At what point do you think you'd have to go back to the donors and say, "We're going to need another infusion?" And would the HIPC program continue, you know, as the way you see it now or do you see some other sort of long-term relief program going forward?
And then I had a second question that I might as well just get in here now. Do you think there should be an enforcement component? I mean, a lot of this money is just gone through graft or corruption. You know, you looked at Zaire or someplace where, you know, the Mobutu family has just gone off with billions of dollars. Is there any enforcement action that could be combined with debt relief to recover some of this and try to get it from not going, you know, in not being the same thing happening in the future?
MR. PAGE: Let me try to take your second question first.
I don't know that, apart from national laws, any recovery mechanism could be developed by the international community. But going forward, I think we have seen some extremely positive steps over the last year, the first one, which I'd like to emphasize, perhaps the most important one, is that by opening up this poverty reduction strategy process to the participation, particularly of civil societies in many of these countries, the issue of corruption has suddenly become much more publicly discussed and on the table. And the calls of local communities, national and regional, to improve accountability mechanisms, not something that's coming from the top down from the international donor community, it's coming from the bottom up. It's coming from the grassroots.
So many governments which, in the past, had wanted to perhaps avoid an active discussion, either with their own population or with a donor community on these issues, are now finding themselves in a situation which that's really a priority that's identified as part of the poverty reduction strategy.
How we in the Bank and the Fund are trying to support that is by actually developing mechanisms that will allow both the tracking of critical expenditures in such areas as education and health in the short term to be developed in a framework that's consistent with a larger public expenditure framework that really tries to do two things: help improve public choices, which are very important. How do we choose between an additional road, an additional investment in schools, an additional investment in health? That, for many of these countries, is a difficult task.
And how do we make sure that once the choice is made, the money moves through and is effectively used? And that, of course, is oftentimes part of the efforts of decentralization, of local accountability, local voice mechanisms, but also a lot of monitoring and evaluation. One of the things that you'll see not just in the Bank and the Fund, but in bilateral agencies in the U.N. system over the last five years is a much higher degree of understanding that we need really to involve local communities and local people in monitoring and evaluating the effectiveness of aid programs. That's all part of this process.
And I think you will see a rising level of accountability and also both in the bilateral and multilateral community, therefore a reciprocal call for our borrowers and our clients to be more accountable to us, as well as to their own population. So I'm optimistic that we're actually seeing a turning point here in terms of the work on both better-quality public expenditure choices and better fiduciary responsibility in the application of those.
And if you look at the progress reports, you'll see that, particularly in the HIPC progress report, we discuss the relationship between those fiduciary accountabilities, Bank and Fund programs in HIPC, it's become a very important aspect of our work with countries.
Do I see us moving forward in some new framework? I'm not sure. Masood and I are both leaving this afternoon to go to the high-level meeting of the DAC in Paris. Many of these same issues are on the agenda for the bilateral aid ministers over the next few days. Then we'll have the spring meetings, and then we'll move to the G-7.
What I do think you will see is an increasing understanding on the part of the aid community, both the bilateral and the multilateral actors, that we need to work better together. In many cases, our own behaviors have imposed demands on countries that are already stretched very thinly, in terms of their institutional capability and ability to focus on delivering results to their own populations.
We have been very heartened by the response of countries to the PRSP initiative and the fact that they've taken it up. They've adopted it, and they've taken it very seriously. One of the reciprocal demands that they're putting on the international community is that we, as donors, should take seriously their call for improved aid coordination, better harmonization of practices, simply working better together. I think that's the first step.
As we begin to harmonize our practices, work better together, coordinate donor assistance better, we'll start to see whether or not those lessons can then allow us to come with some new framework that might be helpful. But the first step is really simply to make our existing programs work better and work in a complementary fashion with each other.
QUESTION: Alan Beattie from the Financial Times. I've also got a couple of questions based on things in the documents.
One is the post-conflict document, where you point out that some of the countries which have large protracted arrears will actually require additional financing to clear those. I just wonder where you expect that to come from and if there are any other sort of little nasties in the post-conflict countries which are going to leap up and surprise us?
The second, I'm just wondering how substantive the commitment is to streamlining conditionality. I note that you've got a handy table here where you point out that you've cut the no core structural conditionality and PRGF. You have, however, actually raised the average core conditionality in PRGF. And presumably once the PRSP program gets really underway, then the potential is there for the World Bank to come along with a whole bunch of new conditions to add to those already imposed by the IMF.
MR. AHMED: Let me say a word about the first question you raised, which is in the financing framework for HIPC. So far, in the costing estimates, as you know, from the very beginning we have not included costs for three countries: Sudan, Somalia and Liberia, and these are all countries that have arrears.
Raising the financing for these arrears cases, not only for the HIPC framework, but also to enable them to be supported, in our case with a PRGF instrument, is an item that has been on the agenda, remains on the international financing agenda, particularly financing for HIPC. We expect that financing for these countries will become an urgent issue trying to mobilize those resources, as we get closer to developing programs with them that show that they're on a relatively quick track to come forward. And so I think, just to confirm, those are countries for which there is not adequate financing at the moment and which will need to be mobilized closer to the time.
On the question of conditionality, let me just speak for the Fund and say the following. There is a clear direction from our Board discussion on streamlining of conditionality and focusing the Fund's efforts more broadly; that going forward in our programs, we need to ensure that what is critical for the success of those programs is, indeed, covered by adequate monitoring arrangements, and conditionality for those items which are relevant, but not critical to the objectives of the program, we need to be much more parsimonious in the way in which we assign conditionality to them.
The purpose of this exercise is to give countries the maximum possible scope to develop their own approaches to dealing with the objectives of the program, but still ensure that those objectives and key policies for them are being implemented.
Now it's not a question of numbers, conditions, although when you try and set out a table that explains this, you are invariably drawn to doing this in terms of numbers. What we do anticipate is that in the areas of structural and social reform, which are outside the core areas of the IMF, we will not normally have conditions in PRGF programs, rather we would expect that where these conditions are important, they would be included under the programs of IDA, and John will speak in a minute to what those programs might be, including the PRSP.
But the focus of this exercise is on showing that, as far as the Fund is concerned, we streamline, focus our conditionality and program content on closer to the core areas of the Fund and much more on prioritizing across measures so that only those that are critical for the objectives of the country are the ones that we associate conditionality with.
MR. PAGE: Let me begin by just reminding you, in contrast with the Fund, the Bank is a multi-product firm. We have not only adjustment lending, including this new instrument, the PRSP, but we also have our traditional project lending and technical assistance and other engagements, including analytical and advisory work.
What we really committed ourselves to do in the low-income countries is to base the totality of our country assistance strategy on the national poverty reduction strategy. The PRSP will be an important new instrument in that country assistance strategy, and we believe that it will be complementary to the Fund's efforts to focus and streamline their conditionality, but we do not see, and particularly in light of our own reviews of adjustment lending and aid effectiveness, the PRSP as a Christmas tree. It is not going to be a vehicle for multiple conditionalities. And, in particular, it will not carry conditionalities that cannot be associated with outcomes that are identified in the poverty reduction strategy.
So I think you will see on both sides of 19th Street an effort to do things:
First of all, link much more closely our key conditionality or, if you wish, I'd rather think of it as our key support, to the national poverty reduction strategy in an identifiable way that monitors outcomes and rewards performance, rather than promises; and, secondly, an attempt to focus on a fewer number of critical public actions, where we, together with the government, can see significant progress being made.
So it is again an area where it will take us some time, both because it's a new instrument and we want to do it right. We're not simply going to relabel existing lending instruments as poverty reduction support credits. The first one, which is for Uganda, will be coming to our Board of Directors in the coming month. At that time, I would invite you to have a look at that particular operation because you will find that it is very closely linked, one, to the national poverty reduction strategy; two, to a limited number of outcome-based measures; and, three, set within a multi-year framework that really will allow us to monitor progress. And so it's going to be quite a different animal from past Bank structural adjustment-type operations.The combination of our country assistance strategy, the Fund's PRGF, will provide a package of support by which we hope to both have a better differentiation between the roles of the two institutions, but also a clearer focus. And the key to this really is the link between the poverty reduction strategy and country assistance strategy.
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