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29 April 2001

On behalf of the World Bank constituency comprising Australia, Cambodia, Kiribati, Korea (Republic of), Marshall Islands (Republic of), Micronesia (Federated States of), Mongolia, New Zealand, Palau (Republic of), Papua New Guinea, Samoa, Solomon Islands and Vanuatu and the IMF constituency comprising Australia, Kiribati, Korea (Republic of), Marshall Islands (Republic of), Micronesia (Federated States of), Mongolia, New Zealand, Palau (Republic of), Papua New Guinea, the Philippines, Samoa, the Seychelles, Solomon Islands and Vanuatu.

Fighting Poverty and Strengthening Growth in Low-Income Countries

Achieving the goal of reducing poverty will require continuing commitment by richer countries through concessional financing, debt reduction and extended market access. The most important determinant of success, however, will be the efforts developing countries themselves make, in conjunction with the multilateral institutions and the support of bilateral donors, to strengthen their institutions and maintain sound economic and social policies.

We now have in place a much stronger framework for identifying the actions required, ensuring country ownership of them and coordinating the provision of support. The international goals symbolise that these efforts need to be across a broad front, including investing in the lives of the poor through improved education and health, as well as measures to provide a supportive environment for private sector investment. Continued efforts are obviously required. Most important will be reform that will allow developing countries to reduce poverty through faster growth. The history of development over the past fifty years has shown that sustained and broad-based economic growth, is the most powerful weapon we have against poverty. It is no coincidence that reductions in poverty have generally been greatest in those countries with relatively open, market-based economies, for it is these economies which have achieved faster economic growth.

Poverty Reduction Strategy Papers (PRSPs)

The processes for drawing up poverty reduction strategy papers provide a framework for developing countries to design and articulate strong country-owned programs based on strengthened participatory processes. This approach offers considerable potential and the first few full PRSPs have been quite impressive. As we move ahead, it will be critical to maintain the focus on quality, as the longer-term success of this process will be determined by whether comprehensive policies to promote growth are implemented.

The Fund's poverty reduction and growth facility integrates the objectives of poverty reduction and growth more fully into its operations in the poorest member countries. Further, the introduction of new programmatic lending instruments, such as poverty reduction strategy credits by the World Bank, can help support the poverty reduction strategy paper approach in countries with sufficiently developed institutions and expenditure controls. But the shift towards greater use of programmatic instruments should not be pushed beyond the capacity of recipient countries or where it could result in a weakening of growth and poverty reduction policies. It is also important for recipient countries to have adequate budgetary and expenditure monitoring procedures to track the use of resources under poverty reduction strategies to ensure that they reach the poor and provide their intended benefits.

Maintaining Long-Term Debt Sustainability

The progress made by 22 heavily indebted poor countries (HIPCs) to gain debt relief under the enhanced HIPC initiative over the past year is an historic achievement. These countries have now qualified for approximately USD 34 billion in relief over time. HIPC countries are also benefiting from additional bilateral debt relief that many countries (including Australia) have agreed to provide. Taking this and other bilateral relief into account, the total stock of debt of the 22 countries will be reduced by more than two thirds.

The enhanced HIPC initiative provides for a reassessment of a country's debt sustainability at the completion point with scope for additional relief in exceptional circumstances if there has been a fundamental deterioration in its economic circumstances due to exogenous factors. This gives us an additional safeguard for ensuring that projections remain on track at the completion point. Current indications are that the debt relief provided to date under the enhanced HIPC initiative, together with additional bilateral relief, will be sufficient to ensure that the 22 countries will reduce their debt and debt servicing to sustainable levels, comparable to or below the levels in other developing countries.

But good economic management is necessary if debt relief is to result in debt sustainability and poverty reduction. It requires continuing reform and efforts to foster growth, not just up to completion point but beyond. This is why it is so important that the processes put in place in the lead up to the completion point should be robust, well-designed and provide a strong framework for continuing collaboration between the country, the multilateral institutions and bilateral donors.

Assistance to Post-Conflict Countries

Many of the countries remaining to be considered under the enhanced HIPC initiative are seriously affected by conflict. It is important that the Bank and the Fund join international efforts to engage countries as they emerge from conflict in areas where their combined experience and expertise is most relevant. In particular, post-conflict countries have a pressing need for technical assistance to rapidly restore the critical functions of government. In this regard, the Bank and Fund, in consultation with other donors, can play a crucial role in supporting post-conflict countries through assessing and planning their technical assistance needs. The Fund and Bank will also need to explore flexible mechanisms to deal with issues such as the clearance of arrears so they can assist with reconstruction and, where appropriate, clear the way for debt relief.

These situations pose particular challenges, and while the policies of the Fund and Bank are sufficiently flexible for assisting these countries, we recognize that there are areas where they can be enhanced. In particular, we welcome the Managing Director's initiative to establish a multi-donor administered account to provide interest subsidies for the Fund's emergency post-conflict assistance. In bringing post-conflict HIPC countries to decision points - where they become eligible for debt relief - it will be essential to balance the need for early debt relief with the necessity for an established track record and assurances that the resources freed will be used for poverty alleviation. Furthermore, treatment of these countries should be comparable to other HIPC countries. We need to be careful, therefore, to ensure that decisions on final relief at the completion point are taken when they can be soundly based on a demonstrated track record and when economic data are not unduly distorted by conflict conditions.

The Bank and Fund also have a role to play in providing support for post-conflict countries outside the HIPC initiative. The World Bank has played an especially effective role in East Timor in coordinating donor activities as well as through the establishment of a trust fund. This helped to leverage considerable donor funds for the reconstruction effort. The task in East Timor remains large, as it requires re-establishing basic economic and financial systems, but is essential for reducing poverty and providing the foundations for future economic growth and prosperity.

Leveraging Trade for Development

Trade must be an integral element of any broad growth and poverty reduction strategy. Increasing developing countries' access to markets has the scope to generate significant benefits for all. Trade is not a zero-sum game, where gains by one country are losses for another. While greater openness can in some cases have short-term social costs, trade will ultimately generate greater global growth. The Bank is able to perform a valuable role, in close collaboration with other international agencies, in advancing developing country trade issues at the multilateral, regional and bilateral levels.

The Bank has a particular responsibility in helping to ensure that developing countries are able to benefit from greater openness. The link between trade liberalisation and capacity building can not be over-emphasised. If this link is absent, the prospects of increasing economic growth, so necessary to reduce poverty, will be undermined.

Recent initiatives, including the decision by New Zealand, to remove tariffs on imports from the least developed countries are a very positive development. Australia also provides trade preferences for all the least developed countries as well as for developing countries more broadly. We need to remember that the majority of the world's poor do not live in least developed countries and greater market access should not be limited to these countries alone. Restricted market access and domestic subsidies in wealthier countries, particularly for agriculture - which provides the mainstay of many developing economies - continues to limit significantly the ability of developing countries to grow further and reduce poverty. As a joint World Bank/ IMF study demonstrated, the complete liberalisation of global agricultural trade would yield benefits to developing countries of over USD 40 billion per year. This is equivalent to almost eighty per cent of total world aid flows.

1 On behalf of the World Bank constituency comprising Australia, Cambodia, Kiribati, Korea (Republic of), Marshall Islands (Republic of), Micronesia (Federated States of), Mongolia, New Zealand, Palau (Republic of), Papua New Guinea, Samoa, Solomon Islands and Vanuatu and the IMF constituency comprising Australia, Kiribati, Korea (Republic of), Marshall Islands (Republic of), Micronesia (Federated States of), Mongolia, New Zealand, Palau (Republic of), Papua New Guinea, the Philippines, Samoa, the Seychelles, Solomon Islands and Vanuatu.