Press Release No. <a name="P12_75"></a>04/87

The International Monetary Fund (IMF), the World Bank, the European Bank for Reconstruction and Development (EBRD), and the Asian Development Bank (AsDB) are releasing a joint review of recent trends and developments in the seven low-income countries in the Commonwealth of Independent States (CIS). The report focuses on growth and poverty, debt and fiscal sustainability, governance and the business climate, and regional cooperation. It also describes donor activities in support of reforms in these areas. This report pulls together the results of three years of work under the CIS-7 Initiative, as outlined below.

In early 2001, the staffs of the IMF and World Bank, in consultation with the AsDB and EBRD, issued a report on the external debt and fiscal sustainability situations in CIS countries eligible for concessional funding from the World Bank's International Development Association (IDA). The report examined the causes and consequences of the large external debt incurred by Armenia, Georgia, the Kyrgyz Republic, Moldova and Tajikistan since 1991 and concluded that they faced a difficult fiscal and external outlook in the coming decade. While massive external shocks and inadequate policy responses, combined with an overestimation of debt carrying capacity by lenders (including IFIs), had contributed to this situation, corruption and poor governance, lack of policy ownership, and weak implementation capacity had exacerbated the problem. The report urged a strengthening of adjustment and reform efforts, coupled with increased concessional assistance and debt relief. The report attracted considerable interest from the international community and led to calls for a broader examination of the transition challenges facing these countries.

A second report in 2002 on poverty reduction, growth, and debt sustainability in the low-income CIS countries featured a widening of the analysis and added two IDA-eligible countries-Azerbaijan and Uzbekistan. This report was considered at a conference in London in February 2002, which recommended the launch of a special time-bound initiative for the seven countries. The primary objective of the CIS-7 Initiative was to revitalize the partnership between the countries and the international community, as well as among the countries themselves, to achieve faster economic growth and poverty reduction. Specific efforts were aimed at raising awareness about the countries' plight; improving donor coordination; increasing knowledge services and delivery; building capacity; and promoting regional cooperation. A ministerial meeting in April 2002 in Washington. formally endorsed the Initiative. A large body of analytical work was commissioned in 2002 focusing on the transition experience and challenges facing the CIS-7 and the role of the international community. This work, which was discussed at a second conference held in Lucerne in February 2003 included wider participation of countries and institutions, including international and CIS-7 non-government organizations and academics. Since then a number of topical seminars in the region have sought to foster capacity-building in key areas, including participatory approaches to poverty reduction strategies; public expenditure management; reforms in the energy sector; and in health, education and labor markets; financial sector supervision; public debt management; and regional public goods. Participants at the conference noted the increasingly divergent performance of the CIS-7 countries, the growing importance of other fora dealing with the agenda, and the difficulties in addressing entrenched country and regional issues in the CIS-7 format. They agreed that it would be useful to review the situation in 2004 to assess the continued relevance of the Initiative compared to alternative cooperation mechanisms. The four IFIs have recently completed such a review in consultation with the CIS-7 governments, which is summarized in the report being issued.

Since the launch of the Initiative, donor awareness and coordination for the benefit of the countries have become demonstrably stronger. Donors have responded in some cases with debt rescheduling and more concessional assistance, and supported a growing range of activities in knowledge creation, cross-country dissemination, and capacity building. With cooperation increasingly being focused at the sub-regional level and the growing divergence in policies and performance across the CIS-7, several of the countries would like to move beyond the Initiative. The IFIs will continue to work with these countries to define new modalities of cooperation on specific issues, involving sub-regional vehicles as appropriate. Sub-regional efforts show signs of promise in Central Asia, while Moldova is being drawn into the EU's Wider Europe Initiative. Clearly, the South Caucasus would benefit considerably from improved economic relations among the three countries, and the international community is expected to focus much more on fostering such relations.

There is considerable potential for enhancing the development prospects of the CIS-7 through the Poverty Reduction Strategy process. For the countries themselves, better progress is needed to define priorities and link them closely with their budgets, while donors are expected to insist that their assistance be framed within the context of country poverty reduction strategies. Levels of assistance should be consistent with commitments made with respect to attainment of the Millennium Development Goals in these countries.