DEVELOPMENT COMMITTEE (Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries) NINETY-SIXTH MEETING WASHINGTON, D.C. – OCTOBER 14, 2017 DC/S/2017-0046 October 14, 2017 Statement by H. E. Henrique Meirelles Minister of Finance Brazil On behalf of Brazil, Colombia, Dominican Republic, Ecuador, Haiti, Panama, Philippines, Suriname, and Trinidad and Tobago Statement by H.E. Henrique Meirelles Minister of Finance Brazil on behalf of Brazil, Colombia, Dominican Republic, Ecuador, Haiti, Panama, Philippines, Suriname and Trinidad and Tobago 96th Meeting of the Development Committee October 14, 2017 Washington, D.C. World Bank Group mission and Forward Look The World Bank Group has successfully served its members for decades, even in the face of rapidly changing landscapes, in which both cyclical and structural transformations demand adaptable strategies. On top of that, rising aspirations from national governments and multilateral institutions—reflected recently by the ambitious 2030 Sustainable Development Goals—require innovative engagements and solutions. Finally, from an institutional perspective, new multilateral institutions have been engendering a new architecture of international development assistance. A first area of action is maximizing finance for development. In many countries, public budgets are constrained by various reasons: economic slowdown and commodity prices, among others. Under these circumstances, one major challenge is to further develop long-term financial instruments for the private sector to access the capital markets and increase infrastructure investments. To this end, many policymakers have implemented sound legal frameworks that avoid excessive litigation, reduce information asymmetry, improve resolution of contractual conflicts and insolvency situations, and establish well-designed guarantees and collaterals for long-term financing. There is a remarkable convergence between this agenda and the strategy recently formulated by both the WBG (the “Cascade Approach”) and the G20 (the “Hamburg Principles”). In all cases, the underlying rationale is to pursue a more focused governmental engagement, in which the public sector— including multilateral institutions—leverage and boost private investments. The WBG’s participation as a catalyzer is more than welcome, not only in mobilizing larger volumes of private financing, but also in promoting good governance and higher social and environmental spillovers. The WBG can and should develop a fruitful partnership with client countries, in which lending, other financial instruments (such as guarantees), and knowledge products (including advisory services and technical assistance) are directed towards supporting governments in their efforts to crowd in the private sector, especially in the infrastructure sector. The WBG’s engagement on improving the business environment is also an important component of this agenda. Its global expertise contributes to build cross-sector business-oriented reforms, benefiting from accumulated knowledge from operations with all clients, including the upper-middle income countries, whose economic and institutional specificities make them the most relevant source of experiences in these areas. Clearly, clients should preserve the ownership and define the main priorities, the WBG being a demand-driven institution. In this sense, there is no “one-size-fits-all” approach: solutions are country- and sector-specific, requiring from the WBG an even deeper engagement with its individual clients and a diverse expertise. A second important area is climate change. The world faces an enormous task in aligning financing flows and mobilizing new financing to deliver the scale of investment required for developing sustainable infrastructure, achieving the SDGs, and fulfilling the ambition of the Paris Agreement. The WBG is well positioned to be a leader in supporting countries in these efforts, and to promote effective mechanisms, such as the Clean Technology Fund and its new financing modalities, to leverage billions in additional concessional financing. Progress on the WBG Climate Change Action Plan should be commended. Supporting projects with climate co-benefits generates important demonstration effects, in addition to their own impacts. We particularly appreciate IFC’s engagement with the private sector to share market risks by supporting climate-smart agribusiness, green buildings, green finance, smart cities, and clean energy, as well as correlated projects that enable those markets to develop faster. Financial additionality and accumulated expertise should be prioritized across all regions, regardless of income-based country classifications. Finally, additional efforts to promote integration and regional cooperation are welcome to foster growth across countries. Not only substantive physical infrastructure gaps in developing countries demand significant amount of foreign and domestic investments, but more international trade would unlock access to large and sophisticated markets. Moreover, the benefits of integration transcend the noticeable short- term economic and governance dividends. For example, integration could contribute to prevent or minimize crises related to displaced populations and conflict zones. Capital Adequacy and Shareholding Review Two years ago, we agreed in Lima on a roadmap to conclude the general and selective capital increases for both the IBRD and IFC during the 2017 Annual Meetings. Unfortunately, we have not come to a consensus yet. We recognize that many initiatives were taken to advance the Forward Look implementation, which has shown relevant progress being made since the last Spring Meetings. However, we must be candid about the concrete consequences of our indecisiveness, particularly over the WBG’s capacity to engage with member countries over the next few years, including—but not only—through lending. In fact, IBRD lending was down 24 percent in the last fiscal year. There is already sufficient indication on the limitations of different packages (pricing, IDA transfers and administrative expenses), if they are not accompanied by a substantive capital increase. Our ambitious development goals will be negatively impacted without further actions on boosting WBG’s capital. If our goals to eliminate extreme poverty and promote shared prosperity are to be taken seriously, we must come to a final decision over IBRD and IFC capital needs. Even the enhancement of WBG’s knowledge products depends on financial commitments, since lending is one of the most efficient means of gaining and sharing knowledge. Furthermore, IBRD and IFC should avoid adopting simplistic strategies of concentrating their lending portfolios in any specific group of countries, especially the very risky ones, where more capital 2 requirement is needed. Preserving the WBG triple-A rating, without a sharp contraction of lending operations, depends also on refraining from abrupt shifts in the portfolios. De-risking and correspondent banking Global banking regulations have generated unintended consequences to correspondent banking relationships in many countries, including some in the Caribbean. Severe spillovers have been identified on international trade, financing activities, remittances, and foreign investment. The World Bank has been providing support to strengthen the Anti-Money Laundering and Combating the Financing of Terrorism frameworks in many countries. Facilitating international dialogue about correspondent banking relationships and mitigating domestic effects of de-risking in specific jurisdictions should be pursued. This agenda requires timelines and concrete targets, as well as a deeper dialogue with the global banking community. The WBG should keep working on a viable solution to ensure stability and development of those affected countries. Crisis Response Window The WBG has successfully mobilized and disbursed significant resources in a relatively short period when dealing with intense crises. Indeed, the Crisis Response Window (CRW) is a meaningful initiative in this direction, and we commend management for this work. However, the methodology to establish the financial envelope for each country after a disaster could be further improved, especially considering the sizable amounts required to rebuild social and economic infrastructures vis-à-vis the respective disbursements. The repeated devastation of small states after natural disasters, including the recent major losses in several Caribbean economies, has further emphasized the urgency of this debate. 3