·- AUSTRALIA AND THE WORLD BANK: PARTNERSHIP AGAINST POVERTY IN THE DEVELOPING WORLD Remarks as prepared . for delivery to a luncheon given by the Australian International Development Assistance Bureau by Barber B. Conable President The World Bank International Finance Corporation a net Multilateral Investment Guarantee Agency Canberra, Australia February 22, 1989 •. In our small world, poverty is the common enemy of man and nature. Against poverty and the damage it does to human dignity and the natural environment, collective action is the surest remedy. It is hard work, but hard workers built Australia. It is unfinished work, but Australians can help move it forward and can only benefit from its advance. SCOPE OF GLOBAL POVERTY The vast majority of mankind is not so favored as we in this room. Most of the five billion inhabitants of our planet, in fact, are young, non-white and neither prosperous nor secure. I wish you could see them from here as I see them from my vantage point in Washington and on my travels. At least one in five is too poor to be sure of getting enough to eat each day. For half the world -- the low-income developing nations -- average life expectancy at birth is 17 years lower than in Australia. Yet the population of all the developing nations -- now 77 percent of the earth's total -- will be 84 percent in 40 years. Australians, on average, use 15 times more energy per capita than citizens of the poorest countries and enjoy· 44 times their per capita GNP. · Here and in ·the other industrial countri~s, we eat an average of one thousand more calories a day than the poor, have some ten times as many doctors ·per inhabitant and enroll almost three times the percentage of our teenagers in secondary schools. CHALLENGE OF DEVELOPMENT Those statistics represent a challenge, not an indictment. Such poverty -- and its persistence alongside such wellbeing -- is both a moral outrage and a threat to security. As Senator Gareth Evans, your Minister for Foreign Affairs and Trade, said in a speech last November, "Steady falls in income per capita, in any country, are a formula for disadvantage and unrest." The challenge of poverty is an economic, political and· social one. Together, all those elements of change spell a single word: development, the priority business of the World Bank. It is the oldest, largest and still the most effective international _ agency in promoting development. But the Bank is only one of the factors in the equation, only one of the forces fighting global poverty. The poor need more strength on their side, and more of it should come from nations like Australia. You have much to contribute and much to g ain from helping others to d, _ e velop. _. 2 AUSTRALIA'S CONTRIBUTIONS You have an especially important role to play in Asia and the Pacific, for the past 30 years, economically the fastest growing region of the world. It is your neighborhood, where development is a matter of both opportunity and security for Australia now and into the future. Especially in the areas of agriculture, trade liberalization and environmental protection, Australians and the World Bank share priorities that are also high on the global development agenda. Agriculture: In a world still waiting to be fed and clothed adequately, Australia's achievements in both temperate and sub- tropical agriculture .teach lessons others need to learn. You are already major food suppliers, but your success in growing wheat and livestock, sugar and a wide range of other products gives you a diversity of experience for which other nations hunger. Your own technological progress, including, for example, the work of the Commonwealth Scientific and Industrial Research Organization (CSIRO), has armed you with an expertise that can only expand as it is tested against new challenges in other lands . . From early advances in rain-making to modern work in _ biotechnology, Australians have been pioneers· on your own challenging territory. Other pioneers in the developing · world, your Asia~ neighbors not least among them, need your know-how and your help. Trade: The international . trading system also needs the push of your commitment to further liberalization, especially in farm trade. You and I know the truth of Helmut Schmidt's aphorism: "Markets are like parachutes; they only function when open." But we also know that agricultural markets in the industrial nations are increasingly protected. Non-tariff barriers against food imports to the OECD countries affected just one third of that trade in 1966. Now the figure is almost 90 percent, and the fiscal cost of agricultural protectionism in the united States, Japan and the European Community runs to tens of billions of dollars. The cost to development is another and even graver matter. A conservative estimate puts the price that Third World nat·ions pay in losses to all forms of trade restrictions at twice the value of the official development assistance they receive. Worse than a bad bargain for the developing countries, it is a self- defeating formula for their industrial partners whose own future prosperity depends increasingly on. the growth of the economies in the poorer nations. Choking that growth is bad business for . all. .. '· 3 As leaders of the Cairns Group in the Uruguay Round, Australians know the stakes for GATT and for themselves. The World Bank has used its influence in getting the developing nations to the trade negotiations table. We care deeply that their conunitment, like yours, be honored and rewarded. Environment: The World Bank and Australia share another conunon-sense, conunon cause: environmental protection. In the Bank's .work, we have gone from words to deeds -- perhaps not with the speed -some would like -- but with a clear sense of direction. Ours is . a dual task: to promote the kind of development that will arrest and reverse the waste of natural resources. That work starts with up-front analysis of the environmental impact of investments we help to plan, but our purpose goes beyond the Hippocratic injunction: "First, do no harm." In tropical forestry, a major, multi-year focus for our lending, we are helping to develop timber resources for the long-term and, as in the Philippines, to encourage settlers already in forest areas to see their surroundings as a resource for conununity management, wealth to use, but also wealth to save. Of all the toxic forces at work against nature, the Bank sees poverty itself as enemy number one and overpopulation as an accomplice in worsening poverty itself a~d environmental degradation in consequence. It is the pressure of need and of numbers that drives poor people onto fragile land and in search of fuel from vulnerable forests. Throughout the developing world, deforestation and soil erosion begin where slash-and-burn cultivation leaves no natural barrier to the force of wind and water. Programs to remedy those practices -- or the losses that stem from uncontrolled exploitation of timber and mineral wealth -- have to start with the practitioners, rich and poor. And remedies for poverty, as for greed, have to open avenues for sustainable growth if they are to close the doors against environmental abuse. Australia's own experience on environmental issues shows their complexity. It also shows that the problems can be successfully addressed with the right mix of sensitivity and investment. That is the balance the World Bank, too, is working to achieve and to promote. BANK AS MULTIPLIER OF RESOURCES The World aank also works best as a multiplier of resources. Our own are substantial. Together, the Bank and its concessional-lendi~g affiliate, the International Development Association, made conunitments of almost $US 20 billion to our borrowers last year. .. ·' 4 That was twice the volume ten years before, and we aim to increase Bank lending ten percent a year into the early 1990's. Our participation is most valuable, however, when it draws in other funds and energies. In fiscal 1987, for the second year in a row, almost half of our projects won co-financing from official bilateral aid agencies, such as AIDAB, multilateral development institutions, export credit providers and commercial lenders. Bank and IDA contributions last year of $US 6.8 billion to 111 projects mobilized $US 5.6 billion more in outside financing, not counting the domestic resources that the borrower governments also committed. Over $US 1.5 billion of that co-financing came for 22 projects in Asia and the Pacific, including significant, untied Japanese export ~redits that went for operations in Indonesia and the Philippines. Of course, money is not the only measure of our multiplying effect. . As technical and policy advisers in government conference rooms and farmers' fields, for instance, Bank staffers are teachers, giving the knowledge that keeps on giving. Our programs in Papua New Guinea, where co-financing from AIDAB and the Asian Development Bank expands the impact of the US$ 20-30 million we project in yearly near-term lending, are building institutions and improving the physical and human resource base." As you · know, we took the lead in setting up the first consultative group on Papua New Guinea, which met for the first time last May in Tokyo. We will continue to press such constructive coordination of effort. And, in that context, I want you to know how grateful the Bank is for your contributing one million Australian dollars annually as a trust fund for our use in the Pacific Islands. We have recently reassessed our approach to their problems and, with the help of this fund, will be increasing our activities with the islanders. SMALL INVESTMENTS, WISELY MADE What has struck me the most about the Bank's leverage is not the large sums we generate but the minor miracles we help happen. You cannot overestimate the impact of small investments, wisely made. I have seen the difference that a village well or a rural health clinic can make in the lives of people who never before had water at hand or medical care nearby. Little things can open whole new worlds of° opportunity -- a metal plow, a sack of seed, .a biology textbook, a line of credit for a trucking firm or road-maintenance equipment. Those limited assets pay big dividends against poverty. They are minor miracles in the lives of the poor, but as David Ben Gurion once said, "Anyone who doesn't believe in miracles isn't a realist." ·~ 5 Realism is what dictates both the Bank's priority goal of reducing global poverty and its choice of long-term means to that distant but not impossible end. Economic growth is the first and foremost remedy for misery. Without growth, our work against hunger, excessive population increase, illiteracy arid environ- mental degradation will make little dent in global destitution. STRATEGY FOR GROWTH: ADJUSTMENT ATTENTIVE TO THE POOR All the ingredients of well-being -- food security, family planning, education and natural resource management -- are simultaneously essential to growth and dependent on it. But growth in the Third World requires a broad investment strategy as well and a steady flow of resources to implement it. The strategy -- although not uniform from country to country -- is reasonably clear. What is deeply in doubt is the financing. Adjustment: Whether deeply in debt -- as many African and Latin American nations are -- or prudent but. impoverished, large borrowers like China, India and Indonesia, many developing countries are making major changes in their structural economic policies as down-payments toward new growth. Noone should underestimate the strain of· scrapping subsidies, streamlining trade and finance rules, cutting government outlays and opening public monopolies to private ownership and competition. But noone can deny the efficiency gains that reform promotes, gains that are indispensable to economic progress in the competitive global marketplace. In most of the 58 nations implementing adjustment programs and getting World Bank support through 156 loans worth $US 21 billion, the rewards of market orientation are coming, but not as rapidly as the Bank and they had hoped. The bulk of our lending, I should add, still goes to human resource development and bricks-and-mortar productive investments. Where we are supporting adjustment, however, we find our member countries doing better than economies which still resist reform. In Africa, for instance, World Bank research shows the nations with strong adjustment programs raising .their GDP growth rates from annual averages of 0.7 percent in 1981-84 to 3.8 percent over the following three years. Their neighbors, with weak or no adjustment programs, . on the other hand, have only managed to achieve GDP growth rates of 1.8 percent in recent years, not enough to bring the change in their real investment levels or per capita consumption .into the plus column. .. 6 Compensating for Poverty: And often, where reform is well underway, the poor suffer before they benefit. While it is true that without adjustment their hardships would worsen, that fact does little to lighten the real burdens they experience as prices of staples rise and the provision of social services drops. · Targeted compensation programs can help see the poor through the extra impact of adjustment and keep their hopes and political patience alive. The Bank is supporting such efforts in Bolivia, Costa Rica, Ghana, Jamaica and Morocco and looking elsewhere to see how the timetable or scope of reforms can best be balanced. A major study of the Social Dimensions of Adjustment in Africa will also enable us and our borrowers to better identify the poor and their needs and skills for future investments. EXTERNAL RESOURCES INADEQUATE Whether or not those investments can be made depends, however, on more than the resolve to see the adjustment process through. Just as vital -- but far less evident -- is an adequate flow of capital from the industrialized to the developing world . The debt crisis is draining resources in the other direction while commercial lenders have all but withdrawn from the Third World. Private net long-term lending to the .highly indebted middle income countries fell from plus $7.2 billion in 1984 to minus $1.9 billion in 1986. Partly as a result, net transfers from those once-creditworthy nations came to nearly $74 billion from 1985 through 1987. That flow reverses the long-term logic of development. It undermines not just the growth prospects of the Third World, but those of the rich nations as well -- shrinking their markets now and for the future. It jeopardizes reform and the officials who try to lead change. It makes no political or economic sense. By itself, the World Bank cannot make .up the difference in these capital flows. Our lending to the highly indebted ·nations now accounts for about one quarter of our commitments, and we have been leaders in spurring both adjustment and debt relief in sub-Sahara Africa. Our current and prospective resources, however, are far from equal to the need. Only renewed international resolve to expand both public and private capital flows to the developing world can truly turn the tide toward recovery and sustained growth. I , 7 AUSTRALIA'S LEVERAGE I hope Australia will play a strong part in this necessary revival of the internationalist ethic that has done so much in the postwar years to make our small world a more prosperous and safer one. As Senator Evans put it so well, Australians' "special responsibilities" are "to reach out to our neighbors and to try to narrow the economic and social differences that lie between us." Only through such an international outlook and the cooperation that flows from it can nations make their influence and interests a positive force far from home. It is only in the setting of collective action that a single economy can maintain and reap the benefits of trade. Your leverage is only as great as your involvement in the multilateral trade and financial system. The contests there cannot be won from the sidelines. "It is easier," E.B. White once wrote, "for a man to be loyal to his club than to his planet; the bylaws are shorter, and he is personally acquainted with the other members ... "· But ease is not the great purpose of life for individuals or nations. Challenge is the daily reality· and the stimulus for growth. I urge you to embrace the challenge of development. Thank you.