. - IDA DEPUTIES MEETING (WASHINGTON, D.C., November 22-23, 1982) OPENING STATEMENT BY A.W. CLAUSEN PRESIDENT, THE- ~JORLD BANK • ; .1 / OPENING REMARKS BY MR. CLAUSEN AT THE IDA DEPUTIES MEETING ON MONDAY, NOVEMBER 22, 1982 Good morning, ladies and gentlemen. It gives me great pleasure to welcome you here today for the launching of negotiations for 1DA7. I can't conceive tha.t there is doubt in any of our minds that how these negotiations ultimately turn out over the coming months will have a profound influence on the lives / of hundreds of millions of people throughout the world. It will also,•)Of course, have a very direct influence on the future of this institution! 1DA7 is important for several reasons. First, in these troubled times a strong and clear signal is sorely needed that multilateral economic cooperation is not a waning enterprise, and that the world is not too fatigued to act in its own best interests. Second, a successful outcome for 1DA7 would enable the most needy countries. in the world community to face the future with hope instead of cynicism c1nd despair •.. And· finally, the outcome of IDA7 is . i:l vital piece in the mosaic that characterizes an increasingly uncomfortable relationship between the developed and developing countries. There is no question that a successful conclusion would restore a degree of equilibrium in the quality of economic dialogue between our richer and poorer member nations. For all these reasons, I believe that this is a momentous occasion. All of us here are embarking on a vital enterprise. There were times through- out t;he past troubled year for IDA when the prospect: of opening negotiations ••. I -.2 - on 1DA7 anytime soon seemed reri1ote. But the spirit of cooperation and goodwi 11 , for which the Assoc fati on has a 1ways been renowned, again came through. The actions taken by donors to bridge the resource. gap that would have emerged in fiscal year 1984 was a remarkable tribute to the willingness of nations in the midst of a common crisis to face it and -,,.,a··' resolve it. Hopefully, your actions at Toronto will be a major step forward in putting the difficulties of IDA6 behind us - permitting us to look to the future with greater optimism. There remains, of course, some unfinished business on 1DA6 and it is our sincere wish that we will clear the decks soon and begin 1DA7 with a clean slate. It looks as though 1983 will be a busy year for all of you. There are many issues to be di sctissed: the overa 11 size of the rep 1en i sh- ment; burden sharing among donors; criter_ia for ·the allocation of resources; non-traditional means for augmenting the Association's resources; as well as the topic before you today on "the terms and conditions" of IDA credits. To most of you these are familiar subjects which come up with every re-· plenishment, but on some we hope to break new ground. It may we11 be that ·the 1DA7 which you negotiate turns •out to be different from any previous replenishment exercise. We face difficult times. The circumstances of today are not those of yesterday and we must be forward-looking to face tomorrow. ·eut before we proceed with the negotiations, we need to consider what we. want to achieve here at a time when. .recession is wi.despread around. the globe. • •. I - 3 - The prolonged recession has resulted in the economic problems of the poorest countries being aggravated· by extern~l factors beyond their control~ Exchange rate volatility and interest rate movements have had a severe impact on the debt burden of some of these countries. Most have been faced with: a sharp decline in demand for their exports; a major deteriora- tion in their terms of "trade; and the threat of increasingly pervasive protec-\ tionism. These external factors have led to immense domestic pressure on developing country budgets, necessitating the. deferra l of priority projects 0 involving capital expenditures •. In brief, the crisis confronting the world has had the greatest effect on the weakest nations and largely for reasons they can do little about. This is not to say that times have not been rough for all other countries. Many of your governments have had to ~restl~ with stagnating economies, rapid inflation,· substantiaJ budget deficits and high unemploy- . ment. But in relative terms, donor countries• difficulties cannot seriously be compared to. the severe plight of the poorest nations. They have had to sacrifice vital longer-term investments, representing the foundations for future growth--simply to ensure their short-term survival. Ahd at- precisely this- critical time, IDA has failed -to deliver the expected level of resources. After five successive replenishments which resulted in average real increases of about 8% per annum in IDA's _commitment authority between 1965 arid 1980, the pattern abruptly changed with; the experience of 1DA6. As you are al 1 aware, we were forced to cu·t IDAls planned lending program in FY82 by some 35% in dollar terms. In real terms, annual ... I ---------~ - ~ -- 4 -. commitments for the first t·wo years .of IDA6 have fallen far below annual levels achieved under IDAS. In view of the generous action taken by most donors in Toronto, we can now hope that IDA lending in FY83 and FY84 will at . 1east . approach . . the . $3. 5 bi 11 . ion 1eve 1 .. .~ . achieved in FY81. ' . ' Bu.t t.h is st i 11 represents amounts which are more than 20% below the program originally envisaged~ · This exp.erience raises some fundamental questions:· will the · diminished levels of IDA6 set the pattern for IDA7? Or can we hop~ to put IDA back where It belongs, in the vanguar~ of the fight against poverty-- with. resources adequate to tackle this immen~e.task? The concessional financing requirements of the , poorest countries ov~r the IDA7 period wll 1 be immense.· I~ addition to gene~<;1l .economic trends / around the globe we need to be mindful of some sp.ecific considerations when thinking of the desirable size of the next replenishment. The first of these is China. · China's inclusici'i, In the 11st -of. IDA-eligible countries has literally doubled the population whose needs the Association must address·. In the absence of additional resources, adequate · and proper attention to China's challenging development problems could only. be achieved through drastf-c cut-ba·cks iii other countries',·'s·imilarly deserving lending programs. An inadequate flow of IDA resources to China will impair our abilit·y to .develop the kind of relati~nship ;hich will strengthe~- Chin~ 1 s--. efforts to ·become a full partner in the int.ernational economic community. . .. / - 5 ... The·second specific issue is the deteriorating economic situation in sub-Saharan Africa, where most countries have suffered declines in average per capita income for about a decade. As you know, the Bank's 1981 report on the region has painted a dismal picture. The region suffered long years of . . negative growth, sluggish agricultural performance, rapid population increase, and balance-of-payments and fiscal crises.· Donor governments recognized that urgent.action was required to reverse these trends, and the Bank was given a mandate fo. exert . every effort to. accelerate development in the region. Most of these countries are not creditworthy.· Therefore, the bulk of the assi.st- ance we provide must come from IDA. Yet IDA will be unable to fulfil this . . . . . mandate wi.thout an unjustifiablec-reduction 1n its c1llocations for othe; countries if its resources are not boosted. The bottom~l.ine is that .tb.e leg_it.imate finandng requirements of ·'/· . I DA' s con_s ti tu enc i es are much 1a rge~ than they h~ve ·evar been; Meeting these " . . ,' . . requirements is. very much in the political, economic ano security interests of donors as well. -Adequate trea~ment of all these needs would require a substanti~l · increase,in the real size of 1DA7, significantly higher than any amountwhichc6uldrealistically be' imag'ined. in t:he present p·oli'tical arid · economic environment~·· In_ our view, the outcome of I.DA? should allow. the . - Association a~margiri of flexibility in its ability to address the needs of its en·larged borrower community. To be sure, while a significant real increase for 1DA7 over the negotiated level for 1DA6 may seem difficult in the present environment, the critical situation of IDA~s recipJents certai~ly justifies considering precisely such an increase. Anything le~s would rep- resent an inadequate response by the international community to the desperate situation of its poorest members. . .. I - 6 - There are important economic and strong moral arguments for channel-· 1 ing concessional flows to the poorest countries. The pace of economic development of the poorest nations Is of major consequence to all other nations. The more affluent countries have a major stake in the fortunes of the poorest countries--for example in their food and energy production and in the.ir trade. ··"',. IDA investments are setting the basic structures in place from which a11 the nations represented in this room today wil.1 accrue profits in the years ahead. As concessional resources become more and more scarce it becomes more important. than ever not only to channel ·such. funds to the most deserving cases, but to be concerned about their effective use. 1DA 1 s track record clearly shows that it has rightfully earned the confid~nce of its supporting governments as an effective fnstitution. The. recent publication 11 1DA In Retrosp~c't: 11 took a dispassionate look at 1DA 1 s performance over the past 20 ... · years. - It concluded that IDA had indeed been most effective in promoting developmen.t. Not only h~s it·been able to devote.th~ vas:t majority of its funds to the poorest countries (80% of its net disbursements in 1980 went to. countries with per capita incomes of less than $410, in comparison with only 34% through bilateral programs) but it has been able to do so witho·ut sacrificing project performance • . The average economic. rate. of return on the IDA projects reviewed was even marginally-higher.than· the average for IBRD at 17:9%. · Moreover, IDA 1 s influence is greater than can be measured by volume of funds committed or economic rates of return. Its impact on develop- ment has derived as much, if not more, from its policy dialogue with borrowers and its efforts to establish enduring development in~tituti6ns. . ... I ... - 7- As I mentioned earlier, there are several complex issues which the Deputies will" need to address in the course of these negotiations. One of. them (and'. I 'understand it· wi 11 be the focus of the discuss ion at this meeting,) is the question of IDA's credit terms. IDA 1 s terms; as you know, have remained substantially unchanged since its inception; Yet some of its larger borrowers··....,_. have experienced sufficient economic growth to enable them to bear a greater .debt-servicing burden. They have, in short, become more creditworthy. But these countries are not yet at the stage where.they could be weaned off IDA 1 s resources entir.eJy. Their gain fn_economic s~rength 'i_s a_slgn o!_ l~A's \ p~st success. Whi.1 e we migbt \ consider whether they· . can now . afford . harder . terms fo.r. lDA-resources, we-should not risk·the possibility of retrogression· by forcing them to move too far, too·fast. ': . -; : ·;. ·~ .... ,•,:· '., · .. The· tradi t.iol")a 1. met.hod of dealing wi.tb countries In ·th ts category. of intermedfate creditworthiness has been through blending. whereby a country recerves both·'lDA credi'ts ard 'IBRD loans. Howeve~;· there are practkal 1 im'it:- ations on the ability to blend due to constraints on IDA's resources as well as creditworthiness limitations on access to 1BRD 1 s resources. Now seems to be an appropriate time to'consider whether some changes In ·terms, as well as dlfferenti.ation in terms of IDA lending, might not provide an additional and ·more flexible solution to this question. More significantly, a change in IDA 1 s terms w:>u1d also·open the door to the.prospect of supplementing IDA's traditional resources through non:..traditional- means, if such alternatives were felt by donors to be practical and feasible. ,• i r ***************************i ••• I ! ,..s - 8. - . Let me conclude these opening remarks with these thoughts. wish you well in the progress of these vitally important 1DA7 negotlattons. As I said at the outset, there is no other single issue in the Bank's program to which I attach more significance--although as most of you know there are many challenging issues facing both the IBRD ·and the IFC as well. We must progress in these negotiations suff ic i entl y rap.idly to reach closure by the time of the Annual M~etings· in I983. I appreciate that this target imposes some pressures •. But given the desperate econom.ic situation which our poorer constituents face, you will agree that time is of the essence. We have therefore proposed to you a demanding schedule·, but not· an unrea.l ist.ic one if we are to give the r.ight kind of consideration to the issues.we must address • . ft will require much of your time a.nd more of your ·patience. On our· side,·:we will be aided in our diff_icult task by M. Andr·e .·. de Lattre as our Spec i a 1 Representative for I DA7. · H~ br f ngs a .very d ts- . . . ' . ~ tinguished background and.extensive experience in national and international affairs to help ·us on a ful 1-time basis with these negotiations. - a task. which we consider critical. In the coming months, M. de Lattre will be.;; visiting you in your capitals to further. these discussions and to ·prepare for future meetings in which he will .actively and fu.l}y participate. IDA has become a cornerstone of international cooperation. It is essential- that it remain strong. IDA has a key role to play in promoting long-term development in the p~rest countries, to the benefit of the world as· a whole. 1. very much hope that you and your governments will also recog- nize that role, and negotiate a seventh replenishment of an appropr•iate shape and form so as to enable the Association to ~arry out it's vital mission.