Remarks to First Conference on Capital Markets Development at the
Subnational Level

                                                                    99957
by
James D. Wolfensohn
President
The World Bank Group

Santander, Spain, October 26, 1998
(Mr. Wolfensohn participated by teleconference from Washington, D.C.)


I'm very happy, indeed, to participate at this conference, although I
regret very much that I didn't have the pleasure of coming over to be in
Spain, but I want to start by expressing my thanks to our partners in the
presentation of this very important meeting.

I was anxious to attend and say a few words because it's very clear to me
that the issue of financing and development of local strategies is
extraordinarily important.

As I looked at the issues which face us on a global basis, everywhere I
find a problem in terms of access to funds and in terms of the volume of
funds that are needed for appropriate development purposes.

I also see a move towards decentralization of responsibilities, and I see
a parallel move also to urbanization, which is evident, certainly, in
Latin America and in the Central and European regions. All of this I'm
sure has been covered already in the early part of your meetings, but let
me just simply add, that from my point of view, as I try and look at the
tasks that we face in The World Bank, one of the tasks and the
opportunities is to be supportive of this move to decentralization, and
to the financing of projects that will be run by decentralized
authorities.

This is a development which is, of course, extraordinarily well-known in
the United States, where that decentralization has been going on for
years, and where there has been financing at a very high level on the
basis of local authority credits.

Indeed, at this moment in time, we have 1.3000 billion of outstanding
bonds and they're being added to annually at the rate of $250 billion a
year.

These are enormously high numbers and it reminds me of the days at the
beginning of the Euro dollar market, when we were talking about offerings
of sovereign credits, and comparing them with the United States and
saying how small they were. I think 20 years from now, we will look back
and say that the comparison between local authority borrowing and the
giant size of the American market will have been diminished
substantially, and that there will be a significant move to financing at
a local level.

We've already seen 51 such issues in Argentina, in Brazil, and in
Colombia, in the last five years, and of course in Eastern Europe we've
also seen an increase in those issuances. For a time, we also had
issuances from Russia, from the municipalities. In fact 91 bonds were
issued in the domestic market and 77 such issuances in the international
market. They're on hold at the moment for reasons that we all know, but
the direction is very clear.

That means that we need to prepare ourselves in the way in which we set
up the issues of governance, the issues of transparency, and the basic
framework in which local authorities will operate. It is not different in
terms of the advice that I would give, and the work that we would offer
to do with municipalities and regional governments than it is with
national governments.

There is a need for very good financial planning. There's a need for good
project planning. There is a need for evidence of fiscal responsibility
and budgetary responsibility.

There's a need for transparency. There's a need for good accounting
practices. There's a need for regular reporting. There is a need, in
fact, simply to demonstrate that there is a degree of competence in the
governments, that would encourage investors to invest.

None of what I've said is of a revolutionary character. It is the nature
of what has to be done, if one is to access international markets. And so
as we move forward on our plans of working together to meet the enormous
needs of local authority financing, what I think is crucial is that we
start on the right basis, so that we do not have the problems of
rejection by the marketplace, and so that we can enter the market with a
level of competence and effective presentation of what we're doing that
will allow us to unlock the funds that are needed.

Certainly all the instrumentalities of the Bank are available to be of
help, and the private sector, which you were just discussing in your
question-and answer session, we have MIGA and have IFC, which are very
ready to work on projects, and in the case of the Bank itself, we're
surely ready to do so with states, with municipal and local governments,
provided we can get the backup from the national authorities.

More and more, we're finding that we're able to do that, and in fact in
some countries, the actual distribution of funding-and I speak here
particularly, for example, of India-the distribution of national funding
which they are taking from the Bank, either in terms of cash or in terms
of guarantees, is being competed for by the states and by the local
governments as though the states and the local governments were the
borrowers.

And so as we see this decentralization and this growth of local
government, we're finding that within countries in which the Bank is
active, we have a competition amongst the states and local authorities
for those funds which would come from The World Bank but with the support
of the central government.

That is another reason of course that as we approach the question of
governance, that we're extraordinarily keen to be as helpful as we can in
terms of trying to prepare a solid and a transparent base from which
local authorities and local instrumentalities are managed, and
thereafter, to ensure that we can make transparent and clear
presentations to the financial community.

We, as an institution, are really anxious to be helpful. As my colleagues
may have told you, we are setting up computer links so that information
on development efforts, ranging from agriculture to infrastructure, from
governance to judicial systems, all these things we will have available
online for all of you. You'll be able to come into us directly on the
Internet for help on any areas of governance, and if it's not fully up in
terms of the information base, we're prepared, through this, to have a
Help Desk available that will be available to give you background
information not just on what we think in the Washington headquarters, but
to link you with others who have had experience, both good and bad, from
which you can profit.

We want to be, in addition to a financial arm, we want to be an
institution that you regard as a source of knowledge and information, and
our team is ready to be of assistance to you, to every one of you, in
terms of the types of projects that you're thinking about. Feel free to
come to us long before you have a project outline. Talk to us, come
through to us with your questions. If we can answer them, we will, if we
cannot, we will tell you, and hopefully, we'll be able to give you the
sort of backup and information that you will need.

So we want to be seen as your partners, partners of the central
governments, a good partner of course of the Spanish government that has
been so helpful in this meeting, partners of the private sector, such as
the Banco Santander, partners of the local government authority which are
our partners in this effort. But partners to all of you in terms of
providing both advice, guidance, and funding that you might wish.

We believe that as we look to the future, it is with you that we will be
doing more and more financing, more and more financing directly, more and
more financing jointly with the private sector, and it is for that reason
that I am particularly happy to be here with my colleagues to extend my
support to all of you, and my hopes that we will do many things together
in the years ahead.

Thank you very much.