THE WORLD BANK GROUP 2002 ANNUAL MEETINGS OF THE BOARDSOFGOVERNORS Summary Proceedings Washington, D.C. September 29, 2002 THE WORLD BANK GROUP 2002 ANNUAL MEETINGS OF THE BOARDS OF GOVERNORS SUMMARY PROCEEDINGS WASHINGTON, D.C. SEPTEMBER 29, 2002 INTRODUCTORY NOTE The 2002 Annual Meetings of the Boards of Governors of the World Bank Group, which consists of the International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), International Development Association (IDA), Multilateral Investment Guarantee Agency (MIGA) and International Centre for the Settlement of Investment Disputes (ICSID), held jointly with that of the International Monetary Fund, took place on September 29, 2002 in Washington, D.C. The Honorable Ahmed bin Abdulnabi Macki, Governor of the Bank and the Fund for the Sultanate of Oman, served as the Chairman. The Summary Proceedings record, in alphabetical order by member countries, the texts of statements by Governors, and resolutions adopted by the Boards of Governors of the World Bank Group. The texts of statements concerning the IMF are published separately by the Fund. Ngozi N. Okonjo-Iweala Vice President and Corporate Secretary THE WORLD BANK GROUP Washington, D.C. April 2003 iii CONTENTS Page Opening Address by the Chairman Ahmed bin Abdulnabi Macki Governor of the Bank and the Fund for the Sultanate of Oman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Annual Address by James D. Wolfensohn President of the World Bank Group . . . . . . . . . . . . . . . 6 Report by Trevor Manuel Chairman of the Development Committee . . . . . . . . . 12 Statements by Governors and Alternate Governors . . . . . . 15 Page Afghanistan . . . . . . . . 15 India . . . . . . . . . . . . . . 88 Australia . . . . . . . . . . . 17 Indonesia . . . . . . . . . . 92 Bangladesh . . . . . . . . . 23 Iran, Islamic Belarus . . . . . . . . . . . . 25 Republic of 94 Belgium . . . . . . . . . . . 28 Iraq . . . . . . . . . . . . . . . 95 Bosnia Herzegovina . . 34 Ireland . . . . . . . . . . . . 98 Bulgaria . . . . . . . . . . . 36 Israel . . . . . . . . . . . . . . 100 Cambodia . . . . . . . . . . 38 Italy . . . . . . . . . . . . . . . 103 Canada . . . . . . . . . . . . 46 Japan . . . . . . . . . . . . . 106 China . . . . . . . . . . . . . 50 *Jordan . . . . . . . . . . . . . 114 Croatia . . . . . . . . . . . . 52 Korea . . . . . . . . . . . . . 119 Cyprus . . . . . . . . . . . . 54 Lao People's Democratic *Denmark . . . . . . . . . . 57 Republic . . . . . . . . . 120 East Timor . . . . . . . . . 68 Luxembourg . . . . . . . . 123 *Estonia . . . . . . . . . . . . 70 Malaysia . . . . . . . . . . . 125 Fiji . . . . . . . . . . . . . . . . 71 Malta . . . . . . . . . . . . . 131 *Finland . . . . . . . . . . . . 73 Myanmar . . . . . . . . . . 134 France . . . . . . . . . . . . . 76 Nepal . . . . . . . . . . . . . 135 Germany . . . . . . . . . . 79 Netherlands . . . . . . . . 139 Greece . . . . . . . . . . . . 82 New Zealand . . . . . . . 142 *Grenada . . . . . . . . . . . 85 Pakistan . . . . . . . . . . . 148 * Speaking on behalf of a group of countries. v Papua New Guinea . . 151 Switzerland . . . . . . . . . 176 Philippines . . . . . . . . . 154 Thailand . . . . . . . . . . . 178 Poland . . . . . . . . . . . . . 156 Tonga . . . . . . . . . . . . . 182 Portugal . . . . . . . . . . . 157 *Uganda . . . . . . . . . . . . 185 Russian Federation . . 160 Ukraine . . . . . . . . . . . 191 *Samoa . . . . . . . . . . . . . 167 United Kingdom . . . . 194 Singapore . . . . . . . . . . 170 United States . . . . . . . 201 Spain . . . . . . . . . . . . . . 170 Venezuela . . . . . . . . . . 204 Sri Lanka . . . . . . . . . . 174 Page Concluding Remarks by James D. Wolfensohn . . . . . . . . . . . . . 209 Concluding Remarks by the Chairman Ahmed Macki . . . . . . . 211 Remarks by Jean-Pierre Roth, Governor of the Fund for Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 Documents of the Boards of Governors . . . . . . . . . . . . . . . . . . . 215 Schedule of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 Provisions Relating to the Conduct of the Meetings . . . . . . . 216 Agendas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217 Joint Procedures Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 Report II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 Report III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 MIGA Procedures Committee . . . . . . . . . . . . . . . . . . . . . . . . . . 223 Report I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 Resolutions Adopted by the Board of Governors of the Bank Between the 2001 and 2002 Annual Meetings . . . . . . . . . . 226 No. 544...Membership of East Timor . . . . . . . . . . . . . . . . . . . 226 No. 545...Direct Remuneration of Executive Directors and their Alternates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 No. 546...Forthcoming Annual Meetings . . . . . . . . . . . . . . . . 229 No. 547...2002 Regular Election of Executive Directors . . . . 229 * Speaking on behalf of a group of countries. vi Resolutions Adopted by the Board of Governors of the Bank at the 2002 Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . 230 No. 548... Financial Statements, Accountants' Report and Administrative Budget . . . . . . . . . . . . . . . . . . . . . . . . . 230 No. 549... Allocation of FY2002 Net Income . . . . . . . . . . . . . 230 Resolution Adopted by the Board of Governors of IFC Between the 2001 and 2002 Annual Meetings . . . . . . . . . . 232 No. 235 Membership of East Timor . . . . . . . . . . . . . . . . . . . . 232 Resolutions Adopted by the Board of Governors of IFC at the 2002 Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . 234 No. 236... Financial Statements, Accountants' Report and Administrative Budget. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234 Resolution Adopted by the Board of Governors of IDA Between the 2001 and 2002 Annual Meetings . . . . . . . . . . 235 No. 200... Membership of Bahamas . . . . . . . . . . . . . . . . . . . . . 235 No. 201... Membership of East Timor . . . . . . . . . . . . . . . . . . . 237 No. 202... Greece--Change in Membership Status . . . . . . . . 239 Resolutions Adopted by the Board of Governors of IDA at the 2002 Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . 241 No. 203... Financial Statements, Accountants' Report and Administrative Budget . . . . . . . . . . . . . . . . . . . . . . . . . 241 No. 204... Addition to Resources: Thirteenth Replenishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241 Resolutions Adopted by the Council of Governors of MIGA Between the 2001 and 2002 Annual Meetings . . . . . . . . . . 251 No. 61...Extension of Subscription Period under Resolution No. 57 of the Council of Governors. . . . . . . . . 251 No. 62... Membership of East Timor . . . . . . . . . . . . . . . . . . . . 252 No. 63... 2002 Regular Election of Directors . . . . . . . . . . . . . 253 Reports of the Executive Directors of the Bank . . . . . . . . . . . . 254 Membership of East Timor . . . . . . . . . . . . . . . . . . . . . . . . . . . 254 Forthcoming Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . 255 2002 Regular Election of Executive Directors . . . . . . . . . . . . 255 Rules for the 2002 Regular Election of Executive Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257 Statement of Results of 2002 Election of Executive Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261 Allocation of FY2002 Net Income . . . . . . . . . . . . . . . . . . . . . 267 vii Reports of the Board of Directors of IFC . . . . . . . . . . . . . . . . . 269 Membership of East Timor . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 Reports of the Board of Directors of IDA . . . . . . . . . . . . . . . . 270 Membership of the Bahamas . . . . . . . . . . . . . . . . . . . . . . . . . . 270 Membership of East Timor . . . . . . . . . . . . . . . . . . . . . . . . . . . 270 Greece--Change in Membership Status . . . . . . . . . . . . . . . . . 271 Additions to IDA Resources: Thirteenth Replenishment . . . 272 Reports of the Board of Directors of MIGA . . . . . . . . . . . . . . . 324 Extension of Subscription Period Under Resolution No. 57 of the Council of Governors . . . . . . . . . . . . . . . . . . 324 Membership of East Timor . . . . . . . . . . . . . . . . . . . . . . . . . . . 327 2002 Regular Election of Directors . . . . . . . . . . . . . . . . . . . . . 327 Rules for the 2002 Regular Election of Directors . . . . . . . . . 330 Statement of Results of 2002 Election of the Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334 Accredited Members of Delegations at the 2002 Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340 Accredited Members of Delegations (MIGA) at the 2002 Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370 Observers at the 2002 Annual Meetings . . . . . . . . . . . . . . . . . . . 381 Executive Directors, Alternates and Advisors IBRD, IFC, IDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386 Directors and Alternates MIGA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389 Officers of the Board of Governors and Joint Procedures Committee for 2002­03 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391 Officers of the MIGA Council of Governors and Procedures Committee for 2002­03 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392 viii OPENING ADDRESS BY THE CHAIRMAN THE HONORABLE AHMED BIN ABDULNABI MACKI GOVERNOR OF THE BANK AND THE FUND FOR THE SULTANATE OF OMAN Introduction Managing Director Köhler, President Wolfensohn, my fellow Gov- ernors, Excellencies, ladies, and gentlemen, it is my great privilege to welcome you to the 2002 Annual Meetings of the International Mone- tary Fund and the World Bank Group. On behalf of the Boards of Gov- ernors, I would like to express our sincere appreciation to the president and the people of the United States of America for their hospitality. I would also like to extend our deep gratitude to the authorities and the people of Washington, D.C. for hosting these meetings. Let me also extend a special welcome to the newest member of the Fund and the World Bank Group, the newly independent nation of East Timor. There is much to be accomplished during these meetings, and we will all need to work together if we are to make tangible progress. I come from a region where we fully recognize that we need to cooperate with our neighbors to address issues of common concern and to strengthen and deepen relationships. The Sultanate of Oman has devel- oped rapidly during the last 30 years by achieving the stability that comes from the collective cooperation of our people and from working together with our regional neighbors and key trading partners. The economic development of Oman has been achieved by main- taining a strict fiscal policy and by ensuring that inflation is kept under control. In more recent years, there has also been a strong drive for pri- vatization. Oman has encouraged international investors to participate in the expansion of the power sector. We have also encouraged interna- tional investors to participate in the privatization of the management, operation, and maintenance of our main air and sea ports to ensure the efficient use of our national assets. We have also cooperated with a number of international institutions to update our legal and health sys- tems and to improve education. At the regional level, Oman is cooperating with our neighbors in the Gulf Cooperation Council (GCC) to harmonize our economic policies. We are also working to achieve the GCC customs union by January 2003. Oman is a strong advocate of international cooperation as the best way to tackle the various challenges facing us all. 1 Managing Global Integration through Increased International Cooperation Fellow Governors, an outstanding fact of our world today is its growing integration and interdependence. The process of globalization has presented our countries with tremendous opportunities for growth and prosperity but has introduced new risks as well. As this global inte- gration deepens, concerted action on the part of developed and devel- oping countries, national and international authorities, and the public and private sectors alike is needed to ensure that the benefits of global- ization are shared by all. The various initiatives for globalization are important and we must all do more to address the concerns that are being raised in various quarters in both developed and less developed countries. There is, now more than ever, a need to strengthen international cooperation to guide the process of global integration and the pursuit of our common goals--the fight against poverty, the sustained develop- ment of our economies, and the prevention of financial crises--and in light of our universal membership, no institutions are better equipped than the Fund and the Bank to facilitate such cooperation and to ensure that all our voices are heard. Nevertheless, it is critical that each country, for its part, demonstrate the necessary political will and commitment to follow appropriate policies and create the necessary institutions, as well as establish an environment conducive to economic growth based on good governance and the rule of law. The Global Economy Fellow Governors, the global economic outlook is improving slowly, and global economic growth is expected to be 2.8 percent this year. The recovery has yet to take firm hold, and the downside risks to the global economy have increased. The recent volatility in equity markets and new concerns in the area of corporate governance clearly indicate that the risks and vulnerabilities arising from industrial countries are as significant, if not more so, as those in emerging market and developing countries. In this regard, I welcome the prompt action taken by the U.S. authorities to strengthen regulation and enforcement in the financial sector. A major risk to the economies in my region in particular, but also to the global economy in general, is the deteriorating security situation in the Middle East. I therefore urgently call for greater efforts by the inter- national community and all parties involved to seek a peaceful resolu- tion to this and all other conflicts, especially as political turmoil, civil unrest, and conflict all severely hold back progress in tackling poverty and achieving economic prosperity. 2 Poverty Reduction Fellow Governors, the greatest challenge that continues to face us today is to eliminate poverty, which, sadly, remains widespread in many parts of the world. It is our responsibility to ensure that the world's poorest also benefit from the increasing integration of the world economy. In this regard, an unprecedented degree of agreement about what is required to overcome poverty and promote global development was reached at the International Conference on Financing for Development in Monterrey. The conference recognized that both developed and developing countries have important roles to play if real improvements in growth and poverty reduction are to be realized. The Monterrey Consensus reaffirmed the importance of sound policies and good gov- ernance to ensure the effectiveness of official development assistance (ODA). I welcome the announcements made by the European Union, the United States, Canada, and others at Monterrey to boost their levels of ODA. Oman and other Arab donor countries have demon- strated our long-standing commitment to international cooperation by contributing substantial concessional assistance and aid to developing countries. Indeed, we have consistently exceeded the target of 0.7 percent of GNP for ODA set for the industrial countries. The recent United Nations World Summit on Sustainable Develop- ment held in Johannesburg reaffirmed the primacy of sustainable devel- opment as a central element of the international agenda. It concluded with significant commitments in the areas of water and sanitation, energy, health, agriculture, biodiversity, and ecosystem management. The challenge before us now is to implement these commitments in order to improve the lives of people living in poverty and to reverse the degradation of the environment. I am pleased that the recent review of the Poverty Reduction Strat- egy Paper (PRSP) process by the Fund and the Bank confirmed the effectiveness of the PRSP approach to help countries reduce poverty, as it promotes ownership of policies by the countries themselves and requires a broad-based participatory effort in which all stakeholders in the fight against poverty can have a voice. The Bank and the Fund have also made substantial progress in approving debt relief for heavily indebted poor countries through the HIPC Initiative. Twenty-six countries have so far benefited from the ini- tiative and will receive over US$40 billion in nominal debt service relief over time. The debt relief has allowed these countries to increase their spending in such critical areas as health, education, and basic infra- structure. We hope that additional countries will soon be receiving debt relief under this program. 3 Fellow Governors, it is clear that education and adequate health care are central to poverty reduction. However, more than 113 million children of elementary school age in developing countries are not in school, two-thirds of them girls. I therefore particularly welcome the adoption of the Education For All initiative as one of the Millennium Development Goals. Sadly, today 40 million people live with HIV/AIDS. I am pleased therefore that the Bank's lending and technical support for HIV/AIDS have increased significantly, and that today more countries than ever are turning to the Bank for assistance in combating the epidemic. Trade Fellow Governors, international trade has a vital role to play in fos- tering economic development and reducing poverty. In this regard, enhanced market access for developing countries and their effective participation in the Doha Development Agenda are essential to ensure that the benefits of further trade liberalization are shared by all. It is regrettable, however, that the trade policies of many industrialized countries continue to restrict access to the exports of developing coun- tries, particularly textiles and agricultural products. I call upon the industrial countries to commit themselves to a meaningful opening of their markets. Developing countries should also push ahead with their own liberalization efforts. Financial Sector Issues Fellow Governors, globalization of the financial markets has created new opportunities for both industrialized and developing countries. It has also underscored that, in today's global financial system, which is charac- terized by vast and volatile cross-border capital flows, strong financial sectors are necessary to promote savings, investment, and growth. The Fund and the Bank have a special responsibility to help mem- bers better protect themselves against financial crises. In this connection, I welcome the efforts by the Fund over the past several years to sharpen and focus its surveillance function in order to better identify vulnera- bilities and provide timely advice and support for preventing future crises. Another area where the Fund and the Bank are playing an important role in safeguarding the stability and the integrity of the international financial system is in combating money laundering and the financing of terrorism. These issues are of critical importance to the entire member- ship as they affect countries at all stages of development. 4 Conclusion Fellow Governors, in conclusion, I believe that our institutions are now stronger and ever more committed to ensuring that the opportuni- ties and benefits brought about by globalization are made available to, and shared equitably by, all members, particularly the less fortunate. I am certain that the synergies of our working together will help achieve much more than the sum of our individual efforts. Fellow Governors, I hereby declare open the 2002 Annual Meetings of the International Monetary Fund and the World Bank Group. 5 OPENING ADDRESS BY JAMES D. WOLFENSOHN THE PRESIDENT OF THE WORLD BANK GROUP A Time to Choose, A Time to Act It is my pleasure to welcome you to these Annual Meetings. I would like to extend my appreciation to the U.S. authorities for making our meeting in Washington possible and to the D.C. government, the D.C. Police Department, and to all the security personnel for all their sup- port throughout the meetings. I also thank my friend, Horst Köhler, for a collegial and cooperative working relationship in the last two years and for his thoughtful speech this morning. To our newest member country, the Democratic Republic of East Timor--I join Chairman Macki in welcoming you to the Bank. Please accept our best wishes for every success in your efforts to build your nation. When we gathered two years ago, I spoke of the opportunities and challenges of development. These have been a tough two years. In the rich world, collapsing stock markets and corporate scandals have shaken confidence and mutual trust. In the developing world, people have been badly hit by continuing wars and conflict, falling commodity prices, a slackening of demand, and continuing restrictions on trade with rich countries. The human toll in Africa and Latin America has been heavy. Yet, in the face of these difficulties, much of the developing world has shown strong resilience. This resilience is a tribute to the progress that has been made in shaping and implementing policies. Many coun- tries have taken on the problems of dislocation inevitably involved in reform. They have worked to improve institutions and governance. And through these difficulties and our collective action, we have, in many ways, seen the best of people. We have seen a coming together-- a recognition that international problems require international responses. On September 11 last year, the world finally came to recognize that there are not two worlds--rich and poor. There is only one. We are linked by finance, trade, migration, communications, environment, communicable diseases, crime, and drugs, and certainly by terror. Today more and more people are saying that poverty anywhere is poverty everywhere--and their voices are getting louder. Their demand is for a global system based on equity, human rights, and social justice. It must be our demand too. For the quest for a more equal world is the quest for long-term peace--something that military power alone can never achieve. 6 The world is beginning to listen. We have seen a year in which the commitments reached at Doha, Monterrey, and Johannesburg have laid a new basis for a global deal. The development community has confirmed the Millennium Development Goals as our framework for action. In pursuit of these goals, we have witnessed the emergence of a global partnership built on a consensus that the countries of the world are interdependent. Our thinking and action must be local, regional, and global, and we must work and act together. We have reached a remarkable consensus on what is needed for suc- cessful poverty reduction. First and foremost, developing country lead- ers have asserted that the responsibility for the future of developing countries is in the hands of those countries. Developing countries must drive their development and create a constructive environment to encourage growth that is equitable and just for poor people, indeed for all people. This growth must be based on sound social and economic policies. To create the conditions for entrepreneurship, productivity, and jobs, the developing countries must invest in health and education, including early childhood education. These countries must also invest in effective legal and judicial systems, clear tax and regulatory frameworks imple- mented in approaches that fight corruption at all levels, and strong and well-regulated financial systems. Gains from reforms leading to eco- nomic and social growth must be channeled to empower poor people so they can shape their own lives. Poor people are assets, not liabilities. In Monterrey and Johannesburg, developed countries agreed to work in partnership with the developing countries--to assist them to build capacity, to increase overseas development assistance where it is effective and well managed, to open markets to trade, and to reduce agricultural subsidies. They reaffirmed their commitment to the Millen- nium Development Goals for poverty and hunger, education and health, gender equality, and the environment. We have set 2015 as the deadline for our results. We must now, together, move beyond words and set deadlines for our actions. We have said we are mutually accountable. It is time to deliver. If the goals of 2015 are to be achieved, each of us must act now. In doing so, we must recognize that development is not about quick fixes. Achievement of lasting change requires vision. It requires time and patience. It requires a long-term commitment. It requires focus and dis- cipline. And it requires us to measure effectiveness. Some may say we need to learn more before we act. To those peo- ple I would say, of course, we will learn more as we go along, but we already know much about what works and what does not. We know enough to begin implementation now. 7 What Must Each of Us Do? Let me start with the rich countries. Deliver on the Doha agenda. We know that rich-country barriers to trade are too high. Bring down the tariffs and cut back the nontariff barriers that all too often are covert protectionism. Keep to the Doha timetable. But there is so much that can be done by rich countries with- out waiting for Doha. We know that agricultural subsidies in rich countries, at $1 billion per day, squander resources and profoundly damage opportunities for poor countries to invest in their own development. There should be a fixed timetable for the subsidies' elimination. Take the opportunity at the World Trade Organization meeting in Cancun in 2003 to make firm commitments on subsidies, but I urge you to act sooner. Deliver on the welcome commitments of increased aid made at Monterrey, and the excellent response at Kananaskis to financing of the HIPC [Highly Indebted Poor Countries] Initiative shortfall. There appears to be an emerging willingness to increase aid that is produc- tively used. Remove conditions on the use of aid that tend to render aid ineffective, and move to better coordinate and harmonize development programs and policies. The fragmentation of donors' efforts has long undermined the effectiveness of aid. Many of the failures blamed on borrowing countries actually represent the failure of donors to coordi- nate their efforts. Better development multilateralism will deliver better development results. What Must Developing Countries Do? They must continue to build capacity, good governance, and institu- tions--to push ahead with legal, judicial, and financial reforms and to invest in their people. Like the developed countries, developing countries must increase their focus on results--on monitoring outcomes and managing programs so that growth and poverty reduction goals can be achieved. For many countries, the New Partnership for African Development shows the way. What Must the Bank Do? Focus on fulfilling our promises to work toward the Millennium Development Goals. Though as an institution we have changed greatly over the last decade, we must do more. Our operations must become more transparent. We must support developing countries in better build- 8 ing their capacity. Although we have been a leader in measuring the results of our projects and programs, we must measure our results more rigorously, and, with others, we must be held accountable in the broader context of country goals and the Millennium Development Goals. We are anxious to move ahead with efforts to harmonize and coor- dinate our work with the International Monetary Fund, the United Nations, multilateral development banks, and other donors. All partners in development must pay special attention to inclusion, participation, and empowerment: --Inclusion, because we cannot expect reforms to be sustained if poor people are excluded when choices and trade-offs are made --Participation, because poor people know best what makes a dif- ference in their lives --Empowerment, because we will not have lasting change unless poor people acquire the assets and means to shape their future. Societies the world over are changing. People demand to be informed, to be consulted, to have a say, to have a voice. Unless we build on their strengths, we will forgo the most powerful force for implementation. But actions by governments of developing and developed countries and by international institutions are only part of the solution. We must all do more to enhance the role of civil society and the private sector. The old multilateralism included only governments. The new multilat- eralism must include the voices of the private sector and civil society. We must all be more accountable. Better partners. Better listeners. Bet- ter deliverers. And we must keep track of our actions. We have made real progress in reaching broad agreement that development must be addressed comprehensively--and that it must be owned by developing countries. For most poor countries, this approach is embodied in their Poverty Reduction Strategy, an approach that is transforming strategy and partnership in many countries. The compre- hensive development framework is also proving effective for middle- income countries. For the first time we have a tool--the Development Gateway--that enables us to collect information on and learn more about development projects around the world. According to the Development Gateway, more than 63,000 development projects, not including those programs undertaken by civil society or church groups, are ongoing. All too often, projects in one sector in a country are run by multiple agencies that do not talk to one another. We must use the Development Gateway to track our actions so that we can better coordinate our efforts. 9 We have come a long way. We do not have to start from scratch. We already have programs that can be implemented. The Education for All Initiative, for example, would enable us to work together to enroll some 17 million children in school for the first time. We have programs on HIV/AIDS. As of today, 20 developing and transition economies have developed and are implementing AIDS strategies that build on existing prevention, care, and treatment. We have programs for clean water and sanitation. But we need to scale up these programs so that they can have national, regional, and global impact. And we need donor support to implement them. Let education, AIDS, and clean water be a first test of our commit- ment to partnering for results. If we are to meet the 2015 goals, we must agree to set deadlines now for our actions. But we must go further. 2015 is only a staging post on a much longer journey. Over the next 50 years, we will likely see world population grow from 6 billion to 9 billion; almost 95 percent of that increase will occur in the developing world. Food needs will double; annual output of car- bon dioxide will triple; and for the first time more people will live in cities than in rural areas, placing an enormous strain on infrastructure and on the environment. If we are to meet the 2015 goals, and go on reducing poverty effectively, we will need an estimated average annual growth rate of the world economy of approximately 3.5 percent--giving us, perhaps, a $140 trillion world economy by 2050. If we cannot protect our environment and make such growth eco- logically responsible, we will not have sustainable development. If we retain the current distribution of income in which 15 percent of the world's population controls 80 percent of the world's income, we will not have sustainable development. If we continue to exclude the disenfranchised--women, indigenous people, the disabled, street children--from playing their rightful role in society, and if we ignore their human rights, we will not have sustainable development. And if we do not have sustainable development, we may not have long-term peace. Sustainable development is the challenge that together we must meet. I cannot conclude without saying that I am extremely proud of the staff in the World Bank Group. They are united by a desire to fight poverty with passion. I thank them, from the bottom of my heart, for their hard work and commitment. My friends, working together, we have the opportunity, the respon- sibility, and the privilege of shaping the planet of the future. We are not 10 hapless bystanders. We can influence whether we have a planet of peace, of social justice, of equity, of growth--or a planet of unbridge- able differences among people, a planet of wasted physical resources, of strife, of terror, and of war. Ours can be a time of a new renaissance of values, of justice, of freedom from want and fear. We must set our sights high. We must not be distracted. We must act now on our promises. We must deliver on them with a sense of urgency. Completing this task is our responsibility and our destiny. 11 REPORT BY TREVOR MANUEL CHAIRMAN OF THE DEVELOPMENT COMMITTEE Mr. Chairman, Mr. Köhler, Mr. Wolfensohn, Governors, ladies and gentlemen, as Chairman of the Development Committee, I am pleased to report to you on the Committee's work during the two meetings held this year. During the committee meeting in April, we welcomed the important progress achieved in the Monterrey Consensus, which sets out a new partnership compact between developed and developing countries based on mutual responsibility and accountability to achieve measur- able improvements in sustainable growth and poverty reduction. This new partnership was reaffirmed in Johannesburg earlier this month, and a series of important commitments were made in the areas of water and sanitation, energy, health, agriculture, biodiversity, and ecosystem management. These commitments were accompanied by the launch of implementation initiatives. Under the new partnership, developing countries have committed themselves to pursue sound policies and good governance. Developed countries made a commitment to ensure sufficient financing for devel- opment. The primary mechanisms for achieving this aim are to increase the level official development assistance (ODA) provided to develop- ing countries and to implement the HIPC Initiative. At Monterrey, heads of state further agreed to consider alternative sources of finance for development. The Development Committee recognizes that the challenge before us is to make good on our commitments and move forward on imple- mentation. The Bank has embraced the challenge of translating those commitments into tangible results that will lead to an improvement in the living standards of people living at the grassroots level. The Development Committee recognizes the need to increase its focus on performance by ensuring that development results are reviewed through clear and measurable indicators. Progress in this area, as set out in a paper entitled "Better Measuring, Monitoring, and Managing for Development Results," was reviewed by the committee. We reaffirmed our strong support for the current work program to harmonize operational policies and procedures of bilateral and multi- lateral agencies, so as to enhance aid effectiveness and efficiency. We committed to further action in streamlining such procedures and requirements. In April, we emphasized that more attention should be given to the building of institutions and capacities, as well as the timing and sequencing of the reform process. We underlined the importance of an 12 enhanced focus on results that can be used by countries in designing and implementing their strategies, and by donors and development agencies in scaling up and allocating their support. In April, we endorsed the Education for All (EFA) Fast Track Initiative. We reviewed progress on this initiative yesterday and, in addition, considered the challenges of scaling up activities in two additional areas; namely, HIV/AIDS/communicable diseases, water, and sanita- tion. We have urged the Bank to pursue work in these areas. We reviewed and welcomed the steady progress that has been made on the HIPC Initiative, and remain committed to its vigorous imple- mentation. The Development Committee fully supports the objective of finding an enduring exit from unsustainable debt for our poorest mem- bers. Success of the HIPC Initiative will require full participation and delivery of relief by all affected creditors, and adequate and sufficient concessional financing by international financial institutions and the donor community. The financing component of HIPC is critical to its success. We wel- come the indication of support to meet the anticipated financing short- falls in the HIPC Trust Fund, estimated to be about US$1 billion, and call upon donor countries to make firm pledges as a matter of urgency. It is especially important that the cost of debt relief to IDA is not per- mitted to compromise IDA's resources, and donors should not count commitments as part of their overall aid budgets. Moreover, it is critical to the financial sustainability of recipient countries that bilateral debt relief does not reduce the debt relief provided under HIPC through recalculation of assistance. In April, the Committee noted that the Comprehensive Development Framework/Poverty Reduction Strategy Paper (CDF/PRSP) approach is increasingly providing a common foundation for implementing the new partnership at the country level. While recognizing that scope for improvement exists, we shared the positive assessment of implementa- tion to date, particularly in enhancing ownership. At our meeting yes- terday, we reviewed further experience with PRSPs, which confirmed the broad findings of the review earlier this year. The committee is encouraged by the increased momentum in efforts made by countries to develop and implement their PRSPs. The committee welcomes the role performed by the Bank and the Fund in assisting countries to achieve the Millennium Development Goals (MDGs). A central role in that effort is played by the Poverty Reduction Strategy Papers, and other country-owned development programs, and the financial support associated with them, including the Poverty Reduction and Growth Facility (PRGF) and the Poverty Reduction Support Credit (PRSC). We have called on donors, the 13 Bank, and the Fund to more fully align the PRGF and the PRSC with countries' PRSPs. It was indicated by the committee that further col- laborative efforts are needed to strengthen the analyses of sources of growth, to help countries improve their public expenditure manage- ment systems and to promote financial sector development. Poverty and social impact analyses should provide a systematic basis for helping countries to assess the impact of their policies. During our meeting yesterday, we recognized the special challenges faced by Africa in meeting the MDGs. We therefore urged the Bank and the Fund to scale up assistance to African countries and to build on the New Partnership for Africa's Development initiative, as a unique opportunity to make significant and quick progress. The committee further agreed that improving the coherence of poli- cies, coordination, and cooperation between multilateral organizations would provide an important support to the overall effort to improve the effectiveness of aid and reduce poverty. To that end, the committee agreed that it would review a background document on broadening and strengthening the participation of developing countries in international decision making and norm setting, to be prepared by the Bank and the Fund at its next meeting. We reviewed a progress report on anti-money laundering and com- bating terrorist financing. We endorsed the conditional addition of the FATF 40+8 recommendations to the list of standards and codes useful to the operational work of the Bank and the Fund. 14 STATEMENTS BY GOVERNORS AND ALTERNATE GOVERNORS AFGHANISTAN: ANWAR UL-HAQ AHADY Governor of the Fund It gives me a great pleasure to represent Afghanistan in this forum. After a relatively long and painful absence, Afghanistan is formally rejoining the international community and the Bretton Woods Institu- tions. Unlike the previous 23 years, this year the news from Afghanistan is significantly good. Afghanistan is in the midst of profoundly positive political, social, and economic changes. Less than a year ago, Afghanistan was an oppressive theocracy. Today, it is a more inclusive polity taking promis- ing steps toward democracy. Socially, the country is no longer segre- gated by gender, and, while maintaining its Islamic character, it is comfortably interacting with other civilizations. However, I do not want to dwell on sociopolitical changes in this forum, but rather to inform you about the profound systemic economic changes, in general, and monetary changes, in particular. The most fundamental economic systemic change in the past year has been the commitment of Mr. Karzai's administration to a market economy. For the past half century, Afghanistan's economy, especially the modern sector, has been controlled by the state. Even though efforts at privatization are still in their early stages, the government's commit- ment to a free and competitive economic system is unwavering. Accord- ingly, a newly adopted investment law strongly encourages both domestic and foreign private investment in the country. The return of previously confiscated private property to the original owners is another manifestation of the government's commitment to the sanctity of private property. Similarly, the government's foreign trade policy ori- entation has a clearly liberal character. In monetary matters, over the past 15 years, the main problem in Afghanistan has been the reliance of the government on printing money to finance the deficit. However, the Karzai government is now committed to a policy that permits no mon- etization of the fiscal deficit. Da Afghanistan Bank--that is, the Central Bank of Afghanistan--is the agent for monetary change in Afghanistan. To overcome most of the problems created by irresponsible printing of banknotes by various governments over the past 15 years, the central bank decided, last April, to introduce new banknotes and to withdraw old banknotes from circulation. Da Afghanistan Bank will launch its banknotes exchange 15 operation on October 7, 2002, and the process is expected to be completed by December 4, 2002. Even though the banknotes exchange project is very costly, given the negative social and economic conse- quences of the existing chaotic currency situation and our expected gains from the introduction of new banknotes, we find it prudent to undertake the banknotes exchange project. The introduction of new banknotes will enable us to reduce the high cost of cash transactions; it will restore the central bank's control over the printing and issuing of money; and, it will enable us to have an accurate count of the total amount of banknotes in circulation. Conse- quently, Da Afghanistan Bank will be in a position to pursue meaning- ful monetary policy aiming at general price and exchange rate stability. With tremendous help from the IMF staff, Da Afghanistan Bank has also prepared a draft central bank law and a draft general banking law, which, respectively, call for the autonomy of the central bank and mar- ket competition among commercial banks. We are confident that in the next few months these laws will be adopted. We intend to privatize some of our existing state-owned commercial and specialized banks. We also intend to allow foreign banks to operate in Afghanistan, and the central bank to relinquish its commercial activities and focus only on its own responsibilities. We have launched the computerization of the bank's operation; and, once again, with the help of the IMF staff, we have prepared a general plan for a comprehensive organizational restructuring of the central bank. In short, Da Afghanistan Bank has launched a multifaceted mod- ernization program. To implement our plans, we have received financial assistance from USAID, Germany's GTZ, Sweden's SIDA, Britain's DFID, and the World Bank. We also have the promise of further finan- cial assistance from the Asian Development Bank and the World Bank. With the kind of advice and financial assistance that Da Afghanistan Bank has been receiving, we are confident that we will be able to imple- ment our reform and modernization plans within the next 18 months. We are very appreciative of the assistance that we have received thus far from the international community. We are, however, definitely in need of further technical, as well as financial, assistance. We are confi- dent that soon Da Afghanistan Bank will become a typical modern central bank, able to achieve price stability and help to create the macroeconomic environment for private-sector driven growth. I thank the world community, especially the United States for its leadership in making it possible for Afghanistan to rejoin the world community. And I thank the IMF and the World Bank for their advice and technical assistance, and all donors for their material assistance. Afghanistan looks forward to becoming a normal member of the inter- national community; your assistance will help us reach our goal. 16 AUSTRALIA: PETER COSTELLO Governor of the Bank and the Fund Since we last met two years ago--before the tragic events of Sep- tember 11 last year--much has changed in the world economic outlook. And the challenges now are much greater. In the wake of September 11, the international community responded quickly and decisively to undertake important changes that will deter and intercept the financing of terrorism. Our ability to act together in a timely and effective manner provides evidence of what we can achieve when we cooperate in a determined way. It is useful to reflect on this experience as we face the challenges ahead in lifting global growth and development opportunities. In 2001, world economic growth slowed to about 2 percent, the low- est rate in almost a decade. Despite conditions improving in the first half of this year, the recovery has been weaker and more drawn out than previously anticipated. While the outlook is for continuing modest recovery, noticeable downside risks are evident. These risks reflect the impact of the falls in equity markets, the loss of confidence in corporate governance, and the potential for rising oil prices. Of major concern is the sustainability of large macroeconomic imbalances between the large industrialized economies. The U.S. cur- rent account deficit is now at historically high levels while weakness in final domestic demand in the euro area and Japan has made these economies increasingly reliant on external, and particularly, U.S. demand. Policies that promote and rebalance world economic growth by sup- porting an orderly reduction in global imbalances must remain a priority for all national authorities. In Japan and Europe it is evident that domestic policy reform will be required to promote longer-term growth. Failure to undertake the necessary policy responses not only constrains consumer and investor confidence today but makes the eventual adjust- ment harder and more painful. Immediate, decisive and clear policy actions designed to gradually unwind imbalances between the major industrialized economies is far preferable to the potential instability caused by the rapid unwinding of imbalances international financial markets can mete out in the face of perceived policy shortcomings. In Australia, we have found over a long time that macroeconomic and structural reforms have resulted in very strong productivity gains, solid employment growth, and higher non-inflationary potential growth. One of the clearest benefits we have derived from these reforms has been in strengthening our resilience to adverse external developments. Australia came through the Asian crisis relatively unscathed, and more recently has continued to record strong growth 17 despite the slowdown in most of the rest of the world. As result, Aus- tralia has now completed its eleventh year of practically uninterrupted growth, the longest economic expansion since the 1960s. This is not to dismiss the potentially adverse impact on our growth-- as well as those of our major trading partners in East Asia--from pro- tracted weakness in the global economy. A return to a strong and growing global economy also offers the best prospects for assisting developing economies in achieving the growth necessary to continue to reduce the numbers of people living in poverty. It is salutary to note the impact that the Asian crisis had on halting, and even reversing, the substantial improvements in poverty alleviation that had occurred in Asia during the decades preceding the crisis. More recently, events in Latin America have also seen the numbers facing poverty in countries such as Argentina increase. These events, continu- ing problems in Africa, and a weak global outlook, pose serious chal- lenges to our efforts toward making further progress in reducing the incidence of poverty around the world. Reducing the number of people living in poverty remains a funda- mental issue for the international community. Australia welcomed the Monterrey Consensus and its premise that attacking poverty and pro- moting development requires a partnership of actions of both devel- oped and developing economies. And we were pleased to see many of these themes reinforced at the recent World Summit on Sustainable Development. In particular, we welcome the emphasis placed on national govern- ments' implementing policies appropriate for domestic resource mobi- lization and the attraction of foreign direct investment, particularly in the areas of governance and rule of law. We also endorse the emphasis placed on a conducive external environment and, in particular, the need for broad-based trade liberalization. Trade liberalization is vital for more rapid growth--and growth is the best answer we have to deal with poverty. There is no shortage of analysis that shows the potential bene- fits to economic growth and welfare that would accrue to both develop- ing and developed countries from comprehensive trade liberalization. And yet, trade-distorting agricultural subsidies in developed coun- tries still amount to US$350 billion per annum or almost seven times aid flows. European Union support for the cattle and dairy industries amounts to around 10 times, per head of cattle, the OECD's support per person in a developing country. Much more is spent propping up ineffi- cient and unsustainable activities in developed countries than is spent on aid to developing countries. Moreover, existing trade policies in many industrial countries in fact directly neutralize the effectiveness of aid. We need the political will to seize the opportunities for broad-based agricultural trade liberalization presented by the Doha trade negotia- 18 tions agenda. Greater coherence is needed between trade and aid. But comprehensive trade liberalization will generate far greater and cer- tainly more sustained benefit for developing countries than increasing aid resources. Further progress in the Doha trade negotiations will play a key role in catalyzing improvements in global confidence and growth. A benchmark of the Doha round's success or failure will be the degree of progress made in reducing farm protection. This is vital for the poor- est economies. As they enter the arena of international trade, some of their earliest export opportunities will be in agricultural products. The experience of the last 50 years is unmistakable. Countries that have been able to open themselves up to the world economy have made the best gains in addressing poverty. Crisis Prevention and Resolution The main challenge for the IMF is to improve crisis prevention and resolution. Seven years after the Mexican financial crisis of 1995, emerging market economies still average more than one major crisis each year. Much has been done, but the simple fact is that the incidence and severity of crises has not decreased. It is highly disconcerting that a number of countries that have catapulted into crisis did so from the position of IMF programs, where one assumes the Fund would have been at its most influential. There is a clear message. The Fund must continue to work to make its analysis and advice more timely and effec- tive, and to ensure that this is reflected in better program design. In our view, the key area for improvement is more timely identification by the Fund of the policy changes needed to avert crises, and the need for the Fund to be influential in getting member countries to adopt these changes. Of course, national authorities are ultimately responsible for imple- menting policy, and the Fund cannot dictate to members. Nonetheless, management and the Executive Board must be prepared to take the hard judgments in surveillance and in program design. Assessment of debt sustainability needs to be a core competency of the Fund. Unless all the factors that affect debt sustainability are considered--including the maturity profile, currency denomination, debt servicing capacity, and sensitivity to adverse external developments-- the Fund will not be in a position to provide appropriate policy advice or assess the likely success of any program. In this respect, attention should also be paid to the terms at which countries regain access to financial markets. The challenge for Fund programs is to facilitate a return to markets at terms that do not impose excessively high costs, constrain domestic policy flexibility, or sow the seeds of future crises. 19 The large scale of recent IMF programs emphasizes the need to improve the framework for determining access to IMF resources. As the amount of IMF financing increases it is appropriate that the justifi- cation for this financing is comprehensive and rigorous. It is also impor- tant that decisions about financing are not just based on simple rules, but thoroughly grounded in approaches that re-emphasize such factors as need, capacity to repay, and exposure of the Fund. The evidence from recent crises suggests that at some stage many countries will need to engage the private sector in debt restructuring. We urge swift action by the international community toward the imple- mentation of debt restructuring proposals, including both statutory and contractual approaches. Australia wants to see further progress on the sovereign debt restructuring mechanism, and we are ready to move with the international community to include collective action clauses in future international debt issues. Of course, no conceivable proposal for new crisis resolution mecha- nisms can ever substitute for timely advice, good judgment, and effec- tive decision-making. Ultimately, the credibility and effectiveness of the Fund as an institution relies heavily on--and will be assessed on--the quality of its analysis and advice, as well as its ability to engender mar- ket confidence in that advice. If the Fund is to be effective, it must be able to involve all members. In this respect, governance at the Fund needs to more closely reflect members' relative economic standing, while maintaining participation by smaller, developing countries. This issue needs to be tackled directly and resolved as a matter of priority. Australia strongly supports the calls by our Asian neighbors for an increase in their representation at the international financial institutions. Poverty Alleviation If the Millennium Development Goals are to be achieved, it will be necessary to ensure a significant and ongoing focus on the real devel- opment needs of the Asia-Pacific Region. The region is home to around two-thirds of the world's poor--or 800 million people. The Monterrey and Johannesburg conferences appropriately placed emphasis on the importance of national policies in developing countries, the opportuni- ties provided by trade liberalization, and the need for more effective and higher aid volumes. The Bank has a critical role to play in each of these spheres, in concert with the Fund, as appropriate. We continue to place critical importance on sound country policies and strong institutions. We see improvements in governance as an absolute necessity for achieving significant and sustained progress in reducing poverty. For many countries, the PRSP process can be a vital 20 tool in making progress on this front. PRSPs play an important role in ensuring that improvements to governance arrangements are made, including strengthening institutions and improving policies. For this reason, the PRSP process must continue to be strengthened, and coun- tries must be given the technical assistance to build their capacity to provide more reliable data, improve public expenditure management systems, and undertake more realistic projections. Such actions should also assist in ensuring assistance is better linked to PRSP priorities, and placing PRSPs at the center of a range of Bank, Fund, and other donor activities. The Bank together with the Fund must take every opportunity to promote the benefits of trade liberalization and build a consensus in support of liberalization in developed and developing countries alike. Australia also urges the international institutions to provide support to developing countries in order to benefit from the opportunities pro- vided by trade. Australia has provided trade-related technical assis- tance to developing countries and is a substantial contributor to the Doha Development Agenda Global Trust Fund. Where a sound policy environment is in place, and strong institu- tional capacity exists, aid can generate significant results. In recognition of the prominence placed on such issues, Australia placed considerable importance on maintaining its burden share in a very significantly expanded IDA13 replenishment, as well as providing an additional $A18 million commitment to HIPC, also aimed at maintaining our bur- den share. The latest contribution brings Australia's total contribution to the HIPC Initiative to $A77 million. In addition, Australia is also providing 100 percent bilateral debt relief to countries qualifying for HIPC assistance. Australia has been a strong supporter of the HIPC Initiative, and we place considerable importance on its full implementation. The robust- ness of debt sustainability analysis is integral to the effectiveness of the HIPC process, and in this regard, we welcome the scope for flexibility, on a case-by-case basis, to provide additional debt relief to ensure debt sustainability. However, there is more to longer-term sustainability than debt relief which is the start. But countries must go on to adopt rigor- ous institutional frameworks that assess appropriate future levels of borrowing, the productive investment of borrowed resources, realistic assessments as to the external environment, including access to export markets, and an ongoing commitment to longer-term structural reform efforts. Donor resources can never be unlimited, so making aid more effec- tive will remain vital. In this context, we welcome recent moves to improve the measuring and monitoring of results, and the useful focus on outcomes. However, in developing indicators and measuring results, 21 it will be important to take account of specific country circumstances. We would also attach considerable weight to closer matching of pro- grams to the needs and capacities of developing countries. It is also important to have the right indicators. Performance indica- tors are only useful if they are in fact a true indicator of the desired objective. Too often, achieving the desired objectives--such as poverty reduction--can be compromised or diluted by undue attention given to performance indicators serving as inexact proxies. Indeed, much of the Bank's work--that part that supports sound economic policies and governance--may not be directly measurable through improvements in social indicators in the short term. Yet they are crucial to sustained eco- nomic growth, and must not be ignored. The Bank will need to remain focused on its strength in supporting complex and sensitive activities that are crucial for development but are difficult for other donors. In this context, I encourage the Bank to remain closely engaged in assisting poor performing states, those countries with weak policies and institutions. The international community cannot afford to disengage. The consequences would be felt by those least able to bear the burden-- the poor. Engagement strategies to assist poor performers need to be flexible and tailored to specific needs. A balanced approach will be required, with a focus on maintaining service delivery, engaging in dialogue and practical support for governance reforms, strengthening donor coordi- nation, and addressing conflict. Perhaps most important, realistic expec- tations are necessary as we go about addressing this difficult and long-term task. For our part, Australia plans to continue working closely with poor performing states in our region. We strongly support the Bank's work on its framework for assistance to low-income countries under stress and look forward to further discussions on this issue. The Bank and all donors should press ahead with work to increase harmonization of poli- cies as a way of reducing the administrative burdens on recipient coun- tries. This is an area where Australia, together with New Zealand, has placed considerable emphasis and believes significant benefits can be realized from this process. We warmly welcome Italy's offer to host a high-level forum in early 2003. Conclusion We face many challenges--an uncertain global outlook, financial crises in some key emerging market economies, a continuing need to combat the financing of terrorism, and the ongoing imperative to improve the welfare of the 1.3 billion still living in poverty. We must commit ourselves to taking the actions required to improve the 22 prospects for global development and prosperity, reduce vulnerability to, and the costs inherent in, crises, and strengthen our financial sys- tems. The IMF and the World Bank are playing a vital role, but we should not be complacent that everything that could be done is being done. We must commit ourselves to taking the actions required to improve the prospects for global economic growth and prosperity. At the national level, in economic reform, at the international level in improving the financial architecture, and in our aid commitments, to fight the scourge of poverty. BANGLADESH: M. SAIFUR RAHMAN Governor of the Bank and the Fund It is a great honor for me to address the Annual Meetings of the Boards of Governors of the Fund and the Bank for the eighth time since 1980. During the past 22 years of my association with the Bank and Fund Boards, the world in general and Bangladesh in particular have witnessed significant achievements and difficult challenges in the eco- nomic sphere. Compared with the past, the challenges of economic management today, are, however, much more complex and painful. I would like to congratulate both Mr. Wolfensohn and Mr. Köhler for their stewardship of the Bretton Woods institutions at this critical junc- ture and extend my warm felicitation to you, Mr. Chairman, on your election. We welcome East Timor as the newest member of the Bretton Woods family. The political and economic outlook in the global context continues to be uncertain. We are meeting today in the United States which was traumatized in the recent past by the sinister forces of terrorism. Bangladesh, under the leadership of Prime Minister Khaleda Zia, is totally opposed to terrorism in all its forms and will continue to extend full support for its elimination everywhere. In the current year the prospect of economic recovery in many parts of the world has turned out to be elusive. According to the latest forecast, the world economic recovery is likely to be weak, vulnerable to shocks, and confined to a few countries. Oil prices are back to a very high level, and the terms of trade for developing countries like Bangladesh have significantly dete- riorated, leading to the paradox of lower earnings for more exports. According to reports of the Development Committee, the flow of offi- cial development finance declined in both 2000 and 2001, and the actual flow in 2001 was less than the average flow during the periods 1985­89 and 1990­99. It has been accompanied by a decline in the flow of private capital in much of the developing world. Against the backdrop of an adverse international economic envi- ronment, a number of initiatives have already been taken to reverse the 23 declining flow of resources to developing countries. The Monterrey Consensus is a milestone in forging a new partnership between devel- oped and developing countries. We also welcome the successful conclu- sion of IDA 13. The World Summit on Sustainable Development at Johannesburg has revitalized the urge for environmental protection and climatic equilibrium. The highest ever replenishment for the Global Environment Facility is also welcome. The Millennium Development Goals, by setting quantifiable targets for economic and social develop- ment, have added new dimensions to the Monterrey and Johannesburg consensus. The initiatives taken so far are in the right direction. However, they are not sufficient. If we really want to implement the Millennium Development Goals, past practices for allocating aid must be reviewed, and more resources must flow where many of the poor live. It may be relevant here to note that Asia contains the largest concen- tration of the world's poor. Measures should also be taken to swiftly implement the Fourth Amendment of the IMF's Articles of Agreement on the allocation of SDRs and to satisfactorily complete a review of IMF quotas. In parallel with additional measures for the increased flow of assis- tance to developing countries, the gains of globalization must be consoli- dated. With a view to removing the misgivings about globalization, high-income countries must come forward unilaterally with protrade poli- cies and demonstrate good faith by curbing nontrade barriers, including unrealistic labor standards. Low-income countries should be allowed duty-free and quota-free access to markets in industrial countries. Glob- alization must be embedded in democratic institutions both nationally and globally, and measures for the further democratization of multilateral financial institutions and instruments of global governance should be explored. Development cannot be generated from outside by the flow of assis- tance alone. The developing countries must themselves create an enabling environment for the effective utilization of foreign assistance. In this context, we welcome measures to better measure, monitor, and manage development results. We support the surveillance measures of the IMF and welcome its intensified work on anti-money laundering and combating terrorism. Nevertheless, it must be remembered that development cannot be promoted by policing alone. The ends and means of development must not be confused. Development is a com- plex transformation in an ever-changing environment. The multilateral institutions must remain ready to respond flexibly to challenges of development on case-by-case basis. The last decade in Bangladesh started with great promise. During the period 1991­96, major reforms were implemented in areas of trade, 24 banking, fiscal consolidation, human resource development, and priva- tization. Unfortunately, political changes in 1996 stalled and reversed the process of reforms for five years. The present government, which pioneered reforms in the early 1990s, has within the shortest possible time restored macroeconomic balance and undertaken the painful process of restarting reforms. Fiscal consolidation and the closure of large loss-making industries have already contributed to high social costs. The government has so far mitigated some of these costs from its meager resources. However, further reforms are not likely to be socially acceptable unless additional resources for safety net, investment in physical infrastructure, and human resource development could be mobilized. The government has already prepared a draft IPRSP through a participatory process, and we hope to complete the process expeditiously. Bangladesh has demonstrated its ability to efficiently use aid, signif- icantly lower population growth, build rural infrastructure, increase food production, reduce poverty, and introduce innovative measures for empowerment, such as micro credit. Given adequate support from the world community, we are confident that Bangladesh will attain its millennium development goals by 2015, despite the enormity of its problems. BELARUS: ANDREI V. KOBYAKOV Governor of the Bank First of all, I would like to express my gratitude to the government of the United States of America and the authorities of Washington for their cordiality and hospitality and for a good hosting of the meetings. This year is significant for our country. Ten years have passed since Belarus' accession to the World Bank Group and the IMF organiza- tions. The Republic's decision to become a member of these organiza- tions was, undoubtedly, sound and made a beginning for our long-term mutual cooperation. We have experienced different periods along the way, including a period of active cooperation (1992­95) as well as peri- ods of relatively stagnant relations (1996­2000). Since the autumn of 2000, relations with the World Bank and the IMF have been improving. In 2001 the government of the Republic of Belarus started to implement an IMF Staff-Monitored Program that contributed to the current Republic's market transformation and macro- economic stability. Tightening of monetary and fiscal policy, and foreign exchange market liberalization made it possible for the country to assume obligations according to paragraphs 2, 3, and 4 of Article VIII of the IMF's Articles of Agreement. Significant steps have been taken with regard to price liberalization, more transparent fiscal sphere, phasing out 25 directed loans, strengthening the banking system, facilitating economic activities, and creating a more efficient targeted social safety net. In 2001, a new Loan Agreement was also signed with the Inter- national Bank for Reconstruction and Development concerning the loan for the Belarus Social Infrastructure Retrofitting Project in the amount of US$22.6 million, and a new World Bank Country Assistance Strategy for Belarus for fiscal years 2002 through 2004 was approved in March 2002. During this decade, the Republic of Belarus received approximately US$500 million in financing from the IMF and the World Bank in the form of credit and technical assistance. In shaping the country's economic policy, the government of the Republic of Belarus follows the Fund and Bank recommendations. Tak- ing them into account, over the last few years, it has successfully achieved the national currency exchange rate unification, reduced for- eign trade limits, and has attained relative progress in privatization. The Republic of Belarus intends to further develop cooperation with the international financial institutions assuming that it is an essen- tial condition for the steepest reforming of the national economy and its integration into the world economy. At the same time, despite the revival of cooperation with the interna- tional financial institutions, Belarus, unfortunately, does not receive ample external financing, and the deficit of financing and investment resources is one of the deep problems in the Republic's economic development. The government of the Republic of Belarus mobilizes to the utmost the national financial resources for development, namely, by providing a stepwise liberalization of financial and trade markets, creating an investment friendly environment, supporting the poor, and stimulating entrepreneurial development; however, resources are scarce to resolve the acute domestic development problems. The government of the Republic of Belarus calls on the IMF and the World Bank to actively assist us in our transformation. Under the coun- try's stable and dynamic economic development--the annual increase in gross domestic product averaged approximately 6 percent over the past five years, while industrial production increased by about 10 percent-- we are carrying out a comprehensive large-scale privatization program in such spheres as petrochemicals, electronics, and others, totaling one- third of industrial output. Considerable reorientation toward liberalization is a distinctive fea- ture of the present economic policy of the Belarusian government. In this context, we proceed from the assumption that it is necessary to uphold and further increase macroeconomic stability based on a rigid monetary policy. We consider it extremely important to develop small and medium-sized enterprises and provide favorable conditions to attract foreign investment. 26 Belarus, while sharing in the main the approaches set forth in the statements by the IMF and the World Bank executives, would focus the IMF's and the Bank's attention on a time factor necessary for rendering prompt assistance to the developing countries and countries with economies in transition. The Republic of Belarus also needs lending support for carrying out economic reforms. Great challenges are now facing us, the region as a whole, and the global economy. These challenges set new priorities and call for serious reforms within the international financial institutions and international development banks. The role of the latter in achieving sustainable growth and poverty eradication worldwide is increasing. The reforms the international development banks are undergoing now are aimed at increasing their effectiveness, strengthening their positive impact on the development and growth processes, poverty reduction, simplification of conditions and principles attaching to the use of their financing, and political instruments. The Republic of Belarus calls upon the World Bank and the IMF to follow the provisions of the resulting documents of the International Conference for Financing For Development (Monterrey Consensus) and the World Summit on Sustainable Development in Johannesburg, stipulating major approaches to combining efforts to eliminate poverty and provide assistance in the sphere of sustainable development for the future. Our country attaches great importance to implementing the pro- visions concerning improvements in the coherence and consistency of the international monetary, financial, and trading systems, encouraging the IMF and the World Bank to broaden participation of all developing countries and countries with economies in transition in decision-making processes, and thereby to strengthen the international dialogue and the work of these institutions aimed at addressing the development needs of the said countries. Allow me to stress that the Bretton Woods institutions should con- tinue to play the leadership role in establishing the international coop- eration with participation of the UN system agencies as well as all other stakeholders to ensure that globalization and the related processes increase human capacity, and its benefits reach all people. In this con- nection, both the global and regional cooperation in the field of financ- ing for development must take account of the regional peculiarities and specific character of each country. Financial resources should be directed by donors and creditors not only toward promoting countries' macroeconomic and financial stability but also toward broader support for real economy, infrastructure development, elimination of disastrous effects (including the Chernobyl catastrophe), and bridging the telecommunications and digital gaps. 27 Mobilization of international resources for development, predomi- nantly carried out by the World Bank Group and the IMF institutions, is a major component of the financing for development. Only by conduct- ing a competent, well grounded policy will these agencies be able to offer real assistance to national governments in their capacity-building efforts. In conclusion, I would like to express a hope that the decisions made on the results of the Annual Meetings of the World Bank and the IMF Boards of Governors would make an important contribution to increas- ing efficiency of the support provided by these organizations to the nations in carrying out reforms with the aim of promoting their sustain- able development. BELGIUM: DIDIER REYNDERS Governor of the Bank This year the economic and financial climate has been particularly fraught with uncertainties, which have in turn slowed economic growth. It is therefore incumbent on policy makers and the Bretton Woods insti- tutions to pursue a policy that will reduce these uncertainties, establish the foundation for balanced growth, and generate hope for sustainable development throughout the world. Economic Prospects Economic prospects have deteriorated over the past year. The rea- sons for the deterioration have been amply debated in this forum and need not be enumerated again. As policy makers, we must now deter- mine what policies are needed to reverse this trend in the world eco- nomic outlook. The specific content of these policies will naturally vary from one economic zone to another, and from one country to another, reflecting the weaknesses of our individual economies. These diverse responses aside, however, we are all confronted with the same situation, namely, a lack of confidence within both enterprises and households. Domestic demand has declined, thereby slowing the growth rates of our economies, which in many industrialized countries still depend too heavily on net exports. Our task is therefore to determine the best ways to restore confidence. In so doing, we recognize that because some of the solutions are more geopolitical in nature, we can influence them only indirectly, whereas others are specifically economic and financial and are therefore our direct responsibility. Belgium, by virtue of the fact that it is in the Euro zone, is very closely integrated with the European market as a whole. The challenge of restoring confidence that Belgium faces is virtually the same challenge confronting the European Union, and the Euro zone in particular. 28 As steps are undertaken to restore confidence, it is essential to underscore the importance of continuing with structural reforms and of adhering to the Stability and Growth Pact, especially since significant progress has already been achieved in these areas. Experience has proved us capable of managing adjustment in a prag- matic and realistic manner, without deviating from our medium-term objectives. However, it is important not to keep on deferring these objectives, allowing them to become "moving targets." The European Union has thus made it a practice to establish timetables and deadlines enabling it to take stock periodically and make gradual progress. This has been the approach applied to the Stability and Growth Pact and the Financial Services Action Plan, as well as to tax harmonization issues. Failure to proceed in this manner will generate yet additional uncer- tainty, thereby facilitating behavior among economic agents that could jeopardize sustainable economic growth. The consequent further loss of confidence would then prompt additional precautionary saving by households in the face of perceived negative job and pension prospects. Businesses would react by deferring growth-oriented investment deci- sions and, undoubtedly, by increasingly refocusing on capital-deepening investments. As policy makers, we must endeavor to prevent such behavior from occurring. Risk and uncertainty nevertheless remain a threat to a global recov- ery, particularly where financial markets are concerned. This summer's sharp stock market decline will unquestionably have an impact on growth. The wealth effect and a decline in confidence will have a nega- tive impact on private consumption. Venture capital for business financ- ing will be harder to come by. The impact on the behavior of financial institutions will undoubtedly be even more troubling, given both their increased wariness concerning the quality of their debtors and their severe portfolio losses, which have made them weaker. Efforts to shore up confidence in financial stability are therefore imperative. International Financial Stability As underscored in the Monterrey Consensus, a healthy financial sec- tor is essential for growth and development. Flexible and well-regulated financial systems are indispensable for macroeconomic and financial stability, especially in an environment characterized by increasing capi- tal flows. The authorities of each country must ensure the health and stability of their financial sectors by adopting and implementing appro- priate rules, standards, and codes. Multilateral financial institutions, for their part, have an important role to play in strengthening the financial system, by promoting sound policies and supporting their implementation. 29 The events of the past 12 months have shown that progress has been achieved. For example, the global financial system has withstood a number of shocks, most notably the impact from the September 11 attacks and crises affecting a number of emerging countries, and signif- icant corrections to financial markets have been registered. However, there is no room for complacency. The recent accounting scandals and deceptive corporate reporting that have attracted wide media attention underscore the need for the authorities to remain vigi- lant, continually assess the effectiveness of existing rules, and adapt them where necessary. Additional steps must also be taken to improve gover- nance, accounting and reporting practices, and transparency within com- panies in order to strengthen the functioning of financial markets. Other developments, though less obvious, still require at least as much attention. These include increasing linkages among financial mar- kets, the consolidation of payment and settlement systems, the blurring of the borders of financial market segments, and the emergence of increasingly more complex financial institutions. The debate on strengthening the international financial architecture has accelerated considerably recently. It is essential to maintain this momentum and continue to make progress with respect to implemen- tation, which is often difficult and is viewed as moving too slowly. With regard to crisis prevention, countries experiencing payment difficulties should be identified quickly, the scope of their problems should be quantified, and countries should be encouraged to take cor- rective measures sufficiently early. The Fund and the Bank have a key role to play in this area. A number of initiatives have already proved successful and will be pursued resolutely in the years ahead. They include strengthening oversight of the financial sector, awareness of vul- nerability to crises, increased transparency on the part of the Fund and its members, compliance with standards and codes, and multilateral sur- veillance of capital markets. The Bretton Woods institutions have an important role to play in helping member countries improve the health and soundness of their financial systems. The Financial Sector Assessment Program is a key component of this effort. As a sign of the importance Belgium attaches to the Program, we have invited it to evaluate our financial system. In order to confront the challenges described earlier, Belgium has begun to restructure its procedures for financial sector regulation and supervision and has, in particular, strengthened cooperation among the authorities responsible for macro and micro prudential supervision. These new structures will soon be operational. Financial stability cannot be assured without waging a constant and unrelenting fight against such abuses as money laundering and the financing of terrorism. I therefore unreservedly endorse the efforts of 30 the Bretton Woods institutions and the Financial Action Task Force on Money Laundering (FATF) to collaborate in this fight and to finalize a comprehensive methodology for combating money laundering and the financing of terrorism. I also endorse the development of a specific Report on Standards and Codes incorporating all aspects of the 40+8 FATF recommendations. I urge all countries and territories that have not yet taken all necessary measures to implement these recommenda- tions as soon as possible. I reaffirm Belgium's commitment to the inter- national community's fight against the financing of terrorism. Resolution of Financial Crises I have already addressed the question of crisis prevention efforts. Such efforts help to diminish the likelihood of such crises, but there is some question as to whether they can always be prevented. Accord- ingly, a parallel effort has been undertaken to develop ways to strengthen the ability of countries to manage financial crises properly. At its meeting in Prague in September 2000, the IMFC adopted a framework for crisis resolution. While some progress has already been reported, there is still a need to enhance the work being done within this framework. More particularly, the involvement of the private sector in the resolution of financial crises, which is becoming increasingly recog- nized as a key element in international financial architecture, needs to be strengthened. To improve the crisis resolution mechanisms, it is important to devise a more orderly and transparent arrangement for sovereign debt restructuring. Studies are currently under way for the simultaneous adoption of two parallel approaches: the "contractual" approach and the "statutory" approach. Belgium has given these studies its full support, and believes that the two approaches are not only mutually complementary but also mutually reinforcing and inextricably intertwined. We also support the ongoing efforts to identify and clarify the modalities and rules concerning the suspension of payments and to implement the IMF's strengthened debt strategy for countries experiencing payment arrears. Another concept that is increasingly gaining ground is that the intro- duction of collective action clauses (CACs) in sovereign bond contracts will guarantee, on the one hand, that all debt restructuring takes place in as orderly a manner as possible, and, on the other hand, that a minor- ity of lenders will no longer be able to take actions capable of prevent- ing the majority of lenders from preserving the value of their assets. A G-10 working group (the Quarles group) has studied the legal pro- cedures underlying this contractual approach. The objective of this group is to propose specific clauses: however, one of the key components 31 is to urge debtors and lenders alike to effectively adopt those clauses. In conformity with the European Union's recent political commitment to set an example in this matter, Belgium has announced its willingness to include majority action clauses and collective representation clauses in all its sovereign bonds issued under foreign legislation. While this can help bond markets and lawyers to become familiar with the clauses, there is nevertheless a risk that the CACs will not be used by the emerg- ing countries, because they are very concerned about the rising costs of borrowing and the reduction of access to the financial markets that such clauses could entail. It is therefore essential, if this G-10 initiative is to be successful, to involve not only the private sector but also the emerging countries. Also, in my capacity as G-10 chairman, I had the honor of opening this dialogue, as recently as this past Friday, with a certain number of emerg- ing countries. It will be important during the next few months to deepen this dialogue and expand it to include other emerging countries. The statutory approach to the mechanism for restructuring sovereign debt is currently in process of preparation, and due attention is being paid to the comments and reactions of the various parties involved. While the issues are very complex, substantial progress has already been made in developing the features of this ambitious approach. The objective of this arrangement is to urge both debtors and lenders to reach timely agreement on relieving unsustainable debt, without actually recourse to the mechanism itself. By providing the IMF with a reasonable and orderly restructuring alternative, while offering debtors real financial relief (by granting preferential status for the obtaining of new funds, and thanks to a lending policy to clear payment arrears), this mechanism could strengthen the ex ante credibility of the limits on access to IMF financing. To successfully encourage lenders and debtors to conduct timely nego- tiations and to enable them to negotiate efficiently, the statutory arrange- ment must naturally work hand in hand with the inclusion of collective action clauses in bond contracts. These clauses should create the appro- priate legal framework for conducting such negotiations and for guaran- teeing their success without the need to resort to the statutory mechanism. While acknowledging the length of time and the difficulties involved in such a project, Belgium believes that the setting up of a debt restructuring mechanism is an essential component of any policy to involve the pri- vate sector in financial crisis management. Poverty Reduction Implementation of the Poverty Reduction Strategies and the HIPC Initiative has made it clear to us that the Bank and the Fund, together 32 with other donors, both multilateral and bilateral, have an essential role to play in helping the poorest countries regain their footing on the path to sustainable development. This strengthened partnership was also emphasized at both the Monterrey and Johannesburg conferences. It seems clear that a reduction in inequalities and a sharing of growth are the true guarantees of stability and security for all. The precise objec- tives of development were established in the Millennium Declaration, and the means for achieving them were also identified. I would remind you in particular that, for its part, Belgium is com- mitted to achieving by 2010 the objective of increasing its public devel- opment assistance to 0.7 percent of its gross national product. There is still a need to develop targeted policies whose impact on poverty reduction and on the promotion of sustainable growth can be clearly measured and assessed. In this area, I am convinced that the Bretton Woods institutions have an important role to play. Specifically, by collaborating with countries as they prepare their national development strategy, the World Bank and the IMF can hence- forth contribute toward the implementation of policies that are effec- tive and unequivocally oriented toward results beneficial to all. Within this framework, it is important to identify cohesive and realistic objec- tives, intermediate indicators capable of measuring the progress being made toward the achievement of those objectives, and institutional capacities with the ability to monitor that progress. However, to avoid development of the perception that the management of poverty reduc- tion strategies is less the province of the beneficiary countries than of the donors, I believe it is a good idea for the governments of those coun- tries to consider opting for alternative policies. It is also important to be careful not to adopt too ambitious an agenda, which could threaten a country's ownership of its development process. So why don't we start by limiting the review of results to those areas where development offers the greatest potential in terms of poverty reduction and stimulation of economic growth, as well as to other areas where efforts have already been made with a view to collecting sufficient data to facilitate adequate oversight? Health, education, and promotion of the private sector seem to respond to this dual requirement. In order that growth may be shared by all, it is also important to intensify efforts in the direction of the most fragile populations, in par- ticular those of countries that have only recently seen an end to a con- flict situation. In this area, Belgium has been a constant driving force in the new dynamic that now seems to be evident in Central Africa, a dynamic that has led to renewed involvement by the Bretton Woods institutions in the region. The enhanced HIPC Initiative offers certain of the poorest countries the opportunity to lighten their unsustainable debt burden. It has 33 become increasingly evident that the challenge now will be to ensure that these countries remain permanently sheltered from all unsustain- able external debt. Because of far too optimistic growth projections and harmful exter- nal shocks, several of those countries are experiencing very real diffi- culties in exiting permanently from their debt situation. Should the HIPC Initiative be made more flexible, or even modified as to its substance? I am convinced that the response may be viewed from three different perspectives. First, countries should give priority to strengthening their systems of public management to ensure that the funds released by debt relief operations are effectively used to reduce poverty. Second, the international institutions are also responsible for considering the debt sustainability issue on the basis of realistic growth and export projections. Third, lenders who have not yet proceeded to forgive debt under the HIPC Initiative should be encouraged to do so without delay. But debt remission should not be the only means by which the multilateral and bilateral donors provide support for struc- tural reform. An additional contribution of aid in the form of conces- sional lending or grants should also be considered as an essential component of the strategy. BOSNIA HERZEGOVINA: ANTO DOMAZET Governor of the Fund I would like to add my warm congratulations to those extended by other Governors for your election as Chairperson for these Annual Meetings. I would like also to congratulate the Managing Director of the IMF and the President of the World Bank for their constructive contributions in reviving global economic prospects and dedicated leadership during the past period. Just one year ago, when we were supposed to have our 2001 Meet- ings in Washington, D.C., the global economic situation was much more promising and stable. The outrageous terrorist attacks on the United States shocked all peaceful people around the world, and since then almost every country in the world has been affected. The collective determination to fight terrorism has been clearly demonstrated and gives us hope that democracy and the rule of law will finally prevail all over the world. We fully support the battle against money laundering and the financing of terrorism and think that the World Bank and the IMF should continue to provide clear guidelines and advice in that respect. Discussions at two global meetings in 2002 (Monterrey and the World Summit in Johannesburg) showed there was a common under- standing that radicalism and poverty are strongly related. We welcome the commitments by developed countries to provide future assistance to 34 developing and transitions countries to help reduce the gap between poor and rich. Recent findings proved that international development agencies and donors have learned how to make development assistance effective and efficient. Lessons learned over the past decades have helped both the donor community and recipient countries to develop successful strategies for poverty alleviation and economic development. Bosnia and Herzegovina's experience shows how beneficial and important donor assistance is for post-conflict countries. Our post-war economic recovery was designed in close collaboration between the donor community and our government. I wish to underline that the role of the Bretton Woods institutions was crucial in designing proper eco- nomic policies and mobilizing donor assistance. Achievements in recon- struction are significantly improving efforts to bring utility and infrastructure to prewar levels. Important progress has also been made in the return of refugees, although that process has only recently gained momentum. Bosnia and Herzegovina continues to experience steady noninfla- tionary growth, but with a considerably lower growth rate than three years ago. Self-sustained growth has yet to take root, and the economy is still dependent on foreign assistance. The current account deficit is still significant and is projected to decrease to 4 percent of GDP over the next two years. Foreign borrowing is only under concessional terms, and the authorities are trying to increase national creditworthiness. Monetary stability is based on strict implementation of the currency board arrangements, and international reserves have risen strongly in 2001. However, the high unemployment rate and domestic production well below the prewar level present serious economic challenges and have a direct impact on poverty. Our efforts are aimed at further fiscal consolidation, which should support the currency board. A large stock of outstanding claims (includ- ing frozen foreign currency deposits and war claims) on the public sec- tor need to be settled. We are determined to make substantial changes in public expenditure and institutions in order to make public financing sustainable in medium term. The demobilization of 10,000 soldiers was challenging to implement, but it helped reduce current expenditures for over 1.3 percent of GDP. Important improvements in public finances have taken place in the last two years. The establishment of public audi- tors and introduction of treasuries have helped to improve the trans- parency and management of public finances. Improvements have also been introduced in budget planning and execution. We began a Poverty Reduction Strategy Paper (PRSP) a year ago to formulate a cohesive strategy for medium-term economic development and poverty reduction. We are pleased that the World Bank and the IMF have reviewed the Interim Poverty Reduction Strategy Paper (I-PRSP) 35 and provided helpful guidelines for the successful completion of process. We attach great importance to the PRSP process and have launched extensive consultations with civil society and the general pub- lic. A Living Standard Measurement Survey was conducted as a part of the PRSP process, and it showed that the poverty rate is about 21 per- cent, with significant regional differences. The development of pro- poor policies is proving to be a major challenge, but we expect that broad-based discussion will help to achieve full ownership of the program. We continue to implement a broad range of structural reforms, including privatization of all large enterprises, labor market reform, reform of the social protection system, and reform of public expendi- ture. Special attention is being paid to improving the business environ- ment and private sector development. The private sector is supposed to be the main engine of our future development, and we have started to implement changes that will establish a more business-friendly legal and institutional framework. We already have positive developments in the banking sector, which is much stronger that it was two years ago and includes the significant presence of foreign banks. On the path of trade liberalization, we have actively participated in removing all trade obsta- cles in southeast Europe by the end of 2002, and we are keen to com- plete negotiations for WTO membership in 2003. Over the past two years there has been fruitful cooperation with the IMF and the World Bank. The recently approved Stand-By Arrange- ment is important to sustain the positive trends in macroeconomic stabi- lization. When our PRSP process is completed, it will be a good basis for discussing the Poverty Reduction and Growth Facility (PRGF) as a next step. Ongoing technical assistance has helped increase local capacities in many areas. The introduction of the VAT system will require extensive technical assistance from the IMF and the World Bank. Bosnia and Herzegovina has come a long way since the end of war. We have chosen to build our economic development on the basis of a balance between growth and equity, modernization and environmental conscious- ness, peace and democratization, and private sector-led growth. In part- nership with the international community, we have achieved significant results, but our reform and development agenda is still long. We expect that the Bretton Woods institutions and the donor community will con- tinue to assist us in our efforts to promote growth and alleviate poverty BULGARIA: MILEN VELTCHEV Governor of the Bank I am honored to address this high-level forum. My statement will focus on the significant progress achieved by Bulgaria in the context of 36 IMF-supported programs. This progress is even more remarkable in view of the uncertain international environment. Bulgaria has achieved and maintained macroeconomic stability under three successive Fund-supported programs. Since 1997 real GDP has increased by about 20 percent, inflation has decelerated to the sin- gle digits, and external public debt has declined from over 100 percent of GDP to below 60 percent. This outcome has been accomplished in the context of a currency board arrangement (CBA) supported by pru- dent fiscal policy and strict income policy for state enterprises. Signifi- cant progress has also been achieved in implementing the structural reform agenda under the government program actively supported by the World Bank in terms of both development and financing. The European Commission recognized these positive developments in its 2001 progress report, noting that Bulgaria had established a satisfactory track record of macroeconomic performance and is close to being a functioning market economy. Based on further positive eco- nomic developments since then, we expect this estimate to be upgraded in the forthcoming 2002 progress report. Bulgaria is well advanced in its accession negotiations with the EU. We have already closed 21 out of 30 negotiating chapters, and one more is in the pipeline to be closed soon. There is broad public support and consensus for EU membership across the political spectrum, and membership is expected by end-2006. There is also broad political support for the maintenance of the cur- rency board arrangement, which is a key element of the government's policy framework, until accession to the EU. The second key element of our program is the implementation of a cautious and flexible fiscal stance, and the third is the acceleration of structural reform. These key elements of the policy framework have already been incorporated in the Pre-Accession Economic Program developed with the EU and other strategic documents of the Bulgarian government. Despite the encouraging economic achievements, we are fully aware of the remaining vulnerabilities and the challenging reform agenda. The income gap between Bulgaria and the EU is still large, our unemploy- ment rate is high, and the progress of structural reforms in several areas, including in the energy and transportation sector, is still insufficient. We will address these problems more aggressively in the context of our new programs supported by the Fund and the Bank. Two areas are crucial for the success of our reform efforts--fiscal policy and the financial sector. Bulgaria has an excellent track record in implementing fiscal policy that is vital for the sustainability of the CBA. We have demonstrated not only the will, but also the ability to achieve sizable fiscal adjustment. Since 1998 we have kept the budget broadly balanced. The small deficits (below 1 percent of GDP) were entirely due to one-off expenditures to cover the cost of structural reform. We 37 are committed to further strengthening the fiscal position by maintain- ing the budget with a small surplus in 2002, as a strong policy response to external risks. As for the financial sector, our main task is to create the environ- ment required to support enhanced credit activity to the private sector and expedite the full privatization of the financial sector. The results so far are encouraging. Credit to the private sector is expected to increase twofold in 2002 compared with that in 2000. Over 80 percent of assets in the banking sector are in private hands, and we plan to finalize the process by privatizing the only remaining state-owned bank before the end of the first quarter of 2003. As indicated in the Financial Sector Sus- tainability Assessment, the Bulgarian banking system is generally well supervised, highly capitalized, profitable, and risk-averse. We are strictly implementing the recommendations of the joint World Bank- IMF Financial Sector Assessment Program (FSAP) mission in address- ing the remaining vulnerabilities, and we are already using the FSAP in our accession negotiations with the EU. Finally, I would like to express our satisfaction with the streamlined conditionality under the new program for Bulgaria supported by the IMF, which has a clear focus on areas that are macro-crucial and limits structural conditionality to measures that are deemed critical for the success of the program. I consider this a direct result of the initiatives of the Managing Director of the IMF and the President of the World Bank to streamline conditionality and promote ownership of IMF- and Bank- supported programs, and strongly recommend moving forward in this direction. CAMBODIA: CHEA CHANTO AND KEAT CHHON Governors of the Fund and the Bank (respectively) It is indeed our great pleasure and honor to participate in this the 2002 Annual Meetings of the International Monetary Fund and the World Bank here in Washington, D.C. We would like to take this oppor- tunity to express our gratitude to the Fund and the Bank, as well as the government of the United States for the excellent arrangement made for the meetings. This statement will provide an overall assessment of the status of the world economy and the economy of Cambodia, and provide informa- tion on the initiatives of the Royal Government of Cambodia to advance its reform agenda aimed at reducing people's poverty and promoting development. 38 The Global Economy In 2001 the world economy experienced a synchronized and wide- spread slowdown following a strong performance in 2000. This slow- down was mainly due to the weakness of the information technology sector, a rise in energy prices, and the tightening of monetary policy in industrial economies to respond to evidence of rising demand pressures. These weaknesses were further exacerbated by the September 11, 2001 terrorist attacks in the United States. However, in the first few months of 2002 there were signs that the slowdown was bottoming out in most regions and that growth was turning up, notably in North America and a number of east Asian economies. Within Europe, performance was mixed with some countries being weak and some being relatively more robust. Although there are signs of recovery in the world economy, uncertainty still prevails given the fluctuation of oil prices, concerns over war on Iraq, and the weakness of international trade and world stock markets, among others. Since the Asian financial crisis in 1997, the world economy has expe- rienced many other crises, including those in Russia, Argentina, Turkey, and Brazil. The fact that the crises keep moving from one place to another indicates the need for a new international financial architecture that would be able to cope with the challenges of globalization. This sit- uation also requires that countries expedite the establishment of the new system. The Cambodian Economy The year 2001 represented a period of deepening the continued implementation of Cambodia's wide-ranging reforms, and was a deci- sive year for the Royal Government's development agenda. It wit- nessed the consolidation of peace and security and the deepening and widening of the reforms in all sectors: fiscal, banking, administrative, military, land and natural resources management, among others. The year 2002 should further consolidate the foundation for Cambodia moving toward broad-based, sustainable development. Our economic and financial policies are aimed at sustaining economic growth, reduc- ing poverty, promoting good governance, maintaining macroeconomic stability, undertaking fiscal reforms, strengthening banking and finan- cial institutions, and social and human development. Good governance is considered by the Royal Government as the backbone of these reforms. 39 As the result of the implementation of the reform programs, Cam- bodia has achieved its macroeconomic and fiscal targets. The Cambo- dian economy continued its strong growth of 6.9 percent in 1999, 7.7 percent in 2000, and 6.3 percent in 2001, despite severe flooding consecutively in 2000 and 2001, and global economic slowdown, which was exacerbated by the events of September 11, 2001. This strong performance has been due to continued robust growth in garments manufacturing and tourism. Textiles, clothing, and footwear manufac- turing posted 26.8 percent growth in 2001, following an increase of 40.6 percent in 2000. Overall, Cambodia has achieved macroeconomic stability, with annual GDP growth during 1999­2001 averaging 7 percent, very low inflation, and a stable exchange rate. Such performance is indeed con- sistent with the target of 6­7 percent annual growth set by the Prime Minister and the Second Socio-Economic Development Plan. For 2002, GDP is expected to grow at 5 percent due to a slow down in the growth of garment production and exports, as well as the impact of drought and flooding on the agricultural sector, while growth momentum continues to be driven by increased tourist arrivals and strong construction activity. Thus, the Royal Government has taken major steps to build up and strengthen the foundations and prerequi- sites for the accelerated growth and competitiveness of the tourism and garments sectors. These include programs to rehabilitate and develop roads and bridges, airports, ports, and related facilities, such as water, power supplies, and telecommunication. We need this entire infrastruc- ture to transform Cambodia's potential and comparative advantages into economic reality. Efforts are also placed on legal and judicial reform aimed at improving an environment conducive to investment and business activities. Inflation is expected to remain low and the exchange rate broadly stable. More employment will be created in the services sector. The slowdown of international demand following the previous American recession and the events of September 11, 2001 had a real but limited impact on Cambodian exports. Total exports reached US$1,391 million in 2001, after US$1,277 million in 2000; that is, an increase of 8.9 per- cent. For the first half of 2002, exports amounted to US$628 million, which might let us expect a total volume for 2002 not far from the level recorded in 2001. Nevertheless, services and income partly offset the slowdown of exports, so that the balance of current accounts shows a lessening deficit. Eventually, the balance of current account and capital transfers turned positive in 2001 and is likely to stay in the black in 2002--a negative US$57 million in 2000, a positive US$29 million in 2001, and a positive US$15 million for the first six months of 2002. Thanks to 40 this positive evolution, and to the continuous support of donors, gross international reserves increased regularly and have now reached 3.8 months of imports. Overall, during the first half of 2002, the Royal Government of Cambodia has exerted serious efforts to ensure our country's take off toward sustainable economic development. Recognizing the positive developments, on July 22, 2002 the Executive Board of the Interna- tional Monetary Fund completed the fifth review of Cambodia's eco- nomic performance under the Poverty Reduction and Growth Facility program (PRGF). This review was encouraging, and the achievement has enabled the immediate release of an additional tranche for the sup- port of Cambodia's balance of payments. The Royal Government has taken measures to prevent the impact of this year's drought and flooding on the agricultural sector from con- straining economic growth and people's livelihoods. Agriculture con- tributes about 40 percent of our gross domestic product (GDP), and the production of rice and other crops together contribute around 15 per- cent of GDP. Efforts have been made to mobilize resources from domestic, as well as external sources, to cope with the disasters. This year, Cambodia will host several very important international meetings and conferences. All these meetings will contribute to improve the credibility of Cambodia in the region and in the interna- tional arena as a whole. In June 2002, the meeting of the Consultative Group (CG) of Donors for Cambodia was held for the first time in Cambodia. At this meeting, the donor community discussed and assessed the progress and setbacks in the performance of the Royal Government's reform programs. Based on their assessment, they pledged a total of US$635 million in new assistance to Cambodia. This pledge far exceeds the Royal Government's 2002 request for only US$486 million. It is an important encouragement for the govern- ment's efforts in bringing peace and political stability, strengthening the foundations for democracy and respect for human rights in our society, and especially in promoting sustained economic growth and reducing poverty. Indeed, the success of the CG signifies the approval and sup- port of the international community for the appropriateness and success of the government's reform policies and programs. In early November, Cambodia will be honored to host the first and historical summit of the Greater Mekong Subregion (GMS). Back to back to this, Cambodia will also host the ASEAN Summit, the summits of ASEAN+3 (Japan, Republic of Korea, and the People's Republic of China) and ASEAN+1, the ASEAN-India Summit and ASEAN-South Africa Union Summit. We believe that GMS is one of the effective tools to narrow the gap between new and old members of ASEAN and to pro- mote development in the region, and this summit will help accelerate 41 this process. In addition, Cambodia is preparing for other important events, such as the ASEAN Cultural Week for 2002 and the ASEAN Tourism Forum early in 2003. Further Policy Reforms So far in 2002, there have been some improvements in investments compared to 2001. However, the Royal Government is not satisfied even with such a positive result, since we believe we can and should do much better! Our philosophy is to make and enable private investment to play a more pivotal role in spurring greater economic growth. For this purpose, the Government-Private Sector Forum and its related working groups, including the financial sector working group--which is a dialog mechanism and a form of partnership between the government and private sector--have been established to ensure the full participa- tion of the private sector in the development process. Thus, the Royal Government has focused on major policy actions to intensify legal and judicial reforms that will ensure an enabling environment for business and improve Cambodia's competitiveness as an investment destination. A basic thrust of our economic development policy is reducing the costs of doing business and streamlining the regulatory environment. The Cambodian government is taking systematic action to encourage and facilitate investments. The satisfactory amendment of the Law on Investment (LOI), with broad participation from all stakeholders espe- cially from the private sector, should build greater confidence among investors. After extensive consultations, the Royal Government has finalized the amendments to the LOI, and the amended version is now being debated at the National Assembly. The amendment of the LOI will facilitate investments by streamlin- ing procedures and paperwork in the processing of investment approvals. Streamlining will also cover imports and exports of goods and equipment covered under the framework of the investment project. The main objective is to simplify and reduce paperwork and promote transparency and predictability in the process of approval, monitoring, and implementation of investment projects. Amendments to the Law on Taxation, aiming at making it consistent with the amended LOI, were also approved by the Council of Ministers and submitted to the legislatures for adoption. The same process of consultation with the private sector and broad participation from stake- holders has been applied to the amendments of this law. The Council of Ministers is now working on the new Customs Code that was submitted by the Ministry of Economy and Finance in July of this year. Further- more, the Law on Corporate Accounting and Audit, entered into force on July 8, 2002. These steps have been taken to enhance corporate 42 governance, which is crucial to ensuring the development of the private sector and its role as an engine of economic growth. The Royal Government realizes that transport and container han- dling costs, electricity and water tariffs, and telecommunication costs in Cambodia are high compared to our neighboring countries. However, the collection of tolls would improve our capacity to maintain the roads and thereby help keep transport costs low in the end. The eradication of high and illegal charges in the customs zone is being pursued through concerted actions of an interministerial task force. With container scan devices being set up, Cambodia is ready to embrace the Container Security Initiatives (CSI) as part of its support for the global crackdown on maritime terrorism. Promoting Tourism Development Complementing the policies and programs in support of competi- tiveness is more intensive attention to the promotion of tourism oppor- tunities. In this regard, we shall work closely with the private sector to develop tourist destinations. As you know, we have given much atten- tion to the improvement of sanitation and health services in Siem Reap, to ensure the sustainability and continuing beauty of the monuments and the city. The Royal Government has also devoted more attention to the development of the tourism potential of areas other than Siem Reap. We should promote attractions that enable greater tourist traffic in underserved areas, as well as longer stays and increased spending by tourists. Thus, the Royal Government encourages the development of access to ecotourism destinations such as Mondulkiri and Ratanakiri, beach tourism in our sea access areas to the south, the upgrading of the Kang Keng airport in Sihanoukville, and the promotion of initiatives, such as the night market. We should push for all of these initiatives as we prepare to serve as hosts for the ASEAN Tourism Forum in 2003. Looking Forward After launching the Second Socio-Economic Development Plan (2001­05), the Royal Government signed the Poverty Reduction Part- nership Agreement (PRPA) with the Asian Development Bank in July this year. The Royal Government is now working on Poverty Reduction Strategies Papers (PRSPs) with broad participation by all stakeholders, including the Bretton Woods institutions. The overall thrust of the SED- PII and the PRSP is the reduction of poverty in which the Royal Gov- ernment adopts the following main strategies: sustained high economic growth with equity; social and human development; and sustainable 43 management of natural resources and the environment. The underlying principle in achieving the ultimate goal of poverty reduction through the implementation of the said strategies is good governance at all levels, including the empowerment of people through decentralization. Crucial to the reduction of poverty is the accelerated creation of employment, so that each Cambodian will have a dignified, human livelihood. Therefore, it is a key aspect of the industrial policy of the Royal Government to give priority to the development of other labor- intensive industries, such as toy making, footwear, and the assembly of electrical and electronics appliances. The development of micro- and small enterprises is at the heart of Cambodia's plan to promote indus- trial development. This strategy is being applied particularly in the areas at the outskirts of Phnom Penh, and in Sihanoukville, Banteay Meanchey, and Koh Kong. Cambodia still has vast untapped resources and potential in agricul- ture and livestock, particularly in high-value products and processed foods. Cambodia's agricultural sector can provide jobs for so many, if the rural sector is nurtured in a rational and sustainable manner. Thus, the resolution of land issues and the establishment of roads and irrigation systems are the priorities of the government in the next several years. Moreover, the Royal Government will focus on the proposed indus- trial and export processing zones to attract private investment. Priority attention will be focused on completing the road network, systems for power and water supply, ensuring waste management and environmen- tal protection, and the necessary social infrastructure. Demobilization The Royal Government remains strongly committed to the transfor- mation of our excessive stocks of swords into plowshares, especially with continuing support from our development partners. We are com- mitted to the full demobilization and reintegration of up to 30,000 dis- charged military personnel. The first batch of 15,000 soldiers has been demobilized and we are working on the second batch discharge of the other 15,000. The Cambodian people have begun to enjoy the dividends of peace, reflected in the improvement of security and increased social and economic spending. The reform and restructuring of the Royal Cambodian Armed Forces is an agenda for the long haul, and a very sensitive concern of the government, and all the population who have to undergo wrenching changes with the integration of former soldiers into the mainstream of society. 44 Continuing Partnership for Development Given the history and status of the Cambodian economy, there is little doubt that continued partnership and collaboration with the international financial institutions and donor community is crucial for the country's sustained recovery and growth. Much progress has been attained, and growth is steady. Certainly there are major challenges yet to be overcome, but Cambodia is fully determined to resolve those difficulties--particularly with the assistance of the international community. The Cambodian government is confident that an overall, indepen- dent assessment of the country's development record is a convincing argument that the assistance so far extended to Cambodia has been well spent. International assistance has gone a long way to help Cambodia get on its feet and move forward. Such assistance has been vital in enabling our nation to regain its rightful place in the community of nations and to realize our common vision of a prosperous, socially uni- fied, educationally advanced, and culturally vibrant Cambodia. At this stage, it is clear that the development assistance required by Cambodia is now ready to evolve in character from relief and rehabili- tation in the wake of war, to assistance and cofinancing for growth in mutually respectful partnership among sovereign nations. We believe that the key to success in this partnership is the ownership of recipient governments. Therefore, the international community should help build national technical capacity by shifting from traditional technical assistance toward direct support for the Royal Government's national capacity-building initiatives to ensure effective local ownership. For its part, to ensure transparency and accountability vis-à-vis donors, the Royal Government has set up a mechanism of consultations to check performance against goals, which is held in the form of a meeting with the donor community every six months. This mechanism is supported by var- ious joint working groups, including the fiscal working group. Toward International Unity and Peace In the wake of the events of the past year, humankind is confronted with sobering realizations. No nation can afford to be complacent in a world of plenty among a few and deprivation suffered by many. The contrasts are stark and painful, providing fertile ground for enmity, greed, and envy. The international financial institutions have the resources and opportunity to make a difference in world development. 45 In this context, reforming conditionality is necessary so that the sustainability of development of poor countries is ensured, and these countries would be in the position to share the benefits of globalization. The Royal Government of Cambodia, having witnessed both the heights, as well as depths, of human development in its history, is very well aware of the significance of the imperative of peace and prosperity for all. Thus we strongly recommend that the IMF and the World Bank should make it their sustained, institutional goal to foster shared prosperity-- and peace--for all nations. CANADA: JOHN MANLEY Governor of the Fund and the Bank The global economy has weathered the uncertainty in the wake of September 11, 2001, better than expected. However, economic activity has slowed in a number of countries in the past few months, and some emerging uncertainties have moderated growth forecasts. Canadian Economic Prospects Against a background of weaker global economic performance, Canada's economy has performed exceptionally well. In the first half of the year, the Canadian economy expanded at an average rate of more than 5 percent. Moreover, this growth was coupled with the strongest expansion in employment in almost a decade. Strong con- sumer and business confidence is apparent in household spending and growth in investment in machinery and equipment. Canada's strong economic performance is the result of a commitment to sound public finances, including balanced budgets, and low and stable inflation. Looking forward, Canada's outlook is bright; the Fund forecasts that Canada will lead the G-7 countries in economic growth this year and next. Risks to the Global Outlook The industrial countries' prompt policy responses to the impact of the tragic events of last year helped ensure that their economic impact was less severe than initially feared. Although the global economic recovery is expected to continue, concerns have emerged recently about the strength and durability of the expansion. Projections for growth next year in industrial countries, especially the United States and the euro area, have been revised downward. This reflects a number of fac- tors, in particular, the recent collapse of major U.S. companies amid accounting irregularities has adversely affected investor and consumer 46 confidence. It has also contributed to a sharp weakening in stock prices that may well ultimately affect private spending decisions. The weakness in stock markets has reduced investors' appetite for risk across a wide range of assets, including emerging market debt. In this respect, the outlook for the global economy has been further clouded by recent developments in Latin America. The situation in Argentina, which has been in crisis for some time, continues to be criti- cal. Other countries in the region have sought IMF assistance. And while the Argentine crisis has had some impact on economies in the region, in most cases, domestic policy imbalances have also contributed to finan- cial difficulties. While the IMF and World Bank can help, it is essential that national authorities address these domestic policy problems. Strengthening Crisis Prevention and Crisis Management Strengthening investor confidence and market integrity will require actions in a number of areas. The recent corporate scandals in the United States make increased vigilance by policymakers all the more important. Sound monetary and fiscal policy frameworks reduce uncertainty and bolster confidence. But this is not enough. Effective governance arrange- ments that allow markets to access, weigh, and evaluate risks are also required. In Canada, federal and provincial regulators, accounting stan- dard bodies, and industry are taking steps to review corporate gover- nance practices, including the creation of a new auditor oversight body to improve the quality and integrity of public company accounts. For emerging market and developing economies, recent events are a stern reminder of the need for strong policy frameworks based on sound monetary policy, strengthened financial sector supervision and regula- tion, and the adoption of prudent public debt and fiscal management. The IMF has an important role to play through its surveillance function and in providing technical assistance to its members. We will work with all countries to enhance the Fund's ability to play an important role in crisis prevention. Progress has already been achieved as a result of joint Fund/Bank work on Reports on Observance of Standards and Codes (ROSCs) and the Financial Sector Assessment Program (FSAP). But, more needs to be done--in particular, in the area of identifying and avoiding currency mismatches. International financial stability benefits all countries--from the richest to the poorest--and we must all work to promote it. However, we must recognize that, despite our best efforts, financial crises will occur. Our efforts to promote financial stability should be based on three complementary elements: a contractual approach involving the develop- ment and adoption of new contingency clauses in sovereign debt contracts; ongoing work by Fund staff to design a sovereign debt 47 restructuring mechanism to complement the contractual approach; and greater discipline in adhering to presumptive limits on official financing. The Monterrey Consensus In Monterrey and Johannesburg, world leaders stressed the impor- tance of a development partnership to work toward the Multilateral Development Goals for dramatically reducing global poverty. This part- nership is grounded in mutual responsibility and accountability of both developed and developing countries. The Monterrey Consensus recog- nizes country ownership and a commitment to stronger economic policies and improved governance as key developing country responsi- bilities. This partnership will see donors do a better job of harmonizing their actions among themselves and work more closely with developing countries. For their part, developing countries will commit to improve macroeconomic policies and governance. Our challenge is to act on this new momentum to move from a theoretical framework to sustained implementation of the new development agenda. The Initiative for Heavily Indebted Poor Countries Reducing the debt burdens of HIPC countries is an important com- ponent of our broader struggle against global poverty. We must make good on our existing commitments to fully implement the enhanced HIPC Initiative. The existing HIPC framework is flexible enough to provide HIPC countries with a strong basis for a sustainable exit from debt problems. However, four major outstanding issues remain to be addressed: · getting all creditors to participate in debt relief; · ensuring that donors provide sufficient contributions to the HIPC Trust Fund to help pay the cost of debt reduction by the international financial institutions; · allowing for flexible consideration of additional debt relief for those countries completing the HIPC process, should their economic cir- cumstances merit it; and finally, · making sure that the debt sustainability analysis of the Bank and Fund is more realistic up front. Debt relief provides an opportunity that HIPC countries themselves must exploit to further development and poverty reduction. By itself, debt relief cannot guarantee longer-term debt sustainability. It is clear that a sound policy environment, good governance, prudent new bor- rowing, and sound debt management are essential to ensure that poor countries do not relapse into debt problems. 48 Strengthening Institutions in Developing Countries and Building Human Capacity Robust institutions are crucial to empowering the poor and promot- ing longer-term development. Strong institutions can ensure that the benefits of debt relief and of investments accrue to all. The rule of law is critical for allowing investors, and especially the small investors that are important drivers of poverty reduction, a safe environment free from arbitrary actions by authorities. In many of the poorest develop- ing countries institutional capacity is particularly weak. Moreover, insti- tutions are often ineffective in overcoming strong resistance to reform from entrenched interests benefiting from the status quo. Development policy and development assistance, if they are to succeed, must attach priority to helping governments--and societies more broadly--create the institutions that foster growth and equity, that allow women and men to fully participate in civil society and make their needs known, and that hold authorities accountable for their actions. While there is no single model for success, it is clear that determined political leadership can be effective in overcoming resistance to reform. Both the Bank and the Fund have strengths in analyzing institutional capacity gaps and in providing assistance for institution building. We will continue to look to both institutions to work with their partners in this critical development area. Investment in institutions must be complemented by investment in human capital, and universal access to basic education is the best avenue for ensuring that the poor have the opportunity to help themselves. We commend the Bank staff for its continued efforts to work closely with its partners to develop an Action Plan and "fast tracking" initiative to help countries implementing good education plans achieve the Millennium Development Goals on primary education. We believe that we must maintain the momentum on this important initiative. Thus, we encour- age donors to provide financial support and would welcome future efforts to monitor progress on implementing the Action Plan. Measuring, monitoring, and analyzing the results of efforts to pro- mote development are fundamental to helping both developing coun- tries and their development partners assess whether development strategies are working. We welcome the Bank's recent work in strength- ening its own results focus. We look to the Bank to assist members develop statistical and analytical capacity. Freer Trade--An Important Element of the Monterrey Consensus Development partnership implies freer trade. In Monterrey and Johannesburg, leaders reaffirmed that trade is key to development. We 49 look to the World Bank and the IMF, in support of the WTO and the Doha Development Round, to enhance their own analysis of how developing countries can best take advantage of the global trading system. Developing countries must have opportunities to trade in the global market place if they are to prosper. However, trade-distorting agricul- tural subsidies in the developed world continue to depress global mar- kets for developing country products. Moreover, trade barriers in both the developed and developing world continue to depress exports from least developed countries. We all must commit to working toward the elimination of trade-distorting subsidies and to improving market access for the world's poorest countries. Earlier this year, Canada announced that, effective January 1, 2003, it would provide duty-free and quota-free access to its market for virtually all products from least developed countries. Looking Forward Looking forward, prospects for the Canadian economy are strong. The prospects for the global economy are promising, although policy- makers need to remain vigilant to the risks. The international financial institutions are continuing to adapt their policies to ensure that they are better able to achieve their objectives of supporting growth and stabil- ity. In an increasingly integrated global economy, an important objec- tive is a better model for the prevention and management of financial crises. Progress in this area will allow both developed and developing countries to fully benefit from the opportunities of globalization. Nevertheless, the challenge that both developing and developed countries face will be to maintain our resolve, to keep our efforts focused where there will have maximum effect, and to build actively a genuine and long-term partnership that will yield tangible results. But most important, this new partnership must rest on deeper mutual accountability that will produce development results on the ground that will better the lives of the poor in developing countries. CHINA: DAI XIANGLONG Governor of the Fund With the slowdown in the world economic recovery and increased uncertainty, a number of risks demand our vigilance and attention today. We hope the international community will help in creating a favorable environment for world peace and development, working together to promote a global recovery. 50 We believe, in the process of globalization, attention should focus on protecting the interests of developing countries, especially those of the least developed countries, to prevent them from being marginalized. Should the rich become richer and the poor poorer as a result of glob- alization, the resulting unfairness must be addressed because such an imbalance is not at all in the interests of development for all the people in the world. In the context of global economic and financial integration, we call for establishing a fair and rational new world economic order and inter- national trade system, reforming and improving the present interna- tional monetary system; in particular, the developed countries should strengthen their policy coordination and maintain stable exchange rates. Developed countries should also vigorously carry out the initia- tives of the Monterrey Consensus by further opening their markets to developing countries and by providing sustained and sufficient financial and technical assistance to help them improve their capacity for self-development and reducing poverty. We appreciate the commit- ments made by the EU in this regard and urge other major developed countries to assume their share of responsibility. International institu- tions, including the Fund and the Bank, should build on their current efforts, increase their financial and technical assistance to developing countries, and help those members to sustain their debt levels. We appreciate the Fund's enormous efforts in recent years to main- tain the stability of the international financial system. We believe the establishment of a fair and orderly sovereign debt restructuring mecha- nism is an important supplement to the existing international financial architecture. In this regard, we welcome the recent debate in the Fund and support its initiative to explore further both the statutory and con- tractual approaches and feasibility of sovereign debt restructuring, tak- ing account of the opinions of the developing countries in the process. To achieve the Millennium Development Goals, we should continue to enhance ownership and stress development as a priority. Whether or not a country enjoys ownership in designing a development strategy tai- lored to its own specific situation has a bearing on the ultimate outcome of that country's development. The measure of whether or not a devel- opment program is effective is if it improves people's living standards. The final judges are the people in the developing countries. In moni- toring and measuring the implementation and results of a development program, the recipient country should play the predominant role, set- ting the relevant evaluation criteria with input from all stakeholders. The institutions providing assistance can help the recipient country enhance its capacity to monitor the program, as well as assess and set the evaluation criteria. 51 The Chinese government firmly opposes all forms of terrorism, and supports and implements the resolutions of the UN Security Council on combating the financing of terrorism (CFT). The Chinese government is actively participating in the international cooperative effort to com- bat terrorism. China has set up special units in charge of anti-money laundering (AML) and combating terrorism, and has drafted relevant laws and regulations. We have always believed that AML/CFT efforts should be carried out by governments under the leadership of the United Nations and that the Fund and the Bank should confine their operations in this regard to their mandates in accordance with their Articles of Agreement. Over the past two years, the Chinese government has adopted accommodative policies to stimulate domestic demand--a proactive fiscal policy and sound monetary policy--and has achieved a fairly rapid economic growth, a stable RMB exchange rate, and a substantial increase in foreign exchange reserves. By August this year, foreign direct investment had increased by US$34.4 billion, an increase of 25.5 percent compared with the same period last year; and total imports had reached US$183 billion, an increase of 14.5 percent. These figures show that China's accession to the WTO has not only contributed to strong growth in China but will also bring about new opportunities for growth in other countries in the region and the world as well. The authorities of Hong Kong Special Administrative Region and Macao Special Administrative Region have taken firm steps to main- tain social stability and promote economic development since China resumed its exercise of sovereignty. They both now enjoy a more dynamic economy, and we are fully confident about their future devel- opment. Experience has shown that the principle of "One Country, Two Systems" has been a success. CROATIA: BORIS VUJCIC Alternate Governor of the Fund It is my great honor and privilege to address these Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank. I would like to express my gratitude to our hosts for their warm hospitality and for the admirable organization of these Meetings. I would like to point out that greater cooperation and coordination in international economic relations is the goal we all seek to achieve. In that sense the role of Fund and the World Bank is indispensable. These institutions' efforts to strengthen surveillance over macroeconomic policies and to lay foundations for sustainable world economic devel- opment are of the highest importance. I am happy to say that the rela- tionship between Croatia and the two have always been very open and 52 frank and that discussions have been conducted in an atmosphere of mutual understanding and respect. Croatian Economic Situation In 2002, the Croatian economy has shown positive developments. The expected GDP growth of 3.5 percent for this year represents a con- tinuation of the buoyant trend from 2001 and a clear departure from the recession period of late 1998 and 1999. Unfortunately, growth has not yet proven strong enough to signifi- cantly reduce unemployment. The intensive restructuring of the economy has led to substantial job losses, but also to growing job cre- ation. Such combinations of job losses and gains are inevitable conse- quences of structural reforms, and they indicate that the reforms are indeed having the desired effects. Wage growth has been moderate. In addition, the government's achievement in containing the wage bill in the public sector bodies well for further wage restraint. Also, strong productivity growth in industry indicates limited cost pressures. This year inflation is not strongly affected by demand pressures, and we expect the headline inflation to be around 3 percent. Even with recent energy prices increases, the inflation outlook has not worsened. The fact that core inflation remains substantially below actual inflation suggests that many of the factors causing inflation in recent months have been of a one-time or temporary nature and are not likely to become ingrained in the future. Exchange rate developments provide a further indication that the inflationary outlook will not worsen. Exchange rate trends followed the normal seasonal patterns. Last year's increased volatility due to capital account liberalization has not been repeated. The overall current account deficit in 2001 of 3.2 percent of GDP was the second lowest since 1995. Strong services revenues driven mainly by tourism and substantial inflows on the transfers account have contributed to keeping the deficit low. The overall balance of payments outlook this year seems likely to remain within the boundaries set out in the government's economic plan. Monetary developments indicate a continuation of the strong but noninflationary growth of monetary aggregates, along with a continued increase in bank lending. Strong growth in bank lending suggests that the "credit crunch" that has characterized the lending market since the banking crisis of 1998­99 has indeed ended. Strong lending growth is consistent with, and of course contributes to, the strong growth of the economy. The central bank's focus has now switched from inducing credit growth to the prudential limits of rapid credit expansion. 53 Interest rates generally continued to fall during the year. Interbank trading decreased in volume, and rates moved somewhat lower. Both lending and deposit rates fell, as did measures of the difference between loan and deposit rates. The central bank's gross foreign exchange reserves stand above US$5.7 billion, well above the level of M1. Relations with the Fund and the World Bank We are happy to say that in May of this year, Croatia successfully concluded an SBA with the International Monetary Fund for the period 2001­02. The SBA was intended to support the implementation of structural reforms; Croatia never intended to draw on the funds avail- able under the arrangement. Signing and implementing the accord has helped the credit rating of the Republic of Croatia and has assured investors that we do not intend to depart from the projected program. The centerpiece of the program was the reduction of government spending and a reduction of tax revenue and expenditure ratios in GDP, while preserving wage discipline and promoting structural reforms in the context of continued exchange rate stability. Resolved to negotiate another precautionary SBA with the IMF, the authorities intend to continue to pursue a broad spectrum of reforms, all consistent with the commitment to reduce the share of government spending in GDP. We are convinced that these new reforms, together with those already in place, will have important positive effects on the economy. We have never regarded and we will never regard the IMF arrange- ment criteria and the accompanying measures as external to us. These are in all aspects our own policies that we have developed with the help of Bank and Fund experts, and responsibility for implementing the poli- cies is our own. The active support of the International Monetary Fund and the World Bank Group is vital in sustaining the momentum of reforms in emerging economies. Both institutions have played that role in Croatia, and it is our hope that they will continue to do so. We wish to thank them for their engagement in our economy and wish them all the best in their future undertakings. CYPRUS: TAKIS KLERIDES Governor of the Bank It is an honor to address these Annual Meetings of the Boards of Gov- ernors of the International Monetary Fund and the World Bank Group. 54 Much has happened in the two years since the Prague meetings in terms of the world economic situation and economic policies pursued by the Cyprus authorities. Since early 2001 the growth of world out- put and trade has recorded a marked slowdown. The September 11, 2001, terrorist attacks in the United States and their aftermath con- tributed to the deceleration in growth of real economic activity, though in varying degrees in different economies. In countries that rely heavily on the activities and services hardest hit by the Septem- ber 11 events and their repercussions--namely, air transportation, tourism, and insurance-- growth has been curtailed severely over the past 12 months. Indeed, Cyprus has experienced a sharp fall in the number of tourist arrivals over the last four quarters, although tourist revenue has not suf- fered to the same extent because of a higher average expenditure per tourist that in turn reflect efforts to promote quality tourism. However, what is of major concern at present is that the robust eco- nomic recovery expected in the current half-year for the advanced economies is not materializing. There appears to be increasingly the prospect that there will be a prolonged global slowdown or a double-dip recession. Moreover, the fragile global prospects at present are being clouded by the threat of military hostilities in Iraq and uncertainty over their economic consequences. The response of the authorities in the G-7 economies and in the major international financial institutions, including the IMF and the ECB, to the fading prospects of a global recovery seems to be to a "wait and see" balancing of the need for further economic adjustment against the risks of output contraction, deflationary tendencies, or both. While the process of adjustment will need to be associated with a deepening of structural reforms in Europe and Japan, policymakers have to guard against subdued demand that may lead to too much unemployment and to excess capacity, deflation, or both. The ECB and the Federal Reserve must stand ready to relax monetary policies, and greater flexibility in the conduct of fiscal policy in Europe and North America may be required. Although a number of developing countries have withstood the effects of the global downturn relatively successfully, their efforts at pursuing export-led growth strategies should not be derailed by protec- tionist measures in the developed countries. The commitment to global free trade made in Doha in November 2001 must be renewed. Advanced countries have to keep their markets open to access for and services of developing countries. 55 In terms of policies of the international community to assist with sig- nificant poverty reduction in the poorest countries, Cyprus supports the Monterrey Consensus, and in particular is behind the Commonwealth action plan recently adopted in London that aims to ensure the effective delivery of the Monterrey Consensus. Indeed, the net transfer of resources from the developing countries to the rest of the world in recent years rep- resents a disturbing development, and it is hoped that the expeditious implementation of the Monterrey Consensus will reverse this flow. In Cyprus, the last two years have witnessed the implementation of major economic policy reforms that have been directed at harmonizing the economy with the European Union. At the beginning of 2001 the system of determination of interest rates was completely liberalized with the removal of the ceiling of 9 percent per annum on interest rates. Simultaneously, restrictions on borrowing from abroad by domestic entities were lifted, and a further phased liberalization of the external capital account was effected over the following 18 months. In mid-2002 Cyprus instituted a watershed taxation reform that included eliminating harmful tax practices (as committed to the OECD in 2000); harmonizing our tax laws and practices with those of the EU; embracing transparency, exchange of information, and tax competition; and increasing indirect tax rates toward minimum EU levels. These and other reforms directed at phasing out state aid and increasing competi- tion in domestic industry and in the public utilities sectors have greatly enhanced the ability of Cyprus to compete successfully and withstand the market pressures of entry into the European Union. One lesson drawn from our experience is that taking measures to reform the economy, despite an adverse external environment, provides a country with an enhanced ability to compete in this harsher environ- ment and to have the flexibility to shift resources into areas of greater demand. Moreover, we would underline that the trade liberalization policies advocated in the IMF's latest World Economic Outlook report will benefit both developed and developing countries. Developing countries that have integrated strongly into the world economy with the liberalization of their external trade and capital accounts are proving that they can export their way out of a downturn and raise sufficient funds to meet their temporary financing needs. Cyprus backs strongly the international fight against money laun- dering and against the financing of terrorism. We support the efforts of the IMF and the World Bank in contributing to this fight through their surveillance activities and technical assistance. Indeed, Cyprus has ben- efited from the favorable assessment and constructive comments con- tained in the IMF report, "Cyprus--Offshore Financial Sector" (April 2001), following a staff mission to Cyprus in the context of the work of the Financial Stability Forum. 56 DENMARK: THOR PEDERSEN Governor of the Fund (on behalf of the Member States of the European Union) Introduction I submit this statement in my capacity as Chairman of the EU Coun- cil of Economic and Finance Ministers. It focuses on recent economic developments and policies, in particular in the EU; corporate and finan- cial sector issues raised by recent events; crisis prevention and resolu- tion; poverty reduction and financing for development; and the fight against the abuses of the international financial system. These meetings are held at a time of major fluctuations in financial markets, which have increased downside risks to the world economic outlook. These episodes of increased financial volatility, following already significant corrections of financial asset prices, and com- pounded by certain high-profile cases, have highlighted the importance of improved corporate governance, accounting, and auditing practices. It is important to restore confidence in the economic and financial sys- tem worldwide, and to ensure that financial volatility and its impact on the real economy are minimized. It is in this context important to pay particular attention to the pos- sible impact of recent macroeconomic and financial shocks on develop- ing countries. Action should follow the commitments taken in Monterrey and Johannesburg. This is especially necessary for the poor- est countries in sub-Saharan Africa, where the Millennium Develop- ment Goals are most at risk of not being met. The IMF and the World Bank should make special efforts to take this commitment forward. We reiterate the call made at Monterrey for a Global Development Com- pact between developed and developing countries based on mutual accountability for results. These meetings are also the last before the European Council con- cludes the enlargement negotiations with up to 10 new member coun- tries next December in Copenhagen. A successful conclusion of these negotiations will mark another major step for the EU and will con- tribute to the creation of one whole and undivided Europe. Economic Developments and Outlook The recovery of the global economy, which started at the beginning of this year, particularly in the United States, the EU, and Asian emerg- ing market economies, is underpinned by a number of forces such as the reversal of inventory cycles and the substantial easing of macro- economic policies in the advanced economies over the past year. 57 However, the outlook, while on balance positive, is clouded by uncer- tainty and significant downside risks. Risks and Uncertainties The global economic outlook is being clouded, first, by concerns related to financial stability. Most indicators suggest that the recent sharp series of falls in major stock markets are the result of the unwind- ing of past over-investment that built up during 1999­2000. Following recent high-profile cases, the level of uncertainty regarding companies' earnings expectations and stock market valuations has also increased. Weaknesses in corporate governance and in accounting and auditing practices have been revealed, which have further lowered investors' confidence in equity investments in general and have compounded the already significant correction in stock prices. A further weakening of the real economy could lower investors' confidence even more. Second, imbalances between and within the major economic areas of the world have not been corrected, although the current level of the euro, following its strengthening, better reflects the economic funda- mentals of the euro area. Recent trade disputes raise the risks of a new cycle of protectionist measures and countermeasures, which could endanger growth prospects worldwide. Third, the current high levels of oil prices could also weigh on the prospects of recovery. Furthermore, the high volatility of the market remains a source of risk for the confidence of both households and corporations. The EU and the Euro Area The EU economy was in 2001 marked by a sharp and unexpected slowdown in economic activity. However, since the beginning of the year, the economy has stabilized and is gradually picking up. The response of economic policy, sound and stable fundamentals, and an improvement in external demand have provided the platform for the recovery to consoli- date during the next months. The available information on economic activity suggests that the EU economy will remain modest in the second half of 2002 and gather strength in 2003. Headline inflation declined from an exceptional peak in the first months of the year stemming from tem- porary factors. As a whole, the decreasing impact of past price shocks and the recent appreciation of the euro should enable HICP inflation to sta- bilize at levels around 2 percent in the course of 2002, though monetary and wage developments will continue to be closely monitored. Macroeconomic policies in the EU and the euro area are designed to meet the challenge of restoring noninflationary economic growth in 58 a context of less supportive global economic conditions. The progress made in former years on fiscal consolidation in the framework of the Stability and Growth Pact has allowed the EU and the euro area econ- omy to be in a better shape to deal with cyclical fluctuations. Budgetary policies will be geared to maintaining or achieving public finances close to balance or in surplus in the medium run, while supporting growth by letting the automatic stabilizers work symmetrically, as envisaged in the SGP. In addition to providing leeway for the free and symmetric play of automatic stabilizers, medium-term budgetary positions that are close to balance or in surplus allow for a steady decline in government debt and enhance the capacity to address budgetary challenges stemming from ageing populations. Over the last few years, substantial progress has been made in implementing structural reforms. The International Environment Following last year's recession in the United States, evidence of recovery emerged in the first half of this year. However, recent devel- opments suggest that the future course of this recovery might be more muted than initially expected and is subject to a high degree of uncertainty. High-profile cases in the corporate sector have revealed possible structural weaknesses, which in turn have affected investors' confidence in equity investments. Consumption has remained relatively robust during the slowdown and continues to be the key variable to the U.S. short-term economic outlook, but may not be able to continue to fuel the recovery. On the corporate side, the reduction of inventories and its negative effects on production and employment seem to have come to an end, but business expectations of large firms have been deteriorat- ing over the last few months, capacity utilization is relatively low, and the cost of capital has increased. The utmost priority is to restore investor confidence, and to address shortcomings in corporate governance and financial reporting. The recent legislative initiative adopted by the U.S. authorities that penalizes corporate mismanagement provides a first step in this direction, although the compatibility of new legislation and reforms with other worldwide regimes needs to be checked. Macroeconomic pol- icy should continue to support the recovery. However, on the fiscal side, it is essential that public finances are brought back on a prudent medium-term course once the recovery is established in light of the desirability of reducing external and internal imbalances. Finally, we call on the U.S. administration to remain committed to free trade principles and practices, as well as to the rules of the WTO. In Japan, despite a modest recovery fuelled by strong exports, domestic demand remains weak and deflationary pressures persist. This situation is aggravated by long-term structural difficulties, historically 59 high unemployment, decreasing real incomes, and the constant decline of financial assets and real estate prices. The functioning of monetary policy transmission mechanisms remains deficient. Depressed stock prices have a negative impact on banks' and insurance companies' bal- ance sheets and on the fund-raising ability of corporations. Finally, the sharp increase of public debt over the last decade, particularly given the effects of a fast ageing society, is also a matter of concern. Therefore, we encourage the Japanese authorities to press forward and implement a clear and coherent framework of structural reforms in the financial and corporate sectors. Action should focus on the removal of bad loans from balance sheets without further delay. The macroeconomic policy stance should remain as supportive as possible to domestic demand, taking account of the need for medium-term fiscal consolidation. In the medium run, the general strategy of the government to achieve a fiscal primary surplus while improving the efficiency of the public sector is welcome. Several emerging market and transition economies have been con- fronted with additional challenges stemming from recent macroeco- nomic and financial shocks. EU accession countries have on balance continued to perform well and should continue to do so despite the recent natural catastrophes in Central and Eastern Europe. The EU also expresses its support for the Turkish efforts to reform the economy and to ensure macroeconomic stability under the IMF program. Macroeconomic developments in Russia have been favorable, and growth prospects for this year remain stable. The EU welcomes the progress in the reform agenda and encourages the government to proceed further. In emerging Asia, after the economic deceleration triggered by the sharp drop in exports, particularly in the technology sector, signs point to a progressive recovery. Significant progress in reducing vulnerabili- ties needs to be pursued. The economic situation in Latin America has become increasingly fragile on the back of global uncertainties, but also specific factors related to local political contexts and debt dynamics. We welcome the efforts of the IMF to help the affected countries in the region, including the US$30 billion package for Brazil. This assistance should help those countries to re-establish a sustainable economic and financial situation as a way to restore market confidence by implementing prudent fiscal and monetary programs and accelerating structural reforms that lay the basis for strong economic growth. The EU strongly encourages the Argentine authorities to finalize the negotiations with the IMF on a new program to build a credible and sustainable economic recovery. 60 Addressing the Corporate and Financial Issues Raised by Recent Corporate Failures Recent turbulence on financial markets is a response to past imbal- ances in asset prices, but recent events have emphasized the need for consolidating corporate and financial rules and practices. Beyond self- correction by the market, public authorities, including those at the international level, should address the underlying structural deficiencies and establish, where necessary, new standards. In order to restore investor confidence and strengthen financial markets, progress is especially needed in priority areas such as accounting, auditing, and cor- porate governance and disclosure standards: First, the focus on transparency and accurate information needs to be increased to enable investors and financial markets to gain access to fair company accounts. Those accounts should provide accurate information on the wealth and health of companies to enable investors to make appropriate short- and medium-term investment decisions; Second, strict standards should be developed and implemented to guarantee the independence of auditors and financial and legal advisors. This means, inter alia, that auditing and consulting functions should be clearly separated, and that revenues stemming from auditing should be made more transparent; Third, achieving transparent and healthy corporate governance has implications for the design of incentives for managers, to more closely align their interests with those of shareholders. In particular, managers' remuneration packages, including stock options, and their responsi- bility in the preparation of financial information need to be reviewed. The EU has been working for several years to improve the integra- tion, efficiency, and resilience of its financial markets in the context of the Financial Services Action Plan (FSAP). Many measures in the FSAP already tackle the problems raised above, but recent experience has also led the EU to focus more heavily on some specific issues. The mandate of the EU High-Level group of company law experts has been expanded to include specific issues raised in the recent months, including issues related to best practices in corporate governance and auditing, in particular those practices concerning the role of nonexecu- tive directors and supervisory boards, management remuneration, man- agement responsibility for financial information, and auditing practices. Listed EU companies will be required to use International Account- ing Standards by 2005. We invite other countries to follow suit, and in particular call for full convergence between US GAAP and IAS. We have adopted also a principles-based approach to auditor inde- pendence by targeting potential conflict of interest. 61 At the international level, the EU supports the efforts of the Finan- cial Stability Forum (FSF) toward the coordination of the work already done by international standard setters. The Reform of the International Financial Architecture (a) Surveillance and crisis prevention We welcome the improvements in the IMF's work on crisis preven- tion and we take note of the completion of the recent Biennial Review of the Implementation of the Fund's Surveillance. Crisis prevention, primarily through multilateral and bilateral surveillance, remains at the heart of the IMF's mission. We welcome the opportunity to continue discussions over the coming year on further measures to strengthen sur- veillance, including consideration of its institutional framework. Experience shows that most crises arise from vulnerabilities that have not been detected or corrected in time. Increased attention should thus be paid to potential vulnerabilities in the monetary, fiscal, exchange rate, and financial policy areas, notably in Article IV consul- tations and in the context of further refinements in early warning sys- tems. To be fully effective in bringing about early and pre-emptive policy action, IMF surveillance needs to be transparent, objective, accountable and independent from judgments concerning IMF lending programs. In particular, we would like to see more countries move toward publication of Article IV reports. We call on IMF management to pursue, in a close dialogue with the Board, its current efforts to enhance IMF surveillance in line with these key objectives. (b) Crisis resolution and private sector involvement We welcome the Fund's work program to strengthen the Prague framework for crisis resolution. We agree that more work needs to be done in several areas, including on access policy and on the contractual and statutory approaches that we consider complementary to sovereign debt restructuring. IMF Access Policy The overall policy framework for access policy is by and large appro- priate as regards the access limits associated with the SBA and the EFF. However, its implementation remains unsatisfactory. In particular, there are insufficient safeguards to ensure that access above statutory limits is only granted in genuinely exceptional cases. 62 Access decisions should be based on a robust external debt sustain- ability analysis. The Fund's analysis should start with a forward-looking assessment of countries' external financial positions under different sce- narios (including stress tests), and should be based on transparent and realistic macroeconomic and financial assumptions. Access to Fund credits should in any case be subject to clear, country-specific access limits in order to provide the right incentives to markets and to help maintain good relations between the debtor country and private creditors. Access limits could be made more credible and transparent by reviewing whether current limits remain economically significant under the changed global economy, considering whether access beyond a par- ticular level should be permitted under well-defined circumstances and new procedural rules, and specifying strict rules and procedures for a combination of several facilities to finance individual programs. There should be in particular close scrutiny of the use of the SRF in order to avoid circumvention of access limits. If exceptional access is granted, which is only possible in cases in which external debt appears to be sustainable given an appropriate policy response and realistic medium-term macroeconomic and financial assumptions, more extensive justification by staff and more stringent conditionality are required. In particular there needs to be a higher bur- den of proof that truly exceptional circumstances exist and that the debtor country has undertaken its best efforts to secure PSI (which implies in turn an exhaustive monitoring of PSI). Whenever a decision to grant exceptional access is taken, the burden of proof should be put on the IMF, which should provide specific detailed documents to the Board, including debt sustainability analyses, including stress-tests; an explicit assessment of the timing and probability of a return to market access; and a clear and transparent description of risks of contagion and potential systemic threats. The procedural rules for decisions on exceptional access could be strengthened by requiring a formal assessment of whether the criteria for exceptional access have been met and a special Board meet- ing and a separate Board decision, as well as an ex post evaluation of their impact and effectiveness. We welcome the agreement in the IMFC to define more clearly criteria to justify exceptional access, and strength- ened procedures for early consultation and decision making. Sovereign Debt Restructuring We reiterate our support for the parallel consideration of both statu- tory and contractual approaches to improve the process of sovereign debt restructuring, which are complementary. The assessment of a Sov- ereign Debt Restructuring Mechanism (SDRM) should be considered 63 part of a coherent and wide-ranging strategy for dealing with financial crises, and should therefore be developed in parallel with the opera- tional improvement and further implementation of the PSI approach established in Prague. We welcome the agreement in the IMFC to con- sider a concrete proposal next spring. We call on the IMF to work further on statutory approaches to sovereign debt restructuring that may require new international treaties, changes in national legislation, or amendments of the IMF's Articles of Agreement. As regards the contractual approach, steps should be taken to promote the inclusion of CACs in international bond contracts. It will be important that all member countries, both advanced and developing ones, play their part in helping to promote the establish- ment of appropriate tools to facilitate the inclusion of CACs in interna- tional bonds. This means inter alia designing standard model contractual provisions to be used, CACs-friendly legislation, and incentives to pro- mote the actual inclusion of CACs. In this respect the EU member states will coordinate effectively in order to lead by example in including majority-action clauses and collective representation clauses in govern- ment bonds issued under a foreign jurisdiction. We call on others to fol- low this lead, with a view to establishing new market practices and procedures. Because both the contractual and the statutory approaches will take time to be assessed and implemented, work should continue in order to implement expeditiously the Prague framework on other main issues at stake, including standstills and the IMF's policy of lending into arrears (LIA). Specifically, we urge the IMF to further clarify rules and modal- ities for implementing the LIA strategy in the context of contractually or statutorily based approaches. (c) Conditionality We welcome the work under way to streamline conditionality and look forward to the discussion on the revised guidelines. A major issue in this context is the improvement of cooperation between the IMF and the World Bank. With respect to low-income countries, cooperation is already intense but can be further enhanced within the existing PRSP framework. In all countries, including in particular middle-income ones, IFIs' programs should be based on a truly country-owned reform strategy. A common unified framework for the two institutions aimed at identifying under- lying problems and subsequent proposals for reforms could also help in middle-income countries to build a more effective and consistent co- operation between the two institutions. Strengthening collaboration 64 requires consultation and information sharing, especially during the design phase of the program. Early and continuous consultation is absolutely indispensable for those countries where both institutions provide medium-term support. A number of possible practical ways to reinforce information shar- ing and consultation, in addition to the existing cooperation at various levels, includes the following avenues: First, participation in PRSP processes "on the ground," staff attendance in one another's Board meetings, and cross-participation in one another's country missions and joint missions (including participation of resident staff) could be increased. Second, a structural policy matrix could provide a compre- hensive overview of structural reforms, their purpose, timing, and the institution primarily responsible for their monitoring. This instrument could, inter alia, give effect to the lead-agency concept and help to streamline and manage the totality of conditionality. Third, the IMF and the World Bank could consider new ways of further enhancing their cooperation in areas of common interest, including through new insti- tutional arrangements where necessary, drawing on the experience with the Financial Sector Liaison Committee and the Joint Committee on HIPC/PRSPs. (d) IMF quotas The IMF has launched the Twelfth General Review of Quotas. In this context, we look forward to the work of the Fund to assess the need for an overall increase of quotas considering developments in the world economy. Work on IMF quota formulas should continue to be conducted in line with the three main guiding principles supporting the central role of the IMF in the international financial system, namely, legitimacy, cooperation, and transparency. In addition, quota shares should reflect a country's relative position in the world economy and in the international financial system. A position in which a country's quota is substantially below its calculated quota should be avoided. We also call on the Fund to continue to assess the usefulness, in the light of recent discussions, of an increase in basic votes of IMF member countries. The Role of the IMF in Poor Countries The EU reaffirms that the Monterrey Consensus and the financial commitments made in connection with the Monterrey Conference pro- vide the broad framework for achieving the Millennium Development Goals, and it welcomes the recent confirmation of this approach in Johannesburg. 65 The IMF is the key institution to promote macroeconomic and financial stability, and it fulfils in this respect a fundamental role in its low-income country member states. The IMF should, in close collaboration with the World Bank, con- tinue to streamline PRGF structural conditionality, concentrating on areas critical to the success of PRGF programs; consider alternative policy choices and the related trade­offs in programs; and build on the progress already made to promote pro-poor spending and pro-growth policy undertakings in PRGF programs. Of the 42 countries classified as HIPCs, four are currently expected to have a sustainable burden of debt after traditional debt relief, and one has so far not opted to apply for debt relief. Hence, 37 HIPCs are expected to eventually benefit from debt reduction under the initiative. However, three factors may prevent some HIPCs from receiving suffi- cient debt reduction to achieve a sustainable debt position at comple- tion point: first, not all creditors have agreed to provide debt reduction; second, the financing needs of the initiative as estimated at Cologne in 1999 have not been fully met; and third, growth could be weaker and export commodity prices could be lower than assumed under the ini- tiative. Genuine debt sustainability should be ensured for all eligible HIPCs. It will therefore be necessary to take action in a number of areas, such as assessing those cases in which a fundamental change in a country's economic circumstances due to an exogenous development leads to an unsustainable debt at completion point, and paying renewed attention to the implementation of sound policies in HIPC during and following the interim period, including strict avoidance by the countries concerned of new borrowing on non-concessional terms. The IMF should also work with other stakeholders to secure the com- pliance of all creditors, official and private, and take the necessary actions to tackle non-compliance, including through reporting in Arti- cle IV surveillance. In addition, the IMF should work with other stake- holders to ensure full financing of the HIPC Initiative through appropriate bilateral debt relief and donors' contributions to the World Bank HIPC and the IMF PRGF-HIPC Trust Funds, in line with reasonable burden-sharing. Going forward, the IMF and the World Bank need to ensure that forecasts of debt sustainability are made on the basis of prudent and cautious assumptions about growth and exports. Good public expenditure management (PEM) and effective Poverty and Social Impact Assessments (PSIA) are essential for effective poverty reduction. These are areas where the World Bank is the lead agency, but collaboration between the IMF and the World Bank needs to be strengthened. 66 Combating Abuses of the International Financial System The EU reiterates its commitment to fight against the abuses of the financial system, including money laundering, terrorism financing, harmful tax practices, and insufficient regulatory frameworks and prac- tices in the financial area. The Fight against Money Laundering Money laundering distorts markets and economic decisions, can lead to financial instability, and is one of the tools for terrorism financing. We reaffirm our strong support to the Financial Action Task Force (FATF), whose Forty Recommendations constitute the anti-money laundering international financial standards. We welcome the fact that a great num- ber of countries worldwide have chosen to endorse the FATF special recommendations and join the self-assessment process. This includes the participating states of the OSCE, the ASEM countries, and several others. We call on countries and territories listed by the FATF as non- cooperative to make all necessary effort to implement these recom- mendations. We will continue to implement the coordinated countermeasures recommended by the FATF against the jurisdictions in which no progress has been made. We also welcome the ongoing process launched by the FATF to revise and upgrade its standard in the fight against money laundering. The Fight against Terrorism Financing In the fight against terrorism financing, the EU is committed to implementing rapid and coordinated initiatives. We strongly support the special recommendations laid down by the FATF at its extraordi- nary plenary session, in October 2001, related to the fight against the financing of terrorism, and we are taking the necessary steps to comply with the special recommendations. We call on all countries to follow suit. To encourage the broadest possible participation in this fight, we call on the FATF to identify countries for follow-up assessment and technical assistance, by the IMF, the World Bank, and the United Nations within their respective mandates. The IMF and the World Bank have a key role to play in ensuring the integrity of financial markets, in particular by fostering compliance with the international standard in the fight against money laundering and terrorism financing. We welcome in this respect the progress in the joint effort by the Bretton Woods institutions and the FATF to finalize a comprehensive AML/CTF methodology. We support an integrated and 67 comprehensive ROSC module, incorporating all aspects of 40+8 FATF Recommendations. We therefore welcome the decision of the IMF and the World Bank to start a 12-month pilot program of AML/CFT assess- ments and accompanying Reports on the Observance of Standards and Codes (ROSCs) that would involve participation of the Financial Action Task Force, and FATF-Style Regional Bodies (FSRBs). We look forward to a comprehensive review of experiences at the time of the next Annual Meetings. We also urge the Fund and the World Bank, in cooperation with other international organizations and donor countries, to identify and respond to needs for technical assistance. Other Issues Administration and enforcement of tax laws depend increasingly on transparency and effective international cooperation. Exchange of infor- mation in relation to taxation of savings, on as wide a basis as possible, is to be the ultimate objective of the European Union in line with inter- national developments. We invite OECD countries to lead by example. We continue to support the work of the FSF, in particular on recent corporate failures, reinsurance, offshore centres, credit derivatives, and highly leveraged institutions. EAST TIMOR: MARI BIN AMUDE ALKATIRI Governor of the Fund Today the Democratic Republic of Timor-Leste is participating for the first time as a member country at the joint meeting of the Boards of Governors of the World Bank and the International Monetary Fund. After a long period of struggle spanning 25 years, Timor-Leste became an internationally recognized independent sovereign state on May 20, 2002. On July 23, 2002, Timor-Leste took a formidable step by joining the World Bank Group and the International Monetary Fund as their newest member. It was on this auspicious day that Timor-Leste signed the Articles of Agreement of the IMF, the International Bank for Reconstruction and Development, and the International Development Agency, as well as the Conventions of the Multilateral Investment Guar- antee Agency and of the International Center for Settlement of Invest- ment Disputes. Upon joining the membership of these two most important world institutions, Timor-Leste became the 184th member of the IMF, and, in the World Bank Group, Timor-Leste became the 184th member of the International Bank for Reconstruction and Develop- ment, the 163rd member of the International Development Agency, the 68 158th member of the Multilateral Investment Guarantee Agency, and the 151st member of the International Center for Settlement of Invest- ment Disputes. Only two days ago, Timor-Leste became the 191st mem- ber of the United Nations family. I must register the appreciation of my government and the people of the Democratic Republic of Timor-Leste for the support of the Gover- nors, Executive Directors, management, and staff of both the IMF and the World Bank Group. I also extend the heartfelt gratitude of the gov- ernment and people of Timor-Leste to all member countries of the con- stituency for supporting Timor-Leste's application to join their constituency. The level of solidarity demonstrated by all touches the hearts of the Timor-Leste people. The International Monetary Fund has laid the foundation for rebuilding fiscal management and for establishing monetary manage- ment in Timor-Leste since the beginning of 2000. At the same time, the World Bank has coordinated donor funding of sectoral rehabilitation projects through many trust fund programs aimed at jump starting the recovery process and reducing poverty. In association with the United Nations Transitional Administration, these institutions have provided ample assistance in fostering our institutional and capacity-building processes as well as support for our sectoral programs that focus on poverty alleviation. The pivotal role of the International Monetary Fund and the World Bank in Timor-Leste has been recognized by all our citizenry. We are proud to be part of these world-class institutions and we are cognizant of our responsibilities as a government to solidify and sustain coopera- tion with both institutions. We have graduated from our struggle of resistance, and we have commenced a fresh struggle--the struggle to create a sustainable good and rewarding life for our populace. This struggle demands due dili- gence on our part to manage our economy well, create lasting and cred- ible governance institutions, exercise and maintain fiscal and monetary discipline, and adapt to a public accountability framework that passes the test of time. All these necessary attributes of good governance will support the development process in our country and thus serve as cata- lysts to poverty alleviation for our citizens. We know we cannot do this alone. The continued support of our development partners, particularly the IMF and the World Bank, is a sine qua non to the achievement of our development objectives. Mr. Chairman, members of the Boards of Governors, Executive Direc- tors of the IMF and the World Bank, I embrace you as partners in our mutual quest to uphold the cardinal objectives of these noble institutions. 69 ESTONIA: MADIS UURIKE Governor of the Bank (on behalf of the Bank Baltic Group) I am pleased to address the 2002 Annual Meetings on behalf of Estonia, Latvia, and Lithuania. In my speech, I would like to concentrate upon an issue that is par- ticularly relevant for us. What I have in mind is the new dimension of cooperation between the Baltic countries and the World Bank. As a result of September 11, 2001, we have seen a continuing slow- down of global economic growth and reduced investor confidence over the current year. However, the annual rate of growth in the three Baltic states has remained around 5 percent. That gives us confidence in the stability of our economies. The adoption of European Union legisla- tion, and the introduction of best practices in general, have provided us with a strong foothold for sustained growth, and our liberal economic policies have been delivered from that base. We believe that this stabil- ity of growth indicates, as also the European Commission has indicated in its regular reports, that the Baltic states have fully functioning mar- ket economies and that the transition period is over. This assumption is also supported by a World Bank study on transition. Our position regarding the international financial institutions is changing respectively with our economic development. The recent graduation from IMF-approved policy programs and the expected grad- uation from World Bank lending eligibility indicate that our role as con- tributors in these institutions is increasing in accordance with the diminishing of our role as recipients. We highly appreciate the Framework for World Bank Group Sup- port to European Union Accession Candidate Countries of Central and Eastern Europe, which the Bank has worked out to design specific assistance strategies for the EU candidate countries. The Framework establishes the practice of drawing on the European Union candidate countries' empirical lessons of transition and development for the ben- efit of the transition economies, hence supporting the new dimension of European Union accession countries as equal partners of the Bank. We support the Bank's point of view that the future configuration of lend- ing and advisory services in these countries should be determined by reference to the World Bank's graduation policy. At the same time, the Bank's activities in these countries should be based on close coopera- tion with the European Commission, remain highly selective, and focus on each country's individual political realities and economic needs. An issue on the Bank agenda that we would like to emphasize briefly is the Bank's strategy toward the middle-income countries. We find addressing the specific attributes of middle-income countries 70 especially necessary, considering that the majority of the poor lives in middle-income countries and the particular vulnerability of emerging economies as demonstrated by recent developments in Latin America. To avoid the recurrence of similar crises, we believe it is particularly important to focus on preventive measures in the implementation of the strategy. Finally, I would like to express our appreciation for the present fruit- ful cooperation with the World Bank and the International Monetary Fund, and hope for the continuation of mutually rewarding efforts in the future. FIJI: J.Y. KUBUABOLA Governor of the Bank It is indeed a great honor to address the 2002 Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank Group. First of all, let me welcome East Timor to the membership of the Bank and the Fund. Also, allow me to congratulate H.E. Ahmed bin Abdulnabi Macki, Governor of the Bank and the Fund for Oman, on his election as Chairman. We have just passed the first anniversary of the very tragic events that occurred in the United States. The doomsday scenarios for the global economy that many economists and analysts had predicted did not occur--as we all know, largely due to the decisive and concerted policy actions of industrial countries. Now world economic growth has resumed, with much of the strength of global growth riding on the per- formance of the U.S. economy. We are hopeful that world growth will continue, as it will have favorable flow-on effects on the economic fortunes of developing countries. I would now like to touch on the issue of financial crises. The inten- sity and frequency of these crises are increasing. A few years ago, the region affected was Asia, more recently it is Latin America. The severe, adverse impact of financial crises on small developing countries, either directly or through contagion, highlights the need to avoid such occur- rences and for their quick resolution when they do occur. In this respect, I urge the Bank and the Fund to continue to search for ways to strengthen surveillance and prevent crises. In our efforts to resolve crises we must avoid applying universal solutions but, instead, search for strategies that suit specific countries. The Bank-Fund Financial Sec- tor Assessment Program and Reports on Observance of Standards and Codes have established a valuable framework for helping countries strengthen their financial and economic systems. Fiji reaffirms its support for international and national efforts to combat money laundering and terrorist financing. The Fund and the 71 Bank should help our efforts on this front by building capacity and identifying policy and institutional foundations necessary to reduce risks of financial abuse. I would like to highlight three topical challenges from the perspective of developing countries, in general, and small island states, in particular. First, on poverty reduction, I commend the Bank and the Fund's efforts to work with countries to analyze the poverty and social impact of programs and to help them build their own capacity. Partnership facilities and initiatives, such as the Poverty Reduction Strategy Paper (PRSP) process and the Poverty Reduction and Growth Facility (PRGF) enable countries to better address the needs of the poor and to uplift their living standards. I also applaud the efforts put in place to achieve the Millennium Development Goals (MDG); more specifically, the targets of halving world poverty and the provision of universal primary education by 2015. We urge the Fund and the Bank to continue to assist countries in meeting the MDGs by supporting the PRSP approach and providing concessional financing under the PRGF and IDA. Continuing efforts need to be made by the Fund and the Bank to explore sources of growth in developing countries and deepen the systematic analysis of the eco- nomic and social impact of major policy choices. Second, on the issue of globalization, I would like to reaffirm the importance of trade as a source of growth and poverty reduction. In order to create a favorable environment for development, I ask the Bank and the Fund to help developing countries improve market access, especially in products and services where developing countries have a comparative advantage. The effective participation by devel- oping countries in the new round of multilateral trade negotiationsis essential to ensure that the benefits of globalization reach all countries. In this regard, the Fund and the Bank can again play an active role in capacity building and in coordinating trade-related technical assistance. Third, we all acknowledge that structural reforms are necessary to simultaneously eliminate obstacles to growth and strengthen the resilience of our economies. It is also well known that the implementa- tion of reforms is easier said than done. Let me add, that Fiji is com- mitted to implementing reforms but needs assistance in capacity building and the mitigation of social costs. Allow me to now provide a brief update on political and economic developments in Fiji. I am pleased to say Fiji has returned to democratic rule, and the elections were pronounced fair and free by international observers of the United Nations and the Commonwealth. Confidence is returning, and our tourism industry, which is the backbone of our econ- omy, is expected to post a new peak this year. We thank the IMF for its Article IV report on Fiji. I am happy to say that the report endorsed our 72 assessment that the Fiji economy has bounced back strongly after the decline in 2000. We grew by 4.3 percent last year. All sectors of the economy are growing, with the exception of sugar. Economic growth for this year is forecast at well over 4 percent and is expected to rise to close to 6 percent next year. Inflation remains low, currently below 1 percent, and our foreign reserves position is healthy. At the same time, we acknowledge the concerns raised in the Article IV report and are addressing these areas, particularly the issue of land leases and the restructuring of the sugar industry. I would like to comment on the approach of the World Bank to the small Pacific island member countries. Despite the establishment of the Sydney office, I am of the view that the Bank still needs to enhance its presence in the region. I therefore strongly encourage the Bank to reassess its Pacific island strategy. Such a strategy should adopt a more proactive role and be tailored to address the specific vulnerabilities of small island economies like Fiji. Our priorities are building capacity through technical assistance, and policy advice. On money laundering, I am happy to say that a review, recently com- pleted by the Asia Pacific Group, concluded that Fiji's existing laws and systems are generally adequate. In addition, the government is develop- ing an action plan on Fiji's compliance with the IMF's Code of Fiscal Transparency following a review by a Fund mission. Fiji has also agreed with the Fund on a Financial Sector Assessment Program later next year. I would like to compliment the Fund for its assistance to Fiji. Tech- nical assistance from the IMF has been provided in the areas of insur- ance supervision, the payments system, exchange rates, and a review of our monetary policy framework. Let me conclude by thanking the Fund and the World Bank for their continuing advice, support, and assistance to Fiji. We appreciate and value the assistance in human resource development, infrastructure, institutional strengthening, and economic and financial policy advice. We commend the services provided by the Pacific Financial Technical Assistance Centre and thank the Fund and other donors for their con- tinued support in this and other areas. I wish the Fund and the World Bank well in their future endeavors. FINLAND: SAULI NIINISTO Governor of the Bank (on behalf of the Bank Nordic Countries) I am pleased to have this opportunity to address the Joint Annual Discussion on behalf of the Nordic countries in the World Bank. Let me also welcome the Democratic Republic of East Timor as the latest member country of the Bank. 73 In my remarks, I will briefly discuss the implications of the global economic environment for the financing of developing countries and for the finances of the Bank, comment on the role of the Bank in implementing the Monterrey Consensus, and offer some remarks on the very timely question of debt sustainability. Global Economy and Its Implications for the Bank The global economic situation is marked by considerable uncer- tainty. Several factors in the United States, the Euro area, and Japan indicate that prospects for global recovery do not seem very promising. Moreover, Latin America is facing problems with potential repercus- sions for the global financial market. These developments in Latin America are an important new example of the need to maintain credi- bility, especially in cases of high indebtedness. There are indications that financial flows to developing countries have been affected by Argentina's debt default and increased political uncertainty in some major developing country markets. However, while net debt flows have been particularly affected, equity investments such as FDI have fared markedly better. The declining trend in foreign borrow- ing by developing countries is not all bad; in the current circumstances, there is a need to focus more on preventing excess indebtedness early enough, particularly in developing countries, since over-indebtedness clearly reduces possibilities for active poverty reduction programs. Current unrest has implications for the financial situation of the World Bank. Demand for official sector loans will increase as market supply for loans to emerging market countries and developing countries diminishes. At the same time, the Bank is facing a deteriorating credit portfolio as a result of the global economic environment. We must emphasize the need for prudent risk management in these circum- stances, which means adequate reserves and loan loss provisioning. We should also consider the need to rethink lending policy and link it to policies ensuring debt sustainability in debtor countries. The Role of the World Bank in Implementing the Monterrey Consensus Conferences in Doha, Monterrey, and Johannesburg have advanced common understanding and rooted common commitments to acceler- ate the implementation of the Millennium Declaration. This process has been an important expression of an increase in multilateralism in the economic and political relationship of countries. We now have a commonly agreed framework for measuring devel- opment results embodied in the Millennium Development Goals. 74 Although there are obvious advantages from explicit policy targets, we should note that implementation and monitoring and data reliability issues require close collaboration among the Bretton Woods institu- tions, the United Nations, and the World Trade Organization. There is an emerging consensus on development process and policy requirements. Allocation of responsibilities is important: sound policies and good governance form the basis for all countries, and developing countries implementing them should be rewarded with increased and more effective development assistance and market access. Liberaliza- tion of trade and increased market access opportunities are key ele- ments that can significantly help the development process. The Bretton Woods institutions should support the process within their mandates, although the multilateral Doha round will be of vital importance. How- ever, steps can be taken quite quickly if political will exists, as the "everything but arms" initiative demonstrates. The role of the Bank in implementing the Monterrey Consensus is crucial. The Bank should work in partnerships and in cooperation with international financial institutions, the UN, and WTO. Division of labor could be strengthened based on the comparative advantages of these institutions. Intensified cooperation requires the harmonization and simplification of procedures to facilitate effective aid. Indeed, the effec- tiveness of aid and measurement of progress are key questions. We should also note that incentives created by aid are important. Aid should be targeted primarily to countries that succeed in achieving domestic preconditions for sustained financing of growth. In this respect, we welcome the IDA performance-based allocation. Data show that best performers receive considerably more IDA loans than worst performers. But naturally, the Bank should also devote attention to countries willing, but so far unable, to do what it takes to be among the best performers. The Bank should follow a country-led approach. There is a consensus that ownership is a crucial precondition for successful programs. Owner- ship can be enhanced by effective use of the PRSP approach, with the aim of developing stronger institutions and policies in recipient countries. Policies against corruption should be emphasized as a major determinant of investment climate. We already have positive experiences from the PRSP approach, and the next step is effective implementation. Debt Sustainability Debt relief has become a key part of the current development pol- icy because over-indebtedness has caused financial crisis or generally impaired growth and poverty reduction. The HIPC Initiative and mod- els for sovereign debt restructuring are examples of methods to tackle 75 this problem. But a word of caution is needed: these approaches all have a potential weakness, if they are implemented as one-time solu- tions without a change in policies. What is needed is lasting results from debt relief and restructuring arrangements. PRSP programs, debt relief, and lending from interna- tional financial institutions should be based on a careful analysis of debt sustainability, which is based on realistic assessment of future growth of production and exports. The role of sound policies must be emphasized. Recipient countries should borrow new net debt only if capacity to carry debt increases. In some HIPC cases, the question of "topping up" arises when debt levels are still unsustainable because of exogenous reasons, even after receiving full relief at the completion point. While flexibility in imple- menting topping up is needed, it should be noted that significant long- to medium-term shocks should be considered in this regard. Also, the principle of fair burden sharing should be applied for topping up. We should avoid using the IDA grant component to bail out lenders who do not contribute under the existing framework. Generally, it is important that the Bank clarifies policies related to the use of IDA grants in respect to HIPC countries. FRANCE: JEAN-CLAUDE TRICHET Alternate Governor of the Fund We are gathering today in the context of a very challenging situation for the world economy and the Bretton Woods institutions. Policymakers are committed to restore confidence against the background of a weaker than expected recovery, unresolved financial and external imbalances, and difficulties in some emerging market economies. In spite of this diffi- cult context, advanced economies should not step back from their com- mitment to reduce poverty and to support the Bretton Woods institutions in their endeavor to foster a sustainable development strategy. The expected recovery is under way but uncertainties remain and serious issues need to be addressed Since last April, growth prospects are less bright than previously expected, in spite of accommodative fiscal and monetary policies. In addition, the prospect for recovery is hampered by the persistence of imbalances and the lack of structural reforms. Confidence has also been affected by the situation on financial markets and the uncertainties sur- rounding the quality of financial reporting, accounting practices, and corporate governance. Action is under way to address these weaknesses and to restore confidence. 76 The indebtedness of nonfinancial agents is rising in the United States, and, to a lesser extent, in the euro area. The significant increases in housing prices has contributed to partially offset the negative wealth effects entailed by falling stock prices, but appropriate attention must be paid to avoid the formation of a real estate bubble. Widening financial imbalances have contributed to the deterioration of external current accounts. In this respect, the situation in the indus- trialized countries, considered together, remains a serious issue. According to IMF data, industrialized countries as a whole have been running an increasing current account deficit since 1998, which would remain at a very high level over the 2002­03 period. This means that investment growth in more advanced economies continues to be signi- ficantly financed by the savings of the rest of the world, which should not be a permanent feature of the global economy. Finally, in the industrialized world, as well as in emerging and tran- sition countries, structural reforms are of the essence in order to raise the level of growth potential, and contribute to sound and sustainably higher activity. Our current initiatives on preventing and resolving financial crises are promising Our action in preventing and resolving crises is being strengthened in three areas. First, we have collectively reaffirmed that a precondition for orderly crisis management relies upon more predictable decision- making processes regarding the use of Fund resources. In that regard, the presumption of clear access limits to Fund resources is key. Recent discussions are positive steps in this direction. Second, mounting concerns about debt sustainability in emerging countries press us to design and develop instruments to address debt restructuring problems. In this regard, I welcome the prospect of con- crete progress on the contractual approach achieved through the work of the G-10 on models for collective action clauses in sovereign bond contracts. We expect strong involvement by market participants and issuers in this project in order to promote a wider use of such clauses. European Union countries have committed themselves to this process by pledging to include such clauses in their bonds issued under foreign jurisdictions. Progress has also been made on the proposals put forward by IMF management for a new mechanism for restructuring sovereign debt, and we should be in a position to consider a concrete proposal at the next spring meeting. To contribute to reaching this objective, we should without delay build upon work already done to write down a code of appropriate conduct for concerted and informal debt restruc- turing. Indeed, it has been our constant experience that agreed common principles have always been beneficial to global financial stability. 77 Third, increased transparency and governance in the international financial system is needed. In particular, it is important to support the efforts made by the FSF and IMF to enhance transparency in offshore financial centers and the work within the OECD on harmful tax com- petition. The decisions by the Executive Boards of the IMF and the World Bank to enhance their mobilization in the fight against money laundering and terrorist financing, in conjunction with FATF, are very much welcome, and we are looking forward to reaping the benefits of their implementation. Reaching a sustainable development for all calls for a new momentum In Doha, Monterrey, and Johannesburg, the international commu- nity intensified its action to reduce poverty and promote sustainable development. The European Union has made considerable efforts to promote developing countries' exports. More than 40 percent of the EU's imports now come from developing countries, and it buys two- thirds of Africa's exports. Its generalized system of preferences is one of the most generous in the world, and its "Everything but Arms" initia- tive adopted last year is a key contribution to the poorest countries. If all industrialized countries were to adopt this initiative, it would create a powerful leverage effect for poor countries' exports. The IMF and the World Bank should encompass their trade approach in a broader and comprehensive trade and development agenda. The IMF should also make proposals for concrete support, more specifically for managing the transitory negative effects of opening up markets. The Poverty Reduction and Growth Facility has to play a strong role, which means it is critical to ensure that the facility is maintained. At a time when certain emerging markets are once again coming under inflationary pressure, it may not be amiss to remember the dent made by excessive inflation in the purchasing power and living stan- dards of the poorest households. Price stability must remain one of the priority objectives of economic policy in order to ensure sustainable growth. This naturally calls for a sound monetary policy, as well as a tight budgetary discipline. We should not forget that inflation acts like a tax, but it is a tempting solution for the least demanding governments, since its consequences seem painless. Among the several instruments and initiatives that aim at achieving progress toward sustainable development, I would like to focus on four of them. The first is obviously official development assistance. It needs to be increased, as we agreed in Monterrey, while not losing sight of the qual- ity of assistance. This is not only necessary if we want these large flows to be managed efficiently, but it is also what developing countries want. 78 President Chirac announced in Johannesburg that French ODA will rise to 0.39 percent of GDP in 2003, 0.5 percent by 2007, and 0.7 percent within 10 years. According to the 2003 budget request, France will devote 0.39 percent of its GDP to ODA, which confirms that we are already progressing toward this goal. France expects to achieve this aim with newly developed bilateral cooperation instruments, particularly "debt reduction and development" contracts. Sustainable development also requires a strengthened real economy in the poor countries, in particular small and medium-size businesses and infrastructures. The initiative launched in Johannesburg by Presi- dent Chirac and Prime Minister Blair will generate new investments of at least=C1 billion, leveraged by the=C100 million to be made available by both countries. We call on other donors to join this initiative. Another significant step toward sustainable development is the NEPAD initiative proposed by African nations. When implemented, it will provide a framework for political and economic governance geared to effective large-scale assistance for a continent with enormous needs. Finally, the HIPC Initiative should be fully implemented. The HIPC Initiative provides substantial support in terms of debt reduction and increased social expenditure. I note that the initiative is being imple- mented more slowly than we would like. On the other hand, speeding up implementation should not result in undermining the quality of the economic programs agreed within this framework. France will take its full share of a new replenishment of the HIPC Trust Fund. In a context of doubts on the strength of the global recovery and polit- ical uncertainties in several emerging economies, the Annual Meetings of the Bretton Woods institutions provide a new opportunity to reaffirm the key role of these institutions, under the leadership of Horst Köhler and James Wolfensohn, in preserving global financial stability. GERMANY: ERNST WELTEKE Governor of the Fund I am delighted that, following the exceptional circumstances last year, we are now able to hold the Annual Meetings in Washington again. Although the security situation has forced a shortening of the meetings this time as well, I am confident that we shall get back into the normal swing of things. In my view, it is extremely important that we have enough time to talk to each other, so that we can find a joint solution to the problems at hand. More than ever before, the IMF and the World Bank are institutions with a universal membership. I welcome the Governor of East Timor, the accession of whose country has increased the membership of both institutions to 184. 79 In its recent analyses, the IMF has been drawing a cautiously opti- mistic picture of the world economic situation. Even so, the risks have increased: there appears to be excess capacity and major pressure to adjust in important sectors, such as TMT; many structural issues are still unresolved, not only in the developing and emerging-market economies but also in many industrial countries; dubious accounting practices in some areas have eroded confidence; there continue to be severe bal- ance of payments disequilibria owing to inflationary tendencies in financial assets, which harbors the risk of abrupt adjustment processes; symptoms of crisis may still be observed in a number of emerging mar- kets; there are geopolitical uncertainties; and, sharp adjustments on the stock markets have dented consumer and investor confidence. But we should not overlook positive aspects, either. For the world as a whole, growth in 2002 and 2003 is also pointing upwards; the slump in growth is likely to have bottomed out; adjustments on the stock markets seem to be well advanced; and, price stability appears to be largely ensured. We should take temporary weaknesses as warning signs and as an opportunity. We have to recognize the causes and remedy them. As we see it, the crucial factors are the following: · Further work has to be done on consolidating government budg- ets so that we then have enough leeway to take countermeasures when times are bad. · Monetary policy has to be medium- and long term in its orienta- tion and geared as a priority to stable prices; in that way, volatile exchange rates also will be avoided. · Furthermore, structural policy should not be determined by short- term expedience; it should look forward and promote new oppor- tunities for growth. Sound fundamentals are essential not only for the advanced economies but also for the emerging markets and developing countries. Financial crises do not occur by coincidence but are due to flawed eco- nomic policies. Affected countries should seek to reduce their vulnera- bility by taking corrective measures and by creating more prudent financial safety margins. Precautionary measures may be inconvenient and, sometimes, have some short-term costs. But financial crises are the clearly inferior alternative. We therefore welcome the continuing work of the IMF on improv- ing surveillance and crisis prevention. I think we have made progress in those areas during the past few years. Standards and codes have undoubtedly played a part in that and seem to be meeting with increas- ing acceptance. In my view, however, that, on its own, is not enough: 80 · In many countries, good governance could help to improve the economic situation. · In other countries, more effective banking supervision could help to prevent financial crises. · Greater transparency in yet other countries might contribute to improved economic policy. Crisis resolution is always a last resort. For that reason, we need a strategy in which crisis prevention is a key element. From the German point of view, a credible access policy confined to the normal access limits is absolutely essential. Investors have to reorient themselves more strongly to the real risks and must not rely on assistance from the public sector. They have to be fully aware that, in the event of a financial crisis, they could also be directly affected themselves. Even so, there may be exceptional circumstances under which exceptional access to IMF resources might be justified. Any decision on exceptions of this kind would have to be based on well defined criteria, however, and should also entail special formal approval procedures within the IMF. The sustainability of the country's debt situation is a necessary precondition for both access to Fund resources above normal limits and the restoration of access to private markets. In such cases of exceptional access, particular consideration should also be given to the extent to which balance of payments problems could, by their character or size, threaten the stability of the international monetary system. All things considered, it should be clear that no amount of precau- tionary measures can stop individual countries from becoming insolvent and having to restructure their debt in the future. Germany therefore fully supports the current work being done on developing orderly rescheduling procedures. Reliable, orderly, and rapid procedures are needed to create sustainable solutions and to provide opportunities for a new start. In the ongoing general review of quotas, the right incentives have to be put in place. A sharp increase at the present juncture would send out the wrong signals. The IMF possesses adequate liquidity. Providing the IMF with overabundant resources might give rise to the expectation of large-scale financing packages and thus run counter to our efforts to involve the private sector. Also, quotas should remain the primary source of Fund liquidity and more closely reflect the member country's relative position in the world economy. As far as the developing countries are concerned, we fully endorse the Monterrey proposals on the financing of international development objectives. That also goes for the Johannesburg resolutions on sustainable development. 81 In that light, we continue to support the implementation of the HIPC Initiative. Those HIPC countries that have not been able to make use of the initiative thus far should put in place the conditions to do so. Also, as many creditors as possible should take part in the initiative. Ultimately, poverty can be alleviated only by means of higher growth. The IMF can play a part in creating the macroeconomic condi- tions to make that possible. The World Bank should help to implement the necessary microeconomic reforms. And the industrial countries, as well as the developing countries themselves, should continue to reduce their import restrictions; by doing so, they would play a significant and effective part in aiding development. GREECE: NIKOLAOS CHRISTODOULAKIS Governor of the Bank It is a great pleasure and a privilege to address the 2002 Annual Meetings of the Governors of the Bretton Woods Institutions. Let me first join previous speakers in welcoming the Democratic Republic of East Timor as a new member of the Fund and the Bank, and of our constituency. I also wish to express my appreciation to Mr. Köhler and Mr. Wolfensohn for their continued dedicated service to our institutions and, in particular, for their efforts to ensure that global- ization works for the benefit of all. It is customary in these meetings to outline economic developments in each country. I am pleased to inform you that the Greek economy con- tinues to do well. Despite the international economic slowdown, real GDP in Greece is expected to grow this year by about 3.8 percent, and the prospects for 2003 are quite positive. The fiscal policies followed over the last few years succeeded in stabilizing public finances and broadly bal- ancing the general government budget. Inflation is still higher than the euro area average, and this will continue to be of concern. Structural reforms focus on liberalizing and improving the function- ing of markets by, inter alia, containing the role of the state and putting in place a clear and transparent legal and regulatory framework within which market agents operate. To this end, our telecommunications sector has been fully liberalized since 2001, and progress has also been made in increasing competition in electricity generation, maritime trans- port, banking, tourism, and other sectors. Proceeds from privatization will exceed 1.5 percent of GDP this year, one of the highest levels in recent years in the European Union. This year, we have also introduced legislation for a major reform of our tax system and have taken steps, in cooperation with social partners, to improve the funding of future pen- sion liabilities. To raise productivity further, we have placed increased 82 importance on the reorganization of the public sector and on improving the public health services, education, and work practices. Structural reforms, fiscal discipline, and high public investment in infrastructure and for the Olympic games of 2004, along with robust pri- vate investment, are expected to contribute to a sustained high rate of economic growth in the coming years and a rapid convergence of the standard of living with the average of the European Union. In the spirit of the Lisbon agenda for structural reforms, we have already taken steps to fully exploit the opportunities offered by infor- mation and communication technologies to raise output and provide a longer-term boost to productivity growth. In this effort, we are chan- neling the resources of the Community Support Framework to their best use. At the same time, we are also assuming an increasingly impor- tant role in the reconstruction of the Balkans. The recovery of the global economy, which started at the beginning of this year, seems to be less robust than initially expected. The outlook, although on balance positive, is clouded by significant downside risks. These stem in part from the persistence of imbalances between and within the major economic areas of the world, but they are com- pounded by the collapse of equity prices and the erosion of confidence in corporate governance, the current high levels of oil prices, and the unsettled security situation in the Middle East. To counter these risks and preserve the stability of the international monetary system, we need to reinforce our commitment to interna- tional cooperation. We need to focus attention on restoring confidence in the stability and integrity of market institutions, while also working together to resolve macroeconomic imbalances. At the same time, we need to further enhance our capacity to prevent and resolve crises. Over the past year, the Fund has made considerable progress in strengthening the effectiveness of its surveillance policies, which is essential for the prevention of crises. I welcome, in particular, the new instruments that the Fund has developed to facilitate the timely detec- tion and correction of vulnerabilities in national financial systems and global capital markets and the growing attention it has been paying to debt sustainability analysis. Nevertheless, financial crises continue to occur with disquieting frequency. At the same time, we need to strengthen further the framework for the resolution of sovereign liq- uidity and solvency crises. In this context, I welcome the emphasis on streamlining program conditionality and on improving its focus, while also reinforcing its collaboration with the Bank and other IFIs. I look forward to clarifying the criteria for exceptional access to the Fund's financial resources and to developing both the contractual and statutory approaches to sovereign debt restructuring. 83 The weakening of global macroeconomic prospects has particularly adverse implications for developing countries. We urgently need to translate into concrete actions the consensus reached in Monterrey and Johannesburg. In this connection, it is important to monitor progress toward the attainment of the Millennium Development Goals in the global effort to reduce poverty and promote development. The World Bank, working closely with the Fund and the donor com- munity, must intensify its efforts in developing operational tools to deal with particular problems in low-income countries. Special emphasis must be paid to finance and knowledge instruments while exploring new avenues to directly address the problems of the large proportion of poor people residing in these countries. In order to assist low-income countries to meet the 2015 MDGs, a focus on sound macroeconomic management, institutional capacity building, and basic social service delivery to the poor must be emphasized. Measures to improve policy performance must be embedded in the Poverty Reduction Strategy Paper (PRSP) process. Close monitoring and evaluation of agreed out- comes on the basis of results-oriented indicators are also essential in measuring the effectiveness of assistance. I would also like to acknowledge the continued progress made to date under the enhanced Heavily Indebted Poor Countries (HIPC) Ini- tiative. The enhanced HIPC framework continues to provide a sound basis for debt reduction in HIPCs. In this context, we urge the Bank and the Fund to focus on long-term debt sustainability in HIPC countries that will, inter alia, require a broader set of actions by the HIPCs and the international community alike. The HIPCs must continue to make progress on their economic and social policies. For their part, industrialized nations must respond by opening their markets--as gains from increased trade would far exceed even the most ambitious debt relief scheme--and by ensuring that financing on appropriately conces- sional terms remains additional to debt relief. Removing barriers to trade will also assist in generating opportunities and in reducing aid dependency, while empowering people and countries with additional development means. We need to stress the importance of paying renewed attention to the sources of sustainable growth, poverty, and social impact. Effective policies to combat money laundering and the financing of terrorism are necessary in order to safeguard the stability and integrity of the global financial system. I am pleased to note the considerable progress achieved so far in implementing major aspects of the AML/CFT action plan. I am, nonetheless, mindful that strengthening the AML/CFT regimes worldwide will involve capacity building, strengthening of financial sectors, and supervisory reforms in the medium to long run. We encourage the Fund and the Bank to continue 84 developing comprehensive AML/CFT assessment methodologies and to step up the implementation of technical assistance, and we look forward to the final report at the 2004 Annual Meetings, following the 12-month pilot program in 2003 of AML/CFT assessments and accom- panying ROSCs. Monterrey, Johannesburg, and Doha give us important opportuni- ties to fight marginalization and underdevelopment. Let us learn from our experiences, and share the vision for a world free of poverty. Let us make globalization not a terrain for new inequalities, but an all- inclusive process that works for the benefit of all. GRENADA: ANTHONY BOATSWAIN Governor of the Bank and the Fund (on behalf of the Joint Caribbean Group) I have the honor to speak on behalf of the Member States of the Caribbean Community (CARICOM). I express appreciation to the management and staff of the Bank and Fund for the excellent arrange- ments that have been made for these meetings. I also wish to convey our deep appreciation to our host, the United States of America, for the unprecedented effort to provide security for the meetings. Our meetings take place against a particularly challenging global environment with heightened risks to the pace and sustainability of the weak world recovery now under way. Developing countries need to guard against the risks and vulnerabilities posed by tightened financing conditions, a sustained decline in non-oil commodity prices, the recent increases in oil prices, and the unequal application of the rules governing international trade and investment. Within this context, we support the call for the international community to move from words to action to implement the Doha, Monterrey, and Johannesburg Agree- ments in order to improve our collective efforts to achieve the Millen- nium Development Goals (MDGs). We strongly urge the international community, especially the IMF and the World Bank, to provide more timely, stronger, and comprehensive support to these efforts. The CARICOM economies are in a most difficult and precarious sit- uation. Small and highly open, they are extremely vulnerable to inter- national economic developments, such as WTO liberalization programs and the loss of preferential markets; reduced net inflows of foreign cap- ital, especially official development assistance; and unanticipated increases in expenditures for international security. Seven of our 11 most important commodity exports in 1995 experienced price declines and lost market share in 2000. Tourism, vitally important for foreign exchange and employment, declined dramatically as a result of the events of September 11, 2001. 85 Our economies are also vulnerable to natural phenomena, such as hurricanes and tropical storms, which annually destroy production and economic and social infrastructure, forcing capital replacement rather than capital accumulation. Even as I speak, Jamaica, St. Lucia, Grenada, Barbados, and St. Vincent and the Grenadines are suffering from the effects of tropical storm Lili and hurricane Isidore. In response to our current economic challenges, many of our coun- tries have undertaken a wide range of reforms to stabilize our economies and stimulate growth. In addition, CARICOM Heads of Government convened a special summit in St. Lucia last August and agreed on a regional framework geared toward stabilizing and trans- forming the Caribbean economies. Central to this framework is the establishment of a Regional Stabilization Fund. We recognize our responsibilities and are committed to developing solutions that would improve the quality of life of our people. We are convinced, however, that our development partners, particularly the Bretton Woods institutions, must play an important complimentary role. In this regard, we register our appreciation for the timely response by the Bank in the aftermath of September 11, 2001; support in the fight against HIV/AIDS, including the special dispensation to Barbados; and the capacity-building efforts through CARTAC. However, we are also mindful that there is need for significant expansion in their assistance. Toward this end, we see the need for the Bank and Fund to work with us to address the critical issues of resource mobilization, private sector development, and the treatment of small states, among others. Resource Mobilization Even as the needs of the Caribbean increase, net transfers are mov- ing in the opposite direction for many economies in the region. These times call for moving to a higher trajectory for financing the region's development. Therefore, the international financial institutions should resume their role as a major source of development finance to the region--assisting with the immediate stabilization needs, but more fun- damentally with structural transformation and reengineering of the economies. They must become more innovative as they seek new mech- anisms for the delivery of assistance both to the public and private sec- tors. Growth and development are predicated on peace, security, and stability. Many countries in the region face significant security chal- lenges, including coping with the problems associated with the trans- shipment of drugs and the deportation of hardened criminals. These problems continue to stretch our limited budgetary resources. 86 Private Sector Development During the past decades, many of our countries have undertaken significant reforms to improve the investment climate and encourage greater private sector development. However, the anticipated increases in foreign direct investment flows have not materialized. We welcome the World Bank Group's Private Sector Development Strat- egy, which seeks to generate enhanced private sector development in client countries. Within the Caribbean, we urge the IFC to aggressively pursue innovative mechanisms to respond to the special needs of the private sector particularly in small island states. We urge the IFC to partner with indigenous financing institutions in support of the private sector. Money Laundering The region has developed competitive international financial cen- ters as part of its economic diversification strategy. We have strength- ened our regulatory and supervisory systems consistent with international requirements and standards. In this regard, we note the work of the Bank and the Fund over the past year in supporting global efforts against money laundering and the financing of terrorism. As the institutions forge partnerships with others in the global fight against money laundering, it is imperative that their work does not indirectly or directly support policies that seek to restrict international competition in financial services. Small States The international community has often been unsympathetic to the special needs and circumstances of small states, citing the impressive per capita data. You may recall, however, that in 2000 the Bank endorsed the task force study on small states that confirmed that small states face special development challenges, and called for focused atten- tion by international institutions. In this regard, the Bank and the Fund must move resolutely to implement the recommendations within their mandate. We expect that this issue will be advanced at the Small States Forum tomorrow. We recognize the challenges ahead and are prepared to continue to make the necessary adjustments. But we cannot do it without our devel- opment partners. We urge you to support our efforts to achieve rapid progress to realize the aspirations of the citizens of the region. 87 INDIA: JASWANT SINGH Governor of the Bank and the Fund Mr. Chairman, my congratulations on your assuming the chairman- ship of these Annual Meetings. We hope that under your leadership this gathering will arrive at a consensus on how the Bank and the Fund can facilitate a quick implementation of the global compact arrived at in Doha, Monterrey, and Johannesburg. The past decade has been characterized by low growth rates and considerable economic difficulties in most regions of the developing world. Except for Asia, per capita incomes have either declined or remained stationary, and the poverty situation has worsened consider- ably. After the declining growth rates in global output and trade wit- nessed over the past year, the outlook ahead remains uncertain. An excessive volatility of global oil prices threatens to undermine the ten- tative recovery currently underway. Non-oil commodity prices are now expected to decline in real terms over the next decade. The outlook for the flow of official development assistance, including multilateral loans and credits, continues to remain unfavorable. Although the flow of pri- vate capital has expanded impressively in recent years, it has remained highly volatile, expensive, and concentrated among a few countries. It cannot offset the impact of declining ODA in low-income countries. We welcome the Monterrey consensus on the importance of improved market access for developing country exports. This is perhaps the most important requirement for accelerating growth and removing poverty. Most developing countries today are liberalizing their trade regimes and seeking greater global integration as part of their economic reforms. The benefits of these reforms are critically dependent on the removal of trade barriers on items of interest to them. We must be mindful that these changes are carefully sequenced so as to minimize the cost of adjustment for the poor. Developing countries have large infrastructure gaps that need to be bridged if they are to take advantage of improved market access. This will require suitable policies and investment climate to attract private investment as a supplement to increased public investment. This process of reform in developing coun- tries is thwarted unless fully supported by enhanced access to markets for their products, especially agriculture, textiles, clothing, and footwear, an elimination of trade-distorting subsidies in the industrial- ized countries, and adequate access to financial resources so that invest- ment needs are met and possible balance of payments pressure lessened. The current risks to global recovery have assumed new dimensions and pose formidable challenges to both the Bank and the Fund. Three important features characterize recent global economic developments. 88 First, on the positive side, the impact of the recent slowdown has been somewhat milder than earlier similar instances, primarily on account of timely and strong corrective policies. Second is the disturbing syn- chronicity of the global downturn. The third and final observation per- tains to apprehensions regarding the growth of contagions caused by volatile movements in capital flows threatening even some of the more well-managed economies. All these pose serious challenges to the inter- national community. A clear understanding of the multiple causes of capital account crises, including noneconomic factors and risks of rapid global integration, are critical for first designing and then ensuring the much needed cooperation among national policymakers and multilat- eral institutions. In light of the above, and for ensuring greater global financial stabil- ity in the future, it is necessary to identify the major sources of vulnera- bilities and the underlying reasons responsible for their convergence and subsequent mutual reinforcement. First among these is the consid- erably reduced prospects for immediate economic recovery in industrial countries, due to a variety of factors including the recent behavior of financial markets. Vulnerability still troubles global capital markets. The continued probability of abrupt and disruptive corrections in exchange rates of major currencies is another cause for concern. The somewhat discordant behavior of equity and bond markets vis-à-vis real sector developments, arising from widespread corporate defaults and accounting shortcuts is another cause for concern. Emerging market financing conditions continue to suffer from constraints, particularly in the troubled continent of Latin America, which could weaken growth prospects and increase vulnerabilities in a number of countries. And finally, global energy prices are once again displaying troubling volatil- ity, which would impact oil exporting and consuming countries differ- ently. If oil prices were to turn adverse, the crisis could become heavily detrimental for global growth and welfare, apart from affecting the growth prospects in emerging Asia. In the current scenario, maintaining a fair degree of stability in oil prices would demand remarkable states- manship on the part of leaderships in major countries. The variety of policy responses in industrial countries, appropriately accommodative to supporting growth, is encouraging. In this regard, fis- cal stimulus and stabilizers have an important role to play in the industrial countries within prudential constraints. Swift policy action is required, however, to restore investor confidence for clearing the doubts created by reports of unfair accounting and financial reporting. In the eventuality of disorderly adjustments in major currency values, coordinated policy interventions would be called for from major countries. Finally, the emerging market economies should continue to persevere with prudent macroeconomic policies and also pursue structural reforms. 89 Besides providing an assessment of short-term vulnerabilities and risks, the twin publications of the World Economic Outlook (WEO) and Global Financial Stability Report (GFSR) throw up issues for medium-term consideration. It would be useful to take up for further examination the issue of corporate governance and integrity and the need for placing accounting and auditing standards on a sound footing. The dollarization and associated systematic risks in Latin America also raise issues for the medium term in regard to the evolution of exchange rate regimes. As part of both multilateral and bilateral surveillance, development of financial standards and codes as a parallel effort to strengthen indi- vidual country practices and improve adherence to best practices is wel- come. But, first, it must be recognized that the relationship between adherence to codes and stability and soundness is rather weak and not well founded. Second, the standards themselves should be seen as evolving, and weaknesses in standards themselves are not uncommon as was evident in the recent cases relating to accounting and auditing and governance matters. The approach of FSAP and ROSC should con- tinue to remain voluntary, and publication of reports should be left to member countries. The application should take into account individual country experience, context and stage of development, and legal and other institutional structures. I would like to take this opportunity to inform that in India, we have completed a full round of self-assessments of standards and codes. We welcome the Fund's efforts in carrying forward the examination of the contractual and statutory approaches to improve the process of Sovereign Debt Restructuring Mechanism (SDRM). We would like to reiterate that while a generalized and broad framework for SDRM may be feasible, SDRM should be viewed on a case-by-case approach and necessarily has to take into account the individual country and institu- tional environment. Second, SDRM should be treated as complemen- tary to the Fund's emergency funding and not as a substitute. The Fund's experience with exceptional financing has proved to be positive and, overall, resulted in meeting the objectives of programs successfully. The post-crises environment in the countries covered by Fund pro- grams has generally shown improvements in several respects. There is a need to continue with the policy of designing programs and to provide exceptional financing in deserving cases. We encourage the ongoing work on streamlining access policy and strengthening the framework for exceptional access policy. We commend Bank and Fund efforts in reviewing and streamlining conditionality. The modified guidelines provide room for considerable flexibility and take into account country-specific circumstances, includ- ing the political economy of program implementation. The floating 90 tranche-based prescriptions for structural conditionality will help countries in phasing their program implementation on the basis of domestic institutional and legal infrastructure. We need to assiduously avoid a gap-filling approach to conditionality in which the conditions excluded by one institution are taken up by the other. The final out- come of the streamlining exercise must be a clear and visible reduction in the number and range of conditionalities applied by both the Bank and the Fund. We note with satisfaction the progress in the HIPC Initiative. The substantial debt relief delivered to a large number of countries has had a positive impact on their poverty-reducing social sector expenditures. However, the pace of implementation of the initiative has been rela- tively modest. Some HIPCs have experienced delays in reaching decision points, notably, those going through a post-conflict phase, which are in urgent need of rebuilding their core infrastructure and stepping up social sector spending to reverse the deterioration in human development indices. The PRSP approach has also now taken hold with a number of countries producing high quality PRSPs through a broad consultative process and significantly improved country ownership. The focus now has to shift to meeting the challenges in implementation. It is important to take into consideration the governments' need to calibrate the pace of policy changes so as to minimize likely social disruptions and facilitate progress toward poverty reduction. Enhanced aid effec- tiveness and more predictable aid flows are equally important. We look forward to tangible progress in improving donor alignment and harmo- nization of procedures and practices. These are critical to reducing transaction costs and enabling governments to shift the focus from processes to actual implementation. We fully support the intensification of the global efforts to prevent money laundering and financing of terrorism and the involvement of the Fund in this endeavor. The present collaboration between the Fund and the Bank, the FATF, and its affiliate bodies has the potential to enhance the effectiveness of assessments, expand their coverage, and promote more efficient use of resources. Some recent developments in the international economic environ- ment point to the need for addressing certain fundamental issues relating to governance structure and policies of the Fund. The financing needs of members now arise more out of capital account imbalances than current account imbalances. The funding need is also for fairly longer periods and with larger volumes of requirement given the sudden and significant cri- sis afflictions. The size and distribution of quotas require a thorough review in the current context of emerging common currency areas and increasing strength of emerging and developing economies. Greater cred- ibility of the Fund lies in ensuring orderly international payments. 91 We greatly appreciate the efforts of Mr. Wolfensohn and his staff, together with IDA donors in reaching an agreement on the Thirteenth Replenishment of IDA. This agreement, along with borrower reflows, will result in broadly maintaining the level of IDA commitments in the next three years at the same level as during the Twelfth Replenishment period. In nominal terms, fresh donor commitments at US$10 billion in IDA 13 are only slightly higher than US$8.64 billion during IDA 12. This should be a matter of serious concern to this august body. I hope the deliberations of this body would provide the necessary momentum to reverse the recent unfavorable trends in flows of concessional finance from bilateral and multilateral sources for poverty alleviation. The availability of adequate resources to IDA also has a bearing on the appropriate strategy for achieving the Millennium Development Goals. It is now 14 years since the Board of Governors of the Bank approved a General Capital Increase. In the meantime, the world has changed dra- matically. In 1988, the Bank did not have the demand for its resources from the entire group of transition economies of Europe and Central Asia. Market volatility and financial risk were then an order of magni- tude lower. Monterrey and the Millennium Development Goals provide a unique global consensus on eliminating absolute poverty in our life- times. The need for adequate Bank resources has never been greater. There is an urgent need to replenish the Bank's capital to enable it to meet the financing challenges, keeping in mind the heightened risk of our times. We call on all shareholders of the Bank to agree on a General Cap- ital Increase to be completed before our next meeting in Dubai. INDONESIA: SYAHRIL SABIRIN Governor of the Fund I would like to welcome our most immediate neighbor, the Democra- tic Republic of East Timor, to the membership of the IMF and the Bank. When the two Bretton Woods Institutions were established more than 55 years ago, they carried noble causes to improve the quality of life of the whole world. They have continued to strive to do so ever since, the IMF in establishing monetary and financial stability, and the World Bank in promoting growth and investment. So much has been achieved, and so many innovative ideas have been developed and implemented for the purpose of enhancing their performance. Despite criticism, they deserve to be commended for their achievements, includ- ing those since last year. We fully support the good cause being brought forward by the two institutions. During the period of good economic performance we also participated financially in supporting the good cause, while at the time of economic difficulties we did not retreat from our commitments. 92 Poverty reduction, for example, is a noble cause that should be sup- ported by all. In a world of such plenty, with a highly civilized society in which people are digitally connected, it is indeed shameful to realize that more than one-fifth of the world's population is still living on less than one dollar per day. But poverty, as discussed in the World Devel- opment Report 2000 has three well-being dimensions--namely oppor- tunity, security, and empowerment--which are relevant not only at the individual level, but also at the country level. Opportunity will hardly emerge in a world where global trade and financial flows are con- strained by barriers and other forms of quasi-protectionism. It is in this respect that the successful and just implementation of the mission of the WTO is very much being looked for. Two important notes of reminder are relevant for the future work of the IMF, the World Bank, and the WTO. First, although good and just standards and rules are important, their meaning is significantly reduced--even to negative values--if they are not properly imple- mented. Second, these international organizations should totally avoid any bias that unjustly discriminates against some while favoring others. This is true for rules and standards, and even more so for their implementation. Now, let me say a few words about recent development in Indonesia. Given the very short time I have for this statement, I will summarize these in three points. First, we see the economic crisis that started to hit Indonesia in 1997 from two different angles. From one angle, the crisis did hit us very hard and painfully, with a 13 percent decline in GDP in 1998, a sharp increase in unemployment, and so on. From the other angle, we see the crisis as an opportunity to change for the better. In this respect, we have made extensive reforms in many areas: banking, legal, institutional, and business, just to mention a few. These reforms laid a much stronger foundation for us to grow and develop sustainably. Second, many parties aside from the executive government are tak- ing part in achieving stability and development. Legislative, judicial, other authorities like the central bank, and last but not least the people at large, are taking part. A strong role being played by one can to some extent compensate the weaker roles played by the others, making a good overall performance. In achieving financial and monetary stabil- ity, the independence of the Central Bank being granted by the Central Bank Law of 1999 is worth mentioning. This independence has enabled the Central Bank to work hard in a consistent manner to maintain relative monetary stability despite the uneasy political turmoil experi- enced by the country a few times since the crisis. Third, we are encouraged by recent developments such as the price and exchange rate stability that have prevailed for an extended period of time. Such stability has made possible a gradual but significant reduction 93 of interest rates on Bank Indonesia's Certificate from approximately 17 percent last year to below 14 percent now. This constitutes a reasonable base for a better economic growth in 2003. Although the growth rate will be only between 3 percent and 4 percent this year, we expect that a growth rate of 5 percent can be achieved next year. With respect to anti- money laundering and the fight against terrorism, we have ratified the UN resolutions on these issues, promulgated an anti-money laundering law, and established the implementing institutions. Before taking these actions, we applied the "Know Your Customer Principles" to the bank- ing sector. Finally, we would thank the IMF, the World Bank, the members of the CGI (Consultative Group on Indonesia), and the international com- munity at large for their invaluable support to us during the crisis as well as in our effort to reform and grow. IRAN: TAHMASEB MAZAHERI-KHORZANI Governor of the Bank It gives me great pleasure to be here at the 2002 Joint Annual Meet- ings of the World Bank and the IMF. In view of the limited time, I shall first concentrate on the economy of Iran and its prospects. Iran is implementing its third Five-Year Development Plan, which serves as a framework for current economic reforms and restructuring, as well as further development of social welfare. It aims at achieving greater transparency in macroeconomic and regulatory frameworks, budget reform, tax reform, and reduction of the government's role in the economy; as well as promoting competitive structures, encouraging foreign investment, unifying the foreign exchange rate system and achieving a floating rate regime, and removing nontariff barriers. We have already achieved many of these objectives: a comprehen- sive tax reform package was approved last February. The new tax code provides changes in the interest of most taxpayers, comprising: a reduc- tion in the direct income tax to a flat rate of 25 percent, including cor- porate and shareholder tax; the introduction of tax incentives to promote private investment in the underdeveloped areas; the creation of a Central Tax Authority; the adoption of value-added tax by the Council of Ministers; the elimination of tax exemption for public enter- prises; and, leveling the playing field for the private sector. Important advances were made in trade reform: nearly all nontariff barriers on imports have been removed, and the tariff system has been rationalized. Many state-owned enterprises have already been privatized through the Tehran Stock Exchange and others are in train. I am pleased to report that last March, after a long period of preparation, we were able to introduce a unified managed-floating exchange rate system. 94 The Law for Promotion and Protection of Foreign Investment has been promoted and approved, and has laid the foundation for more transparency, in line with international best practices, to attract and protect foreign investment. Additionally, most recent capital market instruments have been introduced, foreign investors' fields of activity have been broadened, and more incentives and facilities for foreign investment have been created. Additionally, all matters related to for- eign investors are being organized in a one-stop shop within an investor relations office. These are among the recent developments envisaged in the new law. While we have learned from the experience of other countries, the reforms have been optimally sequenced corresponding to the societal and cultural context of Iranian society. The consequences of these efforts have been analyzed, and policies to minimize the negative impact of reforms have been contemplated. These reforms have had positive payoffs in terms of achieving high economic growth rates and accelerating the growth of non-oil exports during the last two years. We expect that this performance will continue in the period ahead. The international capital and financial markets have reacted positively to these developments, as the recent oversub- scribed euro bond issue demonstrated. Turning to global economic prospects, there is growing uncertainty regarding recovery of the world economy. We are concerned that, while there has been some improvement in poverty reduction, the number of people living in poverty has increased. The World Bank and the IMF face a great challenge in addressing poverty and its social consequences. We strongly support the focus on the process contained in the Poverty Reduction Strategy Papers. We also continue to support the enhanced HIPC Initiative. The opening of industrial country markets to developing country exports could allow globalization to ensure positive benefits for all members of the international community. An important issue for the membership of Bretton Woods institutions is the promotion of trans- parency and strengthened accountability of these organizations in order to ensure sound decisions and policies based only on economic consid- erations and in the best interest of their member states. Finally, I stress the role of the international organizations and donor assistance in the reconstruction of Afghanistan to which the Islamic Republic of Iran is contributing significantly. IRAQ: ISSAM RASHID HWAISH Governor of the Bank I am honored to convey the greetings of the Iraqi delegation to the Managing Director of the IMF, the President of the World Bank, and 95 the distinguished Governors participating in this meeting, along with our hope for the success of the efforts made to achieve the goals sought by the international community as a whole, particularly those aimed at helping the developing countries to overcome their economic difficul- ties and improve their unfavorable balances of trade. One year after the tragic events of September 11, I would like to use this forum to express our sincere condolences to the families of the vic- tims. We sympathize with their suffering, because we also have suffered tragedies for more than 12 years in Iraq, as a result of the continued sanctions and aggression carried out against our people. The drastic steps taken against Iraq are beyond the scope of peaceful measures and outside the bounds of international law. They work against achieving the peace and stability needed by the people of the world, who must cooperate based on the principles of friendship, justice, and peace. For more than 10 years, the Iraqi delegation has affirmed before this respected assembly that the most important objective of the IMF, as stated in paragraph 4 of the Articles of Agreement, is to eliminate barriers to trade and international settlements, and to help achieve sta- bility and economic prosperity. Today I reaffirm that the unjust eco- nomic sanctions imposed on Iraq since 1990 are in conflict with basic humanitarian and social principles. It is impossible to accept that an entire population be punished and deprived of life's most basic require- ments, for such an attitude conflicts with the moral values of the civi- lized world. The banking boycott imposed on Iraqi institutions that are vital to the lives of our citizens have deprived over 25 million people of the means for achieving a decent life and all opportunities for advance- ment. This contradicts the Articles of Agreement of the Fund and the philosophy upon which it was established. The fact that Iraq is a found- ing member of the IMF gives me the right to ask it to stand firmly against the continuation of economic sanctions, the banking boycott, and the freezing of Iraqi assets. In this way the Fund will defend the principles and objectives it has defined for itself, in keeping with the principles of Bretton Woods, to which we all subscribe. During the past 10 years, my county has faced great challenges in various areas of economic, social, and health concerns. These chal- lenges have become increasingly serious, as exemplified by the severe shortage of medical supplies and requirements, which has caused a sharp rise in mortality rates among children and the elderly, as noted by all the international health and humanitarian organizations. Iraq's basic infrastructure has also been devastated, including potable water and wastewater networks, which are inadequate throughout the country, and there is a severe lack of electric power and communications facili- ties. All this because of the obstinacy of one country, a permanent mem- ber of the United Nations Security Council: the government of the 96 United States, which has disregarded the rights and interests of all other countries and peoples to serve its own interests, even if they are unjust. Iraq has also faced great difficulties in obtaining spare parts, raw materials, and other requirements for its domestic civil industries, including the production of consumer goods needed by its citizens. As a result, most factories have stopped production, causing a shortage of goods and an increase in the number of workers who cannot find jobs and whose economic, social, and health situation has suffered accordingly. The education sector has faced great challenges at all levels, as illus- trated by the severe shortage of teaching materials and other require- ments of our institutes and universities, as well as the lack of buildings with even the minimal requirements to provide an adequate educa- tional environment. Despite the passage of nearly six years since the "Oil for Food and Medicine Program" was begun, it has failed completely to ease the suffering of the Iraqi people that I have described, for it has turned into a program of oil for United Nations expenses and compensation, instead of meeting the needs of the Iraqi people with their own funds. Large sums from suspended contracts and other unused funds remain unavailable because of the policy adopted by the United States, which claims to defend human rights but in reality increases the suffering of the Iraqi people and causes the death of ever more of its citizens. From the time this program began to the present, Iraq has exported oil valued at about $57.3 billion, of which the United Nations has received $24.6 billion. The value of the food and humanitarian goods that Iraq received as at August 31, 2002 was $20.7 billion, or an average of $3.5 billion per year. The average annual per capita share amounts to $144, or $12 per month, for each Iraqi citizen. Contracts that have been suspended or canceled for insignificant or illogical reasons or without specifying the reasons amounted to $4.4 bil- lion on August 31, 2002. The policy of encumbering these contracts has resulted in hundreds of thousands of additional deaths and the spread of epidemics, cancer, and other incurable diseases. The only solution for these economic, social, cultural, and health problems is the complete removal of the sanctions imposed on Iraq. Iraq's recent decision to allow the unconditional return of UN weapons inspectors is an expression of the Iraqi government's desire to complete the implementation of the relevant UN resolutions, and it is a necessary step in the process of confirming that Iraq does not possess weapons of mass destruction. It is equally important as a step leading to a comprehensive solution, including the removal of the sanctions imposed on Iraq, in addition to implementing the other provisions of the relevant Security Council resolutions, including Resolution No. 687 97 of 1991. The reported skepticism of the American and British adminis- trations concerning the seriousness of Iraq's decision are nothing more than a continuation of the distrustful and poisonous atmosphere which these administrations have sustained for over a decade. The Iraqi people will remain threatened by disaster unless rapid measures are taken to improve their condition. I believe that the prin- ciples of the IMF and the World Bank require them to take a positive stance by actively participating in this endeavor. In this respected inter- national forum, I once again call upon the IMF and the World Bank, in accordance with the principles of their Articles of Agreement, to call for the urgent removal of the sanctions against Iraq and the freeing of its frozen assets, to end the suffering of an entire population. At the same time, I commend the positive efforts of a large number of Gover- nors, and I call upon all Governors to explain the situation to their gov- ernments and urge them to end the suffering of the Iraqi people and restore balance to trade relations among the members of the interna- tional community. IRELAND: CHARLIE MCCREEVY Governor of the Bank and the Fund There is a very great deal to be done to create a more prosperous, secure, and equitable world. Eliminating poverty is, most certainly, the greatest challenge facing ministers for finance today. The IMF and the World Bank have a critical role to play in this process. The focus of the IMF and the World Bank is both on macroeconomic stability and poverty reduction. The IMF's core responsibility for macro- economic stability is not just an end in itself, but is essential to creating the basis for sustained growth--growth that has to be shared more widely, raising global prosperity and promoting social development. The Bretton Woods institutions can also make a huge contribution to managing globalization in more positive ways. The anti-globalization movement is articulate, well organized, and motivated. Working in the supposed interests of global democracy, unaccountable and unelected groups claim unto themselves the right to set the development agenda, on the grounds that globalization has robbed nations of the power to determine their own destiny. A lack of historical context is in evidence here. Long before the cre- ation of the Bretton Woods institutions, all except the largest nations lacked the exclusive power to shape their own future. Market instabil- ity and lack of confidence in the economic and financial system world- wide were more in evidence between the world wars than now. 98 Crisis prevention has been at the core of the Fund's activities, and it has carried out substantial work to strengthen the global economic and financial systems and to reduce the incidence and the extent of crises. The Bank and the Fund are successes, not failures, despite some popu- lar skepticism. However, we need to do more to get across to the public what we are doing, and what we are going to do in the next few years. In recent years, both the Bank and the Fund have made great progress in increas- ing the transparency of their own operations. This is most beneficial, and I would strongly encourage all Fund members to make their own contribution to transparency by agreeing to the publication of Article IV reports on their economies. In this context, I fully endorse the efforts of the Fund to enhance the effectiveness of its surveillance and would commend its on-going work in streamlining conditionality. I also welcome the progress being made in deepening and widening the collaboration between the Fund and the Bank and would urge both institutions to intensify their endeavors in this area, so that their combined actions result in the maximum benefit to their clients. Our stated aim is to halve the number of people living in extreme poverty by the year 2015. The Millennium Development Goals were agreed by 189 countries at the Millennium Summit in New York, and Johannesburg underlined the need for rapid progress. Over 1 billion people now survive on less than $1 a day. One hundred thirty million children--mostly girls--have never seen the inside of a school. Nearly 900 million adults are illiterate. Poverty and desperation create condi- tions supportive of conflict and division. With the MDGs now set, we have clear, time defined, and daunting targets for achieving rapid, mea- surable improvements. We already know what is effective in reducing poverty, and we know how to identify progress or the lack of it. Above all, we know what not to do, and what does not work. We know too that there are basic con- ditions that foster successful development. Shared responsibility and political cohesion are preconditions for economic prosperity, as are good governance, an impartial and effective legal system, and a well organized and supervised financial system. Along with democratic val- ues, education, and free trade, they are also critical factors in the fight against poverty. As Irish experience shows, foreign direct investment can play a vital role in the development process. However, the right domestic condi- tions are needed to attract FDI. The confidence and trust of interna- tional investors has to be built up and earned over a long period of time and should never be taken for granted. 99 It is within the framework I have described that donor assistance can work to maximum effect. The donor community is coming increasingly to realize the importance of supporting countries' own strategies for reducing poverty, by providing what a country needs, rather than what donors prefer to hand out. Here, I would like to note that the EU area is the world's biggest donor of development aid, providing more than 50 percent of total international aid flows. The Monterrey Consensus recognized our mutual dependence and addressed the issue of debt. Twenty-six countries have now qualified for debt relief under the HIPC Initiative, and an average of 50 percent of their debts will be written off. Our immediate efforts should be devoted to helping those countries still in the HIPC process to help themselves surmount their debt problems. We are already seeing evidence that the funds freed up through debt relief are being channeled into increased expenditure on social pro- grams. In this, educating girls may well be the highest return on invest- ment available in the developing world. It leads to reduced infant and maternal mortality, improved family health and nutrition, and improved economic conditions. I am a strong supporter of the EU efforts to combat the spread of communicable diseases, which are endemic in many of the world's poor- est regions, and more generally, to increase investment in health. AIDS, malaria, and tuberculosis are the major diseases to be targeted, as well as more common problems caused by unclean water. In these tasks, we in Ireland will endeavor to play our part. May I conclude by a special word of thanks to the meeting organiz- ers. This year, their task has been unusually difficult, with date and venue changes making their life impossible. I hope that, in the success of our deliberations today, we can repay them for their effort. ISRAEL: SILVAN SHALOM Governor of the Fund Mr. Chairman, distinguished Governors, Mr. Horst Köhler, Managing Director of the International Monetary Fund, Mr. James Wolfensohn, President of the World Bank Group, delegation members, ladies, and gen- tlemen, I would like to thank you for the opportunity to address this meet- ing of the World Bank/IMF's Boards of Governors. International organizations, such as the World Bank and the IMF, perform a vital function in today's complex economy. By promoting prosperity, stability, and sustainable development, these institutions play a pivotal role in shaping the economic developments that impact all nations. 100 This year's gathering is shadowed by the terrorist events of last year, and the vast economic uncertainty facing us. Stock market movements have led to capital losses, echoed by weak performance in the real econ- omy. We see, perhaps, the beginning of recovery in key industries, but, at the same time, global circumstances can inhibit a quick return to growth and prosperity. Israel is not immune to these developments. We, like our counter- parts around the globe, feel the crunch. Israel has taken its place on the cutting edge of key, hi-tech industries and is now feeling the sting of mar- ket developments. In addition, we have had to confront the economic burden stemming from the war on terrorism--a war every Israeli faces on a daily basis. We are determined to prevail in this battle, which is being waged by the entire world. Despite these developments, we are fully confident that our economy will emerge strong. Strategic policies adopted throughout the 1990s have secured structural changes in the Israeli economy. We have internalized international standards of transparency, responsibility, and open access to international investment. As a result, we are now more competitive and more flexible than we ever were in the past. Over the years, we have adopted international standards and norms with a view toward mem- bership in the OECD. As a result, our economy has demonstrated that it is robust and fully capable of adapting to dynamic conditions: G We have successfully weathered the multiple global financial crises of the late 1990s. G We have successfully contained inflation, despite severe price fluctu- ations in world energy and currency markets. G We continue to attract foreign direct investment, despite volatility in world markets and ever-shifting regional dynamics. G We have been thrust to the forefront in the war on terrorism. Yet, we have been able to bear the cost of protracted conflict without induc- ing shocks or abandoning responsible fiscal and monetary policies. These accomplishments are not accidental but rather the result of systematic government reforms and policies. Responsible and consistent fiscal and monetary management has been a necessary and important element of the government's efforts. Continuation of these policies rein- forces macroeconomic stability, promotes the expansion of the business sector, and sets the stage for enhanced growth performance. Liberaliza- tion of trade and foreign currency regimes has also played an important role. This has been recently recognized by the OECD Council's approval of Israel's adherence to its Declaration on International Investment and Multinational Enterprises. Legislation to enhance local 101 capital markets and break down monopolies has improved the compet- itive structure of Israel's private sector. The government is committed to developing the private sector, opening domestic markets to competi- tion, enhancing capital markets in Israel, and promoting their integra- tion into international financial systems. Over the past year we revamped the tax system in a manner that promises to reduce inequities and distortions, and improve market efficiency by rendering invest- ments tax neutral. Recently, the Israeli government advanced a program of economic reforms designed to maintain macroeconomic stability and hasten the resumption of growth. Policies that accent the importance of employ- ment and improving the efficiency of both the private and public sectors are being implemented to address both current economic challenges and enhance growth in the long run. Israel's long-term prospects are good. The strengths that led to rapid growth and increased foreign investment in the past will also propel us forward in the future. Fundamental economic indicators are positive. However, they reveal only part of Israel's economic strength. One must look beyond the dry statistics to grasp the full potential of our economy. The "fundamentals behind the fundamentals" are perhaps less tangible, but not less meaningful to our economic future. The global economy is here to stay and we maintain a large stake in this economy. Despite recent developments, the revolutions sparked by the communications and IT industries are irreversible. Israeli compa- nies have carved themselves an important position in global hi-tech markets, particularly in upstream activities such as research and prod- uct innovation. We will continue to participate vigorously in these global markets and are well poised to play a leading role in key growth industries. Advances in basic research in life sciences have opened up vast opportunities in these areas. Entire new industries can be created, some integrating bio- and agro-technology with other technology dis- ciplines. Israel has one of the largest per capita pools of scientists in the world. Moreover, we have developed a unique capacity for cross germination, developing products that blend technologies drawn from various fields. With this scientific talent, Israel is well poised to take an active part in innovative industries as they emerge, including biotechnology, medical devices, and security-related industries. The wealth of Israel's human capital, however, extends beyond the expert- ise of our scientists. Over the past decade we have developed a highly entrepreneurial culture that values risk taking, as well as excellence and innovation. These factors, when combined with the economic indicators, con- tribute immeasurably to Israel's strength and potential for sustained 102 economic growth. While we continue a close watch on monetary man- agement, fiscal restraint, and structural reform, we are actively cultivat- ing the fundamentals that transcend administrative and legislative policy--that is, investment in human resources and an unrelenting com- mitment to innovation and entrepreneurship. In the time remaining, I would like to emphasize Israel's active support of international initiatives like the World Bank's IDA programs and the HIPC program for debt reduction. We see these as vital tools for building the future of the global village. Our commitment to these programs is in addition to ongoing, bilateral aid programs and emergency relief assistance given by Israel in various locations throughout theworld. As we look around the globe, we cannot help but feel a growing sense of mutual responsibility for the future. The World Bank and the IMF have assumed leadership in turning this vague sense of responsi- bility into a plan of positive action. The importance of their activities is even more enhanced during times, like now, in which economic uncer- tainty clouds the future. We fully endorse these initiatives and look for- ward to making our humble contribution to this cause. ITALY: GIULIO TREMONTI Governor of the Fund At the outset, I would like to welcome the Democratic Republic of East Timor to the Bank and the Fund and to our constituency. When a new member joins the Bretton Woods institutions, it is a particularly relevant event for the world community. We look forward to working together with the East Timorese authorities. A More Challenging Global Environment Over the past 12 months, new challenges have emerged, involving industrial, emerging, and poor countries. In industrial countries, fragilities and imbalances put into question the sustainability of recovery. To stimulate growth and gradually correct international imbalances, maximum effort should be exerted by all major industrial economies. In the United States, regaining a budget balance in the medium term would be desirable. In the European Union, policymakers should step up the process of structural reforms to increase the potential for growth in the long run, while in Japan deep- rooted structural difficulties in the banking and corporate sector need to be effectively addressed. In the face of slower growth and a substantial decrease in private financing flows, many emerging markets are finding it increasingly 103 difficult to maintain debt sustainability. Poor countries with limited or no access to private financing are also suffering from lower global growth as well as from a decline in commodity prices. Enhanced trade openness is a key element for stronger and sustain- able growth. We are encouraged by the progress made within the Doha process. The European Union has already made significant contribu- tions in this respect with the "Everything but Arms" and other initia- tives. We urge other industrial countries, and the United States in particular, to remain committed to free trade principles and practice. To cope with global challenges, the Bank and the Fund are adapting their policies, strengthening their collaboration and expanding their interaction with other international institutions. In this perspective an important step forward was made in Monterrey and Johannesburg. Implementing the Monterrey Consensus and the Johannesburg Recommendations At conferences in Monterrey and Johannesburg, a consensus was reached on the mutual responsibilities of donor and recipient countries and on complementary policy actions to be undertaken in pursuit of the Millennium Development Goals. In order to meet the expectations that have now been generated, there is a need for a "quantum leap" in terms of commitments of devel- oping countries, efforts of donors, as well as innovative thinking and approaches by development agencies. The additional bilateral aid pledged by the EU and the United States and the recent replenishment of IDA and the GEF represent concrete responses from the interna- tional community to these expectations. Italy is committed to additional aid flows and to contributing to the process of enhancing development effectiveness. It is crucial that dif- ferent agencies and donors better coordinate their activities and har- monize their procedures. The high-level Forum on Aid Harmonization that Italy will host next February in Rome will provide an opportunity to enhance aid effectiveness. Poor Countries The PRSP approach has proved to be an effective vehicle to fight poverty and to foster a constructive dialogue between authorities and civil society. However, much more needs to be done to alleviate poverty, especially in terms of increasing institutional capacity. Better coordina- tion among the PRSP process, the PRGF programs, and the Poverty Reduction Structural credits by the World Bank is needed. In particu- 104 lar, PRGF programs should be more closed aligned with the priorities put forward in the PRSP, while the Fund and the Bank should set con- ditionality requirements more strictly related with the PRSP objectives. We are aware that the PRGF funding is being put to severe test and that, starting from 2006, it will shift to a self-sustained regime that will limit the ability to support poor countries unless additional bilateral resources are provided. Italy has contributed SDR 550 million, in addi- tion to 250 million that had been previously committed. We welcome the progress already made under the enhanced HIPC Initiative. However, the effectiveness of the HIPC Initiative seems to have weakened somewhat recently because of two factors. First, the global slowdown and the fall in commodity prices have negatively affected growth and debt sustainability in a number of HIPC countries, including countries reaching the completion point. In taking this issue into consideration, we must avoid generating wrong incentives that would undermine the credibility of the initiative. In this respect, topping up at the completion point must remain an exceptional event linked to exogenous factors beyond the country's control. It cannot compensate for other shortcomings. Furthermore, more realistic debt sustainability analysis must be a key element. Second, all creditors must provide the share of debt relief to which they committed. Italy is writing off 100 percent of its debt and cannot accept that its additional voluntary bilateral relief will be diverted to repay other creditors instead of being channeled to provide supplementary resources to stimulate growth and reduce poverty. Finally, the commitment to provide new financing to HIPC countries only through grants or highly concessional credits must be reaffirmed. IFIs should watch closely that commercial loans do not begin to flow again to the HIPC countries. Conditionality We welcome the results of the recent review of conditionality and the new guidelines aimed at streamlining and focusing conditionality on those areas that fall more squarely within the institutional responsibil- ity of the Fund. We note progress in national ownership of programs, consideration of country-specific circumstances (including administra- tive capacity), and openness to domestic policy preferences. A key component of the new conditionality is the intensified coop- eration between the Fund and the World Bank. This should result in better design and monitoring of conditionality and should allow each institution to specialize in its own core areas of business, thus improv- ing the quality of program design. A sharper division of labor, especially in those areas where responsibilities are shared, is essential. Also, full 105 information to the Boards of the two institutions is crucial in order for Directors to monitor developments. Anti-Money Laundering and Combating Financing of Terrorism In the last few months the fight against money laundering and the financing of terrorism has received new impetus, and we commend the IMF and the World Bank for their extensive work in this area. The impressive results already achieved have been made possible also by the decision of a large number of countries to endorse the FATF recommendations and to join the self-assessment process. We welcome the collaboration with the FATF that has resulted in the inclusion of the 40+8 recommendations in the Fund/Bank list of standards and codes: we are confident that the high degree of conver- gence on the comprehensive AML/CFT methodology will allow for its finalization by October 2002, so that the ROSC process can get started. We are looking forward to a comprehensive review of the experience at the next Annual Meetings. We also commend efforts in providing and coordinating technical assistance. Several initiatives are in place but, to be fully operational they will require further efforts by bilateral donors. Italy has con- tributed by establishing a Trust Fund to provide technical assistance. A portion of these resources are earmarked for technical assistance in AML/CFT. We urge other donors to do the same. JAPAN: MASARU HAYAMI Alternate Governor of the Bank and the Fund Introduction I am very pleased to have this opportunity today to address the IMF- World Bank Annual Meetings as Alternate Governor for Japan. First of all, I would like to welcome the Democratic Republic of East Timor as a member of the IMF and the World Bank as of July 23. This year commemorates the 50th anniversary of Japan's member- ship in these institutions. At the time of its accession, Japan was still in a postwar reconstruction period and was receiving a good deal of assis- tance from the World Bank and the IMF. This assistance contributed greatly to Japan's economic recovery. Once recovery was complete, Japan became a major financial contributor to the World Bank and the IMF. We hope to continue to maintain our close relationship with both institutions and contribute to them as much as possible. 106 The World Economic Outlook World Economy Although the overall recovery trend of the world economy is expected to continue, the recent sharp fall in global equity markets, together with high oil prices, has caused some uncertainties, and we must be vigilant about what lies ahead. The recent sharp fall in global equity markets reflects changes in investor sentiment in response to a recent series of cor- porate accounting scandals. Such a market environment poses a risk to the world economy. In order to restore market confidence, stricter accounting and auditing systems and better corporate governance are called for. Amid heightened uncertainties in the world economy, the situation in Latin American countries is a source of particular concern. For this reason, we welcome and support the timely decision made by the IMF and the World Bank to provide financial assistance to Uruguay, Brazil, and other countries. To make this assistance effective, however, it will be essential for these countries to practice sound economic policy man- agement. We hope that these efforts will lead to an early restoration of market confidence and that their economies will return to a path ofsus- tainable growth. Japanese Economy Although the Japanese economy remains in a difficult situation, there are signs of recovery, such as an increase in exports and the recov- ery of production. Although we cannot rule out the possibility that the uncertain prospects of the world economy could adversely affect final demand in Japan, we will decisively and expeditiously pursue fiscal expenditure reform, tax reform, the disposal of nonperforming loans, and other structural reforms, with a view toward achieving sustainable growth led by domestic demand. Specifically, we will pursue the following three policies in an inte- grated manner: an "economic revitalization strategy" to restore com- petitiveness; "tax reform" to reinvigorate society; and accelerated fiscal expenditure reform, including enhancing the efficiency of fiscal expen- ditures, with the aim of achieving a "small government worthy of bear- ing the costs." Under the economic revitalization strategy, in order to achieve a vibrant society, we will actively implement deregulation while outsourcing the operations of public corporations to the private sector and promoting privatization wherever possible, thereby widening the scope of the private sector's activities. With regard to tax reform, we will 107 frontload tax reductions in order to revitalize the economy. In fleshing out the details of tax reform, we will maintain revenue neutrality on a multi-year basis so as to maintain fiscal discipline. We will intensify tax incentives for research and development as well as for investment. We will also reform the inheritance and gift taxes to promote the transfer of assets to future generations. In the area of fiscal expenditure reform, we will make every effort to reexamine all types of fiscal expenditure, pri- oritizing and streamlining public investments and establishing a sus- tainable social security system through public pension reform. In addition, in reallocating the budget, we will place more emphasis on the "Four New Priority Areas," aimed at achieving a more vibrant society. In addition to these structural reform efforts, resolution of the nonperforming loan problem will be essential for establishing a vigor- ous and stable financial system. We will accelerate the disposal of nonperforming loans based on a strict evaluation of assets, taking into account the outcome of the special inspections of major banks conducted by the Financial Services Agency. At the same time, after lifting the cur- rent blanket deposit protection system, we will take measures such as providing a type of deposit ("payment and settlement deposit") that will be fully protected in the event of failure of a financial institution, in order to ensure the stability of financial payment and settlement functions. The Bank of Japan has recently embarked on studying a measure that would reduce the volatility risk stemming from financial institu- tions' shareholdings. It is expected that this measure will contribute to the stability of the financial system. Strengthening the International Financial System Crisis Prevention Based on the experience of the Asian financial crisis, discussions have taken place in the IMF and other fora on how to strengthen the international financial system. Within the IMF, the progress made includes the quota increase under the Eleventh General Review of Quotas in 1998, the establishment of the New Agreements to Borrow (NAB), and reform of lending facilities, including the introduction of the Supplemental Reserve Facility (SRF). However, since last year, there have been a number of cases that have required large-scale inter- national financial assistance--Argentina, Brazil, and other Latin Amer- ican countries. These crises point to the need for enhanced measures for crisis prevention and resolution. Regarding crisis prevention, the strengthening of IMF surveillance is a matter of central focus. We expect that surveillance will be strength- ened, focusing on its core areas of macroeconomic policy, capital move- 108 ments, and the financial sector. Recently, the Financial Sector Assess- ment Program (FSAP) was introduced by the IMF to evaluate the soundness of countries' financial sectors. Japan announced last fall its intention to accept the FSAP, and the assessment process began in June. At the same time, the IMF's work on implementing international codes and standards is making progress, and a Report on Observance of Stan- dards and Codes on Fiscal Transparency for Japan was published last year. We hope that many countries will follow us in accepting such inter- national efforts with a view toward contributing to crisis prevention. Crisis Resolution In formulating lending programs, it is essential for the IMF to set necessary and appropriate conditionality in extending assistance to policy adjustments of borrowing countries. We welcome the recent adoption by the IMF's Executive Board of the new guidelines on con- ditionality, which emphasize the importance of borrowing countries' ownership and of keeping conditionality to a minimum. The IMF should continue to analyze how much this change in its conditionality policy contributes to improvements in program design and performance and, if necessary, continue to study the possibility of further improve- ments in the guidelines. In resolving crises, private sector involvement (PSI), including sov- ereign debt restructuring, has sometimes been called for. In order to secure an orderly debt restructuring process, some legal frameworks have been proposed to clarify the debt restructuring procedures. For example, Ms. Krueger, the IMF's First Deputy Managing Director, pro- posed in November 2001 a majority-based decision-making process based on a statutory framework such as a treaty. This proposal is now being discussed at the IMF and in other fora. Such a statutory approach is ambitious and requires further continuous examination. Also being studied is a contractual approach, which calls for majority-rule provi- sions. We hope that both bond-issuing countries and market partici- pants will recognize the importance of such provisions and that they will be introduced widely. It is particularly important that such market prac- tices should be commonly used in markets like New York, where a large amount of international sovereign debt is issued. Recently, access to IMF resources beyond the normal limits has been granted frequently as part of the response to the financial crises in Argentina, Uruguay, Brazil, and other countries. But given the limited availability of the IMF's resources, we need to adopt appropriate lend- ing rules to restrict lending beyond normal access limits to truly excep- tional cases. Furthermore, in approving exceptional access, the IMF will need to base its policy advice on realistic scenarios under which the 109 economy would return to a sustainable growth path in the medium term, as well as conduct in-depth analyses on debt sustainability. Quota Review Intensive discussion has been taking place under the Twelfth Gen- eral Review of Quotas before its deadline of end-January 2003. Given the significant increase in abrupt movements of capital across borders in the global economy, it is imperative that the IMF maintain a suffi- cient level of resources to prepare for future crises. Particularly follow- ing the recent large-scale financial assistance to Latin American countries, the IMF's usable resources are at a very low level, and we hope for an immediate decision on a quota increase. In the process of the quota review, reallocation of quotas also should be examined, in view of the fact that current quota shares do not properly reflect changes in the global economic environment. Issues in Development Over the past year we have had important discussions on promoting development, growth, and poverty reduction in developing countries at various fora, including the International Conference on Financing for Development held in Monterrey, Mexico, in March and the recent World Summit on Sustainable Development in Johannesburg, South Africa. We welcome the series of replenishment agreements reached during the last three months, that is, the thirteenth replenishment of the Inter- national Development Association (IDA-13), the third replenishment of the Global Environment Facility (GEF-3), and the ninth replenish- ment of the African Development Fund (AfDF-9). We hope the new funds made available by these replenishments will be used in an effec- tive manner to realize sustainable development in developing countries. Development Effectiveness It is encouraging that discussions held since the Monterrey Confer- ence have yielded substantial progress toward more effective aid. We have learned from past experience that aid can be used efficiently and effectively, and can contribute to growth and poverty reduction when sound policies and institutions, as well as good governance, are ensured in recipient countries. Therefore, in countries unequipped with these preconditions, priority should be given to establishing an effective pub- lic sector, characterized by such features as accountable and transparent budget execution and tax collection, as well as fair and impartial public service. 110 From this point of view, we intend to actively extend our support in these areas through our trust funds at the World Bank. That is, we plan to expand the functions of the Policy and Human Resource Develop- ment (PHRD) Fund and the Japan Social Development Fund (JSDF), to strengthen support for institutional and capacity building in core areas such as public expenditure management and financial auditing. Recognizing the particular need to train middle-class public servants in these areas, Japan, in cooperation with the World Bank and the Asian Development Bank, plans to enhance capacity building assistance, including support for localized public-sector training programs. Another important way to increase the effectiveness of development assistance is to properly evaluate the results of assistance provided and to heed the lessons learned from these evaluation results. In this regard, we welcome the ongoing efforts of the World Bank and regional devel- opment banks toward better measuring, monitoring, and managing for development results. In making further efforts toward operationali- zation, it will be necessary to build effective frameworks, including benchmarks that are tailored to country-specific conditions and that are transparent to donors. Sustainable Development We welcome the successful conclusion of the World Summit on Sus- tainable Development (WSSD) in Johannesburg. At the WSSD meeting, Prime Minister Koizumi emphasized the importance of human resource development, including that in the education and health sectors. Specif- ically, Japan plans to provide assistance of about $2 billion over the next five years for education in low-income countries. We are also reinforc- ing our ongoing efforts to combat infectious and parasitic diseases, our aim being to allocate a total of $3 billion over a five-year period that began in FY 2000. In addition, we plan to enhance our support in the social development sectors, including education and health, through the Japan Social Development Fund at the World Bank and in close coop- eration with the Bank's CDD-type projects. It is also encouraging that the importance of the issue of water, which is essential for life, was highly recognized at the WSSD meeting. We are planning to convene the Third World Water Forum and its international ministerial meeting next March. We hope that representa- tives from many countries will participate in these meetings. Having said that, I would also like to emphasize that, in addition to the efforts put forth in areas such as education and health, private-led economic growth is essential for sustained poverty reduction. In this regard, we should not underestimate the importance of providing assis- tance for physical infrastructure that promotes private sector activities. 111 Another important challenge is to assist developing countries so that they can benefit from international trade. Moreover, we highly appreciate the concept behind the NEPAD (New Partnership for Africa's Development), an initiative for sustain- able development emerging from developing countries in Africa, in that the initiative has been drawn up by African countries with their owner- ship and it clearly recognizes the importance of growth. Japan will fur- ther strengthen support for Africa through TICAD III (The Third Tokyo International Conference on African Development) in October next year. Enhanced HIPC Initiative and PRSP Approach In order for heavily indebted poor countries (HIPCs) to advance toward sustainable development, it will be necessary to support these countries in implementing appropriate policies. For this purpose, effec- tive implementation of the enhanced HIPC Initiative continues to be an important challenge. Under the framework of the enhanced HIPC Initiative, 26 countries have reached their decision points so far, and 6 have reached their com- pletion points. Japan has committed $4.8 billion in total, or one-fourth of the G-8 contributions to the enhanced HIPC Initiative, to these 26 countries. Debt relief under the enhanced HIPC Initiative should be regarded as a good opportunity to help the poorest countries attain sustainable development, and this initiative should continue to be implemented steadily. However, debt relief is not a panacea for poverty reduction or eco- nomic development. Poor countries must make policy efforts in order to achieve sustainable growth and diversification of their exports. The Poverty Reduction Strategy Paper (PRSP), a development strategy worked out with the ownership of these countries, should be a central vehicle for such efforts. Japan supports countries in preparing and implementing PRSPs, including through our contribution to the multi- donor Poverty Reduction Strategies Trust Fund at the World Bank. Assistance for Reconstruction in Afghanistan Turning to regional issues, assistance for reconstruction in Afghanistan continues to be an important challenge in the aftermath of the events of September 11, 2001. To achieve stability and reconstruc- tion in a country that had seen conflict for more than two decades, uni- fied support from the international community is essential. In this regard, we hope the World Bank will continue to play a key role in the 112 international support for reconstruction in Afghanistan, in cooperation with other development partners, including the Asian Development Bank and other international organizations, bilateral donors, and NGOs. As a responsible member of the international community, Japan will steadily implement support of up to $500 million over a two-and-a- half-year period, including through the Japan Social Development Fund (JSDF) at the World Bank, as pledged at the International Con- ference for Afghanistan Reconstruction held in Tokyo in January. Measures against the Financing of Terrorism One year has passed since the tragic events of September 11. Vari- ous measures to fight against terrorism have been taken by the interna- tional community. We welcome the progress made by the IMF and the World Bank toward the inception of the assessments using the comprehensive AML/CFT (anti-money laundering and combating the financing of terrorism) methodology covering the FATF40+8 recom- mendations. Once this assessment begins, non-FATF member countries will be encouraged to accept it. Japan has made far-reaching efforts to freeze the assets of terrorists and those who provide them financial support, reflecting the impor- tance that it attaches to combating the financing of terrorism. To that end, Japan has been taking a series of measures blocking the assets of those who support terrorists, including joint actions on the part of the G-7 countries. By June, a set of laws to combat the financing of terror- ism, which was required to domestically implement the International Convention for Suppression of the Financing of Terrorism, was approved by the Japanese Diet, and thus the Government formally accepted the Convention. In order to fight terrorism, it is essential for all countries and relevant international organizations to continue to cooperate in taking all measures necessary to combat the financing of terrorism. Conclusion Lastly, I would like touch upon the modalities of the Annual Meet- ings. This year's abbreviated Annual Meetings provide a good opportu- nity to review the modalities of the annual meetings and we should consider ways that will enable us to have more substantive discussions. The IMF-World Bank Annual Meetings offer a valuable opportunity for economic policy leaders of member countries to convene in one place. It is therefore important to continue to consider the means to achieve more fruitful outcomes within the limited time available. 113 JORDAN: MICHEL MARTO Governor of the Fund (on behalf of the Arab Governors) I am honored, as representative of the Hashemite Kingdom of Jor- dan, to deliver the statement of the Arab Group of Governors at this year's joint annual discussion. Allow me, at the outset, to extend my congratulations on your selection as Chairman of this year's Annual Meetings of the IMF and the World Bank, and to welcome East Timor as the newest member of these institutions. The past year has been a difficult one for the global economy, as suc- cessive shocks contributed to the slowdown in the global growth rate that began in 2000, which, in turn, caused a deterioration of economic conditions in many countries. The increased incidence of crises over the past few years has weakened confidence in the effectiveness of the global economic and financial system. The apprehension of developing countries over globalization has increased, in view of the ease with which financial crises spread across borders, and the apparent ineffec- tiveness of the economic solutions put forth by the international com- munity to resolve those crises and to minimize their detrimental ramifications. There is a growing concern that these developments will undermine the progress achieved by many developing countries in the context of difficult reform programs aimed at raising living standards and providing for a better future for their coming generations. A strengthening of the global financial system is urgently needed. There is a pressing need to reconsider the architecture of the global economic system. In this context, it is important to reaffirm the role of the International Monetary Fund in its surveillance of the global mon- etary system and in monitoring and coordinating the economic policies of its members. Recent developments in the global economy have par- ticularly underscored the need to enhance the Fund's ability to more effectively oversee the economies of the major industrial countries, as well as the need to give developing countries a larger role in global decision making, as their role has been eroding in recent years. As capital markets are often closed to developing countries when crises erupt, it is also necessary to establish an effective international mechanism that would ensure the continuity of capital flows to coun- tries with sound economic policies. It is also crucial to find ways to encourage more stable capital flows, particularly in the form of foreign direct investments, and to reduce dependence on short-term financing. The difficulties experienced over the past few years have also under- scored the need to strengthen international efforts aimed at establish- ing a mechanism for private sector participation in resolving financial crises that would provide for an orderly restructuring of sovereign debt 114 to private creditors. Such a mechanism would be beneficial to both the debtor countries and their private creditors, as well as to the interna- tional community in general. We therefore welcome the efforts of the IMF over the past year aimed at developing a comprehensive Sovereign Debt Restructuring Mechanism, and encourage the Fund to continue to pursue this important goal in the hope that agreement on the mecha- nism can be reached in the near future. The enhanced global awareness of the immense challenge posed by the struggle against poverty in all its forms has been reflected in strengthened efforts at international cooperation in many fora. Here I would like to commend, in particular, the important declaration of the Monterrey Conference on Financing for Development that was held earlier this year, with the objective of enhancing international coopera- tion in poverty reduction, and the acceleration of economic and social development in developing countries. It is now incumbent upon us, the international community, to translate the recommendations of this important conference into concrete action. On our part, I would note, and reaffirm here, the continuing positive contribution of the donor Arab countries and the Arab development institutions to the goal of poverty reduction through the provision of grants and concessional loans to numerous developing countries. In this connection, we also applaud the role of the IMF in supporting economic policies aimed at reducing poverty in developing countries, as well as the increased focus of the World Bank Group on strategies for poverty reduction. We call on the World Bank to strengthen its efforts to increase lending and extend greater support to the private sector in developing countries. Increased attention should also be accorded to reducing the costs incurred by the borrowing countries, and to simplify- ing the Bank's procedures. This is particularly important given the pres- ent circumstances where we witness a large decrease in the flow of private resources from international capital markets, underscoring the need for the World Bank Group and other international financial insti- tutions to enhance their role in the transfer of resources. A cause for optimism in this respect is the agreement reached by the donor coun- tries concerning the thirteenth replenishment of the resources of the International Development Association, directed at low-income coun- tries in the developing world. We also applaud the progress that has been made in implementing the Heavily Indebted Poor Countries' Initiative, which has included 26 countries to date. However, a review of the general framework of the initiative is also warranted to enhance its effectiveness in raising growth in a sustained manner in these countries and in ensuring the achieve- ment of tangible progress in reducing poverty. We also call for the estab- lishment of an appropriate debt relief mechanism for middle-income 115 countries saddled with high levels of indebtedness, where large sectors of the population also suffer from extremely low standards of living. Still on the subject of poverty reduction and supporting economic growth in developing countries, we must also stress the crucial impor- tance of the role of the industrial countries in opening their markets to exports from the developing countries by reducing tariff and nontariff barriers, including import quotas, government subsidies (particularly in the agricultural sector), and excessively high taxes on petroleum prod- ucts. International reports estimate that the annual losses to developing countries resulting from protective measures taken by the advanced countries are many times larger than the total value of annual official development assistance. The reports refer specifically to the negative effect of the barriers still imposed by the advanced countries on labor- intensive products, such as textiles, clothing, and, particularly, agricul- tural products. We therefore welcome the recent initiative by the United States, which calls for a reduction in the subsidies provided by advanced countries to their agricultural sectors, particularly given that the United States has recently doubled its agricultural subsidies. We hope that the advanced countries, under the leadership of the United States, will fol- low up with concrete steps in this direction in a timely manner. We also reaffirm our support for continuing multilateral trade nego- tiations within the context of the Doha Round, while emphasizing the importance of first assuring the implementation without delay of the agreements of the Uruguay Round. In this regard, it is essential to facil- itate the process of joining the World Trade Organization (WTO) for developing countries, based on clearly defined rules that would provide adequate transitional periods for the revision of their relevant procedures and systems to ensure compliance with WTO regulations. The IMF must also accord a much higher priority to the removal of trade barriers in advanced countries in the context of its consultations with these countries, especially since it is accepted that this will benefit their own economies. We also urge the World Bank to provide developing countries with increased technical assistance to enhance their capability in trade negotiations and in penetrating and competing in for- eign markets, particularly given the high costs they incur in implement- ing WTO agreements, which many developing countries cannot afford. At the same time, we urge the advanced countries to increase their official development assistance (ODA) to developing countries. It is well to note that despite the fact that ODA provided by many of them is well below the target set by the UN, ODA of a number of industrial countries has been reduced in recent years. We also reaffirm the impor- tance of stabilizing the prices of basic commodities, including oil, at a fair level that serves the long-term interests of both the producing and consuming countries. 116 The developing countries must also undoubtedly bear the primary responsibility in improving their own economic performance by imple- menting sound economic policies and reforming their institutions, in order to increase their growth rates and absorb their ever expanding labor force. International financial organizations, such as the World Bank and the Fund, must also intensify efforts to increase their effec- tiveness in supporting the development efforts of their member coun- tries. Here we would like, in particular, to welcome the review of conditionality undertaken by the IMF during the past year under the leadership of the Managing Director, aimed at streamlining and focusing conditionality on a limited number of conditions critical for program success. This will help strengthen member countries' owner- ship of their reform policies, and raise the level of economic perform- ance of the countries concerned, while encouraging them to turn to the IMF for advice and support before their problems become overwhelming. In this connection, we also look forward to the Fund's review of pro- gram design to ensure that programs take into adequate consideration the particular circumstances and development goals of the countries concerned. We also stress the importance that technical assistance plays in the development efforts of member countries and urge that sufficient resources be allocated for this assistance in the budgets of the IMF and the World Bank. Turning to developments in our region, the Arab countries have made much progress in economic and social reform during recent years, bringing about an important transformation in their economic struc- tures by reducing the role of government and the public sector in pro- ductive activities, improving the investment climate for the private sector, and expanding the scope of its activities. Administrative proce- dures have been simplified through extensive legal reforms, and super- vision of the financial sectors and capital markets has been strengthened. Some of the region's countries have modified their exchange rate regimes, making them more flexible and enhancing their ability to respond to changing external conditions. Nonetheless, the local, regional, and international challenges that continue to confront our countries require vigilance in continuing to strengthen our economies by adopting comprehensive economic policies with a long- term perspective and by upgrading our human resources to significantly increase employment. The dangerous tensions that have been mounting in our region dur- ing the past year, and the serious deterioration of the situation in Pales- tine, have greatly affected the economic situation in the Arab world, adding to the severity of the slowdown in growth rates caused by cur- rent global conditions. Capital flows to the region have dropped 117 sharply, tourism has declined, as have exports, all of which has adversely affected both economic growth and employment in the region. While there are signs of recovery in tourist activity and exports, par- ticularly among countries in the region, it is clear that a lasting improve- ment of economic conditions is closely linked to achieving a just and comprehensive peace in the region. We therefore hope that the efforts we are pursuing, in cooperation with the international community, will soon be successful in achieving a peaceful solution to the conflict, so that all peoples of the region may live in peace, security, and prosperity. We call on the international community to take urgent steps to relieve the suffering of the Palestinian people, particularly in light of the warn- ing issued by the United Nations on the danger of an impending human catastrophe caused by the continued Israeli blockade of Palestinian cities and the tightening of Israeli occupation of the territories, all of which has resulted in the devastation of Palestinian infrastructure and the collapse of Palestinian educational and health institutions, not to mention widespread unemployment. In this connection, we would be amiss if we did not express our sin- cere gratitude and appreciation to the officials of the IMF and the World Bank working in the Palestinian autonomous territories, who continue to carry out their duties under the most difficult and dangerous circumstances. Given the dangers posed by money laundering and the financing of terrorism, not only to world peace and stability but also to the effec- tiveness and credibility of financial and banking systems, the Arab countries have supported international efforts in this area. Our coun- tries have developed legislation and taken the necessary measures in accordance with international standards and principles developed for this purpose. In this connection, we reaffirm our support for the partic- ipation of the IMF and the World Bank in these efforts within the scope of their mandate and competence. It is disturbing to note, however, that some Arab countries have been subjected to media attacks and biased propaganda, a development that hinders reform efforts in the region, since it adversely affects our investment climate and diminishes the effectiveness of our countries' efforts to stimulate economic growth. It goes without saying that such negative propaganda has damaging effects on the economy. It discour- ages the inflow of capital and induces capital flight. The encouragement of unsubstantiated claims and accusations against certain Arab coun- tries, their financial institutions, and charitable organizations is indeed a grave matter. The international community must confront this dan- gerous development, which has no legal basis and could have serious economic, political, and social ramifications. 118 Despite these challenges, the countries of our region are determined to move forward to continue their development and reform efforts in all areas. We greatly appreciate the assistance provided by the IMF and the World Bank, and we look forward to further cooperation with both institutions to improve the lives of our people and to help them achieve the prosperity and stability to which they aspire. KOREA: YUN-CHURL JEON Governor of the Bank and the Fund It is my pleasure and honor to represent the Republic of Korea at the 2002 Annual Meetings of the IMF and the World Bank. The global economy is recovering gradually, but the path ahead is uncertain, and the risks are predominantly on the downside. On the one hand, against the delayed U.S. economic recovery, the growth momentum in the EU and Japan is also likely to wane. On the other hand, stock markets around the world are still suffering from the burst of the IT bubble and the crisis of confidence. Geopolitical risks are already putting a "Gulf premium" on oil prices, and are not likely to help consumer confidence. Considering these downside risks, we need a concerted effort by the leading economies to maintain the momentum of growth through a proper policy mix. The developing economies, for their part, need to widen their sources of growth to give a better balance between exports and domestic demand. Now, let me briefly highlight recent economic developments in Korea. After years of reform and restructuring, the Korean economy is performing solidly, with a growth rate of about 6 percent posted in the first half of this year. Driven both by domestic consumption and exports, this year's growth is expected to be in the 6 percent range. Looking to the future, Korea will maintain its reform drive and firmly establish a full-fledged market economy system, where corporate restructuring will be led constantly by market forces. At the same time, we seek to enhance the economy's long-term growth potential by fos- tering high-tech industries, such as IT and BT, as new engines of growth. We also plan to transform Korea into the hub of Northeast Asia in terms of logistics, finance, and other business. To this end, we are expanding our airports and other infrastructure, including the recon- nection of the railways between South and North Korea to be extended to the Trans-Siberian and Chinese Railways. Now, I would like to discuss the ongoing global efforts to prevent financial crises. Financial turmoil in some Latin American countries continues, casting a shadow of crisis contagion throughout the region. On the positive side, we welcome the timely announcement of the IMF 119 rescue package for Brazil, warding off the risks of contagion. In the long run, however, the international financial system will still face the chal- lenges of a new global environment. Hence, we must continue our efforts to reform the international finan- cial architecture, focusing on a comprehensive framework for crisis pre- vention and resolution. For this reason, Korea fully supports an emerging consensus on the issue of private sector involvement. We also welcome the newly added impetus at yesterday's IMFC meeting on the Sovereign Debt Restructuring Mechanism and the use of collective action clauses. We welcome the on-going Twelfth General Quota Review as an opportunity to raise the capacity of the IMF to cope with crises. In the process, we would like to see the quotas adjusted according to the economic realities of member countries and their enhanced roles in the international economy. At the regional level, we welcome the progress on regional financial cooperation, including significant progress on the Chiang Mai Initiative. Equally important is the need to strengthen international cooperation to support poverty reduction worldwide. We support the World Bank's expanded role in pursuing the international development agenda. Korea is firmly committed to making more contributions toward the global part- nership for poverty reduction, and I would like to take this opportunity to announce that Korea is planning to contribute to the HIPC Trust Fund. Since the Inter-Korea Summit meeting of 2000, we have been working to ease the tension on the Korean Peninsula and produce the benefits of economic cooperation. In this connection, we invite the international community to take steps to support and enhance eco- nomic cooperation with North Korea. We also call on the IMF and the World Bank to help support North Korea's smooth transition and integration into the global economy. Appreciating the importance of international support for its devel- opment, Korea commits itself to working closely with the international community, including the Fund and the Bank. LAO: SOUKANH MAHALATH Governor of the Bank On behalf of the Delegation of the Lao People's Democratic Repub- lic, it is my great honor and pleasure to address the 2002 Joint IMF and World Bank Annual Meetings being convened today in Washington, D.C., the beautiful capital city of the United States of America. I would like to express my sincere appreciation to the management and staff of both institutions, and to the host country for the excellent arrangements made for the meetings. 120 I would also like to congratulate the Democratic Republic of East Timor as a new member of the Bank and the Fund, and welcome the Governors for Afghanistan back to the Boards. This year's joint Annual Meetings are particularly important and meaningful because they are being held in the midst of an environment in which the Bank and the Fund are cooperating with the international community on poverty reduction, based on the spirit of the Millennium Declaration and the Monterrey Consensus. However, the efforts toward achieving the goal of poverty reduction may not bear the expected fruits due to the economic slowdown in the aftermath of September 11, 2001. The recovery of the countries affected by earlier economic and financial crises has been slow. Low consumption in industrialized countries has led to deflation. This problem, if not addressed in a timely and appropriate manner, may spill over to other economies, thereby adversely affecting poverty reduction efforts. With regard to the Lao PDR, the government is currently focusing on creating an environment conducive to high and sustainable eco- nomic growth. This in turn will contribute to poverty reduction, thus helping us to attain the strategic goal of exiting from least developed country status by 2020. The government continues to maintain its macroeconomic stabilization policy, while pressing ahead with the struc- tural adjustment program. The legal environment has also been strengthened to be in line with market-oriented economic mechanisms to promote international cooperation and investment. In conducting monetary policy, prudence has been maintained by limiting credits of the commercial banks to all sectors and credits of the central bank to the government. Sometimes, a loosening of mone- tary policy was introduced, as warranted by progress in inflation con- trol. On the fiscal front, the emphasis has been on revenue mobilization and strict expenditure management. In the areas of pro- duction and trade, we continue to pursue an open door policy to pro- mote the production of goods for domestic consumption and for export, thereby preparing the country for regional and global eco- nomic integration in the future. As a result of our macroeconomic stabilization policy, inflation, which was at the three-digit level in 1998­99 was reduced to a single digit at the end of 2000. Since 2001, inflation has continued to remain, on average, at a single-digit level. Concurrently, the exchange rate has been reasonably stable, with seasonal fluctuations due to market move- ments domestically and internationally. Macroeconomic stability has been an important factor contributing to high GDP growth of 5.7 percent in 2001, a modest reduction from 5.8 percent in 2000. In 2002, according to the preliminary forecast, the 121 economy will continue to grow at 6 percent, due to an increase in con- struction and some large and medium-size investment projects. Adding to this more favorable environment for investment was the streamlining of the implementation of regulations for the Foreign and Domestic Investments Promotion Laws. Nevertheless, severe flooding in several provinces may result in lower agricultural output, and thereby reduce the expected GDP growth to, perhaps, the same level as in 2001. Together with the macroeconomic stabilization policy, the govern- ment continues to implement structural reform, particularly in the state-owned enterprise sector and state-owned commercial banks. Tar- iff adjustments are being made for enterprises in the service and trans- port sectors in order to gradually achieve financial sustainability in line with commercial principles. With regard to banking reform, we will merge a weak State Owned Commercial Bank (SCB) with one having a stronger financial position to create a new and viable SCB that can com- pete in providing banking services to society. In order to improve the quality of banking operations, particularly in the credit area and with the aim of reducing nonperforming loans, foreign advisers will be hired to assist the management of two SCBs. As for the Bank of the Lao PDR, work is ongoing to increase the efficiency of prudential regula- tions enforcement. The government's efforts in maintaining macroeconomic stabiliza- tion and structural reform policies have been supported by interna- tional financial institutions and the international community. The International Monetary Fund has been supportive with its medium- term Poverty Reduction and Growth Facility. In addition, agreements have been signed with the World Bank for the Financial Management Adjustment Credit and Financial Management Capacity Building Credit. The Asian Development Bank is also preparing to assist with its Banking Sector Reform Program Loan. Other friendly countries and international organizations are also extending their support to the Lao PDR under the Roundtable Process. To pave the way for the implementation of the poverty reduction strat- egy, we are in the process of finalizing the National Poverty Eradication Program (NPEP), which will clearly identify spending on poverty reduction priorities, such as education, health, and rural development-- particularly the construction of roads to facilitate market access. Sus- tainable environmental protection is also a top priority. As a least developed country with several limitations, we are fully aware of the challenges and difficulties facing us in attaining the goal of the NPEP. However, with the strong aspiration of the people, who are the driving force of the development supported by international financial institutions and the international community, we are confi- 122 dent that the challenges will be met and that the difficulties will be overcome. At this juncture, I would like to congratulate those contributing to the implementation of the Monterrey Consensus on increased official development assistance and financial resources for the effective imple- mentation of the Heavily Indebted Poor Countries Initiatives. How- ever, we remain concerned that the poor people of all continents may not be able to enjoy the benefit of such increased assistance in an appro- priate manner. I would like to emphasize that in order to enable least- developed countries to develop in a sustainable manner, the industrialized countries are urged to exert efforts toward reestablishing macroeconomic stability and to open their markets to exports from the poor countries. By doing so, reliance on external assistance will decrease, and the sense of ownership in poverty reduction will be enhanced. Above all, maintaining peace in the world is a prerequisite for fully concentrating the available resources toward poverty reduction consistent with the spirit of the Millennium Declaration. In conclusion, on behalf of the government of the Lao People's Democratic Republic, I would like to thank the Boards, managements, and staff of the World Bank and the IMF and other member countries for the support extended to the Lao PDR. I wish all meeting partici- pants great success. LUXEMBOURG: LUC FRIEDEN Governor of the Bank As we gather for these meetings and contemplate the world, we real- ize that our most important task as political leaders is to ensure that nations can live together in peace and prosperity. Despite substantial progress, children continue to starve in many parts of the world; men and women are killed in wars. Meetings such as these must help us to find solutions to our differences to build a world based on justice, fun- damental human rights, and peace. This requires a determined and cooperative policy. One year ago thousands of innocent people died in terrorist attacks in New York, Washington, and Pennsylvania. These infamous assaults remind us that the values of democracy, freedom, and peace are not to be taken for granted. This is no time for complacency but for decisive actions to make this world a safer place, free of poverty and exclusion. The World Bank and the IMF play a crucial role in the fight against hunger, corruption, and poverty. These institutions need our full sup- port to restore the hope of deprived nations. Personally, I have no doubt that my country can lead by example in promoting good governance, in 123 fighting against the financing of terrorism and against money launder- ing, and in actively promoting development policies. I would like to stress the importance of focusing in each country on establishing or keeping stable institutions that are subject to democratic control. The respect of the rule of law by independent judicial authori- ties must be ensured in all countries if we want to achieve our objective of peace and prosperity for all. Luxembourg will continue to strongly advocate multilateral trade liberalization given that it is an essential and effective development tool. To the extent that developing nations are highly dependent on trade as their main source of continued growth and prosperity, we are fully committed to expand the foundation of an open and nondiscrimi- natory trading system. Against this background we will continue to work with our European partners to reduce subsidies and import restrictions. With regard to official development aid, there is no excuse for many countries not having reached the long-standing UN target for official development assistance of 0.7 percent of gross national product. Mil- lions of people starve to death every year; many babies are born into poverty and hunger and will die in infancy. Let us join our forces to achieve the international community's commitment to halve hunger and extreme poverty by 2015. The need for global action is indeed com- pelling. My country will spend next year 0.84 percent of GNP as ODA. For us, this is not only an act of solidarity; it is also an indispensable ele- ment in fighting some of the causes of terrorism and illegal immigration. But trade liberalization and increased ODA will not suffice to free the developing world from the straightjacket of excessive and com- pletely unsustainable debt. It is a well-known secret that the debt bur- dens of low-income countries are a major impediment to development, growth, and poverty reduction. Debt relief under the enhanced HIPC Initiative is progressing well, and I continue to adhere strongly to the idea of linking debt relief and comprehensive poverty strategies to deliver manageable levels of debt. Unfortunately not all HIPC coun- tries achieve this goal, be it that underlying growth assumptions have not been met, that some creditors fail to purge their claims, or that sound policies are lacking. Against this background it is crucial that the IMF and the World Bank ensure realistic debt sustainability analyses, that all countries fulfill their financial pledges, and last but not least that HIPC countries implement sound macroeconomic and structural policies. There is no doubt that good governance and accountability pave the way for successful structural reforms and effective implementation of macroeconomic policies. Best practices in the areas of fiscal, monetary, and social policies need to be fully adhered to. 124 In the light of recent financial crises, I firmly believe that sound and well-regulated banking and financial systems are an essential tool to ensure financial and macroeconomic stability. To the extent that Finan- cial Sector Assessment Programs (FSAPs) play a crucial role in pro- moting sound financial systems, it seems to be worthwhile to consider whether FSAPs should not form part of the IMF's Article IV consulta- tions. At any rate, industrial countries should show the way and sign up for an evaluation under the FSAP. By doing so they could lead by example and support this essential tool of surveillance and crisis pre- vention. To underline our full commitment to the FSAP exercise, Lux- embourg decided to volunteer for an FSAP in 2001. The FSAP concluded that Luxembourg is a solid, efficient, and well-supervised financial center. We will implement the recommendations for improve- ments made by the IMF team. The FSAP was also an opportunity for us to further test our anti- money laundering and anti-terrorism-financing framework. Luxembourg has always been at the forefront of combating abuses of the interna- tional financial system. During the FSAP exercise we agreed to run the Fund and the World Bank's draft methodology for assessing legal, insti- tutional, and supervisory aspects of anti-money laundering and com- bating the financing of terrorism (AML/CFT methodology). I sincerely hope that this pilot experiment will help the Bretton Woods institutions and the FATF to complete a comprehensive AML/CTF methodology. Let me also reiterate that Luxembourg has already agreed to partici- pate in an early assessment of its AML/CFT framework using this new methodology as soon as it becomes available. In fighting crime and terrorism, prevention, cooperation, and the sharing of information are the key elements of a successful strategy. In a global world, poverty or crime in one place is not without effect on other countries. I strongly believe that dedicated nations, together with the Bretton Woods institutions, can change the world to become a safe and humane place. MALAYSIA: DATO' SHAFIE MOHD. SALLEH Governor of the Bank and the Fund Amidst a challenging external environment, the ASEAN economies have shown remarkable resilience and have recorded stronger growth in the first half of this year. With sound economic fundamentals in place, and as a result of the successful implementation of various fiscal stimu- lus packages, Malaysia has been able to weather the impact of volatility in the external sector. Domestic demand has strengthened and latest economic indicators show that economic recovery is under way, and conditions have improved in the second quarter of 2002. 125 Malaysia posted a strong 3.8 percent GDP growth in the second quar- ter of this year after experiencing modest growth of 1.1 percent in the first quarter. Growth was mainly driven by private consumption with manufacturing and the services sector providing the impetus. The stim- ulus for growth in private consumption was higher income arising from fiscal expansion, low interest rates, and an improvement in the exports of commodities. Over the short to medium term, growth prospects are expected to further improve following measures to boost domestic investments in all sectors as announced in the recent 2003 budget. Our banking sector continues to strengthen with a risk-weighted capital ratio (RWCR) of 12.8 percent, and NPL of 8.1 percent. The Cor- porate Debt Restructuring Committee (CDRC) has successfully resolved the debt of 47 cases, or 98 percent of all cases accepted, with total debts amounting to RM43.97 billion. The recovery profile of the resolved cases has shown that 83 percent of the recovery proceeds were in the form of cash, redeemable instruments, and rescheduled debts. When the IMF and World Bank met five years ago in Hong Kong, the "burning issue" was the Asian financial crisis. During the intervening period, we have seen significant progress in terms of measures on crisis prevention at the country level. In particular, the international commu- nity pressed for economic, financial, and corporate sector reforms in the crisis-affected countries to reduce vulnerabilities and strengthen the foundations for sustainable growth. At the height of the crisis, there were also calls for reforms in the international financial architecture to reduce, if not eliminate, the frequency and severity of crises. Today, as we meet in Washington, it is encouraging that the Asian economies are, by and large, fully on the path to sustained growth. The progress made reflects the success of reform measures by the national authorities as well as closer economic and financial cooperation at the regional level. Policy initiatives by the Asian countries to promote domestic sources of growth and enhance intraregional trade have also helped to sustain domestic growth in an increasingly uncertain and frag- ile external environment. Malaysia is well aware of the need to continually adjust its policies to address the challenges of an increasingly uncertain global environment, which has clouded the brighter outlook in Asia. While the global econ- omy has improved since late 2001, many downside risks remain. Recent indicators suggest a weaker and more uncertain outlook, with the finan- cial markets becoming more volatile in recent months amidst concerns over developments in the United States, particularly the weakening of the dollar, as well as developments in the corporate sector. In addition, developments in the Western Hemisphere have also heightened the risk 126 of renewed crises. Volatility in financial markets has become more intense, with adverse implications for capital flows and foreign exchange rates. An increasing concern is also the rising trend toward protection- ism in the developed countries, particularly in the United States. In the circumstances, the international community, notably the major industrial countries, have a moral obligation to individually and collectively pursue policies that contribute to continued global prosper- ity. We urge the major industrial countries to resist the tide of protec- tionism and to open their markets to freer trade. Closer coordination of policies among the major industrial countries is also essential to ensure a stable international financial environment that will reduce volatility among the G-3 currencies. In particular, we call upon the G-3 countries to give due cognizance to the widespread impact of their domestic pol- icy actions on the rest of the world. Need for Fundamental IFA Reforms The international community's efforts in addressing the problems arising from the Asian crisis have only been partially successful. Asian economies have undergone significant restructuring and reforms to rebuild the foundations for sustained growth. Notwithstanding the efforts at the domestic level, all countries remain vulnerable to abrupt external shocks, as long as there is no real progress in the reform of the international financial architecture (IFA). To date, progress in real IFA reforms remains elusive. In the wake of the tragic events of September 11, 2001, the focus of the international community's efforts on IFA reforms has been on combating money laundering and terrorist financing activities. Malaysia fully appreciates and supports the international efforts on this front. We recognize that terrorism constitutes a threat to interna- tional peace and stability. In this regard, we have put in place compre- hensive measures to curb any abuse of Malaysia's financial system for terrorist financing and money laundering purposes. We recognize that it is crucial that comprehensive international efforts be put in place to combat money laundering and terrorist financing, as we are a firm believer in preventive and preemptive action in managing potential areas of risk and vulnerability. While Malaysia fully supports decisive measures to curb money laun- dering and terrorist financing activities, we consider it equally important that international efforts be redoubled on fundamental reforms to the IFA. We need to move beyond measures that merely tinker with the existing system, when a fundamental and complete overhaul is required. 127 Standards and Codes Progress on IFA reforms has been mainly in the efforts by the IMF, among others, to "encourage" countries to adopt international standards and codes, and to be more transparent. Malaysia supports such efforts to provide markets with more timely and accurate data so that they can make more "informed" investment decisions. Malaysia was among the pioneer group of countries to sign up for the IMF's Special Data Dis- semination Standard (SDDS). While we appreciate the rationale for international standards and codes, we strongly believe that its implemen- tation must remain voluntary, with due consideration to differences in country-specific circumstances and priorities in terms of the level of eco- nomic development, and structure of the economic and financial system. Under no circumstances should countries be pressured into adopting standards and codes, nor should they become part of IMF conditionality. Transparency The emphasis of the international community is still skewed toward enhancing transparency of the public sector, with limited progress for the private sector. As recent events in corporate America have revealed, more concerted efforts are required to ensure that the "checks and balances" are in place to make the private sector more accountable for disclosing timely and accurate information. It should also be recognized that enhanced transparency and disclo- sure is not an end in itself. Transparency does not guarantee stability, nor does it prevent a crisis. The reality has been that greater transparency and disclosure have led to "information overload," with financial markets misinterpreting and overreacting to the information provided, thereby creating greater instability. Accurate analysis and interpretation of the information disclosed is equally important in ensuring that enhanced transparency and disclosure are effective in promoting stability. At the same time, the IMF's transparency initiative must strike a balance between greater disclosure, while maintaining confidentiality. Here, we have strong reservations on the proposed policy of presumed publication of all IMF country reports, as this could undermine frank discussions between the IMF and its members. While we support the IMF's initiative on transparency, we should caution that this initiative must strike a fine balance between the need for transparency and the need to maintain the confidentiality of the dia- logue between the IMF and its member countries. In this connection, we have strong reservations on the merits of the proposed policy of "presumed publication" of all IMF country reports, including the Arti- cle IV consultation reports, which contain highly market-sensitive infor- 128 mation. Efforts to promote greater transparency of the IMF's operation and policies should not be at the expense of betraying the trust and con- fidence of IMF member countries. Exchange Rate Issues The urgency for IFA reforms to ensure a safer world for globalization and liberalization is particularly evident in the current environment where the major international currencies are subject to excessive volatility. Concerted efforts are needed to mitigate the risks of a disorderly adjustment in the U.S. dollar exchange rate, as it would have wide-ranging negative implications for the global economy. Closer collaboration among the G-3 currency areas is essential to ensure stability in world currency and financial markets. In this regard, the G-3 countries must give due cognizance to the wider impli- cations of their policy decisions, instead of focusing solely on domes- tic imperatives. This is particularly urgent in the light of the recent assessments that there is little that monetary policy can do to rein in market excesses, without imposing damaging consequences on the real economy. Reform of IMF--Governance Issues Reform of the IFA would not be complete without changes in the way the IMF and other international financial institutions operate. Cur- rent efforts at fine tuning the existing institutional framework, for example, the review of IMF conditionality and program design, are grossly inadequate. Fundamental reforms are needed to address gover- nance issues, particularly, the IMF quota structure. The views of developing countries have been marginalized for too long as they are not adequately represented in the IMF's decision- making process. A comprehensive reform of the distribution of IMF quotas is urgently needed to better reflect the changes in the global economy, notably the increased relative position of emerging market economies. The IMF, as a multilateral institution, must be a representa- tive of all its member nations and not just a privileged few. There should be no room for veto powers in the IMF, and it cannot be seen to be an instrument of foreign policy for any particular member, however large. Past efforts to improve the quota formulas have not resulted in signif- icant changes in the way the quota structure is determined. While there is merit in considering alternative formulas, it is important that the develop- ment and inclusion of new indicators or new methods does not merely rep- resent a change in the technical formulation but represents a step forward in ensuring better governance at the IMF. The Twelfth General Review of 129 Quotas should take this into consideration and ensure that developing countries are adequately represented and that their views are taken into account in the decision-making process of the IMF. While this may be a protracted process, one way to address this issue is to increase the basic vote of each member, which has progressively eroded over the years, back to the Bretton Woods level. There is no room for complacency in the reform of the IFA, given an increasingly globalized economy and highly integrated financial mar- kets. In the aftermath of the Asian crisis, the international community has urged the Asian countries to set their economies in order by clean- ing up in the financial and corporate sectors, and strengthening macro- economic fundamentals. Progress on this has been encouraging and has borne results. The challenge is for the international community to move ahead with real IFA reforms to ensure a more efficient and stable inter- national financial system. World Bank Operations On the brighter side, we wish to take this opportunity to commend the World Bank Group for its achievement in increasing its lending from US$17.3 billion for the year 2001 to US$19.5 billion for the year 2002, taking into consideration the slowdown in the global economy and the worldwide impact of the events of September 11, 2001. We take note of the Bank's emphasis on extending more than half of its Interna- tional Development Association (IDA) to the poorest countries in the East Asia Pacific region and the Bank's continuous efforts to provide policy advice, technical assistance, and analytical services to member countries. Malaysia is pleased that the Bank has mobilize its resources in its International Finance Corporation (IFC) to catalyze foreign investment in difficult environment, particularly to emerging markets that are expected to remain depressed and volatile for the foreseeable future. However, Malaysia would like to call upon the IFC to extend its finan- cial assistance to regions and sectors underserved by investment from the private sector, especially the infrastructure sector as it lays the foun- dation for rural development and improves market access for agricul- ture and farm produce. On leveraging trade for development, we support this new initiative by the Bank, as trade is a crucial vehicle for developing countries to reap benefits from globalization. Market access by the developed world for products from developing countries will have a direct impact on growth and poverty reduction outcomes and will enhance the Bank's role in developing the supply and export capacities of low-income coun- tries. Provision of analytics and technical assistance in understanding 130 trade liberalization implications and necessary skills, knowledge and tools to ensure adequate negotiating capacities in WTO forums should be the Bank's priority. The Bank's analytical work can offer insights on how to mitigate possible negative short-term effects of trade liberaliza- tion on previously protected sectors of the economy and on fiscal rev- enues as a result of tariff reduction. Malaysia takes note of the Bank's New Water Resources Sector Strategy. This will provide great opportunities for financing the devel- opment of much needed water resources and subsequently expedite economic growth and development in poor countries. Furthermore, providing easy access to safe drinking water, particularly to the poor, is one of the Bank's highest development priorities under the Millennium Development Goals. Malaysia also welcomes the launching of the Education For All (EFA) Fast-Track Initiative to help countries that have already made progress toward EFA to accelerate the achievement of Universal Pri- mary Completion (UPC). However, our greatest concern is the 29 coun- tries lagging farthest behind in achieving universal primary completion by 2015. This will remain the biggest challenge for our work and for all stakeholders. MALTA: JOHN DALLI Governor of the Bank It is indeed a privilege to address once again the Annual Meetings of the International Monetary Fund and the World Bank. I thank the gov- ernment of the United States for hosting these meetings, and join the other Governors in welcoming the Federal Republic of Yugoslavia as a new member of the World Bank and the Democratic Republic of East Timor as a new member of the IMF and the World Bank. It is encouraging to note that after the global slowdown of the past two years, signs of a moderate recovery in international economic con- ditions are gradually emerging. There is understandable skepticism about the durability of this recovery, and the prevailing uncertainty in financial markets is a cause for concern. The threat of a renewed slow- down is affecting markets at the same time when many countries are struggling to achieve macroeconomic stability and set their economies on a path that will lead to sustainable growth. Furthermore, the situa- tion in Latin America remains precarious, as the negative repercussions of the Argentina's crisis continue to be felt in neighboring countries. In this regard, it is relevant to highlight the fact that the effects of contagion may be more widespread than anticipated, and this may cause the recovery in many developing countries to stall, as adverse financial conditions in one country impact on the markets of other 131 countries. This may be considered the inevitable effect of the global integration of markets, as recent experience shows that depressed con- ditions in one financial market are automatically transferred to financial markets in other countries, despite the fact that such countries may be characterized by sound economic fundamentals. Unfortunately, how- ever, instances where asset holders overreact to unfavorable price movements in debt and equity markets are on the increase. While the increasing homogeneity in expectations could itself be the result of the global integration of markets, it clearly adds to the debate on the costs and benefits of globalization. It is generally recognized that the price mechanism, free trade and capital movements, and contained public spending should be the order of the day. In fact, there is clear evidence that those low-income coun- tries that have experienced the highest growth rates happen to be the ones that have been more open to the rest of the world. Many countries embarked on extensive trade and exchange control liberalization pro- grams following the recommendation of international financial institu- tions, but there were many others that did so on their own initiative. Notwithstanding the beneficial effects of more open policies, it is evident that more and more countries have become susceptible to both the positive and negative economic and financial effects of develop- ments in the international environment, despite the robustness of the global financial infrastructure. It is certainly a matter of concern for Malta, as the authorities continue to liberalize the economy through the removal of remaining trade and capital controls. The small size and openness of the Maltese economy make it susceptible to external devel- opments, and this susceptibility will no doubt increase as levies on non- agricultural products are lifted and the capital account liberalization program that was launched in 2000 approaches its final phase. It is in recognition of this that we have continued to take further mea- sures to strengthen our financial system. Over the past year we have enhanced the regulatory function in the area of financial services by establishing a single regulator, the Malta Financial Services Authority. At the same time we have broadened the powers of the central bank to enable it carry out a financial stability function besides its monetary pol- icy role. The bank will be responsible for identifying risks in the financial system and for overseeing the payments system. The regulatory frame- work has also been made more robust through various amendments to financial legislation and the introduction of new laws. The latter included the setting up of a Financial Intelligence Analysis Unit, which is respon- sible for all matters related to anti-money laundering activities. Amend- ments to the Central Bank Act will also strengthen the bank's independence and operational flexibility, while other amendments to 132 financial legislation will bring Malta's standards and practices further in line with those recommended by the international supervisory bodies. The authorities in Malta have also completed an initial self-assessment of Malta's adherence to IMF standards and codes in the financial sector. In fact, an FSAP mission is expected to visit Malta early next month to carry out a first assessment of the financial sector. We recognize the importance of such an assessment not only because it is our objective to establish Malta as a sound and stable financial center, but also because, despite the small size of the country we clearly understand that Malta has a responsibility to cooperate actively with the Fund in its endeavors to enhance its surveillance of the international financial system. In this regard, we fully support the sovereign debt restructuring mechanism proposed by the First Deputy Managing Director of the Fund for the use of collective action clauses in sovereign bond con- tracts. If accepted, this proposal should enable key decisions in the debt restructuring process to be taken when negotiating with the debtor country. It may therefore prevent a financial crisis from getting out of hand by accelerating the arrangements that may be necessary to solve a country's external debt problem. Indirectly it would also contribute to a resumption of private capital flows to developing countries as private investors would be assured that their investments in such countries would be more secure. Malta also continues to support the efforts of the Fund and the Bank to combat poverty and notes with satisfaction the recent initiatives taken by these institutions to address this urgent issue. A very positive development in this regard is the World Bank's proposed action plan for achieving the Millennium Development Goal of universal primary edu- cation by 2015. Other positive steps have been the decision of donors to increase the proportion of International Development Agency (IDA) assistance that will be given in the form of grants, and also the efforts of the Fund to review quota formulas. It is also important that the com- mitments undertaken by the international community at the UN Con- ference on Financing for Development in Monterrey--to improve living standards and reduce poverty through sound policies and more effective aid--be implemented with a minimum of delay. We also welcome debt relief initiatives taken by the international community, particularly the HIPC Initiative, the IMF's Africa Capacity Building Initiative, and the CIS-7 Initiative. These will continue to enhance the facilities that are available to eligible countries as they build their poverty reduction capacity. Finally, I would like to refer briefly to the Plan of Implementation and the various partnerships announced at the Johannesburg World Summit on Sustainable Development earlier this month to reverse the decline in 133 environmental degradation. Malta certainly welcomes these initiatives, and although it has very limited resources, it has pledged to increase its technical assistance to low-income countries and to encourage the partic- ipation of Maltese nationals in development projects overseas. Malta too has benefited greatly from technical assistance provided by international organizations, in particular the UN, the IMF, and the World Bank. It clearly understands that through meaningful technical assistance, a country can implement correct policies that can better the economic and social conditions of its people without resulting in bur- densome commitments. In the case of Malta, such assistance has been instrumental in enabling our country to achieve, over the years, a rela- tively high standard of living, paving the way for accession to the Euro- pean Union. I would like to conclude by thanking the management and staff of the Fund and the Bank for their continued support and assistance, and wish them all success in carrying out their challenging tasks in an inter- national environment, which, over the year, has been difficult and uncertain. Finally, I would like to express my country's appreciation of the assistance and advice that was provided throughout the year by the Executive Directors who represent Malta on the Boards of the Bank and the Fund. MYANMAR: U KHIN MAUNG THEIN Governor of the Bank and the Fund It gives me great honor to address the 2002 Annual Meetings of the International Monetary Fund and the World Bank Group as Governor representing the Union of Myanmar. I would like to take this opportu- nity to express my thanks and appreciation to these two institutions and the government of the United States of America for successfully convening these meetings at this crucial juncture in this capital city, Washington, D.C. Myanmar, with a population of 52 million in 2001, has an abundance of natural and human resources. Myanmar has been striving hard to develop its economy without official development assistance from bilat- eral and multilateral resources, mainly owing to economic sanctions and embargoes against Myanmar that have been imposed by some devel- oped countries based on political considerations. This has hindered the speed of Myanmar's economic development. Although Myanmar is a legitimate and longstanding member of these two institutions--since the 1950s--the Fund and the Bank have suspended their assistance to Myanmar since 1987 without any justification, based mainly on political influence and considerations. Myanmar has been facing these unfair practices, challenges, and adversities with the strength of the nation, 134 relying on its own resources for development of its economy, as we cur- rently live in challenging and changing times in the global situation. On the strength of our own efforts, we have achieved remarkable progress in socioeconomic development across the country. Myanmar is focusing its socioeconomic development program on narrowing the gap between the economic and social strata. We have been implementing socioeconomic development projects and infra- structure facilities with high momentum to enable the country to meet its development requirements. Thus we are able to build a new, modern developed nation. Myanmar's first short-term (four-year) plan was successfully imple- mented from 1992­93 to 1995­96, achieving an average annual growth rate of 7.5 percent. A second short-term (five-year) plan followed from 1996­97 to 2000­2001, achieving an average annual growth rate of 8.4 percent. In its endeavor to develop its economy, Myanmar has emphasized not only sustainable economic growth and infrastructure development but also the development of the education and health sec- tors to keep abreast of other developing nations. We would like to reiterate that stability, peace, and security have been established, and a firm economic and financial foundation has been laid that will help Myanmar achieve high economic growth, a gradual reduction of the budget deficit, and a balanced budget at the end of FY 2005/06. In conclusion, I would like to thank the IMF and the World Bank Group for their tireless efforts in successfully convening the 2002 Annual Meetings, and I look forward to better global cooperation and moving toward peace, stability, and development all over the world. NEPAL: BHARAT KUMAR SHAH Governor of the Bank It is a great honor for me to address the 2002 Annual Meetings of the Bank and the Fund. On behalf of His Majesty's Government of Nepal and on my own, I would like to thank the Bank and the Fund for the excellent arrangements made for this meeting. I would also like to put on record our sincere appreciation to the people and the government of the United States of America for the warm hospitality extended to us. I would also like to join other fellow governors to welcome the Democratic Republic of East Timor as the newest member of the Fund and the Bank. This meeting is very special to all of us since we are gathering here after a gap of one year in the aftermath of September 11, 2001. Although our regular meeting was interrupted by the act of terrorism, we appreciate the fact that the world has been united as never before to fight against terrorism. We, therefore, urge the Governors of the Bank 135 and the Fund to use this unity and move forward resolutely in matters of economic cooperation as well. Although the global economy has shown improvements and upturns in 2002, the recovery in poor developing countries has been sluggish due to external and internal shocks. We are also concerned about the downside risks to the small and poor developing countries owing to higher oil prices and regional uncertainties. The prolonged global eco- nomic downturn has also led to a sharp deceleration of capital flows in these countries. Further, the decline of ODA to a mere 0.22 percent of GDP of developed countries as against the target of 0.7 percent is a matter of a serious concern to us. Therefore, we join the Bank, the Fund, and the United Nations to call on donors to scale up their aid and boost net resource transfers to these countries to help achieve the Mil- lennium Development Goals, including halving the poverty level by 2015. In this regard, the role of the international community toward capacity building of poor countries is also equally important. We need not elaborate here on the critical role of development assistance for the poorest countries like Nepal. As such, we urge advanced economies to honor their commitment toward poor developing countries. We believe that the Bank and the Fund have important responsibil- ities in making globalization work better for poor countries. Given the wider access of these institutions in international arena, they are in bet- ter position to help poor countries to prepare themselves for the oppor- tunities and risks posed by globalization. We encourage the Bank and the Fund to be more proactive in managing globalization to the benefit of poor countries. In our view, much work still needs to be done espe- cially in structural reform and institution building in poor countries so as not to exclude them from the process of globalization. Improving market access for greater coherence between aid and trade would cer- tainly help poor countries to achieve economic growth and alleviate poverty. In this regard, we urge greater market access for the products of poor countries along with an enhanced level of development assis- tance (ODA), debt relief measures, and capacity building of poor developing countries in line with the Doha Development Agenda of the WTO and the Monterrey Conference on Financing for Development. I take this opportunity to request that developed countries assist the least developed countries to enter into the WTO on a fast track basis without seeking many concessions from them. On strengthening the international financial system, we support the Fund's role in crisis prevention and resolution within its areas of expert- ise and resources. The developing countries should be provided with technical assistance to enhance their capabilities to combat money laun- dering and terrorist financing. With regard to lending policies and con- ditionality, we encourage the Fund to regularly review the applicability 136 of such conditionality, taking into consideration the mandate of the Fund and capacities of countries to implement such conditionality. We would like to commend the Fund and the Bank for sharpening their focus on poverty in recent years. However, the time has come to assess the impact of such changes on alleviating poverty in poor countries. In our view, the Fund and the Bank still need to be more country specific in their approach rather than following a "one size fits all" approach. We thank the Bank for successfully concluding negotiations on IDA 13 replenishment. Donors of IDA also deserve our appreciation for provid- ing grants to IDA in the range of 18­21 percent to address the special dif- ficulties faced by the poorest and most vulnerable countries. We hope that the portion of grant will be increased even more in the next replenishment of IDA so as to lessen the debt burden of debt ridden poor countries. With regard to the Heavily Indebted Poor Countries (HIPC) Initia- tive launched by the Bank and the Fund in 1996, it is discouraging to note that progress has been slow. Although consensus emerged in 1998 for deeper, broader and faster debt relief, most of the heavily indebted coun- tries remain outside of the coverage of this initiative due to rigid debt sus- tainability criteria. We once again urge the adoption of a comprehensive debt relief package that includes all poor countries such as Nepal as the real solution for a debt free world. The evolution of the Poverty Reduction Strategic Credit and Poverty Reduction and Growth Facility as innovative instruments for carrying out Bank's and Fund's mission for poverty alleviation will be crucial in providing the quick disbursement of external financing and supporting policy and institutional reforms to member countries. How- ever, we feel that conditionality of such lending should be more realis- tic and have a greater country ownership. I would like to briefly dwell upon the current economic situation of my own country. Nepal is currently passing through a critical juncture in its economic history due to domestic as well as external factors. In the fiscal year 2001/02, our economy grew only by less than one percent as against 4.3 percent last year due to a decline in manufacturing and a slowdown in the services sector, including trade and tourism. Maintain- ing fiscal balance was a formidable challenge because of the decline in revenue mobilization due to the slump in our foreign trade, industrial, and service sectors, and the additional funding required for maintaining law and order. The external sector also experienced a set- back. Both exports and imports declined, and the balance of payments recorded a deficit. However, foreign exchange reserves remain at a comfortable level and are sufficient to cover one year's merchandise imports. His Majesty's Government has initiated several reform measures to overcome the present situation as well as to pave the way for long-term development. First, security measures have been tightened to improve 137 the law and order situation along with the allocation of more resources. Second, the government has been implementing the Immediate Action Plan (IAP), which aims at prioritizing public resources and providing immediate relief to the people and reducing poverty as envisaged in the Tenth Plan/Poverty Reduction Strategy Paper (PRSP). The Immediate Action Plan also aims to improve the quality of public services and enhance transparency and accountability. Similarly, with a view to improve governance, the government in collaboration with civil society has formulated a Comprehensive Anti-Corruption Strategy. Policies have also been adjusted to address the present economic difficulties. Public expenditure management and resource mobilization have been given top priority. The financial sector reform program is progressing with the restructuring of the ailing banks, new directives in implementation, and strengthening of the central bank to make its reg- ulatory and supervisory role more effective. Macroeconomic policies and corporate governance measures are being implemented to create an environment conducive to private sector development. To reinvigo- rate the sluggish economy, the central bank has adopted a flexible monetary policy by cutting down bank rates and cash reserve ratio requirements of commercial banks with a view to injecting more liquid- ity into the economy. The government has recently approved the Foreign Aid Policy, which contains a comprehensive reform package to enhance aid effectiveness. The policy demands behavioral changes, as well as procedural harmo- nization on both sides--donors and recipients. Also, this policy intends to ensure better utilization of foreign aid by addressing aid-related issues. The government has also adopted the Medium-Term Expenditure Framework (MTEF) under which all projects and programs have been prioritized, and resources have been estimated for the next three years with a view to ensure predictability in the budget processes. For an enhanced level of revenue mobilization, measures have been initiated to broaden the tax base, create an investment-friendly environment, and adjust tax rates as necessary. Governance reform measures are progress- ing with making civil service right-sized, efficient, accountable, and results oriented. Decentralization is being institutionalized to ensure the effective delivery of public services, empower local bodies, and mobilize local resources for meeting development needs. Currently, the country is facing political and economic challenges arising from the Maoist insurgency, and the government is determined to resolve the problem. The government is moving ahead with economic reforms. The reform program could be supplemented by the Poverty Reduction and Growth Facility/Poverty Reduction Strategic Credit of the Fund and the Bank. Achieving the goal of poverty reduction, which is also the overarching objective of the Tenth Plan, would not be possi- 138 ble with our resources alone. We need donor support in this process. Thus, Nepal urges the Fund and the Bank to support our endeavor with additional poverty reduction program and flexible budgetary support. Finally, I would like to conclude by thanking the Bank and the Fund for their continued support in the development endeavor of my country. NETHERLANDS: HANS HOOGERVORST Governor of the Bank Introduction Over the past 50 years, globalization has been the source of unprece- dented gains in human welfare. But it has also brought risks and chal- lenges, such as disruptive volatility in international capital and trade flows. Both the IMF and the World Bank play a crucial role in guiding and shaping the process of globalization. In particular, over the last five years, both institutions have clearly shown that they have learned to adapt their policies to the needs of a changing global economy. I would like to highlight six areas in which initiatives need to be strengthened and renewed for global stability and growth, and for more inclusive globalization. Learning from the Asian Crisis--An Unfinished Agenda The IMF and the World Bank have drawn clear lessons from the Asian crisis, which threatened global stability and growth exactly five years ago. First, they have led new initiatives to monitor the complex linkages between a country's macroeconomic and structural develop- ment and the quality of its institutions, notably through the Financial Sector Assessment Programs (FSAP) and the Reports on the Obser- vance of Standards and Codes (ROSC). Second, along with promoting transparency and adherence to the universally accepted "rules of the game" among their member countries, the World Bank and IMF them- selves have become increasingly open. Third, the Bank and the Fund have taken steps to focus and streamline the conditions of their lending, promote national ownership, and achieve a sound division of labor. Notwithstanding considerable progress, the agenda emerging from the Asian crisis is still unfinished. The Netherlands encourages both insti- tutions to continue these initiatives. The Crisis in Latin America--Setting a New Agenda New risks threaten global stability and growth, which--and this is important to emphasize--are not confined to the emerging economies 139 or developing countries. As noted in the World Economic Outlook, one of the risks is the widening current account deficit of the United States. The second risk relates to the sense of uncertainty regarding the "true value" of corporate USA. Apparently, there is a need to pay as much attention to risks and vulnerabilities arising in the so-called advanced economies as we do to problems in emerging markets and developing countries. The third risk to global stability and growth is the crisis in Latin America. This crisis in particular should give birth to at least three new or renewed initiatives. The first is the new framework for debt sus- tainability as an essential part of the Fund's work in crisis prevention and crisis resolution. The second initiative is the impetus given to the discussion on ways to smooth debt restructuring processes. The Netherlands welcomes efforts by the IMF to make progress on the design of the Sovereign Debt Restructuring Mechanism proposal as well as the promising first results of the work by the G-10 on collective action clauses. This two-track approach also demonstrates the clear intention to move away from bailouts toward work-outs. Solving the Crises--It Takes Three to Tango Third, the crisis in Latin America has nourished the discussion on the financing role of the IMF in managing financial crises. We support the intention to make the policy on access to IMF resources clearer and more predictable. Exceptional access should be truly exceptional. Otherwise IMF support might provide incentives for private lenders to underestimate risks and for national authorities to refrain from adopt- ing sound policies. The Fund's interventions are necessary, but not suf- ficient to promote global stability. In this case, it takes three to tango: the Fund, the country, and private creditors. Against this background, a general quota increase does not seem needed at this juncture. We also urge the Fund to be cautious in its review of the quota formulas. It requires utmost care to ensure that changes to the system do indeed constitute improvements, and do not weaken its logic and robustness. We particularly believe that quotas should adequately represent coun- tries' openness in both trade and financial terms. The current quota system performs its complex task relatively well. Intensifying the Fight against Terrorism Financing Spurred by the dramatic events of September 2001, the IMF and the World Bank have intensified their efforts to ensure the integrity of financial markets, in particular by fostering compliance with the inter- national standard in the fight against money laundering and terrorism financing. We strongly support the Bretton Woods institutions in con- 140 tributing to this fight through their surveillance activities, notably the ROSC process and technical assistance. We urge both institutions to collaborate with the FATF and FATF-style regional bodies. As agreed last year, the IMF will coordinate efforts to identify and respond to the need for technical assistance. In order to allow the IMF to perform this role in an optimal way, the Netherlands stands ready to support TA activities with a financial contribution of=C400,000. The Monterrey Consensus--Put Your Money Where Your Mouth Is Globalization should work for all. In Monterrey and Johannesburg, we have done the talking; let us now do the walking. Among other actions, this task implies not only increasing the quantity but also the quality of ODA by focusing more clearly on results. The way in which we practically deliver aid is crucial to improved development effective- ness, which is required to achieve the Millennium Development Goals. Aid effectiveness is not only a matter of shifting to performance-based aid allocations. We believe that partnership, coordination, and respect for the country-driven nature of policies and systems are of equal importance. Many countries have devised national development plans and are trying to mobilize the necessary resources. At the same time, however, they have to manage a multiplicity of individual donor projects and international initiatives. Strategic alignment, harmoniza- tion, and coordination among donors are therefore major challenges in enhancing aid effectiveness. This is clearly shown by the case studies on Education for All, water and sanitation, and HIV/AIDS. HIPC--Paying Your Bills One of the greatest initiatives of the last few years, the Heavily Indebted Poor Countries Initiative, risks losing its glamour. The Netherlands urges the World Bank and the IMF to place more empha- sis on the significant problem of the current financing gap, estimated at nearly US$1 billion. Several of us have already fulfilled our HIPC com- mitments, on top of which we have cancelled additional debts of several HIPC countries bilaterally. It is now time for pledges already made by other donors and institutions to be honored and new commitments to be made to fill the financing gap. But also the results of the HIPC Ini- tiative are at risk. Ultimately, each HIPC country should be able to stand on its own feet and attract financing and investments without con- stantly facing the specter of unbearable debts. There are three ways to render the initiative more effective. First, the World Bank and the IMF should engage in a closer monitoring of the balance of payments of HIPC countries. The impact of exogenous shocks on the manageability 141 of the debt will then become visible sooner. Second, it should become standard practice to offer HIPC countries capacity-building assistance in the sphere of fiscal and debt management, as part of the debt relief package. Third, economic growth and productive employment should be promoted by better market access, export diversification, and an improved investment climate to provide a more solid basis to withstand future shocks. Fourth, we should expand to all HIPC countries the OECD agreement on untying ODA to the least developed countries. The HIPC Initiative needs to be put on a stable footing. We hope the World Bank and the IMF, as well as the larger development community will take up these new challenges. We trust that under the excellent leadership of Messrs. Wolfensohn and Köhler both institutions will keep on learning and applying lessons learned in the areas I have mentioned: continuing the initiatives that emerged from the Asian crisis, taking up the new challenges from the crisis in Latin America, implementing the Monterrey Consensus, and keeping the HIPC Initiative "alive and kicking"--not for their own sake, but in order to better promote global stability and growth and to make globalization more inclusive. Rest assured of the continued sup- port of the Netherlands in doing so. NEW ZEALAND: MICHAEL CULLEN Governor of the Fund The International Development Cooperation Architecture We have seen a remarkable year in discussions on global develop- ment issues. At the Financing for Development Conference in Mon- terrey, developed and developing countries reached an unprecedented agreement on the direction of our joint efforts to reduce poverty in line with the Millennium Development Goals. Ministers and leaders agreed that development financing encompasses domestic and international finance, private funds and ODA, and trade and investment, and that sound policy settings and good governance largely determine effectiveness. Policy coherence is also vital, not only for developing countries so that efforts in one sector are not undone by conflicting policies else- where, but also for donors: rich countries that maintain billion-dollar agricultural subsidies and support undermine their assertions of com- mitment to developing-country interests through aid and loans. We look forward to rapid and thorough agricultural liberalization for a true WTO "Development Round." New Zealand is committed to the developmental aspects of the round. We wish to see that special and dif- 142 ferential treatment provisions are used in the interests of growth and poverty elimination in developing countries. We will also continue to support trade-related capacity building for our developing country part- ners, through the Global Trust Fund and through regional and bilateral assistance. Taken together, Financing for Development, the Doha Development Agenda, and the recent World Summit for Sustainable Development outcomes set us on the path toward a new era in development, and one in which the Bank and the Fund will have a key role to play. We have, however, learned from experience and analysis, and agreed recently in Monterrey, that common principles characterize effective development: strong country ownership, partnerships of mutual respect, good policy environments and governance, and assis- tance targeted to priorities that have the best chance of making progress toward the Millennium Development Goals (MDGs). Nga Hoe Tuputupu-mai-tawhiti I am pleased to announce that my Government established a new development agency in New Zealand on July 1, 2002, with a central focus on poverty elimination, to work with our key partners in the Pacific region and on the global stage to reach the ambitious targets that the global community has set for 2015. The new agency will face chal- lenges, as will we all. Let me cite two as examples: · Good practice suggests concentrating development assistance on what is effective, with a focus on results, and on the policy and insti- tutional changes that need to be made to achieve these results. But what if your key development partnerships are with states that may lack capacity, sometimes lack commitment to reform, or both, and are beset by conflict, corruption, and vulnerability to natural disasters? A responsible partnership surely would provide assistance in overcom- ing these challenges, in the interest of helping these states to achieve the MDGs, rather than ignore their condition and instead support better performers elsewhere. We need to keep this firmly in mind in discussing effectiveness questions. · Also, the development bargain struck at Monterrey and reinforced at Johannesburg involves improved governance and performance on the understanding that increases in ODA financing will follow. Is the donor community prepared to deliver? Are the performance indica- tors appropriate and realistic for measuring improved governance? We are, I suspect, some way from concluding positively on either count. 143 Debt Relief In 1999, we committed ourselves to "deeper, broader, and faster" debt relief to every eligible country that could translate the resources into better prospects for its poor. By the end of July 2002, agreements were in place--with relief flowing--to 26 countries, for debt service relief amounting to some US$27 billion. Many factors contribute to poverty in developing countries: economic and political history, poor economic management, weak governance, armed conflict, and external factors such as deteriorating terms of trade and climatic problems. In about half of the 80 poorest countries, partic- ularly the 41 HIPC countries, but in others too, such as in the Pacific, unsustainably high external debt has also become a key constraint on development. We need to follow through on a comprehensive strategy to support achievement of the MDGs and reduce poverty. We need to do so based on the twin pillars of home-grown efforts by all the HIPCs to create the basis for sustained pro-poor growth, and more decisive support from the international community. The HIPC Initiative should be seen as part of this comprehensive approach. It is removing debt as a constraint to poor countries' struggle against poverty. It sets the stage for determined countries, supported by the international community, to overcome other constraints to exiting from poverty. Relief is delivered only to those countries that have demonstrated the commitment and capacity to use the resources effec- tively. In a world of scarce development resources, it is crucial to ensure that debt relief will actually make a difference in the lives of the poor. As could be expected, the 12 countries yet to enter the HIPC Initia- tive face some of the biggest challenges to establishing a satisfactory track record, with many affected by conflict. It is therefore important that the international community press forward with the HIPC Initia- tive with pragmatism and common sense, utilizing the flexibility in the initiative to enable these 12 countries to progress to decision point quickly, where there is sufficient assurance that the additional resources will be used effectively to pursue poverty reduction. New Zealand also wishes to see countries make a robust exit from the initiative, and so welcomes the use of realistic debt sustainability scenarios to assess post- HIPC debt sustainability. Full creditor participation is also critical to the success of the initia- tive. We strongly encourage all creditors yet to do so to confirm their commitment to the initiative. We also encourage all shareholders of multilateral creditor institutions to play their part and ensure that their institutions are able to participate fully. 144 Important as debt relief is, however, the gains to developing coun- tries from trade liberalization and from effective mobilization of private capital flows would swamp those that accrue from debt relief. Further agricultural trade liberalization is of particular importance to develop- ing countries. Global official development assistance in recent years has totaled US$50­60 billion a year. Debt relief under the HIPC Initiative was US$1.4 billion in 2001. At the same time, the current trade policies of some industrial countries directly neutralize the effectiveness of aid. Greater coherence between aid and trade policies is essential. A coherent approach requires trade policies to create market opportunities for developing countries, and development policies enable them to respond to these opportunities. The trade and development communities must work together more closely than they have in the past. This is the essence of the Doha Development Agenda of the WTO, the Financing for Development Conference in Monterrey, and WSSD. This is a significant challenge, and one that will require donor countries, development banks, the IMF, the OECD, WTO, and the UN system to engage each other, as never before, and with their development partners. Achievement of the Millennium Development Goals rests on success in this. Small States New Zealand welcomes the growing commitment by the Bank and the Fund to addressing the unique challenges facing small states. Many challenges face our small state development partners in the Pacific-- including vulnerability, isolation from markets, post-conflict trauma, and diverse social and cultural settings. We look forward to increasing dia- logue with the Bank, the Fund, and our development partners on donor coordination and harmonization in small states in the Pacific region. As in any region, the Pacific has witnessed poor governance which has constrained development, and led to conflict and breaches of fun- damental rights of citizens. Small states face additional challenges of small populations and limited capacity in government--its functioning and basic machinery. One example of poor governance and systems failure is the emergence of gaps in banking supervision and regulation, tax evasion, and corruption. Pacific countries face redoubled chal- lenges to meet international standards and participate in initiatives to eliminate money laundering and the financing of terrorism, harmful taxes, bribery and corruption, and to improve financial and corporate governance. New Zealand, through its specialist agencies, Ministries, and NZAID, stands ready to assist our neighbors to overcome these challenges. 145 Effectiveness of the IMF The purpose of the IMF is to help ensure the orderly and stable growth of the world economy. New Zealand commends the reforms to date aimed at focusing the work of the Fund more sharply on core responsibilities and expertise. These reforms have included revisions to the IMF's financing facilities, a reassessment of the conditions attached to its loans, closer collaboration with the World Bank in areas such as financial-sector assessment programs and debt and poverty reduction, a prioritization of its technical assistance programs, and a firm com- mitment to transparency and accountability. At the same time, the effectiveness of the Fund will continue to be judged by its success in preventing and resolving crises. Surveillance is the main avenue to the Fund to identify an impend- ing crisis early on. But crisis prediction will always be imperfect because crises are heterogeneous; they occur for different reasons in different settings and at different times. However, rather than being inevitable and preordained, crises generally afflict countries that have entered a danger zone where the government lacks the political and economic capacity to fend off financial pressure. New Zealand considers that it remains possible to identify steps to limit both the incidence and severity of crises, such as strengthening the supervision and regulation of financial institutions, rationalizing exchange rate regimes, and reforming fiscal and monetary institutions. Strengthening the focus and persuasiveness of Fund surveillance in these key areas is a priority. A renewed bout of crises in emerging markets over the past two years should spur efforts to improve our framework for crisis resolution. Fund support in the wrong circumstances may encourage governments to cling to unsustainable policies. This permits financial vulnerabilities to build up, in turn leading to more severe fallout in crises. Repeated rescues also weaken market discipline, encourage more risky lending, and lead to an increase in vulnerability to future crises. At the same time, the costs of unsuccessful crisis resolution are high. Poverty increased much more in countries where crises led to defaults and finan- cial collapse--Indonesia, Russia, and Argentina--than in countries where international rescues helped restore financial confidence-- including Mexico, Thailand, South Korea, and Brazil in 1999. The ultimate aim of IMF assistance is to create breathing room for a country to put its house in order. New Zealand welcomes the increasing recognition that IMF assistance is effective in reducing uncertainty and restoring investor confidence where there is a strong domestic con- stituency for reform. We strongly support the policies put in place to strengthen the basis for decisions in cases of exceptional access, including 146 a more rigorous framework to ensure debt sustainability, and strength- ening the procedures and criteria surrounding exceptional access. How- ever, the judgments in individual cases will remain very difficult, and the ultimate test of these frameworks is whether our exceptional access pro- grams are successful. Where debt is not sustainable under a credible set of policies, the inter- national community should recognize that restructuring a country's debt burden is the only option to restore sustainability and growth. However, the option of restructuring debts is usually considered to be too messy, dis- ruptive, and painful and too threatening to the international system. New Zealand welcomes the recent proposals to make sovereign debt restructuring less costly. A more orderly process could help to reduce the large economic dislocation associated with large-scale debt restruc- turing. While we are willing to listen to proposals for reform, we must be realistic about the legal, political, and bureaucratic challenges ahead. No one should be under any illusion that the proposal for a sovereign debt restructuring mechanism (SDRM) would be easy to implement. First, proposals for a formal international mechanism for sovereign debt restructuring would imply a dramatic increase in the level of trust in international law and international institutions. Second, the criteria governing when a country's debts are unsustainable remain very uncer- tain. Third, a key impediment to proposals for reform of the framework for sovereign debt is the implications for the incentive for opportunistic sovereign defaults. A strengthened mechanism to ensure that debtor countries pursue sensible economic policies during the payment stand- still would have to be developed. The contractual approach offers a less intrusive solution to the prob- lems of holdout creditors disrupting a restructuring agreed between a sovereign and a majority of creditors. We welcome the fact that the con- tractual alternative is being pursued in tandem with the work on the SDRM. Some have raised the possibility that contractual provisions will not work because they do not currently allow for voting across different bond issues. However, the key is not to make creditor litigation impos- sible but to make it sufficiently difficult so that restructuring is the most palatable alternative. We look forward to further work on the appropriate design of contractual clauses. In terms of implementation, changes in listing requirements in key financial centers offers the quickest route to a con- tractual solution. The Twelfth Quota Review New Zealand acknowledges that a plausible case can be made either for or against a quota increase. We support addressing the large 147 under-representation of several members of the Fund. Some say that perhaps the only way of addressing this under-representation would be through a general quota increase, although our preference would be that the issue is dealt with immediately by other means. We must also acknowledge that there does not seem to be sufficient support for a quota increase, although there is always the option to bring forward the Thirteenth Review should sufficient support develop. Terrorist Financing and Anti-Money Laundering New Zealand is committed to the fight against money laundering and against terrorism and its associated activities. We are well placed to meet the various obligations arising from international agreements and standards (including UNSCR 1373 and 1390 and the FATF 40+8 recommendations), and we will be in full compliance with our interna- tional obligations with the enactment of existing or planned legislation. It is important, however, for the international community to be fully aware of the need for realistic expectations of, and assistance to, the various micro-states of the Pacific region and elsewhere if they are to play their part effectively. We should endeavor to avoid excessively pre- scriptive and complex approaches in the case of these micro-states, given their lack of infrastructure and limited resources. Summary Both the Fund and the Bank have made progress over the last year in making themselves more effective international institutions. A well- functioning Fund and Bank are important cogs in the global financial and development assistance architectures. New Zealand commends the work of the leaderships and staffs of each institution in promoting global financial stability and reducing poverty in developing countries. PAKISTAN: SHAUKAT AZIZ Governor of the Bank It is a great honor and privilege to address the 2002 Annual Meet- ings of the World Bank Group and the IMF. I also join my other col- leagues in appreciating the excellent arrangements and the hospitality extended to us. We live in times that pose unprecedented challenges and also oppor- tunities. Despite the ample progress made, a large part of the world's population continues to be deprived of the means of the most basic sustenance. Even larger numbers exist on the margins of subsistence. 148 Illiteracy, ill health, and poor nutrition continue to condemn large seg- ments of humanity to perpetual poverty. Yet, there is a great opportunity within our collective grasp; an opportunity that is indeed historical and presents itself only rarely dur- ing a lifetime. Today, we have the vision of a world where poverty, dis- ease, and want are banished, where the poor not only once more dare to hope and dream but also to see, and feel, and appreciate the positive changes in their lives. All that we may espouse, theorize, or achieve in macroeconomic stability and reform will come to naught, if it does not translate into a better life for the countless millions who have known nothing more than the squalor, despair, and humiliation that only the poor know and understand. Today we have a global partnership of mutual responsibility, account- ability, and, above all, trust, forged at Monterrey and reaffirmed at Johan- nesburg. The world perhaps has rarely if ever, seen such a unanimity of views on issues affecting the global community. This is indeed the chal- lenge before us--to translate this vision into reality--can we walk the talk? Mr. Chairman, we cannot afford to lose any more time. The primary responsibility for development rests with the develop- ing countries themselves. They have to provide the vision, the spark, and the commitment to restructure and deliver reform within a stable macroeconomic framework. The developed world must help us to help ourselves. This is the bottom line. We do not look for permanent crutches. We look for partnerships that provide not only concessional financing flows, but also knowledge and, above all, access to markets-- for trade is really the least cost solution for the world at large. What is the point of enhancing capital flows if capacity to repay them continues to be constrained by restrictive trade practices? We therefore very much welcome the role of the Bank and the Fund in playing the lead role in both advocacy and coordination with other development part- ners in focusing on access to markets, as these lead to sustainable devel- opment. We feel that trade must be placed even higher on the agenda of the development dialogue. We urge industrial countries to reduce tariffs and nontariff barriers ahead of the development round, as a ges- ture of the partnership that binds us together. We welcome the several initiatives that are being taken by the inter- national community. We deeply appreciate the conclusion of IDA 13 not only for the resources made available, but also for the participatory nature of the process. We also welcome the provision for grants but emphasize that this should not hurt IDA's financial structure or impair its ability to extend concessional assistance. We also welcome the several bilateral commitments to enhance ODA. We urge that these pledges be operationalized with some urgency to augment financial flows to developing countries as a counter cyclical offset to the current 149 fall in private capital flows and the downturn in the global economy. The promise of harmonization of donor policies and procedures is yet another welcome step that will reduce the transaction costs of aid and enhance its effectiveness. We therefore look forward to the outcome of the Rome Conference in February 2003. In the development partner- ship between us, donors sometimes tend to micromanage. This we caution against, since micromanagement dilutes both capacity and ownership. The enhanced HIPC Initiative has played a critical role in the path to debt sustainability within a stable macroeconomic framework. We venture to point out, however, that the issue of debt sustainability is far larger than what is being covered under this initiative. We urge the development of an effective mechanism for managing the debt over- hang of non-HIPC countries which are undertaking credible reform programs and need fiscal space in order to invest more in human devel- opment. We note the work under way on developing a framework for sovereign debt restructuring and only caution that whatever measures are proposed should not impair developing country access to financial markets. Developing countries must continue to strengthen their programs for structural reform, good governance, and sustainable poverty reduc- tion. The fight against corruption must be intensified, since this cor- rodes the vitality of state and society and is the single most serious impediment to progress that most hurts the poor and weak. Developing countries must own their programs jealously and implement them vigorously. It is in this context that we support the implementation of anti-money laundering measures and combating the financing of terrorism. The PRSP/PRGF provides an excellent framework for comprehen- sive development. We note the progress that has been made. We must, however, sound a note of caution. These country programs must be underpinned by realistic targets, time frames, and policy packages. This is imperative if the credibility of the reform process is to be ensured. A few words on economic performance and structural reform in Pakistan. We have come a long way in the past three years. The journey has been difficult and painful, but we have not wavered. Macro- economic stability has been restored. A wide ranging, home grown, structural reform program continues to be implemented despite a diffi- cult environment and exogenous shocks. Our programs with the Fund and the Bank are on track. We now look to the continuity and consis- tency of the reform agenda for which the basis has been firmly and soundly laid. We are now poised to accelerate our war against poverty through a much stronger growth rate. Our basic premise is that the ben- efit of economic reform must reach the people if they are to be useful 150 and sustainable. We urge our development partners to continue to pro- vide Pakistan with the concessional assistance that it needs, and enhanced access to markets that must form the basis for vigorous eco- nomic growth and sustainable poverty reduction. Our vision of Pakistan is a Pakistan that is democratic, progressive, prosperous, and where its people lead lives in peace and justice, consis- tent with our Islamic heritage. PAPUA NEW GUINEA: BART PHILEMON Governor of the Bank I am pleased to be at my first joint annual meeting of the World Bank Group and the IMF. These meetings provide an important forum for engagement with these institutions and our bilateral partners and friends from around the world. Before continuing let me first join other Governors in thanking the government and the people of the United States of America for their hospitality. Let me also extend a warm welcome to East Timor as the newest member of the International Monetary Fund and the World Bank Group and assure them of Papua New Guinea's support as they build their nation. Our country is a comparatively small and open economy, which contin- ues to be affected by, and has had to respond to, events and developments in the global economic and political arena. While there are potential benefits to our country from the expected recovery in the world econ- omy and especially from our major trading partners, there are notice- able downside risks. Papua New Guinea also joins other member countries in commend- ing the initiatives taken to reduce poverty and hunger, and increase empowerment through education, health and gender equality. These are worthy goals, and all efforts to achieve them by 2015 are supported. Trade liberalization can serve as a vehicle for economic growth and poverty alleviation. In this respect, advancing the Doha agenda must be a key priority for all economies. We encourage the advanced economies to grant increased market access to developing economies. Our economy has experienced negative real growth for the last three years and we are striving to break free from this path, and move towards achieving long term sustainable real growth. In August this year a new government was elected to lead the country for the next five years. The introduction of the landmark Integrity of Political Parties and Candidates Act earlier in 2002 has meant that there will be far greater political stability in Papua New Guinea over the next five years. This gives the new government the opportunity to focus on the social and economic development of our country over the medium term. 151 One of the first moves of our new government was the introduction of a supplementary budget for 2002. This was necessary as the previous government had handed over a fiscal situation for 2002 that was no longer sustainable. The adjustment undertaken was significant, compris- ing a reduction in expenditure equivalent to 4.5 percent of GDP. This adjustment, though painful, was necessary in order to stabilize the fiscal and macroeconomic situation, and also set the base for the development of a sound and realistic fiscal framework to cover the next five years. Although the new government inherited a difficult fiscal position for 2002, substantial work was undertaken by the previous government with regards to the institutional strengthening and necessary structural reform required for macroeconomic stability and economic growth. The implementation of the reform program benefited from the support of the World Bank and the IMF, and other multilateral and bilateral part- ners. This included a Stand-By Arrangement of SDR 85.5 million from the IMF for balance of payments support and a US$90.0 million Gov- ernance Promotion Adjustment Loan with the World Bank. The new government is committed to continuing this process of reform, which is necessary for the promotion of good governance, strengthening economic management, improving public sector per- formance and removing barriers to investment and economic growth. Our focus is to tightly manage the 2002 supplementary budget to ensure a satisfactory result and to develop a responsible budget for 2003. Achieving success in these two areas will be critical to restoring confi- dence and resurrecting economic growth over the medium term. In line with this, one key new area of reform will be the development and final- ization of our Medium-Term Development and Fiscal Strategies for the period 2003­07. The Medium-Term Fiscal Strategy and its accompanying Fiscal Framework will represent an important break from the past prac- tice of single year budgeting. The development of the strategy will afford the government the opportunity to be proactive and to respond in a measured way to changes in projected revenue flows and expenditure requirements. The Medium-Term Fiscal Strategy will set the framework within, which our Medium-Term Development Strategy will be implemented. As the government's overarching development strategy, the Medium- Term Development Strategy will provide the guiding policy and strate- gic framework to ensure that all levels of government expenditure has the greatest impact on sustainable growth, rural development and poverty alleviation. The Medium-Term Development Strategy will be based on three core principles of effective public expenditure management--fiscal dis- 152 cipline, strategic prioritization of available resources, and efficiency of program implementation. The principle of fiscal discipline will be incorporated into the Medium-Term Development Strategy through the Medium-Term Fiscal Strategy. The Medium-Term Fiscal Strategy will impose the discipline of a genuinely hard budget constraint that will be adhered to by our gov- ernment at both the political and bureaucratic levels. A realistic hard budget constraint will be essential for ongoing macroeconomic stability. Further, it will insure against the disruptive through-the-year cuts to spending arising from unsustainably high expenditure levels set during budget formulation. The expenditure priorities that are likely to be highlighted in our new Medium-Term Development Strategy include basic education, primary and preventative health care, transport infra- structure maintenance, law and order, and generating income earning opportunities for Papua New Guineans, especially in the rural areas, where 85 percent of the population still resides. In the implementation of our medium-term strategies, the support of and engagement with our development partners will be crucial. It is envisaged that part of this support will be in the form of a comprehen- sive Public Expenditure Review, which will define expenditure priori- ties within our medium-term budget framework. The end of 2001 saw the successful completion of a Stand-By Arrangement with the International Monetary Fund and the Gover- nance Promotion Adjustment Loan with the World Bank. Unfortu- nately, and in part due to the global economic downturn, these interventions did not achieve their objectives of generating growth in the non-mining private sector of the economy. For 2003, and in our medium term macroeconomic framework, a financing gap currently does exist, despite the government's planned move to target much lower fiscal deficits. In view of the very difficult external and domestic circumstances confronting Papua New Guinea in recent years, it is important that we continue to work closely with our multilateral and bilateral partners to implement a reform agenda. This will provide a foundation for solid and sustained growth, which will be further enhanced once robust recovery of the world economy sets in. In conclusion, I extend my thanks to the IMF, the World Bank Group, and other multilateral and bilateral partners for their financial and tech- nical assistance provided to Papua New Guinea both currently and over past years. My government looks forward to continuing this good rela- tionship. You can be assured of the full support and cooperation of our government to your activities in Papua New Guinea in the future. 153 PHILIPPINES: JOSE ISIDRO N. CAMACHO Governor of the Bank We once more come together as member countries of the IBRD to look at how far we have all moved toward the goal of eradicating poverty within our midst. In March in Monterrey, the consensus recog- nized that development is a complicated process that requires much more than inflows of foreign aid. Growth and development will come with much hard work, along with foreign aid, and will thrive in an envi- ronment in which good governance reigns. The Bank's approach to poverty reduction is premised on the para- mount importance of ownership and a quality consultative process. This is noteworthy and cannot be overemphasized. Poverty reduction strate- gies, whether for low-income countries, which are more dependent on foreign aid, or for middle-income countries, which have more available financing options, need to be country-driven, not externally imposed; results-oriented with accountability measures; comprehensive and long- term in perspective; and, more important, attuned to unique political realities and cultural sensitivities in the borrowing countries. Yet there is still so much to be done. Not all our countries have the capacity to formulate their own national poverty strategies. In these countries, the Bank would need to focus strongly on building capacity. This action has to be assessed carefully and focus on what the country needs to develop healthy, sustainable institutions of governance, rather than simply impose an external model that worked elsewhere. We already have learned what has worked and what has not. The more dif- ficult challenge for each country and for the Bank is discerning the mix of policies that will work consistently and over time. We would like the Bank to review its policies on disbursement pro- cedures, procurement, and consultancy services and to be aware that at the ground level, these policies and procedures cause several constraints and delays that hamper project implementation. With respect to disbursement procedures, we would like the Bank to review its policy on requiring borrowing countries to advance cash disburse- ments before the Bank provides reimbursement upon the presentation of a Statement of Expenditure. Many poor countries cannot and do not have the financial resources to make cash advances. If we had the finan- cial resources, we would not have to borrow. Procurement procedures for goods and services should be revisited. Distinction should be made as to the amount and the type of project being funded. We would like to see a stronger Bank presence in moving forward the agenda for the harmonization of operational policies, procedures, and practices of donor agencies. In April 2001, Ministers of the Devel- opment Committee "encouraged development partners to rely increas- 154 ingly on borrower governments' own planning and budgetary processes, while maintaining appropriate standards, and to help strengthen these systems and processes where needed." We are glad to note that progress has been made on the harmoniza- tion agenda. We need to emphasize, however, that the Bank and the other development partners should not forget that borrower govern- ments have a stake in pursuing intensified harmonization of policies, operations, and procedures governing development assistance. We look at harmonization with the end objective of eliminating front-loading of financial requirements, reducing transaction costs, and minimizing human resource demands on borrowers. Standardization of develop- ment assistance lends itself well to rational planning, to more transpar- ent government systems and procedures, and to improved public finance management. The Argentine crisis and its resulting adverse effect on other Latin American countries highlight a concern regarding indebtedness of middle-income countries. These countries have more access to market financing options and are also more vulnerable to the fickleness of market perceptions. We would like to see more proactive support from the World Bank and the IMF on debt management in middle-income coun- tries to guard against the onset of a crisis on the scale of that in Argentina. The Philippines stands staunchly in support of present international actions to combat money laundering and the financing of terrorism. We welcome the role of the IMF and the World Bank in line with their respective mandates and core areas of expertise. However, they should not be involved in law enforcement issues. Furthermore, we would like to see more representation of developing countries in the Financial Action Task Force (FATF). Late last year, the Philippines passed a law on anti-money launder- ing. The Anti-money Laundering Council has been established and is now giving operational effect to the law. In addition, the Executive Branch has submitted to the Philippine Congress an Anti-Terrorism and Anti-Terrorist Financing Bill. We have also taken a series of strong measures to directly address issues on terrorism. We have signed the UN Convention on Suppression of the Financing of Terrorism and the UN Convention against Transnational Organized Crime. The latter has already been ratified by our Senate. We deeply appreciate the Bank's engagement in areas of develop- ment. The World Bank's mission is poverty alleviation, and the myriad ways and strategies by which it tries to achieve its mission leave a last- ing imprint on the developing world. The Bank is in an enviable posi- tion and has the comparative advantage in pushing the poverty reduction agenda. We encourage the Bank to continue with this daunt- ing task. 155 POLAND: LESZEK BALCEROWICZ Governor of the Bank I am glad to have the opportunity to participate again in the IMF and World Bank Annual Meetings. However, at the outset, I would like to join our American hosts in their sorrow at commemorating the first anniversary of the tragic events of September 11. As a rule, our discus- sions during the Annual Meetings concentrate on poverty alleviation. This is understandable, as poverty is a very serious problem in today's world. As is often recalled, the gap between the poorest and richest countries has widened over the past 50 years. In 1950, GDP per capita in the poorest country was equivalent to 3.7 percent of GDP per capita in the richest country; in 1998, it was equivalent to only 1.7 percent. By the end of the 1990's, multilateral development institutions had launched several worldwide programs to combat poverty. Guidelines for poverty reduction have been set out in the Millennium Develop- ment Goals to be accomplished by 2015. The Monterrey and Johannes- burg conferences have also worked on this issue. The Initiative for Heavily Indebted Poor Countries, Poverty Reduction Support Pro- gram, and CIS-7 Initiative are more specific examples. Poland supports these initiatives and is involved in many of them. All these programs address very important problems, and a crucial and proper feature of them is that they provide conditional help. To be considered for World Bank or IMF assistance, a country has to adopt macroeconomic and structural reforms that create conditions conducive to economic growth. It is a well-known fact that, while international assistance can be helpful in reducing poverty, it is not capable of neu- tralizing the consequences of a bad domestic policy. One cannot discuss poverty alleviation without touching on the foundations for economic development. As it is, long-term economic growth, especially of the labor-intensive type, has the greatest impact on living standards in poorer countries. Persistent differences in growth rates between countries have, over time, led to large disparities in income levels. And the social needs, from nutrition to culture, have been better satisfied in countries with a higher income level. That's why, as Robert Lucas has properly noticed, "once one starts to think about [sources of economic growth], it is hard to think about anything else." Economists have always expected the "convergence" of countries' income levels due to the convergence of productivity levels, as the tech- nology may--to some extent--be considered a public good. However, the number of countries that have failed to catch up by far exceeds the number that have succeeded. What lies behind economic failure and what explains success? There is a huge ongoing debate on these fundamental issues. In searching for 156 a concise answer to the first question, besides persistent wars, a failure to catch up--which is to say to reduce poverty--is to the greatest extent caused by the double failure of the state. The first failure of the state manifests itself in statism, which takes the form of excessive, chronically ill public finances, protectionism, monopolization, widespread state ownership, overregulation, and related corruption, just to mention the most important elements. All of these create a poor investment climate, while at the same time crippling entrepreneurial energy and market forces. Second, the state fails to sup- ply public goods, such as public order, the rule of law, the protection of property rights, and stable money. These two state failures usually go hand in hand, because the state that tries to be ubiquitous and omnipo- tent tends to fail in performing its proper tasks. As shown in many empirical studies, poor countries with an exces- sive, and at the same time inefficient, state have grown more slowly than rich ones, even when other factors, such as differences in human and physical capital, are taken into account. Let us now turn to the reasons behind success in sustained catching- up. Economists indicate many different combinations of sources of eco- nomic performance. But for all of these, one may find a common denominator in the shape of a rationally limited state, giving rise to an open market economy under the rule of law, with private ownership on the supply side of the economy, moderate and simple taxes, healthy public finances, and a strong financial system. To succeed, the country has to undertake macroeconomic and structural reforms in order to implement such a system. But the pace of real convergence also depends on external condi- tions. Protectionist barriers certainly hamper catching-up. Thus, remov- ing the barriers to imports from the poorer countries is an indispensable step to poverty reduction in these countries. This applies especially to barriers present in richer economies, but also concerns protectionism in relations among the less developed countries themselves. PORTUGAL: VÍTOR CONSTÂNCIO Governor of the Fund I begin by welcoming the Democratic Republic of East Timor as a new member of our institutions. Over the years Portugal has supported the emergence of the Democratic Republic of East Timor as an inde- pendent and democratic nation, and we will continue to support its future development. The world economy is going through a hesitant recovery that is threatened by several additional risks. Nevertheless, it should be pointed out that, in view of last year's shocks and the correction of 157 equity prices, the world economy has shown considerable flexibility and resilience. This has been particularly true so far of the financial sector. The overall performance benefited from the proper response of macro- economic policies. In Europe, both monetary and fiscal policies have been used to help stabilize the situation. Interest rates have been reduced since last year and are now at historically low levels in real terms. Fiscal policy has also played its role by allowing automatic stabi- lizers to operate. Monetary and fiscal policies are therefore not restric- tive and stand ready to help economic agents to overcome the effects of a post-bubble economic environment. In the European Union, several countries allowed the fiscal position to deteriorate beyond what was foreseen in the context of the Stability and Growth Pact. My own country breached the 3 percent limit to the budget deficit. More recently, the date foreseen for several countries to achieve a budgetary position close to balance was postponed to 2006. These developments, regretful as one may consider them, do not put into question the basic objectives of the Stability and Growth Pact. Countries that do not respect the 3 percent limit to the deficit have to quickly correct the situation. The Portuguese Government is committed to doing so and is applying difficult measures required to reduce the deficit, which only proves that the pact is working. The extension of the timetable to 2006, in order to avoid an excessively pro-cyclical stance of fiscal policy, was accompanied by the adoption of targeted annual deficit reductions that ensure the credible maintenance of the final objective of balanced budgets. It is, of course, unfortunate that countries did not take the opportunity during the years of higher growth to achieve a balanced fiscal position. In fact, it is only after this has been attained that the pact works as initially conceived by allowing the full operation of automatic stabilizers, thus providing adequate flexibility to respond to economic developments without endangering respect for the 3 percent limit to the nominal budget deficit. Nevertheless, it is important to stress that the framework adopted for macroeconomic policy in the European Mone- tary Union remains in place and stands ready to ensure price stability and an environment favorable to economic recovery. Short-term economic problems should not lead us to lose sight of the structural reforms required by the world economy: strengthening the international financial system, building a freer and fairer trade system, and achieving a more equitable distribution of the results of globalization. We welcome the progress made in improving several aspects of cri- sis prevention. Improved surveillance, transparency, and implementa- tion of codes and standards have shown some progress. Further work on sustainability analysis and early warning systems should be forth- coming. Financial stability reports should stress the need for financial 158 institutions in advanced countries to implement proper risk manage- ment systems and build a stronger capital base. Recent years of recur- ring crisis and surprising shocks indicate the need for more capital. Other developments helpful for crisis prevention have been the change to a more careful consideration of capital account liberalization and the recognition of the advantages of a more flexible exchange rate regime. Access to limited and conditional IMF financing should always reflect the results of an adequate sustainability analysis while recogniz- ing the quality of the policies adopted by the countries themselves in order to reward merit, as has been the case with the recent Board deci- sion on Brazil, an approach that we welcome. Crisis management requires new ways to deal with debt restructuring to make it a more orderly and timely process. Rules to facilitate negotiations between creditors and debtors are required. Provisions to regulate, in that context, the operation of standstills, incentives to new lending, and lending into arrears also have to be clarified and improved. In addition to the introduction of collective action clauses on a contractual basis, complementary work on a statutory mechanism has to continue. There is misplaced resistance in some quarters to these reforms, but it should be understood that they are important to avoid overshooting in fluctu- ations of capital flows with excesses in both directions. Better preven- tion and management of financial crises will work in the interest of all concerned. Continued progress toward an open and stable international system depends also on achieving a more equitable sharing of its benefits. Regarding trade this requires the implementation of the promises of the Doha Agenda. To promote a true round for development requires increased access to markets of products from developing and emerging countries instead of increased protection, as recently seen. It is also essential to strengthen our policies aimed at pro-poor growth and poverty reduction. The World Bank and the IMF deserve praise for the development of the Poverty Reduction Strategy and for the involvement of all stake- holders in its implementation. This is particularly true in the case of the HIPC Initiative. This ini- tiative has been instrumental to provide some breathing space to the poorest highly indebted countries. It was revised in order to increase its effectiveness in addressing the debt overhang of many countries. It has so far delivered visible results, although more slowly than anticipated. However, some important challenges remain before us in order to make the initiative a success story of international cooperation. First, we face the obligation to finance the additional costs of the initiative resulting from the modifications that have been agreed. Can- cellation of debt directly affects the capacity of many development 159 institutions to continue providing concessional resources to the world's poorest countries. Therefore, financing of multilateral costs remains critical. Debt relief is an integral part of the concerted effort to remain engaged in supporting those countries that are fully committed to take on the serious challenges of reducing poverty and improving the well- being of their people. In implementing the Monterrey Consensus we have to deliver on our part of the global deal. Second, several HIPC countries remain vulnerable to excess indebt- edness. Achieving and maintaining long-term external debt sustainabil- ity remains the critical objective of the HIPC Initiative and the true measure of its success. Several elements are crucial to ensure debt sus- tainability. Although external financing as well as improved access to markets for developing countries' exports are essential--and we are committed to them--the efforts of HIPC countries to address struc- tural vulnerabilities are even more important. Financial assistance and trade liberalization cannot be a substitute for sound policies and implementation of reforms, including improved governance and insti- tutions. It is the other side of the global deal in the spirit of the Mon- terrey Consensus. With the NEPAD, African leaders have committed themselves to achieve better governance on their continent and to improve institu- tions and policies essential to development. But in view of the present plight of sub-Saharan Africa, it is clear that official aid will have to be increased if the main Millennium Goals are to be achieved in Africa. Aid beyond debt relief is essential for new programs in education and for preventing the spread of infectious diseases. A final word about middle-income countries, where any crisis is bound to affect most the poor segments of the population. The Bank and the Fund should enhance their collaboration in programmes to strengthen financial, institutional, and corporate structures in these countries alongside policies directed to the poor. The Fund and the Bank deserve our support in their vital role to promote a more equitable and sustainable growth as a condition for a viable international open system. RUSSIAN FEDERATION: ALEKSEI KUDRIN Governor of the Fund Global Economy and Financial Markets Since the second quarter of this year we have seen a slowdown in economic activity in developed countries, which led to a downward revision in the projections of global economic growth. The list of major vulnerabilities in the world economy now includes a synchronized slow- 160 down in growth in the major advanced economies, continuing current account imbalances, financial market volatility, and the possibility of a further rise in oil prices. It is already clear that there was a bubble in the equity markets of developed countries in the late 1990s, when a large gap emerged between actual stock valuations and their economically justified levels. The build-up of the bubble was triggered by euphoria about the IT rev- olution that occurred in the 1990s, which led to inflated expectations of corporate profits. In addition, the manipulation of financial statements by major corporations that have recently come to light also led to an overstatement of companies' profitability, thus contributing to the for- mation of the bubble. We welcome the recent measures undertaken in the United States and a number of other countries to strengthen controls on corporate accounting. They have made it possible to stabilize the situation in equity markets somewhat, although there is still a possibility that stock prices will continue to decline even further. At the same time, the way in which financial regulatory authorities should react to the formation of bubbles, which lead to extremely negative consequences for both the financial and real sectors of the economy, is open to question. We are closely following the discussion in this area, and we trust that an appropriate strategy to prevent financial excesses will ultimately be devised. One of the risks facing the world economy is global current account imbalances, which have reached an unprecedented scale and could lead to significant disruptions in the event of a disorderly adjustment. One of the main factors contributing to the increase in these imbalances was faster growth in investment over savings in deficit countries. To a sig- nificant extent, this occurred as a result of overly optimistic expecta- tions about investment returns related to the IT revolution. Current account imbalances will be adjusted through a depreciation of the real exchange rates and, possibly, a fall in output growth in deficit countries. The question is whether this will be a relatively orderly process or one that is accompanied by severe disruptions in trade flows and financial markets. It is impossible to predict in advance how events will unfold. At the same time, as shown in the WEO, some measures can increase the likelihood that the imbalances will subside in a benign fashion. Medium-term fiscal consolidation, which allows for an increase in national savings, is such a measure for deficit countries. Surplus coun- tries should implement structural reforms to boost growth potential and support domestic demand. This would promote a smoother redistribu- tion of global demand between deficit and surplus countries without threatening the growth of the world economy as a whole. 161 Economic Developments in Russia The slowdown in global economic growth has not yet had a visible negative impact on the situation in Russia. While in the first quarter of this year there was some slowdown in economic growth, in the second and third quarters growth has strengthened, leading to an upward revi- sion in projected growth for 2002, albeit by a slight margin. We cur- rently expect that GDP growth in 2002 will be around 4 percent. The main factor in economic growth is consumer demand; at the same time, net exports are gradually shrinking. In 2003 we expect growth to con- tinue at the present rate of around 4 percent; this projected rate serves as the basis for the 2003 budget parameters. In order to sustain economic growth in 2003, we are planning to loosen fiscal policy somewhat, which will be reflected in a small reduc- tion of the federal budget surplus. For a number of years the pursuit of responsible fiscal policy has enabled us to service our external debt, almost without resorting to external borrowing, and to achieve a sub- stantial improvement in debt sustainability indicators. In 2003 external debt payments will reach a peak of approximately US$17 billion. We do not anticipate any major difficulties in servicing this debt, although we intend to borrow in both domestic and foreign markets. The conduct of monetary policy in Russia is still complicated by large foreign exchange inflows. On the one hand, in 2002 there has been some reduction in the current account surplus, primarily as a result of an increase in imports. On the other hand, this year there has been a signif- icant reduction in net capital outflows from Russia. Under these circum- stances, the Central Bank of Russia is continuing to accumulate foreign exchange reserves, which are close to US$45 billion, and to carry out ster- ilization of excess liquidity together with the government. We still expect that by the end of 2002 inflation will not exceed 14 percent, which was the assumption for the 2002 budget. Next year, despite the need for a further increase in regulated tariffs, we expect inflation to drop to 10­12 percent. Deep structural reforms are needed in order to achieve sustainable growth in the medium to long term. This year we managed to make sig- nificant progress in this direction. In particular, a new land code has been adopted, which will promote the development of a land market and agriculture as a whole. The Russian government has prepared and sent to Parliament legislative proposals that need to be adopted for the reform of monopolies in electricity and rail transport. The Central Bank of Russia is making considerable efforts to speed up the process of banking sector reform. In addition, the draft budget for 2003 provides for the allocation of significant funding for judicial and military reforms. 162 The Fund and the International Financial System in the Process of Reform In an environment of increasing trade and financial integration, surveillance of the global economy and developments in financial markets remains one of the main tasks of the IMF and the World Bank. Over the last several years a great deal of work has been done to strengthen surveillance. Initiatives such as the introduction of the Special Data Dissemination Standard, the preparation of Reports on Observance of Standards and Codes, and the conduct of Financial Sector Assessment Programs play an important role in strengthening surveillance. Ultimately, all this work is aimed at preventing financial crises, because timely identification of weaknesses and vulnerabilities and well-timed provision of technical assistance to correct them are of great significance. Unfortunately, it is hardly realistic to expect preventive measures to be 100 percent effective--crises will occur. It is interesting to trace the evolution of our understanding of the nature of crises. Initially we noticed that countries with fixed exchange rate regimes turned out to be particularly prone to crises. Today we see that crises may occur even with floating exchange rates, when a sharp devaluation of a national currency resulting from an abrupt capital outflow leads to a significant increase in the debt-to-GDP ratio. As a result, we now witness some countries encountering great difficulties with debt servicing even though just a short time ago their level of external debt was not a cause for particular concern. Given this situation, debt sustainability should be analyzed in more depth. Inevitably, in some instances, crisis resolution will require sovereign debt restructuring. The Fund is currently working on two complemen- tary approaches--a contractual approach and a statutory one. With regard to the contractual approach, the introduction of collective action clauses into the bulk of sovereign debt contracts will require prolonged effort. In this connection we welcome the intention of the EU countries to make use of collective action clauses a standard practice as part of their sovereign bond issues. At the same time, the contractual approach does not fully address the problem of creditors' collective actions insofar as it remains possi- ble for a minority of creditors to block the decision of the majority. In order to eliminate this possibility it is necessary to adopt an interna- tional treaty that makes the decision of the majority binding on all cred- itors in all jurisdictions. Perhaps this could be done on the basis of a corresponding amendment to the IMF Articles of Agreement. 163 Implementation of the Monterrey Consensus Today, as has been emphasized by the conclusions of numerous post- Monterrey meetings, the major priority is the implementation of the Monterrey Consensus. We believe that it could be useful to agree on a working schedule with a clear assignment of tasks and responsibilities. These plans should include the BrettonWoods institutions (BWI). Of course, their role in implementing the Consensus should reflect their real institutional capacity and comparative advantages. Of crucial importance for the success of the whole process are BWI activities aimed at improving poor countries' access to developed coun- tries' markets, strengthening international financial architecture, and preventing and resolving financial crises. It is important to emphasize that the only way to create conditions for sustainable development and solving social problems is to pursue sound economic and social policies, maintain an adequate institutional capacity at every level of government, ensure proper public expendi- tures prioritization and control, and involve civil society in setting up development program priorities and monitoring their results. Furthermore, a key condition for enhancing and scaling-up the effect of individual projects is to fully involve existing administrative structures of recipient countries in their implementation. Although establishing parallel structures to implement individual international aid projects may in some instances help accomplish immediate tasks, in the medium and long term this approach does not contribute to improvement of existing institutional capacities and involves additional costs. We fully agree that the limited resources allocated for development assistance are not always being spent in the most productive way. Improv- ing the cost-effectiveness of this assistance and getting the maximum pos- sible results from each available dollar is of critical importance. Specifically, a considerable portion of the resources allocated for techni- cal assistance is spent on foreign consultants, whose selection is often out- side the control of the recipient country. As a result, the country is unable to monitor the quality of the services it receives. Aid effectiveness could be substantially increased by using local expertise and controlling the cost and quality of services financed with assistance funds. In order to improve the effectiveness of resources, they should, whenever possible, be allocated directly to the level where they will be used. The actual outcome of aid redistribution, however, depends on the administrative structure and the relationship between the central and local governments in each country. As the consensus correctly points out, any internationally funded program can succeed only when it is consistent with the existing system of governance and takes into account the budgetary linkages among the various levels of public 164 administration. Moreover, one of the most important political priorities in many countries is to increase responsibility for, and oversight of, the expenditure of financial resources at every level. Aid programs should not conflict with these priorities, particularly where loans with sover- eign guarantees are involved. The proposals for more flexible financing arrangements for devel- opment programs deserve special attention, particularly the proposal to move away from the rigid linkage of such financing with capital invest- ments. It is worth giving this complex issue careful study and finding an acceptable, balanced solution. We should also seek to enhance pre- dictability in allocation of donors' resources, for example, by creating insurance mechanisms to cover unexpected costs and bridge temporary interruptions in aid flows. The enhanced focus on results presupposes a fundamental improve- ment in the system for measuring, monitoring, and managing the effec- tiveness of development programs. However, these tasks present substantial methodological and practical challenges. Solutions to these problems are presently a long way off. It is also unclear whether they can be solved at all. It should be emphasized that they are all highly sen- sitive politically, for donors and recipient countries alike, which may make progress in this direction more difficult. The ability to collect and disseminate knowledge and information about development, together with a national statistical capacity, are crit- ical for monitoring development outcomes. Progress in these areas will have a positive impact on the quality of governance. This is especially important when it comes to evaluating the effectiveness of government expenditures. In this connection, we fully endorse the relevant interna- tional initiatives aimed at developing national statistical systems. We support initiatives to improve national statistical systems, which should be regarded as an integral and vital part of building national institutional capacity. These efforts can be supported by loans and tech- nical assistance from international financial institutions (IFIs), as well as bilateral donors' grants. It should be borne in mind, however, that setting up a modern statistical service requires substantial resources and a considerable amount of time. In any case, high statistical standards cannot be imposed from outside. A focus on results is entirely feasible at this stage in the World Bank's activities. The final outcomes of operations can appropriately be added to existing quantitative and qualitative indicators. The only prob- lem here is the danger that an inadequate risk management system may emerge. For example, if quantitative results, which may not be com- pletely reliable, are overemphasized, the incentives of IFIs may be sig- nificantly distorted, encouraging the IFIs to engage in opportunistic behavior in order to minimize risks. 165 It is also important to bear in mind the high cost of shifting to a measurable results-based approach, both in financial terms and in terms of the actual institutional capacity of the participants in the develop- ment process. Investments in measurement and monitoring systems will make sense only when they are recouped through increased invest- ments and improved quality of assistance in the future. In any case, the alleged lack of reliable systems for measuring results must not be an argument for curtailing aid programs and the fight against poverty. Implementation of the HIPC Initiative We have closely followed the efforts of the international community to provide effective assistance to low-income countries. We welcome the substantial progress achieved within the framework of the HIPC Initiative, including on the issue of its financing. Our own contribution to the implementation of the initiative consists, in part, of debt relief granted to those HIPC countries that are our debtors. We continue to believe, however, that debt relief alone will not yield the desired results without the implementation of sound economic policies and the strengthening of governance in the poorest countries themselves. In this connection, we are concerned that many of the HIPC countries are per- forming poorly under their PRGF programs, especially in the period between the decision and completion points. We believe that creditor countries should adopt a stricter and more coordinated position in rela- tion to those HIPC countries that pursue irresponsible economic poli- cies and do not implement their PRGF programs. For various reasons, many HIPC countries may approach the com- pletion point of the HIPC Initiative with deteriorating debt indicators. The enhanced framework of the initiative includes the possibility of additional debt relief at the completion point. We would like to empha- size that this provision should be invoked only in those instances where the deterioration of the country's economic situation, including its debt indicators, is exclusively the result of exogenous shocks, as the rules of the HIPC Initiative stipulate. Moreover, we think it is essential to resist the temptation to boost the HIPC Initiative by easing the eligibility thresh- old while expanding the overall number of beneficiaries. It is along the same lines that we approach the proposed two-year extension of the sunset clause under the HIPC Initiative in order to accommodate potential new entrants. This is the third such proposal, bringing the total extension to six years. In our view, this runs counter to the originally stated intention not to turn the initiative into a perma- nent debt relief mechanism. The HIPC Initiative's rigorous time limits were, among other things, intended to encourage potential participants 166 to speedily adopt appropriate structural reforms. Consequently, even though we are prepared to agree to the proposed new two-year exten- sion, we would urge the management of both the Bretton-Woods insti- tutions and donor countries to use this period to devise a future strategy and alternative approaches for those countries that will have failed to meet eligibility criteria at the expiration of the proposed extension. SAMOA: MISA TELEFONI RETZLAFF Governor of the Fund (on behalf of Kiribati; Marshall Islands, Micronesia, Palau, Samoa, Solomon Islands, and Vanuatu) It is with great pleasure that I address these 2002 Annual Meetings of the International Monetary Fund and the World Bank Group, on behalf of the Pacific Constituency comprised of Kiribati, the Republic of the Marshall Islands, the Federated States of Micronesia, the Repub- lic of Palau, Samoa, the Solomon Islands, and Vanuatu. We join previ- ous speakers in extending a warm welcome to the state of East Timor as the 184th member of the Fund and the World Bank Group. The last two years have seen a contraction in the economies of the members of our Pacific Constituency, with total GDP falling by 12 per- cent in 2000 and 1.8 percent in 2001. The uncertainty now facing the world economy from the sharp fall in equity prices, weaker-than- expected economic growth in a number of the developed countries, and the severe slowdown in Latin America raises great concern to the members of our constituency. However, with the likely pick-up in global activities, the forecast for the period ahead is for a positive but slow growth of 1.8 percent for the region, except for the Solomon Islands. In our view, the impact on our terms of trade from the delay in the recovery of commodity prices, due to lower-than-expected growth in external demand, and the likely further rise in oil prices that may result from a potential increase in military activities in the Middle East, will be costly. There is also the added uncertainty surrounding the impact of extreme climate changes related to the onset of the El Nino weather pattern. Further deterioration in the security of our sea and air trans- port links will affect our tourism industry, which is a major foreign exchange earner for our small island countries. These exogenous factors again highlight our vulnerability as small open economies to adverse shifts in the global economy and climatic conditions. I would like to assure you, however, that over the last five years, most of our member countries have been undertaking substantial reforms to strengthen their economies in order to minimize the impact of external shocks, while also preparing for greater adaptation to glob- alization. Admittedly, the pace of reforms has been slow for some of our 167 member countries, reflecting the varying strengths and capacities of our local institutions and the need to ensure strong ownership and support by our people. The thematic focus on trade by the Bank and the Fund is a crucial one to all of us. We fully agree that there are potential gains to be made from trade, particularly in agriculture. We would propose, however, that special assistance be considered for those countries with trade prefer- ences to minimize the impact to their economies of the change in trade regimes. We are also aware that the liberalization of agricultural trade is most likely to raise the relative prices of goods, with a resulting costly impact on net food-importing countries, including many of the Pacific Island countries. We commend, therefore, the advocacy role played by the Bank and the Fund in trade and globalization matters and in main- taining a focus on trade as a crucial element in development. The interaction of trade liberalization and tax reforms is an impor- tant issue in our wider reform process, as we move to minimize the impact of trade diversion on our tariff revenue. For some of us, broad- based tax systems aimed at countering the loss of revenues from tariff reductions have been in place for a number of years, while others con- tinue to assess the best options to suit their own domestic situations. Public sector reform programs, at mixed stages of implementation, are continuing throughout most countries of our constituency. This reflects wide recognition of the need to introduce best practices, espe- cially strong policies to support good governance. In this regard, ongo- ing assistance will be invaluable from the Fund and the Bank as well as our other development partners to support the reform process among members of our constituency. In particular, we are grateful for the tech- nical assistance from the Fund, through the Monetary and Exchange Affairs Department as well as the Pacific Financial Technical Assis- tance Centre (PFTAC) in Fiji, to support reforms of our financial sys- tems, tax policies, and the strengthening of government financial statistics and the economic database for improved surveillance. We would therefore welcome ongoing financial support for PFTAC to enable it to provide the necessary technical support for our reforms. We note the collaborative work of the Bank and the Fund with member countries of our constituency on assessing the standards for combating money laundering and preventing the financing of terror- ism. Given the limited capacity in some of our countries, we would wel- come technical assistance where needed. At the same time, the number of questionnaires and reviews being promoted place a great deal of demand and stress on our small establishments. In this regard, we wish to encourage improved cooperation between international agencies and member countries to optimize the use of the limited available resources. 168 At this point, let me make special mention of the work done by the World Bank, in collaboration with other international organizations, on the special needs and challenges facing small states. We welcome the many initiatives that have been launched with a view to reducing poverty and achieving sustainable development in small states, such as the Doha process, the Monterrey Consensus, and the recent Johannesburg Plan of Implementation. There is real concern, however, that the implementa- tion of initiatives called for under these international agreements may be diluted or delayed by the lack of adequate capacity and budgetary resources. We must therefore ensure that there are adequate resources available in addition to adopting clear processes and harmonized approaches for successful implementation of these agreements. We commend the Bank for its commitment to assist HIV/AIDS pro- grams. The increase in HIV/AIDS in some of the countries in the Pacific and the growing HIV/AIDS epidemic in Asia calls for concerted efforts to address this serious situation. We welcome, therefore, ongoing support for the Global Fund for Fighting Aids, Tuberculosis and Malaria. The focus on poverty reduction by multilateral development banks and bilateral partners will require appropriate policies and strategies to be put in place and strengthened where necessary. However, there is a need to ensure that the conceptual frameworks for the respective coun- tries are harmonized in order to avoid duplication and high implemen- tation costs. The limited capacity in some of our constituency members will need to be taken into account and urgently addressed to ensure the successful development and implementation of PRSPs. In addition, development of monitoring mechanisms and performance indicators must be simplified to reflect capacity levels. Our countries strongly support the Global Environment Facility (GEF), which has funded capacity building with respect to responsible management of the environment. We welcome most warmly the actions taken recently for the replenishment of the GEF and would urge the early introduction of small grant schemes to promote grassroots initia- tives in our countries. I would like to acknowledge the tireless efforts of the South Pacific Project Facility (SPPF) of the IFC to improve investment in the Pacific and provide assistance to small businesses and the private sector. We note, with much concern, the low level of commitment of IDA lending to East Asia and the Pacific. We would urge management to consider the limited resources and options available to our small island countries. And, if we are to achieve the Millennium Development Goal of halving poverty by 2015, lending levels must be increased, especially in key sectors such as education, health, and infrastructure. We are concerned with the difficulties faced by one of our member countries, the Solomon Islands, in its recovery from the traumatic 169 events that have devastated its economy, and we would strongly urge the Fund and the Bank to assist with the rehabilitation of that country's economy and development efforts. Finally, let me express our appreciation to the management and staff of the Bank and the Fund for their ongoing commitment and support of our development objectives. We continue to benefit from the financial and technical assistance that have augmented our limited resources and enhanced our efforts to improve growth and to achieve better outcomes for sustainable development of our small island nations. SINGAPORE: HNG KIANG LIM Governor of the Bank On behalf of the government of Singapore, I would like to convey our appreciation to the Boards of Governors for endorsing Singapore as the venue for the 2006 Annual Meetings of the IMF and the World Bank. The 2006 Annual Meetings in Singapore would be an opportune time for the international financial community to gather again in Asia. Since the Asian financial crisis of 1997­1998, the crisis-hit countries in the region have undergone major restructuring to strengthen their economies. Asia would thus be an appropriate setting, when the IMF and the World Bank meet in 2006, to reflect on the lessons learned and anticipate the opportunities ahead. Through their work on global economic and financial sector surveil- lance, the IMF and the World Bank play key roles in international efforts to promote sustained economic growth, develop sound financial systems, and alleviate poverty. Singapore is honored to host the 2006 Annual Meetings. That we have accepted this undertaking underscores our deep commitment to the IMF and the World Bank. Once again, thank you for your confidence in Singapore. We look forward to wel- coming you to Singapore in 2006. SPAIN: RODRIGO DE RATO Y FIGAREDO Governor of the Bank and the Fund World Economic Outlook Expectations for the world economic outlook have declined. It is now anticipated that recovery will be slower than initially forecast because of macroeconomic and geopolitical uncertainties that could affect growth in the principal world economic zones, if they materialize. 170 Euro Zone As a result, growth forecasts for the Euro zone have recently been revised downward, while the timid recovery and a strong euro are eas- ing inflationary pressures. Europe is not faced with a stability problem; its main problem is one of growth. In this context, it is essential to increase the growth potential of the Euro zone by implementing the necessary structural reforms, in particular in the labor market. In addition, it seems appropriate for monetary policy to remain neu- tral and consistent with the other components of the policy mix. In the area of fiscal policy, we share the firm commitment of member countries to observe the Stability and Growth Pact, out of the necessity to maintain fiscal discipline with a view to ensuring sustainable medium-term growth. Spain The Spanish economy remains more than one percentage point ahead of the Euro zone in growth forecasts for 2002, while the country maintains a balanced budget and is introducing further structural reforms in the labor market and in the field of education. The fiscal con- solidation achieved these past few years provides sufficient leeway for the budget to act as an automatic stabilizer without any departure from the goal of fiscal equilibrium. International Financial Stability The emerging and developing economies are those most affected by financial instability. Fortunately, many emerging countries have been able to preserve growth and a sound economy in the current international con- text. Two regions stand out in this regard, namely, Central and Eastern Europe and Asia, and some countries as well, such as Chile and Mexico. Over the past few years, increasing importance has been attributed to crisis prevention, and to this end the IMF is strengthening its super- vision function. We feel that this area should be strengthened even fur- ther, by enhancing its technical content and increasing transparency. Spain supports the work done by the IMF and the G-10 to seek approaches that would facilitate a response to the processes of sover- eign debt restructuring. Latin America Economic and financial conditions in Latin America have largely worsened over the past few months. Overreaction and contagion have 171 been found to be factors in some cases. Under these circumstances, the region needs more than ever to adopt responsible macroeconomic poli- cies, to implement plans for good governance and social opportunities, and to maintain an adequate legal framework that can help restore investor confidence and once again clear the path to sustained growth. Spain supports and encourages the IMF's speedy action in various recent episodes of volatility. These past few years, Brazil has main- tained sound economic fundamentals. Brazil has developed a good mix of macroeconomic policies backed by all the social sectors. This course will ensure the sustainability of its external public debt. In the case of Uruguay, multilateral assistance will help ease, in particular, the nega- tive impact of contagion. As regards Argentina, I am optimistic about the increasing stability of the past few months, which will be greatly enhanced when the agree- ment is concluded with the IMF. In the meantime, the social cost of the crisis is increasing, and unemployment and poverty have escalated. It is for this reason that Spain last June approved a line of credit for the Argentine Republic valued at = 100 million, on concessional terms, for C the purpose of meeting basic social needs. IMF Programs The aim of the Fund's recent programs has been to engage the pri- vate sector more in crisis resolution. However, applications of this criterion have been unequal, so that private sector participation has been greater in some crises than in others. This should not continue to be the case. Recent experience confirms that it is useful to examine the determi- nation of traditional access limits in the current context of capital account crisis. There is a need for strict definition of the criteria for exceptional access to the Fund's resources, but flexibility should be maintained in cases that so warrant, including countries that may be the source of contagion as well as those that may be victims. After the latest financial assistance packages, there is a need for careful assessment of whether the IMF requires more resources to con- tinue carrying out its functions efficiently. Also, the upcoming quota review is a good time to ensure that the representation of each country matches its current relative position in the world economy. The World Bank and Poverty Reduction Spain's position in response to the challenge of poverty reduction is one of firm support for the current approach based on domestic com- mitment to good governance and social balance in developing coun- 172 tries, the development of private initiative, commercial openness, and institutional reform. We appreciate the measures being adopted by the World Bank in implementation of the Monterrey Consensus, forging a new approach to development assistance, which would not only include direct financ- ing but would also play a catalytic role in raising private financial resources to develop investment and trade and to guide development strategies. Improving development possibilities for the poorest countries requires continued advances in world trade. This implies meeting the commitments agreed to in Doha. The developed countries should con- tinue to improve access to their markets for products from the develop- ing countries and should make progress in the resolution of trade-related social issues. On this new path toward meeting the Development Objectives of the Millennium, Spain, in its capacity as President of the EU, spear- headed an initiative to increase the funds earmarked for official devel- opment assistance (ODA). I should emphasize that in 2001 Spain was the country that most increased its ODA in relative terms, from 0.22 percent of GDP in 2000 to 0.30 percent in 2001. Spain maintains the proposal to increase its participation in the mul- tilateral financial institutions. To this end, in 2002 it ratified its mem- bership in the Andean Development Corporation and as a result of the negotiations for the Thirteenth Replenishment of the International Development Association, it has increased its contribution from 1.39 percent to 1.8 percent of the capital, the largest relative increment. Spain has also contributed SDR 300 million to the Interim Poverty Reduction and Growth Facility Trust. Similarly, Spain is participating in the Global Fund to Fight AIDS, Tuberculosis and Malaria. With respect to the HIPC Initiative for debt forgiveness, Spain has been assuming an increasing portion of the total cost of the Initiative, exceeding its share in the IFIs, and will maintain its relative contribution to the HIPC Trust Fund. Measures against Money Laundering and to Combat the Financing of Terrorism After the events of September 11, 2001, the International Monetary Fund and the World Bank outlined a wide-ranging agenda to establish a coherent system for action against money laundering and the financ- ing of terrorism. It is with pleasure that we can now say that their agenda is proceeding satisfactorily. Spain fully backs the 40+8 Recommendations of the Financial Action Task Force as an international standard. We now need to finish 173 outlining a single methodology for assessing compliance with that stan- dard. Spain firmly supports this process and feels that action against ter- rorism in the financial arena is of capital importance, and its success requires broad international cooperation. SRI LANKA: KAIRSHASP NARIMAN CHOKSY Governor of the Bank and the Fund I am pleased that we have been able to gather today for this impor- tant annual event of the IMF and World Bank at this critical stage when the world economy is experiencing major challenges and in the wake of heightened uncertainty regarding global economic prospects, while solutions are being tested and further options explored to address the problems of the world economy. World Economic Outlook We are concerned that the near-term outlook for the world economy is not promising and risks are still on the downside. The advanced coun- tries, which lead the growth in the rest of the world by absorbing exports and provide financing, including official development assis- tance, are unlikely to reach the rates of growth that were experienced in the 1990s. What is called for in this environment of increased interdependence among countries is credible policy responses from all parties concerned, namely, the Fund, the Bank, other multilateral and regional financial institutions, governments and the private sector to manage globalisa- tion for the benefit of all. There is also the need to provide adequate social safety nets to protect the poor and other vulnerable groups. Many developing countries including Sri Lanka have undertaken painful adjustment measures either in the context of Fund/Bank sup- ported program or on their own. Country experiences show that there is no alternative to sound fiscal policies and improved governance to effectively face these challenges. For many low-income countries, notwithstanding their own efforts, there are other problems such as capacity limitations; severe resource constraints, including human resources; and market access limitations. I share the view that the role of the IMF needs to be re-assessed in the context of the increased complexities of the global economy. While the size of the IMF needs to be enlarged in terms of its financial base, both the Bank and the Fund need to redouble their efforts to help in the promotion of growth and poverty alleviation in support of the Mil- 174 lennium Development Goals (MDG), strengthening their partnership with the rest of the donor community. Sri Lanka Finally, I wish to say a few words regarding my own country, Sri Lanka. Economic prospects have improved considerably both with the peace process moving forward and the strengthening of economic reforms under the United National Front Government. Our govern- ment's revived economic stabilisation program started in early 2002, and the final review of the Stand-By Arrangement was successfully completed earlier this month. The GDP is estimated at 3 percent in 2002, up from the negative growth of 1.4 per cent last year. Inflation has been reduced from approximately 12 percent at end--2001 to 10 per- cent in mid-2002. Interest rates have declined, and the exchange rate remains stable. The budget deficit of 10.8 percent in 2001 is being curtailed to about 9 percent this year. We are planning to enter into a PRGF arrangement by the end of this year. Economic reforms to free business and industry from excessive bureaucratic control, rationalize taxes and customs tariffs, introduce the value-added tax, and establish a revenue authority with IMF expertise are being further advanced to facilitate private sector-led growth. Privati- zation of state-controlled business enterprises and the liberalization of the petroleum and power sectors have already commenced. Market bor- rowing by the government is being limited, and the prevailing cease-fire has enabled reduction of defence expenditure. State-financed education is being restructured by shifting concentration from academic education to job-oriented technical training. We expect to raise the growth poten- tial of the economy with greater private sector participation and an increased flow of concessional funding and FDI. Recognizing the need for financial discipline, we are leaning toward zero-based budgeting, and a Fiscal Management Responsibility Law to mandate fiscal discipline in all sectors of the government is now ready for presentation to Parliament. The government has taken certain nec- essary bold, though politically unpopular, decisions to reduce public dependence on subsidies and to educate the public upon the medium- and long-term benefits of doing so. Our government's own views on reforms tallies with the observations made by the Executive Board of the IMF and Mr. Shigemitsu Sugisaki, Deputy Managing Director, at the conclusion of the Article IV consulta- tion earlier this month. We intend moving toward deeper structural reforms and prudent management of the country's monetary policy. 175 Sri Lanka recognises with appreciation the assistance and guidance given to it by the Fund, the Bank, the ADB and our many bilateral donors. SWITZERLAND: KASPAR VILLIGER Alternate Governor of the Fund The current outlook for the world economy resembles the situation we had one year ago. The deterioration of the global outlook has exac- erbated pressures on many economies, in particular emerging market economies and LDCs. New crisis situations have emerged, and others continue to remain unsolved. These crises entail enormous costs for the respective populations. They also require significant amounts of official financial assistance. This demonstrates that we should not slow our efforts to strengthen the international financial architecture. We must also aim to substantially improve our contribution to poverty reduction through increased coherence of policies and enhanced aid effectiveness. Doha, Monterrey, and Johannesburg have all contributed to forge a global consensus on partnership for development that holds great promise. It is now imperative to translate these broad commitments into concrete actions and measurable results. For all countries, one of the most powerful means of protection against crises and structural problems continues to be the implementation of sound and sustainable economic and social policies. Improving Crisis Resolution Over the past months, the Fund was again called to assist member countries with large financial packages. This has once again put the spotlight on the Fund's role in crisis resolution. The absence of a mech- anism to deal with sovereign debt crises has been an important void in the financial architecture. It is reassuring that this is increasingly recog- nized. I therefore warmly welcome the recent progress on creating a better framework for crisis resolution. First, let me praise the work of the G-10 and of representatives of the private sector on collective action clauses (CACs). There is now wide- spread recognition that CACs can be introduced--to the benefit of both debtors and creditors--in the bond documentation of all major jurisdic- tions. The public sector's role in the introduction of CACs is limited. It can play little more than a supportive role in changing market practices. In the end, the success of collective action clauses hinges on the private sector's willingness to participate. While I welcome the progress achieved on the contractual approach, I strongly encourage the IMF to pursue its work on the statutory approach and hope that by the time of the next IMFC meet- ing we will be in a position to endorse very concrete proposals. For me, the 176 Sovereign Debt Restructuring Mechanism (SDRM) is not just a strategic play to advance CACs. We need a mechanism like the SDRM. But an SDRM will work only if there are clear rules for access to IMF resources. The recent discussion on access limits showed that it is currently unrea- sonable to expect a lid on lending. This, however, makes it all the more important that cases of exceptional access remain truly exceptional. Strengthening Surveillance I would like to commend the Fund for having worked hard, over the past several years, to strengthen surveillance and crisis prevention. The candor of reports has continuously increased. However, in crucial areas, such as exchange rate issues, debt sustainability analyses, and gover- nance problems, further improvements are necessary. The effectiveness of Fund surveillance, however, also hinges critically on the willingness of members to follow Fund advice and to participate in the voluntary exercises aimed at fulfilling standards and codes. Implementing the Monterrey Consensus I am aware of the many challenges that developing and transition countries face. I hope that they will be able to live up to their commit- ments and pursue economic and social policies that will accelerate development. To reduce poverty and increase crisis resilience, countries that have elaborated a poverty reduction strategy will need to follow up with action. Developed countries need to rise to the challenge too. First, we must address problems of policy incoherence and, in particular, move toward more consistency between development and trade policies. Sec- ond, we should put more effort into improving the quality and effective- ness of our assistance. I appreciate the Bank's many efforts to advance the Monterrey agenda, as well as its strong a commitment to the Millennium Development Goals. Progress toward these goals, as well as the effective- ness of the Bank's and the Fund's lending programs, will ultimately depend on the genuine implementation of coherent poverty reduction strategies and macroeconomic reforms. In the future, I believe that the Bank and the Fund should become engines for improving the quality of aid and its impact--serving as a platform for exchanging "best practices" from field experience and for exploring new ideas, including coordination. HIPC I am satisfied that 26 countries have already benefited from the HIPC Initiative. In these countries, debt relief makes a real difference: debt service as a share of government revenues has been halved, and 177 the total debt stock will ultimately be reduced by about two-thirds. Hence, considerably more resources are available for development expenditures and poverty reduction. Yet, I am concerned about the long-term debt sustainability of the HIPC Initiative. More than half of the HIPC countries have higher than expected debt levels. This is not due to some failure in the imple- mentation of the initiative--it is too early to judge that--but mainly to overoptimistic initial economic projections and the evolving external environment. Beyond the HIPC Initiative, I continue to believe that debt relief is not the optimal instrument to support economic develop- ment and ensure debt sustainability. Repeated debt relief will promote moral hazard. Now and after HIPC, the emphasis must be on poverty- reducing and growth-enhancing policy reforms. THAILAND: SUCHART JAOVISIDHA Governor of the Bank It is indeed an honor and a great pleasure for me to address the 2002 Annual Meetings of the International Monetary Fund and the World Bank Group. On behalf of the Thai delegation, I would like to express our sincere appreciation to our host, the Government of the United States for the warm welcome and hospitality during these meet- ings. I would like to take this opportunity to congratulate Mr. Horst Köhler and James Wolfensohn on their achievements over the past years and applaud them for the many bold initiatives and positive changes. I am certain that they will be a great benefit to member coun- tries, especially those in the developing world. Since we met in Prague two years ago, the landscape of the global economy has changed significantly. The impact of the slowdown of the Information Technology industry and the September 11 tragedy stifled the progress of the world economy. Moreover, recent volatility in global markets has affected investors' confidence. In case of Thailand, the present government, having come into office since February last year, has introduced a new development paradigm, namely, the "Dual Track" approach, which aims to achieve a more bal- anced and dynamic economic structure by systematically strengthening domestic economy while strategically enhancing our international trade performance. With full support of political will and commitment, the goal is to attain sustainable quality-oriented growth that will propel Thailand's future progress and prosperity. In spite of the global uncertainties during the past two years, the Thai economy has been able to achieve macroeconomic stability and steady recovery. While the economy expanded by 1.8 percent in 2001, it has since grown at an accelerated rate of 4.5 percent in the first half 178 of this year. The projection for 2002 growth is presently estimated at 4.0­4.5 percent. Strong performance of the domestic economy, coupled with gradu- ally improving exports, has been the key driver of Thailand's economic progress during the past two years. Latest indicators point to continued strength in domestic economy and expansion of export performance. With inflation in check, growing international reserves, a stable baht, and a vigilant maintenance of fiscal sustainability, Thai economy should continue on track for growth. Looking forward, Thailand has two top priority objectives. The first is to maintain the momentum and stability of economic growth. The second is to undertake essential reforms and restructuring programs to lay a solid foundation and fundamentals for sustainable, quality- oriented growth. These top priority goals are critical to Thailand's progress as we rec- ognize that it is impossible for our nation to stride forward without a vibrant and dynamic economy that can effectively cope with the fast changing and increasingly competitive global marketplace. To achieve these goals, Thailand needs to undertake systematic reforms beginning at the grassroots level. In this regard, the government has been pro-active in working with the private sector to initiate necessary social and economic reform programs, key examples of which are highlighted below. To directly promote systematic development and address problems of the grassroots economy such as poverty and lack of opportunities, a series of specifically formulated programs have been successfully launched. These include the revolving village development fund, the "one-village, one product" scheme, and the People Banks to stimulate income and create employment opportunities in the rural areas, thereby promoting greater self-reliance and sustainable grassroots progress. Furthermore, we are focusing on fostering a dynamic and productive base of Small and Medium Enterprises (SMEs) as a key driver of future growth. Leveraging unique local skills and knowledge such as crafts- manship, the grassroots-based SMEs possess great potentials for devel- opment in terms of manpower, products, and resources. The government's basic aim is to provide necessary support and infrastruc- ture for the systematic development of SME networks throughout the country. Such support includes education and professional training, marketing and distribution network, and financial access. In addition, Thailand is also working with countries with experience and expertise in the development of SMEs. Ultimately, it is envisioned that a strong SME base will play a major role in Thailand's highly productive, open economy, one that is more structurally balanced and better suited to sustain growth in today's fast changing global environment. 179 Concurrently, industrial reform is being carried out. Through the strategy of specialization, we aim to create sustainable expertise and competitive edges in high potential industries. In addition, the clustering approach is employed to upgrade the productivity of related and sup- porting industries, many of which are SMEs. In sum, we are attempting to create flexible, value-adding, expertise-focused networks capable of generating vibrant local and cross-border economic activities, thereby serving as the cornerstone of Thailand's future industrial strengths. However, reforms in the real sector cannot succeed without a fully functioning financial sector. Heavily affected by the 1997 Asian crisis, Thailand's financial landscape has significantly changed with positive improvements yielding good results. With the state-founded Thai Asset Management Corporation (TAMC) in full operation, non-performing loans have been successfully dealt with. Of a total of US$17 billion in NPLs transferred from banks, the TAMC has resolved 40 percent. Most important, accelerated progress in NPL resolution is contributing to successful deleveraging of the corporate sector, which is highly crucial to the genuine revival and reform of Corporate Thailand. Another important component of financial reform, bank consolida- tion is also progressing well. Of the three remaining state-intervened banks, two have been merged last year and one is being privatized this year. The largest state-owned bank has also launched its privatization. In general, Thai banks have become much healthier and have returned to profitability. Looking ahead, financial sector reform will receive impor- tant boost from the new and unified Financial Institution Act that places great emphasis on transparency, accountability, and good governance. Public sector reform is also gaining momentum. While two state enterprises went public with their share offerings last year, more state enterprises in key industries such as telecommunications, transporta- tion, and energy are preparing for privatization this year and beyond. Furthermore, to improve the efficiency and coordination of the state agencies, the new government bureaucratic structure is taking effect this year. To create conducive and sound environment for our economy to prosper, legal reform is essential. Under the promulgation of the new Constitution in 1997, Thailand has further enhanced the democratiza- tion of the decision-making process of the state, and has provided citi- zens broader rights and privileges. Numbers of acts are being amended while significant numbers of bills are to be approved. In addition, a spe- cial panel of the nation's legal experts has been appointed to review and recommend changes to improve the existing commercial regulations and code. Though various measures undertaken by the government to ensure continued progress have brought positive results, Thailand cannot 180 afford to be complacent. As an open economy, Thailand remains sensi- tive to the global trend and external uncertainty. The government is therefore firmly committed to build a solid foundation for sustainable, quality-oriented progress primarily through the carrying out of neces- sary reforms and restructuring. Striving toward our goals, Thailand looks forward to continued active engagement with the country's inter- national partners and reaffirms our commitment to work closely with leading international institutions such as the World Bank and the Inter- national Monetary Fund to advance the common good of the global community. The most important global initiative on the Bank's agenda is, of course, poverty reduction. In this regard, we welcome the individual and collective announcements made to significantly increase ODA, as well as the successful conclusion of the IDA 13 replenishment, which agreed to increase the overall level and concessionality of financing. This decision was in line with the Monterrey Consensus in which the Bank and the Fund are expected to provide more and better assistance in both financial and technical terms. It also focused on economic dia- logue in the context of strong national ownership programs and part- nerships. We strongly believe that we all have the responsibilities of eradicating the world poverty. On the issue of the Bank's activities in Thailand, we are pleased with the implementation of assistance through the Country Development Partnerships (CDPs). The CDPs, which cover the areas of public sector reform, financial and corporate sector development, poverty analysis and monitoring, environment and social protection, are aimed to pre- pare Thailand for the challenges ahead. Even though Thailand's exter- nal financing needs are limited in the near future, we are committed to working together with the Bank in developing nonlending programs to enhance our capacity-building strategy. In matters relating to the International Monetary Fund, the stringent and arbitrary Fund conditionality imposed on crisis countries has been among the critiques of the Fund in the past decade. We are grateful that the Managing Director has played an instrumental role in streamlining Fund conditionality in Fund-supported programs. Through the subse- quent proposal of a new set of guidelines, we look forward to a clearly defined Fund conditionality that stresses the parsimony of conditions. Another welcome development is the adoption of the principle of "country ownership," whereby member countries--and not only the Fund itself--would play a significant role in the design of conditionality. The Fund staff has also been proposing novel quota formula alterna- tives, which more accurately reflect the increasing importance of emerg- ing market and developing countries. In spite of our disappointment on the decision to maintain the status quo formulas, we are hopeful that at 181 least the Fund would agree to a general increase in quotas as part of the Twelfth General Review. The Fund has recently been a key advocate of international stan- dards and codes through its Reports on the Observance of Standards and Codes (ROSC) program. Thailand is making the necessary prepa- rations to participate in various areas of this important exercise. Finally, as a result of the tragic events last September, there has been a shift in Fund policy toward the anti-money laundering/combating of the financing of terrorism (AML/CFT). While we fully support the notable role of the Fund in the war on terrorism, it is important to underscore that the Fund and Bank should concentrate on their areas of expertise, namely, matters relating to AML/CFT that could pose potential risks to the macroeconomic and financial stability of a coun- try or the regional and global systems as a whole. Conclusion Looking ahead, I believe that Thailand's economy is on the right track for sustainable growth as reforms are beginning to show results. The challenge before us is to maintain the momentum of this remark- able development and to take the opportunity to deepen reforms. I am optimistic that the new chapter of Thailand's economic development has been written. In this regard, we have begun to build a new economic foundation to serve as a high performance platform for future progress that will also provide strengths to cope with the external uncertainty. In closing, I trust that these Annual Meetings have been a highly valuable and useful occasion for all of us to share thoughts and innovative ideas in pursuit of our common goal. TONGA: SIOSIUA T.T. `UTOIKAMANU Governor of the Bank It is an honor for me to address you on behalf of the government of the Kingdom of Tonga at the 2002 Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank Group. I wish to extend my appreciation to the government of the United States and to the Washington, D.C. authorities for their hospi- tality and excellent arrangements and organization during these testing times. I also wish to take this opportunity to welcome East Timor as the newest member of the Fund and the Bank. On the world economy, future recovery continues to depend on the outlook for the United States. The recent upward revision of the growth rate of the United States augurs well for the future outlook. We note that a modest rebound is projected for the Japanese economy. It is to be 182 hoped that this can be sustained in the medium term to support future growth prospects for the world economy. It is also hoped that macro- economic policies in industrial countries will continue to support world- wide economic activity. As such, we welcome the analysis by the staff of the Fund recommending the easing of monetary policy and appropriate fiscal policy consolidation. We welcome the moves toward enhancing the effectiveness of Fund surveillance, which include improving the vulnerability assessments, expanding the coverage of financial assessments, and enhancing multi- lateral surveillance of the international capital markets. We also wel- come the Fund's initiatives to improve the Article IV consultation process to provide a broader and deeper analysis of the state of the economy of member countries. The continued progress being made under the enhanced HIPC Initiative in providing debt relief to the world's poorest countries is a major step forward. Debt relief is an essential first step for successful growth and development. However, much more needs to be done to ensure that HIPC countries achieve a robust exit from unsustainable debt. The full benefits will only be real- ized if the improved debt situation is sustained, through support, to pro- mote the investment and human development necessary to achieve sustained growth and poverty reduction. We urge that low-income non- HIPC members also be considered for debt relief in order to support growth and development. We welcome the action being taken by the Fund and the Bank to support initiatives to counter money laundering and the financing of terrorism. In particular we welcome the assistance provided to member countries to address the abuses of the international financial system. We join others in welcoming the agreements reached at the March UN Conference on Financing for Development in Monterrey, and more recently at the Johannesburg World Summit on Sustainable Develop- ment. The agreements offer a real prospect of meeting the Millennium Development Goals and securing a substantial reduction in global poverty. The agreements also offer opportunities through trade for more rapid growth and poverty reduction, and the challenges of financing for development through strengthening partnerships, improving the condi- tions for investment and growth, and enhancing official development assistance flows. We welcome all efforts to significantly increase official development assistance. Poverty reduction, however, will be achieved only if we employ the available resources in a more effective way so as to ensure that the benefits of growth are shared as widely as possible. We especially welcome the actions being taken by the World Bank and other international institutions to implement the proposals in the April 2000 report of the Joint Commonwealth/World Bank Task Force on Small States. We urge the Fund and the Bank to give greater 183 recognition to the increased urgency of the challenges confronting their small and vulnerable members owing to recent international develop- ments and other factors. The Tongan economy continued to perform below expectations dur- ing the past year, with slower GDP growth, and fragile external and fis- cal accounts. The key challenge for Tonga in the short term is to preserve external viability through strict fiscal and monetary policies. The key challenge in the medium term is to restructure the public sec- tor in order to support private sector led growth. These challenges are exacerbated by the vulnerability of our country to natural disasters. In January, a destructive cyclone affected our northern island groups. We wish to acknowledge the rapid response of our development partners in providing relief, and more particularly the World Bank for providing an emergency recovery credit facility in a very timely manner. This year, the government has embarked on a comprehensive eco- nomic and public sector reform program in order to respond to the short- and medium-term challenges the country faces. The twin objec- tives of the reform program are to improve the efficiency of the gov- ernment and service delivery to the public and to create an environment more conducive to economic development, which will create new employment opportunities for new entrants into the labor market. The improved efficiency of government is to be achieved through stricter fiscal discipline, largely through the budgetary resource allocation process and civil service reform--which creates a performance-oriented system for recruitment, deployment, and remuneration of officials at all levels--and the government's decisions regarding the allocation of scarce resources to its competing priorities. An environment more con- ducive to economic development is to be achieved through a variety of measures, including regulatory reform, tax reform aimed at base broad- ening and rate lowering, and a re-examination of the role of the state in activities better left to the private sector. Finally, we wish to congratulate the Managing Director of the Fund and the President of the World Bank for their leadership in managing both institutions during the challenging times following the tragic events of September 11 of last year. We wish them continued success in leading our sister institutions in facilitating a full recovery of the world economy. We would also like to acknowledge with appreciation the technical and financial assistance that both institutions have provided to Tonga. The assistance, we assure you, continues to improve the stan- dard of living of our people and we therefore look forward to a contin- ued partnership in the future. 184 UGANDA: GERALD SSENDAULA Governor of the Bank (on behalf of the African Governors) Introduction I am greatly honored to address this important gathering on behalf of African Governors of the International Monetary Fund and the World Bank. Let me take this opportunity to pay tribute to both Bretton Woods institutions for the manner in which they have handled global development issues, especially following the events of September 11, 2001. We African Governors recognize that our continent faces daunt- ing but surmountable economic and social challenges. These require a sustained set of actions by African governments themselves, for which we are currently undertaking a number of painful but necessary reforms. However, given the magnitude of the problems, and consider- ing the fact that some of the impediments to our development are caused by exogenous factors, the Bretton Woods institutions have a legitimate and significant role to play in helping us. New Partnership for Africa's Development (NEPAD) The commitment by African governments to eradicate poverty and place the continent on a path of sustainable growth and development is reflected in the NEPAD. NEPAD is anchored neither on an appeal for further entrenchment of dependency on aid nor on some marginal trade concession, but on the determination of Africans to extricate themselves and their continent from the malaise of conflicts, underdevelopment, and exclusion from trade benefits in a globalized world. The determina- tion by African leaders to apply peer pressure on themselves in the pro- motion of democracy and good governance, and their concerted efforts to eliminate conflict, are some of the unique features of the NEPAD. Regional Integration African governments are according high priority to regional integra- tion, which, in recent years, has gained momentum throughout the conti- nent. While regional integration is not a panacea for all our development challenges, it is an important vehicle for improving and strengthening the viability of Africa's economies. We recognize, however, the financial and technical capacity limitations that exist in a number of critical areas. In 185 this regard, we call on the Bretton Woods institutions (BWIs) to sup- port our efforts in the building of regional institutions to enhance inte- gration. We also urge the BWIs to support the implementation of regional projects and to reflect our regional priorities in the PRSPs and CASs. Agriculture and Rural Development The realization of the Millennium Development Goals (MDGs) in Africa is a tall order. We believe, however, that it can be achieved with an aggressive implementation of the Monterrey and NEPAD declara- tions. In Africa, where 75 percent of the population live in rural areas, poverty is largely a rural phenomenon. Therefore, raising agricultural incomes will be key to halving extreme poverty by 2015. In this connec- tion, we are concerned about statistics that suggest African govern- ments are spending on average, less than 5 percent of their development budgets on agriculture and rural development. This low spending on the sector is a reflection of inadequate resources to fully fund our domestic agenda and not a reflection of any lack of interest in agriculture. We would like to assure the BWIs that we are committed to paying this sector the priority it deserves. What is also of great concern to us is that the World Bank's lending to agriculture and rural development has stagnated over the last decade to less than 20 percent of its total lending. We call on the BWIs to refo- cus their efforts and resources in this all-important sector. We welcome current efforts aimed at reversing this trend and urge the Bank to increase its lending to agriculture, in line with the 2003 World Develop- ment Report findings. We also urge that Fund-supported programs give adequate priority to rural development, allowing for the allocation of more budgetary resources for rural development and supporting decen- tralization in line with PRSPs. Trade and Market Access Many African countries have liberalized their economies and mod- ernized their commercial laws in line with international best practices. In spite of these efforts, access to export markets remains limited. The continuing protection of export markets and recent increase in farm subsidies by some developed nations seriously undermine the contribu- tion of our reforms to economic growth and poverty reduction. This, coupled with the technological divide, has led to a further marginaliza- tion of Africa in the globalization process. We strongly believe that Africa's debt sustainability and prospects for growth will be realized through increased fair trade in addition to aid. In order to give devel- 186 oping nations a chance to benefit from globalization, we urgently call upon the industrial nations to strictly adhere to the rules and principles of globalization they themselves advocate. In this regard, we strongly urge the World Trade Organization (WTO) and the BWIs to spearhead discussions with developed nations on securing market access for Africa's exports and the removal of distorting subsidies. Infrastructure Development Mobilizing donor assistance and private capital flows is crucial for ensuring the adequate funding of infrastructure and provision of basic services necessary for sustainable growth. In this regard, we urge the Bank and the Fund to support our governments in maintaining and modernizing existing infrastructure and promoting public-private part- nerships in infrastructure development, including at the regional level. On our part, we commit ourselves to putting in place the necessary reg- ulatory frameworks and to undertaking additional reforms in order to facilitate private participation in infrastructure. Private Sector Development and Foreign Direct Investment Despite sustained economic reforms over the last two decades, FDI flows to Africa have not been significant. This is in sharp contrast to the impressive macroeconomic environment and sustained efforts toward privatization in many African countries. We welcome the World Bank Group's Private Sector Development Strategy, which, among other things, emphasizes investment climate surveys in the CAS and PRSP processes. We believe that such surveys will help to establish the missing link in the private sector-led growth equation, and will guide policymakers on the priority actions required to further improve the investment climate. Furthermore, we believe that the development of SMEs is a critical element in poverty reduction because of their high potential to create jobs and develop local entrepreneurship. We urge the Bank to increase assistance to SMEs and to support country efforts in the coordination of donor support for increased aid effectiveness. Education for All We commend the leading role of the Bank in providing financial sup- port for education, which is key to socioeconomic development. We believe that for all children to complete primary education by 2015, there is need for increased resource allocation to this sector, better coor- dination, and the strong commitment of both African governments and the donor community. Specific measures need to be taken to achieve the 187 objective of "Education For All (EFA)" as spelled out at the Dakar World Forum. In this respect, we welcome the Bank's invitation of 23 countries, including 13 from Africa, to join the Education for All Fast Track aimed at helping developing countries meet the MDGs. In the same vein, we urge the Fund in its country programs in Africa to support additional resources allocation to the education sector by national authorities. HIV/AIDS and Other Communicable Diseases The adverse effects of HIV/AIDS on the socioeconomic fabric of African societies cannot be overemphasized. We appreciate the leading role the Bank continues to play in supporting the various programs aimed at halting the spread of the disease. We also commend the strong leadership of the Fund in assessing the macroeconomic impact of this pandemic. We encourage the BWIs to continue to provide technical assistance to countries whose technical and administrative capacity has been severely weakened by HIV/AIDS. However, other communicable diseases, notably malaria and tuberculosis, which continue to have a heavy toll on human life and labor productivity, also deserve concerted efforts. It is in this regard that we commend our development partners, particularly the Bank, WHO, USAID, and many NGOs for launching and promoting the Roll Back Malaria initiative. Capacity Building and Technical Assistance We commend the Bank and other partners for spearheading the establishment of the Partnership for Capacity Building in Africa (PACT) to complement the activities of the African Capacity Building Foundation (ACBF). In view of the weak human and institutional capacity in Africa, we strongly urge the Bank, the Fund, and other part- ners to reorient their technical support toward building strong public institutions to support a vibrant private sector. We believe that increased partnerships with local institutions will help build sustainable capacity in our countries, both in the public and private sectors. In this context, we welcome the setting up of two technical assistance centers (AFRITACs) in East and West Africa by the Fund, and we urge the establishment of additional such centers across Africa. The Poverty Reduction Strategy Paper (PRSP), Poverty Reduction Support Credit (PRSC) and Poverty Reduction and Growth Facility (PRGF) The PRSP process provides a sound framework for recipient gov- ernments and donors to agree on the priorities for poverty reduction. 188 To be successfully implemented, however, PRSPs must be underpinned by technical assistance for capacity building, an appropriate level of financial assistance, and streamlined procedures for effective coordina- tion in the delivery of donor assistance. We are concerned about the linkage between conditionality and the speed of preparation of PRSPs. For our members, faster preparation can mean quicker access to resources, but inordinate speed in the preparation of PRSPs can com- promise quality. We therefore urge that this linkage be broken. We believe that there is urgent need to strengthen the linkage between objectives outlined in Bank- and Fund-supported programs under the PRSC and PRGF with those established by our member countries in our PRSPs, in a manner that reflects country priorities and specificity. As regards strengthening ownership, the Bank and Fund should give greater scope to client countries' own policy scenarios. Streamlining Conditionality In spite of efforts to streamline operational policies, procedures, and practices, many borrowing countries still face a large number of donor conditionalities and cross-conditionalities. We urge the BWIs to pro- vide leadership in applying new guidelines on conditionality in a man- ner that avoids micromanagement of our countries but, instead, promotes ownership. This will allow for the utilization of the limited technical and administrative capacities for the implementation of prior- ity programs of African governments. HIPC Implementation We commend the two institutions for the implementation of the HIPC Initiative. However, the slow progress in reaching completion points, primarily because of the conditionalities imposed on countries with limited technical capacity, calls for urgent redress. Like the Bank, we urge the Fund not to suspend interim assistance, since such action prompts all other creditors to suspend assistance, some of which is used in critical areas such as HIV/AIDS. We urge donors to allow greater flexibility in the application of HIPC-related conditionalities in post- conflict countries because they lack the capacities to fully comply with the PRSP process. Progress in the implementation of the HIPC Initia- tive has also been slowed by some bilateral and commercial creditors who have resorted to litigation to recoup as a means to recover debt covered by the initiative. We therefore propose that equitable partici- pation should be made binding for all creditors. On the other hand, we wish to highlight the financial and moral dilemma of the HIPC frame- work--that of requiring HIPC to HIPC debt relief. In our view, the 189 provision of grants by donors to pay off these claims is the ideal solu- tion, and the BWIs should help mobilize resources for this option. Countries in Protracted Arrears Status We are concerned that some of our countries in protracted arrears status have been implementing tough programs monitored by the IMF staff for lengthy periods but without external assistance. We urge the Fund to find innovative solutions to the protracted arrears problems of these countries, particularly in helping them mobilize resources in order to allow these countries to move quickly to PRGF and HIPC. Post-Conflict Countries Post-conflict countries that are eligible for HIPC assistance face enormous challenges as they strive to consolidate peace, achieve inter- nal stability, and pursue sound economic policies. Moreover, the acute lack of technical and administrative capacity compounds the difficulty of developing a fully participatory PRSP. We therefore urge the inter- national community to show greater flexibility in their efforts to provide assistance to enable these countries to move quickly to PRGF, PRSC, IDA, and HIPC. Similarly, countries hosting refugees face considerable obstacles and challenges associated with the financial and social cost of resettlement as well as the long-term effect on the host even long after the refugees return to their home countries. Countries hosting refugees, therefore, require considerable support to carry this burden. IDA 13 Negotiations We welcome the conclusion of IDA 13 negotiations despite the long delay in reaching a final agreement. We are pleased to note that the thirteenth replenishment provides IDA with SDR 18 billion over the next three years, including SDR 10 billion in new donor contributions. We followed with keen interest the issue of grants. While we acknowl- edge the importance of grants for meeting some of our critical require- ments, we underscore the need for IDA resource sustainability in the long run. We therefore welcome the compromise reached by donors to provide 18­21 percent of IDA's overall resources in the form of grants, and to maintain the principle of IDA resource sustainability. We firmly support grant funding for areas such as communicable diseases, disas- ters, post-conflict situations, and education where no immediate finan- cial returns are expected. 190 Financial Sector Reform, Money Laundering, and Financing of Terrorism We commend the Fund and the Bank for the technical and financial support in the implementation of financial sector reform, including the strengthening of surveillance systems. However, while we support the work on standards and codes undertaken in the context of FSAPs, we believe that the priority for African countries should be capacity build- ing for the development of indigenous markets and viable financial institutions to support small and medium-sized enterprises. Africa's Voting Power and Voice The continuous decline of Africa's voting power and voice in the Bretton Woods institutions runs counter to current endeavors to strengthen ownership in the development of Africa and is not consistent with the recent Monterrey Consensus. This trend also reflects a demo- cratic deficit, within the Fund and the Bank, given the comparatively enormous number of discussions and decisions taken on Africa in both institutions. We urge the two institutions to address this problem. UKRAINE: VASYL ROHOVYI Governor of the Bank The benefits and risks of the global economy have been actively dis- cussed by the international community for several years now. Agree- ments and initiatives launched in Monterrey and Johannesburg are increasing expectations for better cooperation among the developed nations and other groups of countries in addressing the challenges faced by the modern world. But at this forum we may want to devote more attention to increased financial instability and instances of trade protec- tionism, which might threaten hopes for implementing the honorable principles of the Monterrey Consensus. In addition to the still depressed level of net capital flows to emerg- ing markets, if compared with the mid-1990s, there has recently been another round of capital flows volatility. In addition, a synchronized and so far continuous downward adjustment of the developed nations' stock markets is occurring. This adjustment will have an impact on the rest of the world economy. International finances, therefore, are not becoming more stable, and we have to face this challenge. Volatility testifies that anti-crisis immunity among some emerging markets has not been established to the extent necessary. Volatility also reveals that 191 the strengthening of the international financial architecture seems to be lagging somewhat behind current developments. In this light, it would not be entirely prudent to place the responsi- bility for volatile capital flows predominantly on the policy weaknesses of recipient countries. Such a view is not balanced enough. Capital account volatility, together with difficult global restructuring in such sectors as telecommunications, information technology, and energy can affect practically every country, and does not always respect the strength of local macroeconomic fundamentals. Instability can affect not only systemically important emerging mar- kets, but practically any other country. This is why all countries deserve equal treatment--systemically important emerging markets, developing countries struggling to overcome poverty, and countries transforming from centralized to market economies. The principle of equal treatment should cover market access, access to multilateral financing, and condi- tionality. The rules for access to IMF financing, in particular, should become more transparent and understandable. We welcome some achievements in this respect and urge further progress in streamlining conditionality, strengthening ownership, and securing sufficient access. Risk avoidance is currently dominating investors' behavior, as was clearly emphasized in the international financing institutions' recent research on global financial stability. Their important work on financial markets and anti-money laundering best practices deserves the full sup- port of the international community. Practical recommendations for reducing vulnerabilities and reaching debt sustainability must go side by side with reforming market mechanisms and regulations. Making such mechanisms more manageable and predictable is important for crisis prevention as well as for crisis resolution. Mechanisms for reasonable burden sharing between the official and private sectors in crisis must be developed further to avoid sudden developments, which are undermining investor confidence and negatively affecting broad support for reforms in member countries stricken by crisis or contagion spillover. Reaching Millennium Development Goals, gradually approaching the official development assistance target levels of 0.7 percent of GDP, while improving market access, will be the best possible contribution to shielding the more vulnerable nations of the world from the effects of global financial and economic instability. Addressing the challenges of poverty will also be greatly helped by further mutually beneficial trade liberalization. To this end, we fully support the emphasis placed by President Wolfensohn and Managing Director Köhler on the utmost importance of the success of the Doha Round. We would also urge more publicity around the recent studies by the institutions on the neg- 192 ative effects of trade protection and trade subsidies on international trade and on investment and consumption in both developed and devel- oping nations. Trade distortions may, in our view, become an even more prominent feature in surveillance. Improving the investment climate remains an ongoing challenge for many nations, including Ukraine. Our country hopes for new positive achievements in this area, and we count on continuous support from the World Bank Group and the Fund in strengthening our market institu- tions. Transition has been harder and more challenging than anyone assumed 10 years ago. Now the most difficult times for Eastern Euro- pean countries, including Ukraine, seem to be behind us. Transition economies have so far been weathering the global slowdown rather well. In Ukraine, the evidence of regained confidence in our sound poli- cies manifests itself in lesser dollarization of the economy, in the infor- mal economy's emergence from the shadows, in improved indicators of the monetization of the economy, in further moderation of a single-digit annual inflation, and in reduced levels of external debt. After reaching high growth rates of 9 percent and 6 percent in 2000 and 2001, respec- tively, we have targeted a more modest 5­6 percent for the next few years. An increased emphasis on transparency in both the Bank and the IMF coincided with our national effort to improve the transparency of government operations, including privatization. Among structural reforms, we are proud of having strengthened budget constraints throughout the economy, as well as the first results of our agrarian reform, which allowed Ukraine to regain its historical posi- tion as a grain exporter. We are not yet fully satisfied with progress on some other important structural fronts. Reforming the tax system, removing distortionary exemptions and incentives, instituting better budget expenditure management, and undertaking further sectoral reforms are among our priorities for the immediate future--along with the modernization of the country's infrastructure. We are currently some- what concerned with the difficulties in meeting the goals of our privatiza- tion program. We planned to privatize some industries and enterprises in sectors that are experiencing difficulties throughout the world. Corporate accounting and governance scandals in one part of the world can appar- ently influence systemic transformation even in a different hemisphere. Finally, we would like to emphasize that international financial insti- tutions as well as many sovereign nations need to better adjust to the realities of the increasingly integrated global economy and fluid finan- cial markets. We fully share the view that there are no viable alterna- tives to globalization, but the global economy needs to be inclusive, mutually beneficial, and for the entire membership. 193 UNITED KINGDOM: GORDON BROWN Governor of the Fund We meet here in Washington this weekend to discuss the challenges we face in the world economy, where recovery is under way, and to demonstrate our commitment to building the next stage of global pros- perity and advancing toward the globalization we want--social justice on a global scale. Over the next year our aim in the international financial community must be to make real our commitment to the elimination of poverty, the promotion of development, the achievement of the Millennium Devel- opment Goals, and the progressive removal of the wide disparities in living standards among countries by embracing what I call a new deal for the global economy--a new development compact that will allow all countries to earn a fair share of the benefits of global prosperity by developing countries systematically tackling corruption and instability, and creating the conditions for private investment, and developed coun- tries opening up their trade and radically improving aid for poverty reduction, including education and health. And because I believe that in the long run our prosperity is indivis- ible, and that to be sustained it must be shared, I hope that, even in an insecure world, we can make progress in Washington this weekend toward building a new international financial architecture and meeting the world's agreed-on Millennium Development Goals--including that, by 2015, we halve global poverty, cut child mortality by two-thirds, and achieve primary education for all. And this new deal is more not less necessary, more not less urgent, as we tackle the consequences of a worldwide slowdown, assess the risks and challenges ahead, and deal with the vulnerabilities of a more integrated but more volatile international financial system. There are four building blocks of this new deal: economic stability, investment, trade, and aid. Economic Stability The first is more urgent than ever: international economic coopera- tion and a new framework for a more stable global economy based on clear codes and standards, enhanced transparency, and improved crisis prevention and resolution mechanisms. We must all be vigilant to the risks that we face at this time. And we must all, each continent and the international institutions, face up to our responsibilities in sustaining and strengthening the economic recovery round the world: Europe must make progress on economic reform, 194 Japan must take decisive action on financial sector reform, and Amer- ica must show that corporate reform is working. In the United Kingdom we are making our contribution to global eco- nomic stability and growth. In these times of insecurity and risk--with 20 countries accounting for half of world output having been in recession this year and last--we must continue to have the strength to take the tough long-term decisions on the economy. It is because we did not fall for the quick fixes, easy options, and irresponsible short-cuts, that with Bank of England independence, tough fiscal rules, and rigorous public spending controls, we today have the lowest inflation in Europe, the low- est unemployment in 25 years, and the lowest mortgage costs for 40 years. And from this platform of stability, even at a time of global instabil- ity, we have doubled public investment and ensured that our public spending plans are fully financed on cautious assumptions. So to ensure that we can continue to deliver stability, growth, and strong public serv- ices, there will be no relaxation of fiscal discipline, no breach of the fis- cal rules, and no return to the old days of reckless borrowing unsupported by fiscal prudence. Because terrorists intended to bring the world's financial system to a halt, to undermine the very prospect of global prosperity, we must con- tinue to show that we will not succumb or surrender to their threats. The United Kingdom remains firmly committed to combating the financing of terrorism and, in concert with our international partners, the multilateral institutions and regional organizations, we have taken a range of measures and have fully implemented key anti-terrorist United Nations Security Resolutions 1373 and 1390. As a result, the United Kingdom has frozen the assets of more than 100 organizations and more than 200 individuals. We comply with the FATF 8 Special Recommendations on terrorist financing. Domestically we have in place legislation to seize terrorist cash, freeze funds at the start of an investigation, and monitor suspicious accounts, and we have enhanced reporting requirements. We also supervise money service busi- nesses to ensure that they comply with the money-laundering regulations. And we are working closely with European Union partners to identify terrorist organizations and individuals whose accounts should be frozen. Increasingly, in this age of globalization, our national goals are shared international goals, our responsibilities are shared responsibili- ties, and our opportunities are shared opportunities. I now believe that, just as through central bank independence we set down a new rules-based system in the United Kingdom with Bank of England independence and a new monetary and fiscal regime, we should, in pursuit of the objectives of stability, development, and pros- perity, consider also a new rules-based system of international economic 195 governance for the community of nations. This new system would be founded on clear procedures--all countries, rich and poor, pursuing agreed codes and rules for fiscal and monetary transparency and for corporate and social standards--and on a new openness and trans- parency, with the IMF independent of political influence in its surveil- lance of economies as an independent central bank is in the operation of monetary policy. The adoption of clear and transparent procedures in economic decisions--for example, presenting a full factual picture of a country's debt position and the health of the financial sectors--and a willingness to be monitored for them, improves stability and provides to markets a flow of specific country-by-country information that engenders greater investor confidence and that reduces the problem of contagion. We should all adopt and monitor similar codes and standards for corporate governance, including for accounting, working with standard setters to develop stronger regulatory frameworks. And, leading by example, the United Kingdom will participate in the Reports on the Observance of Standards and Codes (ROSC) modules covering accounting and auditing, corporate governance and insol- vency, and creditor rights. We will then have completed assessments against all codes and standards--the first, I hope, of many countries to achieve this. And with technical assistance and transitional help for early imple- mentation of codes and standards generally, I hope other countries will become part of a wider move toward greater transparency, including the routine publication--by rich and poor countries alike, as well as the IMF--of all surveillance and program reports and IMF policy and administrative papers. But there is a case for going even further. To ensure that the Article IV surveillance process fulfills the key objective of early identification of risks and vulnerabilities, all Article IV reports should include strengthened debt sustainability analysis, greater focus on the structural sources of instability, early identification of unsustainable macroeco- nomic policy frameworks, an assessment of adherence to codes and standards, and identification of countries that still need to take action to forgive debt under the HIPC Initiative. More fundamentally, there is a strong case for enhancing the IMF's surveillance and monitoring functions so that surveillance is--and is seen to be--independent of decisions about crisis resolution. We must imple- ment further reforms to promote greater independence--ensuring that the Fund applies objective, rigorous, and consistent standards of sur- veillance to all member countries and that there is a clear separation between surveillance and lending activities--and greater accountability, with the IMFC setting a surveillance remit, lMF management reporting 196 each year on the Fund's performance, and an annual assessment of effectiveness of Fund surveillance. Together, this would help to reduce the risk of financial crises internationally and promote a new era of global economic stability. Where countries do operate transparent and effective systems, fully monitored by the international community, they have the right to expect the support of the international community if hit by financial contagion. The Contingent Credit Line should be seen as an attractive tool to help countries prevent crises, and we look forward to the IMF's forthcoming review of the CCL. We also need to ensure there are effective methods in place for cri- sis resolution in a way that will ensure the burden of adjustments is not placed on the poorest and most vulnerable. The Fund is working on a stronger framework for crisis resolution to provide members and mar- kets with greater clarity and predictability about the decisions that the Fund will take in a crisis. We urge the Fund to build on this, in part by finalizing and implementing the new framework to clarify and strengthen the procedures for exceptional access to Fund resources. We cannot send a message that bad decision making by lenders is encour- aged by the expectation of an unlimited bail-out by taxpayers, or that bad policies by debtor countries will be condoned by more financial support by the international community. We also urge resolution of the obstacles that stand in the way of effective debt rescheduling. We need reform of the contractual arrangements for debt, and we need to con- tinue work on a new, more comprehensive, legal framework, an inter- national bankruptcy procedure. We welcome the progress made by the IMF on the contractual and statutory approaches. We encourage it to work further with the private sector and sovereign debt issuers on pro- moting collective action clauses. And we urge the IMF to work up con- crete proposals for the Spring Meetings on the implementation of a statutory sovereign debt restructuring mechanism. Finally, we urge clarification of Fund policy on standstills and lend- ing into arrears. Under this new framework we can move from letting crises happen and then intervening to a new paradigm: systems that in themselves diminish the likelihood of crises, earlier awareness as diffi- culties arise, and more measured orderly responses when crises have to be resolved. Investment and Corporate Accountability However, stability is only the precondition. To ensure growth and development we must also take steps to promote domestic and foreign investment--and find better ways for public and private sectors to work together in plugging investment leaks. Not only is foreign direct 197 investment too low in the poorest and least developed countries--with just $3 per head going to low-income countries compared with $1,100 per head to higher-income countries--but also domestically generated savings and investment are low, and often the savings that do exist leave the country in capital flight. In seeking more favorable business environments in which private sector investment can be more productive, country-owned poverty reduction strategies have correctly focused on creating the right domes- tic conditions for business investment, including improved infrastruc- ture, sound legal processes that deter corruption, and the creation of an educated and healthy workforce. We support the creation of new invest- ment forums--such as those in Ghana and Tanzania--bringing public and private sectors together to examine the current barriers to invest- ment and to build a consensus, in the light of regional conditions, on how to secure higher levels of investment. Most important, investment forums are helping to break down the assumption that private sector development should either be led solely by business, or directed by the state, instead recognizing that public and private sectors must work together in partnership to secure economic growth and reduce poverty. Where multinationals are unaccountable across boundaries, busi- nesses and government must also do more to restore the right balance, increase stakeholder awareness, and achieve cross-border accountabil- ity. We urge more companies to follow the principles of good corporate practice laid out in the OECD's guidelines for multinational enterprises. The initiative to increase transparency in extractive industries announced at the recent World Summit for Sustainable Development is an excellent example of how private sector companies can positively contribute to development and poverty reduction. Trade Our third building block is widening and deepening trade. Full trade liberalization globally could lift at least 300 million people out of poverty by 2015. That is why the U.K. government strongly supports the new trade round launched at Doha, where developing countries had a real and effective voice in the negotiations, and we are committed to Doha's core development agenda. We must ensure that poor countries have access to the medicines they need to tackle the diseases crippling their societies--AIDS, tuber- culosis, malaria--and protect public health. Other developed countries should follow the EU's lead by offering duty- and quota-free access to all products except arms from the 49 least developed countries. And 198 since three-quarters of the world's poor live in rural areas, urgent action is needed to reduce agricultural protectionism and open up trade. Developed country subsidies to agriculture amount to $1 billion dollars every day--greater than the national income of the whole of sub-Saharan Africa and seven times the total of overseas aid flows. The United Kingdom is working hard to secure substantial reforms in the mid- term review of the CAP now under way, and we urge others to join us-- all developed countries subsidizing agriculture must show leadership. But we must not rush developing countries to reduce their tariffs without recognizing the effect it could have on both government rev- enues and the livelihoods of people working on the land. We need a sequenced approach, which ensures that appropriate measures are in place to protect vulnerable countries and vulnerable people from an overly rapid transition to a system of liberalized trade. So we support the Fund and Bank commitment to undertake poverty and social impact assessments of trade reforms, and we will continue to promote the inte- gration of trade into developing countries' poverty reduction strategies. In addition to enable developing countries to participate fully and effec- tively in the trading system, by 2004 the U.K. Government will have committed £45 million to support trade-related capacity building. Development Compact Economic stability, investment, and trade are all crucially important, but there cannot be a solution to the problems that developing coun- tries face without a fourth reform: that in return for developing coun- tries pursuing corruption-free policies for stability and creating a favorable environment for trade and investment, developed countries should be prepared to increase vitally needed funds to achieve the agreed Millennium Development Goals. For its part, the United King- dom will increase its aid budget to nearly £4.9 billion by 2005­06--a 93 percent real-terms increase since 1997. This will take the U.K.'s ODA/GNI ratio to 0.4 percent--the highest in 20 years and double the G-7 average: continuing evidence of our commitment to the target of 0.7 percent. We welcome the commitment by the G-7 to contribute their share of an extra $1 billion to finance the shortfall in the HIPC Initiative, together with the call for action to tackle the issues of creditor participation and debt sustainability. We stand ready to contribute our full share. We must also do more to support HIPC and other low-income countries that face legal challenges from creditors--both commercial and official--that are unwilling to give debt relief, and we look forward to receiving the forth- coming report on this from the Fund and the Bank. We propose a trust 199 account, funded by donors, to pay for technical assistance to help any HIPC being sued by a creditor that refuses to deliver relief, including vulture funds. Where countries have had to contend with external shocks, such as sharp falls in the price of key export commodities, we must form a broad consensus on the need for topping up at the completion point to ensure a lasting exit from sustainable debt. And we must develop more realistic and generous rules for its provision, including agreement that the calculation of topping up should exclude voluntary bilateral provi- sion of an additional 100 percent relief. But debt relief and the aid already pledged will not be enough on their own. The Zedillo report on Financing for Development estimated that if we are to achieve the Millennium Development Goals at least an extra $50 billion of aid will be required every year. As a matter of urgency, we must consider the means by which the benefits of the new resources agreed on earlier this year can be maximized--both through improved aid effectiveness and by levering in additional funds. Aid should be harmonized and aligned behind the priorities of country-led poverty reduction strategies, and coordinated with national systems and budget cycles. It should also be better targeted and made more effective through untying. But even with more debt relief and improved aid effectiveness, the scale of the challenge is such that we need to consider other innovative forms of financing, building on the $12 billion dollars pledged in Monterrey, to reach our $50 bil- lion target. One option is to pool additional resources in a new international development financing facility that could leverage funds from interna- tional capital markets to meet the demand for large-scale assistance now and enable a much earlier achievement of the Millennium Development Goals than might otherwise be possible. This new financing facility would require donor countries to make a clear commitment to substantial addi- tional resources over the long term. The extent to which such a financing facility might leverage funds from international capital markets would depend on a wide range of factors, but reasonable assumptions suggest that such a fund might clear its debts in around 30 years. A broad package of measures that gener- ated additional flows of $15 billion a year could be leveraged in the cap- ital markets to provide an additional $50 billion each year until 2015--enough to meet the Millennium Development Goals. Whatever means of raising the additional funding we pursue, one thing is crucial: developing countries themselves must show genuine commitment to education, health, and poverty reduction, demonstrat- ing that the resources they receive through aid and debt relief are prop- erly and effectively used. The progress African governments are 200 making through the New Partnership for African Development (NEPAD) has been a major step forward, with commitments to making progress on political and economic governance, economic management, human development, and peace and security. Anti-corruption strategies and international standards in public financial management and accountability are crucial. All countries should meet high standards in public financial management and account- ability. And in the context of the HIPC tracking exercise, all HIPC coun- tries should agree to ambitious timetables to do so within their poverty reduction strategies. As a first step, I propose that all HIPC countries currently receiving debt relief should achieve a core number of interna- tional benchmarks in budgeting, auditing, and reporting within three years. And the international financial institutions have an important role to play in providing governments with much more simplified and coor- dinated support to help them meet these international benchmarks. More generally, the IMF and the World Bank must also do more to ensure a more open policy dialogue in their support of poverty reduc- tion strategies in low-income countries, including explicit discussion, in Fund programs, of alternative policy choices and trade-offs, supported by poverty and social impact analyses, to ensure that policies deliver real benefits for the poorest. Conclusion The challenges of globalization are immense, but before us there is an unprecedented possibility of progress. Our vision of the way forward is that, in an increasingly interdependent world, all can benefit if each meets agreed obligations for change. We should not retreat from glob- alization. Instead, we must work together--across the world--to advance social justice on a global scale. UNITED STATES: PAUL H. O'NEILL Governor of the Bank and the Fund As we gather for these meetings we reflect on a year full of chal- lenges and cooperation as we together worked to restore global eco- nomic growth after the shock of last September's terrorist attacks, help countries deal with financial crises, find a way to bring more concrete improvements to the lives of those in developing countries, and fight the financing of terrorism. The international financial institutions are critical to these efforts, and we welcome the role that they play in dealing with some of the most important and formidable tasks facing the world community. The IMF and the World Bank are indeed vital to our cooperative efforts to 201 advance growth and development. At the same time, it is our shared responsibility to continue to look for ways to improve the institutions-- to focus their objectives and enhance their effectiveness. The United State's engagement in the IMF and World Bank is guided by an over-riding belief that our role, and that of the official community as a whole, is to encourage governments to take the right steps themselves that will help them achieve economic success. We sim- ply cannot bring about success from the outside. Instead, we can foster growth and development only by supporting and encouraging sovereign governments that rule justly, invest in their people, and expand eco- nomic freedom. This is the key to unleashing the potential created by the desire and ability of people everywhere to improve their lives. Promoting Global Growth We all know that the world economy and its people benefit when all countries--especially the major industrialized nations--grow at their full potential. Achieving this depends on the adoption of policies to sup- port strong and durable growth everywhere. The United States is doing its part. After a shallow downturn, the U.S. economy is recovering. And, over the course of the coming year, I am confident that the United States will resume growing in line with its potential growth rate of about 3 to 3-1/2 percent of GDP. Trade liberalization is a key component of the growth agenda, and the United States is committed to making the WTO negotiations under the Doha Development Agenda a success across the range of priorities. In this context, more rapid progress can and should be made in liberal- izing financial services. We are pleased with the IMF and World Bank's steps to strengthen their efforts in the financial sector and look forward to their ongoing work to help build stronger financial systems. Preventing and Resolving Financial Crises I want to underscore the primacy of a country's own policies in determining its economic destiny. Countries with sound fiscal and mon- etary policies, good governance, effective investment in human capital, and freedom of economic transactions will inspire confidence, attract resources, and build a stable basis for growth and prosperity--and thereby help protect against vulnerability to financial crisis. Similarly, the official community must focus first and foremost on ways to prevent crises. This is a particular priority for the IMF, which must continue to strengthen its approach to anticipating and averting crises. The IMF must work to detect potential crises early and seek quick action to address sources of vulnerability. 202 A key to resolving crises is to develop a clear and predictable process for countries that reach a position in which they cannot sustain and service their debt burden. The aim is not to make defaults easier or more likely, but rather to simply make a restructuring more orderly and predictable should it occur. The United States is pleased with the progress made to date--through cooperation between the official and private sectors--toward implementing a market-oriented contractual approach to the sovereign debt restructuring process. We are also com- mitted to continuing to work with the IMF on a statutory approach to restructuring. A process for resolving debt-servicing difficulties will also provide an alternative to large official packages of support. This will enable us to hold firm on the size of packages from the IMF. If there is always the prospect of unlimited official financing to help countries manage their way out of trouble, there is little to motivate policymakers to make the tough choices that are necessary to maintain stability and achieve sus- tained growth. When a decision is made to provide exceptional levels of IMF financing, this decision must be strongly justified. Achieving Results in Development Economic development is one of the great challenges of our time. Many people have spent lifetimes dedicated to unraveling its mysteries. Certainly there are no easy answers. But we believe that there are a few key ingredients--first and foremost, leaders that are committed to and take ownership of the policies necessary for economic success. The focus of the international community must be establishing the conditions in which individuals have the tools and opportunity to reach their human potential--and to improve the future for their children and their nations. It is this concrete objective that must be paramount. We must not rest until we achieve real, tangible results for people on the ground. The United States welcomes the progress made in the past year toward this objective. The agreements in Monterrey and Johannesburg provide an important basis for moving forward together. Moreover, the agreement in the IDA 13 replenishment to deliver a significant portion of resources in the form of grants rather than loans and to give greater emphasis to measuring the outcomes and results of IDA programs rep- resents a significant change in how donor nations will work to help poor countries succeed. This is just the start of what we expect will be a fun- damental shift in focus in the MDBs. The challenge now for the MDBs is to adopt the real changes in operating style needed. We look forward to the World Bank taking a leading role in working with its develop- ment partners to establish an accountability structure for standardizing 203 and measuring a set of priority development results. This will require a sustained and prioritized effort so that a results-oriented approach is fully integrated into every element of the Bank's work. The goals set out in the Millennium Declaration provide a starting point. Fighting the Financing of Terrorism We in the United States are heartened by the solidarity that has characterized the fight against terrorist financing in the last year. We should all be gratified by the successes achieved thus far, but the battle must continue on all fronts. This means applying technology, intelli- gence, and regulations to locate and freeze the assets of terrorists, wher- ever they may be. It means attacking the terrorists' financial infrastructure in order to make the transfer of money across borders more difficult, slower, and more visible and thus more easily inter- cepted. And it means ensuring that all nations have the technical abili- ties and systems to disrupt terrorist financing. None of these efforts can succeed without cooperation from nations around the world. Together, our challenge is to protect the freedom and flexibility of the world financial system, while exposing those seeking to use the system for evil aims. The United States attaches the highest pri- ority to this effort and is working through all multilateral channels and bilaterally with countries throughout the world--working in the realms of law enforcement, information sharing, and financial regulation and supervision. We are pleased by the recent steps taken by the IMF and the World Bank to work closely with the FATF and other organizations to develop a process for comprehensive assessments of anti-money laundering and terrorism financing principles. This undertaking fulfills a critical need to identify gaps in countries' implementation of agreed international principles so that appropriate technical assistance can be marshaled and provided. We commend the institutions on putting in place a pilot pro- gram for these assessments and urge quick implementation of this important initiative in cooperation with the FATF. VENEZUELA: FELIPE PEREZ MARTI Governor of the Bank Venezuela welcomes the IMF's determination to introduce mecha- nisms for crisis prevention and resolution. Now is the time for the IMF to take on the role of lender of last resort, in order to prevent the impo- sition of spurious considerations such as contagion on fundamentals, as a means of introducing lower Pareto equilibria. Following the break- down of the Bretton Woods Agreement in the 1970s, the lack of an 204 appropriate architecture to regulate the global financial system became an increasingly obvious problem with the advent and proliferation of financial crises that caused economic and social disasters, especially in the developing countries. In the same way that the absence of a central bank in a country can trigger runs on solvent banks, the lack of such a financial architecture since the breakdown of the Bretton Woods Agreement has caused widespread runs on the currencies of the more vulnerable countries. Capital flight has had an impact on countries such as Venezuela, where the private sector saved abroad but the local econ- omy was deprived of investment and endured a succession of weak and indebted governments. These governments were ill-equipped to solve the severe social and political problems generated as a result of these crises, which reflected the weakness and volatility of the external value of a local currency that had previously been very strong and stable rel- ative to the dollar. We look forward to a brighter future, thanks to the new mechanisms that are now being forcefully advocated. We also welcome the plan to address the need to restructure debt through multilateral assistance, debt forgiveness, and other methods for aiding the poorer countries. In fact, we believe that a historic realization has occurred; namely, that if we are to have a global economy and a global market, we must absolutely have a global community to regulate that market and that economy. This global community should be con- cerned not only with correcting capital market failures, it should also produce and promote the production of public goods at the global level, such as the creation of know-how and technology. The global commu- nity should seek to curb societal evils such as environmental degrada- tion, it should rein in the inappropriate use of market power, and it should prevent the unethical behavior of certain transnational enter- prises. Furthermore, the global community should promote trans- parency as a means of counteracting information asymmetry and should foster the use of appropriate standards and protocols at the global level. It should also pass legislation on security and enforce global laws through legitimate judicial bodies and systems of safeguards that are not influenced by private agendas but which reflect broadly applicable rules and principles. However, if we are to have a global community, we ought to consider what goals it should pursue. And as the matter should not be decided by the few representing the many, we must rely on the unrivaled mech- anism for defining such objectives: namely, democracy. If a democratic system is to be the cornerstone of policy-making and decision-making within a particular country, that same democratic system must serve as the basis for the rules and institutions that we mentioned earlier, both with regard to financial regulation and in all other areas. We cannot afford to be inconsistent or hypocritical as we call for democracy and 205 respect for human rights. To avoid accusations of high-handedness or passivity (as the case may be), when we urge other nations to embrace democracy we should not merely give our blessing to democracy in the global community, we should actively encourage it. Nonetheless, democracy must be predicated upon human beings. The power exer- cised by the people of a democracy must derive from the individual; it follows that in a global community, fundamental decisions--particularly economic decisions--must respect the principle of one person, one vote. The lack of democracy currently on display at the United Nations is unacceptable, from this standpoint, in the new millennium. Specifically, in a democratic country, when decisions are made con- cerning an economic program that includes fiscal rules--for example, rules pertaining to taxes--it is unthinkable that one person should have more votes, more decision-making power than another, purely because that person is richer. Likewise, in the decisions of an economic institu- tion belonging to the global community--such as the IMF or the World Bank--it is wholly inappropriate for one country to exercise more power than another simply because it is wealthier. Furthermore, a soci- ety needs more than just a central bank and a development bank. It also requires a tax collection mechanism to finance its operations, such as the delivery of public goods, or to make revenue transfers in pursuit of democratically selected principles, such as equality of opportunity. Needless to say, in a society of altruists--based on some degree of gen- uine compassion--voluntary give-and-take produces a harmonious equilibrium in which equality of opportunity is automatically assured. However, judging by the reality of global inequality--or should I say involuntary inequality?--and the related phenomenon of involuntary unemployment, clearly documented by the World Bank and mentioned today by World Bank President Mr. Wolfensohn, the degree of altruism shown by the richer countries from one day to the next is not sufficient to offset growing inequality, or to achieve the Millennium Development Goals. As has been empirically documented, inequality generates eco- nomic stagnation and violence. If the global community wishes to grow in a harmonious and sustained fashion, it must address the problem of poverty, as well as guarantee education and health care for the margin- alized members of society. If we are serious about preventing terrorism, we must tackle poverty and inequality. This has been demonstrated by such authors as Gary Becker of the University of Chicago, who, in his discussions of the economics of law and the incentives to commit crimes, argues that an unequal society is an insecure society, not con- ducive to long-term investment. However, since the requisite degree of altruism is still wanting, the democratic principle of majority rule in fiscal matters is bound to pro- duce a transfer mechanism that safeguards the principle of equality of 206 opportunity. And let us say this: the wealthy countries are not solely responsible for their wealth, just as the poor countries are not solely responsible for their poverty. Have we not learned that circumstances are decisive in such matters? This is hard for the wealthy countries to understand, but the poor have no such difficulty, as Jesus of Nazareth pointed out. In this case, democracy ensures that truth will triumph. Thus, the global community should also institute a democratically selected means of transferring revenue from rich to poor, one that upholds the principle of equality of opportunity. The objective, how- ever, is not to reward those who seek to avoid work, but rather to level the playing field so that individuals can make their own decisions on a basis of parity. Are the wealthy countries aware that if there had been more accountability in the institutions they traditionally dominate--such as the IMF--there would be less poverty in the world today? Considering the unfair advantages amassed by the wealthy over the years, many of the debts of the poor countries ought to be forgiven, and borders should be opened to trade and global production. It is also essential that prin- ciples of fair competition be embraced, so that local entrepreneurs can compete on an equal footing with their counterparts in the wealthy countries. Otherwise, cutthroat behavior in an imperfect market as well as in the social sphere--which takes no account of the most harmo- nious, efficient equilibria--will consign local entrepreneurs to poverty and inequality. Let me close by saying something more specific. The supervision of loans granted to prevent crises, or of loans for development, should not be subjected to biased political criteria. For example, in a critical situa- tion such as the one facing Venezuela, which has a fairly standard mar- ket economy program, politically explosive measures such as instantly quintupling the price of gasoline are not practicable. We have cut primary spending by three percentage points of GDP and introduced modest increases in the value-added tax and the tax on financial trans- actions. We are also working on a feasible and progressive plan for bringing gasoline prices into line with prevailing conditions. However, at a time when our fiscal revenue has fallen 35 percent because of the abominable acts of September 11, 2001 and the consequent sub- stantial decline in the demand for oil, we need some understanding. In a year when debt service consumes nearly half of all tax revenue (despite the fact that Venezuela's debt is among the lowest in Latin America, its maturities are unevenly distributed), we also need understanding. But that is not what we have been getting so far, despite Mr. Köhler's wise pronouncements. Dare we hope that the marvelous principles espoused today at the beginning of this session will be followed by those lower down in the bureaucracy of the IMF and the World Bank? 207 We fervently hope that this will be so, as the hour of truth, intelli- gence, and wisdom approaches, a time when ideals are contrasted with reality--or at least with what is to come. The best prescription for growth, for the economy, for business, and for workers is also the morally sound solution: true democracy, equality of opportunity, har- mony, peace and love. 208 CONCLUDING REMARKS BY JAMES D. WOLFENSOHN PRESIDENT OF THE WORLD BANK GROUP We met for two short days, but I believe that we have accomplished a great deal. Clearly, we were all preoccupied with the difficult and uncertain world economic environment, but, as Horst Köhler said, that should not cause us to be pessimistic. Indeed, all Governors stressed the importance for renewing our commitment and focusing our efforts on the attainment of the Millen- nium Development Goals. I believe we have the opportunity to launch a new global partner- ship. I believe that we made substantial progress toward this agenda here at these meetings. First, we agreed that the Development Committee and, through it, the Governors of the Bank and the Fund, should systematically moni- tor the actions needed to reach the MDGs based on the commitments made at Doha, Monterrey, and Johannesburg. Second, as an immediate step, we will develop for the next meeting of the Development Committee a framework and specific indicators for tracking actions and policies on the part of all concerned--the developed countries, the developing countries, and the international institutions. Third, we agreed to take forward the agenda on improving donor alignment behind country-owned strategies, enhancing our results ori- entation and harmonizing aid practices in partnership with the bilateral community and the multilateral development banks. Next steps: the DAC Forum in December and a high-level seminar in Rome hosted by the Government of Italy. Fourth, I welcome the support from Governors on the EFA Fast Track Initiative and look forward to scaling up our efforts not only on EFA but also on HIV/AIDS and Water. Fifth, I am pleased that Governors highlighted the importance of strengthening development country voice and participation. I person- ally very much welcome this. Ministers agreed that the Bank and the Fund would prepare a background paper for discussion at the next Development Committee meeting. Sixth, I am gratified at the pledges announced at the meetings to close the financing gap for the HIPC program and look forward to suc- cessful completion at the meeting planned for October. Finally, we agreed that we need to maintain momentum on many other areas that are key to the parts of the implementation agenda, including the work on PRSPs, on anti-money laundering/terrorist financ- ing, strengthening the financial sector/standards and codes, and the like. 209 These together constitute an ambitious program, but, if we work in the spirit of partnership, not only with bilateral donors and multilateral partners, but also with the private sector and civil society, I am sure that we will be able to meet our goals. I am gratified that we are on the path to creating a just and safe world. I am grateful to all of you who have come here from distant places as a demonstration of your solidarity and commitment to our common goal of a better and a more equitable world. I would like to extend my appreciation in particular to the authorities of the United States for making our meeting in Washington possible. I would also like to extend our thanks to the DC Government, to the DC Police Department, and to all the security personnel, for all their support throughout the meet- ings. To the protestors, I say we do not have a different goal and that we will better accomplish that goal through dialog and mutual respect. I wish you all bon voyage and look forward to seeing you next at the spring meetings or at our next Annual Meetings in Dubai. 210 CONCLUDING REMARKS BY THE CHAIRMAN THE HONORABLE AHMED MACKI Fellow Governors, as we come to a close in our deliberations this year, let us try to reflect and take stock of what we have discussed, and how our work over the past few days can help improve the lives of those we represent. Although our Annual Meetings were shortened this year, I feel that we were still able to focus on a range of important issues, which are relevant both to the membership as well as to our two insti- tutions, and I would like to review them briefly. First, the wide-ranging agreements reached at Doha, Monterrey, and Johannesburg have provided all of us with a great deal of hope that we will now be able to make real progress in tackling what I referred to in my opening address as our greatest challenge, the meaningful reduction of poverty. A tremendous opportunity is before us now to work together to implement quickly the commitments that have been made, both by developed and developing countries, to improve the lives of those living in poverty, particularly in those quarters of the world where conflict is ongoing or has recently been resolved. We must not let this moment pass us by and allow the Millennium Development Goals sim- ply to become hollow targets. We have to fulfill our promises to ensure that we halve hunger and poverty by 2015, as the poorest of our citizens are counting on us and our institutions, now more than ever, to make a lasting and significant improvement in their quality of life. Second, the need to continue working together to improve the stan- dards of living in developing countries more generally has also been stressed. In their efforts to set the stage for tackling poverty, developing countries are continuing to implement sound policies, liberalize their economies, and pursue structural reforms in order to improve their investment climate and attract private investment. However, although their economic destiny is primarily in their own hands, developing countries still need the support of the developed countries through increased official development assistance and a meaningful opening of their markets to the exports of developing countries. Third, we are all concerned by the increased uncertainty surround- ing the global economic outlook. However, we are confident that with determined implementation of sound polices in industrialized countries, emerging markets, and developing countries, the health of the global economy will continue to improve and the risks will diminish. We have also welcomed the ongoing initiatives by the Fund to improve the qual- ity and effectiveness of its policy advice, streamline conditionality, and boost its crisis prevention and resolution efforts, including through strengthened surveillance. On a related note, the current studies under way on mechanisms to facilitate the orderly and efficient restructuring 211 of unsustainable sovereign debt have been noted as indicating possible further ways to reduce the uncertainty and economic costs associated with future financial crises. Fourth, we have welcomed the progress achieved under the Enhanced HIPC Initiative. Nonetheless, we remain concerned that the pace of implementation has been slow, that financing shortfalls still exist, and that, owing to exogenous factors, some HIPCs will continue to have unsustainable debt levels even after they exit from the Initia- tive. In this regard, to ensure that in the future we will be able to look back upon the Initiative as a success, many of us have called for pro- viding sufficient resources for debt relief, as we recognize that unsus- tainable levels of debt are a serious impediment to development and poverty reduction. We warmly welcome the agreement reached on the Thirteenth Replenishment of IDA, and we are pleased that while some IDA resources will now be provided as grants, the principle of IDA resource sustainability will be maintained. There have also been calls to ensure that both our institutions continue to have adequate resources to carry out their respective responsibilities. Fellow Governors, we are gathered in a city that was directly affected by the tragic events of September 11. I am therefore very pleased to note that we have reiterated our strong support for eliminating money laun- dering and the financing of terrorism, and have welcomed the rapid progress our two institutions have made in their action plan to help the international community address this important issue. Finally, we all agree that the Fund and the Bank remain the relevant institutions to address the issues and challenges we have mentioned today. Their work will help to continue reducing the apprehensions about globalization. We must therefore continue to support them and work with them to make certain that we spare no effort in our collective fight to strengthen all of our economies and ensure that all of our citi- zens have the opportunity to realize their potential, achieve their aspi- rations, and make a productive and valuable contribution to society. As the Managing Director mentioned earlier today, the true measure of our progress is the benefits we see in our member countries. Fellow Governors, it has been a great honor for the Sultanate of Oman and it has been my privilege to have served as Chairman of the Boards of Governors of the Fund and the Bank. I would like to conclude our successful meetings by first thanking all of you for your support during my tenure as Chairman. I would like to commend Mr. Köhler and Mr. Wolfensohn for their continuing admirable stewardship of our two institutions. I would also like to pay tribute to the strong commitment and dedication of the outstanding staffs of our two institutions, which have helped the Fund and the Bank 212 successfully fulfill their respective mandates. My heartfelt appreciation goes to Mr. Anjaria and Mr. Fall, as well as to the staff of the Joint Sec- retariat, particularly Ms. Patricia Davies, for all of their hard work in arranging our meetings in such an organized and efficient manner, which I am sure was quite challenging given the special circumstances this year. I would also like to thank the staff that were assigned to me in the Office of the Chairman for their valuable assistance in helping me carry out my duties as Chairman. I would like to express our gratitude again to the U.S. authorities for hosting us, particularly the authorities of our wonderful host city, Washington, D.C., for their warm hospitality and whose tireless efforts ensured that the business of our meetings was conducted smoothly. My Fellow Governors, I would also like to express, on behalf of all of us, our profound appreciation to the security officials of the Fund and the Bank as well as to the various law enforcement agencies from all over the United States for their efforts to ensure our safety and well-being. I would like to congratulate the Governor for Switzerland, who suc- ceeds me as incoming Chairman of the Boards of Governors. I would also like to thank him for the kind words he just extended to me. Fellow Governors, it gives me great pleasure that our next Annual Meetings will for the first time take place in an Arab country, the United Arab Emirates. I look forward to seeing all of you next year in Dubai. 213 SWITZERLAND: JEAN-PIERRE ROTH Governor of the Fund Fellow Governors, Mr. Chairman, Mr. Köhler, Mr. Wolfensohn, ladies and gentlemen, on behalf of Switzerland, I wish to thank you for the honor that you have bestowed on my country in choosing it to chair the Boards of Governors for this coming year. It will be difficult to match the skilled manner in which His Excellency Ahmed bin Abdul Nabi Macki has conducted these meetings. We owe him a debt of grat- itude, and we will try our best to follow his example. This year's meetings were overshadowed by the events of September of last year and a growing concern about the future. The meetings have clearly highlighted the many and difficult challenges which we must face in the months and years ahead. It is imperative that these two great institutions intensify their efforts to promote growth and stability in their drive to bring about sustainable development and a reduction in poverty. Thereby, they will make a large contribution to peace in the world. They need our support for this important task. In closing, I want to thank the heads of our institutions, Mr. Köhler and Mr. Wolfensohn, and their staffs for what they have achieved over the past year and to offer them my wholehearted encouragement for the future. I look forward to seeing you in Dubai next year, and wish all of you a good and safe journey home. 214 DOCUMENTS OF THE BOARD OF GOVERNORS SCHEDULE OF MEETINGS1,2,4 Sunday September 29 8:00 a.m. Opening Ceremonies Address from the Chair Annual Address by Managing Director, International Monetary Fund Annual Address by President, World Bank Group3 Annual Discussion 3:00 p.m. Annual Discussion Procedures Committees Reports Comments by Heads of Organizations Adjournment 1The Meetings were held jointly at Constitution Hall (a.m. session) and Preston Auditorium (p.m. session.) 2The International Monetary and Financial Committee and Development Committee both met on Saturday, September 28, 2002. 3The World Bank Group consists of the following: International Bank for Reconstruction and Development (IBRD) International Finance Corporation (IFC) International Development Association (IDA) International Centre for Settlement of Investment Disputes (ICSID) Multilateral Investment Guarantee Agency (MIGA) 4The balloting for the elections of the Executive Directors of the IMF, IBRD, and MIGA closed on Sunday, September 29, 2002 at 12:00 noon. 215 PROVISIONS RELATING TO THE CONDUCT OF THE MEETINGS1 ADMISSION 1. Sessions of the Boards of Governors of the International Monetary Fund and the World Bank Group will be joint and shall be open to accredited press, guests and staff. 2. Meetings of the Joint Procedures Committee shall be open only to Governors who are members of the Committee and their advisers, Executive Directors, and such staff as may be necessary. PROCEDURES AND RECORDS 3. The Chairman of the Boards of Governors will establish the order of speaking at each session. Governors signifying a desire to speak will gen- erally be recognized in the order in which they ask to speak. 4. With the consent of the Chairman, a Governor may extend his statement in the record following advance submission of the text to the Secretaries. 5. The Secretaries will have verbatim transcripts prepared of the proceed- ings of the Boards of Governors and the Joint Procedures Committee. The transcripts of proceedings of the Joint Procedures Committee will be confidential and available only to the Chairman, the Managing Director of the International Monetary Fund, the President of the World Bank Group, and the Secretaries. 6. Reports of the Joint Procedures Committee shall be signed by the Committee Chairman and the Reporting Member. PUBLIC INFORMATION 7. The Chairman of the Boards of Governors, the Managing Director of the International Monetary Fund and the President of the World Bank Group will communicate to the press such information concerning the proceedings of the Annual Meetings as they may deem suitable. 1 Approved on June 25, 2002 pursuant to the By-laws, IBRD Section 5 (d), IFC Section 4(d) and IDA Section 1(a). 216 BANK AGENDA1 Annual Report Financial Statements and Annual Audit Allocation of FY2002 Net Income Administrative Budget for FY2003 Annual Report of the Development Committee 2002 Regular Election of Executive Directors Selection of the Members of the Joint Procedures Committee and its Officers for 2002­2003 IFC Annual Report Financial Statements and Annual Audit Administrative Budget for FY2003 IDA Annual Report Financial Statements and Annual Audit Administrative Budget for FY2003 Additions to IDA Resources: Thirteenth Replenishment MIGA2 Annual Report 2002 Regular Election of Directors Selection of the Members of the MIGA Procedures Committee and its Officers for 2002­2003 1Approved on August 13, 2002 pursuant to the By-Laws, IBRD Section 5(a), IFC Section 4(a), IDA Section 1(a). 2Approved on August 13, 2002 pursuant to Section 4(a) of the MIGA By-Laws. 217 JOINT PROCEDURES COMMITTEE Chairman . . . . . . . . . . . . . . . . . . . . . . Oman Vice Chairmen . . . . . . . . . . . . . . . . . . Iceland Mauritius Reporting Member . . . . . . . . . . . . . . . Belize Members Albania Ireland Argentina Japan Belize Republic of Korea Bosnia and Herzegovina Mauritius Cape Verde Oman Ecuador Saudi Arabia El Salvador Singapore Eritrea Slovenia France Sri Lanka The Gambia United Kingdom Germany United States Iceland 218 REPORT OF THE JOINT PROCEDURES COMMITTEE REPORT II1 September 27, 2002 At the meeting of the Joint Procedures Committee held on September 27, 2002, items of business on the agenda of the Boards of Governors of the Bank, IFC, and IDA were considered. The Committee submits the following report and recommendations on Bank and IDA business: 1. 2002 Annual Report The Committee noted that the 2002 Annual Report and the activities of the Bank and IDA had been discussed at these Annual Meetings. 2. 2002 Regular Election of Executive Directors The Committee noted that the 2002 Regular Election of Executive Directors of the Bank had taken place and completed on September 29, 2002 and that the next Regular Election of Executive Directors will take place in 2004....2 3. Financial Statements, Annual Audits, and Administrative Budgets The Committee considered the Financial Statements, Accountants' Reports, and Administrative Budgets contained in the 2002 Bank and IDA Annual Report, together with the Report dated June 27, 2002. The Committee recommends that the Boards of Governors of the Bank and IDA adopt the draft Resolutions....3 1 Report I related to business of the Fund. 2 See page 229. 3 See page 230 and 241. 219 4. Allocation of FY2002 Net Income of the Bank The Committee considered the Report of the Executive Directors, dated August 8, 2002, on the Allocation of FY2002 Net Income....1 The Committee recommends that the Board of Governors of the Bank adopt the draft Resolution....2 The Committee submits the following report and recommendations on IFC business: 1. 2002 Annual Report The Committee noted that the 2002 Annual Report and the activities of the IFC had been discussed at these Annual Meetings. 2. Financial Statements, Annual Audit, and Administrative Budget The Committee considered the Financial Statements and the Accountants' Report contained in the 2002 Annual Report, and the Administrative Budget attached to the Report, dated June 13, 2002. The Committee recommends that the Board of Governors of IFC adopt the draft resolution....3 Approved: /s/ Ahmed Bin Abdulnabi Macki /s/ Lisa Shoman Oman--Chairman Belize--Reporting Member (This report was approved and its recommendations were adopted by the Boards of Governors on September 29, 2002) 1 See page 267. 2 See page 230. 3 See page 230. 220 REPORT III September 29, 2002 The Joint Procedures Committee met on September 27, 2002 and submits the following report and recommendations: 1. Development Committee The Committee noted that the Report of the Chairman of the Joint Ministerial Committee of the Boards of Governors of the Fund and the Bank on the Transfer of Real Resources to Developing Countries (Development Committee) would be presented to the Boards of Governors of the Fund and Bank on September 29, 2002 pursuant to paragraph 5 of Resolutions Nos. 29-9 and 294 of the Fund and Bank, respectively....1 The Committee recommends that the Boards of Governors of the Fund and the Bank note the report and thank the Development Committee for its work. 2. Officers and Joint Procedures Committee for 2002/03 The Committee recommends that the Governor for Switzerland be Chairman and that the Governors for Chad and Thailand be Vice Chairmen of the Boards of Governors of the Fund and of the World Bank Group, to hold office until the close of the next Annual Meetings. It is further recommended that a Joint Procedures Committee be estab- lished to be available, after the termination of these meetings and until the close of the next Annual Meetings, for consultation at the discretion of the Chairman, normally by correspondence and, if the occasion requires, by convening; and that this Committee shall consist of the Governors for the following members: Benin, Brazil, Cambodia, Chad, Cyprus, Denmark, France, Germany, India, Japan, Luxembourg, Malawi, Pakistan, Portugal, St. Kitts and Nevis, Saudi Arabia, Swaziland, Switzerland, Thailand, United Kingdom, United States, Uruguay, and Venezuela. 1 See page 12. 221 It is recommended that the Chairman of the Joint Procedures Committee shall be the Governor for Switzerland, and the Vice Chairmen shall be the Governors for Chad and Thailand, and that the Governor for Pakistan shall serve as Reporting Member. Approved: /s/ Ahmed Bin Abdulnabi Macki /s/ Lisa Shoman Oman--Chairman Belize--Reporting Member (This report was approved and its recommendations were adopted by the Boards of Governors on September 29, 2002) 222 MIGA PROCEDURES COMMITTEE Chairman . . . . . . . . . . . . . . . . . . . . . . Oman Vice Chairmen . . . . . . . . . . . . . . . . . . Iceland Mauritius Reporting Member . . . . . . . . . . . . . . . Belize Members Albania Ireland Argentina Japan Belize Republic of Korea Bosnia and Herzegovina Mauritius Cape Verde Oman Ecuador Saudi Arabia El Salvador Singapore Eritrea Slovenia France Sri Lanka The Gambia United Kingdom Germany United States Iceland 223 REPORT OF THE MIGA PROCEDURES COMMITTEE REPORT I September 29, 2002 At the meeting of the MIGA Procedures Committee held on September 27, 2002, the items of business on the agenda of the Council of Governors of MIGA were considered. The Committee submits the following report and recommendations on MIGA business: 1. 2002 Annual Report The Committee noted that the 2002 Annual Report and the activities of MIGA had been discussed at this Annual Meeting. 2. 2002 Election of Directors The Committee noted that the 2002 Election of Directors of MIGA would take place and that the next Election of Directors will take place in 2004. 3. Officers and Procedures Committee for 2002/03 The Committee recommends that the Governor for Switzerland be Chairman and the Governors for Chad and Thailand be Vice Chairmen of the Council of Governors of MIGA to hold office until the close of the next Annual Meeting. It is further recommended that a Procedures Committee be established to be available, after the termination of this Annual Meeting and until the close of the next Annual Meeting, for consultation at the discretion of the Chairman, normally by correspondence and, if the occasion requires, by convening; and that this committee shall consist of the Governors for the following members: Benin, Brazil, Cambodia, Chad, Cyprus, Denmark, France, Germany, India, Japan, Luxembourg, Malawi, Pakistan, Portugal, St. Kitts and Nevis, Saudi Arabia, Swaziland, Switzerland, Thailand, United Kingdom, United States, Uruguay and Venezuela. 224 It is recommended that the Chairman of the Procedures Committee shall be the Governor for Switzerland and the Vice Chairmen shall be the Governors for Chad and Thailand and that the Governor for Pakistan shall serve as Reporting Member. Approved: /s/ Ahmed Bin Abdulnabi Macki /s/ Lisa Shoman Oman--Chairman Belize--Reporting Member (This report was approved and its recommendations were adopted by the Boards of Governors on September 29, 2002) 225 RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF THE BANK BETWEEN THE 2001 AND 2002 ANNUAL MEETINGS Resolution No. 544 Membership of East Timor WHEREAS, the Government of East Timor has applied for admission, on the attainment by that country of independence, to mem- bership in the International Bank for Reconstruction and Development in accordance with Section 1(b) of Article II of the Articles of Agreement of the Bank; WHEREAS, it is expected that East Timor will attain independence on May 20, 2002; WHEREAS, pursuant to Section 19 of the By-Laws of the Bank, the Executive Directors, after consultation with representatives of the Government of East Timor, have made recommendations to the Board of Governors regarding this application; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THAT the terms and conditions upon which East Timor shall be admitted to membership in the Bank shall be as follows: 1. Definitions: As used in this Resolution: (a) "Bank" means International Bank for Reconstruction and Development. (b) "Articles" means the Articles of Agreement of the Bank. (c) "1979 Additional Capital Increase Resolution" means Board of Governors' Resolution No. 347 entitled "1979 Additional Increase in Authorized Capital Stock and Subscriptions Thereto" adopted on January 4, 1980, as amended by Resolution No. 419 adopted on August 17, 1987. 2. Membership in the Fund: Before accepting membership in the Bank, East Timor shall accept membership in and become a mem- ber of the International Monetary Fund. 226 3. Subscription: By accepting membership in the Bank, East Timor shall subscribe to 267 shares of the capital stock of the Bank at par on the terms and conditions set forth or referred to in paragraph 4 hereof. 4. Payments on Subscription: (a) Upon accepting membership in the Bank, East Timor shall pay to the Bank under Article II, Section 7(i) of the Articles on account of the subscription price of each of the 267 shares sub- scribed pursuant to paragraph 3 of this Resolution: (i) Gold or United States dollars equal to 0.6% (six-tenths of one percent) of the said subscription price; and (ii) An amount in its own currency which, at the appropriate prevailing exchange rate, shall be equal to 5.4% (five and four-tenths of one percent) thereof. (b) The Bank shall call the amounts of subscription under paragraph 3 of this Resolution payable under the said Article II, Section 7(i) which are not required to be paid under paragraph 4(a) above only when required to meet obligations of the Bank for funds bor- rowed or on loans guaranteed by it and not for use by the Bank in its lending activities or for administrative expenses. 5. Acceptance of Subscription: Before the Bank shall accept East Timor's subscription to the shares set out in paragraph 3 of this Resolution, the following action shall have been taken: (a) East Timor shall have taken all action necessary to authorize such subscription and shall furnish to the Bank all such infor- mation thereon as the Bank may request; and (b) With respect to and on account of the subscription price of the said shares, East Timor shall pay to the Bank the amounts set forth in paragraph 4(a) above. 6. Representation and Information: Before accepting membership in the Bank, East Timor shall represent to the Bank that it has taken all action necessary to sign and deposit the instrument of accept- ance and sign the Articles as contemplated by paragraphs 7(d) and (e) of this Resolution and East Timor shall furnish to the Bank such information in respect of such action as the Bank may request. 7. Effective Date of Membership: East Timor shall become a member of the Bank with a subscription as set forth in paragraph 3 of this 227 Resolution as of the date when East Timor shall have complied with the following requirements: (a) become a member of the International Monetary Fund; (b) made the payments called for by paragraph 4 of this Resolution; (c) furnished the representation, and such information as may have been requested by the Bank, pursuant to paragraph 6 of this Resolution; (d) deposited with the Government of the United States of America an instrument stating that it has accepted in accor- dance with its law the Articles and all the terms and conditions prescribed in this Resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this Resolution; and (e) signed the original Articles held in the archives of the Government of the United States of America. 8. Additional Subscription on Terms and Conditions of the 1979 Additional Capital Increase Resolution: East Timor may subscribe 250 shares of the capital stock of the Bank on the terms and condi- tions specified in paragraphs 2 and 3 of the 1979 Additional Capital Increase Resolution, provided, however, that notwithstanding the provision of paragraph 2(b) of the said Resolution, East Timor may subscribe such shares up to December 31, 2002, or such later date as the Executive Directors may determine. 9. Limitation on Period for Fulfillment of Requirements of Membership: East Timor may fulfill the requirements for membership in the Bank pursuant to this Resolution until December 31, 2002, or such later date as the Executive Directors may determine. (Adopted on June 24, 2002) Resolution No. 545 Direct Remuneration of Executive Directors and their Alternates RESOLVED: THAT, effective July 1, 2002, the remuneration of the Executive Directors of the Bank and their Alternates pursuant to Section 13(e) of the By-Laws shall be paid in the form of salary without a separate sup- plemental allowance, and such salary shall be paid at the annual rate of 228 $182,590 per year for Executive Directors and $157,940 per year for their Alternates. (Adopted on August 5, 2002) Resolution No. 546 Forthcoming Annual Meetings RESOLVED: THAT the 2004 and 2005 Annual Meetings shall be convened in Washington, D.C. beginning on Monday, September 27, 2004 and Monday, September 26, 2005; THAT the invitation of the Government of Singapore to hold the Annual Meetings in Singapore in 2006 be accepted; and THAT the 2006 Annual Meetings be convened beginning on Tuesday, September 19, 2006. (Adopted on August 15, 2002) Resolution No. 547 2002 Regular Election of Executive Directors RESOLVED: (a) THAT the attached Rules for the 2002 Regular Election of Executive Directors are hereby approved; and (b) THAT a Regular Election of Executive Directors shall take place in connection with the Annual Meeting of the Board of Governors in 2004. (Adopted on August 19, 2002) 229 RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF THE BANK AT THE 2002 ANNUAL MEETINGS Resolution No. 548 Financial Statements, Accountants' Report and Administrative Budget RESOLVED: THAT the Board of Governors of the Bank consider the Financial Statements, Accountants' Report and Administrative Budget, included in the 2002 Annual Report, as fulfilling the requirements of Article V, Section 13, of the Articles of Agreement and of Section 18 of the By-Laws of the Bank. (Adopted on September 29, 2002) Resolution No. 549 Allocation of FY2002 Net Income RESOLVED: 1. THAT the Report of the Executive Directors dated August 8, 2002 on "Allocation of FY02 Net Income" is hereby noted with approval; 2. THAT the addition to the General Reserve of the Bank of $1,291 million, plus or minus any rounding amount less than $1 mil- lion, and the allocation to the pension reserve of $93 million, of net income for the fiscal year ended June 30, 2002 (FY02), for the rea- sons given in the Report of the Executive Directors, are hereby noted with approval; 3. THAT the Bank transfer to the International Development Association, by way of immediate grant out of the FY02 net income of the Bank, $300 million, which amount may be used by the Association to provide financing in the form of grants in addition to loans; and 230 4. THAT the Bank transfer to the HIPC Debt Initiative Trust Fund, by way of immediate grant out of the Bank's net income, $240 million. (Adopted on September 29, 2002) 231 RESOLUTION ADOPTED BY THE BOARD OF GOVERNORS OF IFC BETWEEN THE 2001 AND 2002 ANNUAL MEETINGS Resolution No. 235 Membership of East Timor WHEREAS, the Government of East Timor has applied for admis- sion, on the attainment by that country of independence, to member- ship in the International Finance Corporation in accordance with Section 1(b) of Article II of the Articles of Agreement of the Corporation; and WHEREAS, it is expected that East Timor will attain independence on May 20, 2002; WHEREAS, pursuant to Section 17 of the By-Laws of the Corporation, the Board of Directors, after consultation with represen- tatives of the Government of East Timor, has made recommendations to the Board of Governors regarding this application; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THAT the terms and conditions upon which East Timor shall be admitted to membership in the Corporation shall be as follows: 1. Definitions: As used in this Resolution: (a) "Corporation" means International Finance Corporation. (b) "Articles" means the Articles of Agreement of the Corporation. (c) "Dollars" or "$" means dollars in currency of the United States of America. 2. Subscription: By accepting membership in the Corporation, East Timor shall subscribe to 777 shares of the capital stock of the Corporation at the par value of $1,000 per share. 3. Payment of Subscription: Before accepting membership in the Corporation, East Timor shall pay $777,000 to the Corporation representing payment in full for the 777 shares of the capital stock subscribed. 232 4. Information: Before accepting membership in the Corporation, East Timor shall furnish to the Corporation such information relat- ing to its application for membership as the Corporation may request. 5. Effective Date of Membership: East Timor shall become a member of the Corporation with a subscription as set forth in paragraph 2 of this Resolution as of the date when East Timor shall have complied with the following requirements: (a) become a member of the International Bank for Reconstruction and Development; (b) made the payment called for by paragraph 3 of this Resolution; (c) furnished such information as may have been requested by the Corporation pursuant to paragraph 4 of this Resolution; (d) deposited with the International Bank for Reconstruction and Development an instrument stating that it has accepted with- out reservation in accordance with its law the Articles and all the terms and conditions prescribed in this Resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this Resolution; and (e) signed the original Articles held in the archives of the International Bank for Reconstruction and Development. 6. Limitation on Period for Fulfillment of Requirements of Membership: East Timor may fulfill the requirements for member- ship in the Corporation pursuant to this Resolution until December 31, 2002, or such later date as the Board of Directors may determine. (Adopted on June 24, 2002) 233 RESOLUTION ADOPTED BY THE BOARD OF GOVERNORS OF IFC AT THE 2002 ANNUAL MEETINGS Resolution No. 236 Financial Statements, Accountants' Report and Administrative Budget RESOLVED: THAT the Board of Governors of the Corporation consider the Financial Statements, Accountants' Report and Administrative Budget, included in the 2002 Annual Report and the Administrative Budget attached to the Report dated July 31, 2003 as fulfilling the requirements of Article IV, Section 11, of the Articles of Agreement and of Section 16 of the By-Laws of the Corporation. (Adopted on September 29, 2002) 234 RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF IDA BETWEEN THE 2001 AND 2002 ANNUAL MEETINGS Resolution No. 200 Membership of The Bahamas WHEREAS, The Bahamas has applied for membership in the International Development Association in accordance with Section 1(b) of Article II of the Articles of Agreement of the Association; WHEREAS, The Bahamas has indicated that it will make a contri- bution to the Association as part of the upcoming Thirteenth Replenishment of the Association; WHEREAS, pursuant to Section 9 of the By-Laws of the Association, the Executive Directors, after consultation with represen- tatives of The Bahamas, have made recommendations to the Board of Governors regarding this application; WHEREAS, The Bahamas is a member of the International Bank for Reconstruction and Development; NOW, THEREFORE, the Board of Governors hereby RESOLVES: THAT the terms and conditions upon which The Bahamas shall be admitted to membership in the Association shall be as follows: 1. Definitions: As used in this Resolution: (a) "Association" means International Development Association. (b) "Articles" means the Articles of Agreement of the Association. (c) "Dollars" or "$" means dollars in currency of the United States of America. 2. Initial Subscription: (a) The terms and conditions of the membership of The Bahamas in the Association other than those specifically provided for in this Resolution shall be those set forth in the Articles with respect to the membership of original members listed in Part II 235 of Schedule A thereof (including, but not by way of limitation, the terms and conditions relating to subscriptions, payments on subscriptions, usability of currencies and voting rights). (b) Upon accepting membership in the Association, The Bahamas shall subscribe funds in the amount of $380,000 expressed in terms of United States Dollars of the weight and fineness in effect on January 1, 1960, that is to say, pursuant to the decision of the Executive Directors of the Association of June 30, 1986 on the valuation of initial subscriptions, $458,413 in current United States Dollars, and shall pay the latter amount to the Association as follows: (a) ten percent either in gold or in freely convertible currency, and (b) ninety percent in the cur- rency of The Bahamas. As of the date The Bahamas will become a member of the Association, 576 votes shall be allo- cated to The Bahamas in respect of such subscription, consist- ing of 76 subscription votes and 500 membership votes. 3. Effective Date of Membership: The Bahamas shall become a member of the Association with a subscription as set forth in paragraph 2(b) of this Resolution as of the date when The Bahamas shall have com- plied with the following requirements: (a) made the payments called for by paragraph 2 of this Resolution; (b) deposited with the International Bank for Reconstruction and Development an instrument stating that it has accepted in accordance with its laws the Articles and all the terms and conditions prescribed in this Resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this Resolution; and (c) signed the original Articles held in the archives of the International Bank for Reconstruction and Development. 4. Limitation on Period for Fulfillment of Requirements of Membership: The Bahamas may fulfill the requirements for mem- bership in the Association pursuant to this Resolution until December 31, 2002, or such later date as the Executive Directors may determine. 5. Additional Subscriptions and Contributions: Upon or after accept- ance of membership, The Bahamas shall also be authorized at its option to make the following additional subscriptions: (a) An additional subscription in the amount of $94,454, compris- ing subscriptions corresponding to the Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh and Twelfth 236 Replenishments, which shall carry 29,849 votes, calculated on the basis of 3,249 subscription votes and 26,600 membership votes, and which shall be subject to the following terms and conditions: (i) Payment of such additional subscription shall be made in the currency of The Bahamas within 30 days after The Bahamas notifies the Association of its intention to make such additional subscription. (ii) The rights and obligations of the Association and The Bahamas with regard to such additional subscription shall be the same (except as otherwise provided in this Resolution) as those which govern the 90% portion of the initial subscriptions of original members payable under Article II, Section 2(d) of the Articles by members listed in Part II of Schedule A of the Articles, provided, how- ever, that the provisions of Article IV, Section 2 of the Articles shall not be applicable to such subscription. (b) The Bahamas' subscription and contribution to the upcoming Thirteenth Replenishment will be determined at the conclu- sion of the Thirteenth Replenishment discussions. (Adopted on June 17, 2002) Resolution No. 201 Membership of East Timor WHEREAS, the Government of East Timor has applied for admis- sion, on the attainment by that country of independence, to member- ship in the International Development Association in accordance with Section 1(b) of Article II of the Articles of Agreement of the Association; WHEREAS, it is expected that East Timor will attain independence on May 20, 2002; WHEREAS, pursuant to Section 9 of the By-Laws of the Association, the Executive Directors, after consultation with represen- tatives of the Government of East Timor, have made recommendations to the Board of Governors regarding this application; NOW, THEREFORE, the Board of Governors hereby 237 RESOLVES: THAT the terms and conditions upon which East Timor shall be admitted to membership in the Association shall be as follows: 1. Definitions: As used in this Resolution: (a) "Association" means International Development Association. (b) "Articles" means the Articles of Agreement of the Association. (c) "Dollars" or "$" means dollars in currency of the United States of America. 2. Initial Subscription: (a) The terms and conditions of the membership of East Timor in the Association other than those specifically provided for in this Resolution shall be those set forth in the Articles with respect to the membership of original members listed in Part II of Schedule A thereof (including, but not by way of limitation, the terms and conditions relating to subscriptions, payments on subscriptions, usability of currencies and voting rights). (b) Upon accepting membership in the Association, East Timor shall subscribe funds in the amount of $290,000 expressed in terms of United States dollars of the weight and fineness in effect on January 1, 1960, that is to say, pursuant to the deci- sion of the Executive Directors of the Association of June 30, 1986 on the valuation of initial subscriptions, $349,842 in cur- rent United States dollars, and shall pay the latter amount to the Association as follows: (a) ten percent either in gold or in freely convertible currency, and (b) ninety percent in the currency of East Timor. As of the date East Timor will become a member of the Association, 558 votes shall be allo- cated to East Timor in respect of such subscription, consisting of 58 subscription votes and 500 membership votes. 3. Effective Date of Membership: East Timor shall become a member of the Association with a subscription as set forth in paragraph 2(b) of this Resolution as of the date when East Timor shall have com- plied with the following requirements: (a) become a member of the International Bank for Reconstruction and Development; (b) made the payments called for by paragraph 2 of this Resolution; (c) deposited with the International Bank for Reconstruction and Development an instrument stating that it has accepted in 238 accordance with its law the Articles and all the terms and con- ditions prescribed in this Resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this Resolution; and (d) signed the original Articles held in the archives of the International Bank for Reconstruction and Development. 4. Limitation on Period for Fulfillment of Requirements of Membership: East Timor may fulfill the requirements for membership in the Association pursuant to this Resolution until December 31, 2002, or such later date as the Executive Directors may determine. 5. Additional Subscription: Upon or after acceptance of membership, East Timor shall also be authorized at its option to make an addi- tional subscription in the amount of $71,433, which shall carry 29,054 votes, calculated on the basis of 2,454 subscription votes and 26,600 membership votes, and which shall be subject to the follow- ing terms and conditions: (a) Payment of such additional subscription shall be made in the currency of East Timor within 30 days after East Timor noti- fies the Association of its intention to make such additional subscription. (b) The rights and obligations of the Association and East Timor with regard to such additional subscription shall be the same (except as otherwise provided in this Resolution) as those which govern the 90% portion of the initial subscriptions of original members payable under Article II, Section 2(d) of the Articles by members listed in Part II of Schedule A of the Articles, provided, however, that the provisions of Article IV, Section 2 of the Articles shall not be applicable to such subscription. (Adopted on June 24, 2002) Resolution No. 202 Greece--Change in Membership Status WHEREAS Greece became a member of the Association on January 9, 1962 pursuant to the terms and conditions of Article II, Section 1(a) of the Articles of Agreement with respect to the member- ship of original members listed in Part II of Schedule A to the Articles of Agreement; 239 WHEREAS Greece has removed all restrictions on the use by the Association of the amounts of its initial subscription in the Association's lending activities; WHEREAS Greece has participated in each of the replenishments of the Association's resources by making subscriptions and contribu- tions amounting in the aggregate to $58 million; WHEREAS Greece has requested that it be considered as a Part I member of the Association, and the Executive Directors have accepted this request and have recommended to the Board of Governors that the voting rights attached to Greece's subscriptions and contributions to the Association be adjusted on the basis of its status as Part I member; NOW, THEREFORE, the Board of Governors hereby RESOLVES as follows: 1. The terms and conditions of the membership of Greece in the Association other than those specifically provided for in this Resolution shall be those set forth in the Articles with respect to the membership of original members listed in Part I of Schedule A thereof (including, but not by way of limitation, the terms and conditions relating to subscriptions, payments on subscription, usability of currencies and voting rights). 2. Greece's votes shall be adjusted as follows: As of the date of this Resolution, 32,240 votes shall be allocated to Greece in lieu of the votes allocated to it before the said date, on account of its cumulative subscriptions and contributions to the resources of the Association through the Twelfth Replenishment of the Association's resources, consisting of 4,240 subscription votes and 28,000 membership votes. (Adopted on July 15, 2002) 240 RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS OF IDA AT THE 2002 ANNUAL MEETINGS Resolution No. 203 Financial Statements, Accountants' Report and Administrative Budget RESOLVED: THAT the Board of Governors of the Association consider the Financial Statements, Accountants' Report and Administrative Budget, included in the 2002 Annual Report, as fulfilling the requirements of Article VI, Section 11, of the Articles of Agreement and of Section 8 of the By-Laws of the Association. (Adopted on September 29, 2002) Resolution No. 204 Additions to Resources: Thirteenth Replenishment WHEREAS: (A) The Executive Directors of the International Development Association (the "Association") have considered the prospec- tive financial requirements of the Association and have con- cluded that it is desirable to authorize a replenishment of the resources of the Association for new financing commitments for the period from July 1, 2002 to June 30, 2005 (the "Thirteenth Replenishment") in the amounts and on the basis set out in the report of the IDA Deputies, "Additions to Resources: Thirteenth Replenishment, Supporting Poverty Reduction Strategies" (the "Report"), approved by the Executive Directors on July 25, 2002, and submitted to the Board of Governors; (B) The members of the Association consider that an increase in the resources of the Association is required and intend to take all necessary governmental and legislative action to authorize and approve the allocation of additional resources to the Association in the amounts and on the conditions set out in this Resolution; 241 (C) Members of the Association that contribute resources to the Association in addition to their subscriptions as part of the Thirteenth Replenishment ("Contributing Members") are to make available their contributions pursuant to the Articles of Agreement of the Association (the "Articles") partly in the form of subscriptions carrying voting rights and partly as sup- plementary resources in the form of contributions not carrying voting rights; (D) Additional subscriptions are to be authorized for Contributing Members in this Resolution on the basis of their agreement with respect to their preemptive rights under Article III, Section 1(c) of the Articles, and provision is made for the other members of the Association ("Subscribing Members") intend- ing to exercise their rights pursuant to that provision to do so; (E) It is desirable to provide for a portion of resources to be con- tributed by members to be paid to the Association as advance contributions; (F) Provision is made for special supplemental contributions to increase the Association's capacity to provide financing in extraordinary circumstances, and to fund the long-term costs of extending financing in the form of grants under the Thirteenth Replenishment; (G) Provision is made for the payment of additional subscriptions and contributions contingent upon the progress on specified performance criteria; (H) It is desirable to authorize the Association to provide financ- ing in the form of grants and guarantees in addition to loans; and (I) It is desirable to administer any remaining funds from the replenishment authorized by Resolution No. 194 of the Board of Governors of the Association (the "Twelfth Replenish- ment") as part of the Thirteenth Replenishment. NOW THEREFORE THE BOARD OF GOVERNORS HEREBY ACCEPTS the Report as approved by the Executive Directors, ADOPTS its conclusions and recommendations AND RESOLVES THAT a general increase in subscriptions of the Association is author- ized on the following terms and conditions: 242 1. Authorization of Subscriptions and Contributions. (a) The Association is authorized to accept additional resources from each Contributing Member in the amounts specified for each such member in Table 1 attached to this Resolution, and each such amount will be divided into a subscription carrying voting rights and a contribution not carrying voting rights as specified in Table 2 (IDA/SecM2002/0488). (b) In addition to the resources described in paragraph 1(a) above, the Association is authorized to accept special supplemental contributions from Contributing Members. (c) The Association is authorized to accept additional resources from any member for which no contribution is specified in Table 1. (d) The Association is authorized to accept additional subscriptions from each Subscribing Member in the amount specified for each such member in Table 2 (IDA/SecM2002/0488). 2. Agreement to Pay. (a) When a Contributing Member agrees to pay its subscription and contribution, or a Subscribing Member agrees to pay its subscription, it will deposit with the Association an instrument of commitment substantially in the form set out in Attachment I to this Resolution ("Instrument of Commitment"). (b) When a Contributing Member agrees to pay a part of its sub- scription and contribution without qualification and the remain- der is subject to enactment by its legislature of the necessary appropriation legislation, it will deposit a qualified instrument of commitment in a form acceptable to the Association ("Qualified Instrument of Commitment"); such member undertakes to exer- cise its best efforts to obtain legislative approval for the full amount of its subscription and contribution by the payment dates set out in paragraph 3(b) of this Resolution. 3. Payment. (a) Each Subscribing Member will pay to the Association the amount of its subscription in full within 31 days after the date of deposit of its Instrument of Commitment; provided that if the Thirteenth Replenishment shall not have become effective by December 15, 2002, payment may be postponed by the member for not more than 31 days after the Effective Date as defined in paragraph 6(a) of this Resolution. (b) Each Contributing Member that deposits an Instrument of Commitment that is not a Qualified Instrument of Commitment will pay to the Association the amount of its subscription and contribution in three equal annual installments no later than 243 January 15, 2003, January 15, 2004, and January 15, 2005; pro- vided that: (i) the Association and each Contributing Member may agree to earlier payment; (ii) if the Thirteenth Replenishment shall not have become effective by December 15, 2002, payment of the first such installment may be postponed by the member for not more than 31 days after the date on which the Thirteenth Replenishment becomes effective; (iii) the Association may agree to the postponement of any installment, or part thereof, if the amount paid, together with any unused balance of previous payments by the Contributing Member concerned, is at least equal to the amount estimated by the Association to be required from that member up to the due date of the next installment for purposes of disbursements for financing committed under the Thirteenth Replenishment; and (iv) if any Contributing Member deposits an Instrument of Commitment with the Association after the date when the first installment of the subscription and contribution is due, payment of any installment, or part thereof, will be made to the Association within 31 days after the date of such deposit. (c) If a Contributing Member has deposited a Qualified Instrument of Commitment and, upon enactment of appropri- ation legislation, notifies the Association that an installment, or part thereof, is unqualified after the date when it was due, then payment of such installment, or part thereof, will be made within 31 days after the date of such notification. (d) If a Contributing Member has deposited a Contingent Instrument of Commitment pursuant to paragraph 9 of this Resolution, payment of its contingent contributions will be made at the same time as payment of the related second and third annual installments. 4. Mode of Payment. (a) Payments pursuant to this Resolution will be made, at the option of the member: (i) in cash, on terms agreed between the member and the Association; or (ii) by the deposit of notes or similar obligations issued by the government of the member or the depository designated by such member, which shall be non- negotiable, non-interest bearing and payable at their par value on demand to the account of the Association. 244 (b) The Association will encash notes or similar obligations of Contributing Members, on an approximately pro rata basis among donors, in accordance with the encashment schedule set out in Attachment III to this Resolution, or as agreed between a Contributing Member and the Association. With respect to a Contributing Member that is unable to comply with one or more encashment requests, the Association may agree with the member on a revised encashment schedule that yields at least an equivalent value to the Association. (c) The provisions of Article IV, Section 1(a) of the Articles will apply to the use of a Subscribing Member's currency paid to the Association pursuant to this Resolution. 5. Currency of Denomination and Payment. (a) Members will denominate the resources to be made available pursuant to this Resolution in SDRs, the currency of the mem- ber, or, with the agreement of the Association, in a freely con- vertible currency of another member, except that if a Contributing Member's economy experienced a rate of infla- tion in excess of ten percent per annum on average in the period 1998­2000, as determined by the Association as of the date of adoption of this Resolution, its subscription and con- tribution will be denominated in SDRs. (b) Contributing Members will make payments pursuant to this Resolution in SDRs, a currency used for the valuation of the SDR, or, with the agreement of the Association, in another freely convertible currency, and the Association may freely exchange the amounts received as required for its operations. Subscribing Members will make payments in the currency of the member or in a freely convertible currency with the agree- ment of the Association. (c) Each member will maintain, in respect of its currency paid by it under this Resolution, and the currency of such member derived there from as principal, interest or other charges, the same convertibility as existed on the effective date of this Resolution. 6. Effective Date. (a) The Thirteenth Replenishment will become effective and the resources to be contributed pursuant to this Resolution will become payable to the Association on the date (the "Effective Date") when Contributing Members whose subscriptions and contributions aggregate not less than SDR 5,448 million shall 245 have deposited with the Association Instruments of Commitment or Qualified Instruments of Commitment, provided that this date shall be not later than December 15, 2002, or such later date as the Executive Directors of the Association may determine. (b) If the Association determines that the availability of additional resources pursuant to this Resolution is likely to be unduly delayed, it shall convene promptly a meeting of the Contributing Members to review the situation and to consider the steps to be taken to prevent a suspension of financing to eli- gible recipients by the Association. 7. Advance Contributions. (a) In order to avoid an interruption in the Association's ability to commit financing to eligible recipients pending the effective- ness of the Thirteenth Replenishment, and if the Association shall have received Instruments of Commitment from Contributing Members whose subscriptions and contributions aggregate not less than SDR 1,816 million, the Association may deem, prior to the Effective Date, one third of the total amount of each subscription and contribution for which an Instrument of Commitment has been deposited with the Association as an "Advance Contribution", unless the Contributing Member specifies otherwise in its Instrument of Commitment. (b) The Association shall specify when Advance Contributions pursuant to subparagraph (a) are to be paid to the Association. (c) The terms and conditions applicable to contributions to the Thirteenth Replenishment shall apply also to Advance Con- tributions until the Effective Date, when such contributions shall be deemed to constitute payment towards the amount due from each Contributing Member for its subscription and contribution. (d) In the event that the Thirteenth Replenishment shall not become effective pursuant to paragraph 6(a) of this Resolution, (i) voting rights will be allocated to each member for the Advance Contribution as if it had been made as a subscription and contribution under this Resolution, and (ii) each member not making an Advance Contribution will have the opportunity to exercise its preemptive rights under Article III, Section 1(c) of the Articles with respect to such subscription as the Association shall specify. 8. Commitment Authority. (a) Subscriptions and contributions, whether notified under an Instrument of Commitment, a Qualified Instrument of 246 Commitment, or a Contingent Instrument of Commitment, will become available for commitment by the Association for financing to eligible recipients when and to the extent they are paid to the Association in accordance with paragraphs 3 and 4 and subject to the provisions of paragraphs 6 and 7 of this Resolution. Advance Contributions will become available for commitment upon effectiveness of the Advance Contribution scheme set forth in paragraph 7 of this Resolution. (b) The Association shall promptly inform Contributing Members if a member that has deposited a Qualified Instrument of Commitment and whose subscription and contribution repre- sents more than 20 percent of the total amount of the resources to be contributed pursuant to this Resolution has not unquali- fied at least 66 percent of the total amount of its subscription and contribution by January 15, 2004, or 31 days after the Effective Date, whichever is later, and the total amount thereof by January 15, 2005, or 31 days after the Effective Date, whichever is later. (c) Within 31 days of the dispatch of notice by the Association under subparagraph (b), each other Contributing Member may notify the Association in writing that the commitment by the Association of the second installment of such member's sub- scription and contribution shall be deferred while, and to the extent that, any part of the subscription and contribution referred to in subparagraph (b) remains qualified; during such period, the Association shall make no financing commitments to eligible recipients in respect of the resources to which the notice pertains unless the right of the Contributing Member is waived pursuant to subparagraph (d). (d) The right of a Contributing Member under subparagraph (c) may be waived in writing, and it shall be deemed waived if the Association receives no written notice pursuant to such sub- paragraph within the period specified therein. (e) The Association may enter into financing commitments with eligible recipients conditional on such commitments becoming effective and binding on the Association when resources under the Thirteenth Replenishment become available for commit- ment by the Association. 9. Contingent Contributions. (a) If a Contributing Member agrees to pay an additional subscription and contribution contingent upon the satisfaction of the criteria detailed in the Schedules to Attachment II to this Resolution, it will deposit a contingent Instrument of Commitment or contingent 247 Qualified Instrument of Commitment (a "Contingent Instrument of Commitment") in a form acceptable to the Association on the basis of Attachment II (IDA/SecM2002-0488). (b) Each Contributing Member that has deposited with the Association a Contingent Instrument of Commitment will be allo- cated subscription votes at the time and to the extent of payments made in respect of its related subscription and contribution. 10. Authorization of Grants. The Association is hereby authorized to provide financing under the Thirteenth Replenishment in the form of grants. 11. Authorization of Guarantees. The Association is hereby authorized to provide financing under the Thirteenth Replenishment in the form of guarantees. 12. Administration of IDA12 Funds under the Thirteenth Replenishment. (a) On the Effective Date, any funds, receipts, assets and liabili- ties held by the Association under the Twelfth Replenishment will be administered under the Thirteenth Replenishment, subject, as appropriate, to the terms and conditions applicable to the Twelfth Replenishment. (b) Pursuant to Article V, Section 2(a)(i) of the Articles of Agreement of the Association, the Association is authorized to use the funds referred to in paragraph 12(a) above, and funds derived there from as principal, interest or other charges, to provide financing in the forms of grants and guar- antees under the terms, conditions and policies applicable under the Thirteenth Replenishment. 13. Allocation of Voting Rights under Thirteenth Replenishment. Voting rights calculated on the basis of the current voting rights sys- tem will be allocated to members for subscriptions under the Thirteenth Replenishment as follows: (a) Each Subscribing Member that has deposited with the Association an Instrument of Commitment will be allocated the subscription votes specified for each such member in Table 2 on the effective payment date pursuant to paragraph 3(a) of this Resolution. Each Subscribing Member will be allocated the additional membership votes specified in Column c-3 of Table 2 (IDA/SecM2002-0488) on the date such member is allocated its subscription votes. 248 (b) Each Contributing Member that has deposited with the Association an Instrument of Commitment will be allocated one third of the subscription votes specified for each such member in Table 2 on each effective payment date pursuant to paragraph 3(b) of this Resolution. Each Contributing Member will be allocated the additional membership votes specified in Column b-3 of Table 2 (IDA/SecM2002-0488) for its subscrip- tion on the date such member is allocated the first one third of its subscription votes. (c) Each member that has deposited with the Association a Qualified Instrument of Commitment will be allocated sub- scription votes at the time and to the extent of payments made in respect of its subscription and contribution. (d) Any member that deposits its Instrument of Commitment after any of these dates will be allocated, as of the date of such deposit, the subscription votes to which such member is entitled on account of such deposit. (e) If a member fails to pay any amount of its subscription or sub- scription and contribution when due, the number of subscrip- tion votes allocated from time to time to such member under this Resolution in respect of the Thirteenth Replenishment will be reduced in proportion to the shortfall in such payments, but any such votes will be reallocated when the shortfall in pay- ments causing such adjustment is subsequently made up. (Adopted on September 29, 2002) 249 250 RESOLUTIONS ADOPTED BY THE COUNCIL OF GOVERNORS OF MIGA BETWEEN THE 2001 AND 2002 Resolution No. 61 Extension of Subscription Period under Resolution No. 57 of the Council of Governors WHEREAS, pursuant to Resolution No. 57, entitled "1998 General Capital Increase", adopted on March 29, 1999, the Council of Governors increased the authorized capital of the Multilateral Investment Guarantee Agency ("MIGA") by SDR785,590,000, divided into 78,559 shares (the "1998 GCI") and provided that each member could subscribe up to the number of shares specified in Resolution No. 57 in respect of that member; WHEREAS, paragraph 3 of Resolution No. 57 established a sub- scription period ending on March 28, 2002 for the subscription of shares allocated to members under the 1998 GCI; WHEREAS, as of March 28, 2002, only sixty-six countries have fully or partially subscribed the shares allocated to them under the 1998 GCI; WHEREAS, pursuant to Resolution No. 55, entitled "Review of Allocation of Shares of the Agency", adopted on May 14, 1998, the Council of Governors postponed the reallocation of unsubscribed shares for the purpose of achieving parity of voting power until the expiry of the 1998 GCI subscription period; and resolved that any coun- try listed in Schedule A to the Convention which decides to become a member of MIGA shall do so by subscribing the number of shares set forth in that Schedule and in the manner set forth in the Convention; WHEREAS, in their report dated March 28, 2002, the Board of Directors noted that it is desirable to extend the subscription period to the 1998 GCI beyond March 28, 2002; WHEREAS, in order to facilitate an increase in the membership of MIGA, Schedule A to the Convention and all provisions thereof con- cerning membership in MIGA should remain in force; NOW THEREFORE, the Council of Governors resolves that: (a) the subscription period to the 1998 GCI is extended for twelve months from March 29, 2002 and will end on March 28, 2003; 251 (b) shares that remain unsubscribed at the end of the subscription period shall be utilized towards achieving parity of voting power between Category One and Category Two members; (c) during the twelve-month extension period, any country listed in Schedule A to the Convention which decides to become a member of MIGA shall do so by subscribing, at par, the num- ber of shares set forth in that Schedule and in the manner set forth in the Convention. (Adopted on May 6, 2002) Resolution No. 62 Membership of East Timor WHEREAS, the Government of East Timor has applied for admis- sion, on the attainment by that country of independence, to member- ship in the Multilateral Investment Guarantee Agency in accordance with Article 4(a) of the Convention Establishing the Agency; WHEREAS, it is expected that East Timor will attain independence on May 20, 2002; WHEREAS, pursuant to Section 17(c) of the By-Laws of the Agency, the Board of Directors, after consultation with representatives of the Government of East Timor, has made recommendations to the Council of Governors regarding this application; NOW, THEREFORE, the Council of Governors hereby RESOLVES: THAT the terms and conditions upon which East Timor shall be admitted to membership in the Agency shall be as follows: 1. Definitions: As used in this Resolution: (a) "Agency" means Multilateral Investment Guarantee Agency. (b) "Convention" means Convention Establishing the Multilateral Investment Guarantee Agency. 2. Before becoming a party to the Convention, East Timor shall accept membership in and become a member of the International Bank for Reconstruction and Development. 252 3. Upon deposit of its instrument of ratification, acceptance or approval of the Convention, East Timor shall be obligated to: (i) subscribe at par to 50 shares of the capital stock of the Agency; and (ii) pay in full to the Agency the paid-in portions of the subscrip- tion price of such shares in accordance with Articles 7 and 8 of the Convention. 4. With effect from the date of the fulfillment of the conditions set forth in paragraph 3 above, East Timor shall be admitted to mem- bership and shall be classified as a Category Two (developing coun- try) member for the purposes of the Convention. (Adopted on June 24, 2002) Resolution No. 63 Election of Directors RESOLVED: (a) That the 2002 Regular Election of Directors shall take place in accordance with the attached Rules; and (b) That a Regular Election of Directors shall take place in con- nection with the Annual Meeting of the Council of Governors in 2004. (Adopted on August 19, 2002) 253 REPORT OF THE EXECUTIVE DIRECTORS OF THE BANK May 17, 2002 Membership of East Timor 1. In accordance with Section 19 of the By-Laws of the International Bank for Reconstruction and Development, Section 9 of the By-Laws of the International Development Association and Section 17 of the By- Laws of the International Finance Corporation, the applications of East Timor for membership in the Bank, IDA and IFC are hereby submitted to the Boards of Governors. 2. The draft Resolutions...1 on membership in the Bank, IDA and IFC conform substantially to the pattern for such Resolutions. 3. Representatives of East Timor have been consulted informally regarding the terms and conditions recommended in the attached draft Resolutions and they have raised no objection thereto. 4. The draft Resolutions...1 are recommended for adoption by the Boards of Governors of the Bank, IDA and IFC, respectively. (This report was approved and its recommendation was adopted by the Board of Governors on June 24, 2002). 1See page 226. 254 July 9, 2002 Forthcoming Annual Meetings Annual Meetings in 2004 and 2005 Under Resolution No. 530 (adopted September 30, 1999), the Governors of the Bank accepted the invitation of the United Arab Emirates to hold the Annual Meetings in Dubai in 2003, and set the dates of September 23­24. It is now timely for the Governors to set the dates and venue for the 2004 and 2005 Annual Meetings. Accordingly, it is recommended that the Annual Meetings be convened in Washington, D.C. beginning on Monday, September 27, 2004 and Monday, September 26, 2005. Annual Meetings in 2006 The Governors of the Fund and the Bank for Singapore have invited the International Monetary Fund and the World Bank Group to hold the 2006 Annual Meetings of the Boards of Governors in Singapore during the period September 19 and 20. The Executive Directors have consid- ered the assurances given by the Government of Singapore, have reviewed the proposed arrangements in Singapore, and have noted that acceptance of the invitation would be in accordance with the traditional practice of meeting elsewhere than in Washington, D.C. every third year. Accordingly, the Executive Directors recommend that the Board of Governors accept the draft Resolution....1 (This report was approved and its recommendation was adopted by the Board of Governors on August 15, 2002). July 19, 2002 2002 Regular Election of Executive Directors 1. Pursuant to Resolution No. 535 of the Board of Governors, a Regular Election of Executive Directors would take place at the 2002 Annual Meeting of the Board of Governors. It is now proposed that this Regular Election may be conducted by rapid means of communication so as to 1See page 229. 255 conclude a reasonable time in advance of November 1, 2002, when the term of office of the elected Executive Directors shall commence. 2. The Executive Directors have noted that the size of the Board was increased to 24 in 1992, after a large increase in the membership, in order to preserve broad geographic representation which permits all major groups of countries to be represented. As in past years, there is strong feeling among the Executive Directors that, in the unlikely event that there was lack of such wide geographical and balanced representa- tion, prompt corrective action would be called for. 3. The Executive Directors recommend that the maximum and mini- mum percentages of eligible votes required for election of an Executive Director be 10 percent and 2 percent, respectively. They believe that such percentages would provide a range that is broad enough in the circumstances. 4. The Executive Directors recommend that the date from which the 2002 Regular Election will be effective be November 1, 2002. 5. The Executive Directors note that under the Articles of Agreement of the International Finance Corporation (the Corporation) and the International Development Association (the Association) the elected Directors will serve ex officio as members of the Board of Directors of the Corporation and Executive Directors of the Association. 6. The Executive Directors recommend that the subsequent Regular Election of Executive Directors take place in connection with theAnnual Meeting of the Board of Governors in 2004. 7. The Executive Directors recommend the adoption by the Board of Governors of the attached Rules for the 2002 Regular Election of Executive Directors, which provide for the conduct of this Election by rapid means of communication. 8. The following draft Resolution...1, embodying the above recom- mendations, is proposed for adoption by the Board of Governors: (This report was approved and its recommendation was adopted by the Board of Governors on August 19, 2002) 1 See page 229. 256 RULES FOR THE 2002 REGULAR ELECTION OF EXECUTIVE DIRECTORS DEFINITIONS 1. In these Rules, unless the context shall otherwise require, "Articles" means the Articles of Agreement of the Bank. "Board" means the Board of Governors of the Bank. "Chairman" means the Chairman of the Board or a Vice Chairman act- ing as Chairman. "Governor" includes the Alternate Governor and, for actions taken at any meeting, a temporary Alternate Governor, when acting for the Governor. "Secretary" means the Secretary or any acting Secretary of the Bank. "Election" means the 2002 Regular Election of Executive Directors. "Eligible votes" means the total number of votes that can be cast in the election. 2. All actions taken under these Rules, including communications by the Secretary and the Chairman and nominations and balloting by the Governors, may be taken by rapid means of communication. TIMING OF ELECTION 3. The election shall be held by requesting nominations and conducting ballots so as to conclude a reasonable time in advance of November 1, 2002, when the term of office of the elected Executive Directors shall commence. BASIC RULES--SCHEDULE B 4. Subject to the adjustment set forth in the Rules, the provisions of Schedule B of the Articles shall apply to the conduct of the election, except that: (a) "two percent" shall be substituted for "fourteen percent" in Paragraphs 2 and 5 and "ten percent" shall be substituted for "fifteen percent" in Paragraphs 3, 4 and 5 thereof; and (b) "nineteen persons" shall be substituted for "seven persons" in Paragraphs 2, 3 and 6, "eighteen persons" shall be substituted for "six persons" in Paragraph 6, and "the nineteenth" shall be substituted for the "seventh" in Paragraph 6 thereof. 257 EXECUTIVE DIRECTORS TO BE ELECTED 5. Nineteen Executive Directors shall be elected. SUPERVISION OF THE ELECTION 6. The Chairman shall appoint such tellers and other assistants and take such other action as he deems necessary for the conduct of the election. NOMINATIONS 7. (a) The Secretary shall request nominations from Governors dur- ing a ten-day period announced by the Secretary. (b) Each nomination shall be made on a Nomination Form fur- nished by the Secretary, signed by the Governor or Governors making the nomination and submitted to the Secretary. (c) Any person nominated by one or more Governors entitled to vote in the election shall be eligible for election as Executive Director. (d) A Governor may nominate only one person. BALLOTING 8. (a) Upon the closing of nominations, the Secretary shall, send to all Governors entitled to vote in the election the list of candidates for the election, together with an invitation to Governors to vote in the first ballot, and announce the deadline for receipt of ballots. (b) One ballot form shall be furnished, to each Governor entitled to vote. On any particular ballot, only ballot forms distributed for that ballot shall be counted. 9. Each ballot shall be taken as follows: (a) Ballots shall be conducted by deposit of ballot forms, signed by Governors eligible to vote, with the Secretary. The first ballot shall take place after the close of nominations concluding no later than September 29, 2002. (b) When a ballot shall have been completed, the Secretary shall cause the ballots to be counted and, as soon as practicable after the tellers have completed their tally of the ballots, shall announce the names of the persons elected. If a succeeding ballot is necessary, the Secretary shall announce the names of the nominees to be voted on, the members whose Governors are eligible to vote and the time period for balloting. 258 (c) If the tellers shall be of the opinion that any particular ballot is not properly executed, they shall, if possible, afford the Governor concerned an opportunity to correct it before tallying the results; and such ballot, if so corrected, shall be deemed to be valid. 10. When on any ballot the number of nominees shall not exceed the number of Executive Directors to be elected, each nominee shall be deemed to be elected by the number of votes received by him on such ballot; provided, however, that, if on such ballot the votes of any Governor shall be deemed under Paragraph 4 of Schedule B1 to have raised the votes cast for any nominee above ten percent of the eligible votes, no nominee shall be deemed to have been elected who shall not have received on such ballot a minimum of two percent of the eligible votes, and a succeeding ballot shall be taken for which any nominee not elected shall be eligible. 11. If, as a result of the first ballot, the number of Executive Directors to be elected in accordance with Paragraph 4 above shall not have been elected, a second, and if necessary, further ballots shall be taken. The Governors entitled to vote on such succeeding ballots shall be only: (a) those who voted on the preceding ballot for any nominee not elected; and (b) those Governors whose votes for a nominee elected on the pre- ceding ballot are deemed under Paragraph 4 of Schedule B to have raised the votes cast for such nominee above ten percent of the eligible votes. 12. If the votes cast by a Governor bring the total votes received by a nominee from below to above ten percent of the eligible votes, all the votes cast by this Governor shall be deemed to have been cast for the benefit of that nominee without raising the total votes of the nominee above ten percent. 13. If on any ballot two or more Governors having an equal number of votes shall have voted for the same nominee and the votes of one or more, but not all, of such Governors could be deemed under Para- graph 4 of Schedule B not to have raised the total votes of the nominee 1 Paragraph 4 of Schedule B reads as follows: 4. In determining whether the votes cast by a governer are to be deemed to have raised the total of any person above ten percent of the eligible votes, the ten percent shall be deemed to include, first, the votes of the Governor casting the largest number of votes for such person, then the votes of the Governor casting the next largest number, and so until ten percent is reached. 259 above ten percent of the eligible votes, the Chairman shall determine by lot the Governor or Governors, as the case may be, who shall be enti- tled to vote on the next ballot. 14. Any member whose Governor has voted on the last ballot for a can- didate not elected may, before the effective date of the election, as set forth in Section 18 below, designate an Executive Director who was elected, and that member's votes shall be deemed to have counted toward the election of the Executive Director so designated. ABSTENTION FROM VOTING 15. If a Governor shall abstain from voting on any ballot, he shall not be entitled to vote on any subsequent ballot and his votes shall not be counted within the meaning of Section 4(g) of Article V towards the election of any Executive Director. If at the time of any ballot a mem- ber shall not have a duly appointed Governor, such member shall be deemed to have abstained from voting on that ballot. ELIMINATION OF NOMINEES 16. If on any ballot two or more nominees shall receive the same low- est number of votes, no nominee shall be dropped from the next suc- ceeding ballot, but if the same situation is repeated on such succeeding ballot, the Chairman shall eliminate by lot one of such nominees from the next succeeding ballot. ANNOUNCEMENT OF THE RESULT 17. After the tally of the last ballot, the Chairman shall cause to be dis- tributed a statement setting forth the result of the election. EFFECTIVE DATE OF ELECTION 18. The effective date of the election shall be November 1, 2002, and the term of office of the elected Executive Directors shall commence on that date. Incumbent elected Executive Directors shall serve through the day preceding such date. GENERAL 19. Any question arising in connection with the conduct of the election shall be resolved by the tellers, subject to appeal, at the request of any Governor, to the Chairman and from him to the Board. Whenever pos- sible, any such questions shall be put without identifying the members or Governors concerned. 260 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT 2002 REGULAR ELECTION OF EXECUTIVE DIRECTORS STATEMENT OF RESULTS OF ELECTION, SEPTEMBER 29, 2002 Members Whose Number Votes Counted of Candidate Elected Toward Election Votes Total Votes Tanwir Ali AGHA 54,602 Afghanistan 550 Algeria 9,502 Ghana 1,775 Iran, Islamic 23,936 Republic of Iraq 3,058 Morocco 5,223 Pakistan 9,589 Tunisia 969 Mahdy Ismail ALJAZZAF 43,984 Bahrain 1,353 Egypt, Arab 7,358 Republic of Jordan 1,638 Kuwait 13,530 Lebanon 590 Libya 8,090 Maldives 719 Oman 1,811 Qatar 1,346 Syrian Arab 2,452 Republic United Arab 2,635 Emirates Yemen, Republic of 2,462 Yahya Abdulla M. ALYAHYA 45,045 Saudi Arabia 45,045 261 Members Whose Number Votes Counted of Candidate Elected Toward Election Votes Total Votes Rapee ASUMPINPONG 41,096 Brunei Darussalam 2,623 Fiji 1,237 Indonesia 15,231 Lao People's Dem. 428 Rep. Malaysia 8,494 Myanmar 2,734 Nepal 1,218 Singapore 570 Thailand 6,599 Tonga 744 Vietnam 1,218 Kurt BAYER 77,669 Austria 11,313 Belarus 3,573 Belgium 29,233 Czech Republic 6,558 Hungary 8,300 Kazakhstan 3,235 Luxembourg 1,902 Slovak Republic 3,466 Slovenia 1,511 Turkey 8,578 Amaury BIER 58,124 Brazil 33,537 Colombia 6,602 Dominican Republic 2,342 Ecuador 3,021 Haiti 1,317 Panama 635 Philippines 7,094 Suriname 662 Trinidad and Tobago 2,914 Paulo F. GOMES 32,252 Benin 1,118 Burkina Faso 1,118 Cameroon 1,777 Cape Verde 758 262 Members Whose Number Votes Counted of Candidate Elected Toward Election Votes Total Votes Central African 1,112 Republic Chad 1,112 Comoros 532 Congo, Dem. Rep. of 2,893 Congo, Republic of 1,177 Cote d'Ivoire 2,766 Djibouti 809 Equatorial Guinea 965 Gabon 1,237 Guinea 1,542 Guinea-Bissau 790 Madagascar 1,672 Mali 1,412 Mauritania 1,150 Mauritius 1,492 Niger 1,102 Rwanda 1,296 Sao Tome and 745 Principe Senegal 2,322 Togo 1,355 Alieto GUADAGNI 37,499 Argentina 18,161 Bolivia 2,035 Chile 7,181 Paraguay 1,479 Peru 5,581 Uruguay 3,062 Neil F. HYDEN 55,800 Australia 24,714 Cambodia 464 Kiribati 715 Korea, Republic of 16,067 Marshall Islands 719 Micronesia, Fed. 729 States of Mongolia 716 New Zealand 7,486 Palau 266 263 Members Whose Number Votes Counted of Candidate Elected Toward Election Votes Total Votes Papua New Guinea 1,544 Samoa 781 Solomon Islands 763 Vanuatu 836 Finn JONCK 54,039 Denmark 13,701 Estonia 1,173 Finland 8,810 Iceland 1,508 Latvia 1,634 Lithuania 1,757 Norway 10,232 Sweden 15,224 Louis A. KASEKENDE 55,190 Angola 2,926 Botswana 865 Burundi 966 Eritrea 843 Ethiopia 1,228 Gambia, The 793 Kenya 2,711 Lesotho 913 Liberia 713 Malawi 1,344 Mozambique 1,180 Namibia 1,773 Nigeria 12,905 Seychelles 513 Sierra Leone 968 South Africa 13,712 Sudan 1,100 Swaziland 690 Tanzania 1,545 Uganda 867 Zambia 3,060 Zimbabwe 3,575 Per KUROWSKI EGERSTROM 72,786 Costa Rica 483 El Salvador 391 264 Members Whose Number Votes Counted of Candidate Elected Toward Election Votes Total Votes Guatemala 2,251 Honduras 891 Mexico 19,054 Nicaragua 858 Spain 28,247 Venezuela, Rep. 20,611 Bolivariana de Alexey KVASOV 45,045 Russian Federation 45,045 Marcel MASSE 62,217 Antigua and Barbuda 770 Bahamas, The 1,321 Barbados 1,198 Belize 836 Canada 45,045 Dominica 754 Grenada 781 Guyana 1,308 Ireland 5,521 Jamaica 2,828 St. Kitts and Nevis 525 St. Lucia 802 St. Vincent and the 528 Grenadines Ad MELKERT 72,208 Armenia 1,389 Bosnia and 799 Herzegovina Bulgaria 5,465 Croatia 2,543 Cyprus 1,711 Georgia 1,834 Israel 5,000 Macedonia, FYR of 677 Moldova 1,618 Netherlands 35,753 Romania 4,261 Ukraine 11,158 265 Members Whose Number Votes Counted of Candidate Elected Toward Election Votes Total Votes Franco PASSACANTANDO 56,705 Albania 1,080 Greece 1,934 Italy 45,045 Malta 1,324 Portugal 5,710 San Marino 845 Timor-Leste 767 Chander Mohan VASUDEV 54,945 Bangladesh 5,104 Bhutan 729 India 45,045 Sri Lanka 4,067 Pietro VEGLIO 47,943 Azerbaijan 1,896 Kyrgyz Republic 1,357 Poland 11,158 Switzerland 26,856 Tajikistan 1,310 Turkmenistan 776 Uzbekistan 2,743 Yugoslavia, Fed. 1,847 Rep. of ZHU Guangyao 45,049 China 45,049 /s/ /s/ Stefan Skjaldarson (Iceland) Ayub Nakhuda (Mauritius) Teller Teller 266 August 8, 2002 ALLOCATION OF FY2002 NET INCOME 1. The General Reserve of the Bank as of June 30, 2002 was 17,841 million. As of that date, the surplus of the Bank was $100 million and the Special Reserve created under Article IV, Section 6 of the Bank's Articles of Agreement totaled $293 million. The Bank's reported net income for the fiscal year ended June 30, 2002 (FY02) amounted to $2,778 million. As an important consequence of account- ing standards related to valuation of derivatives, however, reported net income is subject to non-meaningful volatility. This volatility is intro- duced by marking to market derivatives without recognizing changes in market value of the underlying assets and liabilities. Accordingly, the Executive Directors determined in August 2001 that the Bank's Operating Income (which is the same as reported net income prior to FY01) should be used as net income for annual net income allocation purposes. For FY02, Operating Income was $1,924 million. 2. The Executive Directors have considered what action to take, or to recommend that the Board of Governors take, with respect to FY02 net income. The Executive Directors have concluded that the interests of the Bank and its members would best be served by the following dispo- sitions of the net income of the Bank: (a) the addition of $1,291 million to the General Reserve, plus or minus any rounding amount less than $1 million; (b) the addition of $93 million, representing the difference between actual funding of the Staff Retirement Plan and Staff Retirement Plan accounting expenses for FY02, to the pen- sion reserve; (c) the transfer to the International Development Association, by way of immediate grant, of $300 million, which amount would be usable to provide financing in the form of grants in addition to loans; and (d) the transfer to the HIPC Debt Initiative Trust Fund, by way of immediate grant, of $240 million to be used to provide debt relief on debt owed to the International Development Association under the HIPC Debt Initiative framework. 267 3. Accordingly, the Executive Directors recommend that the Board of Governors note with approval the present Report and adopt the draft Resolution....1 (This report was approved and its recommendation was adopted by the Board of Governors on September 29, 2002). 1 See page 230. 268 REPORT OF THE BOARD OF DIRECTORS OF IFC May 17, 2002 Membership of East Timor 1. In accordance with Section 19 of the By-Laws of the International Bank for Reconstruction and Development, Section 9 of the By-Laws of the International Development Association and Section 17 of the By- Laws of the International Finance Corporation, the applications of East Timor for membership in the Bank, IDA and IFC are hereby submitted to the Boards of Governors. 2. The draft Resolutions on membership in the Bank, IDA and IFC conform substantially to the pattern for such Resolutions. 3. Representatives of East Timor have been consulted informally regarding the terms and conditions recommended in the attached draft Resolutions and they have raised no objection thereto. 4. The draft Resolutions...1 are recommended for adoption by the Boards of Governors of the Bank, IDA and IFC, respectively. (This report was approved and its recommendation was adopted by the Board of Governors on June 24, 2002). 1See page 232. 269 REPORT OF THE BOARD OF DIRECTORS OF IDA May 2, 2002 Membership of The Bahamas 1. In accordance with Section 9 of the By-Laws of the International Development Association, the application of The Bahamas for mem- bership in IDA is hereby submitted to the Board of Governors. 2. The attached draft Resolution is consistent with membership Resolutions with respect to countries joining IDA as "Part II" members. 3. The Bahamas has indicated that it will make a contribution to the Association as part of the upcoming Thirteenth Replenishment of the Association. 4. Representatives of The Bahamas have been consulted informally regarding the terms and conditions recommended in the attached draft Resolution and they have confirmed that these terms and conditions are acceptable. 5. The draft Resolution...1 is recommended for adoption by the Board of Governors. May 17, 2002 Membership of East Timor 1. In accordance with Section 19 of the By-Laws of the International Bank for Reconstruction and Development, Section 9 of the By-Laws of the International Development Association and Section 17 of the By- Laws of the International Finance Corporation, the applications of East Timor for membership in the Bank, IDA and IFC are hereby submitted to the Boards of Governors. 2. The draft Resolutions on membership in the Bank, IDA and IFC conform substantially to the pattern for such Resolutions. 1See page 235. 270 3. Representatives of East Timor have been consulted informally regarding the terms and conditions recommended in the attached draft Resolutions and they have raised no objection thereto. 4. The draft Resolutions...1 are recommended for adoption by the Boards of Governors of the Bank, IDA and IFC, respectively. (This report was approved and its recommendation was adopted by the Board of Governors on June 24, 2002). May 28, 2002 Greece--Change in Membership Status 1. Greece is a Part II member of the Association. Greece has requested that its membership status in the Association be changed from Part II to Part I. In addition to the technical differences between Part I and Part II concerning members' initial subscription, Part I mem- bers are expected to make significant contributions to each replenish- ment, commensurate with their economic standing. The authorities of Greece recognize the financial responsibility associated with Part I membership in the Association. Greece has also requested that its vot- ing rights, derived from its cumulative subscriptions and contributions to the resources of the Association, be adjusted on the basis of its Part I membership status. 2. The Executive Directors of the Association have welcomed the expression of a stronger commitment by Greece to supporting the activ- ities of the Association, and have accepted its request for a change in its membership status. The Executive Directors recommend that the Board of Governors adopt the draft Resolution...2 which would mod- ify its status in the Association. (This report was approved and its recommendation was adopted by the Board of Governors on July 15, 2002). 1 See page 237. 2 See page 239. 271 September 17, 2002 Additions to IDA Resources: Thirteenth Replenishment 1. IDA provides vital financial resources and policy advice to 79 coun- tries where the vast majority of people live on less than $2 a day. Together these countries are home to 2.5 billion people, comprising half of the population of the developing world. Among the people living in IDA countries, nearly eight out of ten--a total of 1.8 billion people-- are very poor (living on incomes of less than $2 a day), and nearly four out of ten--more than 850 million people--are extremely poor, having to survive on less than $1 a day. These countries have little or no access to market-based financing, and IDA, as the largest source of conces- sional assistance to the world's poorest countries, plays a critical role in their efforts to achieve growth and poverty reduction. IDA's approach to poverty reduction has evolved and become more sharply focused over time, drawing on the lessons and knowledge gained from the expe- rience of developing countries and the efforts of the international com- munity to assist them. IDA's approach, which is based on a compact about performance and resources between donors and borrowers, embodies the core principles of the Monterrey Consensus. 2. Representatives of donor governments, the IDA Deputies, negoti- ated the Thirteenth Replenishment of IDA's resources under the chair- manship of Mr. Sven Sandström, Managing Director of the World Bank.1 These replenishment discussions produced three notable inno- vations in IDA's policies and processes. First, in order to better track the results of IDA's assistance and to help ensure that IDA resources achieve the greatest impact possible on poverty reduction, the IDA13 Deputies recommended that Management establish a results-based measurement system to link IDA-financed programs to countries' development outcomes and to the Millennium Development Goals (MDGs). Second, in order to increase IDA's flexibility in addressing the special difficulties faced by the poorest and most vulnerable countries and to help deal with the challenge of HIV/AIDS, Deputies recom- mended a significant expansion of the use of IDA grants. Finally, in order to increase the transparency of their deliberations, Deputies opened up the replenishment process to borrowers and the public by introducing the following changes. 1IDA13 meetings: February 28-March 1, 2001, Paris, France; June 6­7, 2001, Addis Ababa, Ethiopia; October 22­24, 2001, Paris, France; December 6­7, 2001, Montreux, Switzerland; May 1­2, 2002, London, United Kingdom; and July 1, 2002, London, United Kingdom. 272 3. At their first meeting, Deputies decided to invite six senior repre- sentatives of IDA borrowing countries from different regions to take part in the remaining IDA13 meetings. Deputies also decided to further enhance the transparency of their discussions by making their back- ground policy papers available to the public and by seeking public com- ments on a draft of this report prior to its finalization. These moves constituted an unprecedented opening up of the IDA replenishment process to borrowers and the public at large. The second meeting in Addis Ababa was preceded by an all-day dialogue between IDA Deputies and borrower representatives and representatives from African governments, civil society and academia, organized and chaired by the United Nations Economic Commission for Africa. The third meeting in Paris included a consultation with civil society representa- tives from IDA borrowing countries. All of the background policy papers as well as the summaries of the meetings are available on IDA's web site.2 The papers are listed in Annex 7. 4. The Deputies have recommended that this replenishment provide funding for IDA development credits and grants that will be committed during the three years from July 1, 2002 through June 30, 2005. They have recommended that SDR 10 billion be provided in donor contribu- tions in order to enable IDA to commit a total of about SDR 18 billion during this period. In addition to donor contributions to IDA, commit- ment authority for IDA13 will be provided by advance commitments against future repayments by IDA borrowers, funds carried over from the Twelfth Replenishment, and transfers from International Bank for Reconstruction and Development (IBRD) net income, as approved by IBRD's Board of Governors. 5. The constraints facing IBRD net income and the importance of maintaining IBRD's financial strength are fully recognized by IDA donors. The Deputies acknowledged that the first use of IBRD net income must be for adequate reserves to ensure IBRD's continued financial strength. At the same time, they placed great importance on continued and substantial transfers to IDA and the Heavily Indebted Poor Country (HIPC) program out of available IBRD net income dur- ing IDA13. They urged that high priority continue to be given to these transfers within IBRD's policies on the allocation of net income. 6. This report sets out Deputies' guidance on the policy, operational, and financial framework that underpins IDA's support for poverty 2 www.worldbank.org/ida. 273 reduction strategies during the IDA13 period. Section I provides Deputies' guidance for increasing IDA's effectiveness in poverty reduc- tion. Section II sets out Deputies' recommended priorities for poverty reduction. Section III presents their guidance on IDA's country assis- tance strategies, approaches to tackle global challenges, as well as the terms on which IDA financial support is provided. Section IV sets out guidance for monitoring and evaluating IDA13. Section V reviews the framework for managing IDA's financial resources. Section VI sets forth the recommendation of the Executive Directors to the Board of Governors to adopt the draft IDA13 Resolution. I. INCREASING IDA'S EFFECTIVENESS 7. At the request of IDA's Deputies and its Executive Directors, the World Bank's Operations Evaluation Department (OED) carried out a comprehensive review of IDA's performance in implementing its under- takings during IDA10-12.3 These undertakings included: (i) sharpening the poverty focus of IDA's support for country development; (ii) expanding access to social services, fostering broad-based growth, promoting good governance, and integrating gender and environmental considerations into development efforts; and (iii) increasing IDA's development effectiveness through more selective, more participatory, and better-coordinated country assistance programs. 8. Deputies noted that the OED Review provided an excellent overview and analysis of IDA's performance and a strong platform for IDA13. They agreed with OED's conclusion that, while IDA's perform- ance had improved markedly over the period, especially in its poverty focus and responsiveness to borrowers, there were specific areas that called for more attention. They noted that IDA's programs of self- evaluation and independent evaluation have been effective in fostering continuous learning and change and have helped enhance the quality of its assistance during IDA10-12. Deputies broadly endorsed OED's rec- ommendations as important to strengthen IDA's development effec- tiveness and called for a time-bound action plan for their implementation. This action plan is incorporated in the matrix of IDA13 Objectives and Actions in Annex 3. In particular, Deputies requested that IDA reinforce the implementation and poverty impact of its assistance, focusing on the action areas discussed below. 3 IDA's Partnership for Poverty Reduction (FY94-00): An Independent Evaluation (available at www.worldbank.org/oed/IDA). 274 Consolidating IDA Mandates 9. Deputies reaffirmed that poverty reduction continues to be IDA's overarching objective and that all its activities must be a means to that end. They noted that the IDA12 Replenishment Report had established a comprehensive policy framework for effective use of IDA's resources which had proved its usefulness and remains relevant to the needs of its borrowers.4 Deputies recommended that during the IDA13 period this framework continue to be implemented as IDA's basic development approach and that it be further strengthened as set out in this report. Deputies welcomed the introduction of the Poverty Reduction Strategy Paper (PRSP) as the borrower's framework for poverty reduction, and they discussed its implications for IDA's approach and its potential for consolidating IDA's efforts. They reaffirmed the central role of the Country Assistance Strategy (CAS) as the main instrument for manag- ing IDA's assistance to borrowers and as the business plan for the World Bank Group to consider its support of countries' national poverty reduction strategies. IDA programs, as set out in the CASs, should be informed by the development priorities identified by borrowers in their PRSPs. Specific actions to further consolidate IDA mandates are detailed below. Strengthening Development Partnerships 10. Deputies reaffirmed the importance of putting borrower countries in the lead of their development processes and endorsed the principles of country ownership and enhanced partnerships underlying the PRSP process and the Comprehensive Development Framework (CDF).5 They stressed that the constraints on development assistance and the institutional pressures on recipient countries meant that major changes 4Additions to IDA Resources: Twelfth Replenishment--A Partnership for Poverty Reduction, December 11, 1998, International Development Association. 5 CDF Principles: GOwnership by the country. The country, not assistance agencies, determines the goals and the phasing, timing and sequencing of its development programs. GPartnership. Government together with civil society and the private sector assistance agen- cies define development needs and implement programs. GLong-term vision. The articulation of development needs and solutions is built on national consultations which can engender sustained domestic support. GStructural and social issues. Social and structural concerns are treated equally and contem- poraneously with macroeconomic and financial issues. GResults orientation. Success is judged by progress on the ground toward equitable and sus- tainable development. 275 were needed in the management of Official Development Assistance (ODA) to increase its impact and reduce inefficiencies and transaction costs and that IDA should play a leading role in that respect. At the same time, Deputies stressed that changes in ODA management should not entail any weakening of fiduciary management and safeguards prin- ciples and procedures. They stressed that IDA Management should ensure that IDA-financed projects are in full compliance with the Bank's applicable safeguard, fiduciary and other policies before presen- tation to IDA's Executive Directors. 11. Deputies stressed that forging development partnerships should start at the country level, with government commitment and ownership of the development program and strong participation of civil society, the private sector, labor organizations and other stakeholders, and espe- cially representatives of poor people. Deputies observed that such con- sultation needs to complement countries' democratic political processes, including parliamentary processes. In that connection, they urged IDA to work with other donors to help build countries' capacity to make their own policy and program processes more participatory and inclusive and to build institutions for implementation that represent diverse interests. At the same time, IDA and other donors should con- tinue to encourage adoption of sound economic and social policies in country programs. Deputies encouraged IDA to increase the use of sector-wide approaches (SWAps) with a view towards improving the integration and effectiveness of donor financing. 12. The PRSP process, supported by borrowers and their development partners, could become a major vehicle to improve borrower-led aid coordination because it provides a common framework for all partners' assistance programs in the country. Within this common framework, countries should be able to count on aid flows if they are committed to sustained good governance and to a participatory, pro-poor develop- ment program. PRSP-based aid coordination is discussed in Section II, Part A below. 13. Building effective partnerships requires consensus and collabora- tion among donors to harmonize their policies and practices at the agency level, reduce transaction costs of development assistance and build recipient capacity. Deputies welcomed the World Bank's increased efforts to facilitate harmonization in areas of financial man- agement, procurement, audit safeguard assessments and country ana- lytic work. They also welcomed the Bank's own timetable on harmonization, including the commitment to update CAS and JSA guidelines to cover key harmonization issues. Deputies noted the 276 Action Plan on Harmonization of Operational Policies and Procedures, developed jointly by the Multilateral Development Banks (MDBs) and the OECD-DAC Task Force on Donor Practices and endorsed by the Development Committee.6 They called for timely implementation of the Action Plan which gives priority to harmonizing procurement, financial management and environmental assessments and makes a clear commitment to the central importance of donors' having the flex- ibility to harmonize around country systems. They emphasized the importance of adopting best practice standards in the use of IDA resources and on assisting borrower countries in strengthening their administrative capacity to adhere to such standards. Deputies requested a review of progress on harmonization at the time of the IDA13 Mid- Term review. 14. Deputies encouraged Management to continue this work and to maintain close collaboration with other MDBs, the OECD-DAC Task Force on Donor Practices, the Strategic Partnership with Africa (SPA), the United Nations (UN) and its specialized agencies, and bilateral development assistance agencies. They also noted progress in strength- ening partnerships between IDA and other development institutions, particularly the regional development banks, and welcomed the Memoranda of Understanding with the African, Asian and Inter- American Development Banks. They recommended full implementa- tion and, over time, strengthening of these collaborative frameworks, to ensure better coordination and stronger partnership in the multilateral system of development cooperation. Increasing Selectivity 15. To improve development effectiveness, IDA should increase its selectivity within countries by concentrating on areas of its comparative advantage, by clarifying its own institutional objectives and priorities, and by directing more assistance to borrowers with sound policy envi- ronments. In pursuit of this goal, CASs should summarize IDA's assess- ment of national economic, structural, social and fiduciary policies; focus on areas of IDA's comparative advantage; and be synchronized more closely with strategies of the regional development banks. 16. Deputies noted that IDA needs to identify more precisely what it can (and cannot) commit to do, based on countries' needs and absorp- tive capacity and on IDA's comparative advantage. Deputies reaffirmed 6 Harmonization of Operational Policies, Procedures and Practices: Second Progress Report, DC2002-0004/Rev1, April 2, 2002. 277 that IDA's comparative advantage lies at the strategic level--in helping countries to improve their economic management and to implement economy-wide and sector-wide structural reforms, and in analyzing pol- icy options and sharing knowledge through Economic and Sector Work (ESW). Critical components of this approach are IDA's programs on governance and public sector strengthening, including further efforts to make capacity building a core dimension of IDA's work. IDA can play a key role in providing financing for poverty reduction strategies and in supporting the research and analytical work needed to identify the actions required for poor men and women to benefit from the gains of overall economic growth. Deputies stressed, however, the need to establish IDA's institutional selectivity in concert with the strategic decisions of other development partners. Deputies requested IDA Management to report on the progress of this work at the Mid-Term Review of IDA13. 17. To increase the selectivity of IDA programs, Deputies urged Management to strengthen the implementation of Sector and Thematic Strategy Papers (SSPs) and to integrate their lessons into CASs as appropriate in light of country conditions and country program con- straints. SSPs are intended to underpin and translate into action the Bank's strategic vision in a sector or thematic area. They aim to: (a) set out strategic objectives and propose options for their implementation at the country programming level; (b) place sector activity in its broader development context, including the rationale for public action in the sector, and the role of the global programs; (c) analyze past Bank per- formance in the sector, drawing lessons for future action; (d) discuss partners active in the area and the Bank's comparative advantage; and (e) define strategic options and the institutional implications of their implementation. Deputies noted that strategies are now in place for eleven sectors and thematic areas: education; environment; environ- mental strategy for the energy sector; financial sector; gender; health, nutrition and population; information and communications technology; private sector development; public sector and governance; social pro- tection; and urban and local government. Three more SSPs are under preparation on forestry, rural development, and water. Deputies urged Management to ensure that careful SSP implementation guide IDA's work in all relevant areas of intervention and to monitor sector strategy impact in achieving greater selectivity in program priorities. The improved integration into CASs of sector priorities guided by these strategy papers, in the context of the PRSPs, should help IDA to refine the focus of its financial and advisory services (including where to take a leading or a supporting role in coordination with other donors), its choice of instruments, and its means for measuring results. 278 18. Deputies noted that IDA's performance-based allocation (PBA) system has resulted in increased selectivity in the allocation of resources at the country level, based on assessments of the soundness of coun- tries' policies and institutional arrangements. They reaffirmed the importance of good governance in resource allocation and the need to continue to assign a high weight to this factor in the allocation of IDA's resources. However, with a view towards targeting IDA resources towards the poorest, Deputies requested that Management continue to assess the impact of the current weighting of poverty in the allocation formula. They asked for a report on this topic at the IDA13 Mid-Term Review. They also stressed the special needs and circumstances of post- conflict countries and noted Management's proposal to adapt the IDA allocation system to these circumstances as a useful guide in determin- ing case-by-case allocations. Deputies endorsed the PBA system that would be in place for IDA13, described in Annex 1 to this report. They observed that disclosure of the rating system would allow it to benefit from open scrutiny and to serve as a diagnostic tool for strengthening development partnerships. They agreed that sharing ratings with client countries was an important step and recommended that IDA explore ways to share ratings with other partners with the goal of public disclosure of these ratings. Deputies asked Management to report on readiness of the system for public disclosure and the timing of public disclosure of individual country ratings at the IDA13 Mid-Term Review. Aligning IDA's Administrative Budget and Program Priorities 19. Deputies stressed the importance of aligning IDA's administrative budget with its program priorities in order to improve its effectiveness. They recommended that country poverty levels, in addition to per- formance, should be an important factor in the Bank's process of budg- etary resource allocation. They welcomed Management's efforts to ensure a more realistic costing of CASs and stressed that these efforts should be accompanied by a process to ensure the full funding of CASs. The introduction in FY02 of a three-year rolling budget framework is a step in this direction. Deputies also noted the need to ensure appropri- ate levels of funding for Economic and Sector Work which is critically important to the quality of IDA programs. Measuring Results and Tracking Performance 20. Effective Monitoring and Evaluation (M&E) systems are essential for assessing progress in meeting poverty reduction targets and promot- ing development effectiveness. Deputies noted that poverty assessments 279 have been completed for over 90 percent of IDA's eligible borrowers and that almost half of active IDA borrowers have a recent Public Expenditure Review (PER).7 They also noted that other Economic and Sector Work (such as social, environmental and structural reviews, and sectoral analyses) has also strengthened IDA's focus on poverty and the empirical basis for effective monitoring. At the same time, Deputies expressed concern that core diagnostics have not been conducted for a number of IDA countries and stressed the need for Management to move forward expeditiously in completing these diagnostics in these countries. 21. Deputies underscored the need to improve the quality and policy relevance of the core diagnostic analysis, to strengthen countries' capac- ity to collect and analyze poverty data, including on gender dimensions, and to monitor progress. A review of the first year of PRSP implemen- tation pointed to continuing weaknesses in countries' poverty data col- lection and analysis and in public expenditure tracking. The OED Review of IDA also reinforced the need to improve performance indi- cators and M&E at project, country, and institutional levels, with a clear focus on results. Deputies called for actions at three levels: (i) helping countries to develop timely M&E data to support decision making by both IDA and borrower countries, shifting the focus from inputs and outputs to outcomes and results; (ii) developing borrowers' institutional capacity for evaluation and data development and dissemination, within the PRSP framework; and (iii) harmonizing M&E approaches and requirements among development agencies. 22. Deputies affirmed that in addition to supporting borrowers' efforts to improve monitoring and evaluation, Management must actively monitor and evaluate results for all IDA-financed programs and proj- ects. To this end, Deputies recommended that Management put in place a system to measure, monitor and manage for development results. The system should link progress in reaching country development outcomes, as set out in PRSPs, to IDA country programs and, given an appropri- ate data base, should provide a clear indication of how IDA's programs promote the achievement of these outcomes. Every effort should be made to harmonize the system at the country level in consultation with other development agencies. The system should be country-focused but should be capable of aggregating across country programs in order to 7 Nearly all countries for which poverty assessments have not been completed are countries in conflict or are inactive. Actions to improve the analytical underpinnings of IDA's work are described in Section III--Part A (Country Assistance Strategies). 280 report and assess IDA-wide results. Deputies asked Management to report on selected input and output indicators at two points during the IDA13 period: at the IDA13 Mid-Term Review (Spring 2003) and towards the end of the IDA13 period (Spring 2004). At the first review, Deputies will assess IDA's performance management system along with its associated baseline data, identified outcome indicators, and expected progress targets, and they will assess progress on targets for IDA inputs in the areas of financial accountability, procurement, public expendi- ture, investment climate, and poverty (see Annex 3). At the second review, Deputies will assess the first-year results of the performance management system, further progress made on the agreed targets for IDA inputs, and progress made on the agreed interim output indicators in education, health and private sector development (see Annex 3). These reviews would also provide an opportunity for Deputies to con- sider revisions to the output indicators if needed given the intervening development of IDA's performance management system. Donors would have the option of linking additional IDA contributions to progress on the agreed input and output indicators. Deputies noted that the IDA13 experience could be useful to broaden the results-based measurement system and to make it an integral component of IDA14. 23. Deputies recommended that the Millennium Development Goals (MDGs) provide a basic point of reference for measuring country out- comes (Box 1), with countries themselves monitoring and reporting on progress. They urged that IDA CASs include: (a) key PRSP-based country outcome goals and indicators, including relevant country- specific MDGs, with baseline data; (b) a clear statement of the results expected from CAS-supported programs, projects, and other activities; (c) benchmarks for assessing CAS implementation; and (d) an assess- ment of country data systems and other capacity to monitor and evalu- ate progress. They also urged IDA to work with other development partners, notably UN agencies, to devise a common process for moni- toring and reporting on progress towards MDGs and other important development goals at the global level.8 II. POLICY FRAMEWORK FOR POVERTY REDUCTION 24. Deputies reaffirmed that the PRSP should help set priorities for IDA's and other donors' country assistance programs. They noted that 8 Issues of monitoring and evaluation of IDA at both country and institutional levels are fur- ther discussed in Section II, Part A (Implementing the PRSP Process) and Section IV (Monitoring and Evaluation of IDA13). 281 Box 1: Millennium Development Goals (MDGs) As a major step toward concerted action for development, the international community has agreed on a set of poverty reduction and social development goals as well as operational policies that will focus development efforts on key areas that are crucial to improving the lives of the poor. These ten targets pro- vide milestones against which progress can be measured:9 Eradicate extreme poverty and hunger 1. Halve, between 1990 and 2015, the proportion of people whose income is less than one dollar a day. 2. Halve, between 1990 and 2015, the proportion of people who suffer from hunger. Achieve universal primary education 3. Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling. Promote gender equality and empower women 4. Eliminate gender disparity in primary and secondary education, preferably by 2005, and to all levels of education no later than 2015. Reduce child mortality 5. Reduce by two thirds, between 1990 and 2015, the under-five mortality rate. Improve maternal health 6. Reduce by three quarters, between 1990 and 2015, the maternal mortality ratio. Combat HIV/AIDS, malaria and other diseases 7. Have halted by 2015 and begun to reverse the spread of HIV/AIDS. 8. Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases. Ensure environmental sustainability 9. Integrate the principles of sustainable development into country policies and programs and reverse the loss of environmental resources. 10. Halve by 2015 the proportion of people without sustainable access to safe drinking water. 9The goals were drawn from United Nations' conferences and resolutions, reflecting broad agreement by the international community as a whole and were first set out in Shaping the 21st Century: The Contribution of Development Cooperation, issued by the Development Assistance Committee of the Organization for Economic Co-operation and Development (OECD) in May 1996. The revised set of goals, targets, and indicators is contained in the 282 the policy agenda established for IDA12 remains relevant as the broad framework of priorities for IDA13 with appropriate adaptations to the changing global environment. This agenda focuses on key policies that countries need to have in place to increase productivity and achieve faster, broad-based and sustainable growth with a view to reducing poverty. Deputies underscored that the World Development Report 2000/1: Attacking Poverty provides an approach for renewed emphasis on poverty reduction,10 and they welcomed plans to translate its con- cepts into action by countries and their external partners, including IDA. A. Implementing the PRSP Process 25. The Poverty Reduction Strategy Paper approach offers a new opportunity for development strategy--and development assistance-- to be grounded in a broadly based and country-owned process. The PRSP reflects the principles of the Comprehensive Development Framework (CDF): a comprehensive approach formulated within a long-term vision and strategy, enhanced country ownership, strategic partnership among stakeholders, and a focus on outcomes and results. The PRSP aims to: (a) provide a mechanism for linking the use of debt relief under the Enhanced Heavily Indebted Poor Country (HIPC) Initiative to policies that reduce poverty; (b) increase the focus of IDA and the IMF concessional assistance on the overarching objective of poverty reduction; and (c) improve the coordination and effectiveness of development aid, with a strong results-orientation, including collab- orative efforts to achieve internationally agreed development goals. Public participation is a key element of the PRSP process both in terms of establishing the goals and directions for national development and achieving country ownership of the poverty reduction strategy. report of the Secretary General of the United Nations, A Road Map towards the Implementation of the United Nations Millennium Declaration, September 6, 2001. An additional goal, "Develop a Global Partnership", concerns actions by developed countries to address the needs of developing countries. 10The WDR 2000/1 defines poverty as the deprivation of essential assets, opportunities and freedom of action and choice to which every human being is entitled. Poor people often lack adequate food, shelter, education and health. They face extreme vulnerability to illness, eco- nomic dislocation and natural disasters. They are often exposed to ill treatment by institutions of the state and society and are powerless to influence key decisions affecting their lives. 283 26. Deputies noted the progress in PRSP implementation since its launch in September 1999.11 Though still in its early stages, experience to date has been encouraging with respect to the efforts of low-income countries in designing poverty reduction strategies and the correspon- ding commitment by their development partners to support the process. Deputies concluded that, during IDA13 and beyond, the PRSP should serve as a basis for IDA's assistance to borrowing countries.12 They pro- vided further guidance on this process, as summarized below. 27. Country Ownership and IDA's Role. It is important that the PRSP be an accurate reflection of the country's objectives and intentions, but also that IDA and other partners inform the process through dialogue and analyses, based on lessons of past experience. Early experience shows that countries' strategies have often given insufficient weight to issues that are important for sustainable development, such as the role of women, environmental management, fiduciary controls, and analysis of the social impacts of policy reforms. While recognizing that the PRSP is a country-owned document, Deputies reaffirmed that IDA should continue to advocate good policies. IDA should help governments improve the quality of PRSPs' policy content through country dialogue, analysis based on international experience, and the Bank/Fund Joint Staff Assessment (JSA). In this regard, IDA should encourage govern- ments to analyze the poverty and social impacts of major programs and policy actions. The JSA should summarize the strengths and weak- nesses of the strategy presented in the PRSP, and the CAS should reflect this assessment and articulate the extent to which the priorities of the IDA program are aligned with those of the PRSP.13 28. Expected Content of PRSPs. Deputies recognized that the PRSP is a continuous learning process into which lessons should be incorpo- rated and analytical and measurement gaps addressed. Nevertheless, IDA, together with other external partners, should place priority on the following three dimensions of PRSPs: 11A review of the PRSP approach and implementation is provided in the joint World Bank/IMF reports: Review of the Poverty Reduction Strategy Paper (PRSP) Approach: Main Findings, March 15, 2002; Review of the Poverty Reduction Strategy Paper (PRSP) Approach: Early Experience with Interim PRSPs and Full PRSPs, March 26, 2002; Poverty Reduction Strategy Papers ­ Progress in Implementation, September 7, 2000; April 18, 2001; and August 23, 2001; these documents are available at www.worldbank.org/poverty/strategies. 12The PRSP approach will be applied flexibly in blend countries, post-conflict countries, small states, and poor performers, depending on country circumstances. 13The CAS will be the Bank's business plan for operationalizing those portions of the PRSP that are in line with key IDA goals. The role of the CAS is further discussed in Section III. 284 G Prioritizing Public Actions. PRSPs should set forth comprehen- sive public sector expenditure priorities including key allocations. Governments should indicate their priorities for policy reform over a multi-year horizon, recognizing that the actual pace of implementation will be affected by political, institutional and eco- nomic constraints. The extent of participation in the formulation and implementation of the PRSP is essential for enhancing the prioritization of policies and their development impact. G Management of Resources. Typically, PRSPs should articulate a program to improve the efficiency, transparency and accounta- bility in the generation and use of public resources. Such improvements are essential both to economic efficiency and good governance. G Monitoring and Evaluation of Progress. PRSPs should focus on results by including specific targets and indicators and by sup- porting sound M&E systems (including by civil society) to help determine the effectiveness of policies and donors' assistance programs. 29. Deputies acknowledged that these expectations are longer-term undertakings and that in the case of many poor countries, the current capacity to meet them is limited. Deputies encouraged IDA, its bor- rowers and other donors to make a special commitment to capacity building and to reforms to improve countries' public expenditure man- agement and financial accountability. They recommended that IDA, in coordination with other development partners, link its future adjust- ment and budgetary support to milestones in the establishment of sound public expenditure management, financial management, and procurement systems. To this end, IDA should establish reporting mechanisms to monitor progress. In addition, to further transparency and foster accountability, IDA should encourage IDA-supported pro- grams to issue regular reports on progress towards financial and man- agement performance targets. 30. Participatory Process. Deputies stressed that PRSPs should improve existing institutions and processes for decision making. PRSPs should be based on formally approved policies and budgets of governments, and their preparation should follow appropriate chan- nels for approval. Nevertheless, the PRSP approach is intended to stimulate extensive public dialogue and greater transparency with the expectation that this will contribute to better accountability and governance. 285 31. Aid Coordination. Deputies emphasized the role of the PRSP as a mechanism for increasing borrowing country-led aid coordination. They welcomed the agreements reached by Management with the UN Development Group that the UN Common Country Assessment, the Bank's Economic and Sector Work (ESW), and the IMF's analytical and technical assistance work would contribute to governments' analytical base for PRSPs. They also welcomed the European Union's decision to base its Africa, Caribbean and Pacific (ACP) assistance programs on the PRSPs. They further noted the commitment by several bilateral donors to align their aid to PRSPs and acknowledged that other donors have hesitated to make such an alignment. They observed that the MDBs broadly agreed on this coordinated approach but that the prin- ciple of an explicitly agreed division of labor under the country's own strategy has not yet found operational acceptance among all MDBs.14 Deputies therefore called for IDA to work towards closer collaboration and better coordination among MDBs in support of PRSPs and asked Management to evaluate and report to the Executive Directors on progress. B. Policy Priorities for Poverty Reduction 32. Deputies reaffirmed that strong and sustained economic growth is a primary requirement for effective poverty reduction. While a number of IDA countries have demonstrated recent improvements in growth, IDA must focus its assistance to raise growth rates further, especially in Africa, to make real progress in reducing poverty. To this end, Deputies reaffirm the objective of directing half of IDA's assistance to Africa, pro- vided that the performance of individual countries warrants it. Deputies emphasized the importance of helping countries raise productivity, pro- mote accountable governance through strong institutions, and diversify the sources of growth and exports. In addition, Deputies stressed the importance of increasing the security of and opportunities for poor men and women to enable them to participate in the benefits of growth. 33. Within this framework of broad-based and equitable growth, public expenditures should focus on investments in people, especially through expanding education, health and basic infrastructure and through curbing non-productive uses, including excessive military expenditures. Efforts 14Protocol on Collaboration among MDBs/IMF in the Preparation of Poverty Reduction Strategies in Developing Countries, agreed in early 2000, and the joint statement by MDB Presidents: Multilateral Development Banks: A Partnership for Development, Growth and Poverty Reduction (OM2001-20) February 12, 2001. 286 should be made to increase the transparency and accountability of the public expenditure management system. Structural reforms are essen- tial not only to increase efficiency and expand markets but also to build up the assets of the poor through access to land, credit and information. Well functioning labor markets, including the implementation of core labor standards, are also key to expanding job opportunities and increasing real wages. In addition, as pressures on land, water and other natural resources intensify, environmental sustainability must become a stronger focus of national policies, both to protect the natural assets on which long-term growth depends and to reduce the vulnerability of poor people to environmental degradation and to natural disasters. 34. Deputies attached great importance to IDA's analytical work to help borrower countries focus on this complex agenda and identify practical policy measures for achieving broad-based and equitable growth. The following recommendations are intended to consolidate and strengthen IDA's advisory, financial and institution-building assis- tance in support of this effort. Investing in People 35. Investing in poor people is both a means to, and an end of, the development process. High quality basic social services--notably, pri- mary education, clean water and sanitation, disease prevention and treatment, reproductive health and nutrition, and basic community infrastructure--are vital for improving poor people's living standards, increasing their productivity and facilitating their emergence from poverty. Gender equality is also key to achieving better health and edu- cation outcomes and to economic development overall. 36. Beyond expanding access to basic services, a greater challenge for IDA is to help countries improve the quality, efficiency and accounta- bility of service delivery to the poor. Deputies welcomed initiatives by IDA to address this challenge, including a sharper focus on indicators to assess performance in serving the needs of the poor, assistance aimed at improving service delivery, increased participation in country-led, sector-wide programs, and more attention to initiatives on communica- ble diseases and their gender dimensions. Deputies welcomed the Bank's September 2001 statement opposing the imposition of user fees on the poor for basic education and health services. They requested that IDA maintain a public record on its efforts to work with countries to eliminate existing user fees on poor people for basic education. In par- ticular, IDA should work with borrowers to ensure that user fees do not prevent the poor from accessing basic social services. 287 37. Education. Deputies emphasized the fundamental importance of education as a means to increase productivity and improve living stan- dards for the poor. Investments in girls' education in particular yield some of the highest returns to investment in development and should remain a focus of IDA's education effort. Universal basic education by 2015 and the early elimination of gender disparities in school enroll- ments are important international goals which require strong reinvest- ment in IDA's education activities. Deputies urged that more resources be made available for education programs in countries that have demonstrated a commitment to prioritizing education, as articulated in a clear education sector strategy, and have a proven track record of strong project management in the sector. They emphasized the importance of ensuring that education never be underfunded in countries where the sector is performing well. Deputies requested that an action plan be pre- pared early in IDA13, aimed at helping poor countries make faster progress towards the education-related Millennium Development Goals (MDGs) and at revitalizing the Bank's education work, consistent with the ongoing work on Education for All (EFA) and Education for the Knowledge Economy. Deputies also asked that Action Plans to acceler- ate Education for All be prepared for a substantial majority of active IDA countries by the end of the IDA13 period. Deputies emphasized the need to track progress towards achieving the education goals, particularly those related to girls' education. 38. Health, Nutrition and Population (HNP). Deputies emphasized the fundamental importance of good health and nutrition in increasing productivity and improving living standards. They called for effective implementation of the World Bank's HNP Sector Strategy in poor coun- tries. They noted the key strategic directions guiding IDA's support to this sector: (i) improving health outcomes for the poor and protecting the population from the impoverishing effects of illness, malnutrition, and high fertility; (ii) enhancing the efficiency and equity of health care sys- tems; and (iii) securing sustainable health care financing in terms of resources, risk management and effective control over public and private health expenditures. They endorsed IDA's focus on HIV/AIDS, malaria, tuberculosis, and maternal and child health as critical health challenges, and they supported an approach to population and reproductive health that integrates family planning, maternal/child health, and the prevention and treatment of sexually transmitted infections. Deputies noted that strong international partnerships, notably with WHO, UNICEF and UNAIDS, were especially important in the health sector. 39. Countering the Challenge of Communicable Diseases, especially HIV/AIDS. More than 40 million people worldwide are currently living 288 with HIV/AIDS, 90 percent of whom live in developing countries and 70 percent of whom live in Sub-Saharan Africa. In a number of Sub- Saharan African countries, average life expectancy has fallen by 20 years largely as a result of this pandemic. The cost of treatment and care for people living with HIV/AIDS impoverishes many families and com- munities. The need for care forces potential wage earners to stay home, children to miss school, and family assets to be sold to pay for treat- ment. Within the next ten years there could be as many as 40 million orphans as a result of HIV/AIDS. The cost to the economy of HIV/AIDS is also massive. Health budgets have to be increased at the expense of other sectors. Government finance comes under pressure as expenditures increase and tax revenues decrease. Death and absen- teeism reduce labor supply and productivity and weaken economic growth. HIV/AIDS poses a threat to the fabric of society and to the fragile and hard-won gains of poor countries. 40. Deputies endorsed the "Declaration of Commitment on HIV/AIDS: Global Crisis--Global Action" adopted by the United Nations General Assembly Special Session on HIV/AIDS on June 25­27, 2001. They urged IDA to bring into the country policy dialogue the importance of HIV/AIDS and other communicable diseases and to work closely with other institutions that have responsibilities and strengths in these areas, notably WHO, and the other UN agencies cosponsoring UNAIDS. Deputies noted the strong expansion of IDA's assistance to fight commu- nicable disease in FY01 and the contributions of the Multi-Country HIV/AIDS Program (MAP) for Africa. They stressed the importance of strengthening health care systems at the national level as an essential step for enhancing the effectiveness of disease-specific programs and the need for IDA to align its activities to national programs for HIV/AIDS and other key diseases. They encouraged IDA's selective participation in regional and global initiatives that focus on combating communicable diseases in poor countries.15 They recommended that increased IDA allo- cations to support the fight against communicable disease should be in line with IDA's policy of linking financing with country performance, and they endorsed the use of grants to fund HIV/AIDS programs in IDA countries (for further details on the use of grants, see Section III, Part D). 41. Social Protection. Deputies noted that the World Bank's Social Protection Sector Strategy links social protection activities--reducing the 15Such initiatives include, inter alia: Global Forum for Health Research, Stop TB Initiative, Global Alliance for Vaccines and Immunization, Global Fund Fighting AIDS, TB and Malaria, and Global Partnership to Roll Back Malaria. 289 vulnerability of poor men and women and improving their ability to cope with adverse economic shocks, natural disasters, ill health and disability-- to the broader agenda of poverty reduction. They emphasized the contri- butions to poverty reduction that could be made by eliminating harmful child labor, making labor markets more equitable and inclu- sive, implementing legal reforms to protect poor people's right to assets (e.g., women's property rights), and strengthening community-based coping mechanisms, including through social funds. Deputies encour- aged IDA to strengthen its consultations and collaboration with inter- national organizations, such as the International Labor Organization (ILO), in its work with countries on labor issues. 42. Mainstreaming Gender. Deputies welcomed the World Bank's pol- icy research report on gender equality16 and noted the SSP on Gender discussed by Executive Directors in September 2001. Deputies reaf- firmed the main thrust of this strategy which aims to create an enabling environment for achieving gender equality through mainstreaming gender considerations into issues of productivity, economic growth, and poverty reduction. This should be based on country-led, locally tai- lored approaches. They requested that the Bank strengthen its assess- ments of constraints to gender equality in countries with an active IDA program. 43. Deputies recommended that IDA's approach include assessments of gender conditions, consultations with stakeholders, identification of priority actions, if any, in the PRSP, and integration of gender issues into public policies and development programs. Deputies also recom- mended that Management closely monitor, evaluate and report on the mainstreaming of the gender dimension in IDA's work. Building Capacity for Improving Governance and Combating Corruption 44. Deputies reaffirmed the continued importance of the governance agenda set out in the IDA12 Replenishment Report which outlined key components of good governance, including: good public sector man- agement and accountable public institutions; transparent policy making and implementation; clarity, stability and fairness in the rule of law; and openness to the participation of affected citizens, including the poor, in the design and implementation of policies and programs. Deputies 16Engendering Development-Through Gender Equality in Rights, Resources, and Voice, World Bank, 2001, available at www.worldbank.org/gender. 290 emphasized the importance of good governance to the effectiveness of ODA in reducing poverty. 45. Deputies urged IDA to expand its support for good governance, public sector capacity building, and the fight against corruption through consistent implementation of the sector strategy on Reforming Public Institutions and Strengthening Governance. Deputies noted with con- cern the recent Bank papers on tracking of public expenditures and urged a redoubling of IDA's efforts to develop adequate public expen- diture management in borrowing countries. They stressed four key les- sons for IDA's operations: broaden the approach to public sector reform, emphasizing internal rules and restraints within government, as well as "bottom-up" empowerment, transparency, and competition in public service delivery; work closely with clients to understand the situ- ation on the ground and to design approaches that take better account of institutional realities; take a longer-term approach, selecting Bank instruments that allow time and space for institutional changes; and strengthen the Bank's in-house skills, incentives and partnerships. They also recommended that IDA help countries identify key institutional development and capacity-building needs through ESW, emphasizing analyses of countries' public expenditure, financial accountability and procurement systems and that IDA step up its efforts to help borrowers build capacity to manage, monitor and evaluate public expendit- ures, both to improve service delivery and to ensure full transparency and accountability for public and donor resources. Deputies noted that in the context of the performance-based allocation exercise, the quality of countries' budgetary and financial management systems is assessed as well as the efficiency of their revenue generation. As a result, these criteria will play an important role in determining the level of IDA assistance as well as in informing the policy improvements needed to trigger increased amounts of assistance. Private Sector Development 46. Deputies supported the thrust of the World Bank Group's private sector development (PSD) strategy and endorsed its emphasis on a sound investment climate as the critical prerequisite for private sector development and sustainable poverty reduction. They underscored the need to broaden access to domestic and export markets for small and micro businesses and farmers whose productivity is key for broad-based growth. They urged IDA to move rapidly forward with implementation of a strong program of activities focused on building entrepreneurial capacity, improving market access for small producers, strengthening appropriate regulatory and supervisory capacity, and actively promoting 291 improvements in the business environment in IDA countries. In carry- ing out these activities, IDA should give strong support to domestic pri- vate enterprises as the main source of employment creation. Deputies noted that Output-Based Aid (OBA) approaches hold promise to improve the delivery of basic infrastructure and other support services for private sector development, and they asked Management to review experience of OBA pilot operations in IDA countries. IDA should exploit synergies with other members of the World Bank Group, in par- ticular IFC, to encourage innovation in support of private sector devel- opment, and devote significant resources during IDA13 to such innovative programs. Progress on these activities will be reported at the Mid-Term Review of IDA13. 47. Deputies noted that IDA's "partial risk" guarantee program fits within the context of the World Bank Group's PSD strategy and has been useful in the limited number of operations that are currently under implementation. Deputies agreed that a limited amount of IDA13 resources can be made available for IDA guarantees to allow further experience to accumulate. Rural Development 48. Development experience demonstrates that reducing poverty requires major investments in areas where poor men and women live and in activities in which they engage. Since most of the poor live in rural areas, and agriculture often provides an engine for economic growth, investing in rural social and economic infrastructure can be a powerful tool for creating jobs and raising incomes and living standards. Rural development and higher productivity in agriculture are therefore important. Deputies agreed that former models of integrated rural development and directed lending to agriculture had often proved wasteful and ineffective and that IDA's effort in the rural sector needed to be focused. 49. IDA's strategy should take account of the critical development role of the agriculture sector, including the role of farmers as entrepreneurs, the growing diversity of the rural economy, the need to open up and expand rural markets and build the physical and institutional infra- structure to enable this, and the farm and non-farm productivity gains which may become available through advances in technology. Deputies recommended that the Rural Development Strategy, currently under preparation, take into account regional action plans and focus on defin- ing pro-poor, sustainable investments in rural areas and improving country-level allocations to rural poverty reduction in coordination 292 with other development partners. Because a large share of rural popu- lations will continue to depend on natural resource bases for the fore- seeable future, IDA should provide assistance in managing these assets in order to promote sustainable livelihoods. Protecting the Environment for Sustainable Development 50. Sustainable development, which integrates economic growth, social cohesion, and protection of environmental resources, is key to lasting poverty alleviation. Deputies stressed the importance of the upcoming Johannesburg World Summit on Sustainable Development which aims to regenerate, at the highest political level, a global commitment to sustain- able development and to accelerate action to implement Agenda 21.17 This should provide IDA with enhanced opportunities to work with a broad range of development partners in the pursuit of the MDGs. Deputies noted that understanding of linkages between environment, poverty and growth is still evolving in many borrower countries. They welcomed the update of the Bank's Environment Strategy.18 They called for its implementation according to the schedule and milestones established in the Strategy, with particular attention to building bor- rowers' capacity to design and implement cost-effective environmental policies, reducing environmental health risks and poor people's vulner- ability to natural resource degradation and environmental hazards, seeking opportunities for environmentally responsible private sector development to encourage the reduction of pollution and resource waste through productivity improvements, and linking local environ- mental improvements with the protection of the quality of regional and global commons. 51. Deputies also discussed the importance of ex ante environmental and social impact analyses to underpin "non-emergency" adjustment lending and noted that this subject is being considered as part of the current revision of the Bank's adjustment lending policy. In this context, they urged that such analyses, when relevant, become a prerequisite for "non-emergency" adjustment credits in cases where social or environ- mental impacts of reforms supported by the credits are expected to be significant, such as may be the case for energy or water sector reforms. Deputies asked that in cases where adverse implications are shown to 17Agenda 21 was the principal agreement to emerge from the 1992 Earth Summit in Rio. It calls for the integration of environment and development in order to fulfill basic needs, improve living standards for all, and better manage and protect ecosystems for long-term sustainability. 18Making Sustainable Commitments: An Environment Strategy for the World Bank, World Bank Group, 2001, available at www.worldbank.org/environment. 293 be significant, mitigation measures be explicitly designed as part of the preparation of such operations. 52. The mainstreaming of environmental concerns into IDA's work should be accelerated. IDA should establish a timetable for improving analytical work and implementing relevant changes in staff skills mix, training, decision tools, and incentives. As part of its regular annual budget approval process, IDA should consider allocating adequate budget for these actions, while building effective partnerships with other development partners. 53. Deputies noted that while recognizing the importance of extractive industries and natural resources to the development prospects of client countries, IDA needs to be highly selective and comply with all existing safeguards when considering assistance to these industries and other natural resource sectors, especially when projects pose environmental risk. Selection criteria should include environmental, social, financial, and poverty-reduction benefits that extractive industry projects would generate as well as evidence of host country willingness to implement natural resource management reforms and to establish appropriate safe- guards for local populations. Deputies also noted the Bank's early sup- port for the World Commission on Dams (WCD) and asked that IDA take into account the core values and strategic priorities suggested by the WCD for preparing and evaluating dam projects. Finally, Deputies reit- erated that all IDA-financed projects should be in full compliance with World Bank's environmental and social safeguard policies. Promoting Trade and Regional Integration 54. Development experience demonstrates that trade can be a power- ful engine for growth and poverty reduction and that poor countries that are more integrated with international markets have grown faster than others less integrated. Better regional integration could permit many countries to surmount the obstacles posed by their relatively small sizes, realize greater economies of scale, and increase their ability to trade on a global basis, thus further enhancing growth. Yet over the past decade, the world's poorest countries, especially in Africa, have seen their share of world trade decline, and little progress has been achieved towards their effective regional integration. 55. While poor countries aim to increase and diversify their trade and engagement with the world economy, industrial nations need to encourage these efforts by enlarging access to their markets. As non-oil commod- ity prices have suffered steep declines that are unlikely to be reversed 294 in the current world economic environment, expanding market access is now urgent since many of the poorest countries, especially those in Africa, still depend mainly on commodity exports. Deputies under- scored IDA's willingness to help poor countries capitalize on new opportunities in the next round of multilateral trade negotiations. They supported the World Bank's involvement in the Integrated Framework for the Least Developed Countries, which aims at helping countries preparing their PRSPs to analyze options for trade integration, deter- mine the pay-off for trade-related reforms, and design reform packages that both promote growth and protect poor men and women against adverse transitional effects of trade opening. The Integrated Framework also helps identify priorities for trade-related technical assistance. Noting that spurring trade and regional integration requires a shared vision of economic integration among neighboring countries, Deputies welcomed the "New Partnership for African Development" adopted by leaders of African countries in July 2001, which sets out such a vision for the development of the continent. They encouraged IDA's increased support and collaboration with other partners to help implement this African-owned initiative. Fostering Recovery in Post-Conflict Countries 56. Recognizing that conflict is a development problem and remains a major obstacle to improving the lives of millions of poor people, particu- larly in Africa, Deputies reaffirmed that, as part of a concerted interna- tional effort of support, IDA should play an important role in the transition to a sustainable peace and to economic and social recovery, and in the provision of development assistance that can help countries become more resilient against eruptions of violent conflicts. They noted that early coordination of post-conflict assistance efforts is especially important to avoid the imposition of unnecessary burdens on already fragile govern- ment capacity and to ensure that available resources are channeled to the priorities set out in national recovery plans. Deputies reaffirmed that IDA should collaborate closely with the United Nations system given the spe- cialized skills that the UN agencies possess and their key role in support- ing the political and security framework required for humanitarian, reconstruction and development aid to be effective. Coordination among creditors is also required to ensure a concerted approach to financing and the normalization of countries' financial relationships. 57. Deputies recommended that IDA, in such situations, should focus on early action to re-start the economy, contribute to the re-establishment of a framework for governance and policy reform, rehabilitate basic social services and key infrastructure, and help war-affected populations and 295 communities, including support for income-generation programs, the reintegration of combatants, and other assistance to vulnerable groups such as orphans and the disabled.19 Deputies underscored the impor- tance of maintaining a focus on country performance, including trans- parency in government spending, with particular attention to the security sector, to ensure that development assistance is used to reduce poverty and is not diverted to military and other non-productive expen- ditures. They endorsed the proposal for guiding decisions on IDA's sup- port for post-conflict countries which balances the flexibility of a case-by-case approach with the need for a more systematic and trans- parent methodology.20 Deputies also recommended an expanded use of grants in post-conflict countries to fund a significant portion of IDA's overall assistance (see Section III, Part D).21 Anti-Money Laundering 58. In response to the increased threat from terrorism since September 11, 2001, Deputies urged IDA to make efforts to prevent the financing of ter- rorist activities. They welcomed the joint Bank-Fund work on assess- ment, capacity building and training relevant to money laundering and other forms of financial abuse, Bank assistance with relevant capacity building within the framework of the Financial Sector Assessment Program (FSAP), as well as the strengthened cooperation with the Financial Action Task Force on Money Laundering (FATF) and other relevant international bodies. In this connection, the Country Policy and Institutional Assessment (CPIA) exercise will also take into account money laundering as one of the elements in evaluating financial sector policies and institutions. They stressed that IDA and other donors should help borrower countries improve the regulatory and supervisory systems for the financial sector, strengthen the legal framework for combating money laundering and similar crimes, and promote trans- parency and good governance principles. 19World Bank Operational Policy 2.30 "Development Cooperation and Conflict", endorsed by Executive Directors in October 2000, governs the timing, composition and instruments of the Bank's assistance to post-conflict countries. 20IDA's allocation system for post-conflict countries is discussed in Section III and further detailed in Annex 2. 21Deputies also reconfirmed the use of limited grant financing (as authorized in IDA12) to support recovery efforts during the pre-arrears clearance phase in IDA-eligible, post- conflict countries with large and protracted arrears on the basis of the framework for post- conflict grants approved by IDA's Executive Directors in July 2001. 296 Investment, Empowerment and Security 59. Deputies noted that their recommendations are broadly in line with the approach recommended in the World Development Report 2000­2001: Attacking Poverty which stresses that expanded economic opportunity, empowerment, and enhanced security for poor people are all central to the poverty reduction agenda. Deputies asked that the World Development Report (WDR) concepts be integrated more strongly into IDA's broadened framework for poverty reduction. The report Attacking Poverty: Operationalizing the WDR 2000/1 at the World Bank (May 2001) sets out IDA's role in the WDR agenda, and the Bank's strategic framework papers22 emphasize the importance of building a climate for investment, jobs and sustainable growth while at the same time investing in poor people and empowering them to participate in development. In addition, the Empowerment and Poverty Reduction Sourcebook23 provides guidance to staff on defining the Bank's approach to empowerment, on applying it to the Bank's work, and on identifying which actions should be undertaken to move the empower- ment agenda forward, taking into account the Bank's mandate and com- parative advantage in this field. Each of these documents reinforces the integration of a multidimensional approach to poverty into IDA's work. III. IDA'S COUNTRY ASSISTANCE STRATEGIES AND GLOBAL/REGIONAL PROGRAMS 60. IDA's role has been evolving along with changes in the international development environment. Considering the advent of the PRSP approach and the recognition of global and regional challenges, Deputies recommended that IDA modify how it formulates, imple- ments and evaluates its CASs and that, in partnership with others, IDA selectively address the global and regional challenges of greatest relevance to IDA countries. A. Country Assistance Strategies 61. The CAS is a document that is prepared by IDA in collaboration with each borrower and is reviewed by IDA's Executive Directors 22The Bank's strategic framework for the FY02-05 period is articulated in the following doc- uments: World Bank Group Strategic Framework, January 24, 2001; Strategic Directions for FY02-04, March 29, 2001; and Strategy Update Paper for FY03-05: Implementing the World Bank's Strategic Framework, March 8, 2002. 23Empowerment and Poverty Reduction: A Sourcebook, May 1, 2002 (Draft for comment) is available at www.worldbank.org/poverty/empowerment/index.htm. 297 periodically--every three years for most countries. It has evolved into the main tool for planning assistance from IDA, as well as that from IFC and MIGA, and for ensuring that the volume, phasing and composition of assistance are tailored to each country's needs and unique circumstances. 62. The CAS should be diagnostically comprehensive and program- matically selective. As noted earlier in this report, in shaping the IDA program, the CAS should take full account of the priorities that emerge from the PRSP process and should apply IDA's international experi- ence to focus on the policies that will be most effective in promoting growth and reducing poverty. The CAS should include an assessment of each country's development priorities and plans to address them and should set forth IDA's program, taking into consideration the activities of other development partners and the comparative advantage of the World Bank Group. The CAS should make clear the trade-offs encoun- tered in the pursuit of poverty reduction and the alternative policy options that have been discarded in the choice of the proposed strategy. Against this background, Deputies encouraged IDA to clarify the links between the PRSP-driven processes--notably borrowers' own pro- gramming and budget cycles and their aid coordination efforts--and the formulation of IDA's own assistance programs. Alignment of CASs with Poverty Reduction Strategy Papers 63. Deputies noted that the PRSP will put forward a country's own development vision and strategy for reducing poverty along with a set of targets, monitorable indicators, and prioritized public actions for growth and poverty reduction. They agreed that this was a crucial step towards greater national ownership of development programs which is essential for increased effectiveness of external assistance. Deputies noted that preparation of a CAS would normally follow completion or updating of a PRSP, and they asked that for each IDA country, Management indi- cate the proposed timing of the CAS at the time of the PRSP Board dis- cussion. Since the PRSP provides a country's policy framework covering a range of structural, social, environmental, institutional and macroeco- nomic policies, the CAS should draw from the country's document and set forth the business plan by which IDA will support the country's own strategy. Deputies affirmed that levels of IDA financial support and the triggers for base and high cases in the CAS should be tied explicitly to the performance-based allocation system. Improving the Analytical Underpinnings of IDA's Work 64. At each stage of the PRSP process, governments should identify analytical gaps in understanding the linkages between poverty and social 298 and environmental problems. IDA should work together with its development partners to fill these gaps, making sure that its Economic and Sector Work (ESW) complements the analytical work of others, including the United Nations agencies, the bilateral and multilateral institutions, the ILO, as well as researchers and government institu- tions in borrowing countries. In this context, it will be especially impor- tant to make good use of the Common Country Assessments (CCA) of the UN. 65. Helping governments carry out core diagnostic analyses during the PRSP process is a priority for IDA. Nevertheless, in many cases IDA will have to undertake core diagnostic analyses itself, particularly on baseline social and environmental conditions, fiduciary arrangements, and assessments of countries' readiness to make effective use of IDA resources. IDA will, however, always seek to build borrower countries' capacity to undertake such analyses and will also draw on other sources of analytical work wherever possible. In any case, each CAS should review the adequacy of country and sector analysis available from sources within the country and externally and indicate how remaining gaps are to be filled. 66. Deputies stressed the importance of two sets of core diagnostics and asked that their results be highlighted in the CAS as part of the justifi- cation for the proposed level and composition of IDA's financial and advisory assistance. These analyses should inform countries' CPIA rat- ings (which feed into the IDA allocation process), and areas of weak- ness should be identified as triggers for base- and high-case scenarios in the CAS. G Social, Structural and Sectoral Analysis. This analysis comprises: a Poverty Assessment (PA), or equivalent poverty analysis, which looks at the dimensions of poverty and its determinants, including the analy- sis of poverty and social impacts of key reforms that have been under- taken or are being contemplated, and the status of poverty monitoring and evaluation systems; and a Country Economic Memorandum (CEM), or equivalent economic analysis, which focuses on structural, sectoral and institutional reform priorities for sustainable growth and poverty reduction, including the analysis of the social and environ- mental impacts of these reforms. These assessments or analyses also include the analysis of gender equality and labor markets (including core labor standards) and provide recommendations on the policies and institutions identified as particularly weak in the CPIA.24 These 24While labor standards have now been introduced into CPIA ratings, greater effort must be made to incorporate consideration of labor standards into country strategies and operations. 299 analytical studies can be prepared by IDA, other donors or the coun- try itself and can be presented as an integrative report on social, struc- tural and key sectoral policies or as separate ESW products. G Public Expenditure, Financial Accountability and Procurement Analysis. This analysis is comprised of a Public Expenditure Review (PER), a Country Financial Accountability Assessment (CFAA), and a Country Procurement Assessment Review (CPAR) and covers: (a) the comprehensiveness and transparency of the budget, including prospects for increased domestic resource mobilization, where appro- priate; (b) the adequacy and transparency of systems for budget implementation and for procurement; and (c) the adequacy of sys- tems for monitoring, reporting on, and auditing of public financial flows, including proceeds of budgetary support from donors. These assessments can be prepared by IDA or other donors (provided that they are of satisfactory quality and objectivity) and can be presented as an integrative fiduciary report or as separate ESW products. This fiduciary analysis should lead to action plans to address remaining weaknesses. 67. Deputies requested that each CAS be underpinned by timely and satisfactory poverty analysis, including the analysis of the poverty and social impacts of major reforms contemplated by government. They asked that where this analysis is incomplete or unavailable, the gaps be identified in the CAS and the CAS lay out a plan for their completion (either by IDA, the government, or other development partners). Deputies also requested that core fiduciary ESW be completed for a substantial majority of IDA countries by the end of the IDA13 period, according to the delivery targets set out in the Action Plan of this report (Annex 3). Deputies noted that the completion of this ESW and the support of country-led efforts to strengthen the analytical underpinning of PRSPs will constitute an ambitious agenda in IDA13, especially in the poorest countries where capacity is already strained. They noted that administrative budget allocations to ESW in recent years have been inadequate for these tasks and welcomed the significant increase in resources allocated for diagnostic ESW beginning in FY02.25 In addi- tion to ensuring that adequate administrative resources continue to be provided for ESW, Deputies asked Management to establish a 25Strategic Directions for FY002-04, March 29, 2001. 300 timetable to ensure that core ESW is undertaken for active IDA bor- rowers26 and to report on progress at the Mid-Term Review of IDA13.27 Selectivity and IDA Objectives 68. Deputies underscored that CASs' assessments of policies and insti- tutions should determine how best IDA should support country efforts, taking account of countries' institutional capacity, contributions from other partners, and IDA's comparative advantage. Close collaboration with regional development banks, in particular, is especially important to achieve an efficient division of labor at the country level. There may be cases where the macroeconomic, structural and fiduciary policies of a country would warrant no IDA financial support. Strengthening the Link between Performance-Based Allocations and the CAS 69. Deputies emphasized that IDA should continue to allocate scarce IDA resources according to country performance. They endorsed IDA's enhancements to the Performance-Based Allocation (PBA) system, as set out in Annex 1 to this report, and asked Management to report on implementation experience at the Mid-Term Review of IDA13. Deputies also endorsed the steps taken to strengthen the linkage of the PBA to CAS financing scenarios. 70. The PBA process determines the IDA allocation level for the CAS base-case financing scenario which is realized depending on whether spe- cific policy steps ("triggers") are achieved by the country. Deputies agreed that these triggers should address the key weaknesses identified through the CPIA which is the basic building block of IDA's performance-based allocation. More ambitious, but realistic and objectively verifiable, per- formance triggers are required to move to a high-case financing scenario where the size of the envelope would be guided by the expected improve- ment in the CPIA. Actual financing commitments during the CAS period 26"IDA borrowers" is used to refer to all countries receiving financial assistance from IDA. 27In addition to the analytical work described above, the Financial Sector Assessment Program (FSAP), a joint Bank-Fund exercise, analyzes the sensitivity of financial institutions to macroeconomic shocks; measures the depth, development and diversity of the financial system; evaluates the adequacy of legal and institutional infrastructure; assesses compliance with selected international standards; and proposes priorities for work to strengthen the financial sector. FSAPs have been carried out in several IDA countries, and, while the pro- gram pertains to industrial, IBRD and IDA countries, it is expected that approximately five FSAPs per year will be carried out in IDA countries over the IDA13 period. 301 will thus depend on the extent to which performance triggers have been met for the different levels of IDA support. 71. Deputies urged IDA to monitor the relationship between the crite- ria for the CPIA, which evaluates a country's track record in the recent past, and the JSA of the PRSP, which gauges the strength and credibility of the government's proposed actions in the coming years. Deputies rec- ommended that IDA make the CPIA methodology more transparent to borrowers, enhance dialogue with governments on their CPIA ratings, and analyze the feedback received. Sharing of CPIA results with bor- rowers and the associated policy dialogue is especially relevant for coun- tries with weak policy performance. Deputies recommended that such countries should continue to receive only limited financial assistance from IDA, but that IDA should work to promote change and enable the actions needed to improve performance and access to IDA resources. 72. Financing Outside Normal Country Allocations. Deputies recog- nized that IDA's effectiveness has been in part due to its ability to respond to extraordinary needs. For IDA13, they agreed that a number of factors continue to merit special consideration in allocating IDA resources, namely: (i) post-conflict countries; (ii) countries affected by major disasters; and (iii) blend countries. The rationale for deviating from the PBA norm is different in each case: G Post-conflict countries. Several IDA countries could have large financing needs during IDA13 as they recover from armed conflict. Deputies welcomed a new framework to assist in considering IDA resource allocations to these countries and to measure their perform- ance along policy dimensions that are most relevant to post- conflict circumstances. They endorsed the use of post-conflict progress assessments in considering future IDA resource allocations (details of this methodology are in Annex 2). G Response to major disasters. Allocations to countries affected by major disasters may be temporarily increased to take account of the abnormal costs to their development as a result of the disaster and to allow IDA to contribute appropriately to an overall international response. G Blend countries. Allocations are capped at a level below the norm in view of these countries' access to IBRD and market finance and their strong development prospects. Deputies noted that the creditworthiness of blend countries for IBRD and market finance was in some instances fragile or uncertain, and access to IDA resources therefore needed to be kept under review. 302 73. Consistent with efforts to meet the Millennium Development Goal of halving the number of people living in poverty by 2015, Deputies requested that Management, in consultation with OED, analyze the impact of allocation caps and targets on IDA's ability to raise the maxi- mum number of people out of poverty. They requested a report on this topic at the Mid-Term Review of IDA13. Consultations and Disclosure 74. Deputies noted that since extensive public debate and consulta- tions with a broad range of stakeholders should take place during preparation of PRSPs (see Section II above), the purpose and scope of consultations carried out during CAS preparation would need to be modified accordingly. CAS consultations should seek borrowers' and partners' views on how IDA can best support the program of actions set out in the PRSP and how to increase programmatic selectivity in line with the comparative advantage of partner agencies. Following such consultations, a CAS should make clear which elements of the PRSP will be supported by IDA financing and non-financing services--and under what conditions--and which will not. Deputies requested that consultations be based on written, though not necessar- ily final draft, documentation. 75. Deputies noted that, in the context of the World Bank disclosure policy, all IDA CASs and CAS Progress Reports are now disclosed. PRSPs and Interim PRSPs are expected to be disclosed by govern- ments, and the Joint Staff Assessment and Chairman's Summary are made public following Board review. Deputies urged that Management move quickly to implement the revisions to the disclo- sure policies approved by Executive Directors in September 2001, including, inter alia, the release of a broad set of OED reports, con- sultation drafts of SSPs after Board notification, and enhanced infor- mation packages on project implementation, including coverage of items such as procurement, audits, midterm reviews, and country port- folio performance reviews. Management should continue to look for ways in which more information on IDA programs can be made pub- licly available. Deputies encouraged the use of voluntary learning pilots to test ways of further enhancing the information available for public consultation in borrower countries, including relevant eco- nomic and sector work underpinning the CAS and information on projects under preparation. Deputies recommended that Manage- ment report on implementation of the revised information disclosure policy at the Mid-Term Review of IDA13. 303 Choice of Financing Instruments 76. The CAS should set out scenarios for the volume, timing and com- position of IDA's assistance and should indicate appropriate assistance instruments, taking into account consultations with borrowers and part- ners. Based on a country's program, as set forth in the PRSP, its fiduci- ary policies, and the business plan in the CAS, IDA assistance, in loan or grant form, should continue to be delivered through both investment and adjustment operations. Deputies noted that because IDA's invest- ment projects contribute to countries' long-term development and often are a source of innovative approaches, they should remain the mainstay of IDA's financial assistance. 77. Where warranted by appropriate fiduciary arrangements (see para. 64 above) and justified by a strong PRSP and satisfactory macroeconomic performance, Deputies noted that IDA could increase, where justified, the support it provides through Poverty Reduction Support Credits (PRSCs), consistent with the existing framework for adjustment lending-- recognizing that the issue of the share of adjustment financing in total IDA financing is being considered as part of the current revision of the Bank's adjustment lending policy.28 Deputies noted that PRSCs could help reduce the transaction costs associated with external financing of poor countries' development expenditures, especially if bilateral and multilateral development partners base their business plans on coun- tries' own program cycles. They stressed that substantial programmatic lending to IDA borrowers needs to be informed by fiduciary diagnos- tics and should be based on a time-bound action plan to establish sound fiduciary policies and processes and demonstrated progress towards implementation of the plan. PRSCs should support strategies to bolster the sustainability of gains made. B. Global and Regional Programs Reducing Poverty through Global Public Goods 78. Deputies noted that IDA's role in this important area should be guided by the results of discussions by the Development Committee on the World Bank's role in the context of evolving international arrange- ments for financing the provision of global public goods.29 Deputies 28Fighting Poverty and Strengthening Growth in Low-Income Countries, DC2001-001, April 18, 2001. 29Poverty Reduction and Global Public Goods--A Progress Report, March 20, 2001. 304 considered the five areas proposed for increased Bank involvement: communicable disease, environmental commons, economic governance and financial stability, trade integration, and the knowledge revolution, and noted that IDA should complement others' efforts--for example that of the GEF in the case of the environment. Deputies underscored the urgency of action for the poorest countries where economies and societies are threatened by the spread of communicable diseases in par- ticular. IDA should collaborate closely with other partners in this area, notably the new Global Fund for AIDS, Tuberculosis and Malaria, WHO, UNAIDS, UNICEF, other MDBs, bilateral donors, and non- governmental organizations (NGOs). Where appropriate, they called on IDA to explore explicit agreements among such entities with respect to partnerships and areas of comparative advantage. Regional Priorities 79. Sub-Saharan Africa. Deputies agreed that fostering development in Sub-Saharan Africa remains one of IDA's most important challenges. They urged IDA to re-energize its commitment to increase the effec- tiveness of its assistance by encouraging sound economic and social policies and the building of local, national, and regional capacity in both the private and public sectors. Addressing obstacles to more rapid pro- ductivity growth in agriculture, industry, and services will be key, espe- cially in rural areas where most of the poor live. Deputies emphasized the need to increase ownership of development programs, which the OED Review found is essential for increased development effective- ness. In this regard, Deputies welcomed the New Partnership for African Development launched by leaders in the region to define African priorities and to redefine relationships with Africa's partners. Deputies requested that Management work to align its regional strategy for Africa to this African initiative. In particular, IDA, together with other external development partners, should support efforts to improve governance, reduce capacity limitations that may inhibit effective use of resources, and hasten and sustain post-conflict recovery of the many countries in the region that are affected by conflict. Deputies welcomed recent performance improvements and increased IDA support to many African countries and recommended that Africa's share should reach 50 percent of IDA13 commitments as long as the performance of indi- vidual countries warrants it. They also asked that the regional distribu- tion of IDA commitments and disbursements continue to be monitored and reported annually to the Executive Directors. 80. Asia. Deputies recognized that the greatest concentration of poor people in the world lives in Asia and that in many parts of this region 305 social indicators are worse than those found in Africa. A number of countries in Central and South Asia risk being negatively affected in the international campaign against terrorism and the resulting uncertainty and flows of refugees. Deputies noted that countries in Asia, a number of which have made good progress in integrating with international markets, could be particularly hurt by worsening prospects for global trade growth and reduced investor confidence. C. IDA Eligibility 81. Eligibility for access to IDA resources is governed by two basic criteria: a country's relative poverty (as measured by per capita income) and its lack of creditworthiness. In order to receive IDA resources, a country must also be pursuing sound policies to promote growth and reduce poverty. Deputies recommended that the income cutoff be maintained at the same real level as in the previous four replenish- ments: a 2001 per capita Gross National Income of $875.30 They also recommended retaining the exception to this cutoff for small islands that have limited creditworthiness for IBRD borrowing, noting the exceptional vulnerability of these economies to external economic shocks and disruptive natural disasters. D. Terms of IDA Financing 82. Deputies discussed in depth the potential benefits and risks of soft- ening the terms of IDA's assistance to the poorest and most vulnerable IDA countries. They recognized the advantages of increasing the con- cessionality of the financing used to address the hardships facing these countries and endorsed an expansion in the use of IDA grants during the IDA13 period, in the range of 18 to 21 percent of overall IDA13 resources. Deputies provided the Executive Directors and Management with guidance in determining the use of grants, emphasizing the need for flexibility in the management of grants, the importance of countries' policy performance in determining the overall IDA allocation of which grants are a part, and the primary role of the PRSP and the CAS in set- ting the priorities for the use of grants, as for all of IDA's support.31 83. The Poorest IDA-Only Countries. Deputies recommended that in countries with an average annual per capita income of less than or equal to a dollar a day (GNI of $360), up to 23 percent of the IDA allocation 30Effective July 1, 2002. 31See Annex 6 for a summary of Deputies' guidance on the uses for IDA grants as well as estimations of the share of total grants needed for each category. 306 for countries in this category be delivered in the form of grants. They stressed that grants, like other IDA support, should be guided by coun- try performance in implementing PRSP priorities, as assessed and endorsed by the Bretton Woods Institutions, and noted that invest- ments in improving education, health and the provision of clean water and sanitation would be an important aspect. 84. Debt-Vulnerable Poor Countries. Deputies noted that a number of the poorest countries may remain susceptible to renewed debt prob- lems, even after the completion of all available debt reduction processes. To assist countries in coping with such vulnerability, they rec- ommended that additional grant support, up to 40 percent of their IDA allocation, should be provided to debt-vulnerable countries.32 85. Post-Conflict Countries. In view of post-conflict countries' vul- nerability during the early stages of reconstruction, Deputies recom- mended an expanded use of grants, up to 40 percent of their IDA allocation, for a limited period, to establish the main functions of gov- ernance and to rebuild basic infrastructure once arrears have been cleared.33 Deputies also recommended in the post-conflict context that grants could be made available, in special cases, to territories within member countries that are under UN administration on an interim basis. Post-conflict grants will continue to be available, under the framework approved by the Executive Directors in IDA12, to support recovery efforts during the pre-arrears clearance phase in IDA-eligible countries with large and protracted arrears. Deputies noted that the use of grants should be guided by the Bank's existing policies, including the use of Transitional Support Strategies, in post- conflict countries. 86. Natural Disaster Assistance. Deputies recommended that IDA grants be provided to finance up to 100 percent of specific reconstruc- tion efforts in IDA-only countries that have suffered an exceptional natural disaster such as a major flood or earthquake or a severe and prolonged drought. Providing grants in these instances can slow the 32For the purpose of allocating IDA grants, a "debt-vulnerable country" is defined as a coun- try with a per capita income under less than or equal to $360 and an expected long-term NPV debt/exports ratio of 150 percent or above, after all possible debt relief options have been exhausted. In special country cases, where there is high export concentration (i.e., where three products account for over 60 percent of exports), the debt vulnerability thresh- old is an NPV debt/exports ratio of 120 percent. 33Countries are eligible for post-conflict grant assistance according to the same criteria that determine access to exceptional post-conflict IDA allocations (see Annex 2, paras. 5-6). 307 build-up of unplanned debt for emergency reconstruction and can help offset the loss of productive capacity that these events often cause. 87. HIV/AIDS Programs. Deputies noted that the HIV/AIDS pan- demic poses an exceptional threat to many poor countries' growth and, in some cases, to the social fabric of these countries. Given the severity of the problem worldwide, Deputies recommended that grants be pro- vided to finance up to 100 percent of HIV/AIDS programs in IDA-only countries, and that in blend countries grants be provided to finance up to 25 percent of IDA-supported HIV/AIDS programs. Deputies rec- ommended that grants be provided to fully finance regional HIV/AIDS projects, subject to the availability of resources. They also recom- mended that grants for regional initiatives, while important in some cir- cumstances, should not take precedence over grant resources for national programs. In providing grants for HIV/AIDS programs, Deputies urged IDA to develop partnerships with other international organizations and bilateral donors active in this field and to work on the basis of country-owned strategic plans where available. 88. Deputies asked that clear guidelines be developed to govern the use of grants in IDA's operations. They underscored that IDA financing in the form of grants must meet the same requirements of IDA's Articles of Agreement as to purposes, use of resources and conditions of financing as apply to IDA credits. As the Executive Directors and Management work to operationalize the expanded IDA13 grants mandate, they will apply normal Bank policies and procedures, as appropriate, to development grants. 89. Financing the Provision of Grants. Deputies stressed that the impact of grants on IDA's finances should be explicitly treated in IDA's financial framework and that the costs should be specifically compen- sated for by additional donor contributions in order to maintain IDA's financial integrity into the future. They emphasized that providing resources in advance of the sharp rise in IDA13 grant costs in future decades would help to assure IDA's continued capacity to provide assis- tance to the world's poorest countries. Deputies recommended, as an initial step, that SDR 100 million in resources be provided for this pur- pose from the IDA12 carryover, and that further resources be made available from encashment schedules and from additional voluntary contributions. They also agreed that at the IDA13 Mid-Term Review 308 they would discuss financing options and decide at that time on an equi- table mechanism to provide for grant financing requirements.34 90. Deputies requested that the IDA13 grants program be assessed over the course of the replenishment period and that Management pre- pare an interim implementation report for Deputies' consideration at the IDA13 Mid-Term Review, including further analysis of implications for IDA's finances. 91. In addition to increasing IDA's concessionality for the most vulner- able IDA borrowers, Deputies recognized the need to reduce IDA's concessionality for those borrowers that are capable of servicing debt on harder terms. Along these lines, Deputies agreed that it would be reasonable to introduce somewhat less concessional lending terms for borrowers that are IDA-eligible on an exceptional basis despite their per capita incomes' being above the eligibility threshold.35 This provi- sion would not apply to the small islands that have exceptional access to IDA (see para. 81). Deputies noted that the introduction of harder terms for exceptional-access countries would strengthen IDA's role as a transitional instrument towards normal credit access by facilitating a phase-out of the subsidy embodied in IDA lending. Deputies requested that Management report on the implementation of the new terms at the IDA13 Mid-Term Review. They also noted that further consideration would be given at that time to the possibility of hardened terms for "notional" blends.36 E. Continuing Support for the Enhanced HIPC Debt Initiative 92. Deputies reiterated their strong support for the HIPC Debt Initiative and the enhanced framework which is providing broader, deeper and faster debt relief to the world's poorest and most indebted countries. 34All additional donor contributions for this purpose will be reported separately from con- tributions towards IDA13 commitment authority and will be taken into account in Deputies' decisions regarding meeting the ongoing cost of IDA13 grants. 35This arrangement would supersede the accelerated repayment provision introduced in IDA11. 36"Notional" blends are borrowers that have a capacity or history of market-based borrow- ing and a per capita income below the IDA eligibility threshold, and which are currently unable to borrow from IBRD due to marginal or deteriorated creditworthiness. 309 Reaching and maintaining debt sustainability remains important to the achievement of long-term development goals. They emphasized the importance of closely linking HIPC debt relief with countries' poverty reduction efforts through the PRSP process. They noted the progress that had been made in the implementation of the enhanced HIPC Debt Initiative since its adoption at the beginning of IDA12 and that IDA debt relief was being provided to all eligible HIPCs. 93. The impact of HIPC debt relief on IDA's finances was reviewed. Deputies reaffirmed the basic HIPC principle that debt relief should not reduce IDA's capacity to support poverty reduction and develop- ment and should be additional to other IDA assistance. It was recog- nized that several HIPC countries still had significant IBRD debt outstanding and that donor funding of the HIPC Debt Initiative Trust Fund was required. Deputies endorsed, on a limited basis, the contin- ued use of IDA debt relief grants and debt relief credits in the context of the HIPC Initiative and agreed that the cost to IDA of debt relief to countries with IBRD debt during IDA12 and IDA13 would be taken into account as an additional need in the determination of IDA13 fund- ing requirements. 94. Resources currently pledged to the World Bank component of the HIPC Debt Initiative Trust Fund can reimburse IDA only through IDA13 for the cost of HIPC debt service relief. Deputies agreed that the financing of IDA's HIPC debt service relief costs, which are esti- mated to average close to $500 million per year over the IDA14-16 period, will be addressed in 2004 at back-to-back meetings during the IDA14 replenishment discussions. 95. Deputies stressed that the long-term debt sustainability of IDA bor- rowers needs to be kept under review, although they noted the large reductions in debt stock and debt service achieved by the HIPC initia- tive. Despite the high level of concessionality of IDA lending, IDA countries still need to be concerned that the growth of debt does not exceed their debt service capacity. Correspondingly, IDA needs to ensure that new lending does not lead to unsustainable debt burdens, taking into account each borrower country's macroeconomic situation. To assist in this regard, Deputies endorsed the use of IDA grants in very poor IDA-only countries that face long-term debt sustainability prob- lems, as discussed above. Deputies requested that debt sustainability be kept under close review by Management and that an update on the issue be provided as part of the IDA13 Mid-Term Review. 310 IV. MONITORING AND EVALUATION OF IDA13 96. Development experience demonstrates the importance of defining specific, realistic, monitorable and measurable goals and benchmarks against which aid programs can be evaluated. Drawing upon OED's Review of IDA, Deputies underscored the need to develop indicators to evaluate progress of IDA programs at the country and global levels and to ensure their coherence with the Millennium Development Goals.37 Development Outcome Indicators 97. Deputies reaffirmed that the indicators for monitoring and evaluat- ing IDA13 should be grounded in the framework of the MDGs and other international targets agreed at UN conferences. As discussed in Section I of this report, Deputies recommended that Management put in place a system to measure and monitor development outcomes and to link these outcomes to all IDA country programs and projects.38 At the country level, the PRSP should include key economic growth and poverty-reduction performance objectives as well as intermediate targets. The CAS, which is informed by the PRSP, should aim to include, inter alia: (a) well designed outcome indicators, including rele- vant country-specific MDGs, with baseline data; (b) an articulation of the outcomes expected from CAS-supported policies and projects; and (c) an assessment of the systems and capacity to monitor progress. In addition, Deputies recommended that Management include outcome indicators more systematically in IDA operations. 98. At the global level, reporting on progress toward the MDGs and other priorities should be done in conjunction with other partners. Based on the set of indicators that have been presented in the UN Road 37In addition to the OED Review of IDA, the need for improvements in performance eval- uation has been highlighted in other reports, including the FY01 Annual Report on Portfolio Performance (ARPP); various country operations assessments by the Quality Assurance Group (QAG), and 2000 Annual Review of Development Effectiveness: From Strategy to Results (ARDE), OED, January 2001. 38See paras. 22 and 23 in Section I. 311 Map,39 a number of international agencies take responsibility for mon- itoring progress toward the goals, and reporting is done jointly. IDA should continue to contribute to the monitoring of poverty incidence, inequality (including that related to gender), and other social indicators in poor countries by working closely with the UN. Deputies requested that Management provide a report on both global and country-specific progress toward these longer-term objectives at the Mid-Term Review of IDA13. Monitoring, Reporting and Evaluating Progress on IDA13 Commitments 99. Institutional Arrangements. Deputies recommended that the IDA13 Replenishment Report be made publicly available and that IDA mandates be translated into operational guidelines as appropriate. Management should assign internal responsibility for monitoring and implementation of these undertakings and reinforce accountability for policy compliance. Deputies asked Management to report on imple- mentation of this directive at the IDA13 Mid-Term Review. 100. Bank-Wide Reporting. Deputies recommended that IDA Management continue to report regularly to the Executive Directors about its progress and achievements in the poorest countries. They also welcomed the recent attention in the Annual Reviews of Development Effectiveness to IDA's contributions and to the key issues confronting the poorest countries and looked forward to continuing attention to these issues by OED. Similarly, the Annual Report on Portfolio Performance should continue to highlight changes in the quality of IDA's portfolio of ongoing projects. It should also evaluate portfolio management since successful implementation of IDA-financed projects is a key indicator of ultimate development outcomes and impact in the poorest countries. Deputies attached particular importance to the PRSP implementation progress reports. They requested annual reports on public expenditure management and associated actions. They also underscored the importance of annual reports that cover implementa- tion of the Bank's new environment strategy and periodic reports on progress in reducing poverty. They looked forward to reports on progress in mainstreaming gender. 39The report of the UN Secretary General, A Road Map towards the Implementation of the United Nations Millennium Declaration, September 6, 2001, contains a revised set of devel- opment goals, targets and Indicators. 312 101. CAS Retrospective and SSP Stocktaking. Deputies noted that the next CAS Retrospective and Outlook Report would be prepared in July 2002 and about every two years thereafter. These reports will periodi- cally examine how IDA interventions are helping countries attain their poverty reduction goals, including through the design and monitoring of outcome indicators. Deputies also noted the report Sector Strategy Papers: Stocktaking and Future Directions, which was prepared in September 2002, and which evaluated the strategic relevance, analytic quality and operational efficiency of SSPs, and set out future directions. They asked that a Stocktaking Paper also be prepared periodically to report on progress in implementing the sector strategies. 102. IDA13 Action Plan. A summary of Deputies' actionable recom- mendations appears in Annex 3 of this report. This matrix will serve as a tool for tracking the implementation of Deputies' recommendations during the IDA13 period. 103. Mid-Term Review. Deputies recommended that a meeting of IDA Deputies and borrower representatives be held in 2003 to take stock of the implementation of the second part of IDA12 and to evaluate progress in implementing the IDA13 undertakings which include, inter alia, progress towards the Millennium Development Goals, the devel- opment of a results-based performance management system, and expe- rience with the expanded use of IDA grants. 104. Implementation Reporting. Deputies requested that a report be provided to the Executive Directors covering IDA commitments and disbursements (including reviews of lending to blend countries, and regional and sectoral distribution of IDA's financial assistance) and funding for the IDA13 period at the end of each fiscal year. Deputies also requested that by December 2005, Management prepare a report reviewing the implementation and results of the activities undertaken during the IDA13 period. Role of Borrowers and Other Development Partners in Monitoring and Evaluation 105. Deputies encouraged IDA to broaden the participation of borrowers, development partners, and civil society in the monitoring and evaluation of IDA's assistance programs. Deputies recommended that Manage- ment determine the best way--depending on country circumstances-- to ensure ongoing feedback and to engage partners in monitoring and evaluating the performance and development outcomes of IDA coun- try programs. They noted that client surveys and feedback gathered 313 through participatory processes associated with PRSPs and CASs could be a cost-effective way to involve borrowers and other partners in assessing the performance of IDA programs. 106. Deputies will continue to engage borrowing countries in setting and reviewing replenishment commitments through, inter alia: (a) public disclosure of background documents for discussion of IDA policy issues throughout the replenishments as well as the release of a draft of the Deputies' report for public comment; (b) participation of representa- tives of borrowing countries in the discussion of IDA policies; (c) con- sultations with NGO, private sector and civil society representatives from IDA borrower countries; and (d) surveys of stakeholders to seek feedback on IDA's policy framework and operations. Deputies wel- comed the fact that the involvement of borrower representatives and the disclosure of replenishment documents related to IDA13, including on the World Bank website, had encouraged broader discussion and understanding of IDA's mission. IDA14 Chairperson 107. Deputies agreed that, at the time of the 2002 Annual Meetings, they would undertake an informal process to select a chairperson on a consensus basis for the IDA13 Mid-Term Review and the IDA14 Replenishment. In order to facilitate the selection of the best qualified chairperson, Deputies are invited to propose candidates with appropri- ate experience before the 2002 Annual Meetings. The President of the Association may also propose a candidate for consideration from among officials of the World Bank Group. V: MANAGING IDA'S FINANCIAL RESOURCES 108. Deputies recommended a replenishment in the amount of SDR 18.1 billion consisting of new donor contributions in the amount of SDR 10.0 billion, a carryover of donor resources from the previous replen- ishment in the amount of SDR 0.2 billion, transfers from IBRD net income (if available) in the amount of SDR 0.7 billion, and commit- ments against IDA's internal resources in the amount of SDR 7.3 billion. Deputies recommended that, as an interim measure, SDR 100 million from the IDA12 carryover should be set aside towards the financing of the long-term cost of IDA13 grants. 109. Deputies noted that there might be a need for additional resources, potentially of up to SDR 2 billion, for a number of IDA bor- 314 rowers as a consequence of the September 11, 2001 events and the global slowdown. To meet such needs, donors may provide special sup- plemental contributions on terms to be agreed with the Association including interest-free loans which may be converted into contributions in the context of future replenishments. Deputies noted that some donors might make early decisions on such questions while others might re-assess their position at the IDA13 Mid-Term Review. In addition, Management may recommend to the Executive Directors an adjust- ment to the IDA13 commitment authority framework to increase the use of internal resources during IDA13 to meet such special needs. Prospective New Members and Donors 110. Deputies welcomed Singapore to the IDA13 discussions as a new donor. Singapore is in the process of applying for IDA membership and plans to contribute to IDA13. Deputies noted that Barbados became a contributor in IDA12 and that the Bahamas, which is in the process of becoming an IDA member, intends to contribute in IDA13. They also noted that, in their view, there are still a number of countries that have the economic capability to contribute to IDA but have not yet done so. These include Bahrain, Brunei Darussalam, Chile, Cyprus, Qatar and the United Arab Emirates. The indicative share and level of contribu- tions from these prospective donors as well as their per capita income are shown in Annex 4. Deputies agreed that they and Management should continue to encourage these high-income countries not yet con- tributing to IDA to become IDA donors. Commitment Authority and Risk Management 111. Deputies noted progress in strengthening IDA's financial manage- ment framework in the wake of the decision by the international com- munity to move forward with the implementation of the enhanced HIPC Initiative (in the fall of 1999). During the ensuing two years, IDA Management constructed a long-term financial projections model to assess the impact of the provision of HIPC relief on IDA's finances and to provide a sound and transparent basis for financial management decision making. As a result, a new investment policy was designed and implemented to match the duration profile of IDA's liquid assets to that of its projected liabilities. IDA's foreign exchange risk assessment and mitigation processes were strengthened as well. Looking forward, Deputies welcomed Management's commitment to refine these tools to assess and manage financially significant policy decision such as the potential impact of changes in IDA's terms, including the use of grants. 315 They reiterated their request that IDA's financial resources be managed carefully to ensure that IDA's financial capacity remains strong and on a financially sustainable path. 112. IDA's commitment authority for new financing is derived from donor contributions, IBRD net income transfers, and internal resources.40 Deputies noted that repayments of outstanding credits con- stitute the largest component of internal resources. They stressed the importance of this reflow mechanism in the context of IDA's role pri- marily as a lending institution. They also reaffirmed the high priority they attach to continued and substantial transfers from IBRD net income to IDA, as authorized annually by IBRD's Board of Governors. Deputies endorsed IDA's existing practice of using internal resources to complement donor resources to maximize IDA's commitment authority. 113. Deputies reviewed IDA's financial management framework. They noted the implementation of a new investment policy and additional measures to mitigate IDA's financial risks. These financial risks are of three types: G Potential currency mismatch: This risk may occur when the SDR value of donor contributions declines between the period of com- mitment and encashment of these contributions because of cur- rency fluctuations. A new currency rebalancing mechanism was implemented to eliminate this by using IDA's liquidity to bring the currency composition of IDA's total resources closer to the SDR. G Delays in repayments by borrowers which could affect the level of advance commitment authority: to manage this risk advance commitment levels are reviewed annually, ensuring that such commitments are fully consistent with borrower repayments. G Disbursements of IDA resources could be faster than anticipated which could necessitate faster drawdowns of liquidity and/or faster encashment of donor pledges. To mitigate this risk, dis- bursements are monitored, and encashment schedules are peri- odically revised and made available to donors in order to ensure that IDA's liquidity needs are met. 40Internal resources include reflows, investment income, and other non-donor resources. 316 114. Deputies agreed that Twelfth Replenishment funds carried over into the Thirteenth Replenishment will be administered under the terms of the Twelfth Replenishment with respect to financial man- agement matters such as payment, encashment, and allocation of vot- ing rights. For ongoing operational matters such as commitment authority and procurement eligibility for as-yet-uncommitted funds, Thirteenth Replenishment terms, conditions and procedures will apply. Replenishment Size, Burden Sharing and Pro Rata Provision 115. Deputies acknowledged that the challenge of each replenishment is to reconcile two core objectives. First, the replenishment must be adequate in size, and second, it must be achieved within an acceptable burden-sharing framework. Deputies noted that adjusted GNP remains a useful point of reference for IDA shares but that it cannot be followed rigidly as the basis for determining replenishment shares. They agreed that flexibility on the part of each donor is necessary for a successful outcome of the replenishment. In that context, they observed that in the past, and again in IDA13, a few donors have made contributions in excess of their adjusted GNP shares and that these donors have therefore contributed significantly to the successful completion of the replenishment. 116. Deputies proposed that IDA13 donor contributions reach SDR 10.02 billion. Commitments (subscriptions and contributions) shown in Table 1, Annex 5 reflect the agreement among donors. 117. Since the Fifth Replenishment donors under the pro rata provision have had the ability to restrict the use of part of their contributions sub- ject to any shortfall in contributions from the United States. The Deputies have reviewed the effectiveness of this provision from time to time and recognize that its usefulness in encouraging timely contribu- tions is limited. Nonetheless, the Deputies agreed to retain the pro rata provision for IDA13 because some donors feel that this provision is an important element of equity and burden sharing among IDA donors. Effectiveness and Advance Contribution Scheme 118. Deputies recommended that donor financing for IDA13 be made subject to an effectiveness condition similar to that used under previous IDA replenishments. The purpose of such a condition is to ensure that most donor financing, including contributions by major donors, is in 317 place on time. The delay in coming to closure in the IDA13 replenish- ment negotiations has resulted in budget process difficulties for some donors. To accommodate those difficulties and at the same time avoid delaying the effective date of the replenishment, the trigger for IDA13 effectiveness has been lowered to deposit of Instrument of Commitments by countries whose subscriptions and contributions total 60 percent (rather than 80 percent) of total contributions. 119. Some donors' budgetary and legislative timetables permit them to make their contributions at an early stage in the fiscal year. In past IDA replenishments, some donors agreed that a share of their contributions could be used before the replenishment became effective. The Deputies recommended that such a voluntary advance contribution scheme be established for IDA13 and that it become effective upon receipt of Instruments of Commitment by donors accounting for 20 percent of total donor contributions. Instruments received from contributing members prior to the effectiveness of the replenishment will be deemed applicable toward the advance contribution scheme unless the con- tributing member specifies otherwise in the Instrument of Commitment. Contribution Procedures 120. Deputies recommended that the contribution and payment arrangements for donors continue as in previous replenishments. They recommended a target effectiveness date for the replenishment of December 15, 2002. Donors will provide their contributions in the form of cash or notes in three equal annual installments. The first installment will be paid no later than January 15, 2003, or 31 days after the replen- ishment becomes effective, whichever is later, except for advance con- tributions which will be paid as specified by IDA after the advance contribution scheme becomes effective. The second installment will be paid no later than January 15, 2004, and the third installment no later than January 15, 2005. 121. Encashment. Donor contributions will be encashed on an approx- imately pro rata basis among donors (Attachment III of the IDA13 Resolution). Donors may, with the agreement of management, adjust their encashments to reflect their legal and budgetary requirements. Deputies agreed to indicate any special preferences in this regard to Management when donors deposit their Instruments of Commitment. Deputies recognized that the timing of encashments affects IDA's resource base. They agreed that in exceptional cases, should unavoid- able delays occur, IDA's encashment requests to the affected donor are expected to be adjusted to take into account any past payment delays 318 by that donor and any related lost income to IDA. IDA may also agree with any member on a revised encashment schedule that yields at least an equivalent value to IDA. 122. Valuation of Contributions. Deputies agreed that donors can denominate their contributions in their respective national currencies, in SDRs or, with the approval of the Association, in any convertible currency of another member country. For the purpose of establishing the equivalence of value among different currencies and the SDR, donors agreed to use the average daily exchange rate for the period April 1, 2001, through September 30, 2001. To help maintain the value of contributions from donors with high inflation rates, contributions from donors with domestic annual inflation of 10 percent or higher in 1998­2000 will be denominated in SDRs. 123. Reporting of Contributions. Deputies requested Management to report regularly to the Executive Directors on the status of each donor's commitment and actual contributions to IDA and to include this infor- mation in the Annual Report of the World Bank and other publications as appropriate. Voting Rights 124. Deputies noted that votes on account of contributions to the Interim Trust Fund were allocated as of May 28, 2001 when the Interim Trust Fund was terminated and its resources transferred to IDA. They agreed that the existing IDA voting rights system continue for the IDA13 period. VI: RECOMMENDATION 125. The Executive Directors recommend to the Board of Governors the adoption of the draft IDA13 resolution. . . .1 (This report was approved and its recommendation was adopted by the Board of Governors on September 29, 2002) 1See page 241. 319 DOCUMENTS PROVIDED FOR THE IDA13 REPLENISHMENT MEETINGS 1 February 27­March 1, 2001--Paris, France Discussion Papers: A Strategy for Increasing IDA's Effectiveness in Africa (December 2000) IDA Eligibility, Terms and Graduation Policies (January 2001) Linking IDA Support to Country Performance--Recent Experience and Emerging Issues (January 2001) Background and Technical Notes: A Possible Timeline for the IDA13 Negotiations (February 2001) Three-Year or Four-Year Replenishment Cycle--Results of Consultation with Donors (January 2001) Progress Report on IDA12 Implementation (February 2001) Highlights from Workshop on the Future of Concessional Finance (February 2001) A review of Environmental Issues in IDA Activities (February 2001) Proposed Termination of the Interim Trust Fund (February 2001) HIPC Papers: Update on the HIPC Initiative and PRSP Program (February 2001) Financial Impact of the HIPC Initiative--First 22 country cases (February 2001) June 6­7, 2001--Addis Ababa, Ethiopia Discussion Papers: Poverty Reduction Strategy Papers and IDA13 (May 2001) Adapting IDA's Performance-Based Allocations to Post-Conflict Countries (May 2001) Background and Technical Notes: Sounding out Borrowers about IDA's Policy Framework, Report on a Survey (May 2001) Status Report of the World Bank Working Group on CPIA 2001 (May 2001) 1In addition, a number of background notes and tables on financial issues were circulated to Deputies over the course of the Replenishment discussions. 320 IDA in Latin America and the Caribbean (May 2001) IDA in Asia (May 2001) Private Sector Development Strategy Issues and Options (June 2001) Assistance to Post-Conflict Countries and the HIPC Framework (April 2001) The Challenge of Maintaining Long-Term External Debt Sustain- ability (April 2001) Public Expenditure Management and Accountability: Evolution and Current Status of World Bank Work (April 2001) Poverty Reduction Strategy Papers--Progress in Implementation (April 2001) OED Review Papers: IDA's Partnership for Poverty Reduction (FY94-00): An Independent Evaluation (May 2001) IDA10-12 Replenishment Undertakings: Implementation Matrix (May 2001) Report on Country Consultations (May 2001) Proceedings Note: IDA Review Exit Workshop (May 2001) Review of the Performance-Based Allocation System, IDA10-12 (May 2001) Review of Aid Coordination in an Era of Poverty Reduction Strategies (May 2001) Review of Private Sector Development in IDA10-12 (May 2001) Review of Governance--The Critical Factor, IDA10-12 (May 2001) Review of Environmental Sustainability Issues in IDA10-12 (May 2001) October 22­24, 2001--Paris, France Discussion Papers: Grants in IDA13 (October 2001) New Options for IDA Lending Terms (October 2001) Enhancing IDA's Performance-Based Allocation System (September 2001) Background and Technical Notes: IDA's Lending Commitments, Disbursements and Funding in FY01 (September 2001) Measuring IDA's Effectiveness (October 2001) Progress Report on the Implementation of the IDA Guarantee Pilot Program (October 2001) 321 HIPC Papers: HIPC--Status of Implementation (September 2001) December 6­7, 2001--Montreux, Switzerland Discussion Papers: Grants and Concessionality in IDA13 (November 2001) Background and Technical Notes: Note on IDA13 and Private Sector Development (November 2001) Weighing Poverty in the IDA Allocation Formula (November 2001) IDA Allocations to Blend Countries (November 2001) The IDA Deputies: An Historical Perspective (November 2001) May 1­2, 2002--London, United Kingdom Background and Technical Notes: Comments Received from NGOs on Draft IDA13 Report (January 2002) IDA, Grants, and the Structure of Official Development Assistance (January 2002) Measuring Outputs and Outcomes in IDA Countries (February 2002) Grants in IDA13: Summarizing the Options (March 2002) Performance Management in IDA (April 2002) Linking IDA Support to Country Performance (April 2002) Focusing IDA Grants on Poor Country Vulnerability (May 2002) July 1, 2002--London, United Kingdom Background and Technical Note: Three Options to Finance the Long-Term Costs of IDA Grants (July 2002) Board Summaries of IDA13 Replenishment Meetings IDA13 Replenishment Meeting--February 28­March 1, 2001--Paris (March 2001) IDA13 Replenishment Meeting--June 6-7, 2001--Addis Ababa (June 2001) IDA13 Replenishment Meeting--October 22­24, 2001--Paris (October 2001) 322 IDA13 Replenishment Meeting--December 6­7, 200 --Montreux (December 2001) IDA13 Replenishment Meeting--May 1­2, 2002--London (May 2002) IDA13 Replenishment Meeting--July 1, 2002--London (July 2002) 323 REPORT OF THE BOARD OF THE DIRECTORS OF MIGA March 28, 2002 Extension of Subscription Period Under Resolution No. 57 of the Council of Governors 1. On March 29, 1999, the Council of Governors of the Multilateral Investment Guarantee Agency (MIGA) adopted Resolution No. 57 entitled "1998 General Capital Increase" (1998 GCI) which increased the authorized capital of MIGA by SDR785,590,000, divided into 78,559 shares each having a par value of SDR10,000 (equivalent to US$850 mil- lion at the fixed rate of SDR1.00 = US$1.082). These 78,559 shares were allocated to 161 countries that were signatories to the Convention estab- lishing MIGA (Convention). Paragraph 3 of Resolution No. 57 estab- lished a subscription period ending on March 28, 2002. 2. MIGA management has held discussions with members concerning their subscriptions. Some countries had stated that they were not in a position to subscribe to their GCI shares by the termination of the sub- scription period. Thus, it appeared that few of these countries, if any, would be able to complete the necessary procedures by March 28, 2002. 3. As of March 28, 2002, of the one hundred and sixty-one countries entitled to subscribe, sixty-six countries (21 from Category One and 45 from Category Two) have subscribed. Ninety-five Category Two coun- tries have not subscribed either fully or partially. 4. Any decision on MIGA's GCI has important repercussions on parity of voting power and membership. Article 39(c)(iii) of the Convention sets the principle of voting power parity between Category One and Category Two members. As several Category Two members (95) have not paid for the shares allocated to them, the gap between the voting power of the Category One and Category Two countries has widened. 5. Although Resolution No. 57 of the Council of Governors estab- lished that the shares that are unsubscribed at the end of the subscrip- tion period are to be used to achieve parity of voting power between Category One and Category Two countries, it is advisable that, before this is done, the gap in voting power between Category One and 324 Category Two countries1 is as narrow as possible. Extending the sub- scription period would help to close the gap, because it will give Category Two countries that have not been able to subscribe to the GCI shares allocated to them more opportunities to increase their voting power. 6. By Resolution No. 55, adopted on May 14, 1998, the Council of Governors, postponed the review and reallocation of MIGA shares for the purpose of achieving parity of voting power until the expiry of the subscription period to the 1998 GCI. The reallocation of unsubscribed shares for the purpose of achieving voting parity would have to be done immediately after the subscription period to the 1998 GCI expires, i.e., March 28, 2002. This could prejudice the admission of new members because, if a reallocation of unsubscribed shares for parity purposes were to take place, parity would automatically be upset if one or more non­signatories were to join MIGA. As a number of countries, espe- cially those classified as Category Two, have not joined MIGA yet, it is advisable to keep membership open during the extended subscription period and that shares of MIGA should continue to be allocated to the countries in the numbers set forth in Schedule A of the Convention. However, as set forth in paragraph 3 of Resolution No. 57, only coun- tries that had signed the Convention before the Resolution was adopted would be allowed to subscribe to the GCI shares. 7. The setting of a firm time limit for subscriptions under the 1998 GCI was motivated by MIGA's pressing need for capital at the time of the 1998 GCI. It was anticipated that the time limit would be an effec- tive means of having members subscribe more rapidly. In the present circumstances, this purpose would be furthered by extending the sub- scription period. Additional voting power corresponding to the sub- scribed GCI shares will accrue when payment is made. 8. Accordingly, the Board of Directors recommends that the Council of Governors adopt the draft Resolution...2 extending the subscription period, established in paragraph 3 of Resolution No. 57, for twelve months begin- ning March 29, 2002 and ending on March 28, 2003. It is recommended that, until the end of the extended subscription period to the 1998 GCI, any 1 As of March 28, 2002, Category One countries have 99,165 votes and Category Two coun- tries have 82,464 votes. 2 See page 251. 325 country listed in Schedule A of the Convention which decides to become a member of MIGA shall do so by subscribing, at par, the num- ber of shares set forth in Schedule A and in the manner set forth in the Convention. (This report was approved and its recommendation was adopted by the Council of Governors on May 6, 2002) 326 Membership of East Timor May 17, 2002 1. In accordance with the By-Laws of the Multilateral Investment Guarantee Agency, the application of East Timor for membership in the Agency is hereby submitted to the Council of Governors. 2. Representatives of East Timor have been consulted informally regarding the terms and conditions recommended in the attached draft Resolution and they have raised no objection thereto. 3. The attached draft Resolution . . . is recommended for adoption 1 by the Council of Governors. (This report was approved and its recommendation was adopted by the Council of Governors on June 24, 2002) 2002 Regular Election of Directors July 19, 2002 1. Resolution No. 58, adopted by the Council of Governors on August 28, 2000, provides that a Regular Election of Directors shall take place at the 2002 Annual Meeting of the Council of Governors. It is now proposed that this Regular Election may be conducted by rapid means of communica- tion so as to conclude a reasonable time in advance of November 1, 2002, when the term of office of the elected Directors shall commence. 2. Since the 2000 Regular Election of Directors, four Category Two countries (Chad, Federal Republic of Yugoslavia, Syrian Arab Republic and Thailand) completed all of their membership requirements. These four new members have subscribed to a total of 880 shares (Chad, 60, Federal Republic of Yugoslavia, 231; Syrian Arab Republic, 168; and Thailand, 421) of the Agency's capital stock. A few other countries may join MIGA prior to the election. 3. The Directors have noted that as a result of Resolution No. 61, adopted by the Council of Governors on May 6, 2002 extending the sub- scription period to the 1998 General Capital Increase by twelve months, there was some uncertainty as to the voting power certain members will 1 See page 252. 327 have at the time of the election because members could subscribe shares under the prior to the election. In view of this uncertainty, the Directors recommend that members expedite their subscriptions so that they are completed well before the election and that members would communicate their intention to subscribe shares as early as possible in order to facilitate the organization of the election. 4. The Report of the Ad Hoc Committee on the Rules for the 2000 Regular Election of MIGA Directors stated once again in paragraph 4 that: The Committee expressed the view, as reflected in the Report of the Board of Directors, that at a time when membership in MIGA became equivalent to that of the Bank (International Bank for Reconstruction and Development), the MIGA Board of Directors would become identi- cal in size and composition with that of the Board of Executive Directors of the Bank and would be based on the same principles of preserving a broad geographic pattern of representation and of allowing all major groups of countries to be represented. 5. The Board is now composed of 24 Directors, representing roughly the same constituencies as in the Bank; these Directors rep- resent 153 MIGA member countries (as opposed to 183 IBRD, 162 IDA and 175 IFC member countries), while, as stated in paragraph 2 above, at least another four member countries will participate in the upcoming election. 6. This increase in membership since 2000 indicates that efforts should continue toward achieving homogeneity among the Boards of MIGA and the other institutions of the World Bank Group. Moreover, the number of common issues being dealt with by the Executive Directors/Directors of the World Bank Group institutions have contin- ued to increase in number and complexity. 7. In view of these developments and noting that Article 2 of the MIGA Convention mandates the Agency to complement the activities of other members of the World Bank Group, the Board of Directors makes the following recommendations. RECOMMENDATIONS A. Size of the Board 8. The Board of Directors recommends that the number of Directors remain at its present twenty-four. 328 B. Composition of the Board 9. The Board of Directors urges the Governors to form, as closely as possible, the same constituencies in the MIGA Board of Directors as those for the Boards of other World Bank Group institutions. 10. During the informal meeting held on May 20, 1991, it was the con- sensus of Directors that, beginning with the 1992 Election of Directors, Governors should be urged to nominate candidates based in Washington, D.C., and all Governors complied with this suggestion in the 1992, 1994, 1996, 1998 and 2000 Regular Elections. Based upon the rationale in paragraphs 4­7 above, it is again recommended that Governors be urged to nominate the same persons as Directors of MIGA as those nominated to the Board of the other World Bank Group institutions. 11. It is further recommended that Directors, particularly those elected by more than one Governor, appoint the same persons as Alternate Directors of MIGA as those appointed to be Alternate Executive Directors/Alternate Directors to the Boards of the other World Bank Group institutions. C. Term of Office 12. Article 32(c) of the Convention and Section 10 of the By-Laws pro- vide that the Council of Governors shall determine the term of office of the Directors. In view of the reasoning set out in paragraphs 4­7 above, it is even more desirable that the term of office of MIGA's Directors should coincide with those of the Boards of the other World Bank Group institutions to facilitate elections of persons holding positions on these boards. Thus, the Board of Directors recommends that the Council continue this practice. It is also recommended that the 2002 Regular Election of Directors be held by requesting nominations and conducting ballots by rapid means of communication so as to conclude a reasonable time in advance of November 1, 2002, when the term of office of the elected Directors shall commence. D. Maximum and Minimum Percentages of Votes Applicable to the Election For the purpose of Schedule B to the MIGA Convention, paragraph 8 of the Rules for the 1998 Regular Election of Directors set the maxi- mum and minimum percentages of voting power applicable to the 1998 Regular Election at 15 and 3, respectively, of eligible votes. These per- centages appear appropriate for the election of the number of Directors 329 to be recommended in the attached report, and therefore the Board of Directors recommends that they be made applicable to the 2002 Regular Election of Directors. In the unlikely event that these percent- ages are inappropriate due to additional new countries having become members of the Agency and subscription to additional shares prior to the 2002 Regular Election, the Council of Governors could modify them before the start of the election. 14. Accordingly, the Board of Directors recommends that the Council of Governors adopt the Resolution...1 and Rules for the 2002 Regular Election of Directors embodying the above recommendations. 15. The Board of Directors also recommend that the subsequent Regular Elections of Directors take place in connection with the Annual Meeting of the Council of Governors in 2004. (This report was approved and its recommendation was adopted by the Council of Governors on August 19, 2002) Rules for the 2002 Regular Election of Directors DEFINITIONS 1. In these Rules, unless the context shall otherwise require, (a) "Convention" means the Convention establishing the Agency. (b) "Council" means the Council of Governors of the Agency. (c) "Chairman" means the Chairman of the Council or a Vice Chairman acting as Chairman. (d) "Governor" includes the Alternate Governor or any tempo- rary Alternate Governor, when acting for the Governor. (e) "Secretary" means the Secretary or any acting Secretary of the Agency. (f) "Election" means the 2002 Regular Election of Directors. (g) "Eligible votes" means the total number of votes that can be cast in the election of the Directors to be elected pursuant to the provisions of paragraphs 6 to 11 of Schedule B to the Convention. 2. All actions taken under these Rules, including communications by the Secretary and the Chairman and nominations and balloting by the Governors, may be taken by rapid means of communication. 1See page 253. 330 TIMING OF ELECTION 3. The 2002 election shall be held by requesting nominations and con- ducting ballots so as to conclude a reasonable time in advance of November 1, 2002 when the term of office of the elected Directors shall commence. BASIC RULES--SCHEDULE B 4. The provisions of Schedule B of the Convention shall apply to the conduct of the election. For this purpose: (a) Twenty-four Directors shall be elected. (b) Six Directors shall be elected separately, one each by the Governors of the six members having the largest number of shares. The person nominated by each of the said Governors shall be deemed to be elected upon being so nominated. (c) The Directors not elected separately pursuant to paragraph 3(b) above shall be elected in accordance with the rules in para- graphs 4 through 11 below. SUPERVISION OF THE ELECTION 5. The Chairman shall appoint such tellers and other assistants and take such other action as he deems necessary for the conduct of the election. NOMINATIONS 6. (a) The Secretary shall request nominations from Governors dur- ing a ten-day period announced by the Secretary. As noted in the Report of the Board of Directors to the Council of Governors dated July 19, 2002, Governors are urged to nomi- nate the same persons as the Directors of MIGA as those elected to the Boards of the other World Bank institutions, and to form the same constituencies in the MIGA Board of Directors as those in the Boards of the other World Bank Group institutions. In addition, the Directors, particularly those elected by more than one Governor, are urged to appoint the same persons as Alternate Directors of MIGA as they have in the Boards of the other World Bank institutions. (b) Each nomination shall be made on a Nomination Form fur- nished by the Secretary, signed by the Governor or Governors making the nomination and submitted to the Secretary. Any 331 person nominated by one or more Governors entitled to vote in the election shall be eligible for election as Director. (c) A Governor may nominate only one person. BALLOTING 7. (a) Upon the closing of nominations, the Secretary shall, send to all Governors entitled to vote in the election the list of candi- dates for the election, together with the invitation to Governors to vote in the first ballot, and announce the dead- line for receipt of ballots. (b) One ballot form shall be furnished to each Governor entitled to vote. On any particular ballot only ballot forms distributed for that ballot shall be counted. 8. Each ballot shall be taken as follows: (a) Ballots shall be conducted by deposit of ballot forms, signed by Governors eligible to vote, with the Secretary. The first bal- lot shall take place after the close of nominations concluding no later than September 29. (b) When a ballot shall have been completed, the Secretary shall cause the ballots to be counted and, as soon as practicable after the tellers have completed their tally of the ballots, shall announce the names of the persons elected. If a succeeding ballot is necessary, the Secretary shall announce the names of nominees to be voted on, the members whose Governors are eligible to vote and the time period for balloting. (c) If the tellers shall be of the opinion that any particular ballot is not properly executed, they shall, if possible, afford the Governor concerned an opportunity to correct it before tally- ing the results; and such ballot, if so corrected, shall be deemed to be valid. 9. For the purposes of paragraph 6 of Schedule B to the Convention, the following percentages of total votes are decided, namely, a maxi- mum of 15 percent of eligible votes and a minimum of 3 percent of eligible votes. ANNOUNCEMENT OF THE RESULT 10. After the tally of the last ballot, the Chairman shall cause to be dis- tributed a statement setting forth the result of the election. 332 EFFECTIVE DATE OF ELECTION 11. The effective date of the election shall be November 1, 2002, and the term of office of the elected Directors shall commence on that date. Incumbent elected Directors shall serve through the day preceding such date. GENERAL 12. Any question arising in connection with the conduct of the election shall be resolved by the tellers, subject to appeal, at the request of any Governor, to the Chairman and from him to the Council. Whenever possible, any such questions shall be put without identifying the mem- bers or Governors concerned. 333 MULTILATERAL INVESTMENT GUARANTEE AGENCY 2002 REGULAR ELECTION OF DIRECTORS STATEMENT OF RESULTS OF ELECTION, SEPTEMBER 29, 2002 Directors elected separately by the Governors of the six member countries having the largest number of shares: Members Whose Votes Counted Number Candidate Elected Toward Election of Votes Total Votes Carole BROOKINS United States 30,633 30,633 Yuzo HARADA Japan 9,156 9,156 Eckhard Germany 9,113 9,113 DEUTSCHER Tom SCHOLAR United Kingdom 8,742 8,742 PierreDUQUESNE France 6,889 6,889 ZHU Guangyao China 5,707 5,707 Directors elected by the Governors of member countries other than those listed above: Tanwir Ali AGHA 4,206 Algeria 1,321 Ghana 422 Morocco 790 Pakistan 1,340 Tunisia 333 Mahdy Ismail ALJAZZAF 5,790 Bahrain 313 Egypt, Arab 986 Republic of Jordan 348 Kuwait 1,107 Lebanon 427 Libya 726 Oman 343 Qatar 314 Syrian Arab Republic 345 United Arab Emirates 549 Yemen, Republic of 332 334 Members Whose Votes Counted Number Candidate Elected Toward Election of Votes Total Votes Yahya Abdulla M. ALYAHYA 5,705 Saudi Arabia 5,705 Gino ALZETTA 10,329 Austria 1,543 Belarus 410 Belgium 3,754 Czech Republic 961 Hungary 1,171 Kazakhstan 545 Luxembourg 381 Slovak Republic 568 Slovenia 357 Turkey 639 Rapee ASUMPINPONG 5,501 Fiji 248 Indonesia 2,026 Lao People's 237 Dem. Rep. Malaysia 1,197 Nepal 299 Singapore 331 Thailand 598 Vietnam 565 Amaury BIER 6,159 Brazil 2,723 Colombia 947 Dominican 324 Republic Ecuador 359 Haiti 252 Panama 358 Philippines 661 Trinidad and 535 Tobago Paulo F. GOMES 4,999 Benin 238 Burkina Faso 238 Cameroon 284 335 Members Whose Votes Counted Number Candidate Elected Toward Election of Votes Total Votes Cape Verde 227 Central African 237 Republic Chad 237 Congo, Dem. 515 Rep. of Congo, Republic of 242 Cote d'lvoire 353 Equatorial Guinea 227 Guinea 268 Madagascar 277 Mali 258 Mauritania 240 Mauritius 330 Rwanda 252 Senegal 322 Togo 254 Alioto GUADAGNI 3,865 Argentina 1,431 Bolivia 302 Chile 662 Paraguay 257 Peru 834 Uruguay 379 Neil F. HYDEN 5,850 Australia 3,196 Cambodia 270 Korea, Republic of 968 Micronesia, Fed. 227 States of Mongolia 235 Palau 227 Papua New Guinea 273 Samoa 227 Vanuatu 227 Finn JONCK 7,332 Denmark 1,442 Estonia 242 Finland 1,234 336 Members Whose Votes Counted Number Candidate Elected Toward Election of Votes Total Votes Iceland 267 Latvia 348 Lithuania 364 Norway 1,409 Sweden 2,026 Louis A. KASEKENDE 9,197 Angola 364 Botswana 227 Burundi 251 Eritrea 227 Ethiopia 247 Gambia, The 227 Kenya 480 Lesotho 227 Malawi 254 Mozambique 274 Namibia 284 Nigeria 1,664 Seychelles 227 Sierra Leone 252 South Africa 1,839 Sudan 383 Swaziland 235 Tanzania 318 Uganda 309 Zambia 495 Zimbabwe 413 Per KUROWSKI EGERSTROM 5,590 Costa Rica 294 El Salvador 299 Guatemala 317 Honduras 355 Nicaragua 279 Spain 2,442 Venezuela, Rep. 1,604 Bolivariana de Alexey KVASOV 5,705 Russian Federation 5,705 337 Members Whose Votes Counted Number Candidate Elected Toward Election of Votes Total Votes Marcel MASSE 8,974 Bahamas, The 353 Barbados 297 Belize 265 Canada 5,402 Dominica 227 Grenada 227 Guyana 261 Ireland 827 Jamaica 358 St. Kitts and Nevis 227 St. Lucia 265 St. Vincent and 265 the Grenadines Ad MELKERT 10,134 Armenia 257 Bosnia and 257 Herzegovina Bulgaria 820 Croatia 507 Cyprus 360 Georgia 288 Israel 1,012 Macedonia, FYR of 265 Moldova 273 Netherlands 3,999 Romania 1,155 Ukraine 941 Franco PASSACANTANDO 7,438 Albania 235 Greece 670 Italy 5,147 Malta 309 Portugal 850 Timor-Leste 227 Chander Mohan VASUDEV 4,552 Bangladesh 776 India 3,225 Sri Lanka 551 338 Members Whose Votes Counted Number Candidate Elected Toward Election of Votes Total Votes Pietro VEGLIO 5,310 Azerbaijan 292 Kyrgyz Republic 254 Poland 941 Switzerland 2,820 Turkmenistan 243 Uzbekistan 352 Yugoslavia, Fed. 408 Rep. of /s/ /s/ Stefan Skjaldarson (Iceland) Ayub Nakhuda (Mauritius) Teller Teller 339 ACCREDITED MEMBERS OF DELEGATIONS AT 2002 ANNUAL MEETINGS Afghanistan Eduardo Leopoldo Severim de Morais* Governor Hedayat Amin-Arsala Adviser Pedro Luis Da Fonseca Alternate Governor Agostinho Fernandes Akbar A. Sherzai Joao M. Fortes Adao Pinto Adviser Josefina Pitra Diakite Abdul Baqi Azizi Antigua and Barbuda# Albania Governor Governor Ronald Sanders Kastriot Islami Alternate Governor Alternate Governor Fatos Ibrahimi David Matthias Adviser Adviser Doloreza Behbi Mignon Wade Adriana Berberi Ermira Haxhi Argentina Ornela Kembora Kristaq S. Luniku Governor Sokol Qeraxhiu Aldo Pignanelli Fatos Tarifa Alternate Governor Algeria Jorge Madcur Governor Adviser Mohamed Terbeche Roberto Garcia-Lopez Alternate Governor Armenia Abdelhak Bedjaoui Adviser Governor Amrane Hadia Vahram Nercissiantz Babaammi Hadji Noureddine Bardad-Daidj Alternate Governor Layachi Chenafi Arman Baroyan* Karim Djoudi Idriss Jazairy Adviser Oum-El-Kheir Ouaoua Armen Avetisyan Davit Harutyunyan Angola Arman Kirakossian Rouben Shugarian Alternate Governor Vahe Yacoubian Job Graca Armen Yedigarian * Temporary <> Not a member of IFC # Not a member of IDA 340 Australia Bahamas, The# Governor Governor Peter Costello Michael Halkitis Alternate Governor Alternate Governor Stephen Miners* Ruth R. Millar Adviser Adviser David Ian Alexander Joshua Sears Mitchell Peter Fifield Simon D. Wilson Matt Francis Neil F. Hyden Bahrain# Robert A. Jauncey Anthony Krieg Ian J. MacFarlane Governor Janine Murphy Abdulla Hassan Saif R.W. Rankin Susan Richards Alternate Governor Charles Tapp Zakaria Ahmed Hejres Andrew Thomas Adviser Austria Naser Mohamed Yusuf Albalooshi Governor Bangladesh Karl-Heinz Grasser Governor Alternate Governor M. Saifur Rahman Thomas Wieser Kurt Bayer* Alternate Governor Anisul Huq Chowdhury Adviser Syed Hasan Ahmad* Josef Christl Akbar Ali Khan* Paul Kutos Walter Mayr Adviser Rene Oberleitner Quazi Mesbahuddin Ahmed Leander Treppel Fakhrul Ahsan Matthias Winkler Kamrul Ahsan Md. Shahidul Islam Azerbaijan Republic Mustafa Kamal Kazi Nurun Nabi Governor Elman Siradjogly Rustamov Barbados Alternate Governor Jahangir Fevzi Hajiyev Governor Farhad Shovlet Aliyev* Reginald Farley Shahmar Arif Movsumov* Alternate Governor Adviser Grantley W. Smith Faik Mamedov Rafail Khalid Mirzayev Adviser Samir Teymur Veliyev Michael Ian King * Temporary <> Not a member of IFC # Not a member of IDA 341 Belarus# Cyril Oguin Ibrahim Pedro Boni Governor Charles Borromee Todjinou Andrei V. Kobyakov Bhutan <> Alternate Governor Valery V. Tsepkalo* Governor Yeshey Zimba Adviser Georgy Egorov Alternate Governor Vadim Sergeevich Misyukovets Yanki Tobgyel Wangchuk Mikhail V. Nikitsenka Uladzimir Novik Bolivia Belgium Governor Jose Guillermo Justiniano Governor Didier Reynders Alternate Governor Roberto Camacho* Alternate Governor Jean-Pierre Arnoldi* Adviser Luis A. Arnal Adviser Jorge Crespo Velasco Gino Pierre Alzetta Bruno G. Guiot Bosnia and Herzegovina Olivier Henin Pierre-Yves Jeholet Governor Marc Marechal Azra Hadziahmetovic Philippe Peeters Peter Van der Stoelen Alternate Governor Amir Hadziomeragic* Belize Adviser Governor Sven Alkalaj Ralph H. Fonseca Igor Davidovic Kemal Kozaric Alternate Governor Jasna Safhauzer Sydney J. Campbell Lisa Shoman* Botswana Adviser Governor Jorge M. Auil Baledzi Gaolathe Nestor Mendez Alternate Governor Benin Serwalo S.G. Tumelo Governor Brazil Theophile Montcho Governor Alternate Governor Pedro Sampaio Malan Romain Degla* Alternate Governor Adviser Arminio Fraga Neto Paul Derreumaux Rubens Antonio Barbosa* * Temporary <> Not a member of IFC # Not a member of IDA 342 Amaury Guilherme Bier* Elitsa Panayotova Marcos Caramuru de Paiva* Svetlana Dimitrova Panova Ilan Goldfajn* Elena Poptodorova Beny Parnes* Dimitar Borissov Radev Murilo Portugal* Yana Sabeva Nikolay Vassilev Vassilev Adviser Nikola Yankov Jose Federico Alvares Luis Antonio Balduino Burkina Faso Joao Dos Reis Borges Muniz Jose Linaldo Gomes de Aguiar Governor Eleazar de Carvalho Filho Francois M. Zoundi Dante de Lima Carlos Eduardo Dutra Alternate Governor Viviane Pretti Feitosa Etienne Yameogo Eduardo Bunker Gentil Denise Nogueira Gregory Adviser Gil Bernardo Borges Leal Blanchard Emmanuel Bayala Jorge Marques Leandro Lassane Kabore Joao Batista do Nacimento Sibiri Sawadogo Magalhaes Tertius Zongo Selma Pantel Jose Marcelo Lima Pontes Sergio Savino Portugal Burundi Byron Costa de Queiroz Bruno Walter Coelho Saraiva Governor Martus Antonio Rodrigues Tavares Edouard Kadigiri Isac Roffe Zagury Alternate Governor Brunei Darussalam<># Dieudonne Nintunze Alternate Governor Adviser Dato Ahmad Wally Skinner* Thomas Ndikumana Albert Ntikazohera Adviser Anuar Lisa Cambodia Bulgaria# Governor Keat Chhon Governor Milen Veltchev Alternate Governor Aun Porn Moniroth* Alternate Governor Vissoth Vongsey* Martin Mihaylov Zaimov Adviser Adviser Biliana Diakova Sothy Chan Pavel Ezekiev Roland Eng Ivan Iskrov Sokmuny Thao Lubka Katchakova Nelly Kordovska Cameroon Georgi Malchev Tatiana Mitova Governor Petyo Nikolov Martin Okouda * Temporary <> Not a member of IFC # Not a member of IDA 343 Alternate Governor Claude Lemieux Daniel Njankouo Lamere David Cal MacWilliam Jerome Mendouga* Karen Martin Stephen Millar Adviser Bruce Montador Polycarpe Abah Abah Ken Nyhuus Mahamat Adoum Francois Page Aminou Bassoro Valerie Poulin Camille Ekindi Bruce Rayfuse Francois-Xavier Eloundou Celine Renaud Blaise Essomba Ngoula Charles Seeto Adji Goni Mal Jennifer Sloan Bruno Iboklene Jeremy Wallace Adam Madji Rene T. Mbappou Edjenguele Cape Verde Roger Mbassa Ndine Andre Mbeng Governor Andre Mfoula Edjomo Carlos Augusto Duarte Burgo Albert Ndille Jean Claude Ngbwa Adviser Francois Ngoubene Jose Brito Ousmanou Oumarou Alexandre Vieira Fontes Jean Tchoffo Joao Pedro Santos Pierre Titti Carlos Fernandes Semedo Rose Tongam Antonio Pericles Silva Serge Blaise Zionaba Central African Republic Canada Governor Governor Alexis Ngomba John Manley Alternate Governor Alternate Governor Lazare Dokoula Leonard M. Good Jonathan Fried* Vinita Watson* Adviser Susan Whelan* Emmanuel Doe Fiadzo Benoit Ketchekmen Adviser Jonas Mbai-Assem Sue Barnes Jean Nkuete Gordon Boissonneault Laurent Nombissou Tom Bui Yodit Seifu Grant James Cameron Arsene Sende Jean-Michel Catta Andre Guy-Sinclair Tekpa Robert Cayer Sanjeev Chowdhury Chad Robert Fonberg Stephen Douglas Free Governor Tamara Guttman Djimrangar Dadnadji James A. Haley Paul William Jenkins Alternate Governor Angela Keller-Herzog Mahamat Ali Hassan Robert Lea Hassan Adoum Bakhit* * Temporary <> Not a member of IFC # Not a member of IDA 344 Adviser Juan Pablo Cordoba Garces Mahamat Adoum Maria Claudia Franco Mahamat Ahmat Saleh Juan Mario Laserna Aboulaye Beri Alberto Montoya Puyana Ahmat Hassaballah Luis Alberto Moreno Mejia Juan Ricardo Ortega Chile Carlos Rodriguez Lopez Governor Comoros Nicolas Eyzaguirre Governor Alternate Governor Younoussa Imani Bernardita Piedrabuena Alternate Governor Adviser Saadi Abdallah Moindjie Jaime L. Estevez Jorge Kaufmann Adviser Heinz P. Rudolph Said Abdillahi Raul Saez Mahmoud Aboud Marcelo Tokman Maoulana Charif Francois Mouret China Mze Chei Oubeidi Hamidi Mohamed Salima Governor Housseine Cheikh Soilihi Liqun Jin Mohamed Ali Soilihi Alternate Governor Congo, Democratic Republic of the Zhao Xiaoyu Wu Jinkang* Governor Zhu Guangyao* Matungulu Mbuyamu Ilankir Adviser Alternate Governor Junfeng Cheng Jean-Claude Masangu Mulongo Guan Xiuzhen Dongxiang Li Adviser Xuemin Shao Fikiri Alimasi Tan Xiaogang Gansho Mayo Bola Wang Wei Kosisaka Dongning Xu Kumwimba Banza Faustin Zhang Wencai Lioko Mabunda Faida Mitifu Colombia Igulu Theo Muderhwa Tambo A. Kabila Mukendi Governor Siya Alexandre Nkusu Dongala Roberto B. Junguito wa Bilenga Tshishimbi Alternate Governor Congo, Republic of Santiago Montenegro Trujillo Gustavo A. Gaviria* Alternate Governor Pierre Moussa Adviser Maria Ines Agudelo Valencia Adviser Julie Castro Martinez Pascal Bobassa-Ebale * Temporary <> Not a member of IFC # Not a member of IDA 345 Romuald Bopaka Alternate Governor Georges Etoua Josip Kulisic Mbouala Kaba Slavko Linic* Emile Mokoko Athanase Ngassaki Adviser Jean Baptiste Ondaye Ivan Grdesic Ana Hrastovic Costa Rica Vladimira Ivandic Maja Juric Governor Marija Kolaric Jorge Walter Bolanos Rojas Sanja Mardetko Kurecic Relja Martic Alternate Governor Adolf Matejka Jose Brenes* Hrvoje Radovanic Carlos Alberto Gonzalez* Velimir Rajkovic Adviser Cyprus Jose Carlos Quirce Governor Cote d'Ivoire Takis Klerides Governor Alternate Governor Affi N'Guessan Leslie G. Manison* Alternate Governor Adviser Bouabre Bohoun Erato Kozakou-Marcoulis Basil Polemitis Adviser Alexandre Assemien Czech Republic Yssouf Bamba Lancine Diaby Governor Moliere Djelhi Yahot Bohuslav Sobotka Frank Douamba Jean Ezan Alternate Governor Ble Guei Oldrich Dedek Charles Koffi Jan Mladek* Koffi Paul Koffi Pascal D. Kokora Adviser Catherine Kouassi Pavel Frelich Kouame Kouassi Martin Kaderavek Oussou Kouassy Lenka Loudova Firmin Krekre Jana Matesova Jean Paul Malan Petr Prochazka Georgette Mbra Jan Schmidt Samuel Meango Petr Sedlacek Ourmane Tamimou Aubert Zohore Denmark Croatia Alternate Governor Carsten Staur Governor Kirsten Rosenvold Damir Kustrak Geelan* * Temporary <> Not a member of IFC # Not a member of IDA 346 Adviser Alternate Governor Ulrik Federspiel Leopoldo Baez* Ole Torpegaard Hansen Finn Jonck Adviser Soren Skydsgaard Miguel Babra Alfonso Bahamonde Djibouti Ramiro Esteban Crespo Fabara Juan Manuel Escalante Governor Jorge Gallardo Yacin Elmi Bouh Francisco Javier Game Monica Gross Alternate Governor Carlos Jativa Simon Mibrathu Edison Ortiz-Duran Adviser Egypt, Arab Republic of Mohamed Ahmed Awaleh Aden Doualeh Governor John Fewer Medhat Hassanein Ibrahim Hamadou Rachid Hassan Saban Adviser Mohamed Sikieh Kayad Mohamed Ahmed Dawood Roble Olhaye Riad El Badawy Nabil Fahmy Amina Mahmoud Hafez Dominica Ghanem Hazem H.K. Hassanein Governor El Said Kassem Pierre Charles Tamer Moustafa Wael S. Shoaeb Alternate Governor Rosamund J. Edwards* El Salvador Adviser Governor Crispin Gregoire Juan Jose Daboub A. E. Eustace Liburd Alternate Governor Dominican Republic Luz Maria Serpas de Portillo Governor Adviser Francisco M. Guerrero Prats-R. Regina Boet Maurico Choussy Rusconi Alternate Governor Nelly Lacayo Anderson Celeste Silie de Castellanos Craig Leon Antonio Perla Adviser Roberto Rivera Campos Jaime Alvarez Roberto Siman Cesar A. Veloz Jorge Zablah Ecuador Equatorial Guinea Governor Governor Francisco Arosemena Robles Fortunato Ofa Mbo * Temporary <> Not a member of IFC # Not a member of IDA 347 Alternate Governor Adviser Melchor Esono Edjo Anare Jale Sisinio Eyene Mbana* Aisake J. Taito Adviser Finland Baltasar Ebang Engonga Governor Eritrea Sauli Niinisto Governor Alternate Governor Abraham Kidane Johnny Akerholm* Alternate Governor Adviser Kubrom Dafla Pasi Hellman Inkeri Hirvensalo Adviser Satu Huber Tzada Asamnew Pauli Kariniemi Arefaine Ghebre-Yohannes Ari-Pekka Latti Asmerom Girma Peter J.F. Nyberg Heidi Pihlatie Estonia# France Governor Governor Madis Uurike Francis Mer Alternate Governor Alternate Governor Renaldo Mandmets Jean-Pierre Jouyet Pierre Duquesne* Adviser Stephane Pallez* Agate Dalton Pierre Andre Alo Kelder Wiltzer* Madis Muller Kristjan Prikk Adviser Eero Saue Sandrine Boucher Tiia Savimagi Valerie Bros Francois Bujon de l'Estang Ethiopia Jean-Francois Clemencel Stephane Crouzat Governor Delphine D'Amarzit Ahmed Sufian Nathalie Delapalme Ambroise Fayolle Alternate Governor Mireille Guigaz Newai Gebreab* Olivier Gutman Jerome Haas Fiji Philippe Lacoste Serge Pascal Le Gal Governor Jacques Le Pape Jone Yavala Kubuabola Nathalie Loiseau Ducoulombier Alternate Governor Bertrand Lortholary Paula Uluinaceva Daniel Maitre * Temporary <> Not a member of IFC # Not a member of IDA 348 Jacques Mistral Levan Mikeladze Robert Moulie Mamuka Murjikneli Emmanuel Moulin Alex Petriashvili Jean-Christophe Peaucelle Germany Dominique Perreau Michel Planque Governor Anthony Requin Heidemarie Wieczorek-Zeul Bernard Salzmann Alternate Governor Gabon Caio K. Koch-Weser Eckhard Deutscher* Governor Karsten Hinrichs* Casimir Oye-Mba Michael Hofmann* Ulrich Kalbitzer* Alternate Governor Claude Ayo Iguendha Adviser Markus Berndt Adviser Eckhardt Biskup Alba Biffot Siegfried Borggrefe Paul Bongue-Boma Doris Brauer Justin Christian Elingui Christina Brunsch Ange Macaire Longho Bernd Dunnzlaff Didier Guy Mebaley Kirsten D. Garaycochea Lin Mombo Uwe Gehlen Ludovil Nah Hans Hallensleben Fidele Ntsissi Klaus-Juergen Hedrich Jules Ogouebandja Wolfgang Ischinger Lambert Ondo Ndong Marion Kneesch Zephirin Rayita Paul Kopp Karin Kortmann Gambia, The Leo Kreuz Johannes Lehne Governor Frank Mann Famara L. Jatta Gregor Alexander Pieske Jurgen Schmid Alternate Governor Oliver Schramm Dodou B. Jagne Rainer S. Venghaus Thomas Westphal Adviser Juergen Zattler Grahame J. Nathan Ghana Georgia Governor Governor Yaw Osafo-Maafo Mirian Gogiashvili Alternate Governor Anthony Akoto Osei* Alternate Governor Giorgi Gachechiladze Adviser Doreen Ackom Adviser Ivor Agyeman-Duah George Gugunishvili Jean Aka * Temporary <> Not a member of IFC # Not a member of IDA 349 Ernest Ako-Adjei Jose Carlos Castaneda* Michael Ayesu Isaac Cohen* Daniel Gyimah Arturo Tobar* Albert Kan-Dapaah Paul S.M. Koranteng Guinea Alan Kyerematen Joseph Henry Mensah Governor Matilda Obeng-Ansong El Hadj Oumar Kouyate Yvonne Odoley Quansah Francis Tsegah Alternate Governor Charles Wereko-Brobbey El Hadj Amadou Sow Greece Adviser Boubacar Bah Governor Rafiou Barry Nikolaos Christodoulakis Ansoumane Conde Bintou Conde Alternate Governor Alpha Diallo Vassilios Rapanos Marie-Agnes Toure Sekou Traore Adviser Kemo Charles Zogblemou Anna Constantinidou Anthony Hassiotis Guinea-Bissau Theodore Hatzopoulos Yannis A. Monogios Governor Daphne Nicolitsas Rui Duarte Barros George Papaconstantinou Efstratios Papadimitriou Alternate Governor Despoina Papadoulaki Verissimo Paulino Nancassa Christoforos Sardelis Athanassios Stamatiadis Adviser Nicholas Symeonidis Paulo F. Gomes Panagiotis Vlasiadis Alfredo Paulo Mendes Florentino Mendes Pereira Grenada Hugo Reis Borges Joao Silva Monteiro Governor Anthony Boatswain Guyana Alternate Governor Timothy Antoine Governor Saisnarine Kowlessar Adviser Denis G. Antoine Alternate Governor Laurel Bain Clyde Raymond Roopchand* Guatemala Haiti Governor Governor Eduardo Humberto Weymann Faubert Gustave Alternate Governor Alternate Governor Raul Berrios* Ronald Gabriel* * Temporary <> Not a member of IFC # Not a member of IDA 350 Honduras Adviser Vellore Anandarajan Governor Subhash Garg Arturo Alvarado Vinayak Narayan Ghatate Sandip Ghose Adviser Narendra Jadhav Camilo Atala Abhas Kumar Jha Jacobo Nicolas Atala Neelam Kapur Guillermo Bueso Yogesh Khanna Mario Canahuati Vinayak N. Khatate Marcos Carias Sudhir Kumar Jorge Alejandro Faraj R. Alok Sheel Sandra Midence Shakti Sinha Roque Rivera V. Srinivas Hungary Indonesia Governor Alternate Governor Csaba Laszlo Maulana Ibrahim Alternate Governor Adviser Zsuzsanna Varga* Ghafur Akbar Dharmaputra Ignatius Hardijanto Adviser Wita Majangwoelan Laszlo Buzas Prasetijono Widjojo Malang Joedo Erika Csongradi Agus Suprijanto Adam Kirchknopf Iran, Islamic Republic of Iceland Governor Alternate Governor Tahmaseb Mazaheri-Khorzani Geir Hilmar Haarde Alternate Governor Stefan Skjaldarson* Ali Taiebnia* Adviser Adviser Sveinn Bjornsson Reza Abdollahi Gudni Bragason Mohammad Bagharzadeh Egill Gislason Masoud Mozayani Jon Hannibalsson Ahmadreza Pakbaz Hermann Orn Ingolfsson Maryam Taazimi India Iraq Governor Governor Jaswant Singh Issam Rashid Hwaish Alternate Governor Alternate Governor Subbaraman Narayan Adnan Kadhim* Adarsh Kishore* Lalit Mansingh* Ireland Alok Prasad* Dhirendra Swarup* Governor Chander Mohan Vasudev* Charlie McCreevy * Temporary <> Not a member of IFC # Not a member of IDA 351 Alternate Governor Biagio Bossone Robert Bradshaw* Maria Cannata Adrian McDaid* Marco Cecchini Brendan Ryan* Giannandrea Falchi Michael J. Somers* Francesco Forte Fabio Franceschini Adviser Gloria M. Grandolini Donal Cahalane Giorgio Leccesi David Donoghue Francesco Lovecchio Noel Fahey Giandomenico Magliano Adrian J. Kearns Francesca Manno Breandan O'Caollai Elisabetta Marmolo Aingeal O'Donoghue Massimo Marotti Breifne O'Reilly Domenico Nardelli Breda Rafter Franco Passacantando Dermot Ryan Paola Pettinari Vincenzo Pontolillo Israel Marco Saladini Fernando Salleo Governor Domenico Siniscalco David Klein Marcello Spatafora Armando Varricchio Alternate Governor Ohad Marani Jamaica# Adviser Governor Daniel Ayalon Sharon Weber Moshe Debby Liana Foksheneanu Alternate Governor Eldad Fresher Murna Morgan* Avner Halevi Israel Kaplan Adviser Michal Mazoz Barrington O'Neil Bryce Boaz Raday Edny Raz Mark Regev Japan Olga Sulla Mishael Vaknine Governor Masajuro Shiokawa Italy Alternate Governor Governor Masaru Hayami Antonio Fazio Yuzo Harada* Eiji Hirano* Alternate Governor Masahiro Kawai* Lorenzo Bini-Smaghi Kiyoshi Kodera* Pierluigi Ciocca* Haruhiko Kuroda* Vincenzo Zezza* Zembei Mizoguchi* Rintaro Tamaki* Adviser Hiroshi Watanabe* Filippo Alessi Ken Yagi* Guglielmo Ardizzone Yutaka Yamaguchi* Fabrizio Befani Motohide Yoshikawa* * Temporary <> Not a member of IFC # Not a member of IDA 352 Adviser Takuji Tanaka Rumi Ariyoshi Masahiro Tanakamaru Ken Baba Shinji Taniguchi Shuntaro Hara Ushio Tashibu Yasuo Hirai Haruyuki Toyama Toshiaki Hiromitsu Noritaka Tsunoda Wataru Hiyama Naoto Watanabe Etsuro Honda Hiromi Yamaoka Toshiaki Hongo Tadashi Yokoyama Shuichi Hosoda Masanori Yoshida Makoto Hosomi Nobuyuki Ichikawa Jordan Naoko Ishii Joji Ishikawa Governor Tetsuo Kabe Bassem I. Awadallah Akira Kamitomai Masato Kanda Alternate Governor Masahiro Kida Tayseer Radwan Al-Smadi Michio Kitahara Shuji Kobayakawa Adviser Kazuo Kobayashi Mohammad Hamadah Kiyotaka Kodama Ghassan F. Ifram Takeshi Kohira Karim Kawar Takuji Komatsuzaki Ahmad Hasan Mustafa Shigeki Kushida Abdul Majeed Shoman Yasuhiro Maehara Junichi Maruyama Kazakhstan Katsuyuki Meguro Hisashi Michigami Adviser Kiyomi Miyagawa Mainura Murzamadieva Toshiyuki Miyoshi Mitsuhiro Mochizuki Kenya Naruki Mori Masayasu Murakami Governor Isaya Muto Charles Arap-Kirui Mitsuru Myochin Hiroshi Naka Alternate Governor Tokutaro Nakai Joseph Kanja Kinyua Hidemasa Nakamura Takehiko Nakao Adviser Taku Ohizumi Thomas Amolo Kiyo Oi Beatrice Karago Ichiro Oishi Donald K. Kibera Noriyuki Okada Solomon Kitungu Masanobu Otawara Sabina Maghanga Nobuhisa Sagawa Dunstan Maina Toshiko Sekine David K. Melly Hitoshi Shimura Yusuf A. Nzibo Yuko Takagi Toshikazu Takei Kiribati Osamu Takemoto Yoshiki Takeuchi Governor Hayato Tanaka Tekiera Ruaia * Temporary <> Not a member of IFC # Not a member of IDA 353 Alternate Governor Adviser Tonganibeia Tamoa Sami Husain Alanbaee Yousef Al-Awadi Adviser Yousef B.Y.H. Al-Roumi Reina Timau Khalid Sulaiman Al-Ruwaih Nabil Hamoud Al-Saqabi Korea, Republic of Governor Mustafa Jassim Al-Shamali Yun-Churl Jeon Fawzi Hamad Al-Sultan Alternate Governor Hesham Ibrahim Al-Waqayan Seung Park Ahmad Mohammed Abdulrehman Yong-Duk Kim* Bastaki Tae-Shin Kwon* Redha Behbehani Jae-Ouk Lee* Kyrgyz Republic Adviser Il Sang Bae Governor Moon Kyu Bang Bolot Abildaev Ki Seuk Byun Dong-Soo Chin Alternate Governor Heenam Choi Nurdin Ilebaev* Jong-Ku Choi Joong-Kyung Choi Lao People's Democratic Republic Dae Bong Kang Han-Seok Kang Governor Hong-Guk Kim Soukanh Mahalath Jong Hwa Kim Jung-Youn Kim Alternate Governor Sirn-Byung Kim Viengthong Siphandone* Yitae Kim Yoon-Kyung Kim Adviser Young Sup Kim Boualith Khounsy Chol-Hwi Lee Phanthong Phommahasay Hoseung Lee Bounthanh Vongsoury Jang Yung Lee Kyong-Yul Lee Latvia Sang-Duck Nahm Gyutaeg Oh Governor Jae Ha Park Roberts Zile Yeung Kyun Rhee Dal Sup Shim Alternate Governor Jung-In Youn Aigars Kalvitis Kuwait Adviser Governor Andris Kuznieks Yousef Hamad Al-Ebraheem Arnis Lagzdins Andris Liepins Alternate Governor Andris Sekacis Bader Meshari Al-Humaidhi Inna Steinbuka * Temporary <> Not a member of IFC # Not a member of IDA 354 Lebanon Lithuania# Governor Governor Fuad A.B. Siniora Dalia Grybauskaite Alternate Governor Alternate Governor Basil R. Fuleihan Arvydas Kregzde Adviser Adviser Farid Abboud Asta Bielskiene Jihad Azour Rima Kaziliuniene Alain Bifani Nijole Zambaite Ali Abdallah El-Jammal Khaled El Kassar Luxembourg Georges El-Khoury Mazen Hanna Governor Jamal Abdel Rahim Itani Luc Frieden Anwar Ali Jammal Nada Muffarij Alternate Governor Rola Saleh Rizk Jean Guill Sami Sfeir Joseph Torbey Adviser Karim Yazbek Georges A. Heinen Arsene Joseph Jacoby Lesotho Octavie Modert Governor Macedonia, former Yugoslav Republic of M.C. Mphutlane Governor Alternate Governor Vanco Kargov T.J. Ramotsoari Alternate Governor Ljupka Mindoseva Adviser Johann Claassens Adviser Ephraim Mapetla Goce Georgievski Anthony Mothae Maruping Zoran Stavreski L.T. Molapo Suzana Stoimceva Libya Madagascar Governor Governor Ali Ramadan Shnebsh Benjamin Andriamparany Radavidson Alternate Governor Mohamed Abusneina Alternate Governor David Rajaon Adviser Osama Naas Adviser Bashir Mahmud H. Nahaesi Malalaniaina Andriamampianina * Temporary <> Not a member of IFC # Not a member of IDA 355 Vonintsalama Andriambololona Alternate Governor Zina Andrianarivelo-Razafy Adam Maniku Andre Rajaonah-Ratsimisetra Henri Rakotoarisoa Mali Andrianjafy Jacky Rakotonirainy Governor Daniel Ramarokoto Ousmane Issoufi Maiga Raymond Rasamoelina Josiane Raveloarison Alternate Governor Lea Ravololondratavy Aboubacar Alhousseyni Toure* A. Razafindrakoto Ramampiandra Adviser Guy Razafinony Mamadou Camara Tiena Coulibaly Malawi Abdoulaye Daffe Cheick Oumar Diarrah Governor Mahamane Toure Friday Jumbe Mamounou Toure Idrissa Traore Alternate Governor Zaki Chalira Malta# Adviser Governor Tony Kandiero John Dalli Milton Kutengule Maxwell M. Mkwezalamba Alternate Governor Ted Thokozani Sitimawina Joseph Scicluna Zinopa Tredgold Soko Alfred A. Upindi Adviser Robert Aquilina Malaysia Alfred Lupi Edward J. Scicluna Governor Shafie Mohd. Salleh Marshall Islands Alternate Governor Governor Wan Abdul Aziz Wan Abdullah* Michael Konelios Adviser Alternate Governor Noraida Abdul Ghani Fred Pedro Mohamad Ahmad Wan Farisan Mauritania Thurgha Govindasamy Ghazzali S.A. Khalid Governor Siti Zauyah Md Desa Mohamed Ould Nany Kamel Mohamad Khairi Omar Alternate Governor Raja Zaharaton Raja Zainal Abidin Abdallah Ould Hormtallah Syed Hasanuddin Syed Abdullah Mohamed Ould Didi* Maldives Adviser Bass Abal Abass Governor Fatoumata Sy Ba Mohamed Jaleel N'Guissaly Fall * Temporary <> Not a member of IFC # Not a member of IDA 356 Kemal Mohamedou Salvador Rojas Ahmed Ould Bekrine Ricardo Sanchez baker Abdallah Ould Cheikh-Sidia Moises Schwartz Mohamed Lemine Ould Khlil Rosenthal Mohamedou Ould Michel Miguel Siliceo Sidi Ould Mohamed Ould Youma Micronesia, Federated States of Mohamed Lamine Ould Raghani Bekaye Ould Sidi Mohamed Governor Diombar Thiam Manny Mori Mauritius Alternate Governor Senny Lynner Phillip Governor Henry Asugar* Khushhal Chand Khushiram Edigar Isaac* Alternate Governor Adviser Philippe Ong Seng Julie Leskinen Ayub Nakhuda* James Naich Adviser Moldova J. Bissoondoyal Peter Craig Governor Krishnanand Guptar Zinaida Grecianii Hemraz Oopuddhye Jankee U. Jeetah Alternate Governor Rajkumar Sookun Stela Axenti* Kadress Vencatachellum Guy Wong So Adviser Mihai Manoli Mexico Vladimir Ion Munteanu Rutger Palmstierna Governor Francisco Gil Diaz Mongolia Alternate Governor Governor Alonso Garcia Tames* Luvsandarva Enkhtaivan Mario Laborin* Ricardo Ochoa Alternate Governor Rodriguez* Alag Batsukh* Jose Luis Romero* Tomas Ruiz Gonzalez* Adviser Tsend Adiya Adviser Khulan Buyankhishig Jose Luis Acuna Zhalbuu Choinkhor Ariel Buira Sandagdorj Enebish Antonio Castano Batsukh Enkhkhuyag Francisco J.J. Castro y Tuvden Ochirkhuu Ortiz Monhbat Siilegmaa Alfonso Maza Federico Patino Marquez Morocco Moises Pineda Cecilia Ramos Governor Sergio Rodriguez Medrano Fathallah Oualalou * Temporary <> Not a member of IFC # Not a member of IDA 357 Alternate Governor Alternate Governor Karim Mansouri* Narayan P. Silwal Jaya Pratap Rana* Adviser Ali Tricha Adviser Dinesh Bhattarai Mozambique Netherlands Governor Adriano Afonso Maleiane Governor Hans Hoogervorst Alternate Governor Antonio Fernando Laice* Alternate Governor Agnes Van Ardenne Adviser Clara Ana De Sousa Adviser Piedade Macamo Matavela Carola B. Baller Gamiliel Munguambe Henk J. Brouwer Armando A. Panguene Gregory W.Th. Damoen Ersilia deLannooy Myanmar Wim Geerts Jerrald M. Hasselmeyer Governor Ron Keller Khin Maung Thein Ad Melkert Dirk Jan Nieuwenhuis Alternate Governor Ruth Schipper Soe Lin Sjeng Smeets Pieter Stek Adviser Theo Timmermans Wunna Han Emsley D. Tromp Aung Lynn Htut Peter B. Van der Geer Aung Ko Corina Van der laan Min Lwin Isabelle van Tol Linn Myaing Jacob Waslander J. Wijnholds Namibia# New Zealand Governor Usutuaije Maamberua Alternate Governor Iain Rennie Alternate Governor Matthew Dalzell* Penny T. Akwenye James B. Rose* Adviser Adviser Godfrey Gaoseb Yvonne J. Dale Lucky Gawanab Margaret Denny Festus Hangula Tom Hall Leonard N. Iipumbu Tahamoana A. Macpherson Simon D. Tucker Nepal David Walker Warwick Paul White Governor Victoria A. Whitlock Bharat Kumar Shah John Wood * Temporary <> Not a member of IFC # Not a member of IDA 358 Nicaragua Haruna Mohammed Mai Adamu Mustapha Governor Herbert O. Nkwocha Eduardo Montealegre Rivas Abdulkareem Olabanji Olaoye Okorie Awa Uchendu Adviser Lila Bolanos Norway Francisco Fernandez Frank Matus Governor Alcides Montiel Hilde Frafjord Johnson Luis Rivas Carlos Ulvert Alternate Governor Jorge Wong-Valle Bjorn Skogmo Trond Folke Lindberg* Niger Adviser Governor Alf Friisoe Ali Badjo Gamatie Anne Kristin Hermansen Kristian Oedegaard Alternate Governor Per Egil Selvaag Boubacar Moumouni Saidou* Tom Tjomsland Knut Vollebaek Adviser Tove Bruvik Westberg Chayabou Abdou Talata Bagnie-Baba Camara Oman Joseph Diatta Governor Kassoum Karimoune Ahmed Bin Abdulnabi Macki Ari Malla Fred Quarshie Alternate Governor Fatima Sidikou Darwish Al-Bulushi Abdoulaye Soumana Saud Nassir Al-Shukaily* Nigeria Adviser Ali Ismail Ali Al-Bulushi Governor Al-Fadhel Mohammed Al-Harthy Adamu Ciroma Nasser bin Khamis bin Ali Al-Jashmi Warith bin Mubarak Al-Kharusi Alternate Governor Jawad Mohammed Jawad Talib Thelma Amata Iremiren Jibril Muhammad Aminu* Pakistan Magnus Kpakol* Governor Stephens Osagiede Oronsaye* Shaukat Aziz Adviser Alternate Governor Ogunyemi Charles Ijaleye Waqar Masood Khan Christopher Osiomha Itsede Garrick Kayode Adviser Babatunde F. Lawal Tanwir Ali Agha G.D. Mamman Shahid A. Chaudhry * Temporary <> Not a member of IFC # Not a member of IDA 359 Zakir Mahmood Guillermina Frizza Mushtaq Malik Francisco Ogura Ashraf Jehangir Qazi Leila Teresa Rachid Syed Ali Raza Cowles Mohamad Iqbal Zuberi Victor Vazquez Aranda Mohammed Ahmad Zuberi Peru Palau Governor Alternate Governor Javier Silva Ruete Lawrence Alan Goddard Alternate Governor Panama Fernando Zavala Governor Adviser Norberto Delgado Duran Oscar Blanco Daul Matute Alternate Governor Alberto Pasco Font Aracelly Mendez Jaime Pinto Ernesto Popolicio Adviser Ivan Rivera Gustavo Chellew Renzo G. Rossini Alfredo N. Macia Almeida Augusto Salamanca Daniel Schydlowsky Papua New Guinea Edgar Zamalloa Governor Philippines Bart Philemon Governor Alternate Governor Jose Isidro N. Camacho Koiari Tarata Puka Temu* Alternate Governor Juanita D. Amatong* Adviser Loi Martin Bakani Adviser Joshua Jackson Isidro C. Alcantara Jr. Graham Michael Antonino L. Alindogan Sakias Tameo Rene J. Buenaventura Anthony Yauieb Dante Canlas Albert F. Del Rosario Paraguay Raul B. de Mesa Reynaldo Geronimo Governor Raymond Go James Spalding Corazon P. Guidote Teresa S. Habitan Alternate Governor Antonio H. Ozaeta Jose Ernesto Buttner Roberto Panlilio Limprich Antonino P. Roman Jesus P. Tambunting Adviser Edwin Uy Marcial Bobadilla Guillen Cesar E.A. Virata Orlando Ferreira Caballero Lourdes Yparraguirre * Temporary <> Not a member of IFC # Not a member of IDA 360 Poland Lucian Croitoru Sorin Duc Aru Governor Valentin Lazea Leszek Balcerowicz Dorin Mantescu Alternate Governor Russian Federation Adam Czyzewski Alternate Governor Adviser Andrei Denisov* Monika Borowska-Massalska Andrei N. Illarionov* Jerzy Hylewski Sergei Kolotukhin* Jakub Karnowski Alexey G. Kvasov* Krzysztof Majczuk Oleg Vyugin* Magdalena Strzelecka Adviser Portugal Dmitri Beskurnikov Victor Bolyasnikov Alternate Governor Dmitry Borisov Miguel Frasquilho Andrei Bugrov Maria Helena Cordeiro* Vladimir Chernukhin Mario Lobo* Aleksandr A. Danilov Grigori Glazkov Adviser Nina Gorlacheva Pedro Goncalves Maria Lucia Leitao Iouri Isaev Vasco Manuel da Silva Pereira Nadezhda Ivanova Stanislav Katash Qatar# Vladimir Kazbekov Andrei Kostin Governor Boris M. Lvin Yousef Hussain Kamal Roman Marshavin Eugene Miagkov Alternate Governor Oleg Muradian Hussain Al-Abdulla Svetlana Nikitina Konstantin Panov Adviser Aleksandr Shamrin Bader Al Dafa Andrei Shinayev Ahmed Mohammed Al-Shaabi Bashir Issa Al-Shirawi Andrei Sniatkov Abdurahman Dashti Aleksandr Surikov Anton Tolstikov Romania# Yury Ushakov Anastassia Yamnova Governor Gennady Yezhov Mihai Nicolae Tanasescu Rwanda Alternate Governor Cristian Popa* Governor Prosper Musafiri Adviser Cezar Botel Alternate Governor Doina Gabriela Cristea Jack Nkusi Kayonga* * Temporary <> Not a member of IFC # Not a member of IDA 361 Adviser Alternate Governor Jacob N. Fonderson Antonio Valentini* Vincent Karega Gaston Mpatswe Kagabo Adviser Jean Jacques Nyirubutama Daniele Bernardi Fred Quarshie Jean Rutayisire Musoni Sao Tome and Principe<> Laurean Rutayisire Richard Sezibera Governor Maria dos Santos Tebus Torres St. Kitts and Nevis Alternate Governor Governor Genoveva Jose Da Costa Denzil Douglas Adviser Alternate Governor Agapito Mendes Dias Vance Amory* Americo D'Oliveira Ramos Adviser Saudi Arabia Cheryl Bruce Jasmin Huggins Governor Laurie Lawrence Ibrahim A. Al-Assaf Jennifer Nero Alternate Governor St. Lucia Hamad Al-Bazai Yahya Alyahya* Governor Trevor Brathwaite Adviser Mohammed Abanmy St. Vincent and the Grenadines<> Mazen Wasfi Abdulmajeed Khaled Al-Olayan Governor Naif Al-Otaibi Dwight Venner Abdallah S. Alazzaz Ahmed Al-Balawie Alternate Governor Basel Algadhib Laura Anthony-Browne Ali Alghaith Abdulrahman Al-Hamidy Adviser Abdullah I. Al-Hudaithi Ellsworth John Abdullah Al-Hugail Garth P. Nicholls Ibrahim M. Al-Issa Abdulatif Al-Jabr Samoa Abdulhamid Al-Khalifa Medlej Al-Medlej Governor Abdulrahman Mohammed Hinauri Petana Almofadhi Ahmed A. Al Nassar Alternate Governor Saeed Al-Qahtani Maeva Betham Talal Al-Qudaibi Abdulaziz Rashed Al-Rashed San Marino<># Rashed Abdulaziz Al-Rashed Salah Al-Rashed Governor Saud Al-Saleh Pietro Giacomini Ahmad Al-Sarie * Temporary <> Not a member of IFC # Not a member of IDA 362 Mohammad Abdullah Al-Shawi Adviser Ali Samir Al-Shihabi Vivianne Simone Fock-Tave Saud Al-Yemeni Claude Sylvestre Morel Sami Al-Yousef Roger Toussaint Jitendra G. Borpujari Arthur De Graffenried III Sierra Leone Marcos G. Ghattas Said H. Hashim Governor Richard R. Herbert Joseph Bandabla Dauda Abdullah Saleh Kamel Terence Marshall Alternate Governor Melhem F. Melhem Samura Kamara Abdulaziz A. O'Hali Nemeh Elias Sabbagh Adviser Bertrand Viriot Mohamed Sanpha Fofana Abdulai Kakay Senegal Cyprian M.P. Kamaray Governor Singapore Abdoulaye Diop Governor Alternate Governor Hng Kiang Lim Mamadou Faye* Alternate Governor Adviser Siong Guan Lim Mamadou Lamine Ba Jean-Claude K. Brou Adviser Jean-Marie Coulbary Francis Chong Sogue Diarisso Jee See Heng Adama Dieye Roy Puar Abdoulaye Diop Soon Kim Tan Daouda Diop Tan Soon Kim Tom Gorman Slovak Republic Amadou Kane Pascal-Irenee Koupaki Governor Emmanuel-Marie Nana Ivan Miklos Diagna N'Diaye Seyni Ndiaye Alternate Governor Aminata Niane Elena Kohutikova Badanam Patoki Ibrahima Sar Adviser Kablan Yao Sahi Katarina Kovacova Katarina Mathernova Seychelles# Katarina Polavkova Peter Sevcovic Governor Jeremie Bonnelame Slovenia Alternate Governor Governor Alain Butler-Payette Anton Rop * Temporary <> Not a member of IFC # Not a member of IDA 363 Alternate Governor Sudan Irena Sodin Governor Adviser El Zubair Ahmed El Hassan Ksenija Maver Sibil Svilan Alternate Governor Stanislava Zadravec-Caprirolo Sabana Ibrahim Jambo Solomon Islands Adviser El Sheikh Mohamed Elmak Governor Agil M. Elmanan Laurie Chan Omar Ibrahim Eltahir Abdelbagi Kabeir Mohamed Ahmed Eltahir Alternate Governor Mohamed Shadrach Fanega Swaziland South Africa Governor Governor Guduza Dlamini Trevor Andrew Manuel Alternate Governor Alternate Governor Musa D. Fakudze M.B.M. Mpahlwa Adviser Adviser Elliot Gamedze Andre du Plessis Khangeziwe Glory Patience Bongiwe Kunene Mabuza Nomusa Tfobhi Tibane Spain Mduduzi Zwane Governor Sweden Rodrigo de Rato Figaredo Alternate Governor Alternate Governor Jan O. Karlsson Juan Costa Climent Bjorn Fritjofsson* Maria Jesus Fernandez* Angel Martin-Acebes* Adviser Erik Eldhagen Adviser Stefan Emblad Marta Blanco Bjorn Gillsater Federico Ferrer Ruth Jacoby Maria Dolores Loureda Sven-Olof Johansson Marie-Louise Lycke Sri Lanka Per-Ola Mattsson Per Trulsson Governor Kairshasp Nariman Choksy Switzerland Alternate Governor Governor Charitha Ratwatte Pascal Couchepin Faiz Mohideen* Alternate Governor Adviser Oscar Knapp* Rajapakse A. Jayatissa Pietro Veglio* * Temporary <> Not a member of IFC # Not a member of IDA 364 Adviser Alternate Governor Patrick Manuel Belser Somchainuk Engtrakul Liliana de Sa Rapee Asumpinpong* Raymund A. Furrer Pannee Sathavarodom* Christine Grieder Adviser Pascal Strupler Roykaew Aksaranugraha Niklaus Zingg Acksiri Buranasiri Chainarong Indharameesup Danand Jaovisidha Syrian Arab Republic Suchai Jaovisidha Sakthip Krairiksh Governor Machima Kunjara Na Ayudhya Ghassan El-Rifai Ratklao Limsawatwong Somsak Nontaganok Alternate Governor Viroj Nualkhair Mohamad Bittar Chakramon Phasukavanich Nongnuth Phetcharatana Tajikistan Suphachai Phisitvanich Thanachai Pojjananuwat Governor Uttama Savanayana Safarali Najmuddinov Rakpong Sengjaroen Pramaporn Siriboury Alternate Governor Pongsathorn Siriyodhin Akram Suleymanov Patanapong Sirodom Pimol Srivikorn Adviser Chularat Suteethorn Djamoliddin Nuraliev Pongpanu Svetarundra Anothai Techamontrikul Tanzania Kirutcha Tintamusik Suwit Udomsab Governor Perames Vudthitornetiraks Peter J. Ngumbullu Chaiyawat Wibulswasdi Anchana Wongsawang Alternate Governor Joshua Doriye* Timor-Leste<> Adviser Governor Jerome J. Buretta Maria Madalena Brites Boavida Andrew M. Daraja Peter Lwali Kadesha Alternate Governor Ismaila B. Ceesay Hussein S. Khatib Gray Shwaibu Mgonja Adviser Peter Efraim Mayunga Noni Constancio Pinto Naftal Mathayo Nsemwa J.B. Raphael Togo Samuel Sitta Governor Thailand Mba Bilor Legzim Governor Alternate Governor Suchart Jaovisidha Mewunesso Baliki Pini * Temporary <> Not a member of IFC # Not a member of IDA 365 Adviser Alternate Governor Abdoul-Karim Allassan Aydin Karaoz Akoussoulelou Bodjona Yoro Diakite Adviser Soungalo Andre Fayama Turgut Bozkurt Ayewanou Agetoho Gbeasor Dogan Cansizlar Ahmet Celenkoglu Gnassingbe Kpatcha Emin Dedeoglu Yao Kanekatoua Ozgur Demirkol Evren Dilekli Tonga Ersen Ekren Governor Ali Umit Gonulal Siosiua T.T. `Utoikamanu Burak Gursel Teoman Kerman Alternate Governor Haci Ahmet Kilicoglu `Aisake V. Eke S. Elvan Ongun Refii Ozgen Trinidad and Tobago Durmus Oztek Hakan Ozyildiz Governor Recep Pekdemir Leroy Mayers Ercan Sendil Mustafa Ertan Tanriyakul Alternate Governor Volkan Taskin Vishnu Dhanpaul Cihan Terzi Levent Veziroglu Adviser Charles de Silva Turkmenistan# Penelope Forde Anthony John Joseph Alternate Governor Alison G.A. Lewis Mered Bairamovich Orazov* Michael Mendez Emily Pascal Adviser Dovran M. Muratnazarov Tunisia Uganda Governor Mohamed Nouri Jouini Governor Gerald M. Ssendaula Alternate Governor Abdelhamid Triki Alternate Governor C. M. Kassami Adviser Hatem Atallah Adviser Tarek Azouz Moses Bekabye Kamel Ben Rejeb Richard Kabonero Samir Chebil Louis A. Kasekende Riadh Dridi Nimisha J. Madhvani-Chandaria Keith Muhakanizi Turkey Polycarp Musinguzi Edith Ssempala Governor Francis Tumuheirwe Faik Oztrak Michel Vaugeois * Temporary <> Not a member of IFC # Not a member of IDA 366 Ukraine# United Kingdom Governor Governor Vasyl Rohovyi Clare Short Alternate Governor Alternate Governor Alexander Shlapak Gordon Brown Ed Balls* Adviser Suma Chakrabarti* Oleksandr Chalyi Jon Cunliffe* Kostyantyn Grishchenko Tony Faint* Pavlo Haidyrskyi Gus O'Donnell* Volodymyr Grygorovych Khrebet Stephen John Pickford* Sergii Khudiiash Tom Scholar* Volodymyr Makukha Serhiy Manokha Rosemary B. Stevenson* Oleksander Sharov Igor Shumilo Adviser Tamara Solyanyk Anna Bewes Olexandr Mykolayovych Sorokin Mark Bowman Yaroslav Voitko Michael Ellam Ann Freckleton United Arab Emirates John Garrett Nicholas B. Joicey Governor Ben Kelmanson Mohammed Khalfan Bin Khirbash Paul Kissack Mary McCollum Alternate Governor Penny McMillin Khaled Ali Al-Bustani Benjamin John Mellor Dino Merotto Adviser Calum Miller Jassim Al Housani Simon Moyse Ajlan Ahmed Al Qubaisi Alison Margaret Stuart Abdulla Al-Saboosi David Taylor Salem Jasem Al Baker Louise Thomas Fadhel Saeed Al Darmaki Shriti Vadera Saeed Abdulla Saeed Al Hamiz Anis Al-Jallaf United States Khalifa Al Neaimi Hussain Al Qemzi Governor Robert Douglas Paul H. O'Neill Wahbi Khalifa Hagras Alternate Governor Khalifa Mohammed Hassan Alan P. Larson Ibrahim Nasser Lootah Janice F. Bay* Mohamed Imran Markar Carole Brookins* Joshil Meter Todd W. Crawford* Hamed Naser Mohammed Kenneth Dam* Majid Radpay Robert B. Holland* Abdulla Mohamed Saleh Karen H. Johnson* Nasser K. Suwaidan Randal Quarles* Phillip Andrew Thorpe William Schuerch* Muhammad Jenab Tutunji Mark Sobel* Michael Williams John Taylor* * Temporary <> Not a member of IFC # Not a member of IDA 367 Luyen Doan Tran* Vanuatu Tony Wayne* Governor Adviser Sela Molisa Tim Adams Eduardo Aguirre Alternate Governor David Aufhauser George Andrews Ed Barber Ken Borghese Venezuela, Republica Bolivariana de# James Clad Patrick Cronin Governor Brian G. Crowe Felipe Perez Marti Michele Davis Joe Engelhard Alternate Governor Paula Feeney Tobias Suarez Nobrega Tony Fratto Jesus Rodolfo Bermudez Acosta* Nancy Lee David P. Loevinger Adviser Clay Lowery Luis E. Davila Andrew Natsisos Julian Fleszczynski Rob Nichols Jose Jury Fabre Jonathan Olsson Per Kurowski Sara Paulson William Larralde Paez Borany Penh Jose Machillanda Geetha Rao Muneera Salem-Murdock Vietnam Michele Shannon Governor James Smith Ha Dan Huan Paul Tumminia Beth Urbanas Alternate Governor George Wolfe Le Thi Bang Tam Uruguay# Adviser Van Thanh Dang Governor Nguyen Doan Hung Ariel Davrieux Lam Dao Thao Alternate Governor Chien Tam Nguyen Isaac Alfie Gia Dinh Nguyen Nguyen Van Du Adviser Xuan Trinh Nguyen Horacio Bafico Pham Huy Hung Carlos Otheguy Tran Xuan Huy Mario Soto-Platero Quoc Sau Vu Uzbekistan Yemen, Republic of Governor Governor Rustam S. Azimov Ahmed Mohamed Sofan Alternate Governor Alternate Governor Zainutdin Mirkhodjaev Anwar Rizq Al-Harazi * Temporary <> Not a member of IFC # Not a member of IDA 368 Adviser Adviser Abdulwahab Al-Hajjri Stella M. Chibanda Omar Salim Bazara Walubita Imakando Ahmed Ahmed Ghaleb Berlin Msiska Galal Mohamed Moula Longa Mulutula Ahmed Saeed Jalal Yaqoub Zimbabwe Yugoslavia, Federal Republic of Governor Zvinechimwe Churu Adviser Ana Gligorijevic Alternate Governor Dusan Vujovic Edward Mashiringwani Zambia Adviser Fortune Chidavaenzi Governor Mutasa Dzinotizei David S. Diangamo Simbi Mubako Alternate Governor Mukuka L.N. Zimba * Temporary <> Not a member of IFC # Not a member of IDA 369 ACCREDITED MEMBERS OF DELEGATIONS (MIGA) AT THE 2002 ANNUAL MEETINGS Albania Alternate Governor Jahangir Fevzi Hajiyev Governor Shkelqim Cani Bahamas, The Alternate Governor Governor Fatos Ibrahimi James H. Smith, CBE Algeria Alternate Governor Ruth R. Millar Governor Mohamed Terbeche Bahrain, Kingdom of Alternate Governor Governor Abdelhak Bedjaoui Abdulla Hassan Saif Angola Alternate Governor Zakaria Ahmed Hejres Alternate Governor Job Graca Bangladesh Argentina Governor M. Saifur Rahman Governor Roberto Lavagna Barbados Armenia Governor Reginald Farley Governor Vahram Nercissiantz Alternate Governor Grantley W. Smith Australia Governor Belarus Peter Costello Governor Austria Andrei V. Kobyakov Governor Alternate Governor Karl-Heinz Grasser Valery V. Tsepkalo* Alternate Governor Belgium Thomas Wieser Kurt Bayer* Governor Didier Reynders Azerbaijan Alternate Governor Governor Gregoire Brouhns Elman Siradjogly Rustamov Jean-Pierre Arnoldi* * Temporary 370 Belize Alternate Governor Etienne Yameogo Governor Ralph H. Fonseca Burundi Alternate Governor Governor Sydney J. Campbell Edouard Kadigiri Bolivia Alternate Governor Dieudonne Nintunze Governor Jose Guillermo Justiniano Cambodia Alternate Governor Governor Roberto Camacho* Keat Chhon Bosnia and Herzegovina Cameroon Governor Governor Azra Hadziahmetovic Esther Belibi Dang Alternate Governor Alternate Governor Amir Hadziomeragic* Daniel Njankouo Lamere Jerome Mendouga* Botswana Canada Governor Baledzi Gaolathe Governor John Manley Alternate Governor Wilfred Jiwa Mandlebe Alternate Governor Leonard M. Good Brazil Vinita Watson* Governor Susan Whelan* Pedro Sampaio Malan Cape Verde Alternate Governor Arminio Fraga Neto Governor Carlos Augusto Duarte Burgo Bulgaria Central African Republic Governor Milen Veltchev Governor Alexis Ngomba Alternate Governor Martin Mihaylov Zaimov Alternate Governor Lazare Dokoula Burkina Faso Chad Governor Franck Baptiste Mathias Governor Tapsoba Djimrangar Dadnadji * Temporary 371 Chile Cyprus Governor Governor Nicolas Eyzaguirre Takis Klerides China Czech Republic Governor Governor Liqun Jin Bohuslav Sobotka Alternate Governor Alternate Governor Zhao Xiaoyu Wu Jinkang* Oldrich Dedek Zhu Guangyao* Jan Mladek* Colombia Denmark Governor Alternate Governor Roberto B. Junguito Carsten Staur Kirsten Rosenvold Geelan* Congo, Democratic Republic of the Dominica Governor Matungulu Mbuyamu Ilankir Governor Pierre Charles Alternate Governor Jean-Claude Masangu Alternate Governor Mulongo Ambrose M.J. Sylvester Congo, Republic of Rosamund J. Edwards* Governor Dominican Republic Rigobert Roger Andely Governor Alternate Governor Francisco M. Guerrero Prats-R. Pierre Moussa Ecuador Costa Rica Governor Governor Francisco Arosemena Robles Jorge Walter Bolanos Rojas Egypt, Arab Republic of Cote d'Ivoire Governor Governor Medhat Hassanein Affi N'Guessan Alternate Governor El Salvador Bouabre Bohoun Governor Croatia Juan Jose Daboub A. Alternate Governor Alternate Governor Josip Kulisic Luz Maria Serpas de Portillo * Temporary 372 Equatorial Guinea Gambia, The Governor Governor Fortunato Ofa Mbo Famara L. Jatta Alternate Governor Alternate Governor Melchor Esono Edjo Dodou B. Jagne Eritrea Georgia Governor Governor Abraham Kidane Mirian Gogiashvili Alternate Governor Alternate Governor Kubrom Dafla Giorgi Gachechiladze Estonia Germany Governor Governor Madis Uurike Heidemarie Wieczorek-Zeul Alternate Governor Alternate Governor Renaldo Mandmets Caio K. Koch-Weser Eckhard Deutscher* Ethiopia Karsten Hinrichs* Michael Hofmann* Governor Ulrich Kalbitzer* Ahmed Sufian Ghana Alternate Governor Abi Woldemeskel Governor Yaw Osafo-Maafo Fiji Greece Governor Jone Yavala Kubuabola Governor Nikolaos Christodoulakis Finland Alternate Governor Governor Vassilios Rapanos Sauli Niinisto Grenada Alternate Governor Kaarina Rautala Governor Anthony Boatswain France Alternate Governor Governor Timothy Antoine Francis Mer Guatemala Alternate Governor Jean-Pierre Jouyet Alternate Governor Pierre Duquesne* Eduardo Humberto Weymann * Temporary 373 Guinea Alternate Governor Robert Bradshaw* Alternate Governor Adrian McDaid* El Hadj Amadou Sow Brendan Ryan* Haiti Israel Governor Governor Faubert Gustave David Klein Alternate Governor Alternate Governor Ronald Gabriel* Nir Gilad Honduras Italy Governor Governor Arturo Alvarado Antonio Fazio Alternate Governor Maria Elena Mondragon de Villar Alternate Governor Lorenzo Bini-Smaghi Hungary Jamaica Governor Csaba Laszlo Governor Sharon Weber Alternate Governor Zsuzsanna Varga* Japan Iceland Governor Masajuro Shiokawa Alternate Governor Geir Hilmar Haarde Alternate Governor Stefan Skjaldarson* Yuzo Harada* Atsushi Inoue* India Masahiro Kawai* Kiyoshi Kodera* Governor Haruhiko Kuroda* Jaswant Singh Zembei Mizoguchi* Hiroshi Watanabe* Alternate Governor Subbaraman Narayan Motohide Yoshikawa* Indonesia Jordan Alternate Governor Governor Syahril Sabirin Bassem I. Awadallah Ireland Kenya Governor Governor Charlie McCreevy Peter Gakunu * Temporary 374 Alternate Governor Lesotho Esther Jepkembol Koimett Governor Korea, Republic of M.C. Mphutlane Governor Alternate Governor Yun-Churl Jeon T.J. Ramotsoari Alternate Governor Libya Seung Park Yong-Duk Kim* Alternate Governor Tae-Shin Kwon* Ali Ramadan Shnebsh Jae-Ouk Lee* Lithuania Kuwait Governor Dalia Grybauskaite Governor Yousef Hamad Al-Ebraheem Alternate Governor Arvydas Kregzde Alternate Governor Saleh Mubarak Al-Falah Luxembourg Kyrgyz Republic Governor Luc Frieden Governor Bolot Abildaev Alternate Governor Jean Guill Lao People's Democratic Republic Madagascar Governor Governor Soukanh Mahalath Benjamin Andriamparany Radavidson Latvia Alternate Governor Governor David Rajaon Roberts Zile Malawi Alternate Governor Governor Aigars Kalvitis Friday Jumbe Lebanon Alternate Governor Zaki Chalira Governor Basil R. Fuleihan Malaysia Alternate Governor Governor Fuad A.B. Siniora Shafie Mohd. Salleh * Temporary 375 Alternate Governor Alternate Governor Wan Abdul Aziz Wan Abdullah* Adriano Afonso Maleiane Malta Namibia Governor Governor John Dalli Usutuaije Maamberua Alternate Governor Alternate Governor Joseph Scicluna Penny T. Akwenye Mauritania Nepal Governor Governor Bodiel Ould Houmeid Bharat Kumar Shah Mauritius Netherlands Governor Governor Khushhal Chand Khushiram Hans Hoogervorst Alternate Governor Alternate Governor Philippe Ong Seng Agnes Van Ardenne Ayub Nakhuda* Nicaragua Micronesia, Federated States of Governor Governor Eduardo Montealegre Rivas John Ehsa Nigeria Moldova Governor Alternate Governor Ernest C. Ebi Dumitru Ursu Alternate Governor Mongolia Thelma Amata Iremiren Jibril Muhammad Aminu* Governor Ahmed Inuwa Wada* Luvsandarva Enkhtaivan Norway Alternate Governor Alag Batsukh* Governor Hilde Frafjord Johnson Morocco Alternate Governor Governor Bjorn Skogmo Fathallah Oualalou Trond Folke Lindberg* Mozambique Oman Governor Governor Luisa Dias Diogo Ahmed Bin Abdulnabi Macki * Temporary 376 Pakistan Romania Governor Governor Nawid Ahsan Mihai Nicolae Tanasescu Alternate Governor Rwanda Raja Raza Arshad Governor Palau Donald Kaberuka Alternate Governor St. Kitts and Nevis Lawrence Alan Goddard Governor Panama Denzil Douglas Governor Alternate Governor Norberto Delgado Duran Wendell Everton Lawrence Vance Amory* Alternate Governor Domingo Latorraca St. Lucia Papua New Guinea Governor Trevor Brathwaite Alternate Governor Koiari Tarata St. Vincent and the Grenadines Paraguay Governor Ralph E. Gonsalves Governor James Spalding Alternate Governor Laura Anthony-Browne Alternate Governor Jose Ernesto Buttner Limprich Samoa Philippines Governor Tuiloma Pule Lameko Governor Jose Isidro N. Camacho Alternate Governor Tuu'u Anasii Leota Portugal Saudi Arabia Alternate Governor Governor Miguel Frasquilho Ibrahim A. Al-Assaf Qatar Alternate Governor Hamad Al-Sayari Governor Yousef Hussain Kamal Senegal Alternate Governor Governor Abdullah Bin Khalid Al-Attiyah Abdoulaye Diop * Temporary 377 Seychelles Alternate Governor Charitha Ratwatte Governor Jeremie Bonnelame Sudan Sierra Leone Governor El Zubair Ahmed El Hassan Governor Joseph Bandabla Dauda Alternate Governor Sabana Ibrahim Jambo Alternate Governor Samura Kamara Swaziland Singapore Governor Governor Majozi Vincent Sithole Hng Kiang Lim Alternate Governor Alternate Governor Ephraim Mandla Hlophe Siong Guan Lim Guduza Dlamini* Slovak Republic Sweden Governor Alternate Governor Ivan Miklos Jan O. Karlsson Bjorn Fritjofsson* Slovenia Governor Switzerland Anton Rop Governor Alternate Governor Oscar Knapp Irena Sodin Alternate Governor South Africa Serge Chappatte* Governor Syrian Arab Republic Trevor Andrew Manuel Governor Alternate Governor Ghassan El-Rifai M.B.M. Mpahlwa Tanzania Spain Alternate Governor Governor Rodrigo de Rato Figaredo Peter J. Ngumbullu Alternate Governor Thailand Juan Costa Climent Governor Sri Lanka Suchart Jaovisidha Governor Alternate Governor Kairshasp Nariman Choksy Somchainuk Engtrakul * Temporary 378 Timor-Leste United Kingdom Governor Governor Maria Madalena Brites Boavida Clare Short Alternate Governor Alternate Governor Aicha Bassarewan Gordon Brown Ed Balls* Togo Suma Chakrabarti* Jon Cunliffe* Alternate Governor Tony Faint* Mewunesso Baliki Pini Gus O'Donnell* Stephen John Pickford* Tunisia Tom Scholar* Rosemary B. Stevenson* Governor Mohamed Nouri Jouini United States Alternate Governor Governor Abdelhamid Triki Paul H. O'Neill Turkey Alternate Governor Alan P. Larson Governor Luyen Doan Tran* Faik Oztrak Uruguay Alternate Governor Aydin Karaoz Governor Ariel Davrieux Uganda Uzbekistan Governor Gerald M. Ssendaula Alternate Governor Rustam S. Azimov Alternate Governor C. M. Kassami Vanuatu Ukraine Governor Sela Molisa Governor Vasyl Rohovyi Alternate Governor Andrew Kausiama Alternate Governor Alexander Shlapak Venezuela, Republica Bolivariana de United Arab Emirates Alternate Governor Felipe Perez Marti Governor Mohammed Khalfan Bin Khirbash Vietnam Alternate Governor Governor Khaled Ali Al-Bustani Le Duc Thuy * Temporary 379 Yemen, Republic of Zambia Governor Governor Ahmed Mohamed Sofan David S. Diangamo Alternate Governor Alternate Governor Anwar Rizq Al-Harazi Mukuka L.N. Zimba * Temporary 380 OBSERVERS AT THE 2002 ANNUAL MEETINGS African Development Bank Group Association of African Development Omar Kabbaj Finance Institutions Theodore F. Nkodo Abdullahi Sarki Mahmoud Adesina Ola Adigun African Export-Import Bank Victor Jerom Nembelessini-Silue Christopher Chuka Edordu Lawrence Okeluc Osa-Afiana Benedict O. Oramah Bank for International Settlements Andean Community Andrew D. Crockett Jorge Gustavo Vega Svein Andresen Gavin Bingham Andean Development Corporation Renato Filosa Enrique Garcia Rodriguez Andre Icard Felix Bergel Josef Tosovsky Fidel Jaramillo Josef Van't Dack Marlene Milles Hugo Sarmiento Bank of Central African States Jean-Felix Mamalepot Arab Authority for Agricultural Investment and Development Black Sea Trade and Development Abdul Kareem Mohammad Al-Amri Bank Abbas Hassan Monofali Mustafa Hamdi Gurtin Panayotis Gavras Arab Bank for Economic Ahmet Nebil Imre Development in Africa Charalampos Tsarouchas Medhat Sami Lotfy Pierre Nicolas van Peteghem Kamal Mahmoud Abdellatif Ould Ebe Ebe Caribbean Community Byron W. Blake Arab Monetary Fund Maurice Odle Jassim Al-Mannai Caribbean Development Bank Asian Development Bank Compton Bourne Tadao Chino Patrick Desmond Brunton Robert M. Bestani Alan David Slusher Thierry de Longuemar Yoshihiro Iwasaki Center for Latin American Yasushi Kanzaki Monetary Studies Juanito Limandibrata Kenneth G. Coates John Lintjer Bindu N. Lohani Central African States Development Patricia Moser Bank Frank J. Polman Anicet-Georges Dologuele Eva L. Relova Adoum Malloum Edgardo Pelagio Rodriguez Karti Sandilya Central American Bank for Kunio Senga Economic Integration Myoung-Ho Shin Pablo R. Schneider Craig M. Steffensen Lin Sun-Yuan Masaru Yoshitomi Manuel Mosquera 381 Perng Fai-Nan Economic Cooperation Organization Luis Ernesto Santamaria Seyed Mojtaba Arastou Lin Chi-Fu European Bank for Reconstruction Central American Monetary Council and Development Miguel A. Chorro Jean Lemierre Sergio F. Recinos Willem Buiter Noreen Doyle Central Bank of West African States Steven D.F. Kaempfer Damo Justin Baro Ayesha Shah Common Fund for Commodities European Central Bank Rolf W. Boehnke Willem F. Duisenberg Otmar Issing Common Market for Eastern Michele Kirstetter and Southern Africa Manfred J. Korber Erastus J.O. Mwencha Tommaso Padoa-Schioppa Tidenekialesh Asfaw Lucas D. Papademos Donald Mark Pearson Pierre van der Haegen Ibrahim Abdulahi Zeidy Gerald Grisse Michael Gondwe Boris Kisselevsky Alex Gitari Kwimenya Claire Bose Commonwealth Secretariat European Commission Winston Cox Pedro Solbes Mira Eliawony J. Kisanga Soledad Abad Johan Baras Cooperation Council for the Moreno Bertoldi Arab States of the Gulf Guenter Burghardt Nasser Ibrahim Al-Kaud Herve Carre Michael Curtis Council of Europe Development Bank Gerard Depayre Orhan Guvenen Paul N. Goldschmidt Raphael Alomar Guenter Grosche Nunzio Guglielmino Geert Heikens Thierry Poirel Willy Helin Apolonio Ruiz Ligero Alexander Italianer Rainer B. Steckhan Karin Johansson Barbara Kauffmann East African Development Bank Poul Nielson Fabian R. Tibeita Maeve O'Beirne Peter Opande Elisabeth Maria Pape Protase T. Tehingisa Barbara Paper Klaus P. Regling Economic Community of West Gerassimos Thomas African States Jennifer Tufts Christian Adovelande Vlassia Vassikeri Euphrasie A. Akouetey Anne Vorce Djibana Barthelemy Drabo Frank Ofei European Investment Bank Yaya Sow (EIB Group) Thierno Bocar Tall Philippe Maystadt 382 Barbara Bargagli-Petrucci Rodney Wilson Jean-Louis Biancarelli Zeinhom Antar Zahran Terence Brown Rene Karsenti Kuwait Fund for Arab Economic Francis Mayer Development Fiona Turner Marwan Abdulla Al-Ghanem Patrick Walsh Latin American Economic System Food and Agriculture Organization Eduardo Mayobre of the United Nations Charles H. Riemenschneider Latin American Reserve Fund Roberto Guarnieri Alfonso R. Machado Inter-American Development Dennis H. Melendez Bank Enrique V. Iglesias League of Arab States Euric Allan Bobb Abdulrahman Al-Suhaibani Carlos Ferdinand Hussein Hassouna Dennis Flannery Motasim Rashid Sulaimat Eloy B. Garcia Charles O. Sethness Nordic Development Fund Gabriela Sotela Jens Lund Sorensen Stella Eckert Inter-American Investment Corporation Per Eldar Sovik Jacques Rogozinski Nordic Investment Bank Inter-Arab Investment Jon Sigurdsson Guarantee Corporation Bo Heide-Ottosen Mamoun Ibrahim Hassan Ali Erkki A.O. Karmila Ayman Hussein Nehme Kari Kukka Tarja Kylanpaa International Fund for Lars-Ake Gunnar Olsson Agricultural Development Oddvar Sten Ronsen Lennart Bage Heidi Susanne Syrjanen Uday Abhyankar Vera P. Weill-Halle OPEC Fund for International Meegan March Development Y. Seyyid Abdulai International Labour Organization Said Aissi Eddy Lee Saleh Al-Omair Stanley G. Taylor Malcolm Bricknell Jumana A.W. Dejany Islamic Development Bank Luis Gonzalez Ahmad Mohamed Ali Al-Madani Barbara Hausjell Sangone Amar Abdullah Ibrahim El-Kuwaiz Organisation for Economic Co-operation El Mansour Ould Veten Feten and Development Mumtaz Khan Donald J. Johnston Mohammed A. Khanani Jean-Philippe Cotis Michael Lee Michael Georg Roeskau Faiz Mohammad Malik Alain de Serres MD Sayef Uddin Sandra Wilson 383 OECD-Development Assistance UN Economic Commission for Africa Committee Kingsley Y. Amoako Jean-Claude H. Faure UN Economic Commission for Europe Organization of American States Brigita Schmognerova Jose Manuel Salazar-Xirinachs Susan Bartolo P. L. O. UN Economic Commission for Latin Salam K. Fayyad America and the Caribbean Abdelaziz M. Abu-Dagga Ines Bustillo Amin Haddad Raquel Artecona Hasan Abdel Rahman Mohammad Shtayyeh United Nations Educational, Scientific, and Cultural Organization Saudi Fund for Development Akemi Yonemura Ali Al-Raffa Union of African Economic and Social Singapore Planning Team 2006 Annual Councils Meetings Famara Ibrahima Sagna Sin Yun Hsu Hugh Lim Universal Postal Union Catherine Ow Richard Joseph Strasser, Jr. Patrick Sim Maggie Tan West African Development Bank Alice Yeo Boni Yayi Omar Fall Southern African Development Yao Agbo N'De Hounouvi Community M'Baye Thiam Moeketsi Senaoana Robert Kirk West African Economic & Monetary Union United Nations Moussa Toure Oscar de Rojas Hamza Ahmadou Cisse Suzanne Bishopric Frederic Assomption Korsaga Farooq Chowdhury Mouke Sacko Barry Herman Boucary Sacko Ian Kinniburgh West African Monetary Institute Michael Olufemi Ojo UN Children's Fund Siradiou Bah Jun Kukita Peter J. Obaseki Hussein Thomasi UN Conference on Trade and Development World Health Organization Yilmaz Akyuz Gerlinde Katarina Janovsky-Weir Susan Kinsley Ruben M. Suarez UN Development Programme World Trade Organization Michael Marek Supachai Panitchpakdi Judith Karl Willy J. Alfaro Inge Kaul Richard Eglin Ronald U. Mendoza Keith M. Rockwell 384 United Arab Emirates Planning Team 2003 Maan Isam Abdel Rahim Alsabi Annual Meetings Mohammed Ahmad Al Tayer Ibrahim Sharif Belselah Khalil Obaid Ali Asadalla Abdulla Hussain Ahli Leon Betts Mohamed Ali Rashid Alabbar Brian Dryburgh Mariyam Fawzi Alali John Philip Fee Bader Mahmood Al Attar Maha Mohamed Gargash Ahmed Abdulrahman Amita Dilip Gejji Al Banna Raghida Haddad Abdul Aziz Mohammed Mostafa Abdelazim Mohamed Al Bannai Hussein Abdullatif Abdulla Algargawi Sumaira Kamran Isaacs Ahmad Khalfan Al Mansoori Rachel A. Kempin Abdulla Khalifa Al Marri Abdulaziz Abdulla Malik Khalid Ali Ghanim Al Marri Ali Khalifa Mohamed Mohammed Saeed Al Marri Ammar Mohammed Obaidalla Tariq Abduljalil Al Mutawa Peter Philip Payet Rashid Al Noori Khalifa Matar Saqer Khalid Ismail Al Rahma Patricia Ann White Muammar N. Al Rukhaimi 385 EXECUTIVE DIRECTORS, ALTERNATES AND SENIOR ADVISORS BANK Alternate Executive Directors Executive Directors Senior Advisors Nguyen Doan Hung Alsake J. Taito (Vietnam) (Fiji) Mahdy Ismail Aljazzaf Mohamed Kamel Amr Tariq Alhaimus (Kuwait) (Arab Republic of Egypt) (Iraq) Yahya Alyahya Abdulrahman Mohammed Almofadhi (Saudi Arabia) (Saudi Arabia) Carole Brookins Robert B. Holland Todd W. Crawford (United States) (United States) (United States) Eckhard Deutscher Eckhardt Biskup Rainer S. Venghaus (Germany) (Germany) (Germany) Pierre Duquesne Emmanuel Moulin Sandrine Boucher (France) (France) (France) Robert Moulie (France) Yuzo Harada Masanori Yoshida Toshiaki Hiromitsu (Japan) (Japan) (Japan) Neil F. Hyden Dong-Soo Chin Tom Hall (Australia) (Republic of Korea) (New Zealand) Finn Jonck Inkeri Hirvensalo Agate Dalton (Denmark) (Finland) (Republic of Estonia) Hermann Orn Ingolfsson (Iceland) Louis A. Kasekende Agil M. Elmanan Mohamed Sanpha Fofana (Uganda) (Sudan) (Sierra Leone) Arefaine Ghebre- Yohannes (Ethiopia) Patience Bongiwe Kunene (South Africa) Haruna Mohammed (Nigeria) Alexey G. Kvasov Eugene Miagkov Boris M. Lvin (Russian Federation) (Russian Federation) (Russian Federation) Terie O'Leary Sharon Weber Donal Cahalane (Canada) (Jamaica) (Ireland) Grant James Cameron (Canada) Francois Page (Canada) 386 Alternate Executive Directors Executive Directors Senior Advisors Franco Passacantando Maria Helena Cordeiro Gloria M. Grandolini (Italy) (Portugal) (Italy) Philip Peeters Emin Dedeoglu Adam Kirchknopf (Belgium) (Turkey) (Hungary) Leander Treppel (Austria) Moises Pineda Jose Machillanda Maria Jesus Fernandez (Mexico) (Republica Bolivariana (Spain) de Venezuela) Roberto Siman (El Salvador) Roberto Steiner (Colombia) Jaime Ruiz Luis Antonio Balduino Jaime Alvarez (Colombia) (Brazil) (Dominican Republic) Gustavo A. Gaviria (Colombia) Sergio Savino Portugal (Brazil) Ahmed Sadoudi Tanwir Ali Agha Ernest Ako-Adjei (Algeria) (Pakistan) (Ghana) Masoud Mozayani (Islamic Republic of Iran) Tom Scholar Rosemary B. Stevenson (United Kingdom) (United Kingdom) Mario Soto-Platero Roberto Garcia-Lopez Jorge Kaufmann (Uruguay) (Argentina) (Chile) Maria Cristina Uehara (Argentina) Pieter Stek Tamara Solyanyk Petyo Nikolov (The Netherland) (Ukraine) (Bulgaria) Jacob Waslander (The Netherlands) Bassary Toure Paulo F. Gomes Mahamat Adoum (Mali) (Guinea-Bissau) (Chad) Yssouf Bamba (Cote d'Ivoire) Mamadou Wouri Diallo (Senegal) Frank Douamba (Cote d'Ivoire) Samuel Meango (Cote d'Ivoire) wa Bilenga Tshishimbi (Democratic Republic of the Congo) 387 Alternate Executive Directors Executive Directors Senior Advisors Chander Mohan Vasudev Akbar Ali Khan Shakti Sinha (India) (Bangladesh) (India) Pietro Veglio Jerzy Hylewski Raymund A. Furrer (Switzerland) (Republic of Poland) (Switzerland) Dusan Vujovic (Federal Republic of Yugoslavia) Niklaus Zingg (Switzerland) Zhu Guangyao Wu Jinkang (People's Republic of China) (People's Republic of China) 388 DIRECTORS AND ALTERNATES MIGA Directors Alternate Directors Abdul Aziz Mohd. Yaacob Nguyen Doan Hung (Malaysia) (Vietnam) Girmai Abraham Louis A. Kasekende (Eritrea) (Uganda) Mahdy Ismail Aljazzaf Mohamed Kamel Amr (Kuwait) (Arab Republic of Egypt) Yahya Alyahya Abdulrahman Mohammed Almofadhi (Saudi Arabia) (Saudi Arabia) Carole Brookins Robert B. Holland (United States) (United States) Eckhard Deutscher Eckhardt Biskup (Germany) (Germany) Pierre Duquesne Emmanuel Moulin (France) (France) Yuzo Harada Atsushi Inoue (Japan) (Japan) Neil F. Hyden Dong-Soo Chin (Australia) (Republic of Korea) Finn Jonck Inkeri Hirvensalo (Denmark) (Finland) Alexey G. Kvasov Eugene Miagkov (Russian Federation) (Russian Federation) Terrie O'Leary Sharon Weber (Canada) (Jamaica) Franco Passacantando Maria Helena Cordeiro (Italy) (Portugal) Philippe Peeters Emin Dedeoglu (Belgium) (Turkey) Moises Pineda Jose Machillanda (Mexico) (Republica Bolivariana de Venezuela) Jaime Ruiz Luis Antonio Balduino (Colombia) (Brazil) Ahmed Sadoudi Tanwir Ali Agha (Algeria) (Pakistan) 389 Directors Alternate Directors Tom Scholar Rosemary B. Stevenson (United Kingdom) (United Kingdom) Mario Soto-Platero Roberto Garcia-Lopez (Uruguay) (Argentina) Pieter Stek Tamara Solyanyk (The Netherlands) (Ukraine) Bassary Toure Paulo F. Gomes (Mali) (Guinea-Bissau) Chander Mohan Vasudev Akbar Ali Khan (India) (Bangladesh) Pietro Veglio Jerzy Hylewski (Switzerland) (Republic of Poland) Zhu Guangyao Wu Jinkang (People's Republic of China) (People's Republic of China) 390 OFFICERS OF THE BOARD OF GOVERNORS IBRD, IFC AND IDA AND JOINT PROCEDURES COMMITTEE FOR 2002­2003 OFFICERS Chairman . . . . . . . . . . . . . . . . . . . . . . Switzerland Vice Chairmen . . . . . . . . . . . . . . . . . . Chad Thailand Reporting Member . . . . . . . . . . . . . . . Pakistan Benin Brazil Cambodia Chad Cyprus Denmark France Germany India Japan Luxembourg Malawi Pakistan Portugal St. Kitts and Nevis Saudi Arabia Swaziland Switzerland Thailand United Kingdom United States Uruguay Venezuela 391 OFFICERS OF THE MIGA COUNCIL OF GOVERNORS AND PROCEDURES COMMITTEE FOR 2002­2003 OFFICERS Chairman . . . . . . . . . . . . . . . . . . . . . . Switzerland Vice Chairmen . . . . . . . . . . . . . . . . . . Chad Thailand Reporting Member . . . . . . . . . . . . . . . Pakistan Benin Brazil Cambodia Chad Cyprus Denmark France Germany India Japan Luxembourg Malawi Pakistan Portugal St. Kitts and Nevis Saudi Arabia Swaziland Switzerland Thailand United Kingdom United States Uruguay Venezuela 392 THE WORLD BANK GROUP Headquarters 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. Telephone: (202) 477-1234 Facsimile: (202) 477-6391 Website: www.worldbank.org Cable Address World Bank: INTBAFRAD IFC: CORINTFIN IDA: INDEVAS MIGA: MIGAVEST