FROM THE OFFICE OF PUBLIC AFFAIRS

Introduction

This is an uncertain period for the international economy and for our efforts to promote economic and social progress in developing countries. Certainly the challenges to achievement of equitable and sustainable development around the world remain considerable, and provide a stern test for the Bretton Woods institutions.

The World Bank and International Monetary Fund, in collaboration with the regional development banks, must continue to play a central role in helping emerging market economies restore financial stability and lay the basis for self-sustaining growth. Equally, these institutions need to remain in the forefront of collaborative efforts to help the poorest countries reduce poverty.

I would like to recognize the staff of the Bank and Fund for the exceptional professionalism and dedication they have demonstrated in their mission to help member countries confront the enormously complex and, in many ways, unprecedented issues posed by the financial crisis, natural disasters, and other shocks.

In current circumstances, sustaining financial confidence -- and the flow of capital that confidence can bring -- is a crucial priority for the emerging market economies. We are encouraged by the actions many are taking to adopt needed structural and policy reforms, while at the same time helping to protect the most vulnerable. And we appreciate the quick responses of the Bank and Fund in supporting these programs.

Where countries have moved resolutely on reform, there has been considerable progress toward return to stability. However, much remains to be done. The conditions that gave rise to the crisis took a long time to develop and they will take time to work through. Now more than ever, support from the Bank and Fund is important to promoting the economic and social policy frameworks needed to revive and maintain the momentum of sustainable growth. As Ministers noted in our Communique last October, all countries must continue to build markets and resist protectionism.

We must also not let our focus on crisis response detract our attention from the development needs of our poorer member countries in Sub-Saharan Africa and elsewhere. While the last few decades have witnessed substantial improvements in living standards in most of these countries, poverty remains unacceptably high. In good policy environments, the Bank and Fund can and do make an important difference in improving welfare and promoting the common good. Their efforts merit our continued strong support.

I am pleased that the IDA-12 replenishment negotiations have been concluded successfully. The policies and priorities embodied in this "Partnership for Poverty Reduction" represent a sound and cohesive approach to delivering enduring development results on the ground. Full implementation of this important policy framework must be an on-going priority.

The Comprehensive Development Framework

The Comprehensive Development Framework outlines a promising new approach for guiding the Bank's role. This effort to improve lending effectiveness reaffirms much of what we have tried to emphasize over a period of years, including most recently, in the IDA-12 agreement. As in any new strategy, we and the Bank's other shareholders will only be able to assess the true promise of this initiative when we have had a chance to consider its full implications for the Bank's operations.

We all agree that there is no alternative to sound policies if there is to be sustainable progress in economic and social development. It is also clear that greater national responsibility and locally owned development strategies enhance prospects for success, and that the quality of bilateral and multilateral donor performance also affects development outcomes.

It is surely true that all donors need to strengthen performance both at the "quality at entry" stage of their projects and in their "implementation." This is an even more important point when borrowers themselves are largely responsible for implementation. In particular, donors and implementors need to:

• move quickly to adopt the "best practice" lessons of experience;

• work hard to ensure their processes are efficient and effective;

• selectively concentrate activities where they have a comparative advantage;

• ensure effective coordination among recipient governments, donors, and civil society; and

• develop viable country assistance strategies, monitor assistance, and measure the development impact of resources.

In this context, the holistic approach of the Comprehensive Development Framework makes good sense. We particularly like the CDF's integrated development strategy covering a broad array of sectors and the emphasis to be placed on more coordinated allocation of work among donors, and monitorable benchmarks to judge performance. We support a concept of joint ownership and full partnership. The increased transparency underlying the CDF should also foster much needed accountability on the part of recipient governments and donors.

At the same time, we need to recognize the operational challenges, particularly in the poorest countries where institutional and human capacity is weak. It is crucial that operational flexibility in no way undermine full implementation of Board approved policies, including the IDA-12 replenishment agreement, nor full accountability for results on the ground. There are no "short-cuts" to good policies and solid implementation.

We believe implementation of the CDF should proceed with a limited pilot program. A small number of pilot countries should be selected on the basis of an established track record of good economic performance, especially in terms of having in place functioning fiscal controls and publicly accountable governance structures. We favor the centrality of the Country Assistance Strategy to all operations, with the CDF firmly rooted into the performance and other criteria established in the CAS as called for in the IDA-12 agreement. We also recommend that CDF pilots have an evaluative framework and that an Operations Evaluation Department evaluation be undertaken before there is any Board decision to extend or expand the pilot program.

Good Governance

President Wolfensohn and Managing Director Camdessus have both shown real leadership in engaging their institutions to help member countries promote good governance and combat corruption. Corruption is one of the most serous impediments to effective economic management and sustainable economic development and we remain strongly supportive of active Bank and Fund programs to address the problem head on. It should be unequivocally clear that governance considerations and corruption are taken into account in allocating IFI resources, and that government failure to address the problem of systemic corruption will have important consequences. Certainly this linkage is central to the recently concluded IDA-12 agreement.

The IDA-12 agreement also made substantial progress to improve the openness and transparency of the Bank itself. The agreement specifies that Executive Directors have full access to the documents needed for the discharge of their functions, while ensuring that institutional and personnel confidentiality is protected. Management and the Executive Board are also to undertake a review to determine which Bank documents should be published in additional to those already publicly available. This crucially important and complex task, and its promise of greater openness, warrants priority commitment and attention. I hope that other members share my strong belief that providing greater public access to Bank documents, including all significant OED and Management reviews, will make the Bank a stronger and more effective institution.

As members will recall, I have in the past also urged the World Bank and the regional MDBs to move quickly in establishing uniform MDB procurement rules of the highest standard, require standard bidding documents, and establish best-practice fiduciary management of the procurement disbursement and audit process. An MDB working group has been engaged on the technical issues for several years. It is time to come to closure.

Going forward, effective operational and financial controls must be strengthened. Controller and Internal Auditing Department reports have identified weaknesses in the Bank's internal control functions which Management is now seeking to address. It is crucial that operations be managed in a way which reinforces and centralizes implementation and enforcement of fiduciary controls. I therefore recommend that the Bank's Controllers and IAD offices, whose resources are already stretched thin by demands of decentralization and systems renewal, be provided with the additional staffing and funding necessary to meet the legitimate expectations of shareholders.

The fight against corruption extends to other areas. We encourage all signatories of the OECD anti-bribery convention to ratify the convention. We also urge all OECD members to eliminate the tax deductibility of bribes and to support initiatives in the Export Credit Participants Group to formulate standard anti-bribery guidelines of all such agencies. The approval at the OECD Ministerial in a few weeks time of the OECD's new Principles on Corporate Governance is of major importance. The Asia crisis has underscored the need for reform in the corporate sector and we expect that the use of the OECD Principles as a base for building stronger and more effective corporate governance around the world can make a major contribution to economic stability and growth. Finally, we strongly support efforts to negotiate a multilateral agreement on transparency in procurement in the WTO.

Assistance to Post-Conflict Countries

Post conflict reconstruction is a high priority development issue. The special needs of poor countries emerging from conflict underscore the importance of a well-coordinated approach among all key partners, including the Bank and the Fund. We believe it is particularly important that the Bank and Fund be positioned to join with other partners in providing timely and effective assistance when such countries have achieved a reasonable level of political, economic and social stability. We need to be able to move quickly to provide the people of these countries with well-coordinated programs to restore a climate that provides opportunities for recovery and growth.

Last fall, the Committee agreed to explore ways to provide quicker and more effective assistance to post conflict countries, especially those with large and protracted arrears to multilateral institutions. We also agreed on the need for creditors to provide (and, where necessary increase) positive net transfers to those countries that are adopting sound economic and social policies.

We welcome Bank and Fund efforts to explore measures to enhance their post-conflict assistance. While we recognize the difficult financial policy considerations posed by arrearages, we do not believe that the existence of arrears should preclude the timely provision of Bank and Fund assistance linked directly to measures to stimulate economic recovery. The objective should be to achieve positive net transfers as soon as possible assuming recipient political, economic and social policy performance consistent with that needed to sustain recovery.

Both institutions have adequate mechanisms available to provide such assistance in ways that limit moral hazard and do not endanger their financial integrity. It is our view that they must be prepared to participate on a full and equitable basis in cooperative efforts to support post-conflict economic recovery, and we urge the Boards of each institution to act quickly to put in place the complementary policy framework necessary to achieve this. In this context, we believe the approach which the World Bank has outlined in the Progress Report is very sensible and merits strong support. We also support integrating the post-conflict efforts of the Bank and Fund, as well as those of other creditors, into the HIPC framework

Bank Group Cooperation with Regional Development Banks

The multilateral development banks have become the centerpiece of official efforts to spur development, with new loan and credit commitments just last year totaling more than $55 billion. Borrowers have a major stake in the wise use of such funds.

The Development Committee has long viewed strong cooperation among the MDBs and with the IMF as essential to efficiency and effectiveness. Complementary policies and strategies need to be shaped around development practices of the highest standard, with insights, best practices, and critical evaluations routinely shared and harnessed to increase development impact.

We welcome the report on Bank Group cooperation with the regional development banks and the progress toward the increased collaboration called for by this Committee's 1996 MDB Task Force Report. The report is also candid in noting the very real difficulties in deepening collaboration. The overall assessment of a "mixed record" conforms with our own judgment, based on a wide variety of different in-country experiences. While we have seen many instances of genuine collaboration on operational country and policy work, all too often, collaboration appears to be "pro-forma" with inadequate investment in a substantive dialogue and/or learning.

We regret that the progress report offers few concrete results nor a sense of serious enthusiasm for achieving meaningful efficiency gains. I note in particular that best practice uniform procurement rules and common evaluation methodologies have not been finalized; nor has the 1995 joint statement by the Heads of the World Bank and IMF, subsequently endorsed by the MDB Task Force, calling for increased collaboration in public expenditure work been given any real operational direction and impact.

While I do not underestimate the real challenges involved, I believe that we can and must do much better. The process for developing Country Assistance Strategies, as elaborated most recently in the IDA-12 report, provides major opportunities for substantially deepening in-country efforts. I would also strongly urge the MDBs to draw on their evolving experience to develop priority "best practice" approaches for wider replication. And I call upon MDB Managements and their respective Boards to prioritize collaboration in their day-to-day oversight of MDB policies and operations. In our view, there should be a strong pro-active commitment to deepen IFI collaboration along the following lines in order to project greater transparency, efficiency and accountability into assistance operations:

• Independent and transparent evaluation functions that harmonize evaluation procedures to the highest standard;.

• Transparent and independent inspection functions in all the MDBs;

• Joint country procurement and financial accountability assessments;.

• Joint country strategy preparation grounded in demonstrated comparative advantage and lessons learned, and assessments of the composition of borrowers' public expenditure, fiscal controls, and national procurement capacity.

• Joint World Bank/IMF Public Expenditure Reviews covering the full range of spending and taxation issues including the role of non-development, including military, spending; and

• Technical assistance to help countries to meet the standards set forth in the IMF's Code of Good Practice in Fiscal Transparency.

We urge regular reports be made to the Development Committee updating Ministers on the results of on-going efforts to achieve these important goals.

HIPC

We welcome the substantial progress which has been achieved under the HIPC initiative. As members are aware, we and others have made a serious commitment to improve and strengthen the development impact of the initiative. As President Clinton stated last month:

"Our goal should be that no country committed to fundamental reform is left with an unsustainable debt burden that diminishes its ability to meet people's basic human needs and to spur growth."

"We should provide extraordinary relief for countries making extraordinary efforts to build working economies."

Debt reduction is a technically complex and financially sensitive issue. We want to assure that the development efforts of those poorest countries committed to sound policies are not put at risk by unsustainably high debt service payments. But at the same time we want to ensure that the resources freed up by debt reduction produce lasting development benefits and contribute to an environment in which private capital and private risk taking can flourish. The President's debt proposal seeks to strike an economically sensible balance between these competing considerations.

The U.S. proposal focuses on strengthening the partnership between creditors and the poorest most heavily indebted countries. It builds on the proposals of other G-7 countries, but more importantly, it increases the incentives for debtor countries to strengthen and deepen economic and social reform. The more these countries take responsibility for sound economic policies that promote development, the more creditors should be willing to respond with greater relief.

• We are asking all creditors to join the Paris Club in providing cash flow relief in the interim period before the debt stock is permanently reduced at the completion point;

• We are seeking support for bilateral creditors to forgive all outstanding concessional loans and to increase non-concessional debt forgiveness from 80 percent up to 90 percent and, in exceptional cases, on a broader base of debt.,

• We also want to provide deeper debt relief by all creditors under the HIPC Initiative for exceptional performers; and

• To ensure that the debt overhang problem is not exacerbated further, we are seeking commitment by all bilateral donors to provide at least 90 percent of new assistance to HIPC countries on a grant basis.

One of the major advantages of the HIPC framework is that it addresses the debt problems of the HIPC countries in a comprehensive way with the participation of all recipient country partners. In this context, we look forward to working with other members of the international financial community with a view to timely consideration of the President's proposals.

Principles and Practices of Good Social Policy

The new financial architecture is not just about the financial system and macroeconomic policies that provide for broad based economic growth. It also requires attention to social policies which provide for the basic human needs of the most vulnerable members of society. These closely related objectives are at the heart of sustainable development. More recent experience has also highlighted the need for countries to be better prepared to deal with the special needs of the more vulnerable during crisis periods.

Spending choices can entail difficult trade-offs, particularly in constrained budget environments. However, our recent experiences in Asia and elsewhere have dramatically highlighted the crucial importance of up-front action integrating social sector priorities, including mechanisms to protect the most vulnerable, into national development strategies.

Lessons which we suggest we can begin to distill from the recent financial crises include the importance of:

• maintaining a fiscal framework which tries to protect core social expenditures at levels prior to the crisis, or at least not disproportionately reduced;

• designing means-tested programs for the poor and disadvantaged;.

• developing effective and targeted programs, including public works, for the most vulnerable;

• reinforcing good governance controls, especially fiscal transparency and accountability; and

• adhering to core labor standards.

We welcome the World Bank's efforts to distill a set of social sector principles, and commend the consultation process undertaken in the drafting of the paper. We strongly support continuing work by the Bank on this issue with a view to identifying practices and policies that are of particular relevance to core Bank competencies, and using them when helping countries develop social sector programs and policies. Bilateral donors can also use these practices and policies as a guide.

We support the World Bank and the regional MDBs committing a substantial portion of their lending resources to the social sectors, including assistance to help establish functioning social safety nets. It is also essential that the World Bank and the IMF increase their collaboration in this area. Both the IMF and the World Bank, when making decisions on the provision of resources and establishment of programs, should take into account whether funding is adequate for social safety nets and other targeted social programs. Furthermore, when preparing macroeconomic frameworks for a crisis country, the IMF should take into consideration the degree to which the prescribed fiscal stance provides for adequate spending in the social area. To provide support for work in the social sector, we believe there is a strong case for joint Bank-Fund preparation public expenditure reviews. There is also scope for close collaboration between the World Bank and the ILO to ensure that programs do not harm core labor standards.

Capacity building, within both the borrowing governments and key donors, also merits greater attention to help improve service delivery by strengthening sectoral and local institutions. In addition, careful analysis of fiscal transparency is essential to ensure that public resources are prioritized and expended for social programs.

Labor

The World Bank and the other IFIs have made progress in advancing respect for core labor standards, including freedom of association, the right to organize and bargain collectively, together with prohibitions against exploitative child labor, compulsory labor, and discrimination in employment. Most recently, as part of the IDA-12 Agreement, the World Bank adopted provisions that call for systematic analysis of key issues, including core labor standards, in the preparation of Country Assistance Strategies. The African Development Bank has also agreed to incorporate core labor standards into its sectoral and cross-sectoral analysis and in the preparation of Country Strategy papers. We urge the other MDBs to adopt similar provisions.

The IDA-12 agreement calls on the Bank to draw on the resources of the International Labor Organization (ILO), as warranted, in the preparation of country assistance strategies. The ILO Declaration on Fundamental Principles and Rights at Work, adopted in 1998 with no opposing votes, provides a basic reference instrument of almost universal acceptance, on core labor standards. We support the ILO Declaration and encourage the Bank and other MDBs to consult with the ILO an ongoing basis in the development and implementation of policies which seek to reconcile issues of economic efficiency with equity.

Bank Group Finances

We have a shared responsibility to safeguard the Bank's financial soundness and risk-bearing capacity. It is the Bank's high standards of financial integrity which over the last eighteen months have enabled it to provide exceptional support to help members restore financial stability. Financial soundness is also fundamental to the Bank's future ability to respond quickly and effectively to the evolving development challenges of our borrowing members.

I appreciate President Wolfensohn's initiative in engaging a Panel of External Advisors to review the Bank's financial structure. We agree with the Panel on soundness of the Bank's own systems for assessing portfolio risk, and share their views on the importance of both protecting the Bank's risk bearing capacity against stress events and maintaining its "AAA" rating.

While recognizing the Bank's very considerable capital resources, the Panel also suggests a number of possible options on how best to safeguard the Bank's future position.

Assessment of the options depends in large part on judgments on the prospects for the world economic environment and the potential future demands -- and inherent risks -- on the Bank's portfolio. There are encouraging signs in a number of crisis countries, which we welcome. If the financial crisis is successfully contained and economic recovery begins to take hold, this would increase the likelihood of a scenario under which the provision of emergency financial assistance diminishes steadily over the next year or so, with the bulk of the Bank's lending reverting to traditional project and structural adjustment operations. At the same time, we recognize that it will take time to restore growth momentum and that there are still significant downside risks in some major borrowers.

In this context of an uncertain environment, it is important for Management and shareholders to continue to monitor closely the Bank's financial situation. We need to maintain the Bank's future capacity to be able to respond quickly and flexibly to the evolving requirements of borrowing members. In considering the most appropriate ways to protect the Bank's financial integrity, we suggest priority consideration be given to the suggestions which the External Panel made for mobilizing additional support from within the Bank's existing resource framework.

Strengthening International Fora, including the Roles of the Development & Interim Committees

Work is underway on a broad range of potential measures to strengthen the international system in six areas: (1) strengthening prudential regulation in industrial countries; (2) strengthening financial sectors in emerging markets; (3) exchange-rate regimes in emerging markets; (4) private-sector involvement in crisis prevention and resolution; (5) strengthening the Bank and Fund; and (6) minimizing the human cost of financial crises.

With regard to the Bank and Fund, we are drawing on the lessons learned in meeting recent economic challenges to explore approaches which would delineate more clearly their respective missions and responsibilities, ensure closer collaboration, and establish more productive roles for the Development and Interim Committees.

The recent global crisis has highlighted the close interconnection between macroeconomic stability, the health of the financial sector, and structural reform particularly in the social sector. This underscores the importance of more effective collaboration to ensure clear complementarity between the programs of the Bank and Fund, and their partners in the regional development banks. Real and intensive cooperation is essential to make economic growth and social progress mutually reinforcing. This would suggest the roles of the Bank and Fund in the Development and Interim Committees be made more symmetrical.

We look forward to discussing this issue in more detail at the Chairman's luncheon.

Conclusion

The United States is committed to working with the World Bank and the International Monetary Fund to strengthen the coordination and effectiveness of the institutions and their ability to respond creatively to the evolving needs of their membership. Our goal is global stability and economic growth, shared equitably. We seek a stronger and more assured base for democracy and human rights with an active civil society and greater opportunities for the poor.

These are goals that are easy to prescribe, but difficult to achieve. Yet an increasing number of countries have better policies, with governments more committed to poverty reduction and reform than ever before. And we know that financial assistance in good policy environments produces growth, reduces poverty, and improves social well being. I am convinced we must maintain our forward momentum and continue our progress along these lines.