FROM THE OFFICE OF PUBLIC AFFAIRS

As we approach the 21st Century, we are well positioned to reduce global poverty and encourage sustainable growth. The global economic environment is relatively stable, with generally low interest rates, steady economic expansion in most developed countries and strong growth in many dynamic developing countries. There is broad acceptance among policymakers of the importance of a sound policy environment, including macroeconomic stability, as a precondition for economic growth.

But the challenges of development remain enormous. Not all countries are experiencing economic growth nor benefiting from increased private capital flows. Further, not all segments in society are sharing economic gains. In many countries, reforms are hampered by weak institutions, poor governance and the lack of a strong legal and regulatory framework. And heightened budget scrutiny as well as budget deficit reduction objectives in donor countries are constraining assistance flows.

In our view, a key objective for the Development Committee should be to heighten the effectiveness of development assistance. The United States wants to work in partnership with the World Bank and the International Monetary Fund, the rest of the donor community and recipient countries to meet the challenges for economic development and to help create a shared prosperity.

Development Cooperation

For this reason, we welcome the opportunity today to discuss strengthening support for development cooperation as a means for maximizing the benefits of aid. Declines in official development assistance make it all the more important for the donor community and recipient countries to work together to ensure adequate and well-targeted assistance for those countries which have the greatest need and can use the assistance most effectively. Development assistance cannot overcome bad policies and can never substitute for internally generated resources.

Recipient governments must establish a sound policy environment that includes the rule of law free from arbitrary actions, a non-distortionary policy with macroeconomic stability and an environment that encourages private sector initiative and the broad participation of civil society. Priority must be given to the needs of poorer segments of the population, to environmental sustainability and to the human resources investments needed for self-sustaining and equitable growth. On the other hand, excessive military expenditures and subsidies for inefficient state-owned enterprises should be substantially reduced.

The World Bank and the International Monetary Fund are uniquely positioned to encourage the necessary policy environment for economic development and an equitable distribution of benefits. And we, as bilateral donors, should seek to re-enforce policy reform through our bilateral assistance. We would expect that, as sound policies are implemented, foreign and domestic investors will respond, mobilizing more resources than are available through development assistance.

To maximize the benefits of assistance, we would urge the World Bank to concentrate its support on helping low-income countries that are demonstrating a commitment to sound economic policies and poverty reduction. This approach is consistent with the World Bank’s Strategic Compact and with its efforts to help heavily indebted poorest countries and reforming governments in Africa and elsewhere.

Assisting Reform of the State

Africa Programs: This past year has seen a substantially increased focus on Africa -- both within the World Bank and other institutions, and among the G-7 and other donor countries. Within my own government there is a recognition that the time has come to take our economic ties with Africa beyond our traditional emphasis on assisting nations in need. While well-targeted aid can provide an essential support to reforming countries, by itself it is not enough. We must move on to forge new, mutually beneficial trade and investment relationships that will encourage private sector-led growth in Africa, as they have elsewhere around the globe. A key development priority for the nations of Africa is to be integrated much more effectively into the world economy, and all of us -- African and non-African alike -- can make an important contribution to that effort.

New initiatives must acknowledge the bold reforms already taking place in many countries of Africa, and the initiatives these countries are taking to strengthen the reform process throughout the continent. We strongly support the Partnership for Capacity Building launched by the African Governors of the Bretton Woods Institutions which aims to strengthen the institutional capacity and development of human resources in African countries on terms that African governments will design and carry out.

The experience of successful reformers all over the world makes clear that certain actions will contribute to sustainable growth and balanced development. These include support for expansion of the private sector, rather than preserving inefficient state-run industries; fiscal and monetary discipline characterized by wise spending choices; a flexible exchange rate; a solid market-driven banking system; an effective legal system; openness to trade, which brings with it improved efficiency, investment, technologies, and competitiveness; and investment in people through better education and health care. Finally, democracy is not only necessary in its own right, it contributes greatly to economic growth by fostering transparency, accountability and the rule of law.

There are a number of steps that those interested in Africa’s development also should take to support African reformers. My own government is committed to fully funding our obligations to the World Bank, IMF, and other international institutions, whose roles are perhaps more important in Africa than in any other part of the world. We welcome these institutions’ proposals to provide enhanced financing for those African countries willing to undertake exceptionally bold reforms in the areas of trade liberalization, governance and support for the private sector. Second, we will continue to provide leadership in relieving unsustainable levels of debt for African countries that have demonstrated a commensurate dedication to reform. Third, we and Africa’s other trading partners must work to ensure that all of our markets are open to Africa’s exports. Fourth, we will work to utilize fully our own trade- and investment-promotion programs and find creative ways to make them work well in Africa. And finally, there is a need for more effective and sustained policy dialogue with Africa’s reformers, both to support their efforts and to spread word of their successes.

Corruption: There is a growing consensus that corruption is a key development issue. Corruption undermines good governance and the effective use of scarce aid resources. In more severe cases, it can seriously undermine the economic, political and social development of a country. Corruption not only diverts resources from productive purposes, it undermines credibility and encourages corruption by others. When governments are corrupt, the private sector, wary about governmental enforcement of the rules of the game, becomes more cautious about investing, particularly in long-term projects. We are pleased that corruption is now firmly on the international development agenda.

We urge the multilateral development banks (MDBs) to translate their public statements into specific, concrete steps forward. The MDBs can and should make a significant contribution by supporting stronger, more transparent public sector financial management; promoting reforms in legal, judicial, civil service, tax and banking systems; improving public sector procurement regulations and laws; requiring company anti-bribery pledges by bidders; and increasing public participation in project identification and implementation. Withholding funds for specific projects, programs, or contractors is a necessary recourse when there is clear evidence of corruption.

To decrease opportunities for corruption and to increase the efficient use of development funds, we also urge the World Bank and the regional development banks to move quickly on the Development Committee Task Force's recommendations that the MDBs coordinate procurement rules. We applaud the significant revisions that the World Bank has made to strengthen its procurement and consultant guidelines. We request all of the MDBs take immediate action to establish uniform rules harmonized to the highest standard, to require the use of standard bidding documents, and to have strong oversight by headquarters of the procurement process.

Corruption also undermines the integrity and efficiency of macroeconomic policy programs. Therefore, we also welcome the effort by the Managing Director of the IMF to strengthen the Fund’s focus on good governance and anti-corruption initiatives. The increasing recognition that corruption has adverse effects on economic performance suggests that these issues should be addressed as a routine matter in Fund country reviews and documents as necessary. We welcome IMF efforts to develop operational guidelines for the role of the Fund in governance issues. In addition, we believe that by cataloging cases in which corruption or other poor practices have undermined adjustment, the Fund could begin to distill a set of best practices and develop parameters for determining when the Fund might appropriately undertake specific governance reviews of individual countries.

I also want to note that key decisions on corruption and bribery soon must be taken in the OECD. The Bribery Working Group in that institution has completed a year of very valuable work on a recommendation for criminalizing bribery of foreign officials. I call on all of my OECD colleagues to step forward at next month’s ministerial meeting and support criminalization. I also urge all countries that continue to extend tax deductibility to bribes to act expeditiously to eliminate that practice, consistent with the recommendation of the OECD ministers in 1996. We need to set an

example in the fight against corruption and an obvious first step is the elimination of a practice that constitutes effective subsidization of bribery and its harmful influence on economic development and growth.

HIPC: We stand today on the threshold of a new beginning for poorest countries with severe debt burdens. Last fall we agreed on an initiative that would assure sustainable debt burdens for all of the poorest countries -- but much work remained to be done to set the HIPC debt initiative in motion. Today, we can celebrate our agreement on the first eligible country -- Uganda -- and the commitment of the key multilateral and bilateral creditors to establish the mechanisms that will make coordinated global debt relief a reality.

This is no small achievement. Debt relief on this scale is technically complex, and involves numerous parties, each with their own views of the best way to proceed. This is to be expected. Working through our differing perspectives, and coming up with a common agreement on how to proceed, is part of the process. Discussions on criteria, timing, mechanisms, and the degree of interim and final relief are central to making the initiative work. We must share a common understanding of what we are about before we can move briskly ahead.

The IMF and World Bank have established the mechanisms, and committed the initial funds, through which they will operate. Additional funds will be needed, and we are confident that they will be made available in the period ahead. The African Development Bank and Fund, also key participants in this initiative, have also pledged initial resources for their participation. The Inter-American Development Bank is now considering its mechanisms for delivering relief, and we expect it to be ready when the first Latin American country is determined to be eligible. Other multilateral creditors, as well as the Paris Club of bilateral creditors, are committed to this effort.

The Paris Club has already agreed on its relief for Uganda, and the mechanisms for cooperation with the multilateral institutions are being sorted out.

I would suggest that three fundamental principles should now guide our efforts:

(1) early relief, beginning at the point of eligibility, and continuing through the completion point;

(2) adequate relief, which assures a sustainable level of debt for all beneficiaries, and provides sufficient cushion against downside risks; and

(3) careful debt management with realistic new lending, as countries move beyond the completion point, to assure that excessive borrowing doesn’t again threaten their future prospects.

We anticipate firm decisions on additional countries in the months ahead, and to look forward to improved prospects for development, growth, and the reduction of poverty as this initiative takes hold.

Promoting the Private Sector

Addressing MIGA’s Financial Needs: After a relatively slow start a number of years ago, we are please to note that the Multilateral Investment Guarantee Agency (MIGA) is now providing political risk insurance, technical assistance and investment promotion services that is strengthen the private sector and encouraging needed investment in recipient countries. We strongly support the work of MIGA and understand that it will need additional financial resources in order to function effectively in the early years of the next century.

There are, however, viable near-term financial alternatives to a General Capital Increase. We believe that the Bank should transfer $300 million of net income to MIGA, in approximately equal installments over the next two - or at most - three years. Upon receipt of the first tranche, MIGA should begin raising its risk-to-assets ratio - probably in stages - from the current 3.5:1 level to the maximum 5:1 level specified by its Convention (charter). This would make the most efficient possible use of the existing capital base.

Such a financial strengthening should allow MIGA to play a larger role in promoting a greater flow of private capital to those countries now primarily dependent upon multilateral and bilateral aid. Although much depends upon the climate for private investment in individual countries, we look forward to a stronger role by both MIGA and the International Finance Corporation (IFC) in Africa and other regions with less developed private sectors.

Enhancing Private Finance: In recent years, we have seen ample evidence that strong financial markets play a key role in fostering the private sector and promoting investment. And we have seen the high cost of banking crises in terms of fiscal costs, lost economic growth and heightened macroeconomic stability. The international community has focused intently on this concern in the last year, with important work underway in various fora.

In this context, I urge the World Bank to enhance its efforts to strengthen financial systems in developing countries by taking an leading role in promoting sound, market-oriented financial markets, in strengthening supervisory regimes and agencies, in restructuring failed financial institutions and in developing financial and legal infrastructure. We look forward to Board consideration this summer of a joint World Bank and International Monetary Fund paper defining the institutions' respective roles in this area and setting out modalities for coordination. Because of the importance of strong financial markets for development and for the health of the global economy, this issue will remain high on the international agenda, including discussion by leaders at the Denver Summit.

Making the Strategic Compact Work

We are pleased that the Strategic Compact sets in motion a process for reinvigorating the World Bank by improving project quality and refocusing the development agenda on core issues, such as better governance, health and education and the environment. We believe that a realistic vision for the Bank that directs resources toward performing countries and complements the private sector could enhance the effectiveness of development assistance.

We hope that management and member countries can work together to identify ways to make the Bank a more efficient institution, including cutting costs by scaling back less effective operations, establishing a more flexible personnel policy and streamlining internal procedures. We should also consider increasing charges for assistance as improvements in services are achieved.

As approved by the Board of Executive Directors, the Strategic Compact is creating a process that will allow the Bank to evolve and to meet new challenges for development. This approach requires the active participation of member countries and management to monitor carefully and to adjust judiciously the implementation of the Strategic Compact. We believe that by working closely together we can achieve the ambitious objectives of the Strategic Compact.

Conclusion

Unprecedented public scrutiny of the international financial institutions and increased skepticism of the value of aid are causing us to examine closely our strategies for economic development and to seek demonstrable results. In our view, we can only be truly successful if we develop a partnership among the donor community, recipient countries and the international financial institutions.

I applaud the efforts of President Wolfensohn and his staff to strengthen the effectiveness and efficiency of the World Bank Group. And I want to assure the Development Committee that the United States remains fully committed to working closely with the World Bank and others in support of sound development and a more prosperous global community.