FROM THE OFFICE OF PUBLIC AFFAIRS

We meet today in an environment of relative economic stability, with generally low interest rates, steady economic expansion in most developed countries and strong growth in many dynamic developing markets. All of this provides enormous opportunities to help reduce global poverty and encourage sustained growth. Increased global interdependence, through liberalized trade and investment policies, also can contribute to accelerated growth.

Yet, while some general conditions are favorable, fundamental development challenges remain. In particular, we must focus increased attention to working with countries and regions where growth has lagged and where millions remain trapped in poverty. Sound financial and economic policies, including development of human resources, are critical to creating an environment conducive to private sector growth and environmental sustainability. In addition, great challenges exist in reconstruction in areas such as Bosnia, Haiti and West Bank and Gaza, where we need to support efforts to foster the stable, broad-based economic opportunities that will cement lasting peace.

The International Financial Institutions are uniquely placed to promote the sound policy environment needed to build a durable and equitable prosperity. The Development Committee should reinforce these efforts by supporting actions that address constraints to progress in poor countries committed to economic adjustment -- such as the HIPC initiative -- and by challenging the institutions to continually improve their development effectiveness.

Replenishment of IDA Resources

The International Development Association is a critical element in integrating the poorest and least creditworthy countries into the global economy. IDA’s traditional role provides the underpinnings of sustainable development through essential health, education, and basic infrastructure programs. In recent years, IDA has become the lead agency for promoting market-oriented policy reform, including trade liberalization, privatization and financial sector reform, in these countries.

The United States has strongly supported IDA for more than 35 years. This Administration is committed to continuing this support and is making every effort to obtain funding to meet our financial commitments. As you know, the President’s FY 1997 budget request included $934.5 million to clear fully outstanding U.S. commitments to IDA 10. While this Adminstration has worked to broaden U.S. support for the critical work of the MDB’s, obtaining funding for international programs has been increasingly difficult. At our meeting last Spring, I indicated that the procurement restrictions contained in IDA’s Interim Trust Fund made obtaining funding even more difficult this year. This has proven more true than I had expected.

Despite our efforts, the funding that Congress now seems likely to approve -- $700 million in FY 1997 -- will not come unconditionally. These funds will not be available until March 1997 and our Congress has indicated that if the Interim Trust Fund remains as currently structured, future U.S. funding for IDA 11 will be at risk.

We therefore urge donors to the Interim Trust Fund to remove the procurement restrictions. These restrictions do not serve the interests of IDA’s borrowers, nor do they provide an incentive for continued U.S. participation. We fully understand the importance other donors attach to equitable burden sharing ; but they need to understand that these restrictions have been counterproductive and they seriously jeopardize our ongoing ability to contribute to IDA. I hope that this issue can be resolved so we can focus exclusively on how best to address the pressing development needs of IDA borrowers.

The serious development challenges faced by IDA countries make it all the more important that IDA sharpen its focus on achieving results on the ground and on adapting to lessons learned from development experience. IDA resources must concentrate on the poorest and least creditworthy countries and increasingly direct scarce resources to countries that demonstrate a real commitment to sound policies, private sector development and sustainable growth.

Heavily Indebted Poorest Countries (HIPCs) Initiative

We strongly support the significant progress that has been made over the past two years in examining the problems of the heavily indebted poorest countries. It has been clear for some time that even after undertaking appropriate adjustment and reform measures and receiving bilateral debt relief, a few countries continue to have debt burdens that are not sustainable and that jeopardize their long-term economic prospects. We now have the comprehensive framework required to address the debt problems of these countries by reducing on a case-by-case basis debt burdens to manageable levels, reinforcing the development efforts of good performers and strengthening incentives for appropriate macroeconomic policies.

We welcome the IMF and World Bank support for the proposed HIPC program of action. A particularly important development has been the recent IMF Executive Board consensus on a permanent continuation of the ESAF as the vehicle for its contribution to the HIPC initiative. We strongly support the agreement reached to allow immediate financing of its participation in the HIPC initiative. The World Bank has also agreed to set aside $500 million as an initial contribution, and President Wolfensohn has announced management’s readiness to recommend a total contribution of up to $2 billion.

We are pleased with the Paris Club’s readiness to go beyond Naples terms in providing debt reduction of up to 80% in the context of the comprehensive effort to assist the HIPCs.

It is critical that other multilateral development banks now finalize the details of their own participation in the initiative and develop sources of financing by the end of the year. The HIPC initiative, combined with strong policy reforms, will help put some of the world’s poorest countries on a sound footing for future development and growth. Once debt payment sustainability is attained, it must be maintained through sound policies.

World Trade Organization

Director General Ruggiero’s participation in the Development Committee here this week is emblematic of the new relationship between the WTO and the international financial institutions. The World Bank and International Monetary Fund have supported extensive trade liberalization in many of their member countries during the second half of the 1980s and into the 1990s. This progress was consolidated and complemented by other market opening and agreed rules in the Uruguay Round. This agreement is unprecedented in its scope and in the mass of nations participating, and it should continue to buoy the world economy for years to come.

The Singapore Ministerial is obviously important to the fulfillment of the potential of the WTO. It launches a new system of regular ministerial-level meetings which reflects higher political attention being given to the world trading system. We will work with the other WTO members at the Singapore Ministerial to provide political guidance for the WTO’s work program.

World Bank Group Priorities

The next few years will be critical for the countries of Eastern Europe, the former Soviet Union, Africa, Latin America and Asia which are seeking to adopt sensible economic policies that promote free markets and democracy. The World Bank Group is uniquely placed to provide the policy guidance and financial support needed to promote growth, structural reform and social progress. Budget constraints on the part of donors, new challenges in transition countries, urgent and complex needs in post-conflict countries, and new crises in the form of epidemics, including AIDs, civil conflict and natural disasters, make the work of the World Bank more difficult, but as important and necessary as ever. We continue to see in such situations as Bosnia, Haiti, and the West Bank and Gaza, that the Bank can and does quickly respond to make an important difference in people’s lives.

Development Effectiveness. We welcome and support the commitment which President Wolfensohn and his staff are demonstrating to increase the effectiveness of the Bank and ensure that it remains a center of professional excellence. We are in full agreement that the value of the Bank’s contribution to its clients depends on results on the ground. We already have, in the World Bank Group, an independent evaluation system that is self-critical and self-challenging, and which provides a strong base on which to build and learn from experience. The development of clear, specific and monitorable performance indicators is key to this process. As noted in Mr. Wolfensohn’s statement to the Committee, mechanisms must be in place to address project problems before it is too late and to ensure mistakes are not repeated.

Fiscal Priorities. It is critical for the World Bank, the IMF and the donor community more broadly to emphasize strongly the vital issue of the quality of fiscal choices being made by borrowers. Spending far more on subsidizing loss-making state enterprises than on priority health and education programs is fundamentally at odds with sound development policy. So, too, is excessive military spending. The institutions need to deal squarely with these priority issues, developing clear data on the scope of the problem and charting sensible and affordable alternatives. More generally, development institutions should base lending on each country’s commitment to comprehensive reform strategies.

Private Sector Development. As we all recognize, private sector development is the key to self-sustaining economic growth, even in the poorest countries. The World Bank Group has a vital dual role in encouraging the policy reform necessary to enable the environment for private enterprise to flourish and in using its resources to catalyze private financial flows. These institutions must think creatively and press strongly to achieve the critical financial sector reforms necessary for private market development, particularly in emerging economies. In addition, direct private sector lending should focus more keenly on projects that provide a demonstration effect and target underserved areas, including micro enterprise lending in poorer countries. We welcome the efforts the Bank has undertaken to strengthen and coordinate its policies and many activities to support the private sector, and support ongoing efforts to develop innovative ways to make its guarantee instruments more effective.

Transparency. We welcome ongoing efforts in the World Bank Group to increase the transparency and accountability of its operations. Informed participation in the development process is only possible when information is available to the Bank’s beneficiaries on the ground, during the earliest stages of program and project preparation. In particular, we encourage the Bank Group to find ways to make more non-confidential information on Country Assistance Strategies and its private sector investments.

Sustainable Development. More than ever before, the Bank is poised to provide intellectual and financial leadership on sustainable development issues. We recognize and applaud President Wolfensohn’s strong personal commitment to strengthen the Bank Group’s ability to promote sustainable development in its borrowing countries. The latest example of this commitment is the new Greening the World Bank initiative. At the same time, it is too soon to congratulate ourselves when so many social and environmental challenges remain. In this regard, we are strongly concerned by the findings of the recent OECD report on the effectiveness of environmental assessments. The Bank needs to take strong action to address the weaknesses identified by the report and to implement its recommendations. We also urge the bank to remain on the cutting edge of efforts to increase the impact of programs on the poor, safeguard and promote internationally recognized workers’ rights, and ensure economic opportunities for women.

Bribery and Corruption. It has become increasingly clear that bribery and corruption undermine good governance and the effective use of scarce aid resources. It is also clear that this is an area where more intensive MDB engagement could be enormously constructive. Last year, we supported the Development Committee Task Force’s recommendations that the MDBs should coordinate procurement policies and rules, and harmonize them to the highest standard. We applaud the significant revisions that the World Bank has made to strengthen its procurement guidelines, and we urge all of the MDBs to work collaboratively to establish uniform rules, to require the use of standard bidding documents, and to have strong headquarters oversight of the procurement process.

Conclusion

The budget environment of major donor countries, ongoing public scrutiny of the international financial institutions and demands for increased accountability are a fact of life. While great potential exists for global sustainable development, some countries continue to lag behind. International coordination of assistance is critical to allocate limited resources and obtain the maximum leverage to encourage appropriate economic and financial policies.

The United States recognizes the benefits, including to our own welfare, of broad-based global economic growth. The international financial institutions are critical to seeing that this growth is realized in the poorer and riskier parts of the world. This Administration is committed to maintaining ongoing U.S. leadership in this arena, will make every effort to provide maximum U.S. financial support, and looks forward to working closely with the World Bank and regional development banks to maximize their impact on sound development.