The tragic events of September 11 give renewed emphasis to our efforts to make the world a better and a safer place. The challenges are obvious: continuing and strengthening the fight against poverty; strengthening the global economy; and combating money laundering and the financing of terrorism. These challenges are reflected in the agenda of the IMFC, today, and the Development Committee, tomorrow. In each case an effective response requires close collaboration, driven by the spirit of mutual trust and confidence. We can draw on a growing, but still fragile, new asset: an international recognition of global interdependence. The recent events have underscored again the fact that we live in one world. In this environment, global governance and global institutions play a crucial role. The World Bank and IMF with their universal membership, provide a unique institutional setting to tackle the problems ahead. I would like to reiterate Horst's point that both Bank and Fund are ready, with your support and guidance, to take up their responsibilities.

The Outlook, Risks, and Vulnerabilities

Before September 11, the prospects for the world economy had already weakened, driven by a slowdown of activity in industrial countries. In the aftermath of September 11, the economic outlook has become still weaker and subject to significant risks, and investors and consumers have become much more cautious.

Against this background there is some evidence that the economic downturn will be deeper and longer lasting than expected. There will be a dramatic fall in trade, which is expected to grow by less than 2% this year, compared with 13% in 2000.

The events of September 11 have placed specific burdens and immediate pressures on several countries. First, the number of refugees and displaced persons will increase considerably. This will affect in particular Afghanistan and its immediate neighbors. Second, receipts from tourism are hit exceptionally hard because increased security concerns have limited travel. Tourism centers in the Caribbean, in Eastern and South Africa, in South Asia, but also in the Middle East will feel the impact particularly sharply. Third, increased risk aversion has led to a substantial reduction of financial flows to emerging market economies. At the same time, spreads increased significantly, with the greatest impact on those countries that have already been subject to financial pressures.

The steep drop in global demand will have a broad-based impact on developing countries. Their immediate economic outlook has weakened significantly. The dramatic fall in trade will be reflected in lower export receipts and in a further drop in commodity prices, which have deteriorated for the fourth year in a row. This will be felt in particular in those countries in Africa that rely heavily on agriculture and other commodities.

The Policy Response of the International Community

While these developments are darkening the short-term prospects and there remain many uncertainties, we all expect that - after some delay - the world economy will recover. Most industrial countries have responded to the weakening outlook by strengthening demand through monetary or fiscal easing. It may take some time until these measures have their impact, but the measures taken are helping to move the world economy in the right direction. The industrial economies must be vigilant and ready to act, because the risks of a severe downturn are real and there is room to strengthen this policy response if the weakening should turn out to be deeper than expected. In addition, many developing countries have improved their macroeconomic framework and launched crucial structural reforms by opening their economies and strengthening their institutions. A pick-up in global demand should immediately improve their economic outlook.

The situation calls for a broad policy response from the international community to help to bring the world economy back to a satisfactory growth path and to support those countries that are immediately affected by the recent events. Industrial countries, in particular Europe, Japan and the United States, have a responsibility to help get the world economy back on a sustainable growth path. Developing countries must continue in their efforts to strengthen their policy frameworks and institutions. But the global institutions must also help in four ways in dealing with the immediate impacts of September 11:

• We must put in place support mechanisms for countries that suddenly find themselves hosting large numbers of new refugees.
• We must support countries that are highly dependent on tourism and that have to bear the impact of September 11.
• We must continue and intensify our efforts to provide financial and other support for reform in the countries most affected by the shock to international capital markets.
• Finally, we must contribute to the international efforts to curb financial abuse and the financing of terrorism.

The Bank is cooperating closely with the IMF and other international institutions. In response to the changes in the world economic situation, Horst and I have emphasized in a joint statement our support to low-income countries. Together with our partners the Bank Group has been working with clients to assess the consequences for country programs and the ways it might best respond to help foster continued development and poverty reduction. Countries may need to rethink some aspects of their development programs and priorities. The Bank stands ready to support them both with analysis in assessing the impacts of the events on poverty and in identifying new vulnerabilities, and with financial assistance, where needed.

This assistance can and will take a variety of forms. We will be discussing the specific implications for the Bank and IDA at the meeting of the Development Committee tomorrow.

Sustaining Poverty Reduction in Low-Income Countries

Poverty may not immediately and directly lead to conflict, let alone terrorism. Yet we do know, from experience and research, that great desperation and a lack of opportunity can breed civil wars that spill over borders. Now, more than ever, our common goal must be to eradicate poverty, promote inclusion and social justice, to bring the marginalized into the mainstream of the global economy and society.

Weakening global growth, falling commodity prices, increased refugee flows, and loss of tourism earnings will adversely affect most of the world's poorest countries, and keep millions of people from climbing out of poverty. In economies that stall or fall into recession, the number of people living on less $1 per day will actually increase.

We have an agenda, and we should have an action plan. The actions of developing countries themselves are of course paramount in determining progress in the fight against poverty. International support for development will have only limited effects if governments in developing countries do not share the commitment to poverty reduction. Countries must help themselves through well-designed development strategies, as well as reform to policies, institutions, and governance. But that is not enough; even with the right policies in place, many countries will fall short if they do not receive greater international support. I suggest the following four priories for international action:

First, promote better policies and governance in developing countries. As uncertainty and the economic downturn reduce private sources of funds, it is more important than ever that developing countries accelerate reforms to improve their investment climates and to enable poor people to participate in the process of growth. If it supports such reforms, additional financing from the international community will be a real help in implementing pro-poor programs and encouraging private investment.

Second, reduce trade barriers. Now more than ever, we must support the new WTO negotiations and ensure that the next round is indeed a development round, motivated primarily by a determination to make trade an effective engine for poverty reduction and development. The new trade round must become a success. Horst and I have emphasized this in a joint statement. Trade liberalization could provide an additional cumulative income in developing countries of some $ 1.5 trillion over a decade and increase annual GDP growth in the developing countries by an additional 0.5 % over the long run. Rich countries must open their markets for the exports of developing countries.

Third, scale up foreign aid. This may be harder in an international economy that is slowing, but the needs and the stakes were never greater. Aid to Africa fell from $ 36 per person in 1990 to $ 20 today. It is Africa, a continent that today is making great efforts to improve, that may feel most sharply - particularly through reduced commodity prices - the poverty fallout of the terrorist attacks. We cannot let Africa fall off the map as we turn our attention elsewhere. If countries in Africa make their own efforts by sound policies in the framework of a coherent development strategy a doubling of ODA and high concessionality will be needed to support low-income countries if they are to reach the 2015 poverty goals.

Fourth, act internationally on global issues. This includes confronting terrorism and internationalized crime and money laundering, building an equitable global trading system, safeguarding financial stability, and protecting the natural resources and environment, and also combating communicable diseases like AIDS and malaria.

The Bank is ready to take a global lead in helping countries reduce the impact of September 11 on the poorest countries, in line with our mission to fight poverty, in close partnership with other institutions. We will be discussing this more fully at tomorrow's meeting of the Development Committee.

For the heavily indebted poor countries (HIPC), an important window of support is debt relief under the enhanced HIPC Initiative. This initiative is providing relief to 24 countries. We are committed to press ahead with the further implementation of the initiative, including bringing additional countries to their decision points as soon as country circumstances permit. We have also been concerned about the effects of exogenous shocks on the debt sustainability of HIPCs. In those cases where, at the completion point, we find that their debt sustainability may be jeopardized because of such shocks, we, together with the Fund, have now put in place the operational procedures to top-up their debt relief, if necessary. Debt relief will continue to be a key instrument, but it should not replace new development assistance and aid flows.

The support is based on country owned poverty reductions strategies. So far the Boards of the Bank and the Fund have endorsed 38 interim poverty reduction strategies (IPRSPs) and 8 full poverty reduction strategies (PRSPs). Bank and Fund staffs are cooperating closely in supporting these country strategies, which are increasingly used as a basis for wider donor coordination.

Combating Money Laundering and the Financing of Terrorism

Money laundering and the financing of terrorism is a problem of global concern, and one that has an adverse impact on development. The September 11 events have demonstrated the urgent need for a more systematic approach to these problems.

The main focus of the Bank will be on helping countries strengthen their defenses against financial abuse and money laundering through enhanced support for capacity building. The Bank has been providing technical assistance to a dozen member countries on anti-money laundering (AML) issues. This number is expected to increase significantly as the Bank steps up its involvement with a specific focus on diagnostics, capacity-building, and training, building on work launched earlier this year with the IMF, which leads the AML efforts of the international financial institutions. Bank and Fund staffs are examining how the issue of the financing of terrorism could be reflected in the recently developed AML methodology, which is being tested in several countries and will become a standard feature in the Financial Sector Assessment Program (FSAP). Follow-up to FSAPs will include technical assistance, capacity building and training programs, particularly in the context of action plans for those countries that most need to upgrade their legal, judicial, and financial supervisory standards. The Bank is also developing a program to disseminate AML training materials to governments, central banks, other financial institutions, and nongovernmental organizations. It is expanding its staff working in this area.

The analytic and diagnostic work carried out by the Bank, other IFIs and donors provides the underpinnings for the AML efforts. Several elements of Bank economic and sector work are likely to be especially important in this respect. Country economic analysis, strengthened by FSAP diagnostics, will provide focus to follow-up work. Furthermore, under the Bank-Fund Reports on the Observance of Standards and Codes (ROSC) initiative, staff are collaborating with the Financial Action Task Force on Money Laundering of the Organization for Economic Co-operation and Development to develop an AML module that will complement other governance-related ROSC modules in the areas of accounting and auditing and corporate governance. In addition, the Bank is working internally and with borrowers to strengthen due diligence on country procurement and financial management systems, to help ensure that development funds do not inadvertently find their way to terrorist organizations. With this objective in mind, Bank staff is trying to advance the scheduling of country financial accountability assessments and country procurement assessments to the extent possible.

Coordination of Conditionality

Finally, I wanted to underscore the proposal that Horst mentions in his progress report on streamlining conditionality. Last year Horst and I set out a vision for the roles of the Bank and Fund and their enhanced partnership. To implement this vision, the Bank and Fund recently carried out a joint review of our collaboration, with the objective of better focusing our lending conditionality in close partnership with the country concerned. We have identified a number of proposals, building on the principles that have guided our collaboration in the past.

These proposals we are pursuing together are designed above all to simplify and streamline the conditions we attach to our lending. They will bring, therefore, major benefits to our borrowers. To achieve this streamlining in a cost-effective way, we are pursuing a clear allocation of lead responsibility between our two institutions for different issues, allowing each to focus on its core areas of expertise and mandate. Over time, the proposals may involve substantial changes in the way staffs of both institutions approach their tasks.