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Statement Joint Session IMFC / DC April 29, 2001
Eveline Herfkens
Minister for Development Co-operation
The Netherlands

Introduction

This Joint session once again shows our commitment to the fight against poverty. The Highly Indebted Poor Country (HIPC) initiative and the Poverty Reduction Strategy Paper (PRSP) process have changed the shape of our development efforts. Every issue on the development agenda has a new dimension: how does it relate to the nationally owned strategies, the PRSPs? Now that the first countries have completed their Poverty Reduction Strategies, implementation issues have become more urgent. One of the most pressing among them is harmonisation of donor procedures and operational policies with recipient country budget systems. The international community, including the Bank, should make a stronger effort to achieve harmonisation, which is essential to enable countries to implement their PRSPs. A good illustration of ongoing efforts is the Strategic Partnership for Africa (SPA) conditionality pilot for Burkina Faso in which the donors and World Bank are exploring the use of a common set of conditionalities for program support.

The HIPC initiative has contributed to mobilising resources for poverty reduction. In addition, looking beyond debt relief, there is now a stronger emphasis on promoting long-term debt sustainability. This points directly to the importance of trade expansion by developing countries. I am delighted that issues related to expanding exports and reducing external vulnerability (terms of trade shocks) are now firmly on the agenda. And I am committed to keeping these issues on the agenda even after HIPCs have been relieved of unsustainable debts.

PRSP Progress

I am pleased with the PRSP progress report with its practical focus on crucial aspects of the PRSP process. The information and progress on building partnerships with the EU, UN and others are very encouraging. I welcome the reference to the Utstein mission, since this was an important event in the ongoing policy dialogue with the Bretton Woods Institutions. The mission concluded that we need a stronger focus on pro-poor growth, crosscutting issues like environment, gender and trade, and on involving all development partners in implementation. I also welcome the work done by the Bank and Fund and further steps to strengthen the PRSP process, in particular the priorities of strengthening public expenditure management, tracking poverty expenditure and social impact analysis. Apart from Bank and Fund efforts I want to acknowledge the contributions of other agencies to promote the PRSP process. The Economic Commission for Africa (ECA) has played a particularly positive role in stimulating the `African voice' in the debate by providing an open platform for African leaders and International Financial Institutions to discuss the PRSP process. The PRSP has become the leading framework for development interventions. I emphasise the word framework: the PRSP is not a document, a snapshot of policies, developments and plans that will be outdated as soon as the first interventions bear fruit. No, the PRSP provides a framework and the implementation of PRSP is a process. During the process, results and failures will have to be ploughed back into the strategy.

To illustrate this I refer to the declaration on the Education for All goals formulated a year ago in Dakar. We all affirmed that gender inequalities in primary and secondary education will have to be overcome by 2005. I am afraid that specific projects and programs for girls' education will not be enough to reach this goal. Priorities like these need to be reflected in countries' PRSPs.

I consider the Joint Staff Assessment (JSA) guidelines extremely important. The JSA will help appraise PRSPs from the perspective of the Bretton Woods Institutions. It will set the agenda for lending, technical assistance and a policy dialogue with the country. This dialogue is not necessarily limited to the scope of the PRSP: it is the forum to which Bank and Fund bring their experience, their lessons learnt and best practices. I want to stress how important it is that trade issues are incorporated in the JSA as well. Moreover, I urge the Bank to cover sustainability concerns in the JSA, as environmental and natural resource degradation have a clear impact on poverty in developing countries. I welcome the inclusion of gender, and look forward to a strong World Bank gender strategy to back up the commitment to support countries.

Now that there are four full PRSPs, it is appropriate to start addressing implementation issues. I would like the Bank and Fund to take action on weaknesses, which affect the implementation of the Poverty Reduction Strategy, first of all in the field of institutional capacity. I welcome the Bank's recently introduced PRSC to support the structural and institutional reforms as envisaged in the PRSP. The PRSC is intended to be complementary to the PRGF and this should be reflected in the conditionality. I am also pleased with the significant achievements made in embedding PRGF programs into PRSPs, in particular by making budgets more pro poor, and in promoting greater transparency and accountability in budget processes. I am encouraged by the IMF's efforts to apply greater flexibility in fiscal programming in the sense that external flows will now be taken into account when determining the maximum budget deficit target, while safeguarding fiscal sustainability. One area requiring further work is the ex ante poverty impact analysis of proposed structural policy measures. Progress in this area is important to help countries make difficult policy choices to achieve maximum poverty reduction impact.

I would like to make a final remark on the PRSP as a basis for bilateral aid. I strongly believe that the PRSP context requires a change in behaviour by the donor community. We need to transform aid relations in such a way as to shift away from projects toward programmatic support, based on mutual obligations between recipient countries and donors. The ECA has made a successful and inspiring attempt to formulate a new approach to donor-recipient relations in its Compact for African Recovery. This Compact shows clearly the two sides of the `deal': when recipient countries have done their `homework' in terms of good governance and pro-poor policies, donors need to respond with greater flexibility and longer term commitment of aid flows. I appeal to other governors representing donor countries to reflect on their aid modalities and ensure that their aid facilitates the implementation of the Poverty Reduction Strategy. I appeal to the Bretton Woods Institutions and the countries themselves to enable the best possible participation in the implementation process by all development partners.

HIPC Progress

Now that 22 countries have reached their decision point, the international community faces the challenge of integrating new (mainly post-conflict) countries in the HIPC Initiative, while simultaneously ensuring that current HIPCs reach their completion point. This requires a concerted effort by everyone.

I believe the International Financial Institutions should play a supportive and co-ordinating role, for instance by providing financial resources and technical assistance in the fields of public expenditure management and financial accountability. To sustain last year's achievements, it is essential that sufficient financing is available with equal burden sharing between creditors. The Netherlands is at the moment still by far the largest cash contributor to the HIPC Trust Fund and I urge other donors to provide their share as well. I am willing to consider additional contributions to the HIPC initiative if the burden is shared more equally among donors.

To help prevent unsustainable debt positions from re-emerging, developing countries must diversify their exports and reduce the economy's vulnerability to external shocks. Given the long-term financing needs of HIPCs, they need to be able to rely on sufficient concessional finance. I am pleased that several countries have recently increased Official Development Assistance as a percentage of GDP. At the same time, it is unfortunate that the number of countries adhering to the international target of 0.7 percent is still small. Just as crucially, developed and middle-income countries need to further liberalise their markets to enable low-income countries to enjoy the benefits of export-led growth. In this regard, I fully support the European Unions' recent decision to open the European market for exports from the least-developed countries, although this is only a first, small step. Trade-related technical assistance is crucial to enable HIPCs to benefit to the full from market-opening initiatives, from WTO membership and trade agreements, and ultimately from the HIPC initiative itself.

Assistance to Post-Conflict Countries and the HIPC Framework

Like the Bank and Fund, I see a role for the Bretton Woods Institutions in assistance to post-conflict countries. They can provide the required technical assistance in formulating economic recovery programs. Also, I see a facilitating role for them in finding flexible solutions for arrears clearance and actual debt relief for those countries clearly committed to a stabilization and reform process. Actual debt relief should be provided along the lines of the agreed financial frameworks of the Bretton Woods Institutions and the HIPC initiative. Another financial question is the financing of post-conflict activities. I believe that grants should in principle not be provided by the World Bank (the International Development Association - IDA) but by UN agencies and bilateral donors.

Post-conflict situations usually have a clear political dimension, and unlike UN institutions like UNDP, the Bank has neither the experience nor a mandate in the field of socio-political reconciliation. Therefore the Bank's activities in post-conflict countries should be based on good co-operation and co-ordination with, first of all, the UN system and, secondly, with the IMF, the regional development banks and bilateral donors; The Bank should not always be the central pivot when it comes to restoring development. I do however support the Bank's timely involvement in the Disarmament, Demobilization and Reintegration programs.

Market access and Development

It is obvious that I find few issues so crucial to the development agenda as trade. I see the beginning of a shift in the Bank's priorities, following the acknowledgement that in the recent past it has not done enough in this area. The Bank now sets the right priorities at the national, regional and international level. I welcome the recognition of the concerns of developing countries with regard to an anti-development bias in the multilateral trade system, for instance with respect to services and standards. Expanding trade is the way for developing countries to escape the aid dependency trap. Unfortunately, not all low-income countries fully appreciate the need to develop more ownership and greater independence from external finance. However I am pleased that market access is firmly on today's agenda.

The Bank and the Fund should put trade at the centre of the policy dialogue with the country and assist in developing pro-poor trade strategies as part of the PRSP process. This is why I regret that the current JSA guidelines for PRSPs hardly mention trade policy as a criterion for assessment. If the JSA is indeed meant to be the basis for Bank involvement in the country in terms of financial assistance and policy dialogue then trade should explicitly be covered in the JSA.

One specific area of national trade policy, which is of the utmost importance, is trade-related infrastructure. For many countries, in particular the least developed, the immediate bottlenecks to trade expansion are supply-side constraints and not market access. Considering its mandate, the Bank is the most appropriate partner to provide funds for transport networks, telecommunications, energy infrastructure etc, but I regret that it seems reluctant to play this role. The Bank and Board members should realise that many of today's donors were once borrowers who benefited from World Bank loans, especially for infrastructure.

A stronger focus on trade in country operations should be promoted through the Bank's internal incentive structure and budget: Country Assistance Strategies (CAS) need to reflect the trade-for-development objectives; Country Directors will have to be guided, supported and held accountable for addressing trade; more staff need to be involved; and resources need to be allocated from the Bank's budget (perhaps even with earmarked funds). This also implies that more than a few pilot cases within the Integrated Framework will have to be covered. We now have a window of opportunity to support many countries in their first PRSP, and it should not be wasted.