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Following is the text of the statement made by Finance Minister, Shri P. Chidambaram at the Seventieth meeting of Development Committee in Washington D C on October 2, 2004:
The Development Committee is meeting at a time when there are signs of resurgence of growth in the global economy, expansion of global output and increase in international trade. At the same time, the steep rise in oil prices, geo-political developments and the pressure on interest rates raise concerns about the risks and uncertainties with regard to the durability of the recovery. The outlook for capital flows to emerging economies is clouded by rising global imbalances and lack of sufficient fiscal and structural adjustment in the industrialized world. The continuing pressure on interest rates threatens to reduce international liquidity, putting pressure on capital flows to emerging economies.
Accelerating the international development agenda including reaching the millennium development goals (MDGs) by 2015 will require concerted action by all parties. The Global Monitoring Report and the background paper for this meeting indicate slow progress in meeting the financing needs and improving the trade prospects of developing countries. Achieving of MDGs will, of course, primarily depend on efforts of the developing countries themselves. But, aid can play a significant role as a catalyst, enhance the benefits of trade, and accelerate private investment and capacity building. The background papers presented to the Committee reinforce the view that substantial increase in aid can be effectively used across a broad range of countries. The paper particularly highlights the financing needs and the track record of effective implementation in low-income countries in South Asia. The high growth rates, improved macro-economic management, control of inflation, better management of debt, improvement in Country Policy and Institutional Assessment (CPIA) indicators, improved public expenditure management and improvements in service delivery, together with their focus on infrastructure point towards strengthening of performance in these countries and their absorptive capacity. It is ironic and unfortunate that at a time, when capacity for effective use of aid is increasing, aid flow is declining in real terms. The modest increase in global overseas development assistance (ODA) represents special purpose allocations based on strategic considerations rather than development needs and country performance. This poses a challenge to the work of the Committee, which after all, is designated as Committee for Transfer of Real Resources to Developing Countries.
The ongoing IDA-14 replenishment negotiations provide both an opportunity and a challenge to the international community for supplementing the financing needs of lowincome countries where the majority of the poor reside. IDA has demonstrated a proven track record for developmentally effective use of resources. A substantial stepping up in IDA-14 and its allocation for targeted achievement of MDGs will demonstrate the commitment of the international community to the achievement of global objectives.
The allocations should be guided by eligibility, need and performance. Any artificial capping of their allocations would significantly undermine the global efforts to achieve the MDGs. The achievement of MDGs cannot be left to the market forces alone. Their achievement will require public investments over long period on a sustained basis. While estimating a country’s capacity to raise funds for achieving the MDGs and deciding about the concessionality element of aid, the role of private capital flows to a country should not be over-emphasized.
We have noted with interest the innovative proposals in increasing ODA flows including the International Financing Facility (IFF) Proposal of UK and the global taxation proposals. We note that some progress is being made in refining the IFF, essentially amounting to frontloading of ODA resources. While proceeding with this proposal, we should rely on existing institutional mechanisms and avoid any further proliferation of funds and facilities with separate decision making structures. It also needs to be noted that even the IFF is unlikely to yield resources of the requisite magnitude, unless there is a substantial real increase in net ODA.
The central role of infrastructure in enhancing the growth prospects, accelerating poverty reduction and achieving the MDGs is well recognized. There is sufficient empirical evidence pointing to a clear linkage between infrastructure services and many of the MDGs. Infrastructure is also fundamental to improving the investment climate and expanding private sector activity. We had therefore, welcomed the Bank’s reorientation and commitment to increased lending in infrastructure. Last year we had welcomed the Bank’s new Infrastructure Action Plan, which promises Bank’s re-engagement and substantial scaling up of infrastructure lending after a decade of neglect. We are pleased to note that some progress in this area has been made in the first year. But this, at best, represents a tentative beginning. The huge financing needs of the infrastructure sector, which are estimated to be of the order of 7 per cent of GDP for all developing countries, indicate the enormity of the challenges that lie ahead. Traditionally, public funding has constituted 70 per cent of total spend ing on infrastructure. The private sector contributes 20-25 per cent, while ODA finances another 5-10 per cent only. The Bank will clearly need to do much more if it has to respond to the needs of the developing countries in this area. Many countries are also pursuing innovative approaches of public-private partnership in infrastructure financing. The Bank can play a useful role in providing assistance and support for these initiatives.
Over the years, the non-financial costs of Bank operations have increased significantly. Concerns with regard to safeguard policies, instead of becoming facilitators for sustainable development, have often acted as barriers. The efforts underway to streamline and modernize safeguard policies in the Bank need to be pursued with vigor. Only then can the Bank equip itself to be more responsive to the needs of the borrowing countries. Considering the particularly high investment needs for quality infrastructure services in lowincome countries, additional support for infrastructure should be an important priority in IDA-14 replenishment negotiations.
In response to the Monterrey Declaration, we have been discussing the issue of enhancing the voice of developing countries and countries with economies in transition in the running of the Bretton Woods Institutions. The world has changed a lot since 1945 when the structural framework for Bretton Woods Institutions was put in place. Unfortunately, the structure of these institutions continues to reflect the economic situation as prevalent at that time and not the current realities. It was in recognition of these changes that the heads of governments had given a call at Monterrey for moving forward in this area. Unfortunately, the progress reports that we have received from the Boards of these institutions does not indicate much movement and seems to address peripheral issues or issues which are not germane to the voice debate. Even more disconcerting is that the progress report from the Bank is not a consensus of the Board, but represents the view point of the majority shareholders and that too of those who have a greater voice. This lack of consensus on the basic approach highlights the extent of prevailing voice deficit in these institutions. It is our hope and expectation that when we receive further progress reports from the Boards, it will be a more consensual and more representative report of all shades of opinion and options.
The domestic debt of the public sector is a critical issue in a number of low-income countries as it places a serious constraint on mobilization of additional domestic public resources for development efforts, especially MDGs. But, its integration in the sustainability framework is highly complex. In spite of the stated difficulties, more research and analytical work should be undertaken to refine and improve the framework to factor in domestic debt in sustainability assessment.
The use of this framework in deciding grant funding from IDA-14 is welcome. However, the cost of IDA-14 grants should be met by donor contributions on the lines of arrangements worked out for IDA-13 grants, and upfront charges on the grant. The credit-recipient countries should not be made to bear the cost of the grants by hardening the credit terms. 11. To sum up, the global community has little to show by way of conversion of the millennium resolve into action. In eleven years that remains to 2015, our destiny is in our hands to shape. If we all act together in tandem, we can reach the goals that we have set ourselves. Achieving these goals are critical not only for the poor and the under-privileged, but also for the world as a whole”.
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