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The following is the text of the Statement by Finance Minister Shri P. Chidambaram delivered at the World Bank Development Committee (Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries) in Washington D.C yesterday. The Finance Minister is representing the Constituency consisting of Bangladesh, Bhutan, India and Sri Lanka.
1. “At the outset, let me; on behalf of my constituency convey our heart felt sympathies to the American people for the severity of death and destruction caused by hurricane Katrina. I would like to offer any assistance that we can provide in our modest way.
2. We meet in the wake of the historic Millennium plus 5 summit in New York where world leaders have strongly reiterated their determination to ensure timely and full realization of the Millennium Development Goals (MDGs). However, I am afraid that the MDGs are looking increasingly unattainable without a quantum increase in real ODA.
Global Economy
3. The global economy is entering a phase of steady consolidation. Even though we witnessed one of the highest rates of global output growth in a quarter century in 2004, latest projections point to a moderation of the pace of economic expansion. The global economic outlook for the medium term contains quite a few sources of concern. Notable among these are the growing trade imbalances, particularly that of the US, vis-à-vis several emerging market Asian economies. The current pattern of global expansion also reveals a number of regional imbalances. While the US is spearheading global activity, followed by a resurgent Japan, and robust performances by emerging market economies, particularly from developing Asia, the Euro Area is showing distinct signs of slowdown. Fiscal pressures are also mounting in many advanced economies as government debts rise to new highs as proportions of GDP. Global currency markets are also moving through a phase of continuing turbulence with the US Dollar maintaining its southward journey. Failure to break new ground in multilateral trade negotiations and growth of protectionist tendencies in some advanced nations are acting as serious impediments to growth of world trade. Countries displaying buoyant growth trends are thriving essentially on rising domestic demand, which is increasingly important vis-à-vis external trade, as a leading driver of global growth. On the whole, future global expansion remains contingent upon successful resolution of several challenges, which demand close coordination of national macroeconomic policies.
Escalating energy prices, pose one of the major downside risks to sustained expansion of the world economy in the coming months. This is in spite of the world becoming much less oil intensive in terms of oil consumption per $ of GDP than before. Spot prices of global crude oil have touched the unprecedented high of $70 barrel, indicating an increase of around120 per cent in real terms, compared with their ruling levels of around $33 per barrel two years ago. We recall with some trepidation that every major economic downturn in the past half century was preceded by a sharp increase in oil prices. The two OPEC oil shocks of the 1970s and Gulf crisis-driven shock of the early 1990s are still vivid in terms of their damaging impacts. Needless to say, oil importing developing countries will be the hardest hit by such runaway prices. Since a lot of new manufacturing activities are being relocated in emerging market economies in view of lower wage costs, energy demand in these oil-dependent economies are going up, creating many new challenges for macroeconomic and social sector policies.
Africa Action Plan
4. We welcome the proposals for intensifying global development partnership for helping Africa. It is particularly heartening to note the G-8 commitment to double aid to sub-Saharan Africa by 2010. Consolidating economic and social progress in Africa is a challenge for the entire international community. The last Global Monitoring Report had put the task in the proper perspective. Encouraging signals are emanating from the continent in the form of better leadership, improved economic and social performance, and reforming policies and institutions. The proposed Africa Action Plan represents a suitable and timely partnership framework. India has been proactive in supporting African nations in their development efforts and has also been sharing development experiences with African countries.
5. We understand and appreciate the renewed focus on promoting shared-growth, and partnerships in development. Efforts to boost growth on a sustained basis would involve, interalia, measures for enhancing the savings and investment levels and tackling the obstacles to improving agricultural productivity and primary product exports. Fragmented and uncoordinated interventions have been a bane of development efforts in many countries. We urge the Bank and all development partners to ensure that efforts are harmonized around the development strategies of the countries concerned.
Debt Cancellation
6. We commend the G8 for their initiative on irrevocable Debt cancellation for the HIPC countries. The proposal has generated high expectations in the eligible countries. I would like to reiterate that we are supportive of all efforts being extended to the low-income countries (LICs), including those in Africa, where debt burdens are serious threats to attainment of the MDGs. However, the vast ambit of the proposal draws attention to some implementation issues. It is essential to ensure that no IDA recipient country is worse off post-debt cancellation. Moreover, debt stock cancellations should be complemented by sharp increase in ODA in keeping with the Monterrey Consensus. This will ensure that the financial integrity of IFIs is preserved in the larger interest of the global development community. However, we must note that in the absence of further trade opportunities and enhanced market access to developing nations, especially in agriculture and services, the larger objectives behind the debt cancellation proposal will fail to materialize.
7. It is also essential to ensure that the financial integrity of IDA, which is a premier multilateral development agency, is not in any way impaired. For this, concrete steps in terms of binding commitments beyond the IDA-14 period; agreement among the donors on sustainable burden sharing arrangements; design of a transparent and consultative implementation framework; and a participatory process to develop mechanisms to monitor and prevent recurring cycles of indebtedness would be critical. The present proposal of “dollar for dollar” compensation to IDA in lieu of debt cancelled, in the first instance, is proposed to be confined to the reflows during the IDA-14 period only and future compensation would be decided by the donors on replenishment cycle basis. This, we feel, will expose IDA to continued uncertainties and risks. In the event of the proposal not receiving full financing to the extent of debt cancelled, the reduced reflows will deplete the envelope size of future IDA replenishments. This may also reduce fresh allocation to other IDA recipient countries, thereby adversely affecting their poverty reduction and MDG oriented efforts. We must ensure that this eventuality does not arise. As envisaged in the G-8 Communiqué, we also strongly support funneling of additionality to all IDA eligible countries on the basis of the already agreed IDA-14 Performance Based Allocation (PBA) framework.
Aid effectiveness and Aid Financing
8. Recent months have seen many commitments and initiatives aimed at enhancing resources for the development agenda. We recognize these efforts as welcome developments. There has been some progress on the Innovative Financing Framework for Immunization (IFFIm) since we met last. Operationalising the IFFIm is particularly important, since front loading aid will enable many recipient countries to overcome the initial critical bottlenecks in pursuing MDGs. As proposals for generating additional resources reach maturity, establishment of a robust, standardized and efficient mechanism for tracking actual ODA flows would be vital, even more so in the context of the recent additional debt relief initiative. However, it is a matter of satisfaction that actual disbursements of ODA, in recent years, have shown a welcome reversal of the declining trend that lasted for almost a decade since the early1990s.
9. The issues of aid effectiveness and aid financing have more recently been reviewed in the context of the Millennium Development Goals. There have been certain issues raised regarding the centrality of country based approaches and the push for progress on specific MDGs. We do not feel that there is any divergence in this regard. However, the realization of the MDGs has to be a shared resolve and commitment of all nations. While the primary responsibility will be of the countries concerned themselves, in the case of many poor countries, this will require active support of the donor nations. In this regard, it is important to realize that unless aid commitments translate into actual delivery, securing MDGs will remain elusive goals. We do hope that all the developed countries would scale up the ODA to realize the goals reaffirmed at the Monterrey Consensus.
10. It has also been our consistent position that additional resources for implementing the development agenda should be channelized through the existing multilateral agencies. Moreover, allocations must be based on pre-defined and transparent criteria. Our own development experience clearly indicates that, ultimately, it is the availability of untied additional resources for use in accordance with national development strategies, which is most beneficial for recipient countries.
Trade
11. After the failure of the Cancun Ministerial to break new ground in multilateral trade negotiations, the world is eagerly looking forward to the forthcoming Hong Kong Ministerial for putting the Doha Development Agenda (DDA) back on track. The progress in this regard, however, has been disappointing considering the hopes that were raised after the ‘July Framework Agreement’. It is imperative that the global community reaches a consensus on ambitious developmental outcomes at Hong Kong. Maybe the time has come for abandoning well-known positions and for upholding the Monterrey view, which had recognized that international trade is an engine for development and cautioned against trade barriers, trade distorting subsidies, and other trade distorting measures. The forthcoming Ministerial must focus upon, inter-alia, negotiating modalities on agriculture and manufactures, and make dedicated progress on services, rules and trade facilitation. Given the difficulties faced in reaching consensus on ‘first approximations’ on agriculture and non-agriculture market access (NAMA), the Bank and the international community would have to play an intense and proactive role at Hong Kong, if the Doha round is to be completed by 2006.
12. Countries that continue such policies, especially in agriculture which lies at the core of the Doha agenda, should be aware of the perilous impact their decisions would have on the food and livelihood security of millions of subsistence farmers in poor countries and in terms of the opportunities for progress they deny to developing nations. We also need to work towards ambitious outcomes in the services sector where global negotiations have not made enough headway: restricting the movement of professionals across the world is unnatural and, ultimately, to the detriment of developed countries themselves. Significant results in the services negotiations remain essential to achieve a balanced outcome of the Doha Round.
13. We feel that the Bank, given its development mandate, must in the weeks ahead, play an intensive role of global advocacy as a spokesman for the interest of developing countries. It must encourage developed countries to soften their positions and remove the barriers to development that they have erected which result in lost opportunities for many developing countries.
14. The Bank’s initiative to provide ‘aid for trade’ is laudable and will help loosen the supply side constraint in many developing countries. However, pursuing the initiative calls for revisiting the issue of special and differential (S&D) treatment and assessing what kind of S&D facilities will facilitate the goals for national development as well as expansion of global trade. Resolution of this dilemma is critical for arriving at a successful pro-development Doha package. The Bank can provide crucial support to countries to develop their trade-related infrastructure and ease the often painful adjustment to trade liberalization. However, we need to remain conscious of the reality that there is no substitute for an ambitious pro-poor deal at the Doha Round.
Infrastructure
15. We welcome the Progress Report on Infrastructure. The role of improved infrastructure availability and quality infrastructure services in enhancing growth prospects, accelerating poverty reduction and achieving the MDGs a point which was elaborately covered in my statement during our Spring Meetings earlier this year hardly requires reiteration. I would like to remind my friends about the offer made in the Spring meeting to remove impediments to scaling up the Bank’s infrastructure work, and urge its quick implementation.
16. We appreciate the commitment of Bank management and staff to the Action Plan and note that since Fiscal Year 2003 Bank lending for infrastructure has risen by about $1 billion per year, reaching $7.4 billion in FY05. Quality of investments is a concern for all and we are encouraged that this rapid increase in Bank lending has been accompanied by high quality. At the end of FY05, the percentage of infrastructure commitments at risk was 9.5%, which is below the Bank average of 13.5%.
17. The Bank also, probably, requires to be more ambitious, given the enormous infrastructure needs of the developing world. While investments of nearly $8 trillion would be needed in the energy sector in developing countries over the next 30 years, new infrastructure investment needs will be around $223 billion per year, accompanied by maintenance needs worth $232 billion per year. Addressing these requirements will call for extended work on issues of public and private investments and public-private partnerships.
World Bank Conditionality
18. We welcome the findings that the Bank’s use of conditions has declined sharply during the last decade and the simultaneous development of “good practice principles” by the Bank. We note that these principles include the concepts of reinforcement of country ownership; promoting a coordinated accountability framework in consultation with country authorities and customizing the framework for evaluating country performances; choosing only actions critical for achieving results as conditions for disbursement; and conducting transparent progress reviews conducive to predictable and performance based financial support. The Bank, as a development partner may also consider re-examining the need to use the word ‘conditionality’ in future documents, since these are essentially ‘good practice principles’. The use of these principles could be appropriately modified by taking into account the unique aspects of each operation and there need not be an across-the-board application of such principles. Further, they should cover all stages of the Bank project and not be restricted to certain start-up conditions to help improve project implementation, and be equally focused on project outcomes. Since the Bank has adapted its policy lending to complex institutional reforms and critical actions in host countries, it should be careful to avoid overt inclination towards complex policy matrices particularly in multi-sectoral operations.
Enhanced HIPC Initiative
19. We are happy with the progress in the Enhanced HIPC initiative under which now 28 countries have reached the decision point (including 18 countries on completion points) with likely benefit of $38.2 billion in present value terms and two-third reductions in their debt stock with cost to IDA standing at $9.2 billion. The debt relief delivered to these Decision as well as Completion point countries has had positive impact on their poverty reduction efforts. The Poverty Reduction Strategy Papers (PRSPs) have enabled these countries in producing effective poverty-reduction strategies with significantly improved country ownership through a broad consultative process. However, the pace of implementation of the initiative has been relatively modest as some countries have experienced delays in reaching the decision point. We are somewhat concerned with the decline in the participation of non-Paris Club and commercial donors in the initiative, though some additional debt relief agreements have been signed by a few non-Paris creditors during the last year. As of now, the number of creditors fully committed for extending debt relief is limited to 8, while 20 others have agreed to extend partial debt relief and the remaining 23 donors are yet to join the initiative.
20. We strongly favor symmetrical treatment in expansion of the list of countries eligible for assistance under the extended sunset clause of the initiative.
Voice & Participation of Developing and Transition Countries
21. The issue of Democratic deficit in the governance of Bretton Woods Institutions needs to be addressed in right earnest in order to enhance legitimacy, transparency, accountability and ownership of the decision-making process in these institutions. The progress that has been made to address this after the Monterrey compact has been limited to and distracted by peripheral issues which are not central to enhancement of ‘voice’ in decision making. We feel that a strong ‘push’ towards tackling the central structural issue of voting power is called for. The set of determinants presently used in computing the economic strength of the countries is not a true reflection of the global economic realities and has tilted the Fund’s and Bank’s governance structure towards the developed countries. We feel that a fresh look at the quota formulae will necessarily have to focus on an adequate weightage to GDP, far beyond what the present formulae envisage. It would be preferable to compute GDP on the basis of purchasing power parity (PPP), given that this is arguably the best basis for comparison of GDP across a wide cross-section of countries. The factor of Intra EU trade also needs to be dealt with in the right perspective by netting out the volume of current account receipts and payments for such countries that belong to a common currency area. The level of Reserves also needs to play a significant role in the calculation of quotas. We firmly believe that these incongruities should be set right by modifying the main determinants of IMF Quota and Bank’s Capital shares in GNI on PPP basis.
Climate Change, Energy & the World Bank
22. Climate change is a global problem and requires a global solution. We must also recognize that different countries bear different levels of responsibility for increase in atmospheric greenhouse gases (GHGs) concentrations. However, what we find is that the adverse impacts of climate change will fall disproportionately on those who have the least responsibility for causing the problem, in particular, developing countries, including India. Our own policies for sustainable development, by way of promotion of energy efficiency, renewable energy, changing the fuel mix to cleaner sources, energy pricing, pollution abatement, afforestation, mass transport, besides differentially higher growth rates of less energy intensive services sectors as compared to manufacturing, have resulted in a relatively benign growth path of the GHGs. Climate change responsibility clearly does not lie only with developing countries. However, on the other hand it has severe adverse impacts on precipitation patterns, ecosystems, agricultural potential, forests, water resources, coastal and marine resources, besides increasing range of several diseases vectors in the developing countries. The global community has to realize that immediate steps would be required for adaptation measures for climate change impacts if catastrophic human misery is to be avoided.
23. Mr. Chairman, we stand today at a decisive moment. At the dawn of the new millennium we had committed ourselves to the dream of attaining the MDGs and reaffirmed this at Monterrey in 2002. However, I must say with a sense of some remorse that the efforts to scale the summit by 2015 have been rather half hearted and dispirited. Millions of our fellow human beings are still struggling to acquire the basic minimum needs for subsistence and live with dignity. We need to act now. The Hong Kong Ministerial gives us an opportunity to redeem ourselves by ensuring a successful conclusion of the Doha round that leads to the establishment of a fair, just and equitable multilateral trading system. We welcome the initiatives on debt relief. But these must be accompanied by genuine increase in ODA, so that requisite resources are available to meet the requirements of MDGs. The Global community must take the initiative now and set a timetable for fulfilling the commitments made at Monterrey to reach the Millennium Development Goals.”
Relevant photographs are also e-mailed.
BSC/BY/CK-348/05
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