The section below sets out in broad terms the roles of the institutions themselves. Ireland’s participation is dealt with in Section III.The International Monetary Fund
The International Monetary Fund (IMF) came into official existence in 1945, after 29 countries had signed its Articles of Agreement at a conference held in Bretton Woods, New Hampshire, USA, in July of the previous year. The IMF commenced financial operations on 1 March 1947.
Current IMF membership stands at 184 countries, with a total quota of SDR 213 billion on 31 June 2002. On joining the IMF each member country is assigned a quota which represents its subscription of “capital” to the IMF and is expressed in SDRs. Members' quotas, in addition to providing the IMF with the financial resources it needs to lend to members in financial difficulty, are also a factor in determining members' representation on the Executive Board and their voting power in the IMF.
The IMF is a cooperative intergovernmental monetary and financial institution. It is concerned both with the working of the international monetary system and with the problems of individual countries. Its activities are focused on efforts to promote policies and strategies through which its members can work together to ensure a stable world financial system and sustainable economic growth.
In the course of developments over the years, the IMF itself has had to change and develop to meet the challenges of a changing world. The institution now advises and provides temporary financing to countries facing a much wider range of problems and circumstances than heretofore. Consequently, the scope of its policy concerns has broadened beyond sound money, stable exchange rates, open markets to encompass a number of other elements that also contribute to economic growth and a stable financial system. In recent years the Fund has increasingly taken account of the impact of its activities on the social situation of member states, and particularly in relation to developing countries. It aims not simply for economic growth, per se, but for high quality economic growth. In practical terms this means that it pays increasing attention to the impact of necessary adjustment measures on social safety nets and public sector spending.
The top policy making body of the IMF is the Board of Governors, on which each member country has a representative (in Ireland’s case, the Minister for Finance). The Governors meet formally once a year at the joint Annual Meetings of the IMF and World Bank. During the year, decisions required of the Governors are taken by written procedure but the greater part of the decision making is entrusted by Governors to the Executive Board consisting of 24 Executive Directors (EDs) resident in Washington.
The Executive Board is structured on a constituency basis, with most EDs representing a number of countries. The views of member countries are fed into the Board through the constituency offices. Ireland is a member of a constituency which includes Canada and a number of Caribbean States.
The views of members are also fed into the two committees at Ministerial level which meet twice a year (spring and annual meetings) and which are also structured on a constituency basis: the International Monetary and Financial Committee (IMFC), which is purely an IMF committee, and the Development Committee, which is a joint committee with the World Bank.B. The World Bank Group (IBRD)
The World Bank is a multilateral development institution. Its purpose is to assist the less developed countries mainly by financing development projects that provide a worthwhile economic or financial return.
The Bank is formally titled the International Bank for Reconstruction and Development (IBRD). It is the oldest and largest international institution in the field of development finance.
It has four affiliates. They are the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for the Settlement of Investment Disputes (ICSID). The Bank, IDA, IFC and MIGA are sometimes referred to as the World Bank Group.
Total subscribed capital of IBRD at 30 June 2002 was US$189.5 billion, of which US$11.5 billion, was paid in by members and the balance of US$178 billion is callable. In addition the Bank borrows on the capital markets, which is how the vast bulk of Bank funds are raised.
The range of Bank involvements in developing countries is an extensive one. Because of the diverse needs of its clients, the Bank customises its products to the particular requirements of each. Its loans include finance for individual projects, such as a road or a power plant, adjustment loans geared to a particular sector and technical assistance to support sectoral reform.
Lending commitments in Fiscal Year (FY) 2002 amounted to US$11.452 billion, an increase on the Fiscal Year (FY) 2001 level of US$10.5 billion. In (FY) 2002 Europe and Central Asia accounted for the largest share of commitments.
In FY2002 net income was US$2,778 million, which is US$1,289 million higher than the preceding year. Operating income was US$1,924 million, US$780 million higher than that of the previous year. The increase in operating income correspondingly increased IBRD’s return on equity and net return on average earning assets. The major reason for the increase was a reduction in the provision for loan losses of US$690 million.
The Bank also provides a wide range of advisory, analytical, training and knowledge-related services in support of building domestic capacities. Through its non-lending activities, the Bank provides valuable policy advice that can bolster the effectiveness of its investment and adjustment lending.Administrative Structure
The administrative structure of the Bank is similar to that of the IMF as described earlier at both Board of Governors and Directors level.
International Development Association (IDA)
IDA is the World Bank Group's window for concessional financial assistance to the poorest countries. It provides long-term loans at zero interest to the poorest of the developing countries in its mission to reduce their poverty and improve their quality of life. IDA does this by supporting projects that improve living standards and by promoting equitable access to the benefits of economic development. IDA eligibility is based on an assessment of an individual country's per capita income (in FY2002 the operational cut off for IDA eligibility was US$885 per capita). Countries must also be pursuing sound policies to promote growth and reduce poverty.
IDA’s mission is to support efficient and effective programmes to reduce poverty and improve the quality of life in its poorest member countries. IDA helps build the human capital, policies, institutions and physical infrastructure needed to bring about equitable and sustainable growth. IDA's goal is to reduce the disparities across and within countries, to bring more people into the economic mainstream and to promote equitable access to the benefits of development.
IDA obtains its resources principally from periodic replenishments. These are, in effect, grants provided by its richer member countries, including Ireland, (also known as Part I members) and a small number of its other (Part II) members. Total donor subscriptions to IDA (30 June 2002) were US$109 billion of which US$105 billionwas from Part I members. These funds are supplemented by repayments made by IDA’s borrowers in respect of earlier loans, and transfers from the available net income of the World Bank.
The Twelfth Replenishment (IDA12) financed projects over the three-year period beginning July 1999. Funding for this replenishment allowed IDA to lend about US$20.5 billion over the period. In FY2002 IDA provided US$8.1 billion in financing for 133 projects in 62 low-income countries, compared with US$6.8 billion for 134 countries the previous year.
International Finance Corporation (IFC)
IFC was established in 1956 to encourage private sector activity in developing countries. Since its foundation it has committed more than US$34 billion of its own funds and US$21 billion in syndications for 2,825 companies in 140 different countries.
It does this primarily through three types of activities: 1) financing private sector projects, 2) helping companies in the developing world to mobilise financing in the international financial markets and 3) providing advice and technical assistance to businesses and governments. IFC charges market rates for its products and does not accept government guarantees.
IFC has 175 member countries (to join, countries must first be a member of the IBRD). IFC's share capital, which is paid in, is provided by its member countries. At 30 June 2002, the authorised capital was US$2.36 billion. Net worth (presented as Total Capital in the Corporation’s balance sheet) amounted to US$6.3 billion, up from the 30 June 2002 level of US$6.1 billion. The IFC has been consistently profitable since its foundation and operating income for FY02 was US$161 million compared with US$241 million in FY01 and US$380 million in FY00.
IFC's bond issues have been given triple-A ratings by the international credit-rating agency Moody's and Standard & Poor's.
Multilateral Investment Guarantee Agency (MIGA)
MIGA was created in April 1988 and began operations in 1990.
The objective of the Agency is to encourage the flow of investments for productive purposes among member countries, and in particular to developing member countries. To serve this objective MIGA issues guarantees against non-commercial risks for foreign direct investments in its developing member countries and provides technical assistance to governments of such countries to improve their ability to attract foreign direct investment.
Current Capital Stock
MIGA obtains its resources from the capital subscriptions of its 157 members. The present authorised capital of MIGA is SDR 1 billion divided into 100,000 shares each having a par value of SDR 10,000. MIGA’s total subscribed capital is US$1.7 billion of which US$0.3 billion is paid in.
For the year, MIGA supported 33 projects, issuing 58 guarantees totaling US$1.357 billion of coverage (including the amount insured through the Cooperative Underwriting Programme). Of these projects, 14 were in IDA-eligible countries, which now represent 29 percent of the gross portfolio; nine were in sub-Saharan Africa; 11 were for South-South projects, where the investor is from a developing country; and 11 were investments involving small and medium-sized enterprises (SMEs). In 2002 MIGA also provided first-time coverage for projects in four new countries, bringing the total number of member countries that have hosted MIGA-supported projects to 82.
International Centre for the Settlement of Investment Disputes (ICSID)
ICSID is an international institution sponsored by the World Bank and created by the Convention on the Settlement of Investment Disputes between States and nationals of other States. The purpose of ICSID is to encourage greater flows of international investment by providing facilities for conciliation and arbitration of investment disputes between nationals of Member States.
At the end of June 2002 there were 150 signatory States of the Convention, of which 134 had also ratified the Convention. In FY02, ICSID cases surpassed 100, a total of 49 cases were pending or concluded before the end of the year. Seventeen were registered, sixteen of which were new ICSID arbitration cases. The signatories for 2002 were Malta and St. Vincent and the Grenadines. Ireland joined in 1966.Section II Issues in 2002
While the IMF and World Bank are distinct organisations, with separate Articles of Agreement, the close complementarity between their mandates means that there is necessarily a degree of overlap in this report’s treatment of them.A. International Monetary Fund
The IMF has the mandate, under its Articles of Agreement, to oversee the exchange rate policies of its member countries to ensure the effective operation of the International Monetary System (IMS). It exercises this “surveillance” responsibility by holding regular discussions with its member countries about their economic and financial policies, and by continuously monitoring and assessing economic and financial developments at country, regional and global levels. In these ways the IMF can help signal dangers on the horizon and enable members to take early corrective policy actions. While the IMF can help to anticipate likely developments, and can examine member country economic indicators, it is clear that certain events, such as the impact of trade integration, make the surveillance function both more difficult to do and yet more important.
The IMF Executive Board reviews the principles and implementation of the IMF’s surveillance approximately every two years. The latest biennial review of surveillance activities was completed in large part in April 2002. Arising out of the review, a number of specific areas were identified where further efforts were needed to ensure that IMF policy advice was sound and persuasive.
Ø More candid and comprehensive assessments of exchange arrangements and exchange rates within the framework of macroeconomic policies should become the normal practice throughout the membership.
Ø Coverage of financial sector issues should be brought up to par with coverage of other areas of surveillance.
Ø To strengthen vulnerability assessments, analysis of debt sustainability had to be improved, particularly through the use of meaningful stress tests and alternative scenarios.
Ø Coverage of institutional issues, such as public sector and corporate governance in certain countries, had sometimes been hampered by a lack of expertise and should be strengthened.
Ø Structural issues outside the IMF’s traditional areas of expertise were, at times, key to a country’s macroeconomic situation and thus had to be addressed by the IMF. To tackle such cases, the IMF should make effective use of the expertise of appropriate outside institutions, in particular the World Bank.
Ø There was some scope for enhancing the focus of surveillance in individual cases and areas. In particular, coverage of trade policies should be strengthened.
Ø The results of multilateral (or global) surveillance exercises and the IMF’s comparative advantage in cross-country analyses should be reflected in bilateral (or country) surveillance in a comprehensive and consistent manner.2. Crisis Prevention
With the prevention of crises and the promotion of financial stability among its top priorities, the IMF has strengthened its analysis of the vulnerability of member countries to changes in external circumstances and, in particular, to capital market conditions.
In FY 2002, the Executive Board took stock of the progress in monitoring members’ external vulnerability on a more continuous basis, especially for emerging market economies, whose access to international capital markets is often not certain.
The increased focus on vulnerability and appropriate policy responses has further highlighted the significance of addressing gaps and deficiencies in the required data. The IMF’s Special Data Dissemination Standard (SDDS) already provides an agreed common framework for making available data on reserves and external debt. Other data needed for vulnerability assessments include those on foreign exchange exposures of the financial sector, and the non-financial corporate sectors, and countries’ financing needs—including their reliance on rollovers, trade finance and bond finance. The Directors of the Fund encouraged staff to focus more intensively on these informational needs to ensure that data availability improves over time and stressed that many countries would require technical assistance to achieve this.Transparency
Increased transparency, in both economic policy and in economic and financial data, can strengthen a market participant’s ability to assess credit risks appropriately and help reduce the likelihood of crises and also lessen their severity when they do occur. To this end, the IMF has promoted the transparency of its members’ policies. It has also undertaken a wide-reaching programme to improve public understanding of its own policies and operations, and encouraged feedback from national authorities and from the public on transparency and other key policy initiatives. Staff papers discussing key policy issues and summaries of Executive Board discussions of these papers are now released. In addition, the IMF has engaged in a dialogue with the public on key policy issues. The IMF website has been an important channel for these efforts. It makes documents available quickly. Many of these were previously hard to obtain due to the slowness of international mail, a particular problem in developing countries.Standards and Codes
The spread of internationally accepted standards and codes of good practice in policymaking and institutional arrangements contributes to the better working of markets by allowing participants and policymakers to compare information on country practices against agreed benchmarks. Standards are also designed to improve transparency and good governance, and increase the accountability and credibility of policy.
The IMF’s standards and codes initiative was launched in response to the Asian crises. It has encouraged the development and improvement of internationally recognized standards in key areas, led to assessments of countries’ observance of standards; and helped countries implement standards, including through the provision of technical assistance. Seeking and responding to feedback from authorities and the private sector have been important aspects of the initiative. During FY2002, progress was made on all these fronts.
The IMF has recognized 11 areas and associated standards as useful for the operational work of the Fund and the World Bank. These comprise:
Reports summarizing countries' observance of these standards are prepared and published at the request of the member country. They are used to help sharpen the institutions' policy discussions with national authorities and in the private sector (including by rating agencies) for risk assessment. Short updates are produced regularly and new reports are produced every few years.
Data Reports of Standards and Codes (ROSCs ) – now including Data Quality Assessments
The assessment of data dissemination practices in data ROSCs is now complemented with an assessment of data quality. The methodological framework for the latter was developed by the IMF’s Statistics Department in consultation with national statistical offices, international organisations, and data users outside the Fund. It brings together best practices and internationally accepted concepts and definitions in statistics and covers a number of dimensions of data quality, such as integrity, methodological soundness, accuracy and reliability, serviceability, and accessibility, as well as the related institutional prerequisites.Strengthening Financial Sectors
Along with the Asian crises, the banking sector problems faced by a large number of IMF members have highlighted the critical importance of concerted action to strengthen financial systems. During FY2002, as part of its intensified financial sector surveillance activities, the IMF continued to carry out a number of financial “health checkups” under the Joint IMF–World Bank Financial Sector Assessment Programme (FSAP). The IMF also examined the use of summary financial soundness indicators and gave greater focus to assessments of offshore financial centres.
The FSAP, participation in which is voluntary, aims at strengthening the monitoring of countries’ financial systems in the context of the IMF’s bilateral surveillance and the World Bank’s financial sector development work. By April 2002, 27 countries had completed their FSAP participation. An additional 50 countries had committed to participate in the program, and the work was already under way for 27 of these countries.Capital Account Liberalisation
The IMF has strengthened its work on capital account issues, including the undertaking of more analysis, giving more prominence to capital account issues in Article IV consultations, and expanding discussions with the private sector. The benefits of capital account opening include a more efficient international allocation of savings and improved productivity (for example, through technology transfer in foreign direct investment flows), enlarged opportunities for portfolio diversification, risk sharing, deeper financial markets and a greater international division of labour. On the other hand, volatile international capital flows have played a role in a number of recent crises, pointing to the importance of appropriate sequencing of capital account liberalisation.
In many cases, therefore, a gradual approach to liberalisation may be required, but would not in itself guarantee orderly liberalisation.3. Crisis Resolution
While the IMF’s efforts at crisis prevention should reduce the number of crises over time, it would be unrealistic to expect that all member countries will always be able to avoid crises. During FY2002, the IMF Executive Board held continuing and informal discussions on a range of issues related to the resolution of financial crises and the role of the private sector.
The Managing Director’s April 2002 Report to the IMFC laid out a four-point work programme to strengthen the framework for crisis resolution:
Ø Increasing the IMF’s capacity to assess the sustainability of a country’s debt;
Ø Clarifying the IMF’s access policy;
Ø Strengthening the tools available for securing the private sector’s involvement in the resolution of financial crises; and
Ø Examining a more orderly and transparent legal framework for sovereign debt restructurings, as well as identifying with more clarity the considerations that should guide the availability of IMF financing during and after a restructuring.
In assessing the sustainability of a member’s external and fiscal position, the focus is on a member’s ability to sustain financial and economic viability, and whether some form of debt re-profiling or restructuring is necessary to achieve that objective in the context of a well-designed program of adjustment. Sustainability analysis may not always yield unequivocal results, but the IMF is working to strengthen the analytic basis used to make an inherently difficult judgment.
The IMF is working to clarify policy on access to its resources for members facing capital account crises. In most recent crises, the support required exceeded what a country is entitled to draw. In this context, it will be important to recognise that a policy on access limits in such cases must be based on the reality that the IMF’s resources are inherently limited. The potential financing needs of a country integrated into global markets can be very large.
The IMF’s work programme aims to strengthen the tools available for securing the private sector’s involvement in the resolution of financial crises within the context of the existing legal framework. The broad conclusion is that, although the use of alternative financing tools, under certain circumstances may help to manage crises, they need to be carefully assessed on a case-by-case basis. In each case, the benefits of these financing techniques need to be weighed against the potential dangers of unsettling markets that they may affect, as well as their impact on transferring risk from sovereigns to the domestic financial system.
The IMF provides financial support to member countries under a variety of policies and lending instruments. Most forms of IMF financing are made conditional on the recipient country’s adopting policy reforms to correct the underlying problems that gave rise to the request for support. During FY2002, the IMF Executive Board continued the review of conditionality it had begun the previous year, working to focus and streamline the conditions attached to IMF financing and to enhance country ownership of reforms.
The policy conditions under which the IMF extends financing to its member countries are designed to ensure that the country has adopted the reforms needed to address its external balance of payments problems. The IMF must be certain that any resources provided by the Fund are not committed to maintaining the failed policies that provoked the crisis. This practice, known as “conditionality”, assures a country that it will continue to receive financing as long as it carries out a reform programme’s policies or achieves the intended outcome. Conditionality also protects the revolving character of the IMF’s resources by extending financing only when the country concerned is committed to policies that will enable it to improve its external position and, hence, repay the IMF. IMF resources while large, are limited and must be able to deal with multiple crises at any time.
The most recent review of IMF conditionality concluded in September 2002. A central concern is that if policy conditions are excessively broad and detailed they can undermine a country’s “ownership” of any policy programme — a key success factor. Thus, the review aims to ensure that conditionality in IMF-supported programmes is designed and applied in a way that reinforces national ownership and a country’s sustained implementation of its economic reform programme. This is a real problem as willingness to accept failure of national strategy is often in short supply. The tendency is to blame the IMF for all changes, however necessary. To this end, the review emphasises that conditionality should focus on those policies that are critical to the macroeconomic goals and set a clearer division of labour between the IMF and other international institutions, especially the World Bank.
The IMF has been striving to focus more sharply the conditions attached to its financing, to be more clear about the purposes of conditionality, and to be flexible and responsive in discussing alternative policies with countries requesting financial assistance.5. Sovereign Debt Restructuring Mechanism (SDRM)
The question of how nations handle unsustainable sovereign debt has become a pressing issue for the international community. In recent years the problem has intensified as private capital flows have increased relative to official flows. Countries have also turned increasingly from bank loans to bond issues to raise capital. The international capital markets are more diversified and function more efficiently. There is therefore a broader investor base available to provide financing for emerging market sovereigns, which has helped to provide funds and diversify risk. But there is a serious downside if a country faces unsustainable debt. Private creditors have become increasingly numerous and very difficult to coordinate. This problem is exacerbated by the variety of debt instruments involved, and the range of legal jurisdictions in which debt is issued. Loan conditions may specify that U.S. law may apply to some loans. Other lenders may use domestic law, raising difficulties if courts in differing jurisdictions have differing solutions to offer.
Countries facing severe liquidity problems often go to extraordinary lengths to avoid restructuring their debts to foreign and domestic creditors because they know that even an orderly debt restructuring can damage their economy and banking system. A disorderly restructuring can sever access to private capital for years, leading to crisis. As a result, countries with unsustainable problems tend to wait too long before confronting them, which is harmful to the country, its citizens and makes future lending to developing countries more difficult. Every failure makes foreign private investors more reluctant to lend to developing countries.
Better incentives for debtors and creditors to agree on prompt, orderly and predictable restructuring of unsustainable debt are needed. Domestic bankruptcy law serves as a useful model in the insolvency context, but the applicability of the corporate model is limited by the unique characteristics of a sovereign state.IMF Involvement
In April 2002 the IMFC endorsed the IMF's view of the problem and encouraged it to investigate a "twin-track" approach to solving it. The first, a statutory approach, would create a legal framework that would allow a qualified majority of a country's creditors to approve a restructuring agreement which would be binding on all. In order to make the agreement binding on all creditors, enactment of a universal statutory framework would be necessary.
The second approach would incorporate comprehensive restructuring clauses, so-called "collective action clauses", in debt instruments. Collective Action Clauses (CAC’s), found in some sovereign bond contracts, limit the ability of dissident creditors to block a widely supported restructuring. Most developing countries do not use CAC’s at present, so it is possible for a minority lender to use the courts to block a restructuring deal. Both approaches have been subject to intense and constructive debate, within the Fund and in other fora, throughout 2002. These debates have involved representatives of emerging market countries, key policy makers, market participants, academics and members of the legal and judicial professions.
In September 2002, the IMFC requested the IMF to develop a Sovereign Debt Restructuring Mechanism (SDRM) proposal for consideration at the April 2003 Spring meetings. However, numerous questions are raised by this proposal. How would an SDRM work, and who would decide whether a country's sovereign debt burden is unsustainable? Would all sovereign debt be covered? What would be the IMF's role, and how might the SDRM affect private sector flows to emerging markets and borrowing costs to those countries? In addressing these questions a number of principles have been identified which will form the parameters for whatever mechanism is eventually agreed upon:
Beyond these areas of agreement, however, there are a large number of areas where the form of the SDRM has yet to be defined. One important question is that of which debts would be covered by it’s provisions. Governments borrow in their own right, but also often guarantee the borrowings of semi-state bodies and sub-national authorities. In addition, sovereign domestic debt is often a significant component of a country’s indebtedness and in some circumstances it may be necessary to restructure this debt if the overall burden is to be reduced to a sustainable level. But decisions on the inclusion of domestic debt would have to be made on a case-by-case basis, taking careful account of the different nature of these claims, as well as the possible impacts on the value of the assets of the domestic banking system and on the domestic capital market. In any event, domestic debt would not be restructured under the SDRM, since governments typically have at their disposal tools for restructuring domestic debt that are not available in the case of external debt.
Reforming the sovereign debt restructuring framework is a formidable task that, even with agreement, would take many years to develop and implement. Concerns exist about the consistency of any proposal with national laws. A host of technical and institutional issues have to be examined. Furthermore, NGOs and others have also raised fundamental questions about the role to be played by the SDRM. Some of these call for a forum that could act as an arbitrator on the political or moral validity of certain claims and on the sustainability of the country's debt in a poverty eradication development context. All see a need for strict independence of such a forum, both in appearance as well as in fact. Some question whether any organ linked to the IMF could do this. The IMF is already a lender to many countries in difficulty.
For all of this to happen, however, the agreement and participation of the private sector is essential. Given that they have so far been very cautious about involvement in any multilateral initiatives aimed at crisis prevention and/or resolution, even to the use of CAC’s, considerable assurances will be necessary to secure their willing involvement in the SDRM. It is likely that they will have considerable misgivings concerning the potential for moral hazard inherent in the SDRM, in the sense that some debtor countries may see it as a means of delaying or avoiding their obligations. In this context the question of which party has the right to initiate the mechanism may well be crucial to securing their support. This debate has only just begun6. Recent changes in the method of SDR valuation: The SDR and the Euro
Following the completion of the regular five-yearly review of SDR valuation on 11 October, 2000, the IMF's Executive Board agreed on changes in the method of valuation of the SDR and the determination of the SDR interest rate, effective from 1 January, 2001. The adoption of the Euro as the common currency for 12 member states of the European Union necessitated a change in the criteria for selecting currencies for inclusion in the SDR valuation basket and the determination of the currency weights. In particular, the criterion for selecting the currencies of the IMF member countries which are the largest exporters of goods and services has been extended to include exports by a monetary union that includes IMF members.
The IMF has determined that four currencies (the US Dollar, Euro, Japanese Yen, and Pound Sterling) meet both selection criteria for inclusion in the SDR valuation basket for the period 2001-2005 and have been assigned the following weights based on their roles in international trade and finance:
Currency Weights in SDR Basket
* On 1 January 1999, the Deutsche mark and French franc in the SDR basket were replaced by equivalent amounts of Euro.
The amounts of each of the four currencies included in the new SDR valuation basket were calculated on 29 December 2000, in accordance with the new weights. The calculation was made on the basis of the average exchange rates for these currencies over the three months ending on that date in such a manner as to ensure that the value of the SDR would be the same on 29 December 2000, under both the revised valuation and present valuation baskets.7. Review of Poverty Reduction Strategy Papers (PRSP) / Poverty Reduction & Growth Facility (PRGF)
The PRGF is the IMF's concessional facility for low-income countries. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a five and a half year grace period on principal payments. As of September 2002, 77 low-income countries were eligible for PRGF assistance. As of November 2002, 40 countries had PRGF-supported programmes in place.
Programmes supported by the PRGF are framed around comprehensive, country-owned Poverty Reduction Strategy Papers (PRSPs). These are prepared by governments with active participation by civil society and other development partners. PRSPs are then considered by the Boards of the IMF and World Bank as the basis for concessional lending and debt relief under the enhanced Initiative for the Heavily Indebted Poor Countries (HIPC). The targets and policy conditions in PRGF-supported programs are drawn directly from the country's PRSP. The PRSP process, therefore, is a vital stage in the drawing down of debt relief under the enhanced HIPC initiative.
Since 1999, ten countries have completed their first full PRSP and three countries have completed their first annual PRSP implementation progress reports. Some 42 countries have also completed their interim poverty reduction strategy papers (I-PRSP) and 7 countries have subsequently submitted their PRSP preparation status reports for consideration.
In January 2002 an international Conference was held in Washington that brought together representatives from 60 low-income countries, their external development partners, and representatives from civil society to discuss the PRSP process in all of its aspects. This Conference was part of the review of the PRSP process that had been called for by the Directors of the IMF, and was to be complimented by a review of the PRGF process, whose conclusions were published in February 2002 lang="EN-US">.
A full report on the conference, including details of the position taken by Ireland, was included in the last years Annual Report.Review of the PRGF/PRSP Process
PRSPs mark the first serious attempt by the international community to put poverty reduction at the centre of development planning. They have also promoted better dialogue between government and civil society organisations on priorities for government spending and increased transparency regarding government budgeting and expenditure in many countries. Although the pace of completing full PRSPs has been slower than initially expected, there is now a sufficient amount of accumulated experience for some trends to be identified and conclusions drawn, though it must be recognized that the process is still in it’s early stages.
The central message emerging from this review is that there is broad agreement among low-income countries, civil society organizations and their development partners that the objectives of the PRSP approach remain valid and that the PRSP process can improve joint efforts aimed at poverty reduction. Moreover, it is generally recognized that there have been improvements over time in both process and content as countries have moved ahead with preparation and then implementation. This has been the case for countries that started at very different points, indicating that the PRSP process has been quite adaptable to different country circumstances. There is also widespread agreement on four key achievements of the PRSP approach to date:
As had been hoped for from the inception of the PRSP process, there is evidence that the active involvement of civil society has influenced PRSP content, particularly in drawing attention to social exclusion, the impoverishing effects of poor governance, and specific policy issues, such as the elimination of school fees in Tanzania and health fees in Uganda.
In most countries, the preparation of PRSPs has involved useful steps toward better poverty data and diagnostics, helped to clarify national targets and indicators for poverty reduction, and increased attention to monitoring and evaluation. Many countries have identified and started to fill important gaps in their data about poverty and inequality, and have begun to strengthen the institutional arrangements for on-going data collection and analysis.
All the early PRSPs highlighted governance concerns, often as a result of public consultations. Several countries, including Burkina Faso and Mozambique, have highlighted good governance as a principal PRSP objective. All the PRSPs also explicitly discussed the problem of corruption and included strategies to address some dimensions of this problem.
In general, PRSPs have acknowledged the primacy of the private sector for growth, and thus for poverty reduction, although the extent of treatment of related structural issues varies across countries. They also generally recognize that the private sector, often through small and medium enterprises, and rural based production, will be critical for income generation. Several PRSPs have discussed intended privatization of public utilities, although the depth of discussion varies considerably.
PRGF and Post-Conflict Countries
A number of low-income countries are currently, or have recently been, affected by conflict. Several, including Armenia, Azerbaijan, Bosnia-Herzegovina, Cambodia, Guinea Bissau, Rwanda, and Sierra Leone have prepared I-PRSPs and are working on their full PRSPs. In all of these countries, adequate progress towards cementing the peace and establishing security is necessary prior to embarking on the PRSP process with meaningful participation from all stakeholders. However, since poverty, exclusion, and poor governance underlay many conflicts, the PRSP process itself can make an important contribution to furthering peace and preventing future conflict.
Criticisms of the Process
On the negative side, various concerns have been expressed about the lack of involvement of specific groups (such as trade unions and women’s groups) in the participatory process. Concerns have also been expressed by civil society groups as to whether governments are limiting participation to information sharing and consultation, and whether civil society can extend its role in the decision making process beyond targeted poverty reduction programmes to the macroeconomic policy and the structural reform agenda, especially trade liberalisation and privatisation. It has also been questioned whether the level of civil society participation seen in the early stages of the PRSP process is continued to it’s conclusion, with the final document being much more the product of the central authorities than earlier consultations would have suggested.
Some external critics have also argued that the dominance of the Bank and Fund in agenda setting and the choices of reforms to be pursued, as well as the inevitable link between the PRGF/PRSP process and the HIPC initiative, remain as barriers to true country ownership.
IDA is the soft loan facility of the World Bank. It lends to the world’s poorest countries at zero interest with a 10-year grace period and maturities of 35 – 40 years. This facility is important as very poor countries have little or no capacity to borrow at market terms. The aim is to support developments providing access to better basic services such has health and education and support reforms and investments aimed at productivity growth and employment creation.
IDA’s operations are funded from internal resources of the World Bank, reflows and donor contributions. IDA donors meet every three years to decide on the amount of new resources required to fund IDA’s future lending programme and to discuss lending policies and priorities. IDA’s financial strength is based on the strong and continued support of its donors from over 40 countries.
The IDA 13 Replenishment negotiations took place over a period of eighteen months in 2001 and 2002. In July 2002, donor representatives (IDA Deputies) concluded the negotiations of the 13th replenishment of IDA and agreed on a framework for the projected IDA13 programme and its associated financing needs. The IDA13 replenishment will make possible the commitment of SDR 18 billion (about US$23 billion) to poor IDA members over the next three years. Ireland committed €50m to this replenishment. That is a doubling of the sum contributed by this country to the last replenishment (IDA12).
The IDA deputies recognised the exceptional challenges faced by the developing world, especially the very vulnerable IDA countries, and accordingly placed special emphasis on making progress on meeting the Millennium Development Goals (MDGs).
IDA 13 deputies made provision for a number of new recommendations on the operation of IDA. IDA 13 discussions were opened to the borrowers, civil society and the general public. Representatives from the borrowing countries participated in the replenishment discussions. Policy papers were made available to the public before the meetings and comments were sought and considered by the Deputies.
IDA recognised the special difficulties facing the poorest and most vulnerable of IDA countries and recommended a substantial increase in the use of IDA grants. This will result in a range of 18% - 21% of IDA’s total resources being provided in the forms of grants. Grants will be used to help the poorest of IDA' s borrowers to meet the difficulties arising from the HIV/Aids and other communicable diseases, promote debt sustainability, help address the special needs of countries emerging from conflict and help countries deal with natural disasters. While the issue of the funding the costs for grants in IDA 13 was not resolved, Deputies agreed to consider the matter in detail at the mid-term review of IDA 13 during 2003.
The IDA deputies recommended a stronger focus on measuring and monitoring the outcomes and results of IDA programmes during IDA13.
When the international financial institutions and other donors have had major effects on development it is because their assistance has gone beyond mere resource transfer and has helped countries to make fundamental changes - for example, through building institutions or through demonstration projects that have been replicated widely. Evaluation and research are essential so that the Bank and the development community can learn from both the successes and failures of the past 50 years.
The Bank has an Operations Evaluation Department (OED) that is independent of management, reporting directly to the Board of Executive Directors. In recent years this function has been strengthened. OED carries out four main types of evaluations: sector and thematic reviews, country assistance evaluations (CAEs), project reviews, and process reviews. Each year evidence from all these evaluations is marshaled to produce a summary report, the Annual Review of Development Effectiveness (ARDE). Also, the Bank's Quality Assurance Group (QAG) monitors the quality of the Bank's activities during implementation to facilitate better management. In fiscal year 2002 the fourth "Quality-at-Entry Assessment" by QAG rated 94 percent of operations as satisfactory or better. This is 12 percentage points higher than in the first annual assessment.
In its ‘Strategic Forum 2002’, senior managers from the Bank Group focused on six areas that are key. They include a sharp focus on the Millennium Development Goals (MDGs) assisting clients to build good investment climates, finding ways to assist low-income countries under stress, improving knowledge services as a complement to lending, aligning staff skills with Bank strategy and improving the measurement of results.Monterrey Consensus
At the International Conference on Financing for Development in Monterrey, Mexico, in March 2002, the international community committed itself anew to achieving the MDGs. Both developing and developed countries will play important roles in this process. The Monterrey Consensus recognises that commitment to good governance and sound policies are prerequisites to creating the conditions for development success. Some donor countries, including the EU, pledged an additional US$12 billion in aid over the next three years.3. Investing in People
Each year more than 13 million people lose their lives to human immunodeficiency virus/acquired immune deficiency syndrome (HIV/AIDS) and other communicable diseases such as tuberculosis (TB), leprosy, malaria and acute respiratory infections. Equally important are the challenges posed by armed conflicts, knowledge gaps and the digital divide. During 2002, efforts continued to help countries achieve universal primary education, combat communicable diseases, reduce child mortality, improve maternal health and protect the vulnerable from crisis. New lending commitments for Education, Health, Nutrition and Population (HNP) and Social Protection amounted to US$4.26 billion in 2002.Communicable Diseases – HIV/AIDS
HIV/AIDS has presented the international community with a crisis of enormous magnitude. The scale and the urgency of the problem have now been fully recognised as has the necessity to address urgently this the greatest threat to development. The pandemic is having a devastating impact on sub-Saharan Africa, affecting all aspects of development, health, the well being of huge numbers of families and on food security.
Significant support was directed in 2001 toward combating HIV/AIDS, TB, malaria and other communicable diseases. A second Multi-country HIV/AIDS Programme (MAP) for Africa was approved in 2002, earmarking another US$500 million in IDA resources for projects that support the scaling up of national HIV/AIDS prevention and care programs. Also in 2002 the Bank appointed its first Global HIV/AIDS Advisor, who will be responsible for intensifying the Bank's operational work in the field.
The Bank has worked with UNAIDS and the International Partnership against AIDS in Africa to support 16 African countries under the US$1 billion MAP. Similar support to Caribbean nations is benefiting from collaboration with UNAIDS, the Pan American Health Organisation, the World Health Oganisation (WHO) and other regional partners. Following negotiations with UNAIDS co-sponsors - including the Bank several - manufacturers of HIV/AIDS drugs have reduced their prices by 90%. This was part of the Accelerating Access Programme.
Global support has grown with the creation of the ‘Global Fund to Fight AIDS, TB, and Malaria’. New resource commitments by bilateral, multilateral, private, philanthropic organizations, the U.N. General Assembly and Security Council resolutions on HIV/AIDS will all help.
The International AIDS Economic Network - a partnership of the Bank, UNAIDS, the U.S. Agency for International Development, and the European Union - provides data, tools, and analysis to thousands of researchers and practitioners worldwide for compassionate, cost-effective responses to the epidemic. The Bank has also worked closely with the IMF and UNAIDS to help countries integrate HIV/AIDS support into HIPC and PRSP programs.Education
Ireland has achieved much through free public education. We know education is one of the best and most cost effective tools for development. In developing countries, ”130 million children - mostly girls - have never seen the inside of a school. Nearly 900 million adults are illiterate”.
The Millennium Development Goal of ‘Education for All’ (EFA) will require sound macroeconomic and education sector policies that emphasise efficiency and quality, such as reasonable teachers' salaries and school construction costs, as well as adequate domestic - and external - resources. It will also require addressing bottlenecks that may reside outside the formal education sector. In April 2002, the Development Committee adopted ‘An Action Plan’ to accelerate progress on the ‘Education for All’ (EFA) programme. It outlines measures to close the data, policy, capacity, and financing gaps for 88 countries not on track to achieve, by 2015, universal primary education. The Bank has invited 18 countries to join an EFA Fast Track and is working with another 5 to help them qualify for the programme.
In 2002 the Bank helped mobilize domestic resources for education through active support for the Poverty Reduction Strategy Paper (PRSP) process. World Bank lending for education in FY 2002 was US$1.4 billion.
Africa accounted for most of the projects that supported primary education, distance learning and higher education.
The Bank has focused over the past year on developing client responsive sector strategies in environment, rural development, forests, water resources and social development, while implementing the environment strategy and scaling up conflict prevention and post-conflict reconstruction.World Summit on Sustainable Development (WSSD) – Johannesburg 2002
The Millennium Development Goals (MDGs) provide a framework for collaboration on sustainable development and underpinned the Bank's agenda at the United Nations - World Summit on Sustainable Development, held in Johannesburg, S.A. in August/September 2002.
In 2002 the Bank launched a new environment strategy aimed at improving the quality of life, the quality of growth and the quality of global public goods. It builds on the linkages between poverty and environment, stressing the areas of health, livelihoods and vulnerability. This strategy is now being implemented. Information on this can be found on the internet at :- www.worldbank.org/environmentstrategy).
The Bank's future direction for rural development and poverty reduction was developed during 2002. Agricultural growth was identified as a fundamental pathway out of poverty. The multidimensional nature of activities and work across all rural sectors is recognized as a key factor to achieving poverty reduction. The focus is on a more holistic, pro-poor, rural development approach, enhancing returns to labour and land, and more effective agricultural investments. The Bank also supports the Consultative Group on International Agricultural Research.
With regard to the social dimension of sustainable development, Bank staff began work on a social development strategy in 2002 aimed at reviewing and defining the Bank's social development agenda, and at developing a programme of action to help projects and programs better achieve poverty reduction. The Bank has also developed a range of participatory approaches to public expenditure management to ensure greater accountability to citizens for public actions and outcomes.Conflict Prevention
The events of September 11 put an increased focus on the Bank's work in conflict prevention and reconstruction, while demands for assistance for conflict affected countries in the Bank's Europe and Central Asia region and Africa region have continued to be strong. In FY 2002 the Post-Conflict Fund approved over US$13 million, including funds to Afghanistan to support the reconstruction strategy and to the Afghan Interim Administration.
The role of private sector development was emphasised at Monterrey. The World Bank promotes the development of private initiative through its Private Sector Development and Infrastructure Network (PSI), which supports the Bank’s commitment to the Millennium Development Goals (MDGs). The core of the network's activities is consistent with the Bank Group's corporate strategy for achieving these goals. The activities will be focused on two areas, that of building the investment climate and also empowering poor people.
The Bank’s Private Sector Development Strategy is designed to better harness private initiative for growth and poverty reduction. In February 2002 Executive Directors of the Bank Group gave their support to the strategy.
The Bank’s efforts are directed towards infrastructure improvements and new stronger regulatory regimes. These changes are giving increased confidence to private sector investors, while supporting the broader poverty and governance agenda. New investment climate assessments are being carried out in a number of countries with the aim of improving private investment flows to the benefit of the poorest.
Other changes include:
Ø Output-based Aid (OBA); shifting the responsibility for service delivery to private operators by linking the disbursement of aid to actual provision of service.
Ø Internal innovations within the Bank leading to the establishment of a number of joint World Bank – International Finance Committee (IFC) departments to lever the greatest impact of Bank operations in sectors with heavy private sector involvement.
Ø Integration of these new approaches in the Bank's country work through Country Assistance Strategies (CAS) and Poverty Reduction Support Credits (PRSC).
These initiatives show that there is a link between infrastructure improvements and poverty reduction as sought in the Millennium Development Goals (MDG).
In 2002 the Bank adopted an Information and Communications Technology Strategy, (ICTs), which guides the formation of its tele-communications policy. The projects chosen specifically target low-income, rural and other disadvantaged people and will provide them with tele-communications and information services, often for the first time.
The Bank continues to evaluate and monitor the effectiveness of private sector development assistance. The Consultative Group to Assist the Poorest (CGAP), a consortium of 29 bilateral and multilateral donor agencies supporting micro-finance in developing countries, is also currently facilitating an initiative on aid effectiveness. The strategic reviews are expected to yield lessons on improving the effectiveness of all areas of development assistance.6. Strengthening Financial Systems
While the IMF is the international agency primarily tasked with monitoring the world financial system, the World Bank has an important role to play also.
The most important contribution of the Bank is on the developmental side of the financial sector: building the foundations to ensure not only a more stable system but also one that allocates credit to its best uses, thereby maximising growth and poverty alleviation.
Through the Financial Sector Assessment Programme (FSAP), the World Bank and International Monetary Fund (IMF) diagnose vulnerabilities and identify developmental priorities in financial sectors and assess the observance of several international supervisory and regulatory standards and codes. Twenty-one country assessments were undertaken in 2002, bringing the total to 55 assessments since the programme's inception in May 1999. An additional 24 countries are expected to participate in the programme in 2003. These assessments provide a wealth of information, as well as recommendations for follow-up to national authorities. As a result, countries increasingly seek technical assistance for their financial sectors.
The Bank and a number of donors, in partnership with the IMF have launched the Financial Sector Reform and Strengthening Initiative. This new effort, to which US$51 million has been committed over four years, puts in place a systematic mechanism for responding to countries' technical assistance, capacity-building and information needs.
Since September 11 greater emphasis has been placed on the fight against money laundering and abuse of the financial system to support terrorism. The Bank, working closely with the IMF, has significantly stepped up its efforts to help member countries identify weaknesses in their legal and institutional capacity. Assistance has been provided to over 20 countries in reviewing anti-money laundering and counter-terrorism laws and regulations.
The Bank is also leading the development of an international technical assistance coordination mechanism that will contribute to more effective identification and delivery of technical assistance, working with the IMF, Financial Action Task Force, the United Nations, the Egmont Group (an informal organisation of financial intelligence units - the cornerstone of national anti-money laundering programmes), regional development banks, and other partners.7. Promoting the Rule of Law
The rule of law is essential to equitable economic development and sustainable poverty reduction. The diversity of the world's cultures, traditions, and political systems does not allow for a ‘single solution to fit all’ for legal and judicial reforms. As such, in 2002, the Bank carried out legal and judicial sector assessments in Mongolia, Romania, Vietnam and the Federal Republic of Yugoslavia. More are planned.
New lending for stand-alone projects in legal and judicial reform in Colombia and Mongolia, financed by Learning and Innovation Loans, amounted to $10 million for 2002, with another US$104 million in preparation for 2003 projects in Argentina, Cambodia, El Salvador, Guinea, Peru, and the Philippines.
The Bank sees access to justice as a key concern in law and justice efforts. Providing legal services for the poor is one way to help break down barriers to justice. In March 2002 a regional conference in Marrakech, Morocco, co-sponsored by the Legal Vice Presidency and the U.N. Development Programme, addressed the topic "Strategies for Modernising the Judicial Sector in the Arab Countries”. The Bank convened a second meeting of the International Advisory Council on Law and Justice. This is a council of world-renowned legal experts and jurists that advises the Bank on legal and judicial reform strategy, including empowerment of the poor.
In June 2002, the Bank's Legal Vice Presidency, together with the U.N. Environment Programme, co-sponsored a conference in Montreal, "Sustainable Justice 2002: Implementing International Sustainable Development Law", to address key international issues of our day: the environment, the economy, social justice, human rights, health and the inter-linkages among them. This helped rally the resources and expertise of the global legal community toward the ‘World Summit for Sustainable Development’.
HIV/AIDS is one of the biggest development challenges of the 21st century and the Taoiseach has reiterated Ireland’s determination to continue to play an active role in the global fight against HIV/AIDS. Consequently, Ireland Aid has committed substantial financial resources to HIV/AIDS programmes at international, regional and country levels. In 2002, Ireland Aid contributed approximately €40 million in multilateral and bilateral donations towards the fight against HIV/AIDS.
Ireland recognises the leading role the Bank is playing in the international fight against HIV/AIDS, including its role in the establishment of the Global Fund for AIDS, TB and Malaria, and welcomed the Bank’s decision in 2002 to allow up to 100% of International Development Agency funding to be allocated in grant form for HIV/AIDS activities. However, Ireland remains deeply concerned about the fact that the sustainability analysis for HIPC debt relief does not adequately take into account the developmental impact of the HIV/AIDS epidemic. This has been stressed repeatedly at meetings with the Bank during 2002.
Furthermore, while Ireland welcomed the scale and focus of the Bank’s multicountry HIV/AIDS Programme (MAPs), it has expressed concerns about two shortcomings. The first is insufficient dialogue with developing country governments and donors. The second is the capacity of developing country governments to manage multiple international initiatives on HIV/AIDS such as the Global Fund and MAPs with parallel structures not integrated with government systems with the resultant pressure overwhelming their National Aids Control structures. Ireland welcomed the assurances the Bank has given that these shortcomings will be addressed by them in future implementation strategies.
2. Food Crisis in Southern Africa
The Irish government has been actively responding to the unfolding food crisis in Southern African countries such as Malawi, Lesotho, Mozambique, Swaziland, Zambia and Zimbabwe, and in Ethiopia in the Horn of Africa. In 2002, Ireland Aid provided aid of over €9 million to Southern Africa and over €7 million to Ethiopia and the Horn of Africa.
Ireland’s financial support was complemented by ongoing political action. Minister of State Kitt raised the food crisis in discussions with the World Bank during his visit to Washington in November 2002. One of his main arguments was that the severe food crisis in Africa reinforces the urgent need for debt cancellation in heavily indebted poor countries committed to good governance and economic reform. Officials have repeatedly reinforced this latter view at meetings with World Bank and International Monetary Fund officials.
Twenty-six countries are benefiting from debt relief under the enhanced HIPC Initiative. Six of these have reached decision point. The twenty countries past decision point that are not moving, as rapidly as had been anticipated, to completion point are showing mixed economic performances. Many are having problems with the implementation of their macroeconomic programmes. Others are experiencing difficulties due to conflicts and/or arrears. The PRSP process is difficult for some countries that have displaced populations as they are facing difficulties in undertaking a broadly based participatory process. In addition, the outlook for many HIPCs has deteriorated due to the global economic outturn and the fall in commodity prices.
In recognition of the difficulties being experienced it has been proposed to extend the sunset clause of the Initiative to the end of 2004.
The international community needs to continue to provide strong financial support on highly concessional terms. The large increase in the level of grants proposed in the IDA 13 replenishment should be of benefit to those countries most in need.
To maintain long-term debt sustainability beyond the Initiative timetable, HIPC countries will have to achieve sustained economic growth and export diversification through sound economic management, improved governance and a high level of confidence in their institutions.
There have been a number of proposals for additional HIPC relief. It should be noted that the Initiative has the flexibility to ensure a sustainable exit from unsustainable debt by providing, when appropriate, additional debt relief at the completion point.
4. International Conference on Financing for Development, Monterrey
UN General Assembly resolution 54/196, which established the Preparatory Committee for the Monterrey Conference, defined the broad mandate for the Monterrey process. This resolution set out its main purpose as follows: to address national, international and systemic issues relative to financing for development in a holistic manner; in the context of globalisation and interdependence and to identify means for ensuring the availability of sufficient financial resources to reach the goals set by major United Nations conferences and summits of the 1990s, in particular with regard to poverty eradication.
Held in Monterrey, Nuevo Laredo, Mexico, from 18 to 22 March 2002, this first United Nations-hosted conference to address financial and development issues attracted 50 Heads of State or Government, over 200 ministers - as well as leaders from the private sector and civil society, and senior officials of all the major intergovernmental financial, trade, economic and monetary organizations. Ms Liz O’Donnell, T.D. Minister of State, at the Department of Foreign Affairs with responsibility for Overseas Development Assistance, headed Ireland’s delegation. This was the largest group of financial and other economic-sector officials ever to participate in a United Nations-sponsored event up to that time. Over 55 side-events also took place during the conference week. The conference agreed a text, called the Monterrey Consensus.
The UN Millennium Summit in September 2000 set up development goals to eradicate poverty, achieve sustained economic growth and promote sustainable development. The adoption of the Millennium Declaration, in September 2000, provided a significant boost to the Monterrey process and it was a notable factor in the success of Monterrey, as were the informal interactions between government delegates to the United Nations and their colleagues on the executive boards of the World Bank and the International Monetary Fund.
In the run up to Monterrey, which it was hoped would unlock the financial resources needed to further promote development, decisions by the United States and the European Union to increase resources for development assistance were very positive measures helping the success of the Conference.
In his opening Statement His Excellency Mr. Vicente Fox Quesada, President of the United Mexican States said " A century in which security was identified with the construction of walls and barriers has just ended. Today it is our responsibility to pave the way for a century of bridges, not barriers; of encounters, not wars; of shared responsibilities and achievements, not isolated efforts".
The International Conference on Financing for Development, Monterrey has since been seen as a turning point in the approach to development cooperation by the international community and also a new point of reference for future policy-making on the interconnections of domestic and international finance, trade and other development issues. The Conference succeeded in placing financing for development at the forefront of the global agenda.
At Monterrey, in addition to adopting the Monterrey Consensus, government leaders and ministers from around the world, heads of the major international financial and trade institutions, business executives and civil society leaders met in informal round tables for an unprecedented exchange of views. UN staff, international diplomats, as well as the leaders of the Bretton Woods Institutions and the WTO participated in the dialogue. Together with the formal statements in plenary meetings and the large number of pre-conference and parallel events, these round tables served to deepen mutual understanding from a wide range of perspectives.
The UN General Assembly convened on Tuesday, 9 July 2002 to discuss the report of the conference. In resolution 56/210 B, of 9 July 2002, the General Assembly endorsed the Monterrey Consensus.
" Thousands of years ago, the ancient mathematician Archimedes, had something to say about the power of leveraging. Show me where to stand, said Archimedes, and I can lift the world. Today we know where we must stand. We must stand together. And we will lift the world”.
His Majesty King Abdullah II of Jordan, at Monterrey, Mexico
5. World Summit on Sustainable Development
The Taoiseach, the Minister for the Environment and Local Government, and Minister of State Mr. Tom Kitt TD attended the World Summit on Sustainable Development in Johannesburg in September 2002. In his address to the Summit, the Taoiseach reiterated the Irish Government’s absolute commitment to achieving, by 2007, the UN target of spending 0.7% of GNP on Overseas Development Assistance.
The reform of the international institutional framework for the promotion of sustainable development was an important issue discussed at the Johannesburg Summit. One of the main issues is this area was the need for better coordination and for an improvement in the relations between the UN Funds and Programmes, the World Bank and the IMF.
The newly instituted regular meetings between the Economic and Social Council of the UN, the Bretton Woods Institutions and the WTO are examples of improved co-operation set in motion by the Financing for Development conference in Monterrey, March 2002, and given added impetus by Johannesburg.
Ireland was also pleased at the inclusion of wording in the Johannesburg Plan of Implementation which calls for the mobilisation of resources, "at all levels, including the World Bank", to complement the efforts by national governments in relation to education.
6. Policy document on Developing Country Debt
The Government’s position on Ireland’s debt strategy for developing countries was prepared jointly by Ireland Aid and the Department of Finance and was issued in July 2002. A major press conference was held to publicise this development. The Government has concluded that, in principle, the total cancellation of the debts of the Heavily Indebted Poor Countries is a politically acceptable objective and one that we would support. It also emphasises that debt cancellation requires increased funding. Cancellation of HIPC debts should be accompanied by strong monitoring and accountability mechanisms to ensure that the additional funds available to HIPC Governments, through debt cancellation, would be directly channeled into increased social expenditure, particularly HIV/AIDS and education where there are strong and immediate benefits.
Total debt cancellation would, however, have to be funded largely through additional donor contributions to replace revenue streams. In order to mobilise the necessary funds for total debt cancellation, a greater number of donors, particularly the larger economies, would have to increase their ODA more rapidly and take more concrete steps to meeting the UN target. While we support, in principle, the total cancellation of HIPC country debts we believe that, in practice, the additional donor contributions required to achieve this will be difficult to mobilize, despite the recognition of these problems at Monterrey and Johannesburg.
Ireland is also concerned that the HIPC process is not working as effectively as it might and is not delivering on its stated objective of debt sustainability. In particular there are problems with the definition of the sustainability criteria and the adequacy of funding. This was also mentioned in the debt strategy document. The existing criteria currently focus on debt/exports and debt/revenue ratios. The criteria also critically depend on projections about future growth, particularly in export earnings.
The most recent reports from the Bank and the Fund on debt sustainability prompt serious concerns about the sustainability criteria, the extent to which they take human development indicators into account and, at times, the excessive optimism which has under pinned some of the projections about economic growth. We have concluded that sustainability criteria need to pay far more attention to the debt/revenue ratio as this takes more fully into account the amount of money a Government has to spend on social service after debt payments and is, therefore, more targeted at human development indicators. We support the call by the NEPAD that debt relief should be linked with costed poverty reduction outcomes. We support a further enhancement of the HIPC initiative which should include a revision of the debt sustainability criteria and the injection of additional donor funding to provide a greater level of debt relief. The enhancement of HIPC should also take into account the impact of HIV/AIDS on the economies of the HIPC countries with HIV/Aids prevalence.
We believe it is particularly important to strengthen the capacity of developing countries to manage their existing debts and to ensure that any new borrowing does not result in a new debt crisis in the years to come. In July 2002 Ireland Aid announced a commitment of €1.5m, over three years, to the activities of Debt Relief International, a non-profit making organisation which helps developing countries manage their borrowing and their existing debts.
It is hoped that a capacity building programme to be implemented through Debt Relief International will help Governments of HIPC countries to manage their own debt strategy and analysis, without having to rely on international technical assistance.7. Crisis in Argentina
For much of the 1990s, Argentina enjoyed favourable economic conditions. In 1991, under a currency board arrangement, it had pegged its exchange rate to the dollar. This reduced inflation rates to single-digit levels after the much higher levels seen previously. The banking sector in Argentina was also strengthened by this move and the greater economic stability attracted foreign investment inflows, contributing to an acceleration in economic growth.
The Argentine government, however, was a large employer and found it difficult to cut its wage bill. The central government also had difficulties in controlling spending by provincial governments and was eventually forced to assume their debts.
By 2001, Argentina's public debt/GDP ratio had reached 65%. Though not unusually high by international standards this caused uncertainty among investors, given the macroeconomic history of the region. This resulted in very sharp increases in the yields investors demanded in order to hold Argentine government bonds. This in turn placed pressure on the currency peg system and led to large scale deposit withdrawals from the banking system.
In December 2001, Argentina suspended payments on its external debt and restricted deposit withdrawals (under a system known as the "corralito"). In January 2002, it abandoned its peg to the U.S. dollar.
During this time discussions had continued with the IMF. The Fund sought measures to cut Argentina’s public debt, reduce government spending, reform the taxation system and stimulate export growth over the medium to long run. The Argentinean crisis was reflected in difficulties for other regional economies particularly Uruguay.
On January 8 2003, Mr. Horst Köhler, Managing Director of the International Monetary Fund confirmed that he was recommending to the IMF's 24-member Executive Board approval of transitional financial support for Argentina.
He transmitted to the Executive Board the Argentine authorities' letter of intent and memorandum of economic policies. However, the transitional programme involves exceptional risks to the Fund that are outlined in depth in the Fund staff report. They relate to the fragility of the macroeconomic policy framework and the political challenges to implementation. It is hoped that the programme will catalyse a cohesive effort on the part of the Argentine authorities, the provinces, legislators and civil society to bring about economic reforms, build a sound fiscal framework, restore confidence in the banking sector, increase trade openness and restructure the national debt.
 The SDR (Special Drawing Right) created by the IMF in 1969 is the official unit of account of the International Monetary Fund. It is also an international reserve asset and is allocated to its members to supplement existing reserve assets. On 31 December 2002, 1 SDR = €1.29639.
Extensive information on IDA is available at www.worldbank.org/ida
 A country’s debt is said to be unsustainable when, regardless of the sovereign's efforts to service it, debt relative to GDP (and therefore debt servicing relative to GDP) will grow indefinitely.
In the case of monetary unions, what counts is the export of goods and services from the union to other countries and not the trade among members of the union. Furthermore, a selection criterion has been introduced to ensure that the currencies included in the SDR valuation basket are among the most widely used in international transactions. For this purpose, the IMF would have to determine that a currency selected for inclusion in the basket is "freely usable" in accordance with the criteria specified in Article XXX(f) of the IMF's Articles of Agreement. Under this provision, a currency is "freely usable" if the Executive Board determines that it is in fact widely used to make payments for international transactions and is widely traded in the principal foreign exchange markets. The weights assigned to the currencies in the SDR basket will be based on (i) the value of the exports of goods and services of members or monetary unions and; (ii) the amount of reserves denominated in the respective currencies which are held by other members of the IMF.
 Review of the Poverty Reduction and Growth Facility: Issues and Options, SM/02/51, February 15, 2002.
Quote from Minister Mc Creevy’s speech to the annual meetings of the World Bank and the IMF in September 2002 - see Appendix 2
 The Taoiseach, Mr. Bertie Ahern, spoke at the summit and his speech is available at Appendix 1. The key outcomes of the summit are available at Appendix 3. A report of the summit is available on the Internet at: - http://www.johannesburgsummit.org/.
 Information is available at www.worldbank.org/finance/html/fsap.html.
 Taoiseach’s address is at Appendix 1
 Executive Summary of Ireland’s Debt Strategy is at Appendix 8
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