Examination of Witnesses (Questions 40
- 59)
MR MYLES
WICKSTEAD, MR
BARRIE IRETON
AND MS
MARGARET CUND
THURSDAY 22 JULY 1999
Dr Tonge
40. There is not such a thing as a flow chart
in existence, is there, which shows how the money flows round
the Bank, the regional bank and IDA?
(Mr Ireton) The Banks themselves do not have money
flowing between them. The World Bank, as an institution, does
not fund the African Development Bank or other Regional Development
Banks. They are autonomous institutions with shareholders and
they each have their own funds which the donors separately contribute
to as a result of these replenishments.
(Ms Cund) Of course they each have their own programmes
too in a particular region so there are World Bank programmes
and African Bank programmes.
41. That is why I am asking if there is ever
a conflict.
(Ms Cund) That is exactly why we are very keen to
see the strategic partnership and to see that they identify their
areas of comparative advantage, so that it works for the benefit
of the countries and does not just complicate the system with
too much duplication.
Chairman
42. I am very glad you are dragging UNDP into
this argument. I see the World Bank has put its own man in there
now to aid this comprehensive approach. We found a problem in
Bangladesh between the Asian Development Bank and the World Bank.
The World Bank have said they are not going to fund the corrupt
power system of Bangladesh, thank God. They have done it in the
past but they have stopped it now until there is a reform. There
is the Asian Development Bank saying, "We would like to lend
to it through the rural development programme of electrification,"
trying to convince me that that was a cheaper means of supporting
a power sector than supporting the major producer. I hope we have
put a stop to that.
(Ms Cund) I followed that point up after you raised
it when we gave evidence on the regional development banks and
if you like I will write to you on that to explain the situation.[1]
Chairman: I would be grateful, yes, because
it is just an instance of the problem. Let us move on to the social
dimensions.
Ann Clwyd
43. I would like to ask a series of questions
together. Can I ask you about the United Kingdom strategy? The
Bretton Woods Project told us that exactly a year ago DFID wrote
to them saying that the International Financial Institutions Department
had been asked to write an Institutional Strategy Paper on the
World Bank Group by September 1998.[2]
They say that many NGO representatives attended those meetings
in last July to discuss a draft outline for the paper and were
promised a further draft to comment on in a few weeks, but until
now they say that you have neither circulated a further draft
nor finished the paper. Why has the process of producing an international
strategy paper taken so long?
(Ms Cund) This rests with me entirely.
I take all the responsibility and all the blame. That is absolutely
correct. We have another draft. We did feel that we needed, for
various reasons, to update the paper, not least because of Mr
Wolfensohn's Comprehensive Development Framework, which meant
that and various other changes. In fact, we have done quite a
lot of redrafting of the paper. I have to say I have been very
short staffed, in my own defence, but I have every intention that
we are going to circulate another draft next week.
44. What are the main elements of the United
Kingdom strategy towards the World Bank? Can you share some of
those thoughts with us?
(Ms Cund) We outlined this a little bit in our Departmental
Report. I think there are four main areas. First of all, there
is reinforcing the Bank's poverty mission and there are various
aspects of this, some of which we have already touched on, particularly
the World Development Reports. We want all of these to be very
much structured around the international development targets,
most particularly the one which is going to come out next year
on poverty. That is WDR 2000-2001. Every ten years, the Bank produces
a WDR on poverty. The 1990 one was thought to have been very key
in changing the Bank's approach and we think it is very timely
that they are about to produce another one. We are very keen to
see implementation of IDA 12. We have talked a little bit already
about the importance of the Country Assistance Strategies; also
about the implementation of the HIPC initiative, and we are pressing
the World Bank for a private sector development strategy which
we recognise—as indeed do the NGOs; we had a very interesting
meeting with them two years ago—that is very important for
the Bank to bring together all its mechanisms and have a coherent
strategy for working with the private sector. That is the first
section. Improving relationships with others is the second key
area we are very keen on. We have again already touched on some
of that: the Comprehensive Development Framework, relationships
with the regional development banks, with the IMF and with UN
agencies. A third priority area is organisation and efficiency.
We are following very closely the implementation of the Strategic
Compact which was agreed in 1997. Decentralisation to the field
and the building up of advisory networks are very important elements
of that one.
We want to see the Inspection Panel extended
to the IFC and to MIGA. That was in the IDA 12 Deputies report
and we shall be following that one up. Fourthly, there are the
financial issues which again we have also touched on, looking
at the whole net income stream which the Bank has, because this
makes transfers to HIPC and also to IDA, and looking at the general
capital adequacy of the Bank which we have already talked about.
Those are the four key areas which will come out.
45. I look forward to seeing that paper. Do
you think the United Kingdom delegation in Washington and DFID
should prepare for us a short annual report on bank performance
and the United Kingdom input to the Bank's board?
(Mr Ireton) Subject to our Secretary of State's views,
I think that is an important element in our own Departmental Report
to Parliament. Indeed there is a section in the latest one which
outlines more briefly the essential four objectives which we have
for the Bank.
46. You think the present reporting is adequate
in that area?
(Mr Ireton) That of course is for the Select Committee
to comment on, but I think it is the right vehicle. The next vehicle
would be some time in the future when we were to revise our Institutional
Strategy Paper, when we would then be looking back as to how successful
we had been in seeking to influence the Bank in the directions
we said we wanted to. There are mechanisms for doing that.
47. What would you point up as the United Kingdom
delegation's most important interventions at the board over the
last year?
(Mr Wickstead) In terms of the policy agenda that
Margaret outlined, in terms of poverty, we have been able to ensure
that the Country Assistance Strategies focus very strongly on
poverty and we bang on interminably about the international development
goals. That is showing some results because those are increasingly
mentioned now in the country assistance strategies. I think we
have been able to play a quite constructive role on a number of
specific project discussions. Many of the delegations do not actually
have specific development expertise. They tend to be people from
Treasuries and others. Particularly with the DFID background,
a number of members of the delegation are able to bring that particular
experience to bear. We were also able to influence the overall
World Bank mission statement which focuses strongly on the poverty
objective. We have been able to stress the importance, when we
have been discussing the Comprehensive Development Framework,
of the broader coherence agenda and the importance of the Bank
becoming involved, for example, in trade policy issues. We have
made some funds available bilaterally to support the Bank's work
in that and, in particular, to help the Bank work with developing
countries in preparing for the new trade round. My general conclusion
from this is that we are able to bring quite substantial influence
to bear in the Bank board, more than our share would perhaps suggest,
because we have an extremely clear policy framework and a very
strong focus on poverty and a clear recognition of the importance
of the international development targets, a clear recognition
of the importance of partnerships, and that relates very closely
to the Comprehensive Development Framework, and a clear understanding
of the need for policy coherence. That allows us to hone in very
strongly on the issues that come to us.
48. Would you say that the poverty targets that
you set originally are still attainable or have you had to readjust
those?
(Mr Ireton) We did not set those targets. Those targets,
by and large, came from UN international agreements at meetings.
We, the United Kingdom, and we, the donors, did not actually set
those, though as you know the OECD brought these together, setting
out the over-arching one for reducing the proportion of people
in extreme poverty by half by the year 2015.
49. When Ministers say, "We will reduce
world poverty by ...", the "we" is?
(Mr Ireton) "We" meaning the international
community collectively with the developing countries concerned.
Chairman
50. It is an OECD agreed target, is it not?
(Mr Ireton) The over-arching target of reducing the
incidence of poverty was one which the Development Assistance
Committee added, although I must say the general objective can
be found in a number of other UN statements and agreements. Whether
it is still achievable my view is that it is far too early to
judge. It depends crucially on the policies of us all and the
countries concerned in the coming years. The Committee knows that
the Bank has produced its global forecasts for developing countries
in the medium term. Disregarding a number of other factors, that
suggests that the over-arching target is achievable but possibly
with considerable difficulty in sub-Saharan Africa. That does
not mean to say that targets will not be achieved. It means we
merely have to look more searchingly at how we are going to achieve
them. I think that is the first point. We are funding some research
through ODI on this which is not yet concluded but some tentative
indications and important messages are emerging from that. One
is, not surprisingly, the extent to which countries can achieve
these targets, which will depend critically upon the degree of
inequality that will persist or not persist over the next 15 years.
Achieving the overall targets is very sensitive to that. It is
more sensitive to that, to some extent, than the growth rates.
Again, on a good scenario of good policies and good growth, most
regions will achieve that target. Certainly on a low growth, poor
policy scenario, certainly sub-Saharan Africa and eastern Europe
would not achieve it and on some of the other targets of course
that depends very much on sector specific and inter-sectoral policies
that are pursued.
Ann Clwyd
51. In response to a proposal from the Chancellor,
the Bank was asked by the Development Committee to develop a set
of good social policies and detail best practices for achieving
them. Can you tell us what progress has been made on that?
(Mr Wickstead) There was a discussion at the Development
Committee in April of a first paper on that. It was agreed that
further work should be done on this and there would be a further
discussion at the annual meeting, or at least this would be covered
in written statements. I think there has been agreement that there
should be a division of labour on much of this between the United
Nations and the World Bank and IMF. The United Nations is essentially
responsible for defining principles. What the World Bank is particularly
well placed to do is to set out examples of best practice as to
how countries might organise themselves best. Of course, this
initiative came out of the east Asia crisis, so it is rooted very
firmly in how countries can best respond to a crisis situation,
but it has broadened from that so that there are more general
principles not just about how a country can respond to a crisis
but how a country ought to prepare itself in advance of a possible
crisis. This is ongoing work and I think we are quite encouraged
by the way it is going. The World Bank board is not unanimous
on the importance of these principles. There are certainly some
of the borrowing countries who feel that this is likely to represent
an additional layer of conditionality and we hope to persuade
them that this is not at all how it is intended.
Chairman
52. It is pretty interventionist stuff though,
is it not?
(Mr Wickstead) Originally it may have appeared that
way and there was a suggestion that it should be called a code
of best social practice or whatever to go along with various other
codes that were being proposed in the IMF on fiscal transparency
and other things. I think it was recognised increasingly and quite
quickly that this would be indeed unacceptable. There is a clear
recognition that not all countries can be expected to move at
the same pace; that countries are in different circumstances.
This is intended to be, as it suggests, a broad set of principles,
objectives to aim towards rather than things set out saying, "You
must do this".
53. I thought it had a certain imperial tone
about it when I first saw it.
(Mr Ireton) It really is reinforcing the message about
the international development goals, the four pillars of this,
which are universal access to basic services, to secure sustainable
livelihoods, to strengthen social integration and promoting systems
of social protection. These are a very integral part of the development
process over time of a country, which is why we do not see them
as simply a new set of conditions that have to be met. They are
as much a challenge to us as donors as they are to the borrower
countries.
Ann Clwyd
54. Will best practice guidelines include macroeconomic
policies that will have a positive or minimal effect on the poorest?
(Mr Ireton) Yes, because they will have budgetary
implications.
55. Who, outside the Bank, is actually advising
on these guidelines?
(Mr Wickstead) I think there is a consultation process
that has been put into effect. I know that all the UN agencies,
for example, have been consulted. There is a consultation process
underway with a number of non-governmental organisations and of
course governments are being involved and invited to comment on
a series of drafts that are going forward. We have had I think
three discussions now of various drafts in the board and no doubt
we will have one or two more before the annual meeting.
(Mr Ireton) Our own intention is that these principles
are taken forward in the Copenhagen +5 context, the meeting being
in June 2000, but their preparatory meeting is later this year,
when we would hope to be able better to explain to our partners
why we feel these are important, long term issues that should
be there. As Myles said, the Bank will take forward best practice
and report again to the annual meeting.
56. Who is resisting you on the Bank?
(Mr Wickstead) I probably should not name names but
it is some of the better off borrowing countries. I think many
of the poorer IDA countries very much welcome these principles
and support them very strongly. I think it is at least one big
east Asian country and at least one big Latin American country
that are most against this.
Chairman
57. Can we turn from the social to the private
sector? As we know, the White Paper private flows are recognised
as the engine of development and therefore we wanted to ask, in
representing that view in Washington, what steps the World Bank
is taking to assist developing countries in attracting private
investment and in ensuring that private investment benefits the
poor. This relates presumably also to IFC, the work you do on
IFC, and you made reference to that in your capital adequacy agenda
item which we need to hear more about.
(Mr Wickstead) Perhaps I can say something about both
those items together because they are in fact extremely closely
related.
58. Yes.
(Mr Wickstead) There is a case, the IFC believe, for
an increase in their capital base to allow them in particular
to involve the private sector more in countries emerging from
crisis. We are keen to see that case that they put forward but
believe that a very important part of it will rest on the overall
private sector strategy which was referred to earlier and which
the Bank is now in the process of constructing.
59. Right.
(Mr Wickstead) So we firmly expect in the next few
weeks to have either two papers or two halves of a single paper.
One of them will be the World Bank Group's private sector strategy
and this will be about how the World Bank in creating the overall
environment for the private sector to operate, the IFC which makes
loans or takes equity participation in private sector companies,
the various guarantee mechanisms which are available through IDA
or the World Bank, the Multilateral Investment Guarantee Agency,
how all those things come together in order to form a cohesive
World Bank Group strategy for support to the private sector. Then
within that context we want to see another half of the same paper
or a different paper which makes the case for whether or not an
increase to the IFC's capital base is required. This is intended
to be on the agenda for the annual meetings at the end of September.
1 See Evidence p. 17. Back
2
See Evidence p. 34. Back
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