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World Bank

Volume 447: debated on Tuesday 20 June 2006

To ask the Secretary of State for International Development what key proposals he made to the World Bank Spring Meeting; what decisions the Bank took on (a) these proposals and (b) other matters; and if he will make a statement. (77763)

Major UK objectives for the World Bank 2006 Spring Meeting were delivery on 2005 commitments, governance and corruption, climate change and clean energy, and the Investment Climate Facility (ICF) for Africa. The Development Committee focused its discussion on two World Bank documents: (i) The Global Monitoring Report (GMR) 2006: Strengthening Mutual Accountability—Aid, Trade and Governance and (ii) Clean Energy and Development: Towards an Investment Framework.

The GMR sets out clearly the progress that has been made on tackling poverty, and the challenges that remain. We noted that almost all developing countries are off-track to meet at least some of the Millennium Development Goals (MDGs), and the lack of progress in Africa is especially worrying. More aid is clearly essential, and it must be delivered more effectively. We called on the World Bank, other bilateral and multilateral agencies to take action, and ensure that we live up to the commitments made in Paris on aid effectiveness last year, including a country-based approach. The Results and Resources Frameworks, first suggested in the Bank's Africa Action Plan, are a good vehicle for improving mutual accountability and we urged the Bank to develop and implement them quickly. We also called on donors to give more emphasis to assisting the poorest countries, including fragile states and make commitments to increased and long-term resources for education so that developing countries can fully finance their education plans over the long-term.

The Development Committee agreed that donors should fully implement the commitments they have made for substantial increases in aid volumes, and that the World Bank and the International Monetary Fund (IMF) have a key role in helping countries ensure that increases in aid volumes can be absorbed effectively, consistent with macro-economic stability and growth objectives. Rapid progress was required to implement the framework agreed in the Paris Declaration for enhancing aid effectiveness through a stronger focus on results. Donors need to improve the quality of aid, modalities of aid delivery to reduce volatility, achieve greater predictability, and provide stronger alignment with national poverty reduction strategies. They were encouraged where possible to move towards multi-year plans and commitments, and be ready to finance recurrent costs where sector policies are sound and fiduciary conditions are adequate. The Committee agreed that the World Bank and other partners should improve their coordination at the country level, particularly in strengthening health services and improving access to good quality education, to reduce transaction costs and help increase absorptive capacity. Donors should fill the Education Fast Track Initiative current financing gap and a progress report on Education for All should be submitted to the Annual Meeting in Singapore. The Committee urged the Bank to implement the annual Results and Resources Frameworks.

The focus of this year's GMR was governance. Prior to the Development Committee, I wrote an article on corruption and participated in a forum on governance and corruption at the Center for Global Development in Washington. At the Committee, I underlined that governance was critical for development and achieving the MDGs, and an essential element of the compact between developing countries, developed countries and international institutions. Only countries themselves can make the decisive changes that are needed. However, donors can help the process of creating more effective states and it is vital that we assist. The proposed Bank framework for monitoring provided a practical and useful starting point, and should be developed further to include aspects such as the extent to which the state responds to the wishes of the people, particularly the poor. We strongly supported the message in the report that corruption is an outcome of poor governance, and caused by a number of failures of national and global systems. It should not be tolerated; but we made clear that our work on tackling corruption needs to get better at addressing the failures, and connect better with the people who have the power and motivation to do something about it. The international community must work collaboratively and take a firm line on the need to tackle and prevent corruption. It must not equate to doing nothing in poor countries where corruption is an issue. Instead, we must find more effective ways of engaging.

I called on the World Bank to develop a framework for assisting developing countries with their long-term efforts to improve governance, and tackle corruption where it needs addressing. The framework will need to include how we can best ensure that aid is used for the purpose for which it was intended. This will include strong, independent units to detect and investigate fraud; strengthening national financial and accountability systems more effectively; and how to address the corruption that comes from beyond national borders, including developing global initiatives, such as the Extractive Industries Transparency Initiative. We urged the World Bank to consult widely in taking forward this work, recognising that addressing governance failures will require action from all parts of the international community, not only from developing countries. It is essential that the framework commands broad support.

The Development Committee endorsed these views and the main messages of the report. It called on the World Bank to develop and submit to the Annual Meetings in Singapore a broad strategy for helping member countries strengthen governance and deepen the fight against corruption, with clear guidelines for World Bank operations.

On clean energy and development, I made clear that the effects of climate change are already being felt in many developing countries and will seriously impact our global efforts to reduce poverty and meet the MDGs. Responsibility for mitigating climate change requires urgent action on the part of richer countries, while some fast-growing middle-income countries must shift to cleaner, more efficient energy production to avoid exacerbating the problem. Meanwhile, developing countries need access to affordable, reliable and clean energy to grow their economies and to lift people out of poverty. We urged the international community to act now to support countries to do this in a sustainable way and so achieve a double-dividend of poverty reduction and environmental protection. Helping member countries meet these challenges should be a key objective of the World Bank and other multilateral development banks over the coming years.

We welcomed the valuable work undertaken already in the World Bank to develop an investment framework to accelerate investment in clean energy, energy efficiency and adaptation to climate change. This now needs to be developed further into an ambitious global investment framework based on sound analysis of existing financial resources and identification of gaps where new instruments are needed. We urged the World Bank to work closely with the multilateral development banks, private sector and civil society to create a global joint investment framework to be presented at the Annual Meetings in Singapore. The Development Committee endorsed the importance of this work and asked the Bank to submit a report on progress towards an investment framework in September.

In the margins of the Spring Meetings, I co-hosted with President Wolfowitz a meeting to raise awareness among donors and African countries of the Investment Climate Facility for Africa. African governments and institutions know that creating the right environment in which people and firms feel comfortable investing their money is crucial for Africa's prosperity. If Africa is to achieve the growth necessary to meet the MDGs, the business environment must improve significantly. Boosting African growth and poverty reduction is, ultimately, what the ICF is all about. I urged donors to co-fund the ICF and cooperate operationally so that it can add value and truly be complementary to existing work. African participants welcomed the formation of the ICF with its strong African ownership. Donors (including the International Finance Corporation and the European Commission) and companies have also responded positively and the ICF was launched in Africa on 1 June.

To ask the Secretary of State for International Development to what extent the World Bank and International Monetary Fund require developing countries to liberalise their economies as a condition for aid; and what recent changes have been made to their policies on liberalisation. (77764)

In 2004, the World Bank abolished its practice of "prescriptive conditionally", which meant countries were urged to adopt specific economic policies to receive budgetary support. The UK pressed for a review of the World Bank's use of conditionality, and this concluded in September 2005. The World Bank undertook analysis of previous practice and recent thinking, and sought contributions and views from many sources, including developing countries. I made a written submission, setting out the Government's stance, and particularly emphasising the importance of country ownership in setting the development agenda. The review report has been published and is available on the World Bank website at www.worldbank.org. It showed that the use of conditionality in sensitive areas, such as trade liberalisation and privatisation, had declined in recent years. The review also proposed five good practice principles to guide the World Bank's use of conditionality, and these were endorsed by ministers.

The principles are:

Ownership

Conditionality should reinforce, not undermine, country ownership of policies and programmes.

Harmonisation

Conditionality should be agreed up-front with the government and with other donors, as part of a wider framework for assessing progress on poverty reduction.

Customisation

Conditionality should reflect country circumstances.

Criticality

Conditionality that determines whether to release money should include only those actions that are critical for the programme's success.

Transparency

Conditionality should be specified so that it can be reviewed transparently, and so ensure that the Bank's financial support is predictable.

The World Bank will be reporting back in the next few months on how it has implemented these principles.

The International Monetary Fund (IMF) has also improved its practice on conditionality in recent years. The conditionality guidelines approved by the IMF in 2002 are similar to those adopted by the World Bank. A review of IMF conditionality last year demonstrated a sharper focus on core areas of the Fund's remit in macroeconomic management and a reduction in conditions on privatisation and liberalisation. A separate review of the Fund's trade policy and conditions showed a sharp reduction in overall conditions on trade policy since the adoption of the guidelines. In addition, it demonstrated a shift towards conditions on trade governance, such as reforming customs administration, and away from trade policy such as tariffs. The Independent Evaluation Office of the IMF is currently undertaking a study to look at the process of setting conditionality on economic reforms, which is expected to report later this year.