Conference notes IRRI-KIIB

Mr. Gino P. Alzetta started off the conference by offering a clearer picture of the World Bank. He gave a historical overview and offered details about the functioning of the World Bank. He then highlighted the role of the World Bank in global development, focusing on poverty reduction and good governance.

Historical overview

The World Bank was established in July 1944 at the Breton Woods Conference which was pursuing three goals:
- facilitate reconstruction, which led to the creation of IBRD (International Bank for Reconstruction and Development)
- ensure financial and monetary stability, which led to the creation of IMF
- restore and expand trade, an objective which has been more difficult to achieve. It started with the GATT and it is only in 1995 that the WTO was created.

The IBRD initial mission was to rebuild an Europe after World War II. Its first loan was extended in May 1947, to France for an amount of $250 million to finance post-war reconstruction. It was one of the largest loans in real terms made by the Bank in its first 50 years of operation. Many developed nations who are now donors, were also borrowers, such as Austria, Belgium, Denmark, Japan, Italy etc. Belgium received four loans between '49 -'57, the last three for the development of Congo.

Today, the World Bank Group is one of the world's largest sources of development assistance. In fiscal year 2006, it provided about $23.6 billion in loans to developing countries and it works in more than 100 developing economies. Today’s primary focus is helping the poorest people and the poorest countries.

Mr. Alzetta clarified that the World Bank Group is a close association of five institutions: the IBRD, IDA, IFC, MIGA and ICSID.
 

The World Bank today:

Five institutions

The first institution created in 1944 is the IBRD. It has 184 member countries. Almost all UN members are members of the World Bank with two exceptions: Cuba and North Korea. Mr. Alzetta calls this institution the "non-concessional window" of the group: it provides loans and guarantees at market rates that remain nevertheless lower than those of commercial banks because IBRD has AAA bond rating which enables it to borrow in capital markets at low cost and, therefore, to offer its clients good borrowing terms. Mr. Alzetta emphasized that it earns enough income to ensure its financial strength and sustain its development activities and to support other institutions like IDA.

The second institution is the IDA, the International Development Association, which was created in 1960. It is the largest source of concessional financial assistance for the poorest countries. It gives loans without charging interest. It is financed by its own resources and by donor governments, including some emerging countries. Donors meet every three years to replenish IDA. Given the increased level of its operations, IDA needs fresh contributions on a regular basis.

The third institution is the IFC, International Finance Corporation, established in 1956. IBRD and IDA are lending to sovereign governments or with government guarantees. In the late fifties, it was felt that this was not sufficient to ensure the development of the private sector. IFC was therefore created. It requires no government guarantees. It promotes sustainable private sector investment in developing countries as a way to reduce poverty.

The fourth institution is MIGA, Multilateral Investment Guarantee Agency, established in 1988. It helps encourage foreign investment in developing countries by providing guarantees to foreign investors against losses caused by non-commercial risks, such as expropriation, currency inconvertibility and transfer restriction, breach of contract, war, and civil disturbance. It provides advisory services to help countries attract and retain foreign investment. It works in close cooperation with IFC.

The fifth institution is the ICSID, International Centre for Settlement of Investment Disputes, created in 1966. It helps in mediating, conciliating disputes between foreign investors and host countries. It conducts research and published activities in the areas of arbitration law and foreign investment law.

Mr. Alzetta provided then an overview of the Belgian position in the World Bank Group. Belgium is member of all five institutions. In the case of IBRD, Belgium’s voting power is 1.81 (percent of the total).

World Bank Lending

Mr. Alzetta described the lending system and gave an overview of the total IBRD-IDA lending by region for the fiscal year 2006. He pointed to the fact that the years 1998-2000 were heavily influenced by the Asian and Russian crisis. Latin-America is the largest recipient of the total IBRD-IDA lending, Africa counts for 17%. But Mr. Alzetta stressed the fact that as far Africa is concerned, if one looks at IDA figures alone, which is the window to which most of sub-Saharan African countries have access, one realizes that the percentage of lending to Africa is getting close to 50%.
He then looked at the ten largest IBRD-IDA borrowers for fiscal 2006: the first two are Mexico and Brazil.

Organization

Each member nation appoints a Governor and an Alternate Governor. The Governor is usually the Minister of Finance or the Minister of Development. The ministers meet once a year. The last annual meeting was held in Singapore. The Board of Governors has delegated specific duties to Executive Directors (24 members - some are appointed, some are elected). The President of the World Bank reports to the Board of Executive Directors.

As Mr. Alzetta is the World Bank Executive Director for 10 countries, the respective voting power for his constituency is 4.80%. It is the third largest consistency in terms of voting power just after the US and Japan.

During the Q&A session, Mr. Alzetta stated that the European voice has been heard more and more, but he admitted that "there are limitations to EU coordination, because of the subsets in the European countries- like the G-7, the Nordic/Baltic Group- where members adopt sometimes a position more loyal to their "sub-group" than to the EU. Although reconciling these subsets is a big task, great progress has nevertheless been achieved. Coordination is usually more successful when the presidency is held by smaller countries. Recently, Mr. Alzetta has directed the Luxembourg and Austrian presidency during which 4 and 8 joint statements have been issued respectively. One of the most important related to the views that European chairs conveyed to Mr. Wolfowitz upon his appointment.

Staff

Mr. Alzetta gave a short presentation of the culturally-diverse multilateral organisation. 1/3 of the staff works in the field. 61% of all staff are nationals from developing countries. 51% of all staff are women. 16% of all staff are Sub-Saharan African and Caribbean nationals. There are 95 Belgian staff members and 39 Belgian Consultants and/or Temporaries.
 

The role of the World Bank in global development

The changing Bank: priorities and approach

Going into more operational details, Mr. Alzetta stated that "progress towards poverty reduction has been significant over the last 30 years". Income per person has doubled. Life expectancy has increased from 55 to 65 years etc. But substantial challenges still remain. Statistics show that some 2.8 billion people live on less than $2 a day and 1.1 billion people live on less than $1 a day.

Mr. Alzetta referred to the Millenium Development Goals adopted by the World Bank. Looking at the prospects of achieving the MDG's, he was positive about the possibility to achieve the first goal by 2015, but he expressed concern about the fact that this is being essentially boosted by progress achieved in China and India, not Africa. He thinks that "we need major efforts to meet the other goals, like education and health".

Over the past 20 years, the World Bank's focus has changed, and also has its approach.
The Bank has broadened its portfolio's focus to include poverty alleviation and reduction, debt relief, good governance... Support for social services such as health, nutrition and education has grown. Countries are developing their own plans and the Bank is responding with new tools.

Other priorities for today's World bank are: improve delivery of basic education and health services, provide social protection for losers from economic change, direct more aid where it will do the most good, protect the environment, support and encourage private business development, promote reforms to create a stable economic environment .... Mr. Alzetta underlined that "the World Bank is the world’s single largest provider of external funding for education" and it is "the largest external funding source for health". He also stressed the importance the Bank attaches to the fight against HIV/Aids: a tremendous problem in Africa, but also a growing problem in South-Asia and Europe and Central Asia, particularly in the former Soviet Union.

The overarching goal is poverty reduction 

Mr. Alzetta then detailed an important tool: the “Poverty Reduction Strategy Process" used by developing countries. This process is the basis for World Bank (IDA) lending. It promotes a country-driven strategy that involves broad-based participation of civil society. It is results-oriented, focusing on outcomes that will benefit the poor. It is comprehensive, because poverty is a global concept, and it is based on a long-term perspective for poverty reduction. Based on the PRSP, the Bank is building a " Country Assistance Strategy " (CAS) which is developed for each client country. CAS describes the World Bank Group’s strategy on the basis of an assessment of priorities by the country. It indicates the level and composition of assistance to be provided, based on the strategy and the country’s performance. The CAS, however, is not a negotiated document: any differences between the country’s own agenda and the strategy advocated by the Bank are highlighted in the document itself.

Good Governance & fight against corruption

Mr. Alzetta pointed to the fact that fighting corruption is not a goal in itself, " but it is a part of a much broader issue which is good governance". He said that the Bank worked hard on these two issues during the last 10 years. But all this work was not operationalized. He regretted the fact that some people had the impression that Mr. Wolfowitz was concentrating only on these two issues to the detriment of other, which is not the case. A framework with a clear definition and with indicators is needed to tackle the problems of corruption and governance.

Questioned about mechanisms to control the situation of Congo, Mr. Alzetta answered  "once the framework is ready, we will operate on the basis of a number of indicators to see what kind of actions we can have in such countries... This will be integrated with the Country Assistance Strategies". To be able to monitor a situation, rebuilding the State in Congo is necessary. This implies decisions to be made in terms of public service, the judiciary, etc. The World Bank created a number of "products", such as a code of investment, a forestry code and a mining code, which can be used to fight against corruption and to check good governance. "Of course, the most important thing is the implementation of those codes the way it should be", Mr. Alzetta said.

Debt relief

Another global issue that the Bank has been addressing is debt relief.

In 1996, the World Bank and the IMF launched the Heavily Indebted Poor Countries (HIPC) Initiative to provide debt relief to the world’s poorest and most heavily indebted countries. It ensures that the savings from debt relief are directed into areas such as health and education which are proven poverty-fighting programs.

In 2005, at their summit in Gleneagles, G8 leaders initiated the Multilateral Debt Relief Iniatiative (MDRI). Full debt cancellation will be provided by IDA, IMF, and AfDF to countries that have reached their completion point under the Enhanced HIPC Initiative.

Inclusion of the poor

A central point in all the actions is putting the poor at the centre of development. Conversations with 60,000 poor people in 60 countries have taught us that poverty is about more than inadequate income. The Bank collaborates with civil society. Mr. Alzetta emphasizes again the importance of infrastructure which is "a major contributor to achieving poverty reduction and the MDGs".

Stabilising Assistance

Mr. Alzetta highlighted the role of the Bank in conflict-afflicted countries. It supports international efforts to assist war-ravaged populations, resume peaceful development, and prevent relapse into violence.

Further information: www.worldbank.org