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Statement by Mr. Pedro S. Malan, Minister of Finance Brazil

Highly Indebted Poor Countries - HIPC

We have been supportive of the HIPC initiative since it was adopted by this Committee in the fall of 1996. Our Bank/Fund constituencies include both HIPC eligible countries and creditor countries and this has resulted in a balanced view on this issue. This continues to be our position.

As the debt problem for many poor developing countries is still acute, we have seen over the last few months many proposals made by different governments and organizations of civil society in developed countries to deepen and expand the HIPC initiative. While we see merit in some of them, it is necessary to have a clear estimate of associated costs and the resources for financing them. We feel that taking decisions without guaranteeing the necessary financing is of little use. Financing is the critical issue in any enhanced Initiative. We propose that the discussions refering to the deepening and broadening of the Initiative goes hand in hand with discussions of how to fund them.

It is essential to have a much greater financial contribution from developed countries and also from multilateral organizations, such as IDA which are major creditors of HIPC countries but that has not yet financially contributed to the Initiative. We welcome the announcements by some developed countries of their wiliness to increase their bilateral contributions. Equitable and proportional burden sharing, amongst both bilateral and multilateral creditors is critical for moving ahead.

It is also essential to preserve the financial integrity of the World Bank, whose net income is subject to increasing demands. At the launching of the program, the initial contribution by the Bank was estimated at five hundred million dollars. Current estimates for the end of year of 1998 assume the World Bank will have contribute some two billion four hundred million dollars. Of these, four hundred million dollars are still unfunded, and that refers to the existing program only.

The Fund is also facing similar financing shortfalls of SDR 1.3 billion to cover the current HIPC and will probably have to resort to gold sales, a decision which we support, but which may create problems for large gold producing countries and cannot be looked at as a permanent source of financing.

 

We should not forget either that an increase in ODA levels, which unfortunately have been falling substantially during this decade, would achieve the same results as debt relief operations. In this respect it is disappointing to see that what is given as debt relief is taken back through a reduction in official development assistance.

As part of our balanced position on this issue, I wish to reiterate what I said during the Fifty-fifth meeting in April 1997 on the importance of a good track record of macroeconomic performance and political commitment of the leadership to continue implementing sound economic policies to bring debt to sustainable levels. The HIPC initiative alone will not bring countries back to a strong, credible and enduring development standing.

In summary, we favor examining the issue of deeper, broader and faster debt relief, but call for a greater financial participation of IDA, which is the main creditor of HIPC countries within the Bank Group, in funding changes in the framework. This could be done, for instance, by making explicit provisions for loan losses. We also call for greater participation of developed countries, especially those which have been reducing ODA.

Principles of Good Social Policy

Good social policies are a fundamental pillar of development. Sound macroeconomic fundamentals and financial stability are a pre-condition for growth in a sustainable basis, but are not objectives in themselves. The real goal of development is the improvement of living conditions of the vast majority of the population.

We feel, however, that the unsatisfactory progress that has been made in improving social conditions in developing countries results not so much from the lack of principles and lack of knowledge of best practices, but from the lack of resources, both financial and human. As in the case of HIPC, this is the real issue. Hence, even more important than discussing the principles and best practices is to consider resources, both at the international and domestic levels, as well as mechanisms of financing.

With respect to domestic resources, there is certainly room for improving efficiency in resource utilization to spend scarce public resources in a more effective manner. In some cases what is needed is not additional funding but improving the way existing resources are spent. Social policies yield results in the long run. Their design has to take into account modes of financing, which in turn must be in line with sustainable budgeting over time.

At the same time, elaborating general principles in social or other policies is not the purpose for which the World Bank was created. More importantly, as principles and codes must be followed by all members of the international community, they should be discussed and adopted in multilateral organizations which are applied to the entire membership, rather than in the Bank where they would be apply them to borrowing countries only.

We should recognize the ongoing work under the auspices of the United Nations in the area of social principles. We feel that the United Nations is the proper forum for developing such principles. The World Bank can, however, play a relevant role in assisting countries to implement social policies at their request.

While defining and implementing principles and best practices of social policy it is important to guard against the dangers of these noble and commonly shared goals becoming hostage of hidden protectionist pressures.

Bank Group Capital Adequacy

Just prior to the last Development Committee meeting, difficult decisions were taken on net income allocation and pricing policy of the Bank. On that occasion we indicated that the problem of inadequate usable capital base of the Bank remained in place despite those pricing changes.

There is no disagreement as to the necessity to preserve the financial integrity of the Bank. We once more stress that this is the collective responsibility of all shareholders.

It is also clear to us that the Bank should continue expanding its lending in normal circumstances and be prepared to respond to crises, while preserving prudence in risk bearing.

It is also essential not to expand the allocation of the Bank’s net income beyond those aims that are broadly shared by the entire membership, such as the present levels of contributions to IDA, HIPC, African capacity building and selected post-conflict initiatives.

Reducing administrative expenditures remain an essential element of sound management and should continue to be pursued, though it is clear that this will not make a major contribution in the issue under discussion.

As price increases have already being resorted to, we cannot rule out a general increase in paid-in capital as a means to strenghen the finacial capacity of the Bank. Perhaps even more urgent than examining this issue for the Bank would be an early discussion and decision on a capital increase for IFC.

It is important that the Executive Board keep discussing this important issues and report back in the next Development Committee meeting with proposals that are balanced and consensual.

The Comprehensive Development Framework

The CDF contains promising features to deal with the challenges of development. We particularly welcome the emphasis on country ownership, which is a sine qua non condition for development effectiveness. As the responsibility to address the challenges of development rests ultimately with the borrowing country government and society, it is important that the concept of ownership be thoroughly applied, in particular in the definition of priorities.

 

Assistance to Post-Conflict Countries

We welcome the coordination which is taking place between the Bank and the Fund and other international financial institutions to define a strategy to provide exceptional assistance to post-conflict countries. Eligibility and performance criteria should be applied in a case-by-case basis. Similarly to the HIPC program, a strong commitment from the authorities to embark on adequate economic policies and capacity to prevent the country from returning to conflict situation will be essential for the success of the initiative.

Estimation of potential costs and definition of sources of financing are critical. Here again is an area where decisive financial support from developed countries is required.

In the cases of IDA-only countries, we feel that post-conflict assistance should be provided by IDA.

Bank Group Cooperation with Regional Development Banks

We welcome the level of cooperation that has been achieved between the World Bank and other multilateral development banks. This permits avoiding duplication of efforts and promotes better use of scarce resources, thereby increasing development effectiveness in recipient countries.

At the same time it is important that each individual bank maintains its own institutional identity, profile and focus. This means that cooperation should not lead to policies, directives and decisions from one institution being automatically adopted by others.

We consider that progress made in cooperation among multilateral development banks has reached adequate levels and does not require this issue to be revisited in future Development Committee meetings for a while.



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