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Statement by H.E. Dominique Strauss-Kahn, Minister of Economy, Finance, and Industry, France

At the time of our last meeting in early October, we were faced with brutal market movements, affecting emerging and industrial countries alike. Since then, thanks to collective action, we have redressed the situation. Encouraging signs of recovery have begun to appear in certain of the emerging countries which were among the first to be affected by the violent financial crises undergone since the summer of 1997. Some of them have even regained normal access to international financing.

The repercussions of financial crisis are still with us. And there are countries which are confronting added exceptional difficulties. I am, of course, thinking particularly of the Balkans.

We must assign three priority missions to our multilateral institutions, instruments through which we build solidarity among the international community:

- to support emerging countries in crisis. For this, we must make progress in constructing a more stable international financial system;

- to support the poorest countries in their social and economic development. For this, it will be necessary to go further both in debt alleviation and in maintainence of sustained official development assistance ;

- to mobilize our institutions with the international community to address exceptional events: conflicts and natural catastrophe.

I take pride in the fact that France’s contribution to development assistance as a percentage of its GDP is the highest of the G7 countries, and , thus, that France is doing its best to contribute to these three forms of solidarity.

1. Support for Emerging Countries

The World Bank and the regional development banks, in partnership with the IMF, have already adapted their instruments to be able to bring rapid assistance to countries in crisis. The Bank has the means to carry out this policy, with good management of its priorities and of its financial margins of maneuver.

What lessons should the Bank draw from these crises ?

a) Our reflection on reinforcing the governance of our institutions should be completed, in order to give them the mandate and the political legitimacy necessary to intervene in crisis situations in the name of their Governors. To this end, France has proposed that the Interim Committee of the IMF be reinforced and transformed into a Ministerial level decision-making body, the "Council", which is provided for in the Articles of Agreement of the Fund. This body, in which all member countries would be represented, is the most suitable to make policy decisions on financial stability and crisis management, which have implications for the international financial community as a whole.

In the same perspective, it is necessary to strengthen the governance policy bodies of the development banks, to allow them to better attend to their borrowers. In this spirit, President Wolfensohn has proposed to enlarge the role and mandate of the Development Committee. I fully support this direction.

The importance of discussions on the composition of the two committees is secondary to the need to rapidly strengthen their roles. France favors maintaining the present composition of the Development Committee and defining a special status for the World Bank within the Interim Committee.

It would be my wish that, at the next annual meetings, the Committees will have been renewed , and their aspirations and capacities increased.

b) We must strengthen the capacity of the international financial institutions of surveillance of capital flows and prevent instability. We had the opportunity to discuss this yesterday at the Interim Committee. An important aspect of addressing this challenge is the building, in each country, of robust national financial systems, within an international framework with clear regulations.

c) We must do our utmost to accommodate the return of direct investment to emerging countries.

At a moment when there is a danger that investors may turn their backs on emerging countries, the World Bank, the IFC, and the regional development banks have an important role to play in encouraging a return of confidence.

It is therefore important, during such a period, that the IFC and MIGA develop together with the World Bank a clear action   plan aimed at supporting the private sector. I know that President Wolfensohn, Mr. Woicke, and Mr. Ikawa are all committed to this course. Rather than put forward financial volumes which could be considered both insufficient and too costly, I hope   that management will work on operational strategies which can be discussed by the shareholders of the World Bank at the   next annual meetings.

The World Bank Group must indeed pursue achievements in three areas essential to the return of confidence:

- having a demonstration effect through the quality of its own operations;

- leveraging private financing;

- improving the environment of the private sector through implementation of structural reforms.

Guarantees can be a useful and efficient instrument to promote investment, on the condition that they are focussed on the support of well-specified investments or funding. Distorsion risk exists especially for guarantees on bond issues: we must therefore be particularly cautious in resorting to this instrument, and I hope that additional work will look further into the question of leverage effect and systemic risk.

2. The present crisis should not allow us to forget the situation in the poorest countries, which have never had access to capital markets and remain dependent on official development assistance, all the while having to pay off heavy debt.

a) The issue of developing world indebtness returns to the forefront with increasing calls to very substantial debt forgiveness of the poorest countries.

France has always pleaded for the rapid treatment of debt overhang problems. As a result of the Lyon Summit, the international community has now at its disposal the HIPC initiative, an adequate framework for treating the bilateral and multilateral debt of these countries. France has also taken the initiative in purely bilateral debt forgiveness, notably at the time the CFA franc was devalued and more recently in support of countries affected by Hurricane Mitch. Nevertheless, we must go even further today.

Looking forward to the Cologne Summit in June, I presented last February the 20th a French initiative for developing country debt. This initiative, which responds to proposals advanced by others among our partners, focuses on the situation of the poorest and most indebted countries, without sidetracking other developing countries suffering from difficult indebtedness.

The French initiative revolves around three fundamental principles:

- solidarity which incites us to grant the most favorable possible treatment to the poorest countries. We propose exceptional measures to forgive ODA debt for eligible HIPC;

- equity which impels us to call on our partners in the Paris Club and the international financial institutions to fairly share the burden. France, which, like Japan, has contributed the most to financing the poorest countries through its official assistance, urges the other G7 and OECD countries to cancel their residual ODA debt, but also to support new financing;

- responsibility, which justifies that these measures of exceptional support benefit countries with impeccable economic and social policies and "good governance". I hope that, on this point, we will be able to fully associate the relevant nongovernmental organizations.

We must not forget those among the poorest countries which will not be eligible for HIPC. It is for this reason that we support the harmonization of Naples terms at the most concessional levels possible, i.e. 67% of cancellation.

From this time forth, we must work with all our partners in the international financial community so that, in the near future, we will be able to announce concrete measures to definitively solve the debt overhang which confronts the poorest countries.

Reaching this ambitious goal would allow us to remove one of the obstacles currently blocking progress in the poorest countries. But this will not suffice. Measures to forgive debt, as generous as they may be, can only accompany not substitute for a real development policy.

b) Official development assistance remains indispensable for the poorest countries. It is particularly essential for the establishment of basic infrastructures and services (education, health). It must also help in developing necessary governmental capacities (respect for the rule of law).

I am proud that France, each year, contributes twice the average of official development assistance donated by other developed countries. This effort makes France the most generous of the G7 countries. The European Union as a whole provides 57% of global official development assistance.

Thanks to these endeavors, the concessional resources of the World Bank and the African Development Bank, which are most directly involved in fighting extreme poverty, have been replenished at high levels. The rapid conclusions of AID-12 and AFD-8 attest to donor confidence in the action of both Banks and give them the capacity to act in the coming years.

This European and French effort should not remain isolated. France intends to maintain its own efforts, but calls on all developed countries to participate more actively in official development finance. It is in our collective best interest.

c) The World Bank and the regional development banks are by nature the central actors in development assistance

I acknowledge the work achieved by the World Bank in defining and promoting principles of good social management among all its borrowers. The integration of social principles is to all intents and purposes essential to every country’s development and it behooves the international community to help developing countries take this step.

I thank President Wolfensohn for having contributed to this reflection on the goals and means of assistance by proposing the Comprehensive Development Framework to us. France, like its European partners, can only support an approach which combines sound economic management and social and institutional development.

Bank management must from, now on, commit itself, in close cooperation with the Board, to determine an implementation strategy which will allow the Bank to anchor this policy vision of development goals in reality. The World Bank’s status in the development world gives it the ability to be heard, but also confers it with great responsibility on the ground.

Here, there are high stakes for the development community: the Bank itself has much at stake in that it must successfully complete its own internal change, but there is also much at stake for its relations with other development partners. To make this ambitious proposal a reality, the Bank must be wary of two pitfalls: first, the framework must not become a straitjacket; and, second, the initiative and management of development must remain the full responsibility of the countries themselves.

3. Our solidarity must extend to mobilization in exceptional circumstances. The multilateral development institutions are the main tool of this international solidarity.

Two dramatic events have marked these last several months since the fall meetings. The Balkans have suffered another humanitarian disaster that threatens the stability of the whole region and is reminiscent of the darkest hours of history. Hurricane Mitch has devastated a large part of Central America.

a) In the Balkans, the current urgency is humanitarian, but also financial. I am happy that yesterday, at France’s request, a meeting of all the concerned institutions and countries was held. Our exchange yesterday permitted the pursuit of a coordinated mobilization of emergency aid to the countries affected by this conflict.

It is indeed essential to rapidly support the economies and finances of the principal countries hosting refugees, which are, in their turn, in danger of being destabilized. It was with this goal in mind that I proposed to the creditors of the Paris Club to decide a debt moratorium of more than a year for Albania and Macedonia.

Above and beyond these emergency measures, and in hopes of a rapid resolution of the conflict, it is even now necessary to reflect on how to integrate this region of Europe into the regional and international economy. The action of international institutions will be crucial in this phase and yesterday’s meeting constituted a point of departure for decisive work in facilitating peace and stability in the region.

b) In the aftermath of Hurricane Mitch, thanks notably to the impetus provided by the Inter-American Development Bank, the international community was able to mobilize rapidly to support the financing of Central American reconstruction.

This solidarity manifested itself, in France’s case, in immediate aid to the affected countries, in the form of ODA debt forgiveness. All the creditors of the Paris Club have also responded to my call to defer the debt service of all countries hit by the hurricane for three years. I hope that the Inter-American Development Bank and the World Bank will continue to direct their resources to face this emergency and pursue reconstruction. We will meet again in Europe on May the 25th to do this.

It is in this type of circumstance, as in the case of financial crisis, that our institutions and the international financial community as a whole must demonstrate the capacity to mobilize rapidly to confront major difficulties. I know that I can count on the leaders of our institutions, as well as on the solidarity of all the member countries, to give the Balkans the support they so badly need.

* * * * * * *

Solidarity of the international community is our common responsibility. It must express itself toward countries in crisis, allow the long-term support of the poorest and create the capacity to react to exceptional circumstances.

This is the clear message of France and of Europe, which live it as everyday reality through their efforts at official development assistance.

I hope that our institutions will also embody, to the best of their ability, a commitment to be the legitimate and effective instruments of the international financial community for countries in difficulty.

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