Transcript: US Treasury's Summers at World Bank

Transcript: US Treasury's Summers at World Bank

(Calls for emphasis on poverty reduction) (5840)

With the crises in the more advanced emerging economies receding, there needs to be a shift in attention toward the goal of global poverty reduction, Secretary of Treasury Lawrence Summers told the World Bank's policy-making Development Committee in a September 27 speech.

"Progress in improving living standards in the poorest countries has been disappointing and overall poverty remains unacceptably high," Summers said.

There is a growing consensus among aid donors that recipient countries "ought not only to pursue sustainable growth but also focus more explicitly on attacking poverty, by concentrating public resources and attention more effectively on the interventions that most affect poverty," he said.

Summers cited four "critical pre-requisites for sustainable growth and poverty reduction."

-- transparent economic management, including "market-encouraging macro-economic policies conducive to private enterprise, and financially viable banking institutions."

-- a policy framework that integrates poverty reduction and growth objectives, including those for agriculture and rural development.

-- priority attention to human development, including basic education and health services "to equip the poor to respond more effectively as opportunities improve."

-- good governance, including functioning institutions that incorporate transparency, accountability, the rule of law and participation.

In a long and detailed speech, Summers outlined ways to administer and finance the global poverty reduction effort, citing a particular role for the International Monetary Fund/World Bank administered Heavily Indebted Poor Countries (HIPC) initiative.

"A renewed commitment to change the framework for assisting the poorest countries, reinforced by the HIPC Initiative, is needed to jumpstart the process for reducing global poverty," he said.

Following is the text of Summer's speech as prepared for delivery:

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September 27, 1999 STATEMENT BY TREASURY SECRETARY LAWRENCE H. SUMMERS AT THE DEVELOPMENT COMMITTEE OF THE WORLD BANK AND THE INTERNATIONAL MONETARY FUND WASHINGTON, D.C.

Introduction

The millennium marks a significant moment in time. It should also inspire us to renew and revitalize our collaborative efforts to promote growth and development in the poorest countries, and to eradicate global poverty. Our shared experience over the past 50 years has been marked by some astonishing successes as well as some deep disappointments. It underscores the scope and complexity of the enormous challenge we confront, and the need to focus resolutely on what works. The Development Committee remains a concrete expression of our firm and persevering commitment to meet this challenge and advance the common good.

Unprecedented globalization and technological change make the challenge even greater, as does the divergent pace of economic and social development progress among countries and regions.

The Development Committee's attention over the last two years has focused heavily on the advanced emerging economies and the collaborative efforts needed to address financial shocks with systemic implications. This crisis generated a remarkable process of international consensus building. While there has been considerable progress toward a return to stability, much more needs to be done if we are to see a sustained and better-balanced global economic recovery. We also believe it is now important to shift the attention of the policy community to global poverty and to dedicate commensurate energy to more effectively address the development challenges faced by the world's poorest countries.

Progress in improving living standards in the poorest countries has been disappointing and overall poverty remains unacceptably high. Sub-Saharan Africa's per capita income is today somewhat lower than it was in 1980. The number of people living on incomes of less than a dollar a day is now expected to increase from 1.2 billion in 1987 to 1.5 billion next year and close to three-quarters of Africans' private wealth is estimated to be overseas. In many countries, the modest improvements experienced in health and education indicators have begun to stagnate or, in some cases, decline. Countries affected by AIDS have experienced the loss of all the gains in life expectancy achieved over the last 50 years. Clearly, we need to find new and more effective approaches to poverty reduction.

A long and difficult road lies ahead if we are to prevent huge portions of the world's people from remaining marginalized, mired in poverty and without satisfaction of their basic needs, and bypassed by technological change. No one could be satisfied with such an outcome. It diminishes international welfare and is a recipe for global instability, the spread of disease, and environmental and humanitarian disasters.

It is clear that the commitment and the domestic efforts of developing countries are central to successful poverty reduction. We also want to encourage a broad international commitment to give our priority to the fight against global poverty and transform our policy approach to helping these poorest countries. We do know unambiguously that some things do contribute to equitable growth. There is, for example, a growing consensus that countries -- and the donors trying to assist them -- ought not only to pursue sustainable growth but also focus more explicitly on attacking poverty, by concentrating public resources and attention more effectively on the interventions that most affect poverty. The vast human dimensions of the problem underscore the importance of urgent action.

The United States seeks a global development partnership, owned by recipients and donors alike, that strengthens the framework for combating poverty at its roots. Our goal should be to build on lessons learned and make whatever changes are necessary in policies and institutional strategies and processes to ensure that development assistance can and does make an important difference on the ground in improving human welfare. Expressions of commitment and political will must be translated into action. While the challenges are formidable, we are confident that a renewed collaborative effort can significantly reduce poverty in the coining years and help make the International Development Targets a reality.

The Basic Conditions Which Make Development Work

While development experience provides many and often complex examples, we do know that there are four broad critical pre-requisites for sustainable growth and poverty reduction.

1. Sound and transparent economic management, including market-encouraging macro-economic policies conducive to private enterprise, and financially viable banking institutions;

2. A policy framework which focuses more on poverty considerations by integrating poverty reduction and growth objectives, including those for agriculture and rural development;

3. Priority attention to human development, particularly the provision of far stronger and more efficient basic education and health services to equip the poor to respond more effectively as opportunities improve; and

4. Good governance, including fully functioning institutions incorporating transparency, accountability, the rule of law, and the participation of civil society.

These are, in effect, the basic conditions that make development work.

Comprehensive progress in all four areas is integral to sustaining successful long-term development. Yet very few of the poorest countries can be satisfied with their situation in any single category. As countries look more systematically at policy frameworks and public expenditure programs to sharpen their poverty focus, they will have to tackle their most glaring and fundamental problems, notably including corruption.

Admittedly these conditions are easy to prescribe but often very difficult to achieve. For example, there is the widespread public concern about the impact of adjustment programs on the provision of social services to the poor and the often seemingly intractable problem, which we also confront in our own country, of ensuring that poverty reduction is a cross-cutting theme across the broad range of public policy. There is also the problem of overcoming vested interests.

Difficult as these obstacles are, we believe that if governments fully embrace and take ownership of sound development strategies to achieve growth and poverty reduction, the problems can be overcome. Without sound policies, external assistance, as research continues to show, will be of little help and may even be counterproductive. Action and performance, not words or intentions, should determine allocations of assistance. Such ownership may have to be built and deepened in stages, but this process must be rigorous and sustained. Improved transparency and participation, and better informed and increasingly involved constituencies in civil society, should be viewed as key mechanisms for helping to generate necessary public ownership and confidence.

The Bank and Fund, along with the broader development community, need to encourage and support the efforts of the poorest countries to build and maintain development frameworks reflecting individual country circumstances and incorporating sound development principles. The roles of the IFC and MIGA to harness private sector initiative are also crucial.

It is also important to approach environmental management and poverty reduction as an integrated whole. "Environmental" problems -- such as unhealthy drinking water, poor sanitation, soil depletion, deforestation, and pollution -- are increasingly concentrated in low-income countries, where institutional and technical capacity to solve them is also weak. These problems have long-term economic costs that are not fully understood, and they impact disproportionately on the poorest. The international financial institutions and their borrowers therefore need to be more alert to opportunities to improve the environmental sustainability and quality of their activities across the board. MDB policies on environment and natural resource issues are essential ingredients in a process to enhance development in a way that makes poor peoples' lives better. In some areas, these policies are quite strong. In others, we believe further improvements are needed. We intend to work for intensified efforts by the Bank in the area of energy efficiency and renewable energy which could result in substantial and cost-effective improvements in the lives of the poor in both urban and rural areas while positively contributing to reductions in climate change. But in all cases, it is imperative that agreed policies be fully implemented -- which has not always been the case to date.

The World Bank and IMF and a Renewed Development Framework

The Development Committee and our member governments will continue to rely heavily on the World Bank Group and the International Monetary Fund in the new millennium to promote sound economic management and governance, encourage policy reform, facilitate the flow of trade and capital, and, most importantly, reduce poverty. These vital institutions, in close partnership with the regional development banks, must be forceful advocates of policies that lead to both sustainable development and social progress.

For those countries that demonstrate a commitment to sound development policies, the support of the Bank and Fund can make an important difference in improving welfare and promoting the common good. All too often, however, commitments and intentions have triggered external financing with disappointing results. It is performance that counts.

We believe the Bank and Fund should use their pivotal leadership roles to help re-energize development efforts to combat global poverty. We also believe they must undertake the fundamental internal policy and process changes needed to enable them to sharpen their focus on achieving verifiable progress on poverty reduction. In sum, the Bank and Fund must do a better job in using their technical and financial resources to help catalyze positive poverty outcomes.

We believe it is imperative for both institutions to work collaboratively in drawing from the lessons of the past 50 years to build pragmatic collaborative partnerships with those of the poorest developing countries that are committed to reform and poverty reduction.

We welcome and strongly encourage the transformed approach now underway in the Bank and Fund to elevate poverty reduction as an overarching objective of their programs in countries receiving concessional funding. This approach must be applied consistently. It must be sustained. And it must be implemented vigorously. It is essential that macroeconomic policies, sound economic management, social development policies, and poverty reduction be mutually reinforcing. This will lay a secure basis for sustainable growth.

We would also like to see much closer collaboration between the Bank, Fund and recipients at the design stage of planned operations, with the Bank sharpening its focus on achieving verifiable progress on poverty reduction and the Fund improving the complementarity of its macroeconomic recommendations. The centerpiece of these partnerships, led by recipient countries, could be the Poverty Reduction Strategy Papers and an agreed core set of monitorable poverty reductions goals, such as: increasing literacy, for both women and men; reducing infant/child mortality; lowering the incidence of AIDS; and improving environmental conditions. In many countries, progress on poverty reduction will require meeting specific targets for the rural sector which often contains high concentrations of the most vulnerable.

We believe both institutions should routinely articulate core reforms and other measures required to reduce poverty as performance indicators in their respective programs.

-- In contrast to past practices where social considerations were often a secondary concern, particularly in the IMF, Bank and Fund programs should be grounded in an assessment of poverty and its determinants, and consist of integrated, coherent sets of steps needed to reduce poverty. In the Bank this will mean integration of poverty impact assessments into Country Assistance Strategies.

-- The Bank, Fund, and recipient government programs should be more transparent and accountable, with substantially expanded public access to programs and policies helping to strengthen national ownership of programs, ensure greater accountability of decision making, and encourage broader participation by civil society in all phases of the process.

Country implementation performance, not just plans or intentions, on agreed poverty indicators should be the crucial determinant in a more selective allocation of Bank/Fund resources.

The World Bank's engagement plays an important role in avoiding financial crises by helping countries to take preventative action to reduce vulnerabilities to sharp swings in global capital flows. We encourage the Bank to deepen the cooperative work underway with the IMF on assessments of countries' implementation of international codes and standards and in the broader area of financial sector reform, including financial sector program design and technical assistance. In the area of corporate governance, we applaud the establishment of the Global Corporate Governance Forum by the Bank and the OECD, and we expect the Forum to promote the speedy implementation of the OECD corporate governance principles. In addition, we look forward to the Bank's contribution, in cooperation with the IMF, to the development of best practices for public debt management. We appreciate the Bank's ongoing work on good practices in social policy, and urge that good social policies and practices be given operational effect in World Bank and IMF programs.

The Enhanced HIPC Initiative

The enhanced HIPC Initiative is a concrete example of our renewed commitment to help the world's poorest countries. As President Clinton said earlier this year: "Our goal should be that no country committed to fundamental reform is left with an unsustainable debt burden that diminishes its ability to meet people's basic human needs and to spur growth."

The Initiative also provides a unique opportunity to find the right way for the Bank, Fund, and recipient governments to more effectively target support on social objectives while also enhancing national ownership and participation, and to design effective economic reform policies while also protecting and advancing core social priorities. It is an important test of the Bank and Fund's ability to implement a new and more closely coordinated approach to the poorest countries.

HIPC debt relief is not an end in itself, but a means to an ultimate objective: a successful development process for countries where today children are more likely to be malnourished than go to secondary school, and where more than 40 percent of the populations lack access to clean water. HIPC provides a window of opportunity to translate sound policy prescriptions into meaningful and decisive action.

The Bank and Fund and members of the Development Committee have worked hard to design an effective HIPC framework which promotes a number of mutually reinforcing objectives -- poverty reduction, sustainable development, and good governance -- while reinforcing the incentives for reform and growth. Successful implementation of the enhanced HIPC Initiative would constitute a major step towards meeting the internationally agreed upon target of halving the proportion of the world's population living in absolute poverty by 2015. HIPC is an important investment in our own future and in the world we will inhabit in the 21st century.

At the Cologne Economic Summit meeting, the G-7 nations agreed to further strengthen the development impact of HIPC by providing faster, deeper, and broader debt relief for those countries demonstrating a commitment to poverty alleviation. Ministers also endorsed efforts to integrate more fully the benefits of debt relief into growth-oriented country strategies for poverty reduction and human development. They stressed the crucial importance of preparing such strategies in open, transparent, and participatory processes.

The HIPC framework can only work in the context of appropriate national policies and with the right institutions and practices; and it can only work with the right kind of support from the international community.

In order to achieve the desired development impact, eligible HIPC countries need to clearly assume leadership in establishing the right policy framework. We all know that the more policies are genuinely "owned" by a country the better they tend to work. Most specifically, governments will need to forcefully demonstrate at the highest political levels and through specific actions a commitment to poverty reduction and the reforms and domestic funding needed to give effect to such commitment. This means, for example:

-- Taking concrete steps to improve governance and to increase transparency and accountability, especially with respect to public expenditures. A demonstrated commitment to eliminating the scourge of corruption and its corrosive effects on economic growth and poverty reduction must be a central feature of the integrated strategy. Shining a light on public economic policies and practices is one key mechanism to address this need;

-- Ensuring that domestic resource decisions fully reflect the priority given to poverty reduction;

-- Working more closely and openly with civil society groups; and

-- Implementing the macroeconomic, structural, arid legal reforms that will support economic growth and a rising standard of living for all including the most vulnerable.

Close coordination among the World Bank, IMF, and the regional development banks is also essential so that a country's support for poverty reduction is recognized and fully integrated in all IFI programs. I welcome the joint meeting of the Development and Interim Committees as representing tangible progress in this area.

Achieving these objectives will require substantial capacity building at the World Bank and IMF and, even more importantly, within the borrowing countries themselves to support the type of participatory, transparent deliberative procedures that are at the core of a more country-driven and poverty-focused strategy. It is critically important that efforts should commence immediately, both at the institutions and within eligible countries, to address institutional and other problems of absorptive capacity which impede the effective use of social and other poverty-focused expenditures. In the HIPC context, we should expect to see substantial, concrete progress in poverty reduction efforts in advance of the completion point for each beneficiary country as part of a progressive, iterative medium-term strategy.

Financing the Enhanced HIPC Initiative

As members are aware, the costs of the enhanced HIPC Initiative are substantial, a reality which underscores the importance of utilizing debt relief in a way that achieves maximum sustainable development effect. It is crucial to ensure a financial framework with adequate resources. It will be particularly important to maintain a very close linkage between the timing of debt relief and an eligible country's demonstrated performance and its absorptive capacity to use resources effectively.

It is important for bilateral creditors to move expeditiously to secure funding for the substantial additional costs that they will incur under the enhanced HIPC framework. We also believe it important for all of the international financial institutions to accelerate their efforts to identify financing approaches that maximize the use of their own internal resources.

It is clear that even with new innovative ways to generate internal resources, the African Development Bank (AFDB) will continue to rely heavily on bilateral contributions to the HIPC Trust Fund to help fully fund its participation. The Inter-American Development Bank (IDB) also will require substantial bilateral support.

We welcome the steps that the World Bank has taken to help fund its participation in the enhanced HIPC Initiative. It is our view that the World Bank has a resource base of sufficient scale and flexibility to generate the resources necessary to cover its immediate enhanced HIPC costs. We are committed to taking long-term enhanced HIPC costs into consideration as we assess concessional needs and negotiate future IDA replenishments.

The President has submitted to the Congress a revised budget request of nearly $1 billion. This will cover the direct costs of HIPC relief on debt owed to the United States, and it will provide a U.S. contribution to the HIPC Trust Fund of $600 million to help fund a share of the multilateral costs to the MDBs, provided other countries make comparable efforts.

I would now like to comment briefly on some other important development issues, including World Bank-specific matters.

Trade and Development

We urge the World Bank to continue encouraging trade and investment liberalization in developing countries. Open, transparent, and well-governed markets, both domestic and international, are an essential foundation for sustainable development and poverty reduction.

We are poised to launch a new round of international trade negotiations at the upcoming Ministerial meeting of the World Trade Organization (WTO) in Seattle. This Ministerial represents a particularly important opportunity for the global community to further reduce barriers to new market opportunities in support of development and growth.

Key areas include:

-- Continuation of the work begun in the Uruguay Round to liberalize trade in agricultural products, including through the abolition of agricultural export subsidies;

-- Further negotiations to reduce and eliminate tariff and non-tariff barriers to trade in non-agricultural goods, an area which holds particular potential for developing economies;

-- New negotiations aimed at creating more open and transparent customs regimes and further liberalizing services activities, which will greatly enhance institutional capabilities in those sectors; and

-- Conclusion of an agreement on transparency in government procurement, thereby addressing one source of resource-draining bribery and corruption.

As these negotiations begin, particular attention must be made to better integrate developing countries into the world economy and to help them to fully realize the benefits of open trade. Trade liberalization is mutually beneficial to both developed and developing countries. The World Bank is in a unique position to help developing countries realize these benefits and better make the link between their international trade commitments and their development goals.

In this regard, we urge the Bank to work with its borrowing member countries in adopting a comprehensive development approach to trade liberalization. Increased emphasis should be placed on encouraging economic diversification, recognizing the linkage between agricultural trade reform and poverty alleviation, minimizing the social impacts of trade liberalization, developing alternative sources of revenue for governments that rely heavily on customs duties, ensuring that sustainable environmental objectives are met, and ensuring complementary transport and communications infrastructure are in place.

Trade and investment reform should be more consistently and fully integrated into all Country Assistance Strategies and should also become part of the Comprehensive Development Framework. The World Bank can play an important role in promoting appropriate regional aid sub-regional trade integration as a means of facilitating developing countries' participation in the global economy. The Bank can also assist in the development of trade-related infrastructure and institutional foundations, many of which are critical for a flourishing trade regime. In this regard, we support the commitment of the Bank to provide sustained assistance as part of its current programs for trade-related capacity building for those members that request it as part of their development strategies. Also, we support the work by the World Bank under the WTO Integrated Framework and the research and analytical support it is able to provide to facilitate developing country preparations for trade negotiations. We are not yet convinced, however, of the wisdom of establishing an intermediary that would subsidize crop insurance to help developing countries cope with highly volatile international commodity markets.

We note with satisfaction the success of initial efforts at enhanced cooperation and coordination among international institutions as a result of decisions taken at the end of the Uruguay Round. We would encourage the development of further efforts to deepen and broaden policy and program cooperation in the future. For example, a WTO agreement on transparency in government procurement would complement the World Bank's efforts to promote good governance, transparency, accountability, and improved government financial management practices among its borrowers.

IDA-12

The IDA-12 agreement will be the cornerstone of the Bank's development assistance efforts in the poorest countries over the next three years. The agreement, now approved by Governors, embodies a policy framework designed to improve the effectiveness of IDA lending. These policies are integral to the replenishment and need to be fully implemented in a timely manner.

We are concerned about the slow pace and unevenness of implementation of some of the key IDA-12 provisions, including:

-- The commitment to provide comprehensive and specific diagnostic inputs for Country Assistance Strategies (CAS) to ensure they fully reflect the findings of up-to-date building blocks, including Public Expenditure Reviews, Poverty Assessments, Country Financial Accountability Assessments, Country Procurement Assessment Reports, and National Environmental Action Plans;

-- The commitment to improve diagnostic treatment of cross-cutting issues in the CAS such as gender, environment, core labor standards, and the financial sector;

-- The commitment that policy and program performance and governance issues, as determined by clear and monitorable indicators, should determine the size, design, and delivery of a country's IDA program;

-- The commitment that CASs should be prepared with the active participation of government, civil society and donors and be publicly available; and

-- The commitment to heightened centrality of public expenditure analyses that consider the role of non-development expenditures -- including military expenditures and subsidies to state owned enterprises -- and whether reallocation of these could enhance the development impact of IFI or national public spending.

It is vital that these commitments be taken more seriously in order for IDA to play the vital development role envisioned by donors.

Moreover, it is important that existing Bank policies, especially the "safeguards policies" of disclosure, fiduciary controls, and environmental protection, be applied more consistently. These are all reasonable standards that exist to strengthen the Bank's development impact. Management must improve staff training on policies and strengthen its vetting process to ensure that Bank policies are applied rigorously to all Bank projects.

World Bank Partnership with the African Development Bank

As has been discussed in previous meetings, enhanced collaboration among the multilateral development banks is important to an improved international financial architecture and to the effectiveness of development assistance in reducing poverty. The United States welcomes the progress made by the Team of Independent Experts advising the World Bank and African Development Bank on a strategic partnership between the two institutions and in offering suggestions pertinent to the drafting of a memorandum of understanding between them. We encourage both institutions to proceed quickly toward this memorandum of understanding. We believe an official partnership would enhance collaboration in areas such as common strategic visions; country strategies; harmonization of missions, disbursement procedures and reporting requirements; and staff exchanges to strengthen networking.

We look forward to a similar agreement between the World Bank and the Asian Development Bank, as is currently being discussed in the two institutions.

World Bank Capital Adequacy

We welcome the attention which Management and members have given to safeguarding the Bank's financial soundness and risk-bearing capacity. Financial strength is fundamental to the Bank's ability to respond quickly and effectively to the evolving development needs of our borrowing members.

We agree with the External Advisors and the Bank's own analysis that the Bank is now operating on a firm financial basis. We also recognize that projections regarding the Bank's future financial position depend heavily on judgments on the prospects for the world economic environment and the potential future demands on -- and inherent risks of -- the Bank's portfolio and its adherence to the policy of selective lending based on country performance.

We do not believe that the Bank needs to substantially increase its hard loan window lending capacity at this time. Rather, we believe that Management and the Board should look more closely at selective lending choices and the opportunities for mobilizing additional support from within the Bank's existing resource framework.

In all cases, it will be important to keep both the Bank's financial situation and the nature and composition of future lending under close review.

We have also been asked by IFC management to consider a possible capital increase for that institution. We would like to discuss this further with Management and the Board, but at this point do not see a strong case for a capital increase.

Corruption and Money Laundering

There is increasing awareness that corruption contributes to distortion of investment flows, poor economic performance, reduced confidence in financial institutions, and vulnerability to financial instability. It is one of the most serious impediments to development and poverty reduction, and is a problem that must be forcibly addressed head on.

As a follow-up to the OECD Anti-Bribery Convention and Vice President Gore's Anti-Corruption conference in Washington in February 1999, we strongly urge complete ratification and implementation of the OECD Convention by all signatories.

We also call on the Bank and the IMF to perform authoritative reviews of their procedures and controls and those of borrowing countries to identify ways to strengthen safeguards on the use of IMF and World Bank funds, especially in situations where there is a heightened risk of diversion or misappropriation of funds. We encourage strong membership support for this effort.

The United States also intends to work with our G-7 partners and others to coordinate anti-corruption efforts and assistance and complete a WTO agreement on transparency in government procurement. In addition, we are considering ways to institutionalize international measures to identify, block and seize illicit financial flows gained through crime.

We view concrete steps to enhance cooperative and multilateral efforts to combat money laundering and financial crimes as a crucial component of the international financial agenda. We therefore welcome the fact that the World Bank, IMF, and regional development banks are acutely aware of the serious problems posed by international money laundering. The structural reform assistance provided by the IFIs in recent years has helped selected countries improve their banking supervisory capacity, adopt financial sector reforms, and strengthen public institutions and the rule of law. We continue to believe that corruption and other governance considerations should be taken into account in allocating IFI resources, and that government failure to address the problem of systemic corruption should have important consequences.

We urge the IFIs and their members to be alert to the opportunities for further engaging in these priority efforts. We specifically encourage the institutions to expand efforts to help countries, in the context of financial sector reform, to create transparent and accountable financial systems, identify and interdict illicit financial flows, strengthen financial supervisory institutions, and promote adoption of appropriate anti-money laundering policies and measures.

We also continue to urge the MDBs to give priority attention to developing uniform procurement rules and documents of the highest standard and to help countries combat corruption.

Labor

It is our position, supported by ample evidence, that the core labor standards, in conjunction with a responsive and equitable legal and institutional framework of labor relations, can have a positive impact on poverty alleviation in general and on productivity, income distribution, and civil society specifically.

The ILO's 1998 Declaration on Fundamental Principles and Rights at Work, representing a consensus among labor, employer, and government representatives of a membership that closely parallels that of the Bretton Woods institutions, demonstrates that the values reflected in internationally recognized labor rights are broadly shared. Therefore the debate should no longer focus on whether core labor standards are good or bad for development and growth, but how to achieve growth and development in a manner consistent with internationally recognized workers rights.

We welcome the Bank paper's careful treatment of labor market flexibility and the desirability of policies that encourage such flexibility. But this is only part of the challenge. We are quite concerned that by addressing only this narrow sector of labor market policies, the Bank is missing a real opportunity to support forward looking policies on labor markets that are consistent with core labor standards during good times as well as bad. We urge the Bank to revisit this issue of vital concern to industrial and developing countries alike.

It is also essential that the Bank, together with its borrowers, move forward on the implementation of the labor provisions contained in the IDA-12 agreement, and that all the IFIs ensure that their projects and programs are consistent with core labor standards and work cooperatively with the ILO and other labor institutions to promote programs and policies beneficial to working people.

Military Spending

Consistent with our efforts to encourage the most productive utilization of limited donor and domestic resources, the United States believes greater attention needs to be placed on improving military spending accountability. We encourage the international financial institutions to ensure the full transparency of military spending within the range of borrowing countries' public expenditures and their accounting and reporting mechanisms. We believe it is incumbent on the IFIs to be fully knowledgeable of the audit and accountability systems in place for military expenditure -- like all expenditure -- prior to extending assistance. We consider this necessary to better ensure that assistance is supplementing a country's own best efforts to reduce poverty and pursue equitable economic growth, rather than simply making it easier for the country to engage in excessive military spending. Equally important is the very reasonable expectation that countries receiving assistance should maintain transparency and accountability in the management of all public resources, including military spending.

I hope that all members of the IFIs will join us in prioritizing the issue of military spending -- recognizing that accountability of military spending is integral to the growth and development mandates of the IFIs -- and promoting active and well coordinated IFI engagement on public expenditure and accountability issues, issues which are also essential components of the HIPC Initiative.

Conclusion

In concluding, I would like to highlight the fact that we are meeting at a time of increased public scrutiny of both bilateral and multilateral financial institutions. There is widespread skepticism of the benefits of development assistance and other official financing, reinforced by the overall disappointing economic performance of the poorest countries over the last half century.

A renewed commitment to change the framework for assisting the poorest countries, reinforced by the HIPC Initiative, is needed to jumpstart the process for reducing global poverty. I recognize the scope of the challenges this will entail. Development is not an easy process and there are no quick fixes. Yet we can all do a much better job in reaching and engaging the poor and in ensuring that economic growth and social progress are mutually reinforcing. Genuine commitment and performance by the poorest countries themselves is the linchpin. But well targeted external assistance is also crucial. My government is committed to working with the Bank and Fund and their members to help meet this vital challenge.

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