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Statement by Mr. R. Gopalan, Secretary, Department of Economic Affairs

Leader of the Indian Delegation to the Development Committee Representing the Constituency of Bangladesh, Bhutan, India and Sri Lanka

Washington, DC

1. Over the last four years, we have moved from a fuel crisis to a food crisis to a financial and economic crisis and now, we are back to a food crisis. Not only does history seem to repeat itself, it seems to repeat itself with greater frequency and at shorter intervals. Therefore, it is necessary that the World Bank Group factors this in its plans and stays prepared to handle one crisis or the other at all times.

2. These crises impact the poor much more severely as they have lower resilience and capacity to bear shocks. One of your documents estimates that the current food price spike has pushed an additional 44 million people into poverty. This is in addition to the nutritional impacts that the current crisis has on the poor.   The overall aggregate impact globally on development prospects would normally be greater than the sum of the impacts on individual households and countries.

3. This new reality has important lessons for the World Bank, given its focus on removing poverty and promoting development. As the premier multilateral development institution, with a reservoir of knowledge which is unmatched, the World Bank will have continued relevance in helping countries move out of crises and grow. This is going to be a fundamental role it will be required to play in the future. For it to do so effectively, it needs to be nimble, flexible and responsive. Most importantly, it needs to be financially strong with the capacity to intervene and assist in an appropriate and substantial way. In this context, we believe that the Bank needs to have adequate financial resources to play out this role. We need to deliberate now and in future on how we can strengthen the financial base of the Bank further so that it can discharge not only its crisis response tasks better but also support long term growth in developing and transition countries. . In this context, we feel concerned when we see Bank lending set to decline from next year onwards. We need to take steps to ensure that just as it did over the last two years, the Bank has the capacity to respond to crises, play a counter-cyclical role that can make a difference and help in long term growth. 

4. The other aspect from a Bank perspective is the need to retain its core focus on the poor. In our view, poor is a broad word, encompassing all poor people wherever they may be. The need to positively impact the lives of the poor should be a “mantra” that should permeate the Bank’s thinking at all times. Be it sectoral or regional strategies; be it design of new instruments or products; be it modernization or governance reform; the goal should at all times be on ensuring that all these changes improve the lives and prospects of the poor, wherever they may be.

GMR 2011

5. This is one of the lessons of the GMR as well. While there is a need to accelerate efforts to meet the MDGs in countries which are likely to miss the MDG targets, the interesting aspect is that there are trailing pockets in many MICs. If we move one step below the national level and look at MDG data at sub-national levels, we will notice large disparities across regions within all countries, LIC or MIC. We need to study and understand how to reach these trailing pockets. Reaching trailing pockets, which account for a majority of the world’s poor, is a far more complex process than we appreciate. We need to look in to the causes, impact and remedies for inequality as we have been doing for poverty. The complex program design skills needed to address these pockets are rare. The Bank can play an important role, given its vast knowledge base in helping countries devise appropriate strategies and also providing resources. More importantly, it can help countries move away from a focus on inputs to a focus on outcomes. This is an important move that countries need to make in their own development programmes and the Bank can become a catalyst for such processes.

6. In this context, we compliment the Bank and the President for constantly keeping the needs of the poor in sharp focus and in the Bank’s sights. The record lending by the Bank in the past three years has benefited the poor. The record replenishment of IDA16, thanks for which are due to donors as well as recipients as also to the President for his leadership, will go a long way in helping the poorest. The results focus that is already there in IDA, and which is now being emphasized across the Bank, will help deliver desired development outcomes. The Bank is also doing an excellent job in continuously articulating the needs of the poor in different forums such as the G20 and elsewhere with beneficial results. We are also happy that IDA working groups will further look into some important issues of IDA, including its sustainability.

7.  While development challenges remain in large pockets, some countries are facing prospects of reduced Bank flows due to investment limits. Several measures are required to sustain Bank investment flows in such cases. We feel that, apart from short and medium term measures, efforts should also aim at increasing “additional investment flows” through the Bank in these countries. 

Food Price Volatility and Food Security

8. The current spike in prices has serious ramifications coming as it does in the immediate aftermath of two earlier crises from which we are yet to fully recover, making it that much more difficult for us to garner resources to reduce its effects. On the other hand, we have a tremendous amount of experience and knowledge on which to base our responses. Price volatility appears to be on the way to becoming a long-term phenomenon. We need to look closely at disaggregated statistics on the contribution of different factors to food price volatility in order to understand and respond through policy reform.

9. The differentiation between short and long term causes of price spikes and the specific responses to these must have a firm empirical basis. One set of policies based on lessons learned so far needs to address issues of a transitory nature such as drought and floods in major producing countries, panic buying, speculation, exchange rate fluctuations and the recent rise in oil prices. Another set should understand and address the longer term underlying structural issues. Is the recent spike in natural disasters transitory or structural? Our programs would need to be designed and fine-tuned keeping in mind the relationships between the various factors at play.

10. For the first time in 50 years, the yields of major crops are rising more slowly than global population. We are seeing a change in the composition of demand for food, the effects of climate change, the growing constraints of land and water, large storage losses and wastage which are equivalent to loss of productivity. These structural issues have been exacerbated over the years through policies of developed countries such as distortive trade barriers, farm subsidies, use of food crops for bio-fuels and the cutting back of publicly funded agricultural research. Agricultural research is one of the most important global public goods today and the paucity of funding that we have been witnessing over the last many years can have long term consequences. Developed countries must scale up research funding for private and public institutions. The idea should be to produce more from less inputs, which highlights the importance of looking at factor productivity issues in detail. Tied to the issue of factor productivity is a response overwhelmingly aimed at massively scaling up agricultural research in both developing and developed countries, with a focus on dry land farming, efficient use of water, rain fed irrigation, drought resistant varieties of seeds and other similar interventions.

11. What the Bank has done so far is laudable, but it is clearly not enough. While linking farms to markets is a thematic area of the World Bank’s policy, rather than working in thematic silos, it would be important to integrate programs across sectors. We are yet to see this happening in a big way. The Food Crisis Response Program has been effective in producing some short term results. However, agricultural investment by the Bank remains small in relative terms and needs to be scaled up if we want to see longer term results on the ground. The Bank's knowledge may be inadequate to address long-term challenges to food security that have emerged - more studies are needed on risks faced by major producing and consuming countries, correlation between social and political instability and global prices, issues related to small farmers relative to large-scale and commercial farming, correlation between international and local food prices, the effects of subsidies which are a global public good as opposed to ‘political’ subsidies and also issues related to livestock productivity, which the Bank’s strategy overlooks. The Bank would need to partner with think tanks, research institutions, other multilateral institutions with greater experience in the area and institutions within countries themselves which have done major work in the area to pool available knowledge and to design effective strategies.

WDR 2011

12. The WDR 2011 has important lessons for the world - governments, domestic organizations, civil society, IFIs and so on. Many lessons in it need to be taken up by governments themselves. The issue of country ownership, therefore, needs to be an area of emphasis in any document for the operationalization of such comprehensive findings as those in this report. The strategy for operationalization moves between two areas: one is a discussion of lessons learnt relevant to countries and other partners; the other is the relevance of the lessons for the WBG’s own activities.

13. The document appears to present a new strategy for Fragile and Conflict Situations (FCS) and talks of “tradeoffs and selectivity in terms of resource allocation”, but we would have liked to see greater clarity on what such trade- offs would be. We expect the Bank to work in areas of its comparative advantage, namely financing and knowledge dissemination for economic development, but in an innovative manner, rather than focusing too much on security issues, political economy issues and dealing with disarmament and demobilization.

14. In our view, the WBG should understand that handling fragility is a complex exercise. The Bank should not overestimate its capacity or capability. It should focus on key interventions that support any of the WDR pillars that reduce fragility. At the same time, the complexity of the exercise should not be underestimated. How does one identify  “inclusive enough coalitions” and how does one provide early support to them?  How can you bring into CASs and ISNs aspects which an FCS strategy deems essential but the government of the day does not want to be addressed? This is tricky territory and requires nimble maneuvering. Is the Bank equipped to do it?

15. The strength of the strategy for operationalizing the WDR lies in its emphasis of labor-intensive growth in the FCS, focus on private sector growth, the recognition that institutions need sustained support and the recognition of the need to revise definitions of risk tolerance in the FCS context.  The recognition of the need to realign results and risk management frameworks is especially welcome, and would mean revising the Bank’s approach to FCS. However, the risk framework would need to be flexible and adaptable to different situations and the Bank would need to look at its own capacity in terms of levels of risk tolerance.

16. We need to address some of the important operational implications such as issues impacting on the current institutional structure of the Bank, including insufficient staff capacity and lack of expertise in political economy and purely security-related issues.    We should leave issues of political economy and security to be tackled by agencies that have specific mandate and expertise, such as the UN. We also need to go beyond IDA and trust funds in seeking to reduce volatility in aid financing. We would need to look at more innovative approaches as all the mentioned sources are already there and have not really resulted in any reduced magnitude of volatility.

17. The situation in the middle-east has brought with it certain concerns not only for the countries facing unrest but for the world as a whole. The prospect of inflation is looming over these countries and elsewhere. Fiscal deficits are expected to grow. Oil production is projected to decline. The international community needs to help during the period of transition. Mandates and capacities need to be strengthened and widened by building up greater transparency and accountability. The World Bank Group can play a role with its vast experience in managing transitions.

Modernization and Governance

18. We welcome this Update on Modernizing the WBG. We broadly endorse the approach being taken and are satisfied with the progress so far on most aspects.  There are some issues which however need to be noted.

19. The core strategy of the Bank is woven around country–based and country- owned strategies and selectivity is about making choices between multiple options within a country strategy based on other constraints (e.g., Bank’s capital availability, additionality, development impact, etc.). It should in no way appear that “selectivity” in any way implies a trade-off between a country’s needs and the Bank’s own other priorities such as global public goods and global partnerships which may be completely secondary to a country’s needs. In the capital and budget constrained environment in which the Bank is operating, we must send a strong message that country priorities are foremost in importance for the Bank.

20. We would also like the Bank to devote more time to  GPGs such as education, health, financial inclusion, agricultural research etc. compared to Climate Change..  Climate change should not shift the  focus away from these very important GPGs.20. We recognize that Trust Funds play an increasing role in the activities of the Bank. While some efforts at integration are going on, we realize the extent to which the dependence on Trust Funds has grown. They are integral to the financing of many Bank activities. Therefore, we see that they should be brought under the direct control of the Board. At the moment, it is a de facto business line, not de jure and we are not sure who sets their agendas and how they converge with what we discuss here. In our view, it is not a business line till we establish effective Board control on them and see that they are aligned with the Bank’s priorities. Otherwise, we will have external agendas creeping into the Bank by stealth.

21. Decentralisation was one of the key internal reforms we were expecting. There has been a substantial change in the agenda on this front. We are given to understand that the focus is now on strengthening country offices. We would like the Board to work with the management to choose the best possible course. There would also be some resistance to change within the organization. The President will have to take the leadership role if this important agenda has to move forward.

22. We welcome the report on the recent progress of World Bank Group’s internal reforms agenda to enhance shareholder stewardship and oversight. We believe that these reforms would increase the effectiveness of the institution, the functioning of the Board and enable the Bank to respond efficiently to the demands of clients. We are particularly happy to note that the Board has approved papers on the selection process of the President and Dual Performance Feedback. We share the view that these two measures are very significant in enhancing the shareholders’ oversight of the institution and help measure the performance of the Board and the President. We feel that client responsiveness should be one of the important performance indicators in the Corporate Scorecard.

Conclusion:

23. The WBG has done well in helping developing countries in the past. The series of crises have shown that it has continuing relevance in the future. Addressing the needs of the poor is a challenge that will also remain for a long time to come. We a need a strong, yet flexible Bank and we need to work in that direction. The Bank needs to continue to maintain its core focus on poverty alleviation without a proliferation of goals. The Bank is an important Global Public Institution we have in the development arena and we need to preserve and strengthen it for our future generations.