Statement by the Governor of the Bank for the Islamic State of Afghanistan

Ashraf Ghani

Afghanistan has reached a fork in the road: either it will move towards becoming a polity, economy, and society that is democratic, dynamic and open, or it will descend into a narco-mafia state that perpetuates misery internally and threatens the well-being of our children globally. The choices and actions we take together in the next year will determine which road Afghanistan travels.

On October 9, the people of Afghanistan will become sovereign. Direct Presidential elections will conclude our political transition, and usher in a government with a popular mandate for a five-year term. These elections represent a critical milestone in a journey that begun three years ago with the UN-Brokered Bonn Agreement, but that journey is far from over. If we are to stay on the path to lasting peace and prosperity, we must focus on three things: public finance, credible institutions, and stability.

In each of these areas, much has already been accomplished. In public finance, the Karzai Administration issued a new currency in a fraction of the usual time; promulgated a simplified tariff regime, introduced strict accountability and reporting mechanisms, established a single treasury account, and developed mechanisms for centralizing and streamlining our revenue collection. Our main challenge, however, is still to transform the budget into the central instrument of policy, a challenge that cannot be overcome without the full commitment of the donor community.

Credible institutions flow from the rule of law. We have built a national army of 18,000, and trained a national police force. We have begun the process of disarming and reintegrating our militias into civilian life. We have focused on the security sector as a central pillar of our reform process. The Afghan people, however, differentiate between security and stability. While the army and the police are becoming instruments of security, they cannot deliver stability on their own. To be stable, Afghanistan must be prosperous. Our greatest challenge, therefore, remains poverty.

There is a gap between the expectations of our people and the resources at our disposal. In our Constitutional Convention, delegates from around Afghanistan presented their urgent needs for electricity, schools, health, roads, dams, communications and so on. The costs of these requests amount to between $80-120 billion dollars. This is not an unreasonable request. According to the World Bank, Afghanistan lost $240 billion in destroyed infrastructure and lost opportunity between 1978 and 2001. The generous pledge of the international community in Berlin in 2004 was only $8.2 billion. The gap between our aspirations and our means leads to three conclusions:

• First, the Public Investment Program should harness the aid system to results, both institutionally, and in terms of visible outcomes.

• Second, we must create an enabling environment for private sector investment.

• Third, we must fulfill Afghanistan’s potential as a land bridge between South Asia, Central Asia and the Middle East. Reliable access to transit trade is key to our survival. We need our neighbors to join us in conceiving and implementing win-win strategies that will ensure rapid and inclusive growth of our economies.

Afghans want to partner with the international community to achieve a social and economic transformation. A lot has been achieved through a sustained multilateral engagement that recognized country leadership and insured that resources for the next three years were assured through the April 2004 Berlin Conference. In that regard, we would like to thank the World Bank and the Fund, in general, and Mr. Jim Wolfensohn, in particular, for their sustained engagement. As the aid community reviews its lessons from the sixty years of engagement, we would like to contribute some lessons we have learned ourselves.

We have seen what happens when aid is not harmonized. Flows of money outside the budget are undermining our efforts at creation of credible institutions, sound public finances, and stability. In this context, replenishment of IDA 14 and creation of financial instruments, such as the International Finance Facility, are critical for ensuring predictability and flows of resources..

We know that the contracting and consulting industry needs a major overhaul. While the advice of a select group of consultants remains indispensable, the irony of technical assistance on cost-plus contracts lecturing our government on performance-based budgeting should not be lost. The lack of a credible vetting system is also becoming a source of resentment against international engagement. Moreover, the policy of donors funding two civil services—the government bureaucracy at an average wage of $50 per month; and a parallel bureaucracy of their own at $500 per month—draws talented people out of government in the short term and fundamentally undermines the creation of a sustainable state in the medium to long term.

Aid has too often been an inhibitor of private-sector-led growth rather than a catalyst. The entrepreneurial spirit of Afghans must be cultivated and not crippled by the rules of the aid system. While our partners agree with us that the private sector should be our engine of growth, practice has not always matched the international consensus.

Getting Afghanistan right is a challenge for all of us. Now is the time for a new economic coalition between the international financial institutions, bilateral donors, the private sector, the Afghan government, international and national civil society, and the Afghan people to overcome the challenge of poverty and instability.

Our aims are high. In the next seven years, we believe that with enough of the right kind of support, we can achieve the Millennium Development Goals. In one of the poorest countries of the world, this challenge will test our combined will to the core, but we must succeed.

The stakes have never been higher. Afghanistan can provide a much needed victory in the international wars on poverty and terror. Or it can once again fail the hopes of its people and threaten global security. Whatever path we take, we will take that path together. Today, we know that in Afghanistan, and that is why we want to participate in an open global economic system. We believe that our partners—the aid community and the global private sector—now see that too.

Statement by the Governor of the Fund and the Bank for Kingdom of Bahrain

Abdulla Hassan Saif

Mr. Chairman, Ladies and Gentlemen, it is a great pleasure for me to deliver, on this day and on behalf of the Group of Arab countries, the joint speech for this year’s IMF and World Bank (WB) annual meetings. To begin with, please allow me, on behalf of all Arab governors, to congratulate Mr. Rodrigo de Rato y Figaredo on appointment for IMF Managing Director position. At the same time, I would like to express the support of the Arab region for him personally and aspiration for more constructive cooperation between IMF and the Arab region in the coming years.

It is comforting to see signs emanating from economies of the US, Japan and Europe, as well as economies of some other Asian countries, indicating imminent end of the weakness affecting global economy in the past few years. Such a development, along with efforts aimed at economic reform, has contributed to strengthening growth in many developing countries, our Arab countries included.

This recovery in the global economy has also led to noticeable increase in the demand for oil at a time marked with political tensions in some oil-producing areas. At the same time, price speculations got active and low stocks occurred in oil-consuming countries. This led to increased pressure on oil prices pushing them to unprecedented levels. Based on international responsibility and deep-rooted conviction that market stability is in the interest of all countries, oil-exporting countries, particularly in our Arab region, increased oil-production to keep prices within the limits set for them.

Mr. Chairman, Ladies and Gentlemen, of course, we look forward to more improvement in the global economy. At the same time, we are concerned about the repercussions of some risks mostly emanating from imbalances in the balances of payments of major countries. It is likely that interest rates will rise, thereby reducing debt sustainability of developing countries. This will increase volatility of capital flows and escalate political tensions in some regions of the world, as happened in the late 1990s.

These concerns motivate us to urge the international community not to belittle such risks and to urge major actors in the global economy to cooperate with IMF to strengthen its oversight role in the face of current account imbalances, particularly in major economies with large-scale impact.

Due to past difficulties experienced by the global economy as a consequence of such risks, the Arab group of countries attach special attention to the question of avoiding fiscal crises in member countries and tackling the same as they occur. We applaud efforts put forth by IMF in the past few years to introduce a number of new diagnostic tools which help in monitoring and detecting crises before they hit. We hope that IMF will continue pursuit of such efforts to stop such crises from occurring or spreading in the future. It may be useful in this respect for IMF, when designing reform programs, to take into account the need for producing quality designs and rationalizing respective conditionality. Whenever possible, circumstances of each country should be taken into account and more than one option should be provided to enable each country concerned to achieve the goals specified in respective programs.

Since technical assistance provided by IMF to member countries is an effective means of addressing weaknesses in the economies of such countries, we propose allocation of more resources to meet growing demand for such assistance. In this regard, we welcome the establishment of the Middle East Technical Assistance Center (METAC) and call upon donor countries and institutions to participate in financing this Center.

With a view to enabling IMF to strengthen its activity towards this goal as emphasized in previous meetings, developing countries should have more voice and enhanced representation in ownership and management of both IMF and the World Bank. This will strengthen prudent management and good governance in both institutions and enhance their legitimacy, thereby increasing efficacy of their respective economic-policy recommendations, as only a little progress has been achieved in this respect so far.

Mr. Chairman, Ladies and Gentlemen, we fully agree with the drive to meet the Millennium Development Goals (MDGs) which set a timeframe for poverty reduction among a range of social development indicators. We particularly applaud the monitoring methodology implemented by the Ministerial Development Committee, of which I am honored to be a member, to monitor efforts of developed and developing countries as well as international financial institutions in this respect. Since most MDGs will not be met by many developing countries as scheduled, we urge the countries concerned to double their efforts in the area of reform. Moreover, we appeal to donor countries to increase support for such efforts. As revealed by findings of monitoring reports, developed-country contribution to strengthening of reform efforts, in both provision of financial resources and adaptation of their trade policies, has fallen well short of the level unanimously agreed in Monterey and the Doha Round.

In this regard, we applaud the principle framework reached in the recent World Trade Organization meeting. We hope that such framework will be implemented pretty soon and followed by more actions of trade liberalization. We look forward to positive results in the current proceedings for the 14^th Replenishment of Resources of the International Development Association (IDA 14), as this will support efforts by developing countries to reduce poverty and meet the other Millennium Development Goals.

Mr. Chairman, Ladies and Gentlemen, please allow me now to turn to World Bank Group activities and role in our Arab region. As we all know, the main focus underpinning World Bank Group’s policies and activities in our region has been poverty alleviation and the raising of living standards, particularly for low-income groups. This direction has met with satisfaction and support from all countries in our region, In view of severe problems faced whether by individual countries or commonly with other developing countries. Such problems often involve low income levels, poor growth rates, sharp volatility in terms of trade as well as unfavorable regional circumstances. Countries of our region have always sought to strengthen cooperation with the World Bank Group and other international institutions to benefit from expertise and resources needed to address such problems and to strengthen undertaken reform programs.

From this podium, and on behalf of Arab country governors, I express gratitude to World Bank management, particularly to Mr. Wolfensohn, for attention to strengthened cooperation with countries of our region. I would like to particularly indicate periodical consultative meetings held between governors representing our countries and World Bank management. We look forward to more cooperation with World Bank management in areas of concern to all of us.

I would like to avail myself of this opportunity to emphasize, as agreed with Bank management, the need for flexibility in dealing with our countries due to different situations and needs. In this respect, we hope that the Bank will take into account, when designing financing and development programs, the various and different circumstances of each country in our region. We also hope that the World Bank Group will continue to direct increased attention to middle-income countries as many of our countries fall in this category.

The greatest challenge facing countries in our region is certainly the need to create enough job opportunities to absorb the growing numbers of young people entering the workforce. There is full agreement between our countries and the World Bank Group on the need to give this concern top priority. Consequently, Arab countries appreciate studies conducted by the Bank to analyze dimensions of this issue and envision necessary interventions which should include actions to facilitate transitions into economies more open and less dependent on natural resources and the public sector.

Undoubtedly, private sector strengthening and improvement of investment climate top the list of means to accelerate growth rates and job creation. Hence, our countries look forward to a more effective role played by the World Bank Group in these respects. Such a role will eliminate impediments to meeting financial and technical needs of our region, including streamlining of lending conditionality and reducing borrowing cost. Arab countries particularly look forward to a specific action plan by the World Bank Group to increase activities of the International Finance Corporation and the Multilateral Investment Guarantee Agency in our region, as their role is still below required level.

Despite volatility and record low levels of funding volumes from the World Bank Group to our region in some years during the past period, we would like to applaud the role played by the World Bank Group and IMF in supporting countries going through extremely difficult circumstances due to local conflicts. We particularly indicate the sufferings of the Palestinian people due to escalating destruction caused by occupation forces. This situation warrants the doubling of support to the Palestinian Authority by the two Bretton Woods institutions, in close cooperation with donor countries and other financial institutions. We also emphasize the need for consolidated international community efforts to reach a final solution to this question.

At this juncture, we indicate the actions of Israeli occupation authorities such as the raiding of some branches of Jordanian banks operating in Palestinian territories and seizing large amounts of money deposited in such branches, in addition to tampering with files pertaining to clients of affected banks. Undoubtedly, such actions violate all international laws and agreements, including the IMF Articles of Agreement, and hamper efforts by our Arab countries to create the enabling banking environment and establish peace and stability aspired by all peoples in our region. We must also note that economic sanctions imposed on the Syrian Arab Republic contravene the objectives of our two institutions as enshrined in the need to ensure freedom of trade and payments. The same sanctions hamper Syria’s efforts aimed at achieving economic development and reform.

Concerning Iraq, which is still suffering from war’s destructive impact on its economy and society, we look forward to transition by the World Bank Group, IMF and other donor organizations from the stage of preparation and management and technical capacity building into active involvement in projects, particularly those contributing to: job creation, utilization of resources from our two institutions, elimination of debt burden, and provision of resources needed for reconstruction efforts.

We also welcome re-engagement with the Sudan and look forward to re-engagement with Somalia. We hope that the World Bank Group and IMF will effectively resume activities in both countries.

In conclusion, Mr. Chairman, there are positive signs calling for optimism in our region. Some countries have achieved progress in their economic indicators, particularly in respect of: growth rates, price levels, financial balances, current accounts and external debts. Nevertheless, we are still faced with many challenges that we need to overcome through effective partnership between our countries on the one hand and the World Bank and IMF on the other hand.

Statement by the Governor of the Fund and the Bank for Bangladesh

M. Saifur Rahman

We meet today in a truncated Annual Meeting under the gloomy shadow of global terrorism which is a threat to security as well as prosperity throughout the world. We condemn terrorism in all its forms and manifestations. Military intervention may be necessary but not a sufficient condition for winning this war. The roots of terrorism lie deep in poverty, hunger, disease, joblessness, hopelessness and injustice in an environment of uneasy economic transition. The Bretton Woods Institutions must join the fight against terrorism by rekindling hope in the minds of the unemployed youth and providing opportunities for betterment of the deprived and disadvantaged.

Despite recent encouraging trends in poverty reduction, more than one billion people still live on less than a dollar a day. Given the magnitude of the problem, the world cannot afford the luxury of complacency or fatigue in the war against poverty. Millennium Development Goals are steps in the right direction. However, the resource gap for attaining these goals remains overwhelming. Globally the pledges of development assistance stand at no more than one third of what is needed for achieving the agreed targets. The poor must be given access to useful education, health, and adequate physical infrastructure – so that they can participate in the global market on equal terms. In addition to significant increase in conventional ODA, the feasibility of innovative financing such as proposed International Financing Facility and global taxation for aid should be actively explored. The International Financial Institutions (IFIs) should be strengthened by providing adequate capital and quotas, and by replenishing the facilities for concessional assistance including IDA. Steps should also be taken by IFIs to scale up investment and minimize inappropriate constraints on public investment in infrastructure.

Development is a process in which technology and know-how of the developed countries interact with local resources, entrepreneurship and creativity. This process would not be fruitful unless the impediments to development are removed and existing resources are efficiently utilized through reforms in all sectors. Reform is a continuous process. In a democratic political order, reforms can not be sustained without broad-based public support within the constitutional, parliamentary and judicial framework. The direction, sequencing, and phasing of reforms must, therefore, be left to the countries themselves. Furthermore, the performance of a country cannot be properly measured without an appreciation of its historical, cultural and socio-political context.

We welcome the recent signs of global economic recovery based on robust growth in 2004. Despite this happy development, we are deeply concerned with the sharp rise of oil prices. The oil shock is likely to compound the effects of multilateral trade liberalization including the phasing out of the MFA. The relief provided by Trade Integration Mechanism may turn out to be too little in the face of historically high oil prices. The IFIs must remain ready to respond quickly to emerging shocks.

In Bangladesh, the Government is striving hard to attain the Millennium Development Goals. We have already graduated from low human development to medium human development category and has already reached some MDGs in the social sector. Since the assumption of office, the present government has pursued vigorously reforms in fiscal consolidation, and despite shortfall in disbursement of anticipated external assistance has restored foreign exchange reserves to a satisfactory level through efficient economic management and adjustment to a floating exchange rate. GDP growth in real terms accelerated to 5.5 per cent in the last fiscal year in the face of external shocks. We have met from our own resources the immediate relief requirements in the wake of three successive devastating floods in recent months which engulfed the entire country. The scale of damages is massive and immediate adequate assistance is required for the rehabilitation of agriculture, physical and social infrastructure. Despite an unfavorable international climate and devastations caused by recent floods, the Government is determined to continue with the implementation of comprehensive reform program as envisaged in our Poverty Reduction Strategy to accelerate growth in the immediate future. I would like to conclude by wishing the Bretton Woods Institutions happy sixtieth anniversary and their continued success in the future.

Statement by the Governor of the Bank for the Republic of Belarus

Andrei V. Kobyakov

Distinguished Mr. Chairman, Distinguished Governors, Ladies and Gentlemen, the year that has elapsed since the last Meetings was a year of difficult trials for the international community as a whole, and a rigorous test of the strength and stability of the current system of international economic relations. The processes of globalization and integration, which are unfolding in a highly complex manner, have intensified the unevenness of various nations’ economic development.

The trends that have emerged have also had a substantial impact on our Republic’s development, whose effectiveness has depended in large part on the precision with which worldwide political and economic processes are coordinated with national interests and capabilities.

What was this year like for our country? The Economic Development Strategy of the Republic of Belarus, its goals and tasks, its basic principles, priorities and phases, are based on an analysis of our nation’s place and role in the international community and on an assessment of domestic and external preconditions and factors of economic growth and social development.

Despite a number of objective challenges, Belarus continues to be a dynamically developing nation with sustainable growth in GDP as well as industrial and agricultural production, a relatively stable banking system, insignificant external indebtedness and a well-developed export capacity.

Since 1996 we have consistently pursued a chosen course of phased economic reforms, seeking in every phase to combine the state’s regulatory functions and the market mechanisms in a reasonable manner. This has enabled us over the past nine years to ensure sustainable economic growth and social stability and to make progress towards achieving the strategic goal of the country’s socioeconomic development—to improve the living standards of the Belarussian people and bring them closer to the level of the developed European nations.

For example, from 1996 through 2003 Belarus increased its gross domestic product 1.5 times, or by an average of 6 percent a year (6.8 percent in 2003). This made it possible to increase real personal monetary income 2.6 times during the 1996-2003 period (including 7.5 percent in 2003).

Belarus has a developed industrial capacity, which can produce goods that are competitive in the world market both in price and quality. And this is confirmed by economic performance. Since 2000 we have steadily increased exports of goods and services. In 2003 it rose by 24.6 percent, and in the first six months of 2004, by 27.8 percent.

Reducing the inflation rate and ensuring stability in the foreign-exchange market have contributed to favorable macroeconomic conditions for production operations and investment activity.

The stable growth in GDP and personal monetary income, as well as the improvement in the financial performance of businesses in the real sector of the economy have resulted in increased budget revenues, and created a realistic opportunity to reduce the tax burden on the economy. It is no secret that the tax level in Belarus remains quite high. For example, in 2003, the overall level of the tax burden in the Republic, calculated as the ratio of imputed and paid taxes and levies to GDP, was 32.1 percent, and when deductions for social insurance are factored in, it was 42 percent. In 2004 it will drop by 1.8 percentage points, but will still be high.

The tax system is being improved primarily by lowering taxes and levies, simplifying procedures for paying them and reducing tax rates.

In 2002, for example, we were able to reduce the corporate income tax rate from 30 to 24 percent, which yielded certain results in increasing investment activity.

In order to keep Belarussian goods competitive and lower the inflation rate, the standard value-added tax rate was lowered from 20 to 18 percent at the start of 2004. All the preconditions are now in place for a changeover on January 1, 2005, to the “country-of-destination basis” in the taxation of foreign trade with the Russian Federation, and all the necessary documents are being prepared to ensure this changeover.

The reform of a second area of fiscal policy—government expenditures is equally urgent. There is much truth in the folk saying, “Getting rich depends not on income but on spending.”

While preserving the social orientation of the budget, budgetary policy in the near term will be aimed at optimizing government expenditures and significantly improving the effectiveness of the use of budgetary funds.

Along these lines, in 2003 we began to take measures to reduce preferential benefits. State support is now being provided to business entities mostly in the progressive forms that are in worldwide use.

At a time when domestic financing sources and the budget are limited in their capacity for increasing investment and innovative activities, we welcome foreign investment. Many experts have concluded that Belarus has indisputable capabilities for attracting foreign capital to its economy on a wide scale. They cite such obvious arguments as the fact that Belarus is the gate to the Russian market for the EU, retains political stability, has a pretty good regulatory and legal framework, fine social and living conditions, highly skilled and cheap labor and a small foreign debt.

A few words about cooperation with the World Bank. The implementation of the Bank’s Country Assistance Strategy for the Republic of Belarus for 2002-2004 is being completed in 2004. Its results were discussed in detail with Bank vice-president Shigeo Katsu during his recent visit to the Republic. An understanding was reached that there is now a need for a fundamental review of the format of cooperation with this international financial institution.

The lessons of past years dictate the need for a more balanced and flexible approach to defining a program of cooperation with the World Bank, which takes account of its changing priorities and the trends in the Republic’s macroeconomic situation. The rigid framework of the three-year Country Assistance Strategy program does not afford this kind of flexibility. It would be more acceptable, in our view, to consider a cooperation option that is based on a Country Partnership Strategy, which does not include a rigid operational program.

We have proposed to the Bank a broad spectrum of areas for cooperation in the near term. We hope this dialogue will be productive and will take account of the lessons of previous years of cooperation, which, as “The World Bank Country Assistance Strategy for the Republic of Belarus in 2002-2004” properly notes, show that “there is little to be gained by pushing the policy dialogue (and conditionality) envelope beyond what the government can consider part of its own program.”

With respect to cooperation with the International Monetary Fund, several disagreements have persisted between the Government and the IMF for quite some time concerning the rate and areas of the Republic’s economic development. I want to emphasize in this regard that the Belarussian authorities have never rejected the Fund’s recommendations as a whole. We completely agree with the strategic approaches—the formation of an effective market economy. In early 2004 the Government and the National Bank adopted a joint decision not to attract the Fund’s financial resources at this stage.

Considering that there are several other mechanisms of cooperation with the Fund that provide for the use of that international financial institution’s financial resources solely in the event of unforeseen circumstances, we think it is possible to work with the Fund in this direction in the future.

The technical assistance provided by the World Bank and the International Monetary Fund has made it possible to accomplish a number of the Republic’s pressing tasks. Work with the IMF in this area has produced concrete results in improving the functioning of the National Bank and the system of collecting, tabulating and disseminating statistical information and in working out actions designed to combat the funding of terrorism and the legalization of illegally obtained income.

We would like to take note of the productive dialogue and cooperation with the World Bank within the framework of technical and advisory assistance on issues of environmental protection, social protection, pension system reform, poverty assessment, business climate improvement, and other areas.

We have an interest in expanding cooperation both with the Bank and the Fund, and are ready to do so.

The Republic of Belarus favors keeping the position of IMF representative in the country on a permanent basis.

In conclusion, I would like to urge the World Bank and the International Monetary Fund to develop their highly important activities with a view toward enhancing their effectiveness, client focus and transparency, and to wish everyone success.

Statement by the Governor of the Bank for Belgium

Didier Reynders

Let me at the outset warmly welcome Mr. de Rato as Managing Director of the IMF and ensure him of my full cooperation in his important mission.

Statement by the Governor of the Bank for Bulgaria

Milen Veltchev

Mr. Chairman, Ladies and Gentlemen, it is a great honour and a privilege for me to address this year’s Annual Meetings of the Governors of the IMF and the World Bank at a time when they celebrate the 60th anniversary of the Bretton Woods conference.

There is little doubt that since their establishment, the two institutions have been playing a prominent role in world history. Over the years, there have been great achievements, there have been some failures and disappointments, too, but one thing is certain – the Fund and the Bank have never failed to provide financial support, policy advice, and technical assistance whenever justifiably needed. I do believe that the staff of both institutions has spared no efforts to facilitate member countries in preventing crises and fighting poverty, while promoting financial stability and sustainable growth.

The merit and efficiency of these respectable institutions could be plausibly illustrated by the crucial role they have played in Bulgaria over the last decade. Comprehensive and deep economic reforms were launched in our country soon after the political changes took place in 1989. The initial conditions along the road to building market economy were extremely unfavorable - Bulgaria was greatly dependent on the COMECON and had a huge external debt burden that was impossible to serve.

After some initial hesitations, stemming from a stop-and-go policy (of a succession of governments with vague economic platforms), since mid-1997 Bulgaria committed to decisive economic reforms, within the framework of a Currency Board Arrangement. Since then, the country has achieved and maintained macroeconomic stability and enhanced economic growth. To a considerable extent, this success was due to the close cooperation between the Bulgarian authorities and the Bank/Fund expert teams and management.

At present, it is gratifying to point out the fact that since 1997 Bulgaria has achieved a cumulative real GDP growth of about 30%, cutting down inflation to low single-digit levels while maintaining a broadly balanced budget. The results achieved have even greater added value as they were accomplished in a period, when the global economy suffered several crises, including a recession in leading economies, and a growing uncertainty worldwide.

The Bulgarian authorities highly appreciate the recent ex-post assessment (EPA) of the Fund, which scrutinized past developments, but also put into perspective anticipated future policy challenges. The authorities were encouraged by the key message of the EPA report, namely, that most of the possible drawbacks, identified in the case of longer-term program engagement, do not apply to Bulgaria. Some two months ago Bulgaria signed another Stand-by program with the IMF, designed as a low-access, precautionary arrangement which would also serve as an explicit exit from Fund program engagement. The Bulgarian authorities consider such a precautionary program as an adequate exit vehicle, offering a framework that is familiar both internally and externally.

The policy framework under the last arrangements with the Fund has been complemented and further developed by reform programs supported by the World Bank. In 2001, the Bank began to focus its assistance on a series of Programmatic Adjustment Loans aimed at promoting sustainable growth. The shared view that private sector initiatives and entrepreneurship are the major engines of growth provides the key to the successful implementation of current reforms. The strategy during the last several years has been targeted at the divestment of the state’s noninfrastructural assets along with the enforcement of financial discipline on the remaining state-owned enterprises. The subsequent stages of the strategy have aimed at unleashing private initiative by establishing a favorable investment environment in order to increase the level of investments and improve the utilization of existing investments.

Building on the successful experience from the last few years, the Bulgarian authorities are fully aware of the challenges ahead, and remain strongly committed to continuing the ambitious reform agenda. However, as the transition to market economy is already completed, the reform agenda has changed as well. Bulgaria is now preparing for its accession to the EU and this year has witnessed remarkable progress along the road to European integration. On June 15, 2004 Bulgaria closed the last remaining negotiation chapters thus allowing the country to sign the treaty next spring and accede to the union in early 2007, as planned. The successful completion of the EU pre-accession negotiations has substantially increased foreign investors’ interest in the country. As a result, FDI reached a record high level in 2003, and even more investments are expected as Bulgaria stands out as an attractive investment location not only for its macroeconomic indicators, but also for its highly skilled yet low-cost work force. These features have been recognized by the major rating agencies, some of which recently raised Bulgaria’s sovereign rating to investment grade level.

In the medium term, the main challenge that Bulgaria will face is keeping up the momentum and integrating successfully into the EU. In the last month, the Bulgarian authorities adopted a strategy that clearly outlined the intentions of the country with regard to completion of the last stage of integration – the membership of the Economic and Monetary Union. Taking into account the current macroeconomic framework and the results achieved so far, Bulgaria intends to follow a strategy of acceding to the Economic and Monetary Union without undue delay.

In conclusion, I would like to thank the International Monetary Fund and the World Bank management and staff for the continuous support they have provided to my country over the years. I wish both institutions every success in their mission to achieve stability and prosperity in all their member countries.

Statement by the Governor of the Fund for Burkina Faso

Jean-Baptiste Compaoré

Joint Statement by the Governors of the Fund and the Bank for Cambodia

Chea Chanto and Keat Chhon

It is an honor and pleasure for us, on behalf of the Royal Government of Cambodia (RGC), to participate in this the 2004 Annual Meetings of the International Monetary Fund and the World Bank here in Washington DC. We would like to take this opportunity to express our gratitude to the Funds and the Bank, as well as the Government of the United States for their efforts in arranging the meetings.

This statement will provide an overall assessment of the status of the economy of Cambodia, the Economic Policy Agenda, and provide information on the initiatives of the Royal Government of Cambodia to advance its reform agenda aimed at reducing people’s poverty and promoting development.

Statement by the Governor of the Fund and the Bank for Canada

Ralph Goodale

Sixty years ago, Finance Ministers assembled in Bretton Woods and created the World Bank and the International Monetary Fund (IMF), endowing them with the noble mandate of raising economic growth and of increasing economic and financial stability, thereby reducing poverty. These remain relevant and worthy goals.

While many have witnessed unprecedented growth and prosperity over the last six decades, hundreds of millions remain marginalized. The Bretton Woods Institutions are needed now more than ever to support international efforts to promote peace and prosperity for all citizens of the world.

The global recovery has advanced in most regions and the prospects for strong growth are good in the short run. Nevertheless, there are vulnerabilities that need to be addressed to help ensure that global recovery can be sustained.

Statement by the Governor of the Fund for the People’s Republic of China

Zhou Xiaochuan

Mr. Chairman, Governors, Ladies and Gentlemen, We are very pleased to see increasing evidence of the global recovery, with growth rates in most regions exceeding original expectations. While this is apparent in the world’s major economies—the United States, Europe, and Japan—economic growth rates in the developing countries and many regions have also been remarkable. Undoubtedly, countries can take advantage of these developments to resolve inconsistencies and imbalance problems in their economic operations by making structural adjustments, while at the same time creating sound conditions for the developed countries to carry out their obligations in promoting global sustainable development.

However, we cannot ignore the risks and challenges to sustained growth of the global economy. Complex geopolitical issues and terrorism pose threats to global peace and development. The economic structural problems of the major developed countries are having a potentially negative impact on global economic development, exchange rates, and even financial market stability. Affected by the geopolitical situation and the dynamics of supply and demand, the rise in international oil prices has triggered widespread concern, with a marked correlation between financial market volatility and changes in oil prices. The new round of interest rate increases not only will narrow the long- and short-term interest rate spread and squeeze the profitability of financial institutions, but will also increase the financing costs of developing countries. Emerging markets’ resilience to external shocks is still weak, and the many low-income and developing countries have a formidable task in revitalizing their economies through structural reform. In addition, the unfair trade system and lack of external financial assistance are seriously hindering development in these countries.

Over the past year, China’s economy has maintained the momentum of rapid growth. In the first half of 2004, GDP growth was 9.7 percent y-o-y, 0.9 percentage points higher than the growth rate last year. Foreign trade continued to grow, with total imports and exports for the first eight months of 2004 reaching US$722.1 billion. Fiscal revenue increased significantly to RMB1.4307 trillion yuan in the first half of 2004, up 30.6 percent y-o-y.

Since 2003, China has introduced a series of macroeconomic management measures in response to over-investment in certain sectors of the economy with the result that the unstable and unhealthy factors in the economy have been curbed. Based on updated statistics, the growth of money supply slowed in August, with all intermediate targets for monetary policy lower than expected at the beginning of the year. The consumer price index rose by 5.3 percent, due mainly to rising food prices compared with the same period last year. Inflation, which excludes food and oil prices, remains relatively low, demonstrating that China’s macroeconomic management measures have played an important role in lowering credit and investment growth, leading to brighter prospects for a soft landing. The Chinese government is firmly resolved to curb overinvestment in certain economic sectors and to promote economic and financial reform. We will pay close attention to macroeconomic developments and remain prepared to take the necessary steps to consolidate the gains in macroeconomic management.

In 2004, we have taken important steps to reform state-owned commercial banks and capital markets. Learning from international practice, we have begun to restructure two state-owned commercial banks as share holding companies, which are scheduled to be listed in 2005. Furthermore, reforms are also underway at banks and non-bank financial institutions— including the two other state-owned commercial banks, joint stock commercial banks, urban commercial banks, and rural credit cooperatives. We have also introduced the Qualified Foreign Institutional Investors scheme, allowing the investment of foreign capital in China’s security markets. Through these reforms, we will build a strong financial system able to support the sustained, stable, and rapid growth of China’s economy.

The recovery of the Hong Kong SAR economy continues. For the first half of 2004, real GDP registered robust growth of 9.5 percent. Growth was broadly based, supported by further implementation of the Closer Economic Partnership Arrangement between Hong Kong SAR and the Mainland and gradual expansion of travel deregulation to more mainland cities and provinces. Consumer confidence continued to recover, putting an end to almost six years of deflation.

Driven by service exports, real GDP in Macao SAR grew by 36.0 percent for the first half of 2004, and the unemployment rate dropped to 4.9 percent. The further strengthening of economic cooperation between the Mainland and Macao SAR contributed not only to the continued growth momentum in the tourism industry and strengthening the role of its trade platform, but also to the development of the financial sector and new industries.

We believe that the global recovery combined with the stable growth of the Mainland—with the full support of the central government—will help the economies of Hong Kong SAR and Macao SAR maintain the momentum of strong growth.

We appreciate the Fund’s efforts to promote global economic and financial stability by strengthening surveillance. Nevertheless, we believe that the Fund should place greater focus on surveillance of the major developed countries that have a significant impact on the global economy. These countries should be encouraged to better coordinate their economic policies, maintain exchange rate stability for the major currencies, increase financial aid to the developing countries, and open their markets to them.

While we support the efforts of the international multilateral institutions to develop standards and codes and introduce them to facilitate global economic and financial development on a voluntary basis, we suggest that the Fund and the World Bank should fully consider countries’ different stages of development and their specific circumstances. In developing and introducing these standards and codes, the Fund and the World Bank should listen more to the voice of the developing countries while adhering to the voluntary principle and the gradual approach. As the number of international standards and codes increases, the Fund and the World Bank should be more selective, focusing on those that are closely related to their core areas of expertise, avoiding those areas that are not.

After many years of effort, the international community has made considerable progress in development matters; however, the developing countries still face serious bottleneck constraints. Many developing countries lack development funds and can hardly achieve sustained and effective structural reform. Therefore, we hope that the developed countries can implement the Monterrey Consensus as soon as possible, increase their development aid funds, and reach at an early time the ODA level of 0.7 percent to GNP, set by the United Nations. Promoting fair trade will not only help the developing countries, but will also benefit the developed countries. The developing countries have long faced an unfair trade environment. We are pleased that the Fund and the World Bank are promoting the Doha Round of trade negotiations and advocating an open and fair multilateral trade mechanism. At present, the Doha Round of trade negotiations has made some progress. We hope the international community will continue their efforts. We urge the developed countries to lower their trade barriers and reduce their subsidies on agricultural products, so that the Doha Round of trade negotiations can achieve substantive progress.

Statement by the Alternate Governor of the Fund for the Democratic Republic of the Congo

Andre-Philippe Futa

Governors, Dear Colleagues, Mr. Chairman, Mr. de Rato, Mr. Wolfensohn, Ladies and Gentlemen, it is a great honor for the region of Africa and for the Democratic Republic of the Congo to accept the chairmanship of the Boards of Governors for the year ahead. We thank His Excellency Lim Hng Kiang for the remarkable manner in which he conducted these meetings; we will certainly demonstrate that we are up to the task.

These meetings have provided us with an opportunity to conduct global financial and economic assessments from the perspective of our two institutions. The picture emerging is that the recovery and revival of the global economy have gotten off to a vigorous start. However, this trend does not guarantee us sustainable and lasting growth, as long as the path to globalization remains fraught with a multitude of great risks and uncertainty. Also, it should be acknowledged that the inequality of this growth among countries on the one hand, and regions on the other, is a source of concern that should prompt the international community to focus on a better allocation of resources in order to ensure a certain degree of equity among member countries.

In addition, social conflicts, wars, and the threat of terrorism still cast a shadow on the tenuous gains that have been made. We have a duty to act in a manner that demonstrates that our commitment to peace in the world is beyond reproach and guarantees success and social progress.

The challenges facing the international community in its efforts to mobilize additional resources to achieve the Millennium Development Goals still represent the backdrop for any strategy and action to be carefully crafted by the World Bank and IMF, in concert with all nations, so that by the year 2015, our pessimism will be lifted by the miraculous defeat of poverty the world over.

We have noted with satisfaction the genuine will of all development partners to pool their efforts to enhance aid effectiveness and significantly reduce the debt burden of highly indebted poor countries.

It behooves us therefore to be resolute in our encouragement and support of the International Monetary Fund and World Bank Group. The two institutions have as their mission to contribute to the maintenance of financial stability and to pursue sound economic policies geared toward creating a climate conducive to sustainable growth and poverty reduction. Under the enlightened leadership of Mr. de Rato and Mr. Wolfensohn, and with the support of their capable and dedicated staff, the institutions are our best hope for accomplishing the tasks with which they have been entrusted. We are grateful to them for their achievements in the past year and we know that they are deserving of our confidence.

In closing, we would like to express our appreciation to all those who have placed their confidence in us and we look forward to seeing you again at future Annual Meetings.

Statement by the Governor of the Fund for the Republic of Croatia

Zeljko Rohatinski

Mr. Chairman, honorable delegates, ladies and gentlemen, it is a great pleasure and privilege to address the 2004 Annual Meetings of the Boards of Governors of the World Bank and the Fund here in Washington D.C., the place close to Bretton Woods where our sister institutions were founded 60 years ago. Over the past six decades the global economy has changed quite a bit, it has become far more integrated to say the least. Both the Bank and the Fund made an important contribution in there, as their role in promoting international economic cooperation was indispensable. Looking forward, this role of Bretton Woods institutions will continue to be a cornerstone of prosperous global economy, but at the same time, this role will also present the main challenge, since universal sense of the global economy working for all is not entirely there yet. Having said that, I would like to express my warm appreciation to Messrs. de Rato and Wolfensohn for their dedicated service to our institutions, and I wish them much success and wisdom in steering the institutions in years to come. Also, my gratitude goes to former Managing Director of the Fund, Mr. Köhler.

In remainder of my statement, allow me first to cover major economic developments related to Croatia. Thereafter, I will say a few words about Croatia’s relations with the Fund and the Bank. And finally, I intend to touch on a couple of policy issues relevant for the Bank/Fund business.

To start with the major Croatia’s economic developments, I cannot resist mentioning first a big political event, obtaining a candidacy status for EU membership in June this year, the event everybody in Croatia had waited for. We expect accession negotiations to commence early next year. Without doubt, the accession process will anchor future reforms and economic policies, hence helping us to preserve macroeconomic stability and to deal effectively with some of the challenges our economic policy faces.

Having mentioned challenges, it should be noted that relatively high and increasing foreign debt represents a major challenge at present. Foreign debt almost doubled over the past few years (it accounts to approx. 80 percent of GDP at present), and roots for such a debt dynamics could be found both in lack of government’s will to consolidate public finances more decisively, and in low interest rates, which in combination with relatively easy access to credit spurred private consumption too. On one hand, such a strong domestic demand helped Croatia to weather the global downturn after 2000/01. In fact, Croatia hardly felt global downturn, it achieved relatively high growth rates in both 2002 and 2003 (5.2 percent and 4.3 percent, respectively) at low single-digit inflation. However, on other hand, strong domestic demand came at the cost of strongly increasing foreign debt, high budget and current account deficits.

Against this background, the main objective of the current policy stance is to narrow the domestic savings-investment gap in order to stabilize foreign debt. Strong fiscal consolidation (together with a shift in budget deficit financing to domestic resources) is seen as a main vehicle to achieve the aim. Only this year budget deficit is projected to be cut by 1.8 percentage points of GDP. And in the following two years by additional 1.6 percentage points of GDP, notwithstanding the expenditure pressures related to EU accession. All this should bring down the budget deficit to 2.9 percent of GDP by 2007. At the same time, monetary policy will continue to be geared towards low inflation and exchange rate stability, which is entirely consistent with Croatia’s EMU aspirations. Though such a monetary policy itself should not necessarily help curbing domestic demand, the central bank will continue to assist the efforts of fiscal policy to stabilize overall external debt. That said, it is noteworthy that the central bank implemented temporary measures to limit credit growth already last year. And this year, it introduced a temporary measure to discourage commercial banks’ borrowing abroad. From a somewhat longer-term perspective, the central bank has been continuously improving banking supervision, which paid-off, as recent credit boom has not been reflected in a deterioration of portfolio quality. On the contrary, commercial banks’ portfolio quality continued to improve and profitability remained high. (NPLs account to some 5 percent of total loans at present).

This overall macroeconomic policy will be supported, no doubt, with a number of structural measures. Some of the major measures involve enhancing fiscal transparency, improving expenditure and debt management, and perhaps most importantly judicial and public administration reforms. These reforms should have a positive impact on business environment, hence helping to attract non-privatization related FDI and facilitating private sector activity in the medium term. After all, these reforms, together with before mentioned economic policies, should pave the way to EU accession.

In turning to my second point - Croatia’s relations with the Fund and the Bank – I want to stress first that Croatia continues to have open and fruitful discussions with the Fund/Bank staff. That said, just outlined economic policies and structural reforms are supported by the Fund’s precautionary Stand-by arrangement signed two months ago. They are also to be supported by the World Bank too. In fact, a World Bank Programmatic Adjustment Loan (PAL) is currently under preparation, and it is expected to come on-board early next year.

Besides program arrangements with the Bank/Fund, Croatia is participating in a number of initiatives aimed at strengthening architecture of the international financial system. To quote some of them, I may start with quoting a joint IMF/WB’s initiative - Financial Sector Assessment Program (FSAP). Croatia is one of the 70 countries for which FSAP has been already completed. Based on the FSAP mission report, a couple of The Reports on the Observance of Standards and Codes (ROSC) were made, and some of them have already been updated. In addition to that, an assessment of the legal and institutional framework for anti-money laundering and combating the financing of terrorism was also undertaken. By making this step, Croatia tried to make its contribution to the worldwide efforts aimed at resolution and prevention of the most terrifying global threat we all witness these days. Separately, but still on strengthening the global financial system, Croatia has recently welcomed a comprehensive Financial Soundness Indicators (FSI) Coordinated Compilation Exercise project. As one of about 60 countries, we are participating in the project, hence actively supporting development of efficient tools for assessing the strengths and vulnerabilities of financial system.

Before turning to my third and final point, let me note a few more “assessments” completed for Croatia. In particular, Safeguard Assessment was completed early last year, and the subsequent one is currently underway. Then, the World Bank has done recently a Country Financial Accountability Assessment study in which it helps us identify weaknesses of our public financial management system. A fiscal ROSC was also completed a few months ago. All in all, through all these assessments Croatia is actively supporting a number of the Bank/Fund’s initiatives, but at the very same time it is receiving an increasingly valuable advice for which we are very much grateful. To this end, I wish to thank both the Fund and the Bank for providing us with expertise technical assistance, which is very much appreciated.

Finally, I wish to touch on a couple of policy issues relevant for the Bank/Fund business. First, as Croatia is now the EU candidate country, and currently in the process of the Bank country assistance strategy preparation, I would like to highlight the importance of the Bank’s assistance not only for our country but also for all other countries in the similar status, to have an operational focus with clear strategic fields of intervention defined in the present context of need for EU alignment. Second, I support wider application of the sector wide approaches as they support country-led programs for a coherent sector in a comprehensive and coordinated manner. As they are characterized, among other things, by country-owned sector policies and strategies and by a common program and an expenditure framework based on agreed priorities and strategies, a setting up such sector programs through adjustment financing instruments should promote easier future inclusion of the EU preaccession and later structural funds. Third, I very much support the idea that all decentralized Bank offices should be able to really represent the Bank at whole, meaning the IFC and the MIGA as well. Recipient country sees the Bank’s presence through a country or a regional office, and it is difficult to understand constant excuses that the IFC and the MIGA are represented through their separate office in other countries. Cooperation among all institutions of the Bank group, not only at the country assistance strategy level, but also in the field, is of utmost importance for an improved effectiveness of the Bank as a whole. Fourth, as Croatia is a middle-income country, and all of the above issues are closely correlated, let me kindly ask for future support to the Middle Income Countries Strategy as well as for a promotion of the country systems adoption, especially for EU candidate countries. Such approach will further decrease the cost of doing business whereas letting us stay involved with the Bank in order to perform crucial structural adjustment within a joint effort. Finally, regarding the Fund business, I wish to underscore that Croatia attaches a great importance to the Fund’s transparency policy, especially given its general role in supporting strengthened domestic economic discussions and market assessment. I am pleased to see the country staff reports’ publication rate standing at 76 percent now and I welcome a recent step forward in this area – presumed publication of all staff reports. I would like to point out that Croatia has supported the initiative to publish country reports from its early days, when report publishing used to be very voluntary. Thus, it is indeed a pleasure to see the initiative progress, achieving its aim.

Mr. Chairman, dear guests, allow me in concluding to thank our hosts for their warm hospitality and outstanding organization of these meetings. I wish the Fund and the Bank well in their future undertakings and thank them for the help provided to my country.

Statement by Governor of the Bank for Denmark

Bertel Haarder

In my remarks today, I would like to focus on the Millennium Development Goals (MDGs) and draw your attention to three issues that we – the Nordic countries – believe are very important in our strive to reach those goals. I will argue that:

• We must give special attention to Africa,

• We must become more engaged in conflict prevention, and

• We must attach higher priority to promoting human rights, democracy and good governance.

All countries can and should reach the MDGs. Is it realistic? Yes, but only if we strengthen and focus our efforts and apply all available instruments. An important determinant for achieving the MDGs is the developing countries’ own policies. In many recipient countries, the administrative systems are still too weak to ensure efficiency and accountability. Governments must do more to strengthen governance and public institutions and the donor community must stand ready to support such reforms. Otherwise, efforts in other areas will not be effective.

It is widely acknowledged that we must mobilize substantially more aid to achieve the MDGs. Donors should move towards the UN objective of 0.7 percent. The Nordic countries will maintain our high level of development assistance. We, the donors, must keep our promises. Having said that, we do welcome the work on innovative financing mechanisms, as a supplement to our collective efforts.

Our partner countries are still using far too many human and economic resources navigating different donor priorities and procedures. To reach the MDGs, we need to continue our efforts to ensure development effectiveness – through alignment of the assistance to the Poverty Reduction Strategies (PRS), harmonisation, joint reviews and use of common monitoring systems.

PRS constitute a strong framework for implementing programs in an effective way. The Bank deserves much credit for taking the PRS-initiative this far. But there is room for improvement. National ownership, including the involvement of national parliaments, is one such area. The latest progress-report provides the Bank with a good basis for initiating a consultative process with all relevant partners to further improve the framework.

An important question in this connection is, whether the Bank is able to join and push the harmonisation agenda at country level. We believe that the Bank’s interaction with partners in the field could be improved through decentralization and delegation of more responsibility to country offices. We encourage the Bank to move further in this direction.

I would now like to bring to your attention three issues, which we believe are important for reaching the MDGs worldwide.

Statement by the Governor of the Fund for Fiji

Savenaca Narube

It is an honor and a privilege for my delegation to attend this year’s annual meeting of the International Monetary Fund and the World Bank on behalf of the Government of the Fiji Islands. I congratulate you Mr. Chairman for your appointment to chair these joint annual discussions. I also warmly congratulate Mr. de Rato on his appointment as Managing Director of the Fund.

Mr. Chairman, we see and face the effects of the heightened global security measures in our meetings here in Washington. It brings home to us the seriousness and the huge cost of providing security for these meetings and indeed for many parts of the world. The developments since our Dubai meeting last year have again confirmed that we are all vulnerable to the world threat of terrorism. It can affect us all, even us in the South Pacific. We therefore join the call to harness every effort and resources to eradicate terrorism and combat money laundering.

In Fiji, we are doing our part to prevent terrorist financing and combat money laundering. An independent review last year by the Asia Pacific Group on Anti Money Laundering concluded that generally Fiji had in place adequate systems in this area. But, we are doing more. A Financial Reporting Transactions Bill will be introduced in the next sitting of Parliament. This will strengthen the exchange of information and surveillance of suspicious transactions. At the same time, a Financial Intelligence Unit, which has been operating since last year, will be formalised through this Bill.

Mr. Chairman, Fiji has also agreed to undertake a Financial Sector Assessment Program (FSAP) in 2006. We believe that Fiji is perhaps the smallest island member country of the Fund that has volunteered to undertake this comprehensive review. It reflects the Government’s ongoing commitment to comply with international standards and codes. This FSAP will complement our participation in the Fund’s review of the Codes of Good Practices in Fiscal Transparency last year and the completion earlier this year of the Report on Observance of Standards and Codes of Transparency in Monetary and Financial Policies (ROSC). We are working at implementing the findings of these reviews. We believe that these measures will further strengthen good governance and enhance the resilience of our economy to the vulnerabilities and shocks that we face. Our compliance to these international codes will also help us combat terrorist financing and money laundering. However, with our limited resources and capacity, compliance to these codes is very expansive and we call for more support of our efforts in this area, particularly in institutional capacity building.

I am pleased to announce that Fiji has successfully concluded its Article IV consultation with the Fund. The Fund confirmed that Fiji was now enjoying four consecutive years of good growth, a performance that has been difficult to achieve in the past. We expect this year’s growth to again be close to the 5 percent government target as was the case last year. Our economic fundamentals remain firm with low inflation, adequate foreign exchange reserves and moderate debt level.

The Fund also commended the Fiji Government for its economic management that had successfully and rapidly rebuilt the economy since the 2000 crisis. The accommodative monetary and the expansionary fiscal policy have worked well to raise domestic demand which has driven growth in the last four years. This has resulted in rising incomes and employment for our people.

However, we fully agree with the Fund that, with economic growth well on its way, there is a need to re-orient our economic strategy towards sustaining this performance into the future. In fact, we have started addressing this concern by tightening monetary policy in May this year. We also fully understand the critical role of fiscal consolidation in protecting macroeconomic stability. Our 2004 budget deficit has been suppressed to 3.5 percent of GDP from 5 percent last year. Further fiscal consolidation is planned in the medium term. While the Fiji Government realises the challenge of fiscal consolidation, it nevertheless remains committed to the reforms of the public service, public enterprises and financial management. Last year, greater transparency and accountability of the responsibilities of senior government positions were introduced. Furthermore, a new Financial Management Bill will be tabled in the next Parliament session, which will pave the way for the implementation of financial reforms to improve the management, reporting and control of government spending. This will be supported by the introduction of a new financial management information system and improvements in budgeting where corporate planning will drive the process. At the same time, the government has just completed a comprehensive review of all aspects of our fiscal policy, which will help us continue to improve our revenue collections and taxation schemes.

Mr. Chairman, in our reform effort we will obviously need technical assistance to properly manage and coordinate these interrelated programmes. I also wish to report that the Fiji Government is addressing other strategic issues which, inter alia, include the management of government assets; reforms in the sugar industry; reassessment of the tertiary and vocational system to ensure that we continue to meet the changing needs of the country; and development of a regulatory framework that will enhance competition in the telecommunication industry.

Fiji, as a small island nation with a population of less than a million, faces many vulnerabilities. These vulnerabilities Mr. Chairman, may threaten our entire economy. We are doing all we can to minimise these vulnerabilities including setting a firm macroeconomic foundation. But it is clear from global experiences that we cannot do this on our own. We need the support of the international community, in particular the two Bretton Woods institutions. Our needs are concentrated in capacity building in its many forms and we call for assistance in the areas of training, technical assistance, policy advice and institutional strengthening.

Mr. Chairman, so far, the achievements of the Millennium Development Goals (MDGs) are uneven and slow, particularly in the area of poverty reduction. In my opinion, this reflects the enormous burden on developing countries to progress towards these goals while dealing with country specific challenges and the increasing volatility in global developments. The resources and the capacity that are needed to achieve these challenging goals are enormous. I therefore join the call on the International Finance Institutions and donors to accelerate assistance to help developing countries progress to the MDG. In particular, I request the Fund and the Bank to actively play their part in assisting member countries reach these goals.

Mr. Chairman, the global focus on the governance and decision making of the Bretton Woods institutions is sharper than ever before. I believe that it is an opportune time for the Fund and the Bank to strengthen the voice and representation of developing member countries in the two institutions and address the structural misalignments that currently exist. In this regard, Fiji continues to support the 13^th review of the IMF quotas to help address the erosion of the voting powers of small members of the Fund. In the Bank, I believe that the strengthening of capacities in the Executive Directors Offices will be a useful first step. I therefore urge the Fund and the Bank to agree on the way forward and develop a clear implementation road map to complete the work on this issue as soon as possible.

Mr. Chairman, remittances have become an important balance of payments support and a source of development finance for developing countries including many Pacific Island countries. In Fiji, these remittances have rapidly grown in the last two years to become our second highest net foreign exchange earner. We therefore welcome the recognition of the G8 in their Sea Island Summit of this growing source of external development financing. We would support any work by the Bank to study these flows and in particular how to reduce the transaction costs.

Mr. Chairman, we welcome the resumption of the Doha Round of multilateral trade negotiations. In this respect, it will be crucial for the Fund and the Bank to develop clear strategies to ensure that trade liberalization benefits are shared by all, including the developing countries and small island states.

We are grateful to the Fund for their continuing technical assistance to Fiji in the areas of financial supervision, payment systems and monetary policy. The Pacific Financial Technical Assistance Center, in our view, is an excellent model for delivering assistance to the scattered countries in the Pacific region and we thank the IMF and other donors for their support of the Center. I am glad to report that an independent review of the Center has been completed and it fully endorsed the work and the structure of the Center. We also thank the Bank’s Representative Office in Sydney for their support. We wish the Fund and the Bank all success in their future endeavours.

Statement by the Governor of the Fund for Finland

Erkki Liikanen

I am honoured to address this distinguished audience on behalf of the Nordic-Baltic constituency consisting of Denmark, Estonia, Iceland, Latvia, Lithuania, Norway, Sweden, and Finland. We are gathered here in Washington at a time when the IMF has just passed the 60 year mark. This milestone gives us an excellent opportunity to reflect on the main challenges of this institution.

I start with a comment on the economic outlook. The overall picture is quite comforting, even though higher oil prices have added to the downside risks. The main challenge now is to establish a firm foundation for sustainable growth.

The opportunity offered by the present situation should be used to address global imbalances, to move towards more sustainable fiscal positions and to press ahead with structural reform. The recent agreement to continue the Doha trade round was a welcome step forward in our efforts to bringing the fruits of sustainable growth to all. Industrial countries must shoulder their responsibilities for the progress made in trade liberalization, and low-income countries need to take action to ensure the reduction of trade barriers between them.

I want to focus first on surveillance and the Fund’s internal governance, second on our way of dealing with crises, and third on the Fund’s involvement in low-income countries.

Statement by the Alternate Governor of the Fund for France

Christian Noyer

Dear Colleagues:

Firstly, the strengthening economic recovery must be sustained through the steadfast curbing of global imbalances. In recent months, the world economic recovery has strengthened, but risks remain. The trend in oil prices is a first concern and its repercussions can be damaging to industrial countries and even more detrimental to emerging and developing non-oil producing countries.

Finding the appropriate fiscal and monetary policy mix is also a significant challenge. The adoption of accommodating fiscal and monetary policies helped support economic activity and promote recovery at a time of global economic slowdown. However, the sustainability of such policies is of concern, as they can magnify global imbalances. Fiscal consolidation must therefore be a priority.

Secondly, the work of the international community to improve crisis prevention and resolution must be stepped up.

Statement by the Governor of the Fund and the Bank for Georgia

Zurab Nogaideli

The new Georgian authorities embarked on a very ambitious reform program in December of 2003. The main elements of the government reform agenda in the short-term were to fix the decrepit fiscal sector, to strengthen the governance, to combat corruption and smuggling, to foster economic growth and reduce poverty, and restore the general public confidence. In February 2004 the government negotiated a new IMF program which again envisaged very bold targets for the coming years. For instance, according to the program scenario the tax revenue to GDP ratio was planned to increase by 2 percentage points to reach 16.3 percent by the end of 2004. Such a dramatic increase was unprecedented in Georgia since its independence. However, the government not only delivered on its results but in many areas and aspects even substantially outperformed the program targets. In fact, the tax revenues almost doubled relative to the last year and for the first time since its independence the budget expenditure allocations were revised upward. According to the established tendency in revenue collections, the tax revenue to GDP ratio may reach 18 percent that would be almost 4 percentage point increase compared to the previous year.

Enhanced revenue mobilization allowed the government to timely meet its spending obligations and especially in the social area. Moreover, the government started to clear the domestic expenditure arrears accumulated in the previous years. Again, the government outperformed the program indicators in this respect and by the end of 2004 arrears in the amount 2.4 percent of GDP will be cleared instead of initially programmed 1 percent of GDP.

All of the achievements above have been possible owing to the political will and intensified efforts of the new administration. Structural reforms implemented in the fiscal sector have been particularly effective in delivering on the results. Specifically, the reforms were implemented at multiple fronts simultaneously and targeted the anti-corruption, anti-smuggling and governance enhancing objectives. Within the context of these reforms the tax and customs departments have been significantly downsized and their functions have been consolidated. Furthermore, a new excise tax inspectorate was established to enable the tax administration to concentrate its efforts primarily on the excisable goods. The last but not least the Adjara tax administration was effectively integrated into the national tax authority and the Adjara customs was abolished and its functions taken over by the regional customs.

Financial police was set up shortly after abolishing the parallel structures within ministry of interior, ministry of state security, ministry of finance, customs and tax departments. The financial police today is the sole investigatory state agency responsible for the economic crimes, including tax evasion and smuggling. Rather than having these functions scattered along different state bodies today they are concentrated into one single state agency with its staffing being at only 20 percent of what it has been previously.

Significant reforms have been implemented in the treasury department of the Ministry of Finance in the current year. Three major developments are worth mentioning in particular: (1) Full commitments control system was introduced to ensure that the spending units did not incur expenditures in excess of their respective appropriations and to prevent accumulation of arrears; (2) Single revenue account was introduced that enabled to close down about 10 thousand transit accounts and substantially simplify the revenue reporting and accountability; (3) Effective tax refund mechanism was introduced.

Along with the major structural changes the government developed new fiscal policy agenda. The proposed tax reform has been developed to create investor- and business-friendly environment, reduce underground activity and tax evasion and promote voluntary compliance with the ultimate goals of fostering economic growth and development. The new draft tax code of Georgia envisages the elimination of 13 out of 21 different taxes, simplification of administrative procedures and the rate reduction on some of the major taxes. Specifically, the VAT will be reduced from 20% to 18%, the personal income tax will be lowered from 20% to a flat 12% and the social tax will be down from 33% to 20%. However, in order to make the tax reform revenue-neutral the counter revenue-losing measures have been proposed, like broadening the tax base by eliminating many existing tax exemptions and increasing excise tax rates and strengthening tax administration efforts.

These positive developments in the country have substantially boosted the confidence in the government from the international community. On June 4, 2004 the IMF board approved a new PRGF program for Georgia and shortly afterwards the World Bank board approved credits for three new operations including the budgetary support reform support credit. On June 15, 2004 at the donor conference in Brussels the government received substantial pledges of donor assistance over the next coming years in the amount of over US$ 1 billion. Finally, on July 21^st 2004 the Paris Club creditors agreed to restructure the bilateral debts of Georgia on the so called Houston terms that helped to relieve the debt burden of Georgia in the medium-term.

Despite the fact that substantial progress was recorded in all reform components of the government major challenges are still ahead. The intention of the government is to intensify the reforms even further and concentrate on the key priority areas. In the fiscal sector the main challenges will be to effectively implement the proposed tax reform and make the transition from existing system to the new one as smooth as possible. Moreover, the government plans to introduce the multi-year budgeting and link more closely the policies and the national priorities with the annual budgetary allocations. The government also plans in the medium-term to target the socially most vulnerable and eliminate extreme poverty in the country in the medium-term.

Statement by the Alternate Governor of the Fund for Germany

Hans Eichel

Mr. Chairman, Governors, Mr. Wolfensohn, Mr. de Rato, Ladies and Gentlemen, first of all, let me congratulate Rodrigo de Rato for his election as Managing Director of the IMF. I know Rodrigo since quite some time and I am sure that he will do an excellent job in his new capacity. I wish him all the best. At the same time, I would like to thank Horst Köhler for his outstanding job as Managing Director.

The outlook for the global economy remains positive. However, the volatility of oil markets represents a risk. Together, we must alleviate this risk by making markets more transparent and by implementing adequate measures on the supply and demand side.

At the same time, high growth must be supported by appropriate monetary policy, fiscal consolidation, and structural reforms. For Europe it is important to strengthen consumer confidence, to create more jobs, and to implement structural reforms. Higher domestic growth is needed so that Europe can contribute to global economic growth. Germany has initiated important structural reforms that will increase growth and employment permanently.

60 years after their foundation, the mandates of World Bank and IMF are still valid. However, these institutions have to adapt to a changing global environment while being credible and transparent. Their work must lead to sustainable results. For Germany the key issues are: well-defined priorities, a clear division of labor and an effective measurement of results.

For the IMF, improved crisis prevention is key. This includes a strengthening of surveillance and advice in order to detect risks so that early corrective action can be taken.

Core objectives of surveillance must include: Stable domestic financial markets and effective financial market supervision, reasonable exchange rate regimes, prudence with regard to external debt, and stable fiscal policies.

If a crisis did occur, the IMF should continue to provide the necessary and, in cases of severe capital account crises, extensive credit packages. However, these loans must strictly comply with the agreed access criteria.

The most important challenge in the years to come will be to overcome extreme poverty in low-income countries. IMF and World Bank have a key role to play in this regard.

The World Bank should focus even more systematically on institution building. The IMF should continue to promote macroeconomic stability and well-targeted technical assistance as well as to provide financial support as appropriate. Germany stands ready to contribute substantially to a continuation of the IMF’s PRGF and to the World Bank’s assistance to low-income countries.

One important step is the extension of the HIPC Initiative until 2006. New lend-and-forgive cycles must be avoided. Therefore, I welcome the work on a new debt sustainability framework. Furthermore, I am personally convinced that open markets are the most effective support industrial countries can provide to developing countries. Thus, Germany remains committed to a successful completion of the Doha Round.

Let me also assure that Germany remains fully committed to the Millennium Development Goals and will provide its share to meet these goals.

Statement by the Governor of the Bank for Ghana

Yaw Osafo-Maafo

Mr. Chairman, President of the World Bank, Managing Director of the IMF, Fellow Governors, Distinguished Ladies and Gentlemen, may I also take this opportunity to welcome Mr. Rodrigo Rato, the Managing Director of the IMF to his new job. The enthusiasm and interest with which he has already taken to his work is impressive. We also want to thank the former Managing Director of the IMF, Mr. Kohler, now President of the Federal Republic of Germany for his efforts and his special attention to Africa during his tenure as Managing Director.

I am glad to note that the World Economic Outlook indicates that the prospects for the global economy, including African economies, are improving. While this is good news, the downside risks for non-oil producing African countries, that are inherent in crude oil price developments cannot be underestimated and are worrisome and could put their reform programs at risk. In an already resource-constrained environment, the rising oil import cost will call for additional resources in the short term to underpin the macro stabilization and other reforms that have began to deliver increasingly rapid growth.

As to the development agenda, we are all agreed that on current trends many of our countries in Africa will not meet the Millennium Development Goals (MDGs). The development agenda, which is essentially a growth agenda, should therefore be given urgent attention. We need growth to achieve poverty reduction. We need growth to resolve the serious unemployment problems facing most developing countries. But how do we generate growth without adequate resources?

Mr. Chairman, the simple fact is that we need additional resources. Timely availability of resources in adequate and predictable amounts is essential if we are not to lose more time in pursuing the MDGs. It is in this context that the recent initiatives by the U.K. Government to write-off the U.K. portions of debts owed by low-income countries to the multilateral institutions is a welcome addition to the International Financing Facility proposal that has been made by Chancellor Gordon Brown. The Millennium Challenge Account facility designed by the United States is also very welcome in this regard. We would like to urge our development partners to accept the challenge and commit significant additional resources that will allow countries undertake the sort of investments and policies that would promote the attainment of the MDGs. I am sure we are prepared to do our part of the Monterrey Compact.

Mr. Chairman, many African countries are undertaking reforms in the area of political and economic governance. In Ghana, for example, the Government, after assuming office in 2001 set about the task of establishing macroeconomic stability, establishing transparency and accountability in public resource management and introducing new standards for governance.

A new anti-corruption strategy was put in place, including Codes of Conduct for state officials, reform of the procurement system, and strengthening of anti-corruption agencies. Press freedom was encouraged by for example repealing the criminal libel law which sought to muzzle the press. Today, the Press is alive, alert, robust and vociferous.

We see the reforms of economic and political governance as fundamental in creating the environment for the generation of resources from the private sector. A private sector friendly environment is indispensable for tapping the synergies of public and private sector partnerships to improve absorptive capacity and transfer technology required to bolster productivity and output for the achievement of the MDGs.

Mr. Chairman, Peace and Security are pre-requisites for development and Africans are pursuing a proactive foreign policy focussed on regional peace and security and good neighbourly relations. We see the work of NEPAD, ECOWAS and the African Union as very important in this regard and their efforts need to be supported.

While aid is important, free and fair trade is even more so as a key and sustainable source of growth for all countries. This is why it is necessary that developing countries have access to markets of the developed countries and subsidies, especially on agriculture, reduced if not eliminated. It is our hope that the Doha Round of Multilateral negotiations will be concluded promptly and result in improved market access for developing country exports. Political will is needed to resolve this problem of access to the markets of developed countries. We hope and pray that this crucial decision can be made very soon.

Mr. Chairman, I am pleased that it has been possible for me to voice my views in this forum. We do take the issue of Voice and representation in the Bretton Woods institutions very seriously and urge all parties to work toward a speedy compromise to achieve appropriate balance between the interests of the developing and developed countries.

Statement by the Governor of the Bank for Greece

George Alogoskoufis

The global recovery that started in 2002 is still unfolding, though at a slower pace than expected earlier in the year. Rising oil prices raise the risk of a slowdown in global growth. The pace of activity remains uneven across regions and the recovery appears fragile. Global growth is driven by the U.S. and Asian countries, while in the Euro area growth remains heavily dependent on external demand. In many developing countries, adjustment efforts and structural reforms are bearing fruit. The key to strong economic performance has proven to be fiscal consolidation, reinforcement of market forces, and the removal of obstacles to the efficient allocation of resources.

Greece’s growth performance remained robust last year as strong domestic demand compensated for weak exports. Investment spending, underpinned by low interest rates and strong construction activity associated with the Olympic Games, was the major contributing factor. Consumer spending also remained on a rising trend. Labour market conditions improved slightly during the course of 2003, while inflation decelerated; however, the differential vis-à-vis the euro-area average remains at relatively high levels. Economic activity is expected to remain robust in 2004 and 2005. Growth is expected to remain well above the euro-area average, mainly on the back of easy monetary conditions, the recovery of tourism following the successful Olympic games, the faster implementation of the Third Community Support Framework and the revival of world trade.

Fiscal consolidation in the near future remains a key concern of the Greek government. The far-reaching auditing of fiscal accounts launched in March resulted in an upward revision of the general government deficit and debt for the period 2000-04. These revisions, which have been long overdue, have led to an increase in transparency that provides a more solid basis for the assessment of the fiscal policy stance.

We are committed to correcting the current situation as rapidly as possible, aiming at a deficit for next year of 2.8% from a projected 5.3% in 2004. This effort will be based on moderate wage growth for the public sector, the reduction of operating expenditure for Ministries and measures to contain costs and borrowing by public organizations and enterprises. A tax amnesty has also been announced, while significant savings will be achieved through cuts in the military budget and, most notably, through the drastic reduction in Olympics-related expenditure.

Our economic strategy aims at strengthening potential growth, employment and social cohesion. It is a strategy that will promote real convergence between Greece and the more developed economies of the European Union. In parallel with fiscal consolidation, we have launched efforts to improve the competitiveness of the Greek economy by promoting competition, reducing administrative barriers, and cutting corporate taxes while improving tax administration.

The goal we are all pursuing is sustainable, noninflationary growth. The pursuit of this goal is greatly facilitated through international policy coordination and the smooth functioning of international and regional institutions that provide a stable and predictable framework for world trade and financial flows. We must commit ourselves to taking the actions needed to improve the prospects for global growth and prosperity, reduce vulnerabilities, and strengthen our financial systems. At the national level, we need growth-enhancing economic reforms; at the international level, we need to improve the financial architecture; and in our aid commitments, we need to reduce poverty around the world. The coordinated actions of all of us are critical for the achievement of our common goals.

Statement by the Governor of the Fund and the Bank for India

P. Chidambaram

Mr. Chairman, since we met the last time, the global economic outlook and policy prospects appear to have strengthened considerably. World output growth is expected to touch its highest level in the last thirty years. The recovery is also broad based across the membership, with US and Emerging Asia continuing to show stronger growth. Diversified expansion, and different regions mutually supporting and reinforcing growth-enhancing prospects, can trigger a virtuous cycle. We must strengthen this process, and that will require international cooperation in achieving stability, crafting better policies and building robust institutions.

No doubt, risks to the expansion, too, have increased in recent months. A shadow has been cast by volatility in the oil market and geopolitical uncertainties. While supply constraints have surfaced in addition to demand pressure, speculative forces also seem to have contributed to added volatility. An enduring solution to these problems will call for strengthening cooperation between oil producing and consuming countries in stabilizing the oil market. Equally, multilateral institutions must be ready to support countries exposed to any potential threat of oil or commodity price shocks.

Inflationary pressures across regions are primarily supply driven by oil and commodity prices. Compared to earlier periods of oil price shocks, many countries have strengthened their macroeconomic and prudential policies and have become more resilient. Central banks in these countries have developed more effective tools and more transparent communication policies to achieve price stability without disrupting growth. We, therefore, believe that the reversal of interest rates by central banks should be, and will be undertaken cautiously. Growth and price stability cannot be viewed as two irreconcilable goals. However, the combination of risks of oil prices and reversals in monetary policy regimes make the management of macro-policies in oil importing emerging economies a particularly complex task.

In terms of policy response, the problem of the twin deficits in the US and structural reforms in the Euro area remain a challenge. In emerging market economies, the current upturn should provide the necessary leeway for fiscal and debt consolidation, and for pushing ahead with institutional reforms for sustaining growth and reducing poverty.

Financial market conditions remain sanguine with gradual strengthening of balance sheets and capital build up across institutions. The demographic transition in several countries, particularly in developed countries, points to the need for pursuing pension fund and social security reforms.

In some Emerging Market Economies (EMEs), policy-makers have—in my view, wisely—built up foreign exchange reserves as self-insurance against the possible effects of reversal of capital flows. Rather than fault them, we should reflect on the inadequacy of the existing international financial architecture in providing a viable collective insurance to wellmanaged economies.

Steps to scale up assistance to developing countries should remain high on the agenda for achieving the millennium development goals (MDGs). Two years after Monterrey, the implementation of the Compact appears uncertain. The promised additionality of resources has failed to materialize. Without additional resources, the MDGs will remain a distant dream. Even the best performers among developing countries may not realize the dream. I should also point out, with some regret, that when concessional resources are allocated, that appears to be done on considerations other than the twin criteria of ‘need’ and ‘performance’. When a country is prepared to commit its own resources towards MDGs, and has a proven record of performance, the developed countries must keep their part of the compact.

Aid continues to be delivered in a piecemeal, uncertain and inequitable manner rather than through multilaterals with transparent allocation criteria. We are pleased to note that the Bank and the Fund have put donor coordination and harmonization high on their agenda and we hope they will sustain and further enhance their efforts to make the promised levels of additionality in overseas development assistance (ODA) a reality. The negotiations for IDA’s fourteenth replenishment are well underway. The time for the donor countries to deliver on their Monterrey commitment for a substantial scale up in ODA is now.

The international financial institutions (IFIs) have had a very positive influence in creating an appropriate international environment for multilateral trade negotiations. Enhanced trade has the potential to yield over $325 billion in additional resources by the year 2015. The global trade agenda calls for renewed vigor on the part of the Bank and the Fund to strengthen their advocacy role to phase out protectionist policies in developed countries.

Negative net flows from the Bank in recent years continue to be a matter of deep concern. Against this backdrop, the recent initiatives to modernize and simplify procedures and reduce (non-financial) costs of doing business are welcome. More needs to be done, especially more initiatives to check the rising trend in administrative costs, reduce borrowing charges and rationalize the safeguard compliance framework.

I wish to make a special mention of the need to step up – in a big way – lending to infrastructure. Middle income countries have the human and physical resources to raise their people from poverty. They have been the Bank’s best customers so far. What they lack is infrastructure that can make them efficient and competitive. Your best customers ask the Bank to lend a helping hand to create this world-class infrastructure.

Many of the world’s lowest income countries are faced with acute debt-distress. This makes allocation of resources difficult. Therefore, recently, the Bank and the Fund have been rightly preoccupied with devising an ex-ante framework to assess sustainability of the debt situation in low income countries, and helping borrowers, lenders and the IFIs take informed decisions. Assisting such countries without adding further to their debt burden, and at the same time, avoiding the moral hazard implicit in lending and forgiving, are extremely delicate exercises. We wish the IFIs and the IDA well in carrying out these crucial tasks.

Lack of effective voice in the functioning of the IFIs remains a matter of deep concern for the developing and transition countries. At Monterrey, we heard positive assertions by world leaders but, so far, we have not found sufficient political resolve to address the structural inconsistency that lies at the root of this lack of voice. The allocation of quotas at the Fund and the pattern of shareholding at the Bank have ceased to reflect the economic realities of the day. The search for a greater voice for developing countries must begin with a review of the quota allocation formula. Without the necessary resolve to move in this direction, the voice issue will continue to remain a mere distraction from the core business of the IFIs.

Mr. Chairman, 80 percent of the people who inhabit the earth enjoy a mere 20 per cent of the global income. That is the cause of poverty, discrimination and injustice. We must ensure that all parts of the global compact agreed at Monterrey are in place by the time we meet next year. And if we do that, it will still leave us just about a decade to realize our dream of Millennium Development Goals.

Statement by the Governor of the Bank for Indonesia

Boediono

Mr. Chairman, allow me to use my time today on three topics. First our view on the evolving international economic situation, some comments on the situation in Indonesia and finally on policy direction at the IMF and World Bank.

We are pleased that global recovery in 2004 remains solid and is becoming increasingly broad based. So far, Indonesia has benefited from this growth and we would like to build on strengthening world economic foundations. However, we fear the balance of risks may be tipping toward external shocks. The world recovery and our own face increased risks from geopolitical events, high oil prices, and persistent global imbalances. We urge the international community to address these common risks.

For Indonesia 2004 has been an eventful year. Last week brought to a peaceful conclusion a series of three nationwide elections that began in April, marking a significant step for the country toward a full-fledged democracy. We now have our first directly elected President and there is a tangible air of excitement as new and stronger executive and legislative branches take office.

On the economic front, we have had a strong performance as we exit from the IMF program. You might recall that among countries in the region, Indonesia was hit by the last crisis hardest and longest. That was the worst financial crisis the present generation can remember. The situation was much aggravated by the occurrence of the most severe drought in many decades and a massive social and political upheaval. Perseverance and consistency in macroeconomic policy and financial sector reform in the past few years have eventually led to the return of economic stability and economic recovery. The balance sheets for corporations, financial institutions and households have improved considerably since the crisis and have underpinned the recovery. Economic growth has edged up steadily from –13% during the crisis year of 1998 to around 5% this year and around 5.5% next year.

The financial sector, which had been shattered by the crisis, has undergone a fundamental restructuring and the process will continue. The last of the banks taken over during the crisis is now being sold. Bank lending is increasing robustly and more loans are going to industry and there is more regional dispersion in lending. A new Deposit Insurance Law has been passed and the institution is now being established. Finally, bond and stock markets have rebounded spectacularly, providing an increased source of government and corporate financing.

The transition from the present government to the new government this month is widely expected to be smooth. The Parliament has just passed the budget for 2005 that sets the stage for the continuation of the prudent macroeconomic policy. Next year the budget deficit is projected to be less than 1 % of GDP and the debt to GDP ratio to fall below 50%. Only 3 years ago our debt stood at almost 100% of our GDP. The 2005 budget also projects an acceleration in growth, moderation in inflation and stable domestic interest rates.

The government has delivered on a broad set of reform measures promised in the “White Paper” as part of our exit strategy from the IMF program. In the finance area I would note with special satisfaction the passage of 3 basic laws: the State Finance, Treasury and Audit laws. These laws along with a major reorganization at the Ministry of Finance should improve significantly the quality of our fiscal policy operations and raise the overall standard of governance in public finances. We have also just passed an amendment on the Bankruptcy law that requires Ministry of Finance approval to bring insurance and other non-bank finance companies to court for bankruptcy. There have also been revisions to the laws governing regional autonomy to reinforce fiscal equalization and require prudent borrowing. The next government seems equally committed to continuing, even accelerating, the reform agenda.

Let me switch to my final topic that is the policy direction at the World Bank and IMF. But first let me wish the Breton Woods institutions a happy 60^th birthday. This is an important moment for all of us to reaffirm our commitment to building better and more prosperous global communities.

Faced with the dynamic risks and opportunities of globalization, the Fund has rightly concentrated on strengthening crisis prevention and resolution.

At the World Bank, the shift in emphasis from Adjustment to Development Policy Lending is also positive. Lending addressed to structural and institutional change matches Indonesian government priorities. Increased flexibility, greater program ownership and stronger links to the budget cycle are also attractive features. However, more is needed if we are going to reach our MDGs. Thus we welcome the innovative thinking behind the International Financing Facility and global taxation.

Let me close with a few words about the recent bombing in Jakarta. First, the government, police and security agencies are resolved to track down, apprehend and prosecute all those involved. There is already some early progress in the investigation. Terrorism cannot be allowed to succeed. Indonesia stands ready to actively participate in the international effort to combat terrorism. Second, the economic and political resilience after the bombing reflected well on Indonesia’s improved fundamentals.

All in all 2004 has seen further progress in our recovery. A positive election outcome should accelerate the recovery and allow us to push ahead with renewed vigor on our reform agenda.

Statement by the Governor of the Bank for the Islamic Republic of Iran

Seyd Safdar Hosseini

In the Name of God the Compassioned the Merciful.

At the outset, I would like to welcome and congratulate Mr. de Rato for accepting to lead the International Monetary Fund in this sensitive juncture in the world international financial and economic system. I also wish to express my gratitude and deepest appreciation to this august Board for giving me the opportunity to deliver my approaches on some of the basic and fundamental economic issues and concerns which will have a continuous effect on the world development.

The IMF has estimated the world economic growth at around 4.9 percent for 2004. This considerable growth in the World Gross Domestic Product—which is the highest in the past three decades—is with no doubt an evidence to economic improvement in most of the developing countries. In spite of the high average GDP growth rate in the world and the regulatory performance and reforms in most of the developing countries, the poor nations that desperately need new enterprises and job opportunities, are falling even further behind the developed countries who are simplifying regulations and making their investment climate more attractive and friendly. The heavy business regulation in most of the developing countries, especially in the African region, conspire to exclude the poor from joining the formal economy. Therefore, the World Bank Group—as a leading organization in assisting the poverty alleviation in the developing countries—should put more emphasis on helping these countries to enact macroeconomic, structural and social policies and program, as well as providing them with associated external financing needs, in order to promote growth and reduce poverty. Fortunately, the World Bank has introduced the new Development Policy Lending, which pays a special attention to governments’ ownership of reforms, in order to develop programs that are in compliance with their needs and thus abandoning the prescriptive character of the Bank’s old policy.

Reducing poverty through sustainable development is a crucial global strategic priority for today’s world. This is actually emphasizing on and in compliance with the comprehensive nature of development in the developing countries, and could be achieved through project implementation in collaboration with the public and private sectors. In other words, participation promotion, strengthening the institutions and NGOs, and concentrating on the poor, in general, and the rural poor, in particular, are necessities to sustained and effective economic growth in developing counties. The World Bank Institute is expected to play an important role in this regard, along focus on good governance and anti-corruption policy as key criteria in the mission of poverty alleviation. The institution could also assist member countries in improving governance and controlling corruption as well as taking benefit from its funded projects as a pilot plant to practice anti-corruption activities that could be utilized and applied by the member countries in a larger scale.

No doubt that some external variables have deviated the development equations in developing countries. Recent military expeditions, specially in the Middle East, have negative impact on the free flow of capital in the region. The consequences of these expeditions, such as civil war, insecurity and disorder, as well as some psychosis and instability, have caused a lot of infrastructure damage and have resulted in extra costs in the international capital flow to the region.

Another important factor, which serves and accelerates the economic growth in developing countries, is promoting and developing the private sector. Developments in this sector provides opportunities for the poor through a friendly competitive market, enterprise-led growth, and better and cheaper services through efficient delivery systems and smart and targeted subsidies. In this regard, the role of the World Bank, in general, and of IFC and MIGA, in particular, is distinguished. As we are all aware of the difference between unique corporate characteristic of developing countries and the structure and corporate governance standards of the developed countries, there is no need to mention that this task cannot be fulfilled unless the public sector institutions are restructured in a way that could turn them into more efficient and accountable public sector entities.

We have continuously expressed our concerns and have urged the serious presence of these two important entities of the World Bank Group, however, it seems that there are still some hesitation and unexpected delay in their approaches toward contribution in some countries, including mine. Therefore, once again, I reiterate the importance of the IFC and MIGA active interaction with the Iranian entrepreneurs and in developing eligible private sector entities.

Knowledge-based economy (KBE) is now recognized as the driver of productivity and economic growth. As a result, there is an increasing focus on the role of information, technology, and learning in economic performance and activities. In this transitional phase, the most important concern of the developing countries should be understanding the dynamics of the KBE and its relationship to traditional economics.

Applying a new range of skills and continuously adapting it is key to learning economy and effects employment, and is a reminder to all governments of developing countries of their outstanding duty to develop and maintain the knowledge base and learning in their economies.

The Islamic Republic of Iran has pursued the economic reform strategies in the framework of the country’ Development Plans. In this regard, a package of economic reform policies concentrating on economic liberalization in financial and commercial sectors, was designed and enacted through the Third Development Plan. Restructuring and strengthening the banking system, promoting the capital market, and reducing the qualitative and quantitative supervision and monitoring policies have been considered and implemented in the same line.

Greater transparency in the macroeconomic regime and required regulatory frameworks, budget reforms, tax reforms, unification of foreign exchange rate, downsizing the government’s role in economic activities through privatization of SOEs, dismantling of monopolies and promoting competitive structures, reducing of non-tariff trade barriers, adopting smart targeted subsidies, developing an effective social security system, attracting foreign investments and protecting private sector investments, establishing private commercial banks as the facilitator for privatization of the state- owned banks are indicators serious commitment of the Islamic Republic of Iran in fulfilling and implementing the structural economic reforms.

In light of these employed programs and reforms, along with the efficient management contributed to these strategies, an average economic growth of 5.5 percent in the first four years of the Third Development Plan was achieved, and a 7.4 percent growth was experienced in the year before. At the same time, Iran witnessed almost 100 percent growth in the country’s non-oil exports and a total amount of US$7 billion foreign investment for manufacturing activities and infrastructure projects. It should also be noted that the total value of transactions in the capital market indicates a 73 percent growth during the same period, which, altogether, have resulted in satisfactory growth in the country’s economy throughout the Third Development Plan.

In conclusion, it is highly expected that the world economy, in general, and developing countries, in particular, will benefit from the achievements of this fruitful meeting.

Statement by the Alternate Governor of the Fund for Ireland

John Hurley

When these institutions were founded sixty years ago, most of Europe was in ruins. Industry and infrastructure were shattered after a long and intense conflict.

Many were cold, or were hungry, and they feared for the future.

The newsreels of that bleak time seem to show a wholly different world from the Europe of today, yet it is only a generation ago.

It seems hard to credit this now, as we look out at the success story of economic and political reconstruction that is the Europe of today.

Twenty-five states, including some that were once bitter enemies, are now united in the European Union, since May of this year.

It was a particular pleasure for Ireland to hold the EU presidency on that day that we became a Union of twenty-five. Experience has shown that the added impetus of the accession of the new states will help give a new momentum to the economy of Europe, which will be to the benefit of all.

In contrast to that divided and damaged continent, we now see a Europe of wealth, a Europe of strong democratic values and with active social and aid programmes aimed at countering the problem of poverty. While not paradise and with many problems remaining, we see a Europe that has moved very far on from being a recipient of aid under the terms of the Marshall Plan, that generous and farseeing gesture by the United States to aid post war recovery and reconstruction. Europe is itself now the largest donor of overseas aid in the world and it has a strong commitment to the expansion of overseas development aid that was agreed as necessary by all at Monterrey.

It is generally accepted that a doubling of official development assistance (ODA) flows from their 2001 levels is the minimum required to achieve the Millennium Development Goals (MDGs) by 2015. It is also recognised that meeting these goals will merely deal with some of the symptoms of underdevelopment in poorer states. Additional financing will be required to allow for debt sustainability and create the stable conditions needed for growth. It is good to see that the issue of debt sustainability, which we constantly raise in this and other fora, is continuing to get attention.

In Europe we have passed from aid recipient to aid donor. An EU aid target of 0.39% of GNI in 2006 was agreed at Barcelona. Ireland’s own strong ODA commitment already exceeds that level and, on current trends, the 25 EU Member States could collectively easily exceed the agreed 0.39%, giving a very significant pool of new aid money to bear on the problems we need to address.

It is not yet enough finance to meet the Millennium Development Goals but it is a lot more than was on offer before. European countries have more to do in relation to development aid, as do some of the larger industrialised nations. We must continually review our performance in assisting less developed countries, in the light of the enormous challenges facing many countries and peoples.

It is indispensable that, in the future discussions on the IDA 14^th replenishment, account is taken of the overall needs of the poorest countries, as we agreed to do in setting the MDGs. Neither can we agree to accelerate the outflows from IDA, as some would have us do, without asking all countries to put in their fair share of the IDA replenishment burden.

Water is one of the most basic human requirements for life. We know that almost 4,000 children die each day and many millions are infested with round worms or whip worms because of poor hygiene. A clean water supply, and the associated sanitation, are some of the most basic requirements for any society to be healthy and thrive. The provision of even very basic facilities would have a significant impact on disease resulting from poor hygiene.

Sub-Saharan Africa is far behind the rest of the developing world in access to clean water. A large proportion of the population still relies on unsafe sources of drinking water, such as ponds and rivers. In nearly half the households of rural Africa, women and girls devote a significant part of each day to fetching water. While progress has been made over the past decade, governments need to redouble their efforts in striving to meet the UN goal of providing 75% of the population with safe drinking water by 2015.

As we mark this annual meeting, in our birthday year, can we take from Europe messages that can be replicated in places where hunger, fear, cold and grinding poverty are worse than those that citizens of Europe faced in 1946?

While Europe has essentially reconstructed itself, with good governance and sound economic policies as the central planks of economic and social reconstruction, we need not be shy to give thanks for the favourable trade conditions and support from others that helped to rebuild our Continent. We did not do it alone or without help. Neither can others.

The governance and economic policy issues they will have to address mainly on their own, but with some support from us. Initiatives to build capacity in developing countries deserve our full support. As Gerrit Zalm said, on behalf of the EU, sound fiscal policies have a central role to play in all major zones and in all countries.

The trade and aid issues are ones we must address.

All countries, including the EU, must now maintain the commitment and flexibility they have shown so far in advancing the Doha Development Agenda Framework Agreement. An agreement is almost within our grasp and we must not let it slip away.

While we all wish to focus the Bank and the Fund resources at the cutting edge, in the poorest places and on the most necessary tasks, there is a very high level of concentration of IMF credit currently extended to certain borrowers, some of whom are repeat customers, if not necessarily satisfied ones. To mitigate this exposure, it is critical that greater priority should be given to the implementation of already-agreed Fund policies, most notably to the exceptional access framework.

We must also accept that the Bretton Woods institutions have an image problem. Criticism often comes from people who actually have an insufficient understanding of the work of the IMF and World Bank. In that context the move to greater transparency within the BWIs and a further emphasis on media relations is needed. We commend the efforts of the senior management of the Bank and the Fund to engage with civil society in programme countries in particular.

Statement by the Governor of the Fund for Israel

Benjamin Netanyahu

Statement by the Governor of the Fund for Italy

Domenico Siniscalco

Statement by the Governor of the Fund and the Bank for Jamaica

Omar Lloyd Davies

It is a great honor for me to speak on behalf of the Member States of the Caribbean Community (CARICOM). Our delegations would like to express appreciation to the management and staff of the Fund and Bank as well as the Government of the United States of America, for the arrangements made for these meetings.

I wish to focus on an issue which is of greatest importance to the members of the Caribbean Constituency at this time that is the role of our institutions in responding to external shocks to our small island economies. In particular, I refer to the devastation caused by natural disasters.

Economic globalization has brought challenges and opportunities to the small states of the Caribbean. Within recent weeks, the challenges facing the small states in the Caribbean have taken on new proportions in the wake of the recent spate of hurricanes which have passed through the Caribbean. In the Bahamas, Barbados, Grenada, Haiti, St. Vincent and the Grenadines and my own country Jamaica, the loss of life and the scale of destruction and damage to infrastructure and property have been catastrophic. Trinidad and Tobago and St. Lucia were also affected, but to a lesser the extent.

In the case of Grenada, the economy was completely ravaged, with estimates of damage being approximately 150% of Gross Domestic Product (GDP). The agricultural sector was completely wiped out. Approximately, eighty percent (80%) of the housing stock was virtually demolished. Hurricane Jeanne has further aggravated the tremendous problems in Haiti, where over 1300 persons died from the onslaught. Due to the severity of the damage sustained, these two countries, in particular, need urgent and sustained assistance, and I urge the international community to respond generously.

External shocks such as natural disasters are, of course, not unique to the region, but their impact on small island states is exceptional. Given the size of these islands, and less diversified economies, a hurricane, can within the space of a few hours obliterate the entire economic base. In the past, losses from hurricanes in the Caribbean have exceeded the annual GDP of some countries. Even where the devastation is not as widespread, as in the case of Jamaica, the impact is felt throughout the entire economy, particularly through the effect on government revenues, as well as damage to infrastructure, and major economic sectors. The capacity of the State to respond is constrained as the resources required for rebuilding cannot be accommodated through the usual expenditure budget. Therefore ways to address the immediate and long term needs must be developed.

In the aftermath of recent hurricane, regional members have banded together to provide assistance in cash and kind and technical assistance. Assistance has also been provided even by countries which themselves have been affected. But the requirements for rebuilding are well beyond the region’s capacity to deliver.

The logical question which arises is the appropriateness of the present means of response by the international financial community to these disasters. It is quite obvious that the response has to be multifaceted with an immediate, medium term and long term reconstruction objective. In this regard, what is the appropriate role for the Bank and the Fund in these situations?

The immediate response of the IFI’s is usually constrained by the nature of their Emergency Reconstruction Facilities which focus on the medium to long term. This is the major area of weakness at present. There is need for a facility which would enable the institutions to respond quickly to meet the immediate needs in a post-disaster situation. We suggest the creation of a facility which would give the Bank the flexibility to respond swiftly, particularly in mitigating the impact on the poor, with few bureaucratic constraints.

Concessional financing must be part of the resource mix available to finance recovery. The region continues to view with disbelief, the decision to exclude IDA-blend borrowers from access to the grant facility for disaster recovery which was created during the 13^th replenishment negotiations of the International Development Agency (IDA). This situation needs to be corrected, given the vulnerability of these countries to natural disasters.

The normal approach to a post-disaster scenario by the Bank is the diversion of financing from ongoing projects in order to finance recovery and the reconstruction efforts. While this is an option which might be appropriate in the short run, where time is of the essence, additional resources must be provided for the medium to long term reconstruction. Therefore, the usual lending ceilings must be removed in order to respond to the devastation in a meaningful way.

Furthermore, members of the Constituency, who might not normally borrow from the Bank, should be granted access to resources to finance the rebuilding of physical infrastructure, hospitals and schools.

Quick disbursing loan funds are needed, with several years moratorium to ease fiscal and balance of payments pressures. Quick disbursing loans in this context imply a maximum of say two months from a formal application to disbursement. We also suggest the creation of a funding mechanism to provide grant funding to ensure debt sustainability, as for some time revenues to the government will be adversely affected by a downturn in economic activity.

Where loans already exist there needs to be a moratorium on both principal and interest payments. Disaster management is a long term development issue, and there is need to focus on mitigation, prevention and the reduction of vulnerability of the poor to these occurrences. There is also a clear need to develop some sort of insurance mechanism to deal with the problem.

When one considers the damage sustained by our economies through natural disasters, it clearly implies that:

• Greater urgency is needed to implement the recommendations of the Barbados Program of Action on the Sustainable Development of Small Island Developing States

• Achieving the Millennium Development Goals (MDGs) will be adversely affected in several countries of the region; and

• There should be a speedy implementation of the Monterrey Consensus to release additional resources to developing countries.

We also urge the Bank and fund to continue to support CARTAC as it has been a key player in providing technical assistance to countries of our region

The region, as usual, is prepared to work with our international financial institutions to improve the welfare of their people and would urge the IFIs and in particular the Fund to have closer policy dialogue with countries outside of the traditional lending relationship and within the Fund’s surveillance activity. Within this context, we wish to commend the Fund for its flexibility in agreeing with an “intensified surveillance program” with Jamaica. This paves the way for other countries wishing to have a non borrowing relationship with the Fund, but with the Fund oversight of its macro-economic programme.

Statement by the Governor of the Fund and the Bank for Japan

Sadakazu Tanigaki

Statement by the Governor of the Fund for the Republic of Korea

Hun-Jai Lee

Mr. Chairman, Fellow Governors, Distinguished Guests, Ladies and Gentlemen, let me first welcome Mr. de Rato to his new post of Managing Director of the IMF.

The Bretton Woods institutions have played an influential role in promoting financial stability and economic growth over the past six decades. They have done so despite the challenge of an ever-changing environment. Indeed, the past decade has seen financial crises in Latin America, Asia, and Russia, and the bursting of the IT bubble.

That said, so much has changed since the birth of these two institutions.

The time has come for these institutions to transform themselves, both substantially and quickly, to become better suited to face today’s challenges.

In the new world, capital flows have increased exponentially, such that only 5 percent of these flows are now related to current account transactions. At the same time, the digital divide has become perhaps the greatest threat to our efforts to reduce income gaps.

These challenges are compounded by the existence of large economic imbalances that could start unwinding faster than expected and pockets of what may be called “housing bubbles”, that could start deflating.

In this new world, trusty policymakers must continue to carry out prudent policies to maintain market confidence and stability.

Given present circumstances, patience in tightening monetary conditions will probably prove to be a virtue. At the same time, I do not think it wise to risk maintaining large imbalances and pressure points for too long. After all, while the market may be a voting machine in the short term, it is a weighing machine in the long term.

Given time, fundamentals will prevail. And in today’s world, events can unfold and spread very quickly.

The IMF and the World Bank must respond vigorously to today’s new challenges.

They must each undertake major structural reforms.

The IMF must improve its effectiveness in surveillance and crisis prevention. This is particularly important now when huge, volatile capital flows can quickly give rise to crises, not only in the country of origin, but across the globe.

Concurrently, it is essential that the IMF enhance its financial resources to deal effectively with crises, once they develop.

The IMF must sizably increase its total quota. In this connection, I would also urge the membership to address imbalances in IMF quotas, where in some cases size of quota is clearly out of line with the economic weight and strength of particular member countries.

Beyond reform of the IMF, I would venture to suggest that the international community explore alternative means through which it can deal with problems that can stem from today’s huge and volatile capital flows.

As for the World Bank, I believe there is a need to concentrate further the institution’s efforts on reducing poverty around the world. Clearly, achieving the MDGs will be an essential element of this.

I believe we must make significant progress in both increasing financial support and improving aid effectiveness. So success of the IDA-14 Replenishment Meeting will be critical. So will be success in the implementation of the World Bank’s agenda to improve aid effectiveness including through the Result-Based Management System.

In this connection, I have two specific recommendations regarding the Bank’s poverty reduction efforts.

With continued advances in IT, overcoming the digital divide is likely to be a key factor in determining the success of poverty reduction efforts. So I believe the Bank should focus much more on bridging the digital divide, for example by focusing more on education aid.

Second, I believe aid effectiveness would be greatly improved if financing support became more user-oriented. Korea is ready to share its development experience, including its various e-experiences. At the same time, Korea is eager to expand the reach of its development aid.

Finally, Korea will shortly take an Executive Director seat at the IMF for the first time. Let me assure you that we will make maximum effort to properly represent all the members of our constituency.

Statement by the Governor of the Bank for the Lao People’s Democratic Republic

Somdy Douangdy

It is an honor and a great pleasure for me to represent the Government of the Lao People’s Democratic Republic at the 2004 Annual Meetings of the Boards of Governors of the World Bank and International Monetary Fund.

Let me join my fellow Governors in congratulating Mr. Chairman, the President of the World Bank, the Managing Director of the IMF, and the Government and people of the United States of America for the excellent arrangements made for this important meeting and for the very warm hospitality extended to our delegation.

The Joint Annual Meetings of this year are in the midst of an environment where the Bank and the Fund are furthering their cooperation with the international community on poverty reduction and fulfilling their “normal role.” In this context, the Lao PDR continues to maintain close cooperation with the international community. Cooperation with the international financial institutions (IFIs), the Bank and the Fund in particular, has been eminent in helping us to implement the reform programs in support of our development goals.

I would like to take this opportunity to inform the meeting on the Lao PDR’s current economic situation. In 2003, our economic growth was at 5.9%, showing an increase of 0.2% compared with the previous year. Growth in the industrial sector was at 11.5%, while growth in the service and agricultural sectors were at 5.8% and 2.2%, respectively. The high rate of growth in the industrial sector was partly due to the export of US$60 million of gold ore from the Sepone Gold Mine, one of the major foreign direct investment projects in the country. There was also an overall increase in the country’s exports, resulting from the improved economic performance of the countries in the region.

Despite the fact that the economic growth rate was quite high, led by a large volume of exports from foreign investment projects, which helped to stabilize the exchange rate, inflation remained high, averaging 15.5% for 2003. Among the main factors contributing to the high inflation rate are the rise in world petroleum prices, which resulted in higher import prices, the increase in prices of domestic commodities and foods, and the shortage of some commodities, particularly the construction materials. This high inflation has placed the lives of the Lao people in a more difficult situation and has also discouraged domestic investment because of the high interest rate.

With regard to our efforts toward achieving our 2020 strategic goal of exiting from the least developed country status, the Government has completed the consultation process on the National Growth and Poverty Eradication Strategies (NGPES). The Government has also established the Central Government Level Unit under the Committee for Planning and Investment to coordinate and monitor the implementation of goals and priorities of NGPES, which are in perfect harmony with the Lao PDR’s international commitments, particularly the Millennium Development Goals, and the LDC Summit’s objectives.

Our partners for Development, namely the donor countries and international organizations, including the international financial institutions have extended the strong support to the Lao PDR in working forward these strategies through the direct support to the sectoral development in the country. In addition, the international financial institutions have also assisted in the efforts of the Government in the areas of macroeconomic stabilization and structural adjustment. Many actions under these adjustment efforts are well under way, particularly those relating to the Financial Management Adjustment Credit (FMAC), the program supported by the World Bank, which was completed in June 2004. We also worked closely with the IMF in August 2004 on the completion of the fourth review of the arrangement under the Poverty Reduction and Growth Facility.

Under the adjustment programs, the Government has completed the first stage in the reform of the state-owned commercial banks and the restructuring plans for the important large and medium state-owned enterprises. The Government will continue the reform process in the telecommunication, water supplies and electricity sectors, as well as in the area of public finance management, in compliance with the law and with the Government’s regulation and reform plans. Furthermore, in order to promote more investment, the Government will put more effort into enhancing the investment environment of the country.

In the meantime, partners in development need to adhere to their commitments made in the Monterrey Consensus, particularly to make available the necessary financial and technical assistance in support of the development efforts of developing countries. As export-led growth is the key to attaining poverty reduction goals at the national and global level, we strongly urge the developed countries to remove existing trade distortions and barriers to enable developing countries to have access to their markets, in order to achieve the targets of the Doha Round.

The potential for our country’s economic development lies largely in the productive and sustainable use of our natural resources and in export-oriented production, particularly in the areas of mineral extraction such as gold, copper, and zinc, as well as hydropower. In this connection, we greatly appreciate the international financial institutions’ support in the preparation for the proposed Nam Theun 2 Hydropower Project. We will continue to work closely with the IFIs and the parties concerned to realize this very important project, which we believe will benefit not only the Lao PDR, but also its neighboring countries.

In conclusion, in the name of the Government of Lao PDR, I would like to express my sincere appreciation to the managements and staffs of the Bank and the Fund and fellow member countries for the support given to the Lao PDR. I wish the meetings a great success.

Statement by the Governor of the Bank for the Republic of Lithuania

Vitas Vasiliauskas

It is a great privilege for me to address this distinguished audience today at this year’s Annual Meeting and to speak on behalf of the Republics of Estonia, Latvia and Lithuania. In my speech, I will concentrate on the general issues of cooperation between the Baltic countries and the World Bank.

The year 2004 witnessed two historical events for the Baltic countries. Estonia, Latvia and Lithuania, together with seven other countries, joined the European Union. The Baltic States also became fully-fledged members of NATO. For small open economies like Estonia, Latvia and Lithuania, both events are of utmost importance in light of the transition process challenges our countries have had to overcome.

Membership in the EU has raised new challenges with membership requirements as well as new opportunities for the future development of our countries. EU membership provides an additional stimulus in the form of inflows of grants from the Structural Funds and the Cohesion Funds, as well as the Transitional Facility. At the same time, we will have to look for synergy between World Bank operations and interventions under the EU financial instruments in the attainment of our common goals.

An outstanding economic performance achieved during the past few years and a sustained upturn this year are common features of all three Baltic countries. The average growth rate for the Baltic countries was above 7.6 percent in 2003. Sound economic policy maintained by all three Baltic countries creates preconditions for a favourable economic development outlook in the years ahead. The Baltic countries pursuing their Convergence Programmes aim to comply with the key Maastricht criteria by 2007, and as a result, Estonia and Lithuania were admitted to enter ERM-2 this year, with Latvia expected to be admitted in January 2005. These achievements will allow us to fulfil the necessary requirements for early Euro introduction in all Baltic countries.

Over the past year, we continued fruitful and intensive cooperation with the World Bank through the implementation of investment projects. The presence and advice of the Bank and the IMF in many cases served the governments well in keeping track of undertaken reforms and commitments.

From now on, the European Union membership will open a new stage in the relationship between the World Bank and the Baltic countries, with a transition from a borrower-lender relationship to a partnership featuring in particular analytical work and technical advice - targeted at the key challenges the Baltic countries face - to secure growth and to enhance competitiveness.

The issues of economic growth and sustainable development are receiving greater attention by the World Bank. We welcome this shift not only from the viewpoint of operational implications for the Bank but also from the perspective of relevancy for all new EU Member States.

In this regard, I would like to emphasize the new dimension of the Bank’s analytical work programme for the 8 new EU members covering the next 2-3 year period. We support the idea of cross-country analytical work for the EU8 and hope that this would contribute to the flexibility and cost-effectiveness of the Bank’s assistance.

We welcome particular priority areas of the Bank’s analytical work, such as labour market analysis, knowledge economy, public and private partnerships since these areas are not only interrelated but at the time relevant to sustained economic growth and competitiveness of all new EU Member States. The Bank’s experience and advice in traditional sectors, such as education, including tertiary education financing, rural development, would also be beneficial for the Baltic countries.

On this occasion, I would like to convey our appreciation for the useful and productive cooperation with the World Bank and the International Monetary Fund and wish them every success in their future work.

Statement by the Governor of the Bank for the Former Yugoslav Republic of Macedonia

Nikola Popovski

Respectable Ladies and Gentlemen, it is my honour to be offered the possibility to participate in the Annual Meetings of the International Monetary Fund and the World Bank, together with all of you. I would like to avail myself of this opportunity to express gratitude to both the International Monetary Fund and the World Bank for the so-far cooperation and financial support these institutions have extended to Macedonia.

Macedonia, during the last decade and a half, experienced difficult, long-lasting process of economic and political reforms, aimed at building modern democratic society with developed system of market economy.

Statement by the Governor of the Fund and the Bank for Malaysia

Tan Sri Nor Mohamed Yakcop

Statement by the Governor of the Fund for the Federated States of Micronesia

Nick Andon

Mr. Chairman, President Wolfensohn, Managing Director de Rato, Honorable Colleagues, Distinguished Delegates, Ladies and Gentlemen:

I am deeply honored and privileged to address these fifty-eighth Annual Meetings of the International Monetary Fund and the World Bank Group on behalf of the Pacific Constituency comprising Kiribati, the Republic of the Marshall Islands, the Republic of Palau, Samoa, the Solomon Islands and Vanuatu, and the Federated States of Micronesia.

May I also echo the sentiments made by previous speakers by expressing our deep appreciation and gratitude to the management and staffs of the Bank and the Fund for their tireless efforts and hard work in arranging and preparing our meeting venue at the Headquarters here in the beautiful city of Washington DC, and to express to you, Mr. Chairman, our congratulations on your election. I also would like to welcome and congratulate Mr. Rodrigo de Rato on his recent accession to the post of IMF Managing Director. Finally, I would like to thank the city and the people of Washington DC for the warm hospitality extended to us since our arrival, and for their continuous efforts in making sure our meetings are given the maximum security attention the world has ever seen.

Since the 1980s, just as our Asian neighbors were propelling into economic center-stage, it was projected that the next century will be the ‘Pacific Century’. And as the new millennium dawns on us, there is still little sign of the ‘Pacific Century’ in the Pacific island countries. Regardless we are hopeful that through our works with the Bank and the Fund the realization of the ‘Pacific Century’ will come sooner than later for us.

Statement by the Governor of the Bank for Myanmar

Hla Tun

Mr. Chairman, Excellencies, Distinguished Delegates, Ladies and Gentlemen, I am honoured, in representing Myanmar, to have the opportunity of addressing the 2004 Annual Meetings of the Fund and the Bank. At the outset, I would like to join my colleagues in congratulating the chair on his election as chairman for this meeting. I strongly belief, Mr. Chairman, that under your guidance today’s meeting would be a very successful one.

We are heartened to learn that the pace of global growth has continued to exceed expectations. Global recovery has become increasingly well established with strong growth in industrial countries and exceptionally rapid expansion in emerging markets. However, risks and challenges, including global imbalances, increase in oil prices and inflationary pressures, still remain and therefore we should be diligent in addressing these issues.

Let me now brief you on Myanmar’s economic development. As have been stated in previous years, Myanmar has been striving to achieve economic stability, with our own resources, in order to fulfill the basic needs of its populace.

For that, a series of short-term economic plans have been formulated and implemented which have resulted in significant growth rates for the country in recent years. We are now implementing the fourth year of the third short-term plan. During the first three years, remarkable growth rates have been achieved.

As an agro-based country, Myanmar’s economic growth has been led by the growth of the agricultural sector which accounts for about 45 per cent of the economy. However, in recent years, strong growths in the energy, livestock and fishery, mining, and manufacturing and processing sectors have also contributed quite significantly to the country’s economic growth.

We are happy to say that the Myanmar economy is growing at a sustainable up-ward trend. We are sufficient in agricultural produce and self sufficient in food supply. The authorities are also encouraging industrial development and at present there are 18 industrial zones. Moreover, for the future long-term growth of the economy, the government is investing in building necessary infrastructure, including construction of dams, reservoirs, roads, bridges and major Hydro Power Projects.

Due to the Government’s foresight in investing in the above mentioned infrastructure development, although there had been severe flooding this year, we were able to safely store our harvested agricultural produce including paddy. We remain committed to continue our efforts to improve the living standards of our people, especially in the rural areas.

According to the development needs of the country, appropriate policies have been implemented. With regard to fiscal policy, the government is giving high priority to its fiscal consolidation efforts. However, for the past few years, in the absence of external financial assistance, Myanmar had to use its own resources for the development of its infrastructure, which has resulted in budget deficits. However the budget deficit is now in a declining trend as efforts, such as strengthening tax administration and collection system, reducing tax exemptions, educating the public for tax compliance and reduction of tax evasion, have been taken in order to increase tax revenue, while on the other hand unproductive expenditures have been cut out.

The main objective of monetary policy in Myanmar is for sustainable economic growth with relative price stability. In order to do so, the Central Bank of Myanmar has adjusted its monetary policy according to the changes in the economic needs of the country. The Central Bank of Myanmar, in ensuring stability and soundness of the banking system, is also strengthening its supervisory and regulatory activities.

The Myanmar authorities do not accept any form of abuse of the financial system including money laundering and terrorist financing. We know that money laundering and financing of terrorism undermine the global economic growth and stability. We support the efforts, both at international and national levels, to combat them. We would also like to inform you that we have strengthened our regulatory policies and guidelines. We have enacted relevant laws and rules, and have also issued necessary instructions and directives. We are now working closely with the respective regional and international organizations on these issues and are also building the capacity and efficiency of our human resources. We are determined to forge ahead with our efforts to be in compliance with international norms and standards with regard to Anti Money Laundering and Combating Terrorist Financing.

The successes we have thus far achieved have been attained by using our own limited resources, as we have been unfairly deprived of international assistance for more than 15 years. There is no denying that national efforts, if supplemented by external assistance would have been more beneficial for the economy. Although Myanmar has been a legitimate member of the IMF and the World Bank since 1952, both of the institutions have suspended their assistance to Myanmar based mainly on political considerations. In actual fact, the objectives of the founders of these two institutions were purely economic in their nature and character. We would therefore urge these institutions to adhere to their founding principles.

There are differences in the structure of economic and institutional capacities among countries of varying levels of development. Thus, the institutions should not use one size fits all policies, but should adopt appropriate policies in advising member countries according to their needs and development. There is also need for equal voice in these institutions. However, it seems that developed countries monopolize the policy decision making and the developing countries find it hard to speak out their needs.

Both institutions have an important role to play in the world economy. But there may be need to improve their activities. For the members to achieve our common goal of sustained economic development and poverty alleviation, the IMF and the Bank should avoid any bias that favour some while discriminating others. According to the changing needs and time of the world economy and its environment, the institutions should be adaptable to those changes so as to meet the requirements of the developing countries.

There is no doubt that the organizations have a pivotal role in the global economic development and they have undertaken some joint activities in recent years such as the HIPC and PRSP. In undertaking their leading role they should not forget their core mandates and increase the representation of developing countries in the decision making process.

In conclusion I would like to call the IMF and the Bank to further enhance their assistance in supporting countries facing macroeconomic difficulties without any discrimination. For Myanmar, I would like to reiterate that we would continue with our efforts in maintaining our economic growth momentum and look forward to resuming normal relations with both of the institutions.

Statement by the Governor of the Bank for Nepal

Bharat Mohan Adhikari

Mr. Chairman, President Wolfensohn, Managing Director de Rato, Excellencies, Ladies and Gentlemen, I feel greatly honored to represent the Kingdom of Nepal in these 2004 Annual Meetings of the Boards of Governors of the Fund and the Bank. Let me thank the government and the people of the United States of America for the generous hospitality extended to myself and the delegates. I would like to extend our deep appreciation to the management and the officials of the Fund and the Bank for the impressive arrangements made for the meeting.

The world economic situation as well as the international financial environment has been gradually improving. The economic growth scenario in the US looks strong followed by modest recovery in the Japanese economy. Though the prospect of the world economy as a whole is now better over the years since 2000, the situation of prevailing unbalanced growth performance and continuing disparities among countries has been aggravated with the continuation of the geo-political uncertainty and the emerging oil price risks.

Mr. Chairman, modest recovery in the Asian region has been realized with the adoption of the prudent macroeconomic policies and flexible exchange rates along with the recovery in the trade and IT sectors. The Asian developing countries are now registering higher economic growth, with the upturn getting rapid particularly in China and India. However, the disparity in the growth rates among the countries persists. Therefore, a broad-based and sustainable growth as well as pressing forward in areas like structural reforms, good governance, and transparency comprise the most important economic policy challenges. The financial crises across the nineties teach us the need of a healthy financial sector for allocating resources efficiently. Sound, deep and strong financial sector is a prerequisite to attaining the benefits of an open, liberal and globalized economy. Enabling low income countries to reap the full benefits of a globalized economy should be the focus of the international efforts. In order to enhance the competitiveness of their respective economies, the need for the governments in the developing countries to be more responsible to consolidate their fiscal position has become urgent.

Combating poverty is one of the greatest challenges facing low-income countries. Although poverty reduction initiatives and necessary policies are put in place, implementation weaknesses persist. Hence, attaining the Millennium Development Goals (MDGs) requires strengthened efforts from international community backed by increased resources. I believe that trade would work as an engine of economic growth and low-income countries need to be given special space in realizing this potential. The Fund and the Bank are, therefore, advised to be serious in realizing the goal of poverty reduction and economic well-being on a global basis.

Mr. Chairman, in Nepal, the overall economic development indicators have continued to improve despite unfavourable peace and security situation. The Nepal Development Forum (NDF) meetings held in Kathmandu in April 2004 provided the opportunity to apprise the donor community about the overall development problems and prospects and also the commitments from the development partners. Preparations for the post-membership of the World Trade Organization (WTO) and the implementation of the ongoing development and reform programs including the Poverty Reduction and Strategy Paper (PRSP) and the Poverty Reduction and Growth Facility (PRGF) have remained the national priority. As a result, notwithstanding the prevailing adverse situation of the peace, improvement has been observed in the overall economic situation as GDP in 2003/04 grew by 3.7 percent, agriculture by 3.7 percent and non-agriculture by 3.3 percent. The growth projection for the current fiscal year is 4.5 percent. Government revenue mobilization has recorded an impressive improvement. The growth of broad and narrow money accelerated by 13.5 percent and 12.6 percent respectively and the inflation rate remained stable at 4.0 percent in 2003/04. The restoration of peace has now become the topmost priority for the people of Nepal. Therefore, the government is taking serious initiative to settle the ongoing conflict through negotiation.

Exports rose by 5.6 percent and imports rose by 11.9 percent in 2003/04. Due to higher growth rate of imports, trade deficit has been expanding. The balance of payments, however, remained favorable by Rs. 16.5 billion due to the rise in the private remittances and loans. The present foreign exchange reserve level at US$ 1.3 billion is sufficient to finance merchandise imports of 11.2 months or merchandise and service imports of 9.2 months.

While the overall public sector finances have witnessed prudent management, the initiation and implementation of some important projects have suffered on account of the unfavourable peace situation. Despite the growth rate of capital expenditure and current expenditure at 9.5 percent and 8.9 percent respectively, the principal repayment rose by 14.2 percent in 2003/04. With the resources registering a growth of 9.1 percent, the budget deficit/GDP ratio remained at 3.7 percent, recording only a marginal increment over such ratio of 3.6 percent in 2002/03.

Mr. Chairman, with a per capita income level of around US$ 250, i.e. about 69 cents a day, the need for vigorous development endeavors in Nepal has become urgent. Accordingly, the ongoing Tenth Plan/PRSP (2002-07) aims to reduce the poverty ratio from 38 percent to 32 percent over this period. GDP is estimated to grow by 6.2 percent, agriculture by 4.1 percent and non-agriculture by 7.5 percent, and per capita GDP by 4.1 percent, with a number of other socio-economic targets envisaged during the period. In view of the huge financial requirements for tackling the problems of poverty, unemployment, and the inadequate level of socio-economic infrastructure, a substantial level of financial and technical resources needs to be extended to Nepal at generous terms and conditions. Even for the sake of global peace and stability I use this platform to appeal the industrial countries to comply the commitment on ODA.

We are very grateful to the Fund and the Bank for their continued support to help Nepal improve the economic conditions of the people. I believe that the PRSP and PRGF are primarily oriented toward this objective though much needs to be done. The government especially needs the consideration and adoption of special packages for socio-economic revival in a least developed country like Nepal. The role of the Bretton Woods institutions in this endeavor would be of utmost importance. I would, therefore, like to request the Fund/Bank and the entire donor community to make arrangements to include Nepal in the Highly Indebted Poor Countries (HIPC) Debt Initiative framework so as to assist Nepal alleviate the gravity of the development challenges.

Mr. Chairman, greater support is also expected in the context of the opportunities and challenges associated with the WTO membership, especially in the transitional phase of the reform process, so that small and underdeveloped economies like ours will be able to participate in the global economy more meaningfully. I would like to assure our full support and participation in every action of the Fund and the Bank in this direction.

I would like to reiterate our sincere thanks to the Bank and the Fund as well as the entire donor community for rendering valuable technical as well as financial assistance in our development endeavors. We are always effortful to make optimum use of resources along with carrying our further reform programs in all our important socio-economic spheres. I seek more considerate support from the Fund and the Bank as well as our entire donor community in our endeavor of poverty reduction and sustainable socio-economic development in Nepal.

Statement by the Alternate Governor of the Bank for the Netherlands

Agnes Van Ardenne

Mr. Chairman, fellow Governors, Ladies and Gentlemen, let me join fellow-governors in congratulating the Fund and Bank with their 60^th anniversary. In this statement, I would like to focus on four topics. First, the recovery in the global economy. Second, crisis resolution and exceptional access to Fund resources. Third, debt sustainability in low-income countries. And fourth, the mobilisation of resources for development.

The world economic outlook points to continued strong growth in most parts of the world, although global imbalances still represent a downside risk. The key challenge for all regions is supporting and consolidating this economic recovery through sound fiscal and structural policies. I would like to highlight three issues with respect to the economic outlook.

First, the urgency to take appropriate measures to ensure medium and long term sustainability of public finances in view of the costs of ageing. At present, the Fund’s debt sustainability analyses for industrial countries have a five-year horizon. The major impact of ageing in Europe will be felt after 2010, however. It would therefore be appropriate to extend this horizon. The long term impact of ageing can then be mitigated by measures in the short term.

Second, the present economic momentum should be effectively used to implement budgetary consolidation in all major economic areas of the world. It is of paramount importance to increase budgetary discipline in good times with the objective to gradually achieve budgetary surpluses.

Third, the opportunity to foster economic growth by reducing the administrative burden for the business sector. I refer to it as ‘opportunity’ since this growth-promoting policy does not lead to budgetary costs. The World Bank’s ‘Doing Business’ report clearly demonstrates that reducing the administrative burden for the business sector could significantly accelerate economic growth in both developing and developed countries. But deregulation and a better investment climate have to go hand in hand with strong institutions as illustrates the World Development Report 2005 “A Better Investment Climate for Everyone”. That means that we should also invest in capacity building.

Turning to crisis resolution. The Fund’s involvement in crises has in some cases led to a prolonged and high exposure of the Fund to a small group of borrowers. This might jeopardize the principle of equal treatment of member states and risk the revolving character of Fund financing. Therefore, a strict implementation of existing IMF policies, especially the exceptional access framework, is required. Furthermore, we favour the presumed use of the Supplemental Reserve Facility in exceptional access cases. In addition, I invite the Fund to design a specific exit strategy for existing exceptional access cases.

The development of a Code of Conduct could foster an ongoing dialogue between sovereign debtors and the private sector. We therefore encourage these parties to swiftly agree on such a Code.

A positive development is the increased attention for Fund arrangements to provide a signal on good policies without significant financing. The Fund should not be peddling loans to countries that do not need the Fund financing, or have precarious debt levels. The quality of a country’s policy can be demonstrated by adherence to Fund’s conditionality, Board involvement, and an appropriate level of ownership. This can induce the private sector and donors to provide a country with necessary funds. These three crucial elements determine the value of Fund arrangements as a signaling device. Examples of these arrangements that have proven effective in the past are (low access) precautionary stand-by arrangements and low access arrangements under the Poverty Reduction and Growth Facility.

The third issue I would like to address is the need to ensure long-term debt sustainability in low-income countries. HIPC has been a useful tool to deal with intolerable debt burdens and I fully support a limited extension of the HIPC initiative with two years, while ring fencing eligibility. However, it is time to focus on the future and prevent new debt problems from arising. We have to break the vicious circle of lending, new unsustainable debts and subsequent debt relief. Against this background, we should assess the various proposals for further debt reduction that are now on the table.

I call upon both the Bank and the Fund to show leadership and accelerate the development and implementation of a framework for Long-term Debt Sustainability in low-income countries. This framework and joint Debt Sustainability Analyses should be the sole determinants for the allocation of grants and credits of all development partners, including the regional development banks. Of course, this could imply that also IDA will provide grants in certain circumstances. However, I would caution against turning IDA into a 100% grants window. Not because I am per se against grants but, more fundamentally, because I am very much against, weakening important development institutions that are grant based as a consequence, notably the UN Funds and Programmes.

I would like to stress the need for a strong multilateral system. In a globalizing world with increasingly a common international agenda, we have to ensure that our multilateral institutions can live up to the challenges. This principle should in my view guide the ongoing UN reforms.

A stronger multilateral system should ensure more co-ordination and co-operation and less overlap and ineffectiveness. This implies the avoidance of mission creep and a clear division of labour, for instance between the World Bank and the UN Funds and Programmes.

Of course, we should also step up our support to developing countries. At least an additional $ 50-60 billion needs to be raised to achieve the Millennium Development Goals. As countries improve their policies and institutions, this amount could be used effectively by developing countries. This is taxpayers’ money well spent. As a believer in equal burden sharing among donors, I urge countries to formulate a convincing time frame within which to raise aid levels to the UN norm set some 35 years ago.

Finally, next to aid volumes, the delivery of aid should be improved. I thus call on Fund, Bank, and donors to further align their policies with recipient country policies and harmonise their procedures and policies. Furthermore, aid should also focus on private sector development and be supported by better international trade opportunities for developing countries. Let us use the coming year to do whatever we can to finalize the WTO negotiations. This in itself will already lift hundreds of millions of people out of poverty.

Statement by the Governor of the Fund for New Zealand

Michael Cullen

Statement by the Governor of the Bank for Pakistan

Salman Shah

Mr. Chairman, Mr. Wolfensohn, Mr. de Rato and distinguished delegates, it is a great honor for me to address the 2004 Annual Meetings of the World Bank and IMF. Let me also take this opportunity to thank our hosts for their warm hospitality and also express my appreciation for the admirable arrangements for these meetings.

We meet at a time that present great opportunity, yet is fraught with great risk and momentous challenges lie ahead. Security issues threaten many countries of the world and rightly demand our focus. Yet we risk loosing sight of a fundamental principle - global security and prosperity are not only intimately linked but are indivisible. We cannot have a secure world when it is full of grave imbalances, where the absolute number of poor are growing and continue to live in abject poverty and despair. Mr. Chairman, only if we succeed in providing hope, can we win the war against terror.

The Monterrey consensus was a historic global compact that provided both hope and the framework for a unique partnership between developed and developing countries to serve as a road map to a better world. Never before in the history of global dialogue did we achieve such unity of purpose.

However, two and a half years after Monterrey there is little real progress on the commitments made at Monterrey. Even as developing countries continue to strengthen their macroeconomic framework and deepen the process of painful structural reform, ODA levels have increased marginally. On the voice issue peripherally changes have been made without addressing substantive issues that would enhance the voice and participation of DTCs in the decision making process at the Bretton Woods Institutions and the Doha round has yet to move forward meaningfully.

We need now to be courageous and far sighted. We know that these are complex issues, yet we must not continue to debate, discuss and analyze. What is really required is the political will to move forward, lest we loose entirely, the momentum gained from Monterrey. That would be an irreparable loss to all of us and our coming generations.

Mr. Chairman, unless the levels of ODA are increased to close the financing gap estimated at $50 billion, the MDGs will not be met by most countries by 2015. Let us clearly understand this stark reality and let us act before it is too late.

The primary responsibility for lifting our people out of poverty and deprivation rest with us in the developing world. Yet by no amount of reform or any other effort can we bridge the financing gap in time to meet the MDGs unless there is front loading of ODA now. We acknowledge and deeply appreciate U.K.’s efforts in this regard and their tabling the IFF, which has support amongst some donors and nearly all developing countries. Only the IFF has the potential of speedily frontloading ODA and therefore we should focus efforts primarily on operationalizing IFF. Donors who cannot participate in this mechanism will need to scale up their ODA, consistent with their budgetary and legislative frameworks. The target of 0. 7% of the GNI of developed countries was set over 34 years ago. We must move towards achieving this goal.

Yet far more important for private sector led sustainable growth and poverty reduction in the developing world, is the issue of market access. Improvement in investment climates will be given a strong impetus by market access, more than any change procedures and practices. Unless the developed world allows this access and reduces significantly trade distorting subsidies, developing countries will continue to rely on ODA, and continue to be vulnerable to debt crisis.

Mr. Chairman, we have to address the gaps between the international economic conceptual framework and practice. We want to achieve MDGs by 2015, yet the requisite increase in ODA is not forthcoming, we want private sector led sustainable poverty reducing growth, under-pinned by investment climates, yet market access is denied, we urge democracy, the world over, yet we fear democracy at the BWIs. We have to address these inconsistencies squarely if we are to really be partners in economic development and transformation, as was our joint vision at Monterrey.

On the 60^th anniversary of the BWI, there is much to celebrate. The Bank and the Fund have undergone transformation from organizations that prescribed one size fit all, take it or leave it solutions, to institutions that genuinely try to listen and be real partners with developing countries. Mr. Wolfensohn has spearheaded this change and has earned respect the world over for this. We thank him. We welcome the Bank’s several initiatives on infrastructure lending to MIC, streamlining processes and procedures. However, much remains to be done. We would like to see more work in a larger number of countries on the fiscal space issue, to accommodate the burgeoning financing requirement of social and physical infrastructure, without which growth will be choked. We would like to see greater harmonization within the Bank Group, harnessing the synergies that exist to provide support for infrastructure development. Our private sectors, too, need to be supported strongly by a far more proactive IFC, as well as MIGA.

IDA is doing a tremendous job and playing an enormous role in reducing poverty, supporting growth and reform in our countries. We look forward to a successful completion of the IDA-14 replenishment process, at a level that is consistent with the magnitude of the challenges before us.

The world economic outlook is stronger than at most anytime in the recent past but risks to the expansion have increased in recent months. While global growth has become increasingly broad-based geographically, it remains heavily dependent on the momentum generated by the U.S. and Chinese economies. The growing recovery in the euro area and in Japan is relying to a much greater extent on external demand rather than on domestic spending. The developing world continues to contribute strongly to the global recovery, which extends beyond the emerging market economies of Asia and Latin America to encompass sub-Saharan Africa as well.

The risks to the favorable outlook have both a short-term and a medium-term dimension. Among the former, the volatility of oil prices, despite strenuous efforts of the major oil exporters to stabilize the market, is a matter of concern, especially where possible supply disruptions are associated with geopolitical developments in a major producing region. The movement towards a higher interest rate environment in international capital markets has implications for private capital flows to the periphery countries. The large and persistent payments imbalances among the major industrial countries create risks of disorderly exchange rate and interest rate movements; together these factors generate a high degree of uncertainty that is inimical to the prospects for investment revival in several regions of the developing world.

Among the medium-term risks perhaps the most significant is the perverse direction of official capital flows, in the form of accumulating dollar reserves, that is the counterpart of growing U.S. external and fiscal imbalances. Only second to that is the negative transfer of official resources from the multilateral development finance institutions to their borrowers in the developing world; even net disbursements have turned negative in the case of the World Bank Group in the last two years at a time when there are enormous needs for infrastructure finance and other capital investments in their client countries.

Given this background, current proposals for reform of international financial arrangements being released as “trial balloons” appear to us to bear little relation to the magnitude and character of the problems confronting the poorer countries. It is being suggested, for example, that the International Monetary Fund, our premier monetary institution, gradually withdraw from its financing responsibilities to its low-income members and instead devise a kind of signaling instrument (called a Policy Monitoring Arrangement) to providers of debt relief and to serve as a “gate-keeper” for other sources of funding. We don’t think it is yet time for IMF to give up its traditional role. Moreover, there is no precautionary type of facility envisaged that would help emerging market countries prevent temporary difficulties from turning into full-blown capital account crises. Nor are there any moves to improve upon the Compensatory Financing Facility to help other countries deal with exogenous shocks.

In the same line of temporizing reforms, the World Bank is being pushed to convert loans into grants, with no clear assurance that there would be truly additional official funds to cover the resulting gaps in projected re-flows of its “soft-window” resources. Grants must be funded incrementally; otherwise, they will cut into the Bank’s resources for development lending in the years ahead. As we approach the MDGs, we need to strengthen, not undermine, the Bank’s ability to provide scaled up assistance to poor countries. A debt sustainability analysis (DSA) is being proposed as a framework for determining the ceilings on external debt that each low- income developing country could carry, with the rest of its external funding requirements for attaining the Millennial Development Goals (MDGs) to be met, presumably, through grants. While this clearly represents an advance on the “one-size-fits-all” criteria that were incorporated into the HIPC Initiative, there is again no assurance that grant funds would be forthcoming to fill the gap that has already emerged for several countries that have reached their “completion points” but find their remaining debt burdens to be in excess of the DSA thresholds. These thresholds are meant to apply not only to HIPIC-eligible countries but to the generality of low-income countries, thereby opening up a void that will require large amounts of grant money.

Statement by the Governor of the Bank for Papua New Guinea

Bart Philemon

I join my fellow Governors to convey my delegation’s appreciation to the President of the World Bank Group, Managing Director of the IMF, and the Government of USA for the warm hospitality and excellent arrangement in making our stay a pleasant one.

I also convey my Government’s congratulations to Mr. Rodrigo de Rato on his appointment as the new Managing Director of the IMF. I am confident that he will continue to advance the good working relationship with all member countries.

In my first address to this forum during the 2002 Annual Meeting, I highlighted a number of difficulties and challenges that Papua New Guinea would have to overcome, in order to achieve macroeconomic stability and sustain economic growth over the medium term.

These challenges will always be present now and in future, in part to Papua New Guinea’s comparatively small and open economy, which will continue to be affected by events and developments in the global economic and political arena.

I, therefore, reiterate that meetings such as this provide an important forum for us to have continuous dialogue with these two institutions, and our bilateral and development partners from around the world. The forum also gives us the opportunity to share and inform the international community, and in particular, our donor friends, on the latest developments in our economy and the challenges that lie ahead.

Since late 2002, the Government has acted responsibly by undertaking a mixture of macroeconomic and structural reforms to restore fiscal discipline and improve economic conditions, which was further aided by the improved global economic conditions.

The Government continued to implement the structural reform program of promoting good governance, sustaining macroeconomic stability, improving public sector performance, and removing impediments to business and investments, because it believes that continued adherence to these reforms represents the best means of enhancing economic and human development.

The country is now benefiting from the Government’s prudent fiscal management and some of the reforms undertaken so far. Economic growth has picked up and employment is growing, while inflation and interest rates have declined sharply. On the external front, the exchange rate has stabilized and foreign exchange reserves are at record levels.

Whilst economic conditions have improved, there is still a lot of hard work to do, particularly in the areas of public expenditure and continuous implementation of structural reforms. The various fiscal issues and the challenge of mobilizing resources to address many of the social issues threatening Papua New Guinea’s development aspirations will exert considerable pressure on the budget framework over the medium-term.

The Government is aware that accelerating and sustaining growth requires not only quick fixes but sustained period of political and macroeconomic stability, and continuous adherence to structural reform. The Government will, therefore, continue to pursue short and medium-term fiscal and structural reforms to sustain and build on this growth.

The medium-term picture, and more immediately, the outlook for next year, will depend not only on how well the Government manages the immediate pressures and the challenges that it is confronted with today but also the supportive role that its development partners such as the Bank and the Fund have to play in the whole process.

The Government is keen to address the challenges that lie ahead and has undertaken a number of policy initiatives, together with the public expenditure review and rationalization exercise with the World Bank and the Enhanced Co-operation Program with the Australian Government.

Our Budgets over the next couple of years will be framed against a background of improving economic conditions and an on-going reform agenda but with spending constrained by a legacy of excessive debt and a misallocation of resources – with the aim of getting the balance right through the “adjustment and prioritization” exercise.

The Government intends to achieve a target budget deficit of 1.0% of GDP in 2005, with a view to achieving a balanced-budget over the medium-term, and reduce the debt-GDP ratio from the current level of 60% of GDP to around 55% of GDP by 2007. The full details of the medium-term debt management strategy will be announced in the upcoming 2005 Budget.

Consistent with new Medium Term Development Strategy (MTDS) 2005-2010, more attention will be focused in priority areas of transport infrastructure, rehabilitation and maintenance, basic education, primary health care, law and justice, and programs that promote rural income earning opportunities.

The MTDS 2005-2010 will be an integral component of the Government’s overall economic and public sector reform program, which will map-out an appropriate development strategy for the period 2005 to 2010 and a matching policy framework that will guide the Government’s budgetary allocations and wider policy initiatives. The objectives of the MTDS 2005-2010 are consistent with the Millennium Development Goals.

This document would also set the basis for productive discussions between the Government and the development partners, in order to ensure that all development programs, whether government or donor funded, have to subscribe to its development strategy – MTDS.

This implies that improved harmonization of donor support is crucially important in achieving the Millennium Development Goals. Aid coordination and delivery mechanisms in Papua New Guinea were reviewed this year, with a view to moving towards improved harmonization of aid and towards sector wide and whole of Government budget support forms of delivery.

The Government, in collaboration with the United Nations Development Program (UNDP), has successfully completed its first Country Report on its performance in the implementation of the Millennium Development Goals. The Draft Report is now before the Government for approval.

The implementation of the Enhanced Co-operation Program is underway with the placement of Australian officials in key economic, spending agencies, law and justice agencies, border management and transport security agencies and police.

The Australian officials will work side-by-side with Papua New Guineans to strengthen Papua New Guinea’s ability to develop and implement sound economic policies, manage our finances, maintain law and order, tackle corruption, and improve border security, so that investor confidence is maintained and an environment for broad based development is facilitated.

The Government is also engaging in closer dialogue with the private sector. The Consultative Implementation Monitoring Council is an important forum that allows the private sector and civil society to engage with the Government and provide meaningful input into the National Budget and contribute towards the policy framework.

In response to the call for greater responsiveness of the Government to private sector concerns, a National Working Group on Removing Impediments to Business and Investment was established by the Government in August last year to assist in facilitating the Government’s policy of fostering economic growth through increased exports and improved business and investment climate. The National Working Group is currently considering various initiatives to facilitate and promote commerce and business within Papua New Guinea.

The main thrust of adhering to reforms and adjustment, as well as maintaining the on-going and future dialogue with our development partners, is to stress that the achievements of the current reforms and adjustment are the beginning of a process of evolutionary development to put PNG back on a path to sustainable economic growth and development. The task is enormous and requires a collective and partnership approach with the development partners, including the World Bank and the Fund.

In concluding, I would like to acknowledge and express my Government’s sincere gratitude to the management and staff of the World Bank and the Fund for their continuous support in PNG’s development effort.

Statement by the Governor of the Bank for the Philippines

Juanita D. Amatong

After their establishment, the role and relevance of multilateral institutions have never been discussed more extensively until now.

On the one side, the Bank and the Fund are both challenged to assist countries attain the objectives of the Monterrey Consensus. They must put their resources in activities that enable countries to meet the MDGs by 2015. Disturbing assessment is that many countries, at existing growth rates, will be unable to meet the MDGs. Multilateral institutions will need to scale up to move closer to the goals.

On the other hand, the sustainability of their operations has been put to question as both institutions have suffered from big declines in lending operations. Idle resources piled up even as sovereign middle-income country borrowers opt for private international banks and bond markets to satisfy their huge appetite for funding. Both the Bank and the Fund will need to reverse deteriorating income outlook to keep their topnotch credit ratings and sustain their roles as MDG movers.

In both of these issues, there is now increasing recognition that the middle-income countries hold the key in their resolution.

The middle-income countries are home to 2.7 million people, almost a half (44%) of the world’s population. Of these, over 300 million subsist below US$1 per day and almost a billion below US$2 per day. These represent a hefty 29 and 34 percent, respectively, of the impoverished people on this planet.

Likewise, in terms of volume, it is the middle-income countries that have the greatest need for resources and assistance. They accessed the international markets for funds and avoided borrowing from multilateral institutions. In 2001 and 2002, they issued, on a net basis, US$25.9 billion in international bonds while they, excluding two large Latin American countries that obtained emergency funding, shunned Bank and Fund financing, recording only US$8.5 billion in net borrowings from these two institutions during those two years. Preliminary information shows that recent net borrowings of middle-income countries from the Bank and the Fund have dwindled to a trickle more recently. Why this development has escaped the notice of these two institutions, the knowledge banks, the repositories of economic information so vital to policy decision making, is somewhat perplexing.

However, winds are shifting directions after a period of denial. The Bank’s study on middle-income countries early this year included some interesting findings. The main conclusions—The cost of borrowing from the Bank has increased tremendously. The Bank’s financial products are inappropriate for middle-income countries’ evolving needs. To stay relevant to their middle-income country clientele, the Bank must strengthen their voice in the formulation of country assistance strategies.

The Bank and the Fund should engage in a new type of partnership with middle-income countries——one that is more efficient, flexible and one that is more responsive to middle-income countries’ needs. Reforms to use country systems are in the right direction. At the same time, we are eager to see increased progress in decentralization, harmonization and streamlining of conditionalities and procedures.

In addition, we call for greater flexibility. If central government programs and projects are slow in coming, let’s look at the programs and projects of local governments and communities. In almost every country, there are gems of governance among local government units and communities. In fact, the Shanghai Conference recognized many of these.

Since a large number of middle-income countries are in dire fiscal straits, products should be tailored to avoid further fiscal deterioration. The Bank’s SWAPs should be adopted in more countries and used more often. The Bank does not need to invent new projects; it just has to look at the projects already listed in countries’ budgets.

Likewise, infrastructure deserves a second look as many private sector participants have shunned from infrastructure provision and governments wean away from costly enhancements earlier provided. The infrastructure requirements of developing countries are huge at 7% of GDP but only a half of this has materialized. As of today, private infrastructure investment has dwindled to less than a third of its peak levels in the 1990s.

The Fund should pursue ways to redefine the public finance conditionality to avoid depriving developing countries of productive investments for future growth. We urge the Fund to remove expenditures on productive infrastructure from the definition of “fiscal deficit”, use “primary surplus” as criterion and/or exclude the operations of commercially-run public enterprises from the coverage of fiscal conditionality.

Likewise, while the Fund and the Bank play an important role as knowledge disseminators, they have not played a more active role in assisting developing countries in coming up with policies steadfastly dedicated to growth and in ways that biases income gains towards the poor. Information counts heavily in making intelligent policy decisions. Given at the right time, the right venues and appropriate approach, I believe that success stories are to be emulated. We just have to make good governance irresistible. It is a product that should be attractive to sell.

We are living in tough, uncertain, volatile times. Exchange rates, interest rates, oil prices move frequently in directions that are difficult to predict. In a borderless world, imbalances could occur and recur, intensify and spill over into neighboring countries with all its dire effects on growth and poverty. In such times, the roles of the Bank and the IMF become even more profound. Both are uniquely placed to intentionally smooth the markets with their products. Both target their services to attain greatest impact on poverty reduction. The knowledge they share is the best foundation for future reforms.

Their operations should move ahead with the times; they should make their products and services more accessible and more useful to their clients. They should be more aggressive; they should develop closer linkages with their clients and policymakers.

The fates of the multilaterals and middle-income countries are inextricably intertwined. Multilaterals help middle-income countries attain the MDGs by expanding and improving their lending and analytical services. The middle-income countries provide the clientele that enables the multilaterals to enhance their resource positions and the Bank, in particular---can then allocate more funds at lower costs for the programs of low-income countries.

Statement by the Governor of the Bank for the Republic of Poland

Leszek Balcerowicz

Mr. Chairman, Fellow Governors, Ladies and Gentlemen, I am pleased to participate in the Annual Meetings during the 60^th anniversary of the World Bank and the International Monetary Fund. The year 2004 is of paramount importance for Poland, which – together with the other seven Central European transition economies and Malta and Cyprus – has joined the European Union. This is a sign that the transition process which started in 1989 from a communist central planning model to a market-based system is well advanced. I would like to use this opportunity to express my appreciation and gratitude to the Bank and the Fund for their outstanding contribution to reforms in Poland.

Poland is ready to share lessons learned during the transition process with other countries and has already begun to do so. In 2002, in cooperation with the United States Agency for International Development (USAID), Poland established the Training Initiative for Banking Supervision (TIBS) – a training centre and forum for banking supervisors of Central, Eastern, and Southern Europe to share practical experiences relative to advancing their supervisory framework and capacity. TIBS holds two one-week training seminars in Poland each year and is starting to arrange training sessions for banking supervisors in other countries, like recently in Kiev. Poland also organizes study visits and internships for staff of governmental agencies in Poland and sends Poland’s experts to other countries to help in strengthening institutional capacity and provide advisory assistance. In 2004, a conference on exchange rate regimes and monetary policy for officials from countries of Southern and Eastern Europe and Central Asia was organized in Warsaw together with the Swiss National Bank. Poland is ready to scale up these training and technical assistance activities, including in cooperation with the Bank and the Fund.

The lessons learned by Poland and the post-communist transition in general are like those of other emerging countries: to succeed in convergence, a country needs an institutional system with a rationally limited state, which gives rise to an open market economy within the rule of law or the successful transition to such a system.

It means that an appropriate program of reforms must free up the forces of growth by strengthening the propelling institutions as well as ensure a stable macroeconomic framework by enhancing the stabilizing institutions and good monetary and fiscal policies. Let me focus here on of the first category of actions, which in recent years have regained much deserved ground in economic debates on development. In order to stay within time limits, I will concentrate on four key principles.

First, the state needs to grant its citizens and entrepreneurs a sufficiently large scope of real economic freedom. The creation and development of private companies in virtually all sectors of the economy should not be restricted. The economy must be open to foreign trade and investment.

Second, the rights and freedoms of entrepreneurs may not be attenuated by excessive regulation. Governments must recognize that excessive, overcomplicated regulations are damaging to economic development and very often fail to achieve their declared goals. Such burdensome regulations should also be seen as a major cause of corruption. This includes inter alia the overregulation of the labor market by restrictive labor practices and too much job protection, which contribute to unemployment.

Third, governments need to strengthen their capacities to protect the property rights of all its citizens, not only the privileged minority.

And fourth, taxes should be low and simple and public finances should be healthy. Many governments impede long-term development by having excessively high public expenditures that result in increased taxation and/or unsustainable fiscal deficits and can also be linked to unemployment, tax evasion, and the growth of a shadow economy.

Thus, I would like to commend the World Bank for focusing on the need to improve the investment climate as indicated by the Elements of the Growth Agenda paper submitted for the Development Committee meeting and the fact that this is the topic of this year’s World Development Report. I would like to especially praise and thank the Bank for launching the Doing Business project. By benchmarking and providing comparable, systematic data on how burdensome and costly the observance of the existing regulations is, Doing Business gives valuable information on which areas of firms’ institutional environment constitute major barriers to growth. Therefore, it is a useful tool for defining priority areas for the reforms necessary to improve the investment climate. The information provided by the Doing Business report that demonstrates the weaknesses in a country’s business environment may not be enjoyable to everyone, but it is crucial for creating incentives for policymakers to undertake needed reforms. Everybody needs right incentives, politicians and policymakers, too.

Statement by the Governor of the Bank for Portugal

Luis Miguel Morais Leitao

Mr. Chairman, Governors, Ladies and Gentlemen, it is a great pleasure for me to be here. In Portugal, the economy is recovering, with domestic demand contributing to expand economic activity. For 2005, we expect a GDP growth above 2%, a rate that has not been recorded for the last five years.

We are also on the way to collect the benefits of important structural reforms adopted in the last two years - health, education, social security, public administration, labour market and tax system - allowing us now to focus on growth as the major goal of our policies. Concerning fiscal policy, we continue strongly committed to fulfilling the objectives of the Stability and Growth Pact. In 2004 the deficit will remain below 3% of the Gross Domestic Product and the debt ratio will be 60% of GDP. Keeping in mind last years’ negative economic growth of -1.3%, these results show the strong commitment of the Portuguese government to the budgetary consolidation process. Inflation has been decreasing, more in line with the European Central Bank’s objective, and is presently contained.

As recent events have shown, promoting peace and security worldwide must be a priority and requires global co-ordinated action. Defending the integrity of the World’s Financial System and avoiding its mismanagement for irregular purposes are crucial features for Peace, as well as creating conditions for access to better living standards and freedom of faith.

Portugal has stood at the forefront of the fight against the financing of terrorism and money laundering, having ensured that legal measures to make our financial system resilient to these phenomena are swiftly implemented, and cases are quickly detected and addressed. Full adherence to the Financial Action Task Force’s recommendations on money laundering and on the prevention of terrorism financing is crucial, and this is an area where the success of our action is highly dependent on strong co-ordination, both among domestic institutions and at the international level.

Portugal remains fully committed with the global effort to fight poverty. As the World Development Report 2005 highlights, the promotion of a better investment climate in developing countries is central – it allows official development assistance to be leveraged by private sector development. We firmly believe that economic growth is the key for poverty reduction and that is the combined result of good governance, improvements in health and education systems and private investment.

As a measure of our common efforts, the Millennium Development Goals (MDGs) continue to provide the major framework for our action. We look forward to discussing our major achievements and shortcomings next year.

The new partnership for development between developed and developing countries established during the Monterrey, Johannesburg and Doha summits remains the best way to provide urgent, concerted and sustained action in order to make faster progress towards the achievement of the MDGs. The first of the MDGs, poverty reduction, has been the Bank’s overreaching objective for many years and it is also the priority of Portuguese cooperation.

The Comprehensive Development Framework that includes the Poverty Reduction Strategy Papers (PRSP) and the Country Assistance Strategies is, in our opinion, a useful tool for the definition of national development strategies and we reaffirm the importance of a closer link of these documents with the budget process. The World Bank plays a crucial role in providing technical assistance and capacity building for the implementation, monitoring and evaluation of this framework.

Portugal encourages the World Bank to fully implement its Infrastructure Action Plan and its growth agenda, as economic growth is the driving force for development. In this context, we welcome the Bank’s renewed commitment to infrastructure and private sector development.

Strengthening aid effectiveness requires concerted efforts and coordination of donor actions. We support the efforts made for the definition of a framework for monitoring coherence, coordination and cooperation of the World Bank with other multilateral organizations. It’s a tool that can contribute to enhancing the overall development impact of aid, as well as provide feedback in real time to influence key decision-making processes.

Emphasis should be given to the importance of aligning aid resources more closely with countries’ priorities and processes and of harmonizing donors’ requirements and practices. This exercise is particularly relevant for Portuguese cooperation, which has made efforts to concentrate its assistance in a small group of countries with whom Portugal has strong historical and cultural ties, namely in the Portuguese speaking countries in Africa and Timor-Leste.

We are aware that developed countries will need to provide stronger support through increased market access. The breakthrough achieved on August the 1st in the Geneva World Trade Organization negotiations gives hope to a positive outcome of the Doha Development round. Its benefits will be felt worldwide, particularly in developing countries. In order to be prepared to take full advantage of a new trade regime, developing countries should also reform their government structures, improve governance, enhance democratic and participatory decision-making and implement sound and coherent macroeconomic policies.

When it comes to aid, we should be prudent not to create misguided expectations, promising additional resources beyond those we can commit, especially at a time when national budgets are under severe constraints. We must focus on the need to make aid flows more effective, namely through a better alignment of donors’ aid with the countries’ development priorities.

In terms of Official Development Assistance (ODA), Portugal is firmly determined to reach at least 0.33 percent of Gross National Income to Official Development Assistance (ODA) by 2006, thus contributing to the EU collective commitment of reaching an EU average ODA of 0.39 percent of Gross National Income (GNI) by 2006.

With respect to debt, we encourage the World Bank and the Fund to continue exploring new solutions that provide a tool for ensuring long-term debt sustainability. After the positive results of the HIPC Initiative, we must remain vigilant to avoid the repetition of debt distressed situations. Developing countries must improve institutional capacity, develop good governance and above all seek peace and security conditions. For low-income countries, especially those that benefited from HIPC, where the challenge to maintain macroeconomic stability is greater, due mainly to being more exposed to external economic shocks, access to financing on appropriate terms is clearly needed. It is important to appropriately tailor the mix of grants and loans to the countries’ circumstances so as not to increase the risk of debt distress in already highly indebted countries.

I would like to finish by thanking the Bank and the Fund Staff and Management for their excellent work, the Boards of Directors for their strategic view and guidance and President Wolfensohn, for his marked leadership.

I would also like to welcome and congratulate Mr. Rodrigo de Rato for his recent appointment as IMF Managing Director. I wish him every success in his new assignment.

Statement by the Governor of the Fund and the Bank for the Russian Federation

Aleksei Kudrin

Statement by the Governor of the Fund and the Bank for Spain

Pedro Solbes M.

Mr. President of the Assembly, Mr. President of the World Bank, Mr. Managing Director of the IMF, Governors, Ladies and Gentlemen:

Statement by the Governor of the Fund and the Bank for Sri Lanka

Sarath Leelananda Bandara Amunugama

Mr. Chairman, Ladies and Gentlemen, it is encouraging that there has been a firming of the global economic recovery. The buoyant global demand has led to a pick up in commodity prices that have benefited many emerging economies. However, the high price of oil and its volatility are a major concern to oil importing countries, such as my own. Co-operative efforts by suppliers and consumers are required to mitigate the adverse effects. The world is entering a period of higher inflation and interest rates. The policy responses by many countries have helped to bring about orderly changes in interest rates. Nevertheless, the transition to the new phase needs to be carefully managed so as not to stifle the on going recovery.

There are significant vulnerabilities in both industrial and emerging market countries. If the current positive developments in the world economy are to be sustained, fundamental problems such as difficult fiscal positions, structural weaknesses, financial vulnerabilities and global current account imbalances need to be addressed. This requires a further strengthening of international cooperation, particularly in macroeconomic policy co-ordination, by the industrial countries.

The Fund and the Bank have important roles to play in strengthening the global economy, and we appreciate the efforts being made by these institutions. We welcome the cooperative efforts by the Fund and the Bank to support multilateral trade liberalization and in this regard, we welcome the activation of the Trade Integrating Mechanism by the Fund to help ease the related temporary balance of payments pressures. In its Strategic Review, the Fund should critically examine how the streamlined conditionality has worked in the context of political realities in different countries and their stage of economic development. The attention being paid by the Fund and the Bank to assist countries to reduce poverty and achieve the Millennium Development Goals is extremely important. The Fund needs to make its resources more flexibly available to support stabilization, growth and poverty reduction efforts of member countries. We would also stress the importance of having a contingent facility, which could be applied in covering all major types of contingencies, an example being the current rise in oil prices. All these imply that the Fund resource base needs a significant expansion.

Mr. Chairman, let me now focus on the economic and policy developments in my own country, Sri Lanka. The economic recovery has continued, although we have been affected by a severe drought and the very high international prices for oil. Growth in the first half has been 5.7 per cent and we expect the annual growth for 2004 to be in the region of 5-5.5 percent. The high oil prices have increased our expenditure by 50 percent and strained the balance of payments position.

Our government is committed to promoting regionally distributed pro-poor pro-growth within a consistent and sound macroeconomic framework. In particular, we are taking steps to ensure that the disadvantaged segments of our population would rapidly reap the benefits of economic growth. We envision that the public sector and the private sector together will play proactive roles in developing our economy. We are increasing investment, particularly in infrastructure and in rural development. Increased emphasis is being placed on developing agriculture, small and medium scale enterprises and tourism. We are deeply conscious of the fact that a significant portion of our population is in poverty and we are confident that we would succeed in our efforts to generate employment opportunities necessary to meet the needs of a growing labor force, achieve a steady reduction of poverty and provide the necessary safety net for vulnerable segments of our population. We are convinced that generating productive employment could be a rapid means of alleviating poverty and are happy to note that the G-24 in its communiqué has called on the Bretton Woods Institutions to stress this aspect in their programs.

Our government is making a determined effort to carry forward the Peace Process and establish a permanent peace through a negotiated process. Those of you who come from conflict affected countries would understand the difficulties that my country faces from the ill effects of war. We are resolute in our efforts to achieve peace and thus create an environment conducive to sustainable economic growth and improved well being of our people. In this process, the role of the donor community in supporting the reconstruction and economic development as part of the Peace Process is greatly appreciated.

In all these efforts, we appreciate the support that we have been receiving from the international community, including the Bank and the Fund.

Statement by the Alternate Governor of the Fund for Switzerland

H. E. Hans-Rudolf Merz

I am pleased to address you, President Wolfensohn, Managing Director de Rato, Honorable Governors and distinguished Delegates, in the year of the 60^th anniversary of our two institutions. When the founders met in Bretton Woods, the world was still caught in the struggle of World War II. It took remarkable vision to devise the new financial order that should provide the wealth and standard of living we are now experiencing. Sixty years later, the Bretton Woods Institutions’ original mandates are still valid. Today’s challenge is to transform the Fund and the Bank into learning organizations that permit them to adapt to a constantly changing world, while allowing them to keep focussed on their mandates.

The background of our 60^th anniversary is very encouraging. The global economic outlook is better today than we would have expected a year ago, in fact better than in nearly three decades. Today we are experiencing a more and more broad-based recovery that is also increasingly well distributed across regions. The inflation outlook is still relatively benign and incipient gradual monetary tightening did not lead to adverse financial market reactions. Global financial stability has strengthened, with corporate, financial sector and household balance sheets generally strengthening.

While global growth has picked up, the down-side risks of increasing oil prices, emerging inflationary pressures and imbalances in both advanced and emerging market countries remain. However, the positive current outlook provides an excellent opportunity to move ahead with the unfinished agenda of fiscal and structural reform in most member countries. This is indispensable to sustain the recovery and ensure that it is also benefiting the poor. Every country must address its own shortcomings. While every country individually benefits from its reforms, it will also contribute to the adjustment of the significant global imbalances. Acting on the reform agenda today is all the more important, given the medium and long term challenges of aging populations.

The Fund and the Bank should support these efforts. They each have their role in assisting members in their reform efforts by providing advice to promote good policies, technical assistance to strengthen institutions and financing at appropriate terms to alleviate adjustment cost, and make the necessary investment in people and national systems of developing and transition countries.

For the Fund, surveillance remains the key instrument to assist members. Given the virtually universal country membership in the Fund, it should put to use its global expertise and draw from lessons from around the world, but nevertheless provide tailor-made country specific advice. I welcome the efforts to enhance effectiveness of surveillance by increasing the focus on each country’s specific vulnerabilities and highlighting the regional and global impact of each individual country’s economic policies.

Effective surveillance is also the best crisis prevention. In that context, the idea of a program without Fund resources for a country that does not want or need Fund resources, is appealing: A country may wish a sort of strengthened policy cooperation with the Fund to provide a clear signal of its sound policies. However, the Fund must be careful setting up such an arrangement’s design. Experience shows that the ability of an arrangement to provide that signal depends very much on its program requirements.

Yet, I do not think we need an additional instrument providing large amounts of precautionary funds to hedge against the possibility of a crisis. We have seen in the past that Fund membership provides ample insurance with readily available resources. I think, such an instrument is a diversion from the centrality of sound economic policies and it would tie resources of the Fund, thus weakening its financial position.

I warmly welcome the significant steps that the Bretton Woods Institutions have taken to further strengthen the effectiveness of their work in low-income countries. The Poverty Reduction Strategies have become the cornerstones of Bank and Fund support in the context of country-led efforts for poverty reduction.

Close cooperation between the World Bank and the IMF is crucial to achieve the Millennium Development Goals. In my view, the primary task of the IMF is to support low-income members through policy advice and capacity building in their efforts to implement sound macroeconomic policies. The IMF’s concessional resources are limited. Moreover, the core mandate of the Fund is of a monetary policy nature. Therefore, its role should not be to provide long-term development finance. Instead, its programs must be designed to maximize the catalytic impact on concessional financing from donors and private sector investment.

The World Bank has a key role in helping countries make more effective use of limited aid resources. It must help strengthen local institutions and systems so that donors can increasingly operate through country-based systems. It should also continue allocating its aid based on policy and institutional performance of recipient countries. At the end of the day, it is the developing countries themselves that have to take the lead to improve the effectiveness of aid, among other things by strengthening governance and fighting corruption.

Looking towards 2015, I note with some concern that many countries in particular in Sub-Saharan Africa continue to lag behind the schedule set to meet the MDGs. All stakeholders, developing and developed countries as well as the international organizations, must step up their efforts to achieve their commitments given in Monterrey. The focus on increasing the effectiveness of finite aid resources is critical, not only from an economic, but also from a political point of view. The credibility of the international community is at stake.

Switzerland is therefore ready to participate in the examination of alternative proposals to identify new and additional sources of financing. In this, we should be guided by the following principles. First, our efforts should be targeted at the poorest countries. Second, aid must, to the largest extent possible, be allocated based on performance. Third, we need to avoid creating new institutions or additional cumbersome procedures and conditionality. Fourth, we should avoid using instruments, such as transaction taxes whose distortionary effects on capital flows exceed their potential benefit.

With respect to the International Finance Facility, we recognize the opportunity provided by a facility that would allow to frontload aid. Yet, we remain concerned that global aid would experience a sharp drop following the maturity of the IFF. We believe that we should not borrow against future commitments. In addition, implementation constraints of national budgeting systems would have to be taken into account – which, in the case of Switzerland, would not allow participation.

Finally, we should not lose sight of the fact that the most straightforward approach rests in appropriately endowing the existing development vehicles. In this sense, we urge that the IDA-14 negotiations will be concluded in time, and with a policy and financial framework that allows it to play the role expected of it with respect to achieving the MDGs.

The most important source of development finance will not come from the public, but the private sector. Private sector investment is indispensable to create employment, generate revenues and promote growth. In the case of foreign direct investment, it also provides an important channel to transfer technology and know-how. The World Bank plays a key role in identifying and addressing the structural, regulatory and institutional changes required for private sector development to happen, while the IMF guarantees the necessary macro-economic framework and helps strengthen the financial systems.

Lastly, I am pleased with the joint work of the Bretton Woods Institutions on debt sustainability. While I support the extension of the sunset clause of the HIPC-Initiative, I regret that there still remain 11 countries that have not been able to meet the criteria for debt relief under the Initiative. Looking forward, we must make sure that the countries that have benefited from a substantial reduction of their external debt will not fall back into a situation of unsustainable debt. Therefore, I support the forward-looking framework for debt sustainability in low-income countries presented by the Bank and the Fund. Some important methodological issues remain, including the need of full collaboration between the Bank and the Fund in preparing debt sustainability analyses. This is an urgent matter since the framework is key for a timely completion of IDA14. We will therefore monitor further work carefully.

I closing, I would like to thank the staffs of both the Bank and the Fund for their contributions towards a prosperous, financially stable world without poverty.

Statement by the Governor of the Bank for Thailand

Virachai Virameteekul

Mr. Chairman, President Wolfensohn, Managing Director de Rato, Fellow Governors, Distinguished Delegates, Ladies and Gentlemen, on behalf of the government of Thailand, let me first join others in thanking the World Bank, the IMF and the United States’ authorities for their warm hospitality and the perfectly organized Meeting of the Board of Governors. I also would like to welcome Mr. Rodrigo de Rato y Figaredo as the new Managing Director and is looking forward to work with his new leadership in increasing the voices of developing countries as well as improving the governance system.

Mr. Chairman, the faces of the world have changed dramatically since the meeting in Dubai. Global prospect is now challenged by the rising energy prices and interest rates as well as threats of terrorism. As always, these challenges would be overcome if we work together as one people, each doing its own part. There are still exciting times ahead.

Mr. Chairman, Thailand is on the move, with all major agencies upgrading our sovereign rating. The World Economic Forum places Thailand among the top ten from more than 100 countries in the macroeconomic stability index.

The state of our economy is strong, and strong in every indicator. Our growth rate is recorded at 6.8 percent in 2003, and is expected to continue into 2004. Inflation remains within target. Foreign reserves have risen to 43 billion US$. The Thai Baht is stable, and becoming a trade currency in our prospering neighbors.

Things have improved so much that we now have a balanced budget for the first time in contemporary history. This is a balanced budget that does not lose sight of its balance. A balance between fiscal consolidation and our values towards building a better future for all.

The policy blueprint for the next five years is now clearly laid out in the Economic and Social Sustainability Framework. This Framework entails, for example, an annual GDP growth over 6% and unemployment below 2%, keeps foreign reserves at least 3.5 times short-term foreign debt, maintains a balanced budget and reduces public debt to 35% of GDP.

Mr. Chairman, Thailand welcomes the recent outcome in the WTO, where progress is made on agriculture, the main source of income for the poor. The richest countries need to be reminded that only fair trade can provide a sustainable exit from poverty.

So there are to be new responsibilities for the richest countries to stop trade-distorting export subsidies, and to stop them completely under an agreed-upon timeframe. There should be no turning back.

Thailand appreciates the UN plan to raise an additional 50 billion US$ a year for development aid. However, we need to do more if we are to succeed in our fight against global hunger. It is disappointing to note that the Millennium Development Goals of halving world poverty by 2015 would not be achieved. This is the one time we should do more than giving a statement.

The world should not come together to make this promise of historic significance, and then to break it. What we are going to do with it will test the character of our generations. This is the ultimate challenge of our time.

On our part, Thailand has been active in regional development through various activities under the Greater Mekong Sub-region (GMS) framework as well as the framework of Economic Cooperation Strategy (ECS). Such cooperation is expected not only to bring millions out of poverty but also facilitate deeper economic integration within the region. The establishment of an ADB resident mission in Bangkok confirms the increasing role of Thailand in the region.

Mr. Chairman, on this note, Thailand would like to express our support for the Bank proposal in trying to increase the voices of the developing countries and urge the Bank to step up its efforts while taking into consideration the limited resources of developing countries.

On the Fund matters, Thailand joins other developing and emerging market countries in the urge for concrete reforms in the way the Fund is being governed. The Fund needs to ensure its commitment to increase the voice and participation of developing countries by expediting the 13^th quota review. In accordance with a more transparent governance structure, the Fund needs also to institutionalize the selection process of the Managing Director. This is the only way to go forward in the world, where freedom is on the march and democracy is flourishing.

Mr. Chairman, in conclusion, Thailand recognizes the importance of the Bank and the Fund work. Let us show that world economic growth is not an end in itself. Let us use our material prosperity, abundant more than ever, to build a foundation where the strong are just and the less strong are fairly treated. Let us join hands to write the next chapter of our future. Together. As One.

Statement by the Governor of the Bank for Tonga

Siosiua T.T. ‘Utoikamanu

Mr. Chairman, Managing Director de Rato, President Wolfensohn, Fellow Governors, Distinguished Delegates, Ladies and Gentlemen, it is an honor to attend the Annual Meetings of the Board of Governors of the International Monetary Fund and World Bank Group for 2004 on behalf of the Government of the Kingdom of Tonga. I would like to begin, by congratulating and welcoming Mr. Rodrigo de Rato to this annual meeting in his capacity as Managing Director of the IMF.

Although recent global economic growth remains strong not all regions have benefited. Some countries, such as those in the Caribbean, remain adversely affected by depressed tourism earnings, and by the most damaging hurricane season in many years while the growth prospects in Sub Saharan Africa appear unlikely to be sufficient for these countries to achieve the Millennium Development Goals.

It is important for policy makers to take appropriate action to sustain the current global economic recovery. These actions include addressing the fiscal and balance of payments imbalances in the US while implementing structural reforms to sustain stronger growth in Japan and the euro area. Developing countries policy makers ought to continue to implement policies needed to promote faster growth and poverty reduction and to improve the environment for domestic and foreign direct investment, supported by increased external resources. Furthermore, all countries need to work together to maintain stability in the international oil market with prices consistent with long term growth and at the same time making rapid and substantial progress in agreeing and implementing the Doha Development Agenda, in particular on agricultural trade liberalization.

On credit arrangements, the efforts of the Fund to explore precautionary credit arrangements that include minimization of risks to the Fund’s liquidity, debtor and creditor behavior are supported. The issue of representation at the Board calls for consideration of an appropriate revision of present quotas to ensure that the formula, variables and weights reflect positions representative of many countries profile in the world economy.

Furthermore, the Fund’s strategy of remaining engaged with its low-income country members, and its recognition that in many cases their economic problems are deep seated, and require many years of successful macro-policy implementation to address, is particularly welcomed. We also support the forthcoming Fund review of its conditionality guidelines and at the same time, we encourage the Fund to further develop its capacity to support country-led intensive surveillance for those countries desiring enhanced Fund surveillance without the need for them to seek more Fund borrowing.

The work to date of the Bank in terms of enhancing the participation of developing countries in the decision making of the institution by separating the issues into administrative issues and structural issues is supported, as this will strengthen the capacity of developing countries to interact with the Bank. We hope that these changes will benefit small member countries like Tonga and we support further initiatives that the Bank will take to assist in strengthening our capacity for effective interaction.

We support the efforts being made towards a successful outcome of the 14^th IDA Replenishment, as it continues to focus on helping developing countries to meet social and economic challenges, especially small island states which are vulnerable to frequent natural calamities and other external shocks.

Moreover, the Bank’s efforts to improve the process of assessing the performance ratings of IDA eligible countries are supported especially through the use of transparent processes that ensure that members are fully involved and consulted throughout all stages of the process.

The Bank’s regional office has been proactive in consulting the Pacific member countries in the preparation of the Regional Country Assistance Strategy and we commend the Bank’s work in this respect. We express our gratitude to the Bank for its continued assistance to Tonga through providing credit lines and technical assistance.

Overall, the two Bretton Wood Institutions continue to be valued partners in Tonga’s efforts to address the challenges of poverty and ensuring that essential services are made available to its citizens. Moreover, the Government of Tonga continues to take necessary steps to pursue its reform objectives, clearly recognizing that the most appropriate policies ought to be based on a market-based, outward-oriented private sector led growth. Tonga’s reform program to date includes structural changes to the public service to achieve higher levels of efficiency and measures to enhance the strengthening of regulatory and supervisory skills and operational systems. Despite the progress made, the challenges of a lower than expected GDP growth, high inflation and fragile external and fiscal accounts remain. These economic indicators reflect the vulnerabilities and activities in the agriculture, tourism, transportation and construction sectors of the economy.

Finally, we would like to acknowledge with appreciation the technical and financial assistance that both institutions have provided to the government and people of Tonga. The assistance continues to improve the standard of living of our people and we look forward to a continued partnership for the future. May I conclude by wishing the Bank and the Fund continued success in resolving the difficult challenges that lie ahead.

Statement by the Governor of the Fund for Turkey

Ali Babacan

Mr. Chairman, Mr. President, Mr. Managing Director, distinguished Governors, Ladies and Gentlemen, I am pleased and honored to have the opportunity to address these 2004 Joint Annual Meetings of the World Bank Group and the International Monetary Fund which mark the 60^th anniversary of these institutions. On this occasion, I would like to express our thanks to the Managing Director of the IMF and the President of the World Bank for their efforts, and the wisdom they have shown in leading these important institutions in this era of uncertainties, complexities, and challenges.

2004 has been a good year despite higher than projected oil prices. The global economy is experiencing the fastest growth in several decades, the volume of world trade has picked up and private capital flows to emerging markets remain strong.

However, there are also important risks that we should be aware of. Namely; the recent developments in oil prices; transition to higher interest rate environment; fiscal deficits and high public debt of both developing and developed countries and persistence of large global external imbalances.

I would particularly emphasize that transition to higher interest rates in mature markets should be managed skillfully, not only in the interest of financial stability in those markets themselves but also to avoid financing difficulties for emerging markets. At the same time, the emerging market countries should strengthen their fundamentals to limit the negative impact of such a transition to a higher interest rate environment. Turkey, as an emerging market country, is implementing a strong economic program to reduce its vulnerabilities.

I also would like to discuss some development issues. It seems that with the current level of Official Development Assistance (ODA), most countries will not achieve the Millennium Development Goals (MDGs) by 2015. Therefore, we welcome the efforts that are being made to move forward with a new aid framework designed to emphasize the fight against poverty and achieve improvement in the living conditions in the less developed countries.

Ensuring sustained growth is the most essential requirement for lasting poverty reduction. I would like, therefore, to stress the importance of multilateral trade liberalization. We also welcome the additional technical and financial assistance being provided by the Bretton Woods institutions to developing countries to promote capacity building.

A sound investment climate and adequate level of infrastructure are crucial for private sector led economic growth and sustained poverty reduction and hence for the achievement of the Millennium Development Goals. Good governance and anti-corruption measures are essential for stimulating domestic investment and attracting foreign direct investment. We urge the World Bank Group to continue to further develop and apply instruments for risk mitigation in the developing countries to encourage foreign direct investment.

Enhancing the voice and participation of developing and transition economies in the World Bank is extremely important not only to make sure that the position of all members of the Bank is properly expressed, but also to preserve the Bank’s basic principle of representation and to improve the effectiveness of the Board. Better communication between the Bank and the stakeholders about the projects financed by the Bank is also important to enhance country ownership of Bank operations. In this context we also favor higher representation of developing country nationals in senior management level of the Fund and the Bank to enhance the voice of these countries as a group.

Finally, I would like to mention briefly recent developments in Turkey and prospects for the Turkish economy. Our government has made great progress on the economic front. Growth is strong, inflation is coming down and interest rates are declining. The growth is expected to significantly surpass the end year target of 5 % as inflation keeps falling down. As a strong sign of our prudent policies, we increased the public sector primary surplus to more than 6 percent of GNP in 2003, the highest ever recorded in Turkey. Moreover, we are confident that we will meet and even exceed this year’s target of 6.5 percent.

We have enacted comprehensive structural reforms in the fiscal, monetary and financial sectors. We shall continue our efforts on this front, including fighting against the informal sector, improving tax policy and tax administration, reforming the social security system and rapid privatization. Lowering unemployment, bringing inflation closer to EU levels, maintaining a strong fiscal stance, and improving the investment climate will be our priorities in the coming years.

We will also continue close cooperation with the Fund and the Bank. We believe that the new economic program that we are finalizing will be supported by the International Monetary Fund and the World Bank. It is designed to meet the Maastricht criteria and to start accession talks with the European Union which will open a window of opportunity for Turkey to usher in an era of sustained high growth, low inflation and declining unemployment and poverty along with increasing credibility in world financial markets.

Statement by the Governor of the Fund for Ukraine

Arseniy Yatsenuk

While appreciating the efforts undertaken by the meetings’ organizers and the host country to counteract potential security issues, Ukraine believes that the Annual Meetings should ideally be conducted in a normal and usual format.

The world economy, trade; and the state of financial markets can be characterized by rather positive current trends, although not without some risks for oil importers and heavily indebted countries. Countries depending to a significant extent on external demand for their products and services are very much interested in a better assessment of the sustainability of these current positive trends. Ukraine, for example, was able to almost double its exports in just three years. This to a large extent is the result of the implementation of our reform agenda, of successful trade diversification, but it also reflects our increased interaction with and interdependence on the rest of the world. We are now closely watching developments in some regions which are not even our major trading partners, but which are nevertheless important trading partners of our export destinations.

We therefore appreciate additional research and recommendations on how the international community and different groups of countries can better deal with abrupt changes in global demand. The volatility of capital flows and of international trade (from zero growth only 3 years ago to an expected 8-9 percent this year) confirms that IMF surveillance should not discount the importance of the volatility of current receipts and capital flows. Discussions about new Fund quota formulas should also take external openness and variability of trade and capital flows into account.

As it seems, the current account surpluses of developing and emerging market economies should be explained not only through the angle of the levels of their exchange rates, or exchange rate misalignments and/or fiscal challenges of major industrialized nations, but also as a possible result of some more fundamental changes in the world economy. We appreciate more attention to these longer term fundamental challenges, including global changes in the division of labor, demographic trends, challenges to health and pension systems which may be affecting competitiveness and capital flows. We would also appreciate more attention to the emergence of a few new major producers and consumers of the world’s output, and better surveillance of regional and sectoral interdependencies.

Further progress in trade negotiations also seems essential for smoothing excessive global cyclicality. We hope the IFIs will contribute to the success of multilateral trade liberalization by providing more substantial and timely temporary financial assistance and advice on how to deal with the immediate effects of liberalization of the previously protected sectors.

Work on capital markets may concentrate more on providing insights into why current trends are happening, and how to anticipate the likely changes in global financial flows and instruments. The official sector will benefit from recommendations on how to better react to the reemergence of national and global market participants willing to take on more risks. Addressing existing gaps in regulations of the financial sector may also need to be better tailored to the levels of development of the national capital markets and financial systems. Instruments that help to diversify risk in a more developed market may contribute to concentrating risk in a less developed environment.

It is rather discouraging to note that not all regions of the world are on track in meeting the major Millennium Development Goals. IFIs may contribute to faster progress by preparing non-politicized professional assessments of national poverty reduction strategies and by providing different scenarios of various mixes of adjustment and financing. This menu of options and of policy mixes may help the national authorities and donors to make better choices. To this end, the promoted intensified nonfinancial engagement of the Fund, be it some new form of monitoring, or a precautionary PRGF, may eventually prove to be a suboptimal instrument for improving the prospects of low-income countries in attracting necessary inflows of aid and investment. Addressing infrastructural gaps, inadequacies of health and educational systems, and developing more modern public administration in low-income countries require not only macroeconomic prudence, but substantial and well-targeted technical assistance and financing.

We have been learning by doing -- that growth is essential for lasting poverty reduction. A good investment climate is vital for sustained growth and productive employment creation. We very much welcome this year’s discussion on the topic of “Elements of the Growth Agenda: Investment Climate and Infrastructure.” Developing this topic further and addressing outstanding issues requires more careful analysis of developing and transition countries’ experiences. We acknowledge that perspectives on what best influences growth have become more nuanced with additional experiences and policy experimentation. We would like to encourage the World Bank to strengthen their specific capacity building initiatives and knowledge transfer programs used to assist countries interested in improving their investment climate.

IFIs may also contribute to the progress of low and medium income countries by more systematically making available the accumulated positive experience of other countries. Greater accountability of the IFIs for the quality of their advice to member countries can be enhanced. One of the venues for such enhancement – wider dissemination of the experience of other countries, which followed similar advice, as well as more systemic integration of the research and self evaluation work done by IFIs into their operations. Organizing more conferences, workshops and using other dissemination vehicles could be considered. It is being done in a rather effective way, for example, in spreading the best practices in implementing various Standards and Codes.

Ukraine continues to demonstrate rather impressive economic performance: the economy is expected to grow by over 12 percent this year. The average annual growth rate since 2000 has been 8.4 percent under a reasonable single digit inflation. Public debt to GDP ratio decreased from 48 percent in 2000 to 27 percent today, debt service as a share of exports is below 5 percent.

We are currently paying substantial attention to preventing overheating of the economy, strengthening our financial sector, further reforming the tax system, enforcing anti-monopoly policies, and improving our pension system. The business climate has improved and this is reflected in a very substantial increase in domestic investment and overall factor productivity.

The current account has recently demonstrated healthy surpluses, our international reserves have also substantially increased to about 12 billion dollars, while we feel that global uncertainties warrant building additional buffers against future contingencies.

The government in partnership with private sector entities, is working on improving the transportation infrastructure, and activating the research and development capabilities in order to move to an economic model based predominantly on knowledge and innovation. After almost a decade of output collapse, our industrial capacity in many sectors is still used to quite an insufficient extent.

The introduction of a reasonable 13% flat income tax rate, simplified taxation of small businesses, combined with pension reform and a reduction by 10% in the enterprise profit tax rate, accompanied by some widening of the tax base, and recent improvements in tax administration have all helped to reduce the size of the unofficial economy, although its share still remains excessively high.

Addressing our developmental bottlenecks requires primarily more structural reforms, especially in the areas of public finances and the enterprise sector, where there is a need for introducing greater transparency and improved protection of the minority shareholders’ rights. Among our priorities are also reducing red tape, more efficient bankruptcy proceedings, reform of the judiciary, and further progress and in increasing the efficiency of the services provided by the public sector.

Statement by the Governor of the Fund for the United States

John W. Snow

Good morning, and welcome to Washington. Thank you Chairman, Mr. Wolfensohn, Mr. Rato.

Each year, we gather to review the state of the world economy and discuss how to carry forward our shared mission of promoting growth and stability, advancing development, and improving the lives of all our peoples. Today, we meet at a time when global growth is stronger than it has been in three decades -- a time that gives us the opportunity and the obligation - to build on what has been accomplished. We cannot be complacent - too many people depend on us. We must do all we can to ensure that all people can enjoy the benefits that come from sound economic policy.

The U.S. economy has been an strong engine of growth in the global economy, so I am pleased to report that the U.S. economy is on a very positive path. Although growth slowed slightly in the second quarter this year, real GDP was up more than 4 ½ percent over the past year. Capital spending has risen at a double digit pace over the last year. Manufacturing output is strong. And the economy has now added more than 1.7 million jobs over the last year. This recovery didn’t occur by accident. It occurred because the U.S. economy is open, dynamic and flexible, and because of the implementation of sound fiscal and monetary policy -- including implementation of President Bush’s Jobs and Growth Plan.

U.S. economic fundamentals are sound: productivity growth continues; inflation remains modest; interest rates remain low; and job creation is continuing. And at a little over 3.5 percent of GDP in the current fiscal year, the federal deficit remains low compared to the levels in the 1980s and 1990s. But deficits are always too high and so we expect to reach the President’s goal of cutting the deficit in half over the next five years.

In the global economy, we still want to see growth be more broad-based. The G-7 countries are working to increase economic potential through their commitment to structural policy reforms under the Agenda for Growth. We are already seeing results from this effort. For our part, President Bush has introduced a plan to make tax cuts permanent, make health care costs more affordable and predictable, reduce the lawsuit burden on the economy, ensure an affordable and reliable energy supply, and streamline regulations and reporting requirements. Other G7 countries are implementing reforms appropriate to their own economic conditions.

The international financial institutions are vital agents in delivering the resources and advice necessary to achieve broad-based growth and raising living standards. It is a key priority of President Bush that the institutions are focused and prepared to achieve these goals. President Bush’s delivered this message, and innovative proposals, when addressed the World Bank in the summer of 2001. I am proud to have worked with our fellow shareholders and the leaders of the IMF and World Bank to achieve an important policy shift in the institutions - bringing tighter focus, more predictability and transparency, and greater emphasis on delivering measurable results.

Specific changes - including greater use of grants instead of loans to the poorest countries, the introduction of limits for exceptional access to the IMF’s financial resources, and the advent of collective action clauses as the market standard in sovereign external bond issues - are already making a tremendous difference in individual countries and the system as a whole.

The successes we have had together thus far should inspire and embolden us to extend our drive for reform. We all know that we must continually strive for excellence at the IMF and World Bank so that they can work more effectively in the modern global economy. I hope we can work together to make it happen.

In my view, there are several particularly key areas for reform.

In addition to strengthening the analysis and advice provided all members, I support introduction of a new tool facilitating the active policy engagement of the IMF with countries that seek such a relationship but do not need financial support. Such a policy monitoring arrangement should serve to increase the emphasis on countries’ own policy programs and maintain a high standard for reforms.

The World Bank must maintain its focus on areas critical to economic growth and poverty reduction. Greater priority on the private sector, particularly small and medium-sized enterprises is important. Good progress has been made in introducing results-based programs; these tools need to be more fully integrated within the World Bank and other development banks to help us measure and learn from successes.

Finally, President Bush and the G-8 Leaders in Sea Island reiterated a strong commitment to the HIPC initiative and to helping the heavily indebted poor countries achieve sustainability. We must do more to prevent the build-up of unsustainable debts in poor countries. Increased reliance on grants is an important first step. But we need to do more to put these countries on a path to the future. Employing both grants and debt relief together would give the poorest countries a chance to reach their international development goals of the Millennium Declaration without adding to debt burdens. I am working with my colleagues in the G7 and other donors, with the institutions, and with recipient countries to achieve a consensus on the best way to solve the debt sustainability problem and ensure that our reforms only result in greater, not fewer, resources to poor countries.

I hope that we can all work together - shareholders, donors, and institutions - to succeed in achieving these goals.

Statement by the Governor of the Fund for Vietnam

Le Duc Thuy

Mr. Chairman, fellow Governors and Delegates, first of all, on behalf of the delegation from the Socialist Republic of Vietnam, I would like to express our warmest congratulation to the Chairman for being selected to chair the Annual Meetings of the International Monetary Fund and World Bank Group this year. It is our high appreciation to these two leading international financial institutions of their recent efforts in supporting member countries to ensure financial stability, sustainable growth and poverty reduction. Also on this occasion, may I send a special congratulation to Mr. Rodrigo de Rato as these are the first Annual Meetings Mr. de Rato has attended as Managing Director of the IMF.

In retrospection of the two institutions’ activities last year, apart from general efforts in improving and strengthening international financial systems, the IMF and the WB have also focused on supporting developing countries, particularly the poor in order to facilitate growth and poverty reduction and strengthen their debt sustainability. While the WB concentrates on such areas as strengthening the financial support to developing countries for the purposes of infrastructure development, creating more favorable investment environments and reinforcing supports to poor countries, the IMF has strengthened its surveillance as a contribution to international community’s efforts in preventing crises, strengthening financial stability and fostering high and sustainable growth.

Ladies and Gentlemen, since the last Annual Meetings, the global economy has experienced a fundamental recovery, evidenced by significant improvements in many aspects such as stronger reforms and poverty reduction in developing countries, substantial growth in trade and industrial production, and sharp, though unstable, increase in international capital flows. The world economy, however, is facing with certain risks such as potential terrorist dangers, unresolved and unpredictable political instability, irregular movements of hard currencies, and large increases in prices of crude oil and some raw materials, etc. Moreover, the recovery is uneven across countries, which makes it much more challenging to reach the Millennium Development Goals and to maintain sustainable poverty reduction. Nevertheless, it is hoped that the expected promising economic outlook for the near future will create favorable conditions for strengthening the policies which aim at addressing the macroeconomic imbalances and the vulnerability of the banking and financial system, and deepening structural reforms to promptly improve the investment environment.

In the overall picture of the global economy, Asia-Pacific is recognized to be the region which achieves the highest and most stable economic growth in the world. Despite difficulties resulted from oil price hikes following the Middle East region chaos, and the SARS epidemic, Asian-Pacific as a whole still has its growth rate reached 6.3% in 2003 and expected to reach 5.8% between 2004 and 2008, higher than that of any other region.

Ladies and Gentlemen, right from the beginning of 2004, the implementation of Vietnam’s socio-economic development goals has faced with many challenges such as the avian flu, the unfavorable natural conditions, and the sharp increases in prices of certain raw materials and consumption basic necessities, which induced inflation to accelerate in the first months of the year and slightly mitigated the first quarter growth rate. Nevertheless, real GDP growth rate for the year is projected to be at 7.5 percent or higher. The current account registered a deficit but at a controllable level, and export-import activities showed positively developments, with exports in the first eight months being projected to increase by 25.7% from the same period last year. International donors and investors are of the view that in Asia, Vietnam is among those countries that have developed favorable business environment, thanks to the Government’s efforts in improving the investment environment for all economic sectors. Donors continue to support the reform program in Vietnam and assist the Government’s efforts in accelerating growth and fighting against poverty, specifically in implementing the Comprehensive Poverty Reduction and Growth Strategy (CPRGS, the name of the Vietnamese PRSP). Also, the Government of Vietnam is determined to accelerate trade reforms and continues its efforts in negotiating to access WTO in 2005.

In order to fulfill the socio-economic development tasks set for this challenging year, the Government of Vietnam has initiated major solutions, including the continued focus of effort on stronger improvement of business environment, more enhancement of investment efficiency, higher progress in external economic development, pushing up the preparation for WTO accession, and strengthening the administrative reform program. In facing with the accelerating inflation in the first months of the year due to exogenous factors, the Government of Vietnam has prioritized the task of stabilizing the macroeconomic environment in order to facilitate the sustainable growth of the economy.

I am convinced that, with the utmost determination and efforts by the Government and people of Vietnam, and the continued support from international community including the International Monetary Fund and the World Bank, our country will overcome the challenges ahead to successfully achieve the objectives set forth for 2004, therefore, creating a firm momentum for a faster and steady development in 2005, the final year in the 5- year program for 2001-2005.

Finally, I would like to wish all the delegates good health and success, and wish the 59^th Annual Meetings a successful accomplishment.

Concluding Remarks by the Chairman of the Executive Board and Managing Director of the International Monetary Fund

Rodrigo de Rato y Figaredo

Mr. Chairman, Governors, Honored Guests: We have come to the end of very productive discussions. I want to thank the staff for their excellent work. I am grateful to our hosts, the District of Columbia, the citizens of the city, and the U.S. Government, for their hospitality and the security arrangements they have provided. Minister Lim, thank you for your able chairmanship of today’s meeting.

We all know that the global economy is having a good year. The prospects for next year remain bright, though oil prices have added significantly to downside risks. Several governors noted that the high oil prices have strained their balance of payments positions. The Fund is ready to help countries cope with this adversity. We will continue to monitor carefully developments in oil markets and their effects on our members. IMF surveillance can and must also play a critical role in encouraging members to adopt policies that will deliver sustained growth.

We have agreed that, with the recovery well-established in most countries, monetary and fiscal policies must return to a neutral stance. Moreover, countries must take advantage of the recovery to tackle challenges to sustained growth.

There will be much greater economic security in the years ahead if members take policy actions now to confront a number of challenges. One is the need to reduce global current account imbalances which requires policy actions from many countries. As Gordon Brown said, “All share responsibility, and stand to benefit, in redressing these imbalances.”

Another challenge, as governors noted, is that of fiscal consolidation. In many emerging markets and developing countries, public debt needs to brought back to safer levels. And many countries, industrialized and developing, have to address the fiscal pressures from the aging of their populations.

During its regular consultations with countries, and through its regional and multilateral surveillance, the Fund will continue to push for implementation of policies that would help countries surmount these challenges. I am pleased that governors have embraced transparency as a way of increasing the effectiveness of Fund surveillance. As Mr. Liikanen, the Governor for Finland, stated, IMF surveillance is a means to achieving “shared economic security.”

We are united in our desire to achieve the Millennium Development Goals and in our assessment that more aid is needed to achieve them. Many innovative schemes to increase aid, including deeper debt relief, have been floated at these meetings. These discussions are much needed and welcome. We should work towards proposals that are not only technically sound, but also command a political consensus. At the same time, developed countries should increase their aid through more traditional sources, that is by increasing their official development assistance to meet the commitments made in Monterrey.

We are agreed that a commitment to a multilateral trading system is central to sustained growth. Again, an increased political commitment is essential to bring the Doha Round to a successful close.

Increased aid and trade will undoubtedly help low-income countries. But what will help more than anything else are countries’ own efforts. I take great encouragement from governors’ statements that national ownership remains the foundation of successful poverty reduction strategies. And it is heartening to note from governors’ statements the strong performance of many countries—Bulgaria, Croatia, Turkey, Vietnam, to name just a few. I have no doubt that this strong performance—and the general resilience of the global economy—comes from progress over the past decade in adopting responsible macroeconomic frameworks and improving institutions.

Many governors were disappointed by the lack of progress in deciding how to change quotas and voting rights of member countries to reflect the evolution of the world economy. I believe that this is an important issue and the membership should address it by continuing to seek a political consensus.

Governors: I am grateful for the good wishes and expression of support that all of you have extended to me. I look forward to reviewing progress on the matters we have discussed today at our meeting next year.

Concluding Remarks by the Chairman of the Boards of Governors and the Governor of the Fund and the Bank for Singapore

Lim Hng Kiang

My fellow Governors, we have almost come to the end of the 2004 Annual Meetings. We made very good progress this year. We addressed critical global economic issues and established an important work agenda in coming months. But before we conclude, allow me to recapitulate some of the key themes that emerged over the weekend.

First, we agreed that the global economy is set for a broad-based expansion this year. Accommodative monetary and fiscal policies have helped us to achieve this recovery. It is now time for many countries to manage the transition toward more neutral interest rate levels, which will help to ensure that inflationary pressures remain moderate. In addition, fiscal deficits—where they exist—should be consolidated during the global upswing, and it is important for countries to achieve this in the context of clear medium-term fiscal frameworks. The upcoming period of strong growth will also provide an opportunity to enact structural reforms that will make our economies more efficient, flexible, and productive. We should ensure broad ownership of these reforms, reminding ourselves that stronger growth will benefit everyone.

Second, we discussed the important effects of oil price volatility, and the risks that this can pose to the global outlook in the near term and beyond. Governors agreed that producers and consumers should endeavor to cooperate to promote stability in the oil market, including through dialogue to increase transparency in that market. Suppliers should make efforts to meet rising demand, while many oil-importing countries may wish to find policies aimed at promoting more sustainable use of energy.

Third, we discussed the fight against global poverty and the efforts to make progress toward the Millennium Development Goals. We agreed that there are some important ways to make aid more effective. While developing countries must improve their policy environments, the more advanced countries should provide the necessary support for the developing countries, including technical advice, concessional financing assistance, and increased market access. Governors welcomed the progress in discussions on granting comprehensive debt relief to some low-income countries that commit themselves to maintaining strong policies. Governors also noted the importance of recent decisions to extend the HIPC Initiative for two more years.

Fourth, on trade, we welcomed the important progress that has been made under the Doha Development round. The greater flexibility and spirit of cooperation of all parties in these negotiations led to the agreement in July on the World Trade Organization’s framework for achieving timely implementation of liberalization measures. We look forward to a successful conclusion of the Doha Round. Multilateral trade liberalization has been a key driver of growth in the last sixty years, and it will continue to be a cornerstone for promoting global prosperity.

Finally, Governors emphasized the need for the IMF and the World Bank to be adaptable and forward-looking to ensure that their support for member countries remains in step with the fast-changing global economic and financial environment.

My fellow Governors, I would like to conclude the 2004 Annual Meetings by thanking all of you for your valuable support. I commend Mr. Wolfensohn for his continued admirable stewardship of the World Bank, and I would like to welcome Mr. de Rato to his leadership position at the IMF, and thank him for the efforts he has already made to promote a listening culture at the Fund. I would also like to praise the commitment of the staffs of the two institutions for their expertise and hard work. We also extend deep appreciation to Mr. Anjaria and Mr. Ofosu-Amaah; to Mr. Bernes, in his capacity as Executive Secretary to the Development Committee; and to the staff of the Joint Secretariat, particularly Ms. Patricia Davies, for their excellent arrangements for these meetings. I am also very grateful to the staff assigned to me in the Office of the Chairman. Thank you, as well, to the U.S. authorities, who have hosted this conference, and shared their warm hospitality and tireless efforts. We are also grateful to the security officials of the IMF and the World Bank, and the various law enforcement agencies that have ensured our safety at this important event. Finally, I would like to share that we in Singapore are already working diligently to plan for the Annual Meetings in our country in 2006. We hope to be a good host for the 2006 Annual Meetings.

Fellow Governors, it has been a great honor for me to serve as Chairman of the Annual Meetings of the Board of Governors of the IMF and World Bank Group. I would like to congratulate the Finance Minister of the Democratic Republic of Congo, who succeeds me as Chairman of the Annual Meetings, and I thank him for the kind words that he has just extended to me. This concludes the 2004 Annual Meetings. I wish everyone safe travels home, and we look forward to meeting again next year in Washington, D.C.