FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you all for being here. Let me start by saying how grateful we are to the many committed NGOs and others in the development community who have kept debt relief high on the international agenda this year and helped generate the political will for action. I know that not everyone is entirely satisfied with the outcome reached in Cologne. But I think we can all agree it represents a major step forward, with enormous potential for helping the worlds poor. Quite simply, it would not have happened without the work of the people in this room.

I'd like to say a few words today about the United States approach to the Cologne initiative, our goals for the Annual Meetings and some of the critical questions we face going forward.

I. An Enhanced Framework for Poverty Reduction: the United States Approach

When we set out to change the way that the world approached the question of debt relief for the Heavily Indebted Poor Countries (HIPCs), we faced three critical imperatives:

• First, a reassessment of the right scale of relief for these countries.
  
• Second, an appropriate way to finance this relief that would win broad international acceptance.
  
• Third, a major change in the way that the IFIs approach questions of poverty reduction and sustainable human development, and in how they target their assistance to those goals.

We are working toward an agreement on all three of these by the Annual Meetings of the World Bank and International Monetary Fund in late September. As you know, the question of financing raises some difficult issues. Nonetheless, I am confident that working together, we can find a way to do this in a way that can command broad support.

What we must all remember is that debt relief however it is financed is not an end in itself. It is a means to a more ultimate objective: a successful development process for countries where today children are more likely to be malnourished than go to secondary school, and where more than forty percent of the population lacks access to clean water.

• That process can only work in the context of the right national policies macro- and micro-economic and with the right institutions and practices.
  
• And it can only work in the context of the right kind of support from the international community.

How we can best help to put these things in place in the least developed countries must and will be the critical issues on the agenda at the Annual Meetings.

No one, but no one, can be satisfied with the status quo, at a time when:

• Sub-Saharan Africa's per capita income is today somewhat lower than it was in 1980, and close to three-quarters of Africans private wealth is estimated to be overseas.
  
• Only two HIPCs have achieved per capita growth of more than 2 percent a year since 1980 and three-quarters of these countries spend more on debt service each year than they do on basic health programs.
  
• The combined GNP of the 41 HIPCs and their 550 million people is today somewhat less than the net worth of the world's 3 richest people.

Our goal for those meetings is to reach agreement on a new, reformed approach to the IMF and World Bank's support for the poorest countries, centered around five core elements:

• First, a more integrated approach to economic adjustment that puts growth, the reduction of poverty and good governance front and center in the design of programs, and provides strengthened protection of core social priorities in macro-economic programs.
  
• Second, a new mechanism to ensure that the cash benefits of debt relief flow directly and reliably into increased national efforts to combat poverty, invest in people and combat particular looming threats such as AIDS and environmental degradation.
  
• Third, more explicit recognition of the critical importance of transparent policy-making, good governance and effective anti-corruption efforts to any successful development program.
  
• Fourth, a greater emphasis on building national ownership of policies and programs that are backed by official international assistance, with concrete steps to broaden participation and popular understanding of program principles and goals
  
• Fifth, a transformed IMF Enhanced Structural Adjustment Facility (ESAF) and stepped-up reform efforts at both the IMF and the World Bank to strengthen their capacity to support poverty reduction and long-term growth. This must include a reconsideration of the way the two institutions work together in the provision of official support to these countries.

These goals are ambitious. But we do not start from a blank canvas. As you know, reform efforts in support of many, if not all, of these goals are already under way at the IMF, notably in response to the internal and external reviews of ESAF and at the World Bank. Indeed, we believe that the World Bank's proposal for a Comprehensive Development Framework that countries would develop themselves in collaboration with the IFIs and the broader donor community captures several of the key ideas behind this reform effort and provides the international community with a promising place to start.

What is important now is that we take the extra momentum that the Cologne commitments afford to strengthen and accelerate these efforts and integrate them into a single package by the fall. We believe that the international community ought to reach agreement on such a package at the Annual Meetings.

II. Core Questions for Debate

We need all of us to work together to find the best approach to these issues and I hope that today's conference will make an important contribution to that.

We all know that these debates have been around a long time and that there are no simple solutions. I will not prejudge these issues here today. Let me just leave you with three of the most difficult questions we must address as we go forward:

First, how are we going to balance the desire to target international assistance including debt relief more effectively to policies, against the need to give the recipients of official support a greater sense of ownership and participation in the programs they put in place?

• Dollar and Burnside's research has shown us conclusively that international assistance that is not targeted to countries with effective policies for achieving growth and poverty reduction does more harm than good. And the tendency for hope to triumph over experience in this context appears to be strong indeed.
  
• At the same time, their research points up just as strongly that outside support for policies and programs however well-crafted in principle will not work in practice if the governments and the citizens of these countries feel that they have been imposed on them and they do not have a sense of ownership over the outcome.
  

Second, and related, how are we to balance the overwhelming desire to ensure that countries enjoy the direct cashflow benefits of the enhanced HIPC initiative as fast as possible, against the equally strong desire to ensure that those benefits are only channeled into programs and policies that can be depended on to reduce poverty?

• We know that there is no time to spare in channeling debt relief to the very poorest and providing the millions of people in HIPC qualifying countries with a fresh start. Thanks in large part to the efforts of the Jubilee 2000 coalition, the advent of a new millennium has given us an historic opportunity to accelerate these efforts, and help these countries finally build an attractive environment for private investment and market-led growth. We should not and must not allow that opportunity go to waste.
  
• At the same time, we know that institutions and policies that will effectively target critical social needs take time and commitment to put in place. And we know that where these things are not in place, support earmarked for one purpose can easily flow to other less deserving ones. Spending targeted for rural health must not become state-of-the art urban hospitals. And spending intended for raising basic literacy must not translate into more free places at university for the children of the elite. We must work to ensure that improvements in the quality of these investments proceed on the same timetable as increases in their quantity.

Third, how are we going to balance the need to protect and advance social priorities in the design of macro-economic programs, against the equally important need to ensure the basic macro-economic stability upon which all growth and lasting poverty reduction ultimately depends?

• We know that the most effective anti-poverty mechanism known to man is economic growth. And we know that countries cannot grow without adequate investments in people: in health, in education and other core public investments. Recent IMF research suggests that simply raising the life expectancy of ESAF-eligible countries from 50 to 60, the developing country average, alone might raise per capita growth by 1 percent a year.
  
• At the same time, we also know that economies cannot grow in an environment of uncontrolled inflation and high public borrowing financed by printing money or running up unsustainable foreign debt. And we know that inflation hurts the incomes of the poor most of all. To repeat, close to three-quarters of Africans private wealth is thought to have flown abroad since 1970.

All of these questions could be posed differently, and certainly more could be added to the list. But between them I think they capture in broad outline some of the key choices we will face going forward:

• To find the right way to target support on social objectives while also enhancing national ownership and participation.
  
• To find the right way to accelerate the flow of debt relief within HIPC while also strengthening the link between relief given and lasting poverty reduction achieved.
  
• And to find the right way to design effective economic adjustment policies while also protecting and advancing core social priorities.

To repeat, these issues are not clear-cut and certainly they are not new to any of you. The right answer may well differ significantly by country. And perhaps the different groups represented here might each strike these balances somewhat differently.

What is critical is that we work together between now and late September to reach broad international agreement on a way forward and realize the historic opportunity for positive change which you all have done so much to create. Thank you.