Joint Meeting of the Interim and Development Committees
Statement by Giuliano Amato
Minister of Finance
Joint Meeting of the Interim and Development Committees
Sunday, September 26, 1999
- At the turn of the Millennium, the plight of high levels of indebtedness and widespread poverty still represents in many countries a significant obstacle to development. The debt relief initiative can give renewed prospects of sustainable growth and lasting reduction of poverty to these countries. These objectives must be at the core of our strategy in developing countries.
- In the April meetings of the Interim and Development Committees, we agreed to strengthen our strategy towards the heavily indebted poor countries and the link between debt relief and poverty reduction. In June, the Cologne Summit called for the implementation of an enhanced framework to provide deeper, broader and faster debt relief to countries pursuing sound policies and demonstrating a commitment to poverty reduction. It is important that we reach a final agreement on these issues at these meetings, the last ones before the year 2000.
- We strongly support the main features of the enhanced framework laid down by the staffs of the Fund and the Bank. The dimension of the overall debt relief and the number of eligible countries will be increased by lowering the debt sustainability targets and thresholds and by fixing the amount of debt relief as of the decision point, thus giving greater certainty to beneficiaries. As a result of these changes, the number of countries that are expected to benefit from the initiative increases from 29 to 36 or more. The size of the overall bilateral and multilateral debt that would be cancelled increases from 12 to 27 billion dollars in net present value terms. Faster relief, aimed at freeing up more resources for increased social and other poverty reduction expenditures, will be provided through interim assistance after the decision point and front-loading of the relief after the completion point. The provision of a floating completion point will allow for focus on the outcome of the reforms rather than on the length of the track period. It also provides an incentive to implement policies quickly and to strengthen the timetable of the reform strategy.
- Besides extending the number of beneficiaries and the size of the benefit, the new framework aims at emphasizing the link between debt relief and poverty reduction in the recipient countries. We consider this not only a moral imperative, but an essential condition for sustainability of the development perspectives generated by debt relief. The growth-enhancing effects of improving social conditions are indeed widely recognized. Under the new framework, exit from the debt overhang and the implementation of appropriate social policies can trigger a virtuous cycle of growth and poverty reduction.
- Renewed attention to poverty reduction requires continuous emphasis on sound macroeconomic and structural policies. Low inflation and sound fiscal policies are essential conditions for sustainable growth and hence, ultimately, for poverty reduction. Furthermore, only a credible commitment to sound policies can prevent countries from falling again into the trap of low growth and high debt. The exceptional and temporary nature of the debt reduction Initiative needs to be underlined.
- Full integration of macroeconomic and social policies is crucial if we want higher growth to lead to social inclusion. Growth is essential to poverty eradication. Yet, a country cannot, and should not, wait until it has become richer to fight poverty. There are numerous examples of developing countries that even at a low stage of development have heavily invested in health and education, thereby dramatically improving the conditions of the poor and its stock of human capital. Poverty reduction, by itself, can in turn contribute to higher sustainable growth by enhancing broadly based accumulation of human capital and by alleviating social conflicts.
- It is a primary responsibility of the recipient countries themselves to define appropriate poverty reduction strategies that adapt to their specific conditions the general principles set out by the international financial institutions. The Poverty Reduction Strategy Paper represents a useful instrument to achieve this objective. We fully support the output-oriented approach, whereby quantitative indicators and intermediate objectives are used to track the results of poverty reduction programs. However, a poverty reduction strategy can be successful only if Governments take on a leadership role and put in place an effective and substantial consultation process with civil society, ensuring transparency and accountability in the selection of goals, the formulation of policies and the monitoring of implementation.
- Both the World Bank and the International Monetary Fund are presently engaged in a broad effort to enhance the impact of their programs on poverty. The Comprehensive Development Framework that the World Bank is presently testing in a number of pilot countries has the potential for greatly improving donor coordination as well as country ownership. In this framework, a number of quantitative indicators and intermediate objectives that can be usefully applied to the enhanced HIPC programs are being tested. The Public Expenditure Reviews are of crucial importance in assessing the quality and effectiveness of social policies.
- The Fund will ensure that future ESAF-supported programs are fully consistent with the comprehensive poverty reduction strategy. Accordingly, not only should continuing attention be given to the social impact of adjustment policies, but key social measures should appear prominently in the programs. This emphasis together with good governance should ensure that resources are effectively used for their intended purposes.
- We should not underestimate the difficulties ahead. The World Bank and the IMF are embarking on a new endeavor for which stronger cooperation is needed. Both institutions will need to adapt their modi operandi to a context where reliable data are not readily available, the link between intermediate policy targets and ultimate social objectives is often elusive, and the outcome-oriented approach can prove difficult to implement. The complexity of the task is compounded by the sensitivities raised by the growing attention on the part of international financial institutions to social policies.
- In light of the challenges ahead, we believe that a renewed collaboration as well as a clear assignment of responsibilities between the Bank and the Fund is crucial, to ensure effective and rapid implementation of policy decisions. The Poverty Reduction Strategy Paper should be designed in such a way to ensure consistency between social development and macroeconomic stability.
12. We need to meet the expectations that have been raised. The Initiative must be fully financed. Three main principles must guide our choice in this domain. First, HIPC financing must be additional and not come at the expense of other Official Development Assistance. Second, the financial integrity of the international financial institutions must be preserved. Third, an equitable mechanism for distributing the costs of financing the HIPC Initiative among donors countries must be agreed upon based on institutional quota shares.
13. The Italian government is determined to do its part in supporting the enhanced-HIPC Initiative. Italy places great emphasis on the poverty focus of the debt relief initiative. This concern was at the origin of the recent significant decision to cancel all credits deriving from official development aid and all the commercial debt to countries with per capita income lower than 300 US dollars per year. In the context of the financial package discussed at the IMF, we will provide our contribution, with the specific instrument that will be decided upon. Within an appropriate scheme of burden sharing, Italy is also committed to contributing to the HIPC Trust Fund that will be used to support the programs implemented by the Multilateral Development Banks for poverty alleviation.