[Recorded by Electronic Apparatus]

Tuesday, December 10, 1996

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[English]

The Chairman: I'd like to call this meeting to order. This is a meeting of the Finance committee's Sub-Committee on International Financial Institutions.

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I welcome to our table today, in no particular order, from the Canadian International Development Agency, Jim Carruthers. Gauri Sreenivasan is from the Canadian Council for International Cooperation, but as her mother is quite ill, she couldn't come today. From the Department of Foreign Affairs, we have Chris Greenshields.

Are you with Chris?

Ms Linda Ervin (Senior Project Manager, International Financial Insitutions (MFD), Canadian International Development Agency): I'm with Jim Carruthers. I'm Linda Ervin.

The Chairman: That's right, Linda. I'm sorry.

From the Department of Finance, we have Alister Smith, Jill Johnson, and Gary Pringle.

Mr. Chris Greenshields (Director, Economic Relations with Developing Countries, Department of Foreign Affairs and International Trade): Gary is with Foreign Affairs.

The Chairman: Oh, I'm sorry. Pardon me, Gary.

Roy Culpeper is from the North-South Institute.

If you would allow me a moment of introduction to the subject of our study, it has become obvious from the speeches and comments of the relatively new World Bank president, James Wolfensohn that a key issue in the months and years ahead, particularly at the World Bank, and also at other development-related agencies and institutions, is that the issue of development effectiveness has come to the fore.

We are undertaking a study of development effectiveness of World Bank lending. It's an issue for the client countries at the government and the NGO levels. More importantly, it's an issue for the citizens of client countries, mainly the poor ones. The principal mandate of the World Bank is to deal with poverty in the world.

Development effectiveness is also an issue for taxpayers. They want to make sure that their investments in world development institutions, including the World Bank, are used wisely and that they contribute to the achievement of results with respect to poverty eradication.

It's an issue, of course, for first world governments, such as Canada, the U.S. and elsewhere, who must answer to the public for their involvement in world development. Also, the institutions, in this case the World Bank, are moving the agenda of all the first world nations forward with respect to poverty eradication.

Without much further to say on the subject, I thought I would ask Roy Culpeper, who represents an NGO that has done significant work in the area of world development, to start off, if he agrees.

I'm asking each of the four witnesses to talk for as long as they're comfortable, for 10 to 15 minutes, to the subject. Then we'll just go in turn. After that, there will be an informal discussion and questions from members. We hope to get some good information on the record.

Our committee is preparing for a visit to the World Bank in the latter part of January. Then we will continue with further discussions and study after that.

Mr. Culpeper, would you please proceed? I thank all of you for coming.

Mr. Roy Culpeper (President, North-South Institute): Thank you, Mr. Chairman, for inviting me to speak.

I should perhaps begin by pointing out that we are sort of an NGO, but we are a non-partisan research organization dedicated to exploring policy-relevant issues on development.

Much of what I'm going to say draws on work that we've done for the Development Committee Task Force on Multilateral Development Banks. They brought out a major report earlier this year, and we did a background study for that report. This hasn't been published, but it can be made available to anyone who would like a copy.

Also, there is a final volume of a major series of works on the multilateral development banks, which I directed. This final volume is currently in press. It's entitled Titans or Behemoths? The Multilateral Development Banks. It's going to be published by Lynne Rienner Publishers. It will probably come out in the next three or four months.

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I want to make three points. First, the current conception of development effectiveness has much to commend it. There are many steps in the right direction, but it is still too narrow.

Second, and this is more fundamental, developing countries, rather than aid agencies and the international financial institutions, need to be put at the centre of the international development system as senior partners in cooperation rather than as clients or recipients of assistance.

Third, a broader approach to development effectiveness is required, and this approach must incorporate agreed upon longer-term objectives and must considerably broaden the scope for participation in economic policy.

Those are the three interrelated points. Perhaps I could start by saying it wasn't too long ago that when we talked about development effectiveness it was to find out whether the money was being used effectively. Today, with the increasing scarcity of assistance funds and also increasing skepticism about the impact and effectiveness of aid, the focus has changed from the means to the ends of development assistance. We find that development effectiveness, as it is used today, refers to results on the ground. What does that mean? In the World Bank's parlance, results usually refer to long-term development impact or sustainable reduction in poverty.

Two important aspects here have come to the fore in trying to bring about longer-term sustainable development impact. First is the acknowledgement of beneficiary participation in the identification, design, implementation, maintenance and operation of development projects. Also, local ownership in those development projects, which results from a substantial degree in participation, is important for sustainable poverty reduction. So I think this is a very important advance in the way we think about how development cooperation should be managed.

Another important advance I'd like to emphasize, and again the World Bank has been at the forefront in this, is a country focus embodied in so-called country assistance strategies. It's ultimately at the country level that the fundamental issues of the opportunities and challenges to development have to be addressed and reconciled.

However, given these important advances, one still has an impression that these considerations are add-ons to the way the banks approach the issues of development. The underlying approach to portfolio performance has much in common with the way the banks have approached it in the past, and that is to move substantial amounts of money in the form of loans.

To corroborate this I would refer to a recent review by the World Bank's operations evaluation department, which concluded that in spite of all of the work on poverty assessment and poverty analysis by the bank since 1990, these poverty assessments have had only a very limited impact on the design of country assistance strategies. So if we're looking to country assistance strategies to embody major thrusts in terms of design and implementation on poverty, we still don't see too much of a reflection of that happening in country assistance strategy.

I'd just like to suggest that perhaps a much broader approach to effectiveness is required, with a much longer-term horizon. Here I want to refer to what I consider to be an important document that was released through the OECD Development Assistance Committee in May entitled Shaping the 21st Century: The Contribution of Development Co-operation, Le rôle de la coopération pour le développement à l'aube du XXIème siècle.

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In this document, the donor group comprising the Development Assistance Committee set out a range of economic and social targets such as a 50% reduction in absolute poverty by 2015; universal primary education; gender equality in education; and substantial reductions in the under-five mortality rate and the maternal mortality rate by 2015. These are 20-year objectives, and I think they serve to remind us that progress on these fundamental, very intractable issues takes a long time. We should recognize that and build those into the way we conduct our development assistance work.

I think one has to accept that if development assistance is really effective, it will be self-liquidating. Development agencies will ultimately do themselves out of business within a foreseeable period of time. If that's going to be the case, then we need to think about making the transition from the concept of aid recipients, or borrowing clients - to use your phrase - to partners in cooperation.

If this is going to be the way we think about the issue, we could perhaps start by thinking of the country assistance process as one in which the developing country is central, in the driver's seat. At present, country assistance strategies are really instruments or tools for the IFIs and development agencies. They're documents drafted by the agencies themselves. Of course, the agencies have to decide how to coherently organize their efforts and their resources to best assist developing country partners.

Ideally, the model should be one in which the developing country partner is in the chair and the donor partners are coordinating their efforts around it. Quite often, the practice is typically quite the opposite, and I must say here that the bilateral agencies are often the worst offenders. They come to the table with shopping lists of what they're prepared to do, rather than listening to what the developing country partner requires and shaping their assistance and support accordingly.

Most of the machinery, in terms of evaluation, audit mechanisms and so forth, that we see in the system today, whether in the IFIs or in the bilateral agencies, is set up for the purposes of those agencies themselves. Of course, all agencies do need their own evaluation and audit mechanisms and so forth, but what's really missing is an independent checkpoint that is responsive to and accountable to the developing countries.

In our background study for the Development Committee Task Force on Multilateral Development Banks, we suggested such a unit be established. We called it the client satisfaction unit. It would be external to the World Bank and the other multilateral development banks, and it would do sample surveys on the effectiveness of the MDBs in their work. It would be quite similar to the group that's been set up in the World Bank called the quality assurance group. It has been set up for the World Bank within the World Bank. I think it would be useful to have a body outside of the IFI on behalf of the developing countries themselves.

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My third point has to do with comparing results on the ground, as they are thought about today, with much broader concepts of equitable economic policy. If I have a criticism of the kind of strategy the MDBs and the official development community have accepted today, it's starting with the proposition that poverty is the problem rather than a symptom of a deeper problem, that deeper problem being societies being unwilling or unable to distribute economic benefits more broadly.

A more holistic view of the development problematique, one that I think is fundamental to really answering the question of whether development assistance and cooperation are effective or not, would be to understand and address inequality rather than poverty; in other words, how wealth is created and distributed. Rather than defining the poor and poverty as the problem, it would look at the mechanisms of wealth creation and distribution in society as a whole. Recent research, including at the World Bank, has suggested that countries with lower inequality, including, for example, the East Asian tigers - this was researched by Lynne Rienner, for example - tend to grow faster, perform better economically, and also reduce their levels of poverty more quickly than countries with greater inequality.

However, if inequality rather than poverty is the problem, then tackling inequality, I think we will have to admit, is a much more political proposition. For example, to tackle inequality one would have to examine the distribution of wealth and assets such as land and get into issues such as land redistribution. To listen to the bank, apparently land redistribution is again on the agenda, having been off it for a long time. But the attempts made in this direction I think are modest at best.

Another dimension of this is the way macro-economic policy is designed and implemented. Here the debate comes very close to home, and I'm really glad I have an opportunity to address these remarks in particular to a subcommittee of the Standing Committee on Finance.

First of all, macro-economic policy always has a distributional impact. There are always winners and losers. Some NGO critics of the World Bank's macro-economic policy advice feel the structural adjustment policies of the bank are always bad for the poor. I don't particularly share that view. I think it's an empirical question and one has to look at the evidence in each and every country before arriving at any conclusions about what the distributional impacts of economic policies are. However, the point - and this is a point I would really like to stress - is that macro-economic policy is usually the monopoly of the bureaucrats who are involved in designing and implementing it, with privileged members of the business community also exercising some influence.

There's a very interesting disjunction now in the philosophy and the approach of the World Bank to the issue of participation and ownership. I started off my remarks by saying local ownership and beneficiary participation have now been accepted by the bank as very essential and important to sustainability and long-term development impact. But that kind of logic and argument has been applied to the micro-economic level - to projects, in other words.

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Once you get into macro-economic policy, to structural adjustment policy, one doesn't see the same kinds of arguments being put forward. In other words, one doesn't see much evidence of beneficiary participation and local ownership of macro-economic policy, either in the World Bank or in developing countries, or, for that matter, in Canada. But I think if one accepts that beneficiary participation and local ownership is essential for sustainability - economic, political, and for the acceptability of policies to the populace at large - I would argue that ways and means should be found to include people in developing countries and elsewhere in the formation of economic policy rather than to have it thrust upon them willy-nilly. Again, I would say this applies as much in Canada as elsewhere.

Let me just leave it at that for now, Mr. Chairman.

The Chairman: Thank you, Mr. Culpeper. Those were very insightful and stimulating remarks. I look forward to some more discussion with you.

I'd like to call on Alister Smith from the Department of Finance, particularly the IFI unit there. Welcome.

Mr. Alister Smith (Director, International Finance and Economic Analysis, Department of Finance): Thank you, Mr. Chairman. Maybe I can start with some general remarks on developmental effectiveness and leave commentary on other discussion until later. As you know, and as you have heard from Len Good, President Wolfensohn at the World Bank has made developmental effectiveness the number one priority of the bank since he came to office. He has embraced the need for reform very tenaciously, and he has proceeded with incredible energy and dedication.

It is a large task to achieve to try to change the culture of the bank. I think many of the pointsMr. Culpeper makes find their mark with a culture that is still approval-based, getting the loans out the door, and has still some direct distance to move to be results-based.

That was a conclusion of the Task Force on Multilateral Development Banks, to which Roy contributed. I think it's a generally held view among people who focus on development that there's certainly a need to change the culture and to start to look at what these institutions such as the World Bank are able to achieve on the ground, as opposed to in terms of the balance sheet.

He has focused increasingly on the quality of operations. He has looked at trying to improve the quality of the loans that the institution is making when they go out the door.

As Roy also mentioned, he's actively moved in the direction of trying to include participation of beneficiaries. Perhaps it hasn't gone far enough in the direction of putting the beneficiaries in the centre of the operation, but certainly he and others who support his activities and the shareholder companies have embraced the notion of trying to involve beneficiaries more in the actual implementation of development policies and projects.

He has focused more resources on trying to monitor and supervise projects. I think a criticism that has been made of the bank's approach in the past is that there has been insufficient feedback on exactly why some projects are successful and why some projects languish. I think an emphasis on monitoring and supervision of these projects is necessary and overdue.

In addition, he has moved towards improving developmental impact indicators. The bank has prepared a number of draft indicators, some of which I think we've already conveyed to you and the committee. I think this is also in the right direction, because at the end of the day, in trying to monitor exactly how well the bank's operations translate into results, one needs to have some yardsticks.I think impact indicators are, at this stage, one of the few reliable ways of achieving that.

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Another major thrust we see in World Bank reform right now is an attempt to improve the outreach of the organization - outreach to a lot of different partners. Partnership is indeed being embraced in a serious way, partners external to the institution itself and indeed other development institutions, academic institutions, the business community, private foundations, NGOs, parliamentarians, and other multilateral institutions, such as the United Nations. A great deal more involvement of NGOs is apparent in projects, and I think in most cases the participation of NGOs has internalized a lot of the objectives Roy Culpeper was talking about earlier in the actual project implementation: more emphasis in environmental questions, poverty, gender, and so on.

An important thrust of Mr. Wolfensohn's efforts and other efforts of shareholder countries is to involve the private sector increasingly in development. There's a recognition that official resources cannot be depended upon to the same degree as in the past and that there's an increasing role for private capital in the development process.

Poverty reduction and private sector growth are often seen as contradictory. In fact, the reverse is increasingly true. We've seen that official resources, official flows, are possibly at the range of one-third of the total resources going to developing countries.

The spread of the private capital into developing countries is somewhat uneven, but it is largely transforming a number of important developing countries now. One of the real challenges facing the World Bank is to harmonize the way it and its subsidiary bodies, such as the IFC and MIGA, coordinate their activities and deal with export credit agencies, other lenders, corporations, and so on, essentially to bring private capital into projects and into development worldwide.

There are two other things, if I might.

Multilateral cooperation in general has been a theme that shareholder countries have been concerned about and are still concerned about. It was the theme in Halifax. But I don't think the job is done. There's still a need to improve the way in which the World Bank, IMF, the United Nations agencies, WTO, and other organizations work together.

It's easy to say that and it's an awful lot harder to actually implement it, but we've seen some examples of successes and lots of examples where the left hand doesn't know what the right hand is doing. There's a need to carry on in this.

Finally, I would mention a very important issue that is very much in the implementation stage now, but it certainly involves the World Bank and where it's shown considerable leadership; that is, dealing with multilateral debt, debt owed to the institutions, to the World Bank, to the IMF, to the African Development Bank, as well as to official creditors.

A number of countries among the poorest countries are labouring with unsustainable debt burdens, and many of them are, under almost any projections, unlikely through their normal growth to climb out from under these unsustainable debt burdens.

The World Bank has taken a major initiative, along with the IMF, the Paris Club, and others, in pulling together an overall debt plan. This is very much in implementation now, and I think while it has a long way to go until we get to see results, it is an extremely important initiative for some of the poorest countries at this stage.

I think perhaps it's best to conclude at this point and wait for the discussion, and we can come back on some other issues.

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The Chairman: At this point, I would like to call on Chris Greenshields from Foreign Affairs.

Mr. Greenshields: I'll try not to duplicate what Alister and Jim will be saying.

It goes without saying that I think the interdepartmental community works quite closely together in dealing with international development issues. International development is an integral part of Canadian foreign policy. Development effectiveness, of course, is a key preoccupation.

When we look at foreign policy we're also looking in terms of the whole dimension of issues. It's become generally characterized in the area of human security, which has great importance for Canadian security, Canadian interests, and also for Canadian values. This was a major dimension of the government's foreign policy statement from February, 1995, ``Canada in the World''.

It has also been part of Canada's efforts, particularly culminating in the annual economic summits. I think if one goes back to the Halifax summit, what we refer to as the Halifax agenda is very much focused on reform of the international financial institutions, improved coordination among these organizations, reduction of overlap, and an increase in their development effectiveness.

Again very much as a foreign policy priority, part of this is to broaden the dimensions of development to deal with human security in the broadest sense. This encapsulates human rights, good governance and democratic development. Again as Alister has pointed out, under the leadership of Mr. Wolfensohn, I think we have seen a remarkable effort on the part of the World Bank to address these issues in the last couple of years. This has sometimes not been done so easily - for example, in the area of human rights - because of the bank's charter, but it has been done in a way that is consistent with its charter and in a way it addresses the concerns of members - to reflect what Roy has said - to develop a greater buy-in from development partners.

The other key area that came out of Halifax in this broad area of human security relates to the role of the international community in addressing pre- and post-conflict situations - the cases of Bosnia or, some years ago, Cambodia - and now we will of course be seeing the challenges related to central Africa and the great lakes region of Zaire, Rwanda and Burundi. I think the bank has shown a remarkable responsiveness in addressing this very difficult area and in developing the policy parameters and the projects to move ahead. It was what the world community turned to in the case of Bosnia to lead the post-Dayton Accord peace and reconstruction process.

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One other dimension, and I mention it here because I understood it was raised in your meeting with Len Good, and it's another area of priority for the Canadian government. It's the issue of military expenditures in developing countries.

This is a very difficult issue. It's one which ministers, Mr. Axworthy, Mr. Martin, directly in connection with the World Bank program, have highlighted as an important issue for Canada, but one which we recognize has to be looked at in all its aspects: concerns about regional security, confidence-building measures that are necessary, the arms trade and its impact, and so forth. I won't go beyond that, but I have with me some documents I'll leave with the chairman. They reflectMr. Axworthy's statement in the House earlier this year on this issue and the broad approach we're taking on it.

The government has also held, in cooperation with the North-South Institute, a symposium to discuss the issue with Canadians. We're planning for March, again also involving non-governmental organizations, the World Bank, the IMF, and others, an international symposium to pursue this issue.

I will leave it there, knowing our colleagues from CIDA will highlight a number of other issues. I don't want to suggest by not mentioning...that the focus on the poorest is also a foreign policy priority. It's not just a development from a CIDA perspective; it's a government-wide priority. This is again a message that came out of Halifax and that we're continuing to pursue in the World Bank and the regional development banks. I add that not as a footnote but just to confirm the broad policy dimensions we're dealing with.

The Chairman: Thank you, Mr. Greenshields.

We apparently have a vote about 25 minutes from now. We're going to see if we can agree on a pairing so we don't have to suspend the meeting, but if we do, we'll ask your indulgence for 10 or15 minutes to go to vote. We'll know the answer to the pairing issue shortly.

Mr. Carruthers, please proceed.

Mr. Jim Carruthers (Director General, Financial Institutions, Canadian International Development Agency): Thank you very much, Mr. Chairman. If I can, I will use as my reference point the reality that CIDA itself is very much faced with this question of development effectiveness in its own programs and certainly how to define our own responsibility in that regard concerning the multilateral banks, where we're very much minority shareholders, and how we can move on that. We've done a fair amount of examination of this issue.

I guess we come from the reference point that a lot of our own polls in Canada have established that the main element of support of Canadians for development assistance is no longer ``we're rich, they're poor'', but neither is it ``what's in it for us?'' The question we constantly get is ``Are we making any difference?'' ``Are we making any difference on the real issue of sustainable levels of improvement?'' We have certainly looked at the multilateral banks from that perspective and have tried to break our analysis down into an examination of the issues of the goals of the institutions themselves, the policies they are developing, their programs, their project selection criteria, and implementation and evaluation, to get a full grasp of this issue.

I think the conclusion we've reached in terms of, let's say, the past programs of the banks into the mid-1990s is certainly that they've been very effective in the broad development fora concerning the very process of multilateralization of the issues and the bringing to the table of the recipient countries.

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These are the institutions, certainly in the regional banks, where the borrowing member countries hold the majority of stock. Ultimately, and in fact for many countries, their participation in these institutions that are major financial decision-making institutions keeps them from falling off the edge of the globalization table in terms of many of the large issues. I think that's very important for the big picture on development effectiveness.

Also, we've certainly concluded, along with our colleagues, that the IFIs have been very effective at mobilizing massive amounts of resources for development. We can't underestimate this importance. The IFIs contribute more than all of the bilateral programs combined to the development agenda. Indeed, they do so by mobilizing essentially private capital on ratios of up to20 to 1 for the contributions they get. This is a massive transfer of resources from other economic sectors into developmentally focused areas. We certainly have felt that they've been very effective in terms of both financial management and mobilization on this.

The other area that we want to highlight is the tremendous policy leverage that they have and that they have in fact used. One has to appreciate, as we are doing domestically, that there are important issues recipient governments have to deal with. If we are going to have an effective development program in these countries, that kind of policy leverage is essential, and it only comes from the large institutions that can play in this arena.

Also, in terms of their analytical ability and their professional and technical capacities, they have been very effective in bringing issues to the table. The World Bank in particular is certainly the leading analytical resource for much of the work that's going on in leading-edge development issues.

I think it's fair to say that on the other hand we have found the implementation side of the banks' efforts less effective. Certainly, as we've heard, there has been a lending culture in most of these institutions that is driven by getting funds out the door. I think in some cases there has been inefficient supervision of on the ground projects. Certainly I think it's acknowledged by the institutions that there has been insufficient transparency in their processes and in their level of participation.

As well, I think their evaluation processes that we've heard about have not in fact been effectively recycled back into the process.

Much of that is changing. In the last few years we've seen a number of developments across the range of banks, certainly from CIDA's point of view. Perhaps I'll cite a few examples from the regional banks as well.

It is certainly true, as has been mentioned, that poverty reduction and sustainable development are up front on their agenda now. There has been a recognition that a growth-based ideology is necessary but not sufficient. This has brought about a profound change in some of the processes that they are adopting and working with.

I think we also have to appreciate the need to define where they can be most effective and what types of things they should be doing as large financial institutions in a market that also has bilateral programs, NGOs, UN agencies and others. I think it is important for the banks to reassess and redefine their role in that continuum. They are not all things to all people and they don't naturally do everything in the most efficient manner. That process is under way as well.

Indeed, the results-based programming focus that we have in CIDA is evident in the last few years in all of the banks that have essentially undertaken portfolio performance reports, whether it's the Wapenhans report at the World Bank, the TAPOMA report at the IDB or the Knox report at the African Development Bank. All of these have been undertaken. It's a comprehensive review of their processes and policies and structures with a view to development effectiveness.

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Certainly, the Halifax summit presented a clear agenda for the banks in terms of where they have to move vis-à-vis the whole development spectrum. I think their relationship with the United Nations programs is going to be a continuing issue as we look towards efficiency as well as effectiveness in coordination there.

Let us look at some of the specific developments in the regional banks as examples. Let me start with the Asian Development Bank, which I think has the very well-deserved reputation of being an extremely efficient and effectively managed institution. It's provided the Asian context for development and has brought many of the realities of Asia to the global agenda. By ensuring that Asian perspectives are respected, it's really made a fundamental contribution to the development process in that region.

Indeed, over the next decade in Asia, over a trillion dollars will be invested in infrastructure alone, most of it coming from the private sector. The Asian Development Bank is very much in the process of redefining its role as a catalyst to participate in mobilizing and directing this massive resource into projects and programs that have a development agenda and a development focus and is redesigning its own programs to complement that exercise.

Again, I think all of the banks over the last several years have redefined their agenda, shifting essentially 40% of resources and up to 50% of project approvals from traditional hard sectors into soft sectors, with much more of a poverty focus to balance and complement other resources that are available.

Also, when we look at the Inter-American Bank, for example, we have to appreciate the critical role that bank is playing, not only in the traditional sense of funding development projects, but in terms of its critical role as essentially the analyst for the region, in both a political and an economic sense. Following the Miami summit, for instance, the bank is playing a critical role in the peace process in Guatemala and is using its analytical capability and financial resources to play into this much broader agenda.

I think we see this as part of the evolution of the banks as they define themselves as more than just financiers of projects.

Mr. Chairman, I'll stop at that point. I'll answer questions as they come up.

The Chairman: Thank you, Mr. Carruthers.

We have time to start with a question.

Mr. Bélisle.

Mr. Bélisle may direct a question or he may leave it open, and we'll allow for a discussion or response if he leaves it open.

[Translation]

Mr. Bélisle (La Prairie): Of course, a lot of interesting things were said by our witnesses this morning that would lead to many questions. However, I wouldn't want to use up all the committee's time. So I'll just put a question to Mr. Carruthers.

You mentioned that CIDA and the other stakeholders noted that the growth-based ideology was necessary at the outset but that it was not enough after that. More than that is needed. Could you be more specific as to what should be added to the ideology of growth in those countries?

It is often said that developing countries have a subsistence economy. When I see TV reports on Haiti or many of the African countries, when I see all the public markets where goods are being traded, very fresh fruits and vegetables, even in winter - something we don't always have here - and those market places have been there for hundreds and hundreds of years, then I figure that these people do manage to make a living, in many cases.

I'd like you to elaborate on what more would be needed for those countries, beyond this ideology of growth. How would you put it?

[English]

Mr. Carruthers: Indeed. The point I was trying to make is that the financial institutions have traditionally focused on projects and programs that generate growth with the philosophy - the more outmoded trickle-down theory - that some of this growth will eventually work down to the poor. By intervening to generate growth, the pie is bigger and everyone is found to benefit.

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I think the critical issue that the banks have come to understand - which I think NGOs and others have understood for many years - is that one also needs interventions to achieve the equity and the distribution that would come with that growth. Without that kind of intervention the distortions in the benefits of the growth would not achieve the sustainable development and poverty alleviation that's being looked for.

I think it has been an evolution in the programming philosophy of the banks to take that more directly into account.

[Translation]

Mr. Bélisle: My second and last question is for Mr. Smith.

You mentioned that the bank now gets the beneficiary countries to participate more fully in the execution of different projects. How is this done, concretely? Do you have an example that would show us how that was done?

[English]

Mr. Smith: The examples are widespread in that the old way of doing projects in countries was for the World Bank to essentially not just take the lead but basically come up with the plan and almost impose it on the borrowing country.

It's much more clearly the case now in all bank projects that the benefiting country has to be a participant in the overall plan. This is the case in structural adjustment and in projects. It's the case all the way through, because if the benefiting country doesn't take ownership of the project and the program, there's a very good chance the development program will be doomed.

Essentially, it's a cooperative effort now between the World Bank and the developing country and an overall relationship and program view. It's not ``We're going to build an electric power dam in this country and this is the way it's going to be'' and then we're gone. It's much more to work toward a plan for development, continue the relationship with the country, and see the electric power project as part of an overall development strategy that the government itself has a great deal of input in designing and a big stake in.

Increasingly it's a partnership with others as well. You bring in private money and companies and you may bring in a regional development bank from that part of the world. It's much more complicated and sophisticated. Part of the purpose is for the benefiting country to really take ownership of the project to see it as its project and its development strategy.

The Chairman: Thank you, Mr. Bélisle.

Before we proceed to Mr. Grubel, would anybody else like to comment on Mr. Bélisle's question?

Mr. Culpeper.

[Translation]

Mr. Culpeper: I'd like to add that it's far easier to get people involved in micro-economic projects as Mr. Smith said than to get them involved in the macro-economic policy planning process.

In my opinion, that's the greatest challenge not only in developing countries but even here at home. Even in Quebec, it's very hard involving people in planning and major economic policy, but in my opinion, it's very important if we want these macro- economic policies to really be implemented.

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[English]

The Chairman: Thank you.

Mr. Grubel.

Mr. Grubel (Capilano - Howe Sound): I am very interested in the idea of finally moving towards a results-based culture of lending, as it was called. I see a potential conflict between that and the objective of involving the governments of those local places.

Let's say, for example, we would like to spend money on electricity, but it doesn't fit into the plan of some people who believe that military preparedness is more important. The problem is how to resolve these conflicts. What if our emphasis is on elimination of poverty, but they insist that the resources they get - and we know how fungible resources are - leave them ready for a contingency of being invaded by the United States? What are we going to do about this?

Mr. Smith: I think Mr. Grubel raises an excellent problem and dilemma. In the past -

The Chairman: He often does.

Mr. Smith: Yes.

As Chris Greenshields had mentioned, one of the problems in the past - one of the constraints, let's say - with respect to the IMF and the World Bank was that these were not to be, by virtue of their charters, political institutions. You weren't supposed to decide that this project can or cannot be done in this country because of the system of government that it has. Now I think donors and shareholders increasingly do not want to see their money siphoned off into unproductive expenditures - and certainly not military expenditures - so they're increasingly telling the bank and the fund to make sure that any money coming from them does not end up being funnelled into defence preparedness.

The problem to which you were alluding is that money is fungible. The benefiting country says it's fine, you're right, they need electric power much more than they need new tanks. They agree with you and want to build this. But does that free up some of their resources to put back into military means, and is there any way in which these institutions could try to prevent them from doing so? I honestly don't think there is very much the institutions can do beyond a certain point. Within the country assistance strategies, and on the fund side, they can and do complain. At the end of the day, though, what enforcement power do they have if a country decides to misallocate resources after the fact?

Mr. Grubel: You pay this lip service to the idea that the only way in which it will ever work is if the countries get themselves involved. You talked about country-level involvement and all that kind of thing. What if they decide they would like their central African country or South American country to be the best steel producer in the world? Well, that's their objective. That's what they want to do. Where do we start interfering with their internal sovereignty?

I think this is just not consistent. At some point, we have to make some judgment as to.... Looking at the history and so on, some of these people may have to be educated.

I'm sure you're handling it some way, but I just wanted to bring out in your testimony that it is nice to throw out all these good intentions and these policy objectives that sound good. I just wonder how - maybe somebody has some experience - in practice, the conflict between those noble objectives are arising and how the institutions are dealing with them.

The Chairman: Mr. Carruthers, do you want to comment?

Mr. Carruthers: Yes, I just want to add something. I think the point is very well taken. Certainly on the issue of military expenditures, I this is increasingly becoming a criterion. The bottom line is that country programs are developed. The issue of moving from the past, when technocrats at the banks essentially designed those programs and imposed them without any buy-in, is clearly not effective in the long run. Countries have to buy in. And I don't think that's only governments. We also talk about civil society in that dynamic.

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Nevertheless, there is indeed a point where a country program has to be approved by the board of directors of the bank and it has to have the support of the donor countries, and recipient countries have to understand that as well. In fact, criteria do have to be imposed. There is an element of conditionality, and that is also an inevitable part of the process.

Mr. Grubel: Does Mr. Culpeper like the idea of conditionality of this sort?

Mr. Culpeper: I happen to think conditionality is very important. I don't think any resources should be made available without condition. The question is not conditionality or not, but what kind of conditionality? Is it conditionality that works? Is it conditionality that's enforceable? That's the issue.

Mr. Grubel: Are you happy with that kind of conditionality - interference with the sovereignty of a developing country? I think that's terrible.

Mr. Culpeper: It's not interference to the extent that what you're talking about here is a dialogue. Developing countries want resources and creditor countries or donor countries make resources available. There are the makings of a deal, and I think the deal has to be structured around a set of mutually acceptable conditions.

The problem in the past has been that conditions have been imposed willy-nilly by the developed countries, by the creditors, without a mind to their enforceability or their impact. It's much more important to think about conditions that make a difference and conditions that are acceptable.

You also have to be prepared for the eventuality that conditions are not acceptable to the developing country and there will not be the makings of a deal. If developing countries insist on spending too much on armaments - and you can look at ratios between armaments and education or armaments and health expenditures - maybe the best thing to do is to agree to disagree: sorry, we have scarce resources; we will go to countries that are more serious about building up their health and education.

Mr. Grubel: So the North-South Institute would support this degree of interference in national sovereignty.

Mr. Culpeper: Sovereignty is a bit of a double-edged sword these days. Does sovereignty give a country the right to perpetrate genocide on its people and to prevent others from coming in and having anything to say? I don't think so. I wouldn't agree with that position at all.

Has sovereignty insulated countries from the so-called wisdom of international financial markets exercising their judgment on the sanity of domestic economic policy? I don't think so either.

Mr. Grubel: One could answer that yes, in fact...I know there is a position of many of the institutes that are concerned about economic development that there has been excessive interference through conditionality and other strings attached to lending in the development process and the right of people in the developing countries to develop according to their own desires. Do I detect from the institute an emphasis on the fact that it is right for some of these institutes to do certain things that reflect values of capitalist institutions? Is that what you and your institute are now supporting,Mr. Culpeper?

Mr. Culpeper: I certainly wouldn't put it in the way you have just put it. I would agree with what others around the table such as Jim Carruthers have said. It's extremely important to work with all elements of society, not just governments, because quite often those governments are dictatorial and are not representative of their population.

Mr. Grubel: Let's assume they are representative, they have been duly elected, but they don't want to do what we as financial institutions want them to do. Would you therefore say financial institutions have a right to walk away from them and say they aren't going to get our money?

Mr. Culpeper: In certain cases, yes. That has certainly been the case in some countries such as Nigeria and Iraq, which are egregious offenders or abusers of human rights. I would certainly be prepared for that eventuality.

Mr. Grubel: Could I have a short technical question, please?

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Mr. Carruthers, you talked about the way in which the banks are helping mobilize the private sector transfer of resources. To what extent do these banks get involved in exposing themselves to risk in doing so? What is their risk exposure in that case?

Mr. Carruthers: As a general comment, the banks are exceptionally conservative financial institutions. The risk level is extremely low. As they move further into some innovative areas, that is a question one will have to look at. Some of the traditional elements, such as co-financing, designing the privatization programs and working with governments to be involved in that, of course, are not risky in terms of finance.

As one moves into the issue of equity issues, for instance, that becomes more risky. Our colleagues from the Department of Finance may have some additional comments on that.

Mr. Grubel: What about the definition of mobilizing you use? What instruments do they use to mobilize private sector capital?

Mr. Carruthers: In the traditional use of that they simply borrow on the international financial markets.

Mr. Grubel: So they have a huge exposure.

Mr. Carruthers: They have a huge exposure, but they are exceptionally conservatively managed financially. Of course, they have the backing of the donor countries in terms of that exposure. Naturally, we very carefully monitor that, and I would say on balance our concern is that they're exceptionally conservative and could lever more, perhaps take a few more risks and mobilize even more capital.

Mr. Grubel: As far as the private sector is concerned, they are cherry-picking. That isn't a very nice thing to do, is it?

Is somebody unhappy over there? Are you unhappy about my question?

Ms Torsney (Burlington): No, just the multitude.

Mr. Smith: Perhaps I can just add to Jim Carruthers' comments.

On the way these institutions operate, they do borrow money on the basis of shareholder credit rating, so they are able to get AAA rates. They then un-lend against the World Bank at 50 basis points over their cost of funds. That clearly does not account for the risk in lending to country X, which is not creditworthy almost by definition, since it has come to the bank to borrow money.

The overall portfolio of such loans is extremely well provisioned against - in fact, extremely conservatively provisioned against - in the World Bank and elsewhere. That's just on the lending side.

On mobilizing private capital, it's not just lending now that helps to bring in private capital. As Jim was mentioning, co-financing has very clearly become an important focus of Wolfensohn's and others. Through the use of World Bank guarantees and other financial instruments you can encourage people to take on more risk than they otherwise would. Indeed, there's a contingent liability associated with that - and there is a provision properly against that - but a range of financial mechanisms is being used to pull in more and more private capital. That really is the way development is going at the frontier.

The Chairman: Thank you.

We'll move to Ms Brushett.

Mrs. Brushett (Cumberland - Colchester): Thank you, Herb. Thank you, Mr. Chair. This is indeed very interesting.

I want to come back to the fundamental premise of creating this humongous debt in these developing nations, where, under all normal circumstances, probably in the next many decades with sustained growth, they can never hope to repay them. Yet this is our imposition, if you will, onto these countries.

Are we creating the same situation we've had to face here in the developed nation of reducing, cutting back, an unhappy populace because of cuts in health care and so on? We're imposing the very same conditions on them and we think it's good for them. Fundamentally, we are the ones who are out there imposing this; they're not soliciting from us. Why are we doing it?

Mr. Culpeper: I'm glad you brought that up, because I didn't raise the debt issue in my own remarks. I guess I feel a little less sanguine than my colleague Alister Smith on this issue. I do not personally agree that much has been done to resolve the debt issue, particularly for the poorest countries.

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I think you're absolutely right. What has happened is that particularly the international financial institutions have piled on a lot of debt and have not taken, in my view, sufficient action to resolve it.

For example, under the package that Mr. Smith alludes to, there's only one country that will see any relief at all, and that's Uganda, and that's not for another three or four years, at the turn of the century. Then, according to the protocols and procedures that have been set up, perhaps a handful of other African countries will become eligible for debt relief. According to our own analysis, a lot of the debt they owe is very soft debt. In my view, it would be very easy to write it off, because it doesn't involve the kinds of exposure to which Mr. Grubel was referring.

Mrs. Brushett: Can I stop you there? How can we justify to Canadians that we're prepared to write off debts we've imposed on third world countries - we as the elected people - when the bureaucrats are out there doing this?

Mr. Culpeper: How can we justify...?

Mrs. Brushett: How could I go out to the public and say we're going to write this all off that we've accrued as part of the co-owner of that debt? How can I say to my taxpayers, sorry, I'm cutting your hospital out, yet we're going to write the debt off for Uganda, if you will, because we feel it's so-called soft debt?

Mr. Culpeper: The way you do it is two ways. First of all, you say it's a sound business proposition. In the real world of commerce and the private sector, you have such things as bankruptcy proceedings. There are firms that run into trouble and can't go anywhere. The creditors have to wake up one day and say, look, this debtor needs to be put back on his or her feet, and the only way we can do that is by wiping out some of the debt it owes. That's a very sensible, pragmatic, business-like way of going about it. That's the first thing.

The second thing you tell your taxpayers is, look, you can't have everything; if you continue to insist, as Mr. Carruthers was saying, that you want to see results for what you're doing in the developing countries, you can't also insist that they pay back every single last penny they've committed to. One or the other is going to have to go. Which one is it going to be? Do you want to reduce poverty in this country, or do you want every dollar back? I would go for the first.

Mrs. Brushett: Mr. Culpeper, the public is saying we're building these humongous bureaucracies out there, and again, you bring up that you'd like to have a new agency that detects client satisfaction. Another agency...I can't sell to taxpayers any more that I can keep building these bureaucracies. Again, we talk about these regional banks, how they're now going to get involved in political measurements of sorts. These are technocrats, bureaucrats. Why should they be doing this rather than elected people?

Mr. Culpeper: Because they make our efforts more effective.

Ultimately, you want to see results, so you want to set up a mechanism. I'm not talking about a huge bureaucracy here; I'm talking about a handful of people who will ensure that the taxpayers' money is actually getting results, results in terms of developing-country-on-the-ground results.

Mr. Smith: There are number of points that might help.

First, we are talking about the very poorest who would benefit from this debt plan, a handful of countries. Of the debt these countries have - and Roy can correct me if I'm wrong on this - roughly half is owed to multilateral institutions. It's debt owed to the World Bank, to the IMF, to other regional development banks, in particular, the African Development Bank. These are African countries for the most part. There are a couple of others from outside the African continent.

They have woefully unsustainable situations. There's no way they're ever going to pay us back. We have already given up our older debt to these countries, when older loans were made in the past. We've given that up. We are now talking about, for countries that have a track of performance with the World Bank and IMF, giving up as much as 80% of the debt they owe us through, say, the Wheat Board or the Export Development Corporation.

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The World Bank is willing to kick in some of its resources to buy back some of its debt that these countries have, and the IMF is willing to provide some concessional finance to them as well, provided they get their economic houses in order as much as possible, and provided they stay with the program for long enough. At the end of the day, the real question is how many countries will actually benefit by in fact agreeing to those conditions and by then earning the debt reduction.

I know it's a hard sell to the Canadian public. I know my own father keeps asking me the same question over and over again: Why are we providing debt relief to a country like this when we wouldn't provide debt relief to other Canadians?

Mrs. Brushett: There is another big point on this as well. When we saw the big march in Zaire a few weeks ago, one of the big comments to the international journalists was, ``Tell them all to go home; let us maintain our own ecosystem'' - for want of a better word - ``our own cultural system. Get out of here.'' This is another side that we're hearing more often. Yet again we have the bureaucracy telling us that we have to be there. Again, accountability is a real key. How much does go for arms and non-productivity? We can never measure, and never hope to, no matter how many client satisfaction institutions we complain to.

Mr. Smith: There are counter-examples. Uganda, which has in fact done everything the fund, the bank and the international bureaucrats wanted it to do - it has lived up to its promises - is still facing a huge debt load. It's now making all kinds of progress, but it has to pay a large amount of any income that it earns in order to pay off its debts to the World Bank and other institutions. What do you do in a case like this?

The idea is to try to help them pay some of their debt down in order to rejoin, let's say, the trading system and the world economy. It's a tough choice, but it may be the right choice in certain cases. It's not across the board. You obviously have to do a lot to earn these benefits, and I think that's the approach that has been taken.

Mrs. Brushett: Thank you.

The Chairman: Ms Torsney, please.

Ms Torsney: Thank you.

How much of the aid you're talking about is really tied aid, so that Canadian companies...? We want the foreign government money to buy Canadian products. The Canadian companies have already been paid and have generated economic value in our country.

Mr. Smith: Perhaps I'll let my colleague address this, but I'll just say a couple of things before Jim addresses it. He's our expert.

Some of the debt is in fact debt owed to Canada for selling wheat or other products through the Export Development Corporation. It's bilateral debt. That's specifically on commercial terms, so in a sense that's tied, but it's not aid. It's just debt that is commercial debt. We have essentially cancelled some of the loan form of older debt that we had before, but I'll ask my colleague to respond to that.

Mr. Carruthers: We have identified a structure of three levels or three generations of benefits to Canada from our participation in the multilateral institutions.

The first one is the more direct commercial benefit, the direct support to a number of programs that we have. Just in terms of statistics, I think we're getting about $1.20 back from the World Bank for every dollar we put in. At the Inter-American Development Bank, we're getting something like $4.80 back for every dollar we put in. Admittedly, at some of the other banks it's lower - it's below a dollar in the African Development Bank - and the government now has a conscious strategy to increase our returns from those banks. The interesting thing is that it could be well above $100 given the leverage that the banks have on their capital. There's a tremendous opportunity there not only to get an extra dollar from the bank, but to use our commercial links with the banks for a broad economic strategy, as we're using in Asia now with the Team Canada approach.

The second generation of benefits is in fact the six development priorities - policy priorities, in other words - that we're getting from these institutions and that we're able to lever.

The third one, as Chris mentioned, is the broad agenda of security, equity, and global environmental improvements. In many cases we may be talking about a small contribution from the development account or a huge contribution from the military account.

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If we look at Asia - and I think of where Asia was in the era when the domino theory was dominant, and the great concern about collapses in Asian economies - the massive development that went into huge economies that would have had global military and geopolitical consequences had they collapsed has been remarkable. For Canadians I think that alone...in fact, it's more than alone; this would be the third level of justification.

Mr. Culpeper: In the Canadian development report we just released we calculated that something like $4.8 billion worth of income per year is flowing into Canada from our investments and so forth from the developing countries, compared with our aid program of $3.1 billion. So we're getting back about half as much again as we're currently providing.

Mrs. Brushett: But you forget we've had to borrow that money to start with -

Mr. Culpeper: No -

Mrs. Brushett: - and pay interest in order to keep our economy going in this country. We don't have the cash on the shelf that we can just spend -

Ms Torsney: But from that money Canadians were employed and from that money they paid revenue and from that money they.... It's a cyclical issue. Then of course there are environmental benefits from not having pollution in Mexico City or in Asia or wherever, pollution that eventually ends up over Canada. So some of the environmental industries we invest in, or share technology or whatever on, are great investments.

Mr. Smith, what are ``developmental impact indicators''? You guys and your jargon!

Mr. Smith: I think Mr. Culpeper actually identified a number of them earlier on. Indeed, they range over not just the rudimentary ones of improving living standards but also social indicators. You can continue to multiply these things.

Longer-term mortality indicators are important. Child mortality is a longer-term developmental impact indicator. Educational attainment, literacy rates...various types of indicators can be applied. It's not necessarily confined, in other words, to the pure bread-and-butter impact indicators but in fact should apply to social and environmental impacts as well.

Ms Torsney: Okay. And for the record, ODA is overseas development aid.

Mr. Smith: Official development assistance.

Ms Torsney: Okay. You see, we all use it.

The other issue I wanted to ask about is this. Maybe more than one of you will want to comment. Two issues really are a big concern of mine. One, of course, is women in development. I thought it was interesting that somebody - Mr. Carruthers - said the World Bank was leading-edge on some of the development issues. Others would suggest that in fact they are followers, particularly in the issue of women in development.

The other issue, somewhat related, is that I understand many of the development banks are interested in working on the issue of the commercial sexual exploitation of children, but we may not have some great support, particularly from the Asian Development Bank; they don't recognize that this is a problem and there's a role for them in trying to alleviate the problem. I wonder if you might comment.

Mr. Carruthers: My main point was that from the point of view of analysis and development of policy issues, the World Bank is certainly leading in bringing forth policy issues for discussion and in doing a lot of the analytical work and the data gathering necessary for some of these issues. Whether they themselves are -

Ms Torsney: But wouldn't women in development and the impact of some of the development policies be a policy issue?

Mr. Carruthers: It is, and the World Bank has certainly done a lot of work in examining that issue and in enabling all the development community really to come to grips better with it. That's not to say that in implementation that particular bank is following through as well as some other institutions. This is an issue where bilateral agencies have certainly played a key role. And other banks have probably done more in some areas.

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It's the same thing for some of the other issues. You mentioned child exploitation. The Asian Bank comes out of a relatively conservative culture, but nevertheless it is the only bank that actually has an approved policy on governance. It has moved the Asian agenda forward tremendously. The issues that are covered there and the movement into the ``political arena'' that this kind of a policy brings them into is really very much leading edge for Asia. One can define this in different ways, but this is a major step forward, and the bank's taking the lead in the cultural context of a region. I think this is part of their role.

Ms Torsney: On the issue of commercial sexual exploitation of children, for instance, is the Asian Bank onside or aren't they?

Mr. Carruthers: The Asian Bank's basic position is that they're an economic institution, and as they move into a purely political issue, their charter prohibits them from directly dealing with it. They've been trying to present these issues in broad development contexts. The issue of governance...the social agenda is very much moving into that area because it's being defined as an essential prerequisite for development. I think we see the exact issue of exploitation coming up under the broad issue of labour, and this is how the Asian Bank will introduce that topic and move forward on it.

Ms Torsney: Mr. Smith desperately wants to comment.

Mr. Smith: Yes, I do. Thank you.

I do think the World Bank has really embraced the gender issue very fervently. Indeed,Mr. Wolfensohn has some very definite goals in this area. One goal is in the attention given to girls' education, which of course is a blind spot in many parts of the world. In fact, he has committed the bank to allocate $900 million annually to this objective.

He has looked towards a goal of an additional 90 million primary school completions for girls. To achieve that involves a massive expenditure over time, but that would really just bring them towards equality with boys' education.

That's the sort of objective he's enshrined. There are a number of others. The bank has a pretty serious program here.

If I may make one other comment, I think it's important to distinguish between these banks as institutions with international bureaucrats and as institutions with shareholders who really should set and do set the policy. I've concentrated a lot on what Mr. Wolfensohn has been doing. He is an agent of change, but he's an agent of change who has to work through shareholders. He has to convince us to change the way he wants that organization to run.

It's the same for all of these institutions. In fact, as Jim Carruthers said early on, we have a small stake in a lot of these institutions. It's 3% or 4%. We can't dominate the board. We do our best, and we are on the liberal end of the agenda of a lot of issues, but there are some very conservative people around the table from countries that are very conservative on social issues. Progress is constrained in that respect, not by the institution, but often by the shareholders.

Ms Torsney: We should also state for the record that girls and boys aren't educated because it's nice. Girls and boys are educated because in terms of development it works. There's a huge pay-off in the end. And perhaps we need to find better measures so we can demonstrate to those conservative countries that it's not done because it's a liberal idea; it's done because it will be more effective.

I think CIDA has shown that in terms of our development work. Women-in-development projects are in fact the most successful that we do around the world.

With respect to that shareholder idea - and perhaps Mr. Culpeper has really identified it as well - there's nothing more stressful than meeting parliamentarians from some of the less-developed countries who say they are trying to get their governments to turn around or they're trying to get the banks to help them, but other standards keep getting imposed. They would like to be more progressive on certain things. Of course they probably need more women in politics in some of those countries. That would help too. It certainly does come from the women parliamentarians that we meet, and also from some others, that they would like to be more progressive, or they'd like to do things but there are conditions imposed on them. That is part of the problem.

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Mr. Culpeper: I think what the banks are trying to do in interacting with civil society and NGOs is particularly important.

I was at a meeting last week in Montreal where someone from a Mexican NGO was present. He was telling me that a coalition of Mexican NGOs is discussing with the World Bank the nature of the structural adjustment program. They really wanted to have a real dialogue and debate on this. Interestingly enough, he was saying they're finding the opposition is from the Mexican government itself. The Mexican government sees itself as the chief interlocutor for the bank, and it gets a little nervous about the bank going directly to the people.

I think this is the trend of things to come. Mr. Wolfensohn, for example, is quite famous now for consciously seeking groups of women to speak to. He takes his wife, and this sends a signal to women and to the governments that feel uncomfortable about these things that this is the way the bank is going to conduct its dialogue. I think that's very promising.

Ms Torsney: Yes, we should all be very happy he's there.

C'est fini.

The Chairman: I have a couple of questions myself. We'll wind up at about 11:30 a.m., and if there are any concluding comments you'd like to make, we'll provide time to do so.

Mr. Culpeper, among the many things you said earlier, you used the words ``inequality'' and ``poverty'' in the same sentences. I think that's an important notion. If I understand even a little bit of what you were trying to get at, we can look at a country and say the average income per capita per year is such and such, but if the gradation from the top to the bottom is light years apart in one country and closer somewhere else, the average may be the same, but in the first case we really have a lot of people at the bottom who are very poor, which just balances off the few who are more well-to-do. I'm wondering, in the context of development effectiveness, if you could just speak a little more to that inequality-poverty point you were driving at.

Mr. Culpeper: What you're saying is quite right. If you look at the ratio of the top quintile to the bottom quintile of the income spectrum in a country like Brazil, it's about 30 to 35. In other words, the richest fifth earn 35 times as much as the poorest fifth, whereas on the Pacific Rim that ratio is usually in the order of 5:10. The ratio for Korea, for example, is around 6. For Canada it's around 7.5 or 8.

The reason I bring it up is because I think one misses a lot by simply concentrating on the poor as having the problem, when in fact the whole society has the problem. Unless the whole society recognizes that and does something about it, the chances of much happening for the poor are quite small.

The story of success in many of the East Asian countries, such as Korea and Taiwan, owes a lot to land reform that took place in the early post-war years. This meant the peasantry, or the people who worked in the countryside, had a much more substantial stake in the evolution of those countries. They enjoyed the benefits of development more than in countries in Latin America, for example, where land distribution is incredibly skewed toward the rich.

This has always been recognized. After sort of dancing around the edges of this problem in the 1960s and 1970s, the World Bank basically put it aside because it was politically too explosive. Now it's come back to it and launched this program of market-based land redistribution, which I think is interesting but probably only scratches the surface in terms of addressing the problem of maldistribution of assets.

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What the bank has basically tried to do - and the other organizations have tried to follow suit - is to put the emphasis on human resource development. The most important asset of the poor is their human resources, and so you educate them and provide them with good health service and so forth.

A sort of add-on to that, more recently, is micro-credit. You give them access to credit on terms they can manage - that doesn't mean subsidized terms; it means market-rate terms - small loans that can enable them to invest in some chickens or some feed and to earn a little bit of extra income.

Those are all well and good, but you're left with the feeling that this is still very much playing around the edges, unless one really comes to grips with the more fundamental issues of the maldistribution of wealth and income. I'm not exactly sure how you do it, actually, because it's fundamentally a political issue and very explosive at that, but an interesting insight of recent research is that countries where the distribution is less skewed, where the top and bottom spread is more tight, tend to grow faster. The poor come up. The rising tide does lift all boats much more quickly.

So I think it's really quite important for institutions like the bank and others who can do research to shift the focus from the poor to the issue of inequality and what creates and recreates and deepens it...and measures by which it can be addressed.

The Chairman: Thank you. I have a final question before we go to concluding remarks.

Right to the subject of development effectiveness and measuring it, I don't think there is an indicator. There are standard of living, health measures, literacy rates, average age of death, and all kinds of different ways to measure how a society is advancing.

On the issue of client or borrower involvement, the grassroots, the other end, being involved in the delivery of World Bank lending - it might have been Roy who said they should be in the driver's seat. I wonder if I could get a few more comments on whether client involvement is working. I know there are attempts being made to move in that direction, but is it working yet? Are there procedures? Is the culture of the bank open enough yet to...? We can pretend we're listening; we know from our country we can pretend we're listening to our constituents.

There's a real way to listen to the people and there's a way to process it. I wonder if we have gotten anywhere close to really involving people at the other end, at the delivery end.

Mr. Carruthers: Let me give some comments on it.

It is obviously an issue for bilateral agencies as well as multilaterals. To some degree the bilaterals have had an advantage, certainly in a country like Canada, because our funding is all grant. When you deal with loan funding, you inherently give a different role to government and a different inclination to the kind of borrowing that goes on.

What I think has happened fundamentally over the last three or four years is as the bank has moved from concentrating on the efficiency of the delivery of its inputs and then begun to look at the actual quality of outputs, it has finally now turned to...is it able to delivery the objectives of the project? So it provides the goods to build the school, the school is built and it's a lovely school, but is it really improving the education ratio for women?

I think they have fundamentally found that they have to deal with these essential elements. Otherwise they can't achieve that, and this does involve participation and transparency. Indeed it involves supporting peoples' organizations and others to lever their own governments. I think this is a process we do see happening in some countries and in some sectors more than others.

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I think it's real, though - very real. Certainly the banks have discovered the NGOs, and at one end, of course, massive resources are now going to flow to them. Initially that was simply to execute projects in the old style, but in a number of countries we very much see evidence of genuine consultation. Perhaps it's not as genuine as some of the bilateral programs that have been involved in this for a decade or more, but I think it's real.

Mr. Smith: There is progress, and everything is moving in the right direction in all the institutions, but there are real differences in what can be achieved and has been achieved. Dealing with the host government is not a problem. That kind of partnership has been around for a long time and it's evolving and improving. Dealing with NGOs also has gone a long way, so now NGOs are very much involved even in delivery of a lot of these programs.

But on the broader civil society, getting beyond the government, we've seen, as Roy mentioned earlier and as Jim has mentioned, is difficult. Also, getting to interested parties and communities that are affected, getting to private groups and indeed companies, sometimes, that are involved, is more complex, more time consuming. There comes a point at which you have to ask what the benefits are, I suppose, if you can't move on that project in a timely fashion to help people and improve the lives of people.

You can also consult forever, so there's a limit to how far you go in doing this and there's a limit in who you should involve. Perhaps you should be involving the people most interested and most affected. Perhaps you should be going beyond just governments into civil society, but there are complexities here. One of the difficulties would be if we start to lose on the developmental impact side by getting into such a long, convoluted process of project approval that we never get off the ground. A balance has to be struck between properly involving people and achieving results in a timely way.

Mr. Greenshields: This dimension is very much part of bilateral foreign policy. It's part of the dialogue we have with foreign countries, whether the issue is human rights, dealing with the question of misallocation of resources, or environment. What we're trying to do, in many cases, is build alliances with specific countries where we have joint interests.

For example, in the area of forestry practices and the challenge to improve and achieve sustainable forest practices, we've been building alliances with Malaysia, for example, to try to improve through that kind of partnership in both cases, ours and theirs, sustainable forest practices. We have it also in other kinds of programs; forestry programs we're doing elsewhere.

It is the same in human rights. In this case it may be more oriented to strengthening civil society institutions and again to pursue that agenda in that way.

In that way we achieve much greater buy-in from our bilateral partners, which is also reflected in a broader sense in the multilateral level. Then we pursue it again at the multilateral level, whether it's as part of World Bank consultative groups or it's in the World Bank executive board or it's on the ground in the country concerned.

Mr. Culpeper: I want to draw attention to a particular, very concrete development in the bank - you might want to pursue this at your meetings in Washington - the sectoral investment program or so-called SIP. We're going from SAPs to SIPs. SIPs, as I understand them, in many ways embody the kind of cooperation and local participation we're talking about here, because they try to build in local capacity from square one.

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The old style of doing projects was to fly in expatriate consultants to do the feasibility study. That was the starting point.

With SIPs, more of an effort is being taken to start with local expertise in doing project identification, project feasibility and sort of bottom-up planning, and involving local ministries in that kind of work rather than drawing on external expatriates.

I think these kinds of modes of operation are extremely helpful. They're steps in the right direction. They're being applied in Africa in particular. Tanzania and Bangladesh, and Zimbabwe and Zambia too, if I'm not mistaken, are examples in the health sector where the Ministry of Health will be sort of at the centre, as I was saying, or in the driver's seat in coordinating the donor around a mutual and comprehensively acceptable plan of action and investment in that sector for a period of time.

These are the kinds of things that really should be encouraged.

The Chairman: Thank you very much.

In the few minutes we have left, I might ask each of our witnesses to make a final comment for a minute or a minute and a half. We'll start with Alister, and work our way across.

Mr. Smith: Thank you, Mr. Chairman. I just have a very brief comment.

The Chairman: Are there any ideas, as far as spending our time? We have several days at the bank in January. You'll be glad to hear that too.

Mr. Smith: I continue to believe that you've seized on the right issue with developmental effectiveness, because it is an extremely broad issue, which we've demonstrated here today. It's an issue that allows you to probe into a whole range of development policy and to really get behind the reforms that people are trying to initiate not just in the World Bank, as Jim Carruthers and Roy remind us, but in all the development banks. So I think it's a very good organizing issue to open the door on.

The only advice I think I could give would be to keep pressing for concrete answers from the institutions. We tried to do this too. Perhaps we aren't as successful as we should be, but I think pressing them for concrete examples of what they're doing and how things are working is very useful. There's a lot of emphasis on having the right policy and guidelines, and then sitting in Washington presiding over these guidelines. It's another matter to actually see the results. If they truly believe in switching the culture to a results-based culture, let's see the results and let's see how far they've moved in the direction of achieving these results. That's the emphasis.

The Chairman: Thank you, Mr. Smith.

Mr. Greenshields, a final few comments?

Mr. Greenshields: I'll just comment generally on the kinds of issues that have been raised particularly by Mr. Grubel.

I think transparency is key in all of this. If we're looking at the misallocation of resources, then techniques that the World Bank is pursuing like public expenditure reviews are means of identifying the misallocation of resources and making it transparent. Then donors, and indeed civil society, in these countries are in a better position to force change, whether it's on the part of bank-lending practices or on the part of borrowing government policies.

Mr. Carruthers: I'm not sure if the committee is visiting the Inter-American Development Bank in Washington at the same time. If so, we'll be glad to provide any information and be useful.

Not to repeat the others, but maybe then to just add a dimension, I think one of the important roles played by the World Bank in particular is to be the chairman of most of the consortia groups for each country. I think the development effectiveness certainly is important at the project level. It's very important at the project level, but I think it's equally important at the program or country level. This requires that kind of coordination among the donors and with governments and the civil society. The bank plays an important role in that dimension.

I think that has to be developed further and strengthened so that we can talk about development effectiveness at the country level.

The Chairman: Thank you.

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Mr. Culpeper, the last word goes to you.

Mr. Culpeper: I wanted to say what Jim has just said. I really think the country focus is fundamental. The sooner all concerned can rally around a common country focus to examine what the possibilities and the constraints are in each country, the better. I think that's where successes and failures will have to be measured, and that's where efforts will have to be raised.

We suggested in our background report to the task force that all of these institutions should adopt a similar country assistance strategy. In other words, they should be all singing from the same song book in terms of what a country's opportunities and constraints are, and in terms of comparing and contrasting their individual assistance and cooperation plans to make sure they really are consistent and not at cross purposes with each other at the country level.

I would also include the IMF, by the way, because I think the IMF is a key player in all of this.

The Chairman: Thank you very much.

Thank you all. This has been most helpful. I thought it was important to get some of these comments on the record as we prepare for further work. Besides having met with Mr. Wolfensohn and Mr. Good, it's really our first round table. I expect that after our trip in January, in February, and through March, we will be having some more sessions. As the subject unfolds, maybe some of you will want to continue to be involved.

Thank you. We're adjourned for today. Merry Christmas to you all. Happy New Year.

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