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					August 2003

ORGANISATIONAL STRATEGY FOR THE INTER-AMERICAN DEVELOPMENT BANK (IDB)

I. Introduction ……………….……………..………………………………..……..…. 1 II. Basic features, Denmark’s participation and assessment ….…….……………… 4 III. Goals for Denmark’s commitment ………..….………..…….…….……………... 7

J.nr.S.FIN,73.C.97.a

I. Introduction Denmark’s membership of the Inter-American Development Bank (IDB) is motivated by two factors: the big development challenges facing the region and the relative weight of the Bank’s contribution to tackling these challenges with loans totalling DKK 40-60 billion annually. An estimated 30 per cent of the region’s population live below the poverty line (less than USD 2 per day). Poverty reduction also requires a special effort in middle-income countries, including Brazil. It is a general feature of the region as a whole that prosperity and the opportunities for individual citizens to create a good life for themselves are very unevenly distributed. Differences in income between the rich and the poorest segments of the population are larger than anywhere else in the world. Ethnic population groups, such as indigenous peoples and the descendants of African slaves, are particularly vulnerable. Women are more vulnerable than men, and although poverty is greatest in rural areas, mass migration to the cities has created large pockets of poverty especially in and around the capital cities. Economic and social inequality is without doubt the greatest challenge facing the region. Without a more equable distribution of wealth and access to resources, it will be difficult to consolidate democracy and economic growth. In the course of the past 15-20 years democracy has gained a foothold in Latin America and the Caribbean. In this period countries like Argentina, Brazil, Chile and Mexico in particular enjoyed economic progress, increased trade both in and outside the region and good results in combating poverty, malnutrition and undernourishment, illiteracy and other social problems. Throughout the region reforms of the public sector were introduced with a view to creating better conditions for a free market economy and securing good governance and effective administration of public funds. Progress was not quite as visible in a number of smaller countries that became highly indebted towards the end of the 1990s. Between a half and two-thirds of the populations in these countries were living below the poverty line at the start of the new millennium. The HIPC 1 countries in the region include Bolivia, Guyana, Honduras and Nicaragua. In 2001 escalating private consumption financed by foreign loans led to the economic crisis in Argentina. In a very short period of time the country was on the verge of economic collapse, there was considerable social unrest, and the proportion of poor people in the population rose rapidly from a quarter to approximately a half in 2003. To date the crisis has not spread to surrounding countries to any alarming extent, but the entire region was characterised by stagnation in 2002. Average income in 2002 was 2% under the level achieved in 1997. The region was still waiting for local and international investors to regain confidence in Latin America and for an upturn in international economic trends. The advantage in Denmark’s cooperation with IDB is that it gives Denmark broad access to 26 borrower countries in respect of both development assistance and the private sector. Denmark’s participation in IDB is a supplement to its bilateral cooperation in the region, which is concentrated in the programme countries of Bolivia and Nicaragua. The major objectives for Denmark’s cooperation with both countries are to support political and economic reforms along with poverty-reduction activities, and this forms a good basis for a cooperation with IDB. In addition to its work in Bolivia and Nicaragua Denmark cooperates with other countries on a number of selected activities aimed at promoting democracy and human rights, such as support
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HIPC = Highly Indebted Poor Countries, i.e. countries comprised by the international debt relief initiative.

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for ombudsman and national human rights institutions along with special initiatives in support of indigenous peoples, and conflict resolution efforts. In the field of trade and development Denmark has supported efforts to negotiate the EU’s association agreements with Chile and Mercosur of the kind concluded with Mexico. Denmark also provides support for integration efforts in Central America and the Andean Community and for regional capacity to initiate future trade agreements. Moreover, the Nordic Development Fund of which Denmark has a share of 25% is active in 3-4 Latin American countries. Most NDF activities in Latin America are implemented with IDB as the lead-agency. II. Basic features, Denmark’s participation and assessment The Inter-American Development Bank (IDB) was established in 1959 and has 46 member states. The Bank’s headquarters are in Washington. With security in the member states’ share capital and thanks to its “AAA” credit rating the Bank can raise loans in the international capital markets and pass them on to member states on far better terms than these countries would be able to achieve themselves. Formed in association with the Bank, the Fund for Special Operations (FSO) provides loans for the poorest member states, including Bolivia and Nicaragua, on concessional (“soft”) terms. Another organisation associated with the Bank is the Inter-American Investment Cooperation (IIC), whose purpose is to promote investments in small and medium-sized enterprises. The Bank’s main objectives are poverty reduction, social equality and sustainable economic growth. The Bank operates with four priority areas: social development, reform of the public sector, increased competitiveness/private sector development and regional integration. In addition, environment is a cross cutting priority area of the Bank. IDB’s total lending in 2002 was, partly because of the crisis in Argentina, an all-time low of approximately USD 4.5 billion compared with the normal level of USD 7-8 billion, which is also the anticipated total for 2003. IDB’s governing bodies are an annual general meeting for all member states (Board of Governors) and an executive board (Board of Directors) with 14 members. President Enrique Iglesias (Uruguay) took office in 1988. IDB is the most important development institution in Latin America and the Caribbean and usually exceeds loans by the World Bank in the region  in the poorest countries by a factor of 2-3. The Bank’s special strength resides in the fact that its regional affiliation creates confidence and facilitates dialogue with borrower countries on, for instance, politically and culturally sensitive issues. IDB’s financial standing is solid, and the Bank is generally considered to be well administered. Its management and shareholders, including Denmark, are aware that the Bank’s financial health must be preserved at the same time as the Bank operating within an IMF-approved framework must be able to help borrower countries out of economic crises. Up to 2002 IDB had two main types of loan: investment loans and policy-based loans. Investment loans finance development projects, while policy-based loans are IDB’s designation for support for reforms within specific sectors. In 2002, the Bank decided to make a temporary crisis loan programme permanent with a revolving fund of USD 6 billion at the same time as adjustments were introduced for its investment and policy-based loans. Denmark supported the new loans system since it is anticipated that the new composition of types of loan will increase the Bank’s relevance in relation to the needs of borrower countries. 2

In recent years and at the instigation of, among others, Denmark, the Bank has stepped up its monitoring and evaluation activities. There is, however, still room for improvement in this field as there is also in respect of local coordination and harmonisation of donors’ procedures. On a number of occasions Denmark has urged the Bank to adopt a more proactive role in regard to these issues  not least in the poorest countries, where IDB is the dominant donor. A major challenge here would seem to be the need to delegate decision-making authority to IDB’s offices in borrower countries. Denmark became a member of IDB in 1976 and has a shareholding of 0.17% (approximately DKK 1.4 billion) and a corresponding voting strength. Denmark’s contribution to the latest donor replenishment of the FSO development fund was 0.2% of the total. Denmark participates in the Austrian-French-Nordic-Spanish- (NFSA) constituency in IDB. France took over the post as executive director for the constituency in the summer of 2002. Until summer 2004 the post of viceexecutive director will be occupied by Norway, which also undertakes the coordination of the Nordic countries (except for Iceland, which is not a member) in the constituency in this period. The next Danish post in the constituency office is from 2005-08. The constituency office takes care of monitoring and the promotion of the constituency’s views vis-à-vis the Board in alliances with other countries and groups of countries and by exerting influence on the Bank’s management in respect of the Bank’s policies, activities and performance as well as its financial standing and operation. In addition, the constituency keeps watch on the treatment accorded by the Bank to persons and enterprises from member states in order to ensure that they receive fair treatment from the Bank. Denmark’s position in the Bank is strengthened by Danish contributions to trust funds or targeted activities. In 2003 a Danish consultancy trust fund in the Bank was replenished. Denmark’s commitment to IDB must be clearly defined and goal-oriented, because Denmark’s voting strength is comparatively small. Denmark’s focus should be based on the promotion of our development objectives strategically and in cooperation with the other countries in NFSA. To this end, among other things, the Nordic countries have drawn up a joint strategy paper and regularly coordinate views and instructions on important questions for the constituency office. In addition to this, alliances are sought with like-minded countries in matters of special interest. All channels of influence must be used if Denmark’s efforts are to bear fruit when there are items on the agenda of particular importance to Denmark. This takes place primarily in relation to the executive board at headquarters. Other opportunities of influencing the Bank occur through the interaction between IDB’s local offices and the Danish embassies in Bolivia and Nicaragua, at an annual consultation meeting at high level, during the annual general meeting and at a preparatory meeting for the AGM for countries outside North and South America, at negotiations on fund replenishments and, finally, at other meetings with the Bank of an ad hoc nature.

III. Goals for Denmark’s commitment 1. Policy a. Poverty orientation Denmark wishes to see the Bank place a stronger focus on targeting poverty reduction than it has to date. 3

In recent years Denmark and the other Nordic countries have been working actively to strengthen the Bank’s social profile and its activities in the poorest countries in the region. Denmark will continue to emphasise to IDB that development derives not only from economic growth, but is also highly dependent on heavier investment in education and health, a social safety net, the securing of ownership, country-specific distribution mechanisms, etc. Denmark will work to ensure that the scarce resources for development cooperation lead to real improvements in living conditions for the very poor with due regard for the gender aspect and thus contribute to the implementation of national programmes for poverty reduction and the attainment of the Millennium Development Goals. It is a fundamental premise for Denmark that the Bank is a development bank, and that its loan products must focus on weak and marginalised groups  irrespective of whether the loans go to the large middle-income countries or to the region’s poorest countries. 2. Partnership and coordination a. Donor coordination and harmonisation It is Denmark’s view that the Bank should be a driving force in donor coordination and harmonisation In the last couple of years the Bank has taken important steps at policy level to promote cooperation with other multilateral organisations, chiefly the IMF, the World Bank and UNDP. Dialogue has been strengthened in respect of attainment of the Millennium Development Goals and combating financing of international terrorism. Practical steps have been taken in regard to harmonisation with the World Bank of procurement and evaluation procedures. However, at country level Denmark does not find that the Bank makes sufficient use of its potential and standing to promote coordination and harmonisation on the basis of the nationally defined priorities and strategies. Denmark is prepared to cooperate with the Bank on these issues in the Danish programme countries Bolivia and Nicaragua. The work would comprise cooperation on national strategies for poverty reduction, sector activities on the basis of joint agreements with the government concerned and various forms of co-financing. IDB’s country offices should be ensured the necessary authority to enter into firm commitments on donor cooperation. 3. Administrative effectiveness a. Performance orientation Denmark wishes to see the Bank strengthen its work within performance measurement, monitoring and evaluation. In Denmark’s view there is a need to improve the design of loan documents so that it is clear from the outset what indicators the success of an activity will be measured against. At the same time incentives should be created within the organisation for the growth of a performance-based culture. All personnel should have a clear awareness that monitoring and evaluation are necessary instruments that contribute to the achievement of better results in development cooperation. This strengthening of the Bank’s performance orientation is also necessary in order to strengthen the confidence of member states in the Bank’s work. At the instigation of and with support from Denmark and like-minded countries the Bank has initiated the formation of a unit for improving effectiveness in 2003. It will have a key function, and Denmark is looking forward to seeing its results. Similarly the Bank should do more to build up an evaluation capacity in the borrower countries. Denmark will encourage the Bank to carry out joint evaluations with other donors in order to strengthen dialogue and the development of methodologies. 4. Use of the Danish resource base a. Personnel 4

Denmark will work for the recruitment of more personnel from Denmark and like-minded countries in order to secure input of knowledge, experience and a value base relevant to the Bank’s operations. In 2003 there are two Danish employees in IDB, which corresponds to 0.2% of the academic staff. In addition, there are one JPO and one consultant on long-term assignment. The number of Danish employees is satisfactory in relation to the 0.17% of the Bank’s share capital owned by Denmark. Norway and Sweden are also reasonably well represented, while Finland is underrepresented. All the Nordic countries have, however, encountered difficult and non-transparent procedures in connection with job applications to the Bank. At the same time there has been too little awareness among qualified Danes of the Bank as a possible workplace. In response to this situation and at the instigation of the Nordic countries the Bank conducted a round of interviews in 2003, visiting Denmark in the process. Denmark will follow up on this initiative and will also follow IDB’s plans for a new JPO scheme with interest. b. Procurements Denmark wishes to extend its private sector cooperation with the Bank. In 2002 the Danish share of IDB-financed procurements was 0.1% (or 0.3% if local procurements are discounted). This is reasonable in relation to the 0.17% of the share capital owned by Denmark. Nevertheless, it is likely that with the high and increasing internationalisation of the private sector in Denmark it will be possible to win even more consultancy contracts financed by IDB. The Danish consultant trust fund, which was replenished in 2003, could function as a stepping stone for further business opportunities. Two factors that inhibit tenders from Danish firms are the lack of commercial focus on the region and limited Spanish language proficiency in Denmark. The Ministry of Foreign Affairs sought to draw attention to IDB as a potential commercial partner via a business seminar for IDB (and IIC) in Copenhagen in 2002. It is expected that this will be followed up by delegation visits to IDB. In addition, the Ministry provides advisory services to firms that wish to tap into the commercial opportunities offered by the Bank.

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